As filed with the Securities and Exchange Commission on January 2, 1998
Registration No. 33-______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
SIERRAWEST BANCORP
(Exact name of registrant as specified in its charter)
California 6022 68-0091859
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number)Identification No.)
10181 Truckee-Tahoe Airport Road, PO Box 61000,
Truckee, CA 96160-9010(916)-582-3000
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
David C. Broadley
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
PO Box 61000
Truckee, CA 96160-9010
(916) 582-3000
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
Copies of communications to:
Thomas G. Reddy Ronald Bachli
James M. Rockett R. Brent Faye
McCutchen, Doyle, Brown & Enersen, LLP Lillick & Charles LLP
Three Embarcadero Center Two Embarcadero Center
San Francisco, California 94111 San Francisco, California 94111
(415) 393-2000 (415) 984-8200
Approximate date of commencement of proposed sale of the securities
to the public: As soon as practicable. If the securities being registered on
this Form are being offered in connection with the formation of a holding
company and there is compliance with General Instruction G, check the following
box. |_|
<TABLE>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Amount Maximum Maximum
Title of each Class of to be Offering Price Aggregate Amount of
Securities to be Registered Registered (1) Per Share Offering Price (2) Registration Fee
<S> <C> <C> <C> <C>
------------------------------------ ----------------------- -------------------- ---------------------- ---------------------
Common Stock, no par value (3) 1,650,000 shares Not applicable Not applicable $9,443.83
</TABLE>
(1) This Registration Statement relates to securities of the Registrant
issuable to holders of common stock of California Community Bancshares
Corporation ("CCBC"). Represents the maximum number of shares of common
stock of the Registrant to be issued upon the consummation of the merger
under the terms of the Plan of Acquisition and Merger attached as Annex A
to the attached Joint Proxy Statement/Prospectus.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
$31,164,637.50, the market value of the common stock of CCBC to be
exchanged for Registrant's common stock in the merger, computed in
accordance with Rule 457(c) on the basis of the last sale price of CCBC as
reported on Nasdaq.
(3) Associated with and attached to the common stock are preferred stock
purchase rights which will not be exercisable or evidenced separately from
the common stock prior to the occurrence of certain events.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 9(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
SIERRAWEST BANCORP
Special Meeting of Shareholders
March 26, 1998
8:00 A.M.
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of SierraWest Bancorp ("SWB") to be held at SWB's Administrative
Office at 10181 Truckee-Tahoe Airport Road, Truckee, California on March 26,
1998 at 8:00 a.m., for the following purposes:
1. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SWB, SWB's wholly owned subsidiary SierraWest Bank
("Sierra Bank"), California Community Bancshares Corporation ("CCBC") and CCBC's
wholly owned subsidiary Continental Pacific Bank ("CP Bank"), a related
Agreement and Plan of Merger between SWB and CCBC pursuant to which CCBC would
merge with and into SWB, and a related Bank Merger Agreement pursuant to which
CP Bank would merge with and into Sierra Bank (collectively, the "Merger
Agreements") and the transactions contemplated thereby, including any related
amendments to SWB's and CCBC's respective stock option plans; and
2. To act upon such other matters as may properly come before
such meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on
January 30, 1998 are entitled to notice of and to vote at this meeting and any
adjournments thereof.
Your Board of Directors believes that the Merger Agreements
and the merger are fair and in the best interests of SWB and its shareholders.
The Board's reasons for this belief are set forth in "PROPOSAL ONE: THE
MERGER---Reasons for the Merger and Recommendations" in the accompanying Joint
Proxy Statement/Prospectus. The Board of Directors of SWB has unanimously
approve the Merger Agreements and unanimously recommends that you vote to
approve the Merger Agreements.
Sincerely,
William T. Fike
President and Chief Executive Officer
SierraWest Bancorp
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THIS MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE>
SIERRAWEST BANCORP
10181 Truckee-Tahoe Airport Road
Truckee, California 96160
Notice of Special Meeting of Shareholders
to be held on March 26, 1998
---------------------------------------------------------
To the Shareholders of SierraWest Bancorp:
Notice is hereby given that a Special Meeting of Shareholders
of SierraWest Bancorp, a California corporation ("SWB") will be held at SWB's
Administrative Office at 10181 Truckee-Tahoe Airport Road, Truckee, California
on March 26, 1998 at 8:00 p.m., for the following purposes:
1. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SWB, SWB's wholly owned subsidiary SierraWest Bank
("Sierra Bank"), California Community Bancshares Corporation ("CCBC") and CCBC's
wholly owned subsidiary Continental Pacific Bank ("CP Bank"), a related
Agreement and Plan of Merger between SWB and SWB (collectively, the "Merger
Agreements") pursuant to which SWB would merge with and into SWB, and a related
Bank Merger Agreement pursuant to which CP Bank would merge with and into Sierra
Bank and the transactions contemplated thereby, including any related amendments
to SWB's and SWB's respective stock option plans; and
2. To act upon such other matters as may properly come before
such meeting or any adjournment or postponement thereof.
Holders of record of shares of CCBC common stock at the close
of business on January 30, 1998 are entitled to notice of and to vote at this
meeting and any adjournments thereof. The Merger Agreements and other related
matters are more fully detailed in the accompanying Joint Proxy
Statement/Prospectus and the Annexes thereto, which form a part of this Notice.
By Order of the Board of Directors,
_________, Secretary
Truckee, California
February __, 1998
-------------------------------------------
IMPORTANT
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND
THIS MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
<PAGE>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
Special Meeting of Shareholders
March 16, 1998
6:30 P.M.
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of California Community Bancshares Corporation ("CCBC") to be held
at Paradise Valley Golf Course located at 3900 Paradise Valley Drive, Fairfield,
California on March 16, 1998 at 6:30 p.m., for the following purposes:
1. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SierraWest Bancorp ("SWB"), SWB's wholly owned
subsidiary SierraWest Bank ("Sierra Bank"), CCBC and CCBC's wholly owned
subsidiary Continental Pacific Bank ("CP Bank"), a related Agreement and Plan of
Merger between SWB and CCBC pursuant to which CCBC would merge with and into
SWB, and a related Bank Merger Agreement pursuant to which CP Bank would merge
with and into Sierra Bank (collectively, the "Merger Agreements") and the
transactions contemplated thereby, including any related amendments to SWB's and
CCBC's respective stock option plans; and
2. To act upon such other matters as may properly come before
such meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on
January 16, 1998 are entitled to notice of and to vote at this meeting and any
adjournments thereof.
Your Board of Directors believes that the Merger Agreements
and the merger are fair and in the best interests of CCBC and its shareholders.
The Board's reasons for this belief are set forth in "PROPOSAL ONE: THE
MERGER---Reasons for the Merger and Recommendations" in the accompanying Joint
Proxy Statement/Prospectus. The Board of Directors of CCBC has unanimously
approve the Merger Agreements and unanimously recommends that you vote to
approve the Merger Agreements.
Sincerely,
Walter O. Sunderman
President and Chief Executive Officer
California Community Bancshares Corporation
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
555 Mason Street, Suite 280
Vacaville, California 95688
Notice of Special Meeting of Shareholders
to be held on March 16, 1998
---------------------------------------------------------
To the Shareholders of California Community Bancshares Corporation:
Notice is hereby given that a Special Meeting of Shareholders
of California Community Bancshares Corporation ("CCBC") will be held at Paradise
Valley Golf Course located at 3900 Paradise Valley Drive, Fairfield, California
on March 16, 1998 at 6:30 p.m., for the following purposes:
1. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SierraWest Bancorp ("SWB"), SWB's wholly owned
subsidiary SierraWest Bank ("Sierra Bank"), CCBC and CCBC's wholly owned
subsidiary Continental Pacific Bank ("CP Bank"), a related Agreement and Plan of
Merger between SWB and CCBC (collectively, the "Merger Agreements") pursuant to
which CCBC would merge with and into SWB, and a related Bank Merger Agreement
pursuant to which CP Bank would merge with and into Sierra Bank and the
transactions contemplated thereby, including any related amendments to SWB's and
CCBC's respective stock option plans; and
2. To act upon such other matters as may properly come before
such meeting or any adjournment or postponement thereof.
Holders of record of shares of CCBC common stock at the close
of business on January 16, 1998 are entitled to notice of and to vote at this
meeting and any adjournments thereof. The Merger Agreements and other related
matters are more fully detailed in the accompanying Joint Proxy
Statement/Prospectus and the Annexes thereto, which form a part of this Notice.
By Order of the Board of Directors,
John C. Usnick, Secretary
Vacaville, California
February __, 1998
-------------------------------------------
IMPORTANT
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE>
JOINT PROXY STATEMENT
SIERRAWEST CALIFORNIA COMMUNITY
BANCORP BANCSHARES CORPORATION
10181 Truckee-Tahoe Airport Road 555 Mason Street, Suite 280
Truckee, California 96160 Vacaville, California 95688
- -------------------------------------------------------------------------------
PROSPECTUS OF SIERRAWEST BANCORP
This Joint Proxy Statement/Prospectus is being furnished to
the shareholders of SierraWest Bancorp ("SWB") and the shareholders of
California Community Bancshares Corporation ("CCBC") in connection with the
solicitation of proxies by the Boards of Directors of SWB and CCBC to be used in
voting at the respective special meetings of shareholders of SWB to be held on
March 26, 1998 (the "SWB Meeting") and of CCBC on March 16, 1998 (the "CCBC
Meeting" and together with the SWB Meeting, the "Meetings"). This Joint Proxy
Statement/Prospectus is first being mailed to holders of common stock of SWB and
CCBC on or about February 13, 1998.
The Meetings have been called to consider and vote upon the
following proposals:
1. To approve the Plan of Acquisition and Merger dated
November 13, 1997 (the "Agreement"), among SWB, SWB's wholly owned subsidiary
SierraWest Bank, a California banking corporation ("Sierra Bank"), CCBC and
CCBC's wholly owned subsidiary Continental Pacific Bank, a California banking
corporation ("CP Bank"), and a related Agreement and Plan of Merger between SWB
and CCBC (the "Merger Agreement;" together with the Agreement, the
"Agreements"), pursuant to which CCBC would merge with and into SWB (the
"Merger"), and a related Bank Merger Agreement pursuant to which CP Bank would
merge with and into Sierra Bank (the "Bank Merger"), and the transactions
contemplated thereby including any related amendments to either SWB's and CCBC's
respective stock option plans; and
2. To act upon such other matters as may properly come before
such meeting or any adjournment or postponement thereof.
For a discussion of certain factors that should be considered
in connection with shareholders' voting and investment decisions, See "RISK
FACTORS" beginning on page 21.
This Joint Proxy Statement/Prospectus covers a maximum of
1,650,000 shares of SWB common stock (including the associated preferred stock
purchase rights described herein under "CERTAIN DIFFERENCES IN RIGHTS OF
SHAREHOLDERS--Shareholders Rights Plan" and "DESCRIPTION OF SWB CAPITAL
STOCK--Preferred Stock) which are to be issued to shareholders of CCBC in
exchange for shares of CCBC common stock . The specific details of the Agreement
are more fully discussed under the heading "PROPOSAL ONE: THE MERGER" in this
Joint Proxy Statement/Prospectus, and the Agreement and the Merger Agreement are
set forth in full in Annex A to this Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus also constitutes the
Prospectus of SWB under the Securities Act of 1933, as amended (the "1933 Act"),
for the public offering of the shares of SWB common stock to be issued in
exchange for CCBC common stock in the Merger. This Joint Proxy
Statement/Prospectus does not cover any resales of SWB common stock to be
received by the shareholders of CCBC or SWB in the Merger, and no person is
authorized to make any use of this Joint Proxy Statement/Prospectus in
connection with any such resale.
1
<PAGE>
NEITHER THIS TRANSACTION NOR THE SECURITIES OF SIERRAWEST
BANCORP HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is
December 30, 1998.
No person is authorized to give any information or to make any
representation with respect to the matters described in this Joint Proxy
Statement/Prospectus other than those contained herein or in the documents
incorporated by reference herein. Any information or representations with
respect to such matters not contained herein or therein must not be relied upon
as having been authorized by SWB or CCBC. This Joint Proxy Statement/ Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
securities or the solicitation of a proxy or an offer to sell or a solicitation
of an offer to buy such securities in any jurisdiction to any person to whom it
is unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Joint Proxy Statement/Prospectus nor any distribution of
securities hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of SWB or CCBC since the date hereof or
that the information in this Joint Proxy Statement/Prospectus or in the
documents incorporated by reference herein is correct as of any time subsequent
to the dates hereof or thereof.
AVAILABLE INFORMATION
SWB and CCBC are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith have filed reports and other information with the
Securities and Exchange Commission (the "SEC"). Such reports, proxy statements
and other information filed by SWB and CCBC with the SEC can be inspected and
copied at the Public Reference Room of the SEC, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549 and at the following regional offices of the SEC:
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and the New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. The SEC also maintains a Web site
(http://www.sec.gov) at which reports, proxy and information statements and
other information regarding SWB and CCBC are available. In addition, proxy
statements and other information can also be inspected at the offices of The
Nasdaq Stock Market, 1735 K Street N.W., Washington, D.C. 20006.
SWB has filed with the SEC a Registration Statement on Form
S-4 as amended (No. 33-_____) under the 1933 Act relating to the shares of SWB
common stock to be issued in connection with the Merger (the "Registration
Statement"). This Joint Proxy Statement/Prospectus also constitutes the
Prospectus of SWB filed as part of the Registration Statement and does not
contain all the information set forth in the Registration Statement and Exhibits
thereto. The Registration Statement and the Exhibits thereto may be inspected
and copied, at prescribed rates, at the public reference facilities maintained
by the SEC at the addresses set forth above.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/
PROSPECTUS WITH RESPECT TO SWB AND ITS SUBSIDIARY HAS BEEN SUPPLIED BY SWB AND
ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO
CCBC AND ITS SUBSIDIARIES HAS BEEN SUPPLIED BY CCBC.
2
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed or to be filed with
the SEC pursuant to the Exchange Act are hereby incorporated by reference in
this Joint Proxy Statement/Prospectus:
(a) SWB's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "SWB 10-K");
(b) SWB's Quarterly Reports on Form 10-Q for the periods ended
March 31, June 30 and September 30, 1997 (the "SWB 10-Qs");
(c) SWB's Current Report on Form 8-K filed with the SEC on
November 14, 1997;
(d) CCBC's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1996 (the "CCBC 10-KSB");
(e) CCBC's Quarterly Reports on Form 10-QSB for the periods
ended March 31, June 30 and September 30, 1997 (the "CCBC 10-QSBs");
(f) CCBC's Current Report on Form 8-KSB filed with the SEC on
November 14, 1997;
(g) All documents filed by SWB or by CCBC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Joint Proxy Statement/Prospectus and prior to the date of the
Meetings shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing thereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO SWB AND CCBC WHICH ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. THOSE DOCUMENTS RELATING TO SWB (OTHER THAN CERTAIN EXHIBITS TO SUCH
DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM A. MORGAN JONES,
SECRETARY, SIERRAWEST BANCORP, P.O. BOX 61000, 10181 TRUCKEE-TAHOE AIRPORT ROAD,
TRUCKEE, CALIFORNIA 96160-9010. THOSE DOCUMENTS RELATING TO CCBC (OTHER THAN
CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST
FROM JOHN C. USNICK, SECRETARY, CALIFORNIA COMMUNITY BANCSHARES CORPORATION, 555
MASON STREET, SUITE 280, VACAVILLE, CALIFORNIA 95688-4612. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 28,
1998.
This Joint Proxy Statement/Prospectus is accompanied by a copy
of the SWB 10-K and the SWB 10-Q for the period ended September 30, 1997. The
following information contained in the above documents is specifically
incorporated by reference herein:
(a) management's discussion and analysis of financial
condition and results of operations, set forth on pages 32 through 43 of the SWB
10-K and pages 2 through 8 of the SWB 10-Q;
(b) the audited financial statements of SWB and its
subsidiaries and the independent auditors' report set forth on pages 59 through
78 and page 58 of the SWB 10-K and the unaudited financial statements on pages 9
through 20 of the SWB 10-Q; and
(c) the selected financial information set forth on page 29 of
the SWB 10-K.
3
<PAGE>
This Joint Proxy Statement/Prospectus is also accompanied by a
copy of the CCBC 10-KSB and the CCBC 10-QSB for the period ended September 30,
1997. The following information contained in the above documents is specifically
incorporated by reference herein:
(a) management's discussion and analysis of financial
condition and results of operations, set forth on pages 20 through 44 of the
CCBC 10-KSB and pages 8 through 26 of the CCBC 10-QSB;
(b) the audited financial statements of CCBC and its
subsidiaries and the independent auditors' report set forth on pages 52 through
78 and page 53 of the CCBC 10-KSB and the unaudited financial statements on
pages 3 through 7 of the CCBC 10-QSB; and
(c) the selected financial information set forth on page 44
of the CCBC 10-KSB.
Any statement contained in a SWB document or a CCBC document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein, or in any other subsequently
filed document that also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS AND DOCUMENTS HEREIN
INCORPORATED BY REFERENCE INCLUDING, BUT NOT LIMITED TO THE SWB 10-K, SWB 10-Q,
CCBC 10-K AND CCBC 10-Q CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF SWB FOLLOWING
THE CONSUMMATION OF THE MERGER, INCLUDING STATEMENTS RELATING TO THE EXPECTED
IMPACT OF THE MERGER ON SWB'S FINANCIAL PERFORMANCE AND THE MARKET VALUE OF SWB
COMMON STOCK (SEE "RISK FACTORS", "SUMMARY", "THE MERGER-REASONS FOR THE MERGER;
RECOMMENDATIONS OF THE BOARD OF DIRECTORS", "UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS"). THESE FORWARD-LOOKING STATEMENTS INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST SAVINGS FROM THE
MERGER CANNOT BE FULLY REALIZED; (2) DEPOSIT ATTRITION, CUSTOMER LOSS OR REVENUE
LOSS FOLLOWING THE MERGER IS GREATER THAN EXPECTED; (3) COMPETITIVE PRESSURE IN
THE BANKING INDUSTRY INCREASES SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED
TO THE INTEGRATION OF THE BUSINESS OF SWB AND CCBC ARE GREATER THAN EXPECTED;
(5) CHANGES IN THE INTEREST RATE ENVIRONMENT REDUCE MARGINS; (6) GENERAL
ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN
EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY;
(7) CHANGES IN THE REGULATORY ENVIRONMENT; (8) CHANGES IN BUSINESS CONDITIONS
AND INFLATION; AND (9) CHANGES IN THE SECURITIES MARKETS. THE FORWARD-LOOKING
STATEMENTS INCLUDED IN THIS JOINT PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN
EXAMINED, REVIEWED OR COMPILED BY THE INDEPENDENT AUDITORS OF SWB OR CCBC NOR
HAVE SUCH AUDITORS OR ANY OTHER INDEPENDENT AUDITORS APPLIED ANY PROCEDURES
THERETO. ACCORDINGLY, SWB'S OR CCBC'S INDEPENDENT AUDITORS ASSUME NO
RESPONSIBILITY FOR SUCH FORWARD-LOOKING INFORMATION. FURTHER INFORMATION ON
OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL
4
<PAGE>
RESULTS OF SWB AFTER THE MERGER IS INCLUDED IN THE SEC FILINGS INCORPORATED BY
REFERENCE HEREIN. MOREOVER, WHENEVER PHRASES SUCH AS, OR SIMILAR TO, "IN
MANAGEMENT'S OPINION," "MANAGEMENT BELIEVES," OR "MANAGEMENT CONSIDERS" ARE
USED, SUCH STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OF MANAGEMENT,
AT THE TIME MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIME AND/OR
SUBSEQUENT EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THE SAME
RISKS AND UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING
STATEMENTS.
5
<PAGE>
MAP
6
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION 2
INFORMATION INCORPORATED BY REFERENCE
3
SUMMARY 8
Parties to the Merger 8
Date, Time and Place of the Meetings 8
Purpose of the Meetings 9
Persons Entitled to Vote 9
Vote Required 9
Principal Terms of the Merger 9
Conditions and Regulatory Approvals 12
Termination and Amendment; Termination Payment
13
Stock Option Agreement between SWB and CCBC
13
Expenses 14
Certain Income Tax Consequences 14
Effective Date 14
Recommendations of the Boards of Directors 15
Fairness Opinions 15
Dissenters' Rights of Appraisal 15
Differences in Charter Documents and
Applicable Law 15
Interests of Certain Persons in the Merger 16
Market Price Data 17
Dividend Policy 18
MARKET PRICE AND DIVIDEND INFORMATION
19
RISK FACTORS 21
SELECTED FINANCIAL INFORMATION 26
THE SPECIAL MEETING OF SHAREHOLDERS OF CCBC
34
THE SPECIAL MEETING OF SHAREHOLDERS OF SWB
36
PROPOSAL ONE: THE MERGER 38
Background 38
Reasons for the Merger and Recommendations 38
Fairness Opinions 39
Interests of Certain Persons in the Merger 48
Principal Terms of the Merger 50
General 50
Effective Date 50
Exchange Amount 50
Treatment of Stock Options 52
Rights of Holders After Effective Date 52
Exchange of CCBC Stock Certificates;
Fractional Interests 53
Personnel Matters 53
Conduct of Business Prior to the Merger 54
Indemnification of CCBC Directors and 55
Officers
Representations and Warranties 55
Conditions to the Merger 56
Required Regulatory Approvals 56
Non-Solicitation Covenants 58
Termination and Amendment; Termination
Payment 58
Expenses 58
Certain Income Tax Consequences 59
Accounting Treatment 60
Resales of SWB Common Stock 60
Conduct of Business of SWB and CCBC Following
the Merger 61
THE STOCK OPTION AGREEMENT BETWEEN SWB AND CCBC
61
DISSENTER'S RIGHTS OF APPRAISAL 63
UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS 65
INFORMATION ABOUT SWB 70
General 70
Beneficial Ownership of Stock 71
INFORMATION ABOUT CCBC 72
General 72
Beneficial Ownership of Stock 72
SELECTED STATISTICAL INFORMATION-SWB 75
SELECTED STATISTICAL INFORMATION-CCBC 82
DESCRIPTION OF SWB CAPITAL STOCK 90
Common Stock 90
Preferred Stock 90
DESCRIPTION OF CCBC CAPITAL STOCK 90
Common Stock 90
Preferred Stock 91
Convertible Subordinated Debentures 91
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS 91
General 91
Declaration of Dividends 91
Limitations on Directors' Monetary Liability 92
Indemnification of Directors and Executive
Officers 92
Cumulative Voting 93
Classified Board of Directors 93
Dissenters' Rights in Mergers an Other
Reorganizations 93
Delaware Anti-Takeover Statute 94
Shareholder Vote for Mergers and Other
Reorganizations 94
Inspection of Shareholder Lists 95
Shareholder Rights Plan 95
Nomination of Directors 96
Amendment of Articles or Certificate of
Incorporation 97
EXPERTS 98
LEGAL MATTERS 98
OTHER MATTERS 98
Annex A: Plan of Acquisition and Merger
Annex B: Stock Option Agreement
Annex C: Fairness Opinion of Van Kasper
Annex D: Fairness Opinion of NationsBanc
Montgomery
Annex E: Excerpts of Chapter 13 of California
Corporations Code regarding Dissenters'
Rights
7
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This summary does not
contain a complete statement of all material features of the Merger and is
qualified in its entirety by reference to the full text of this Joint Proxy
Statement/Prospectus and the Annexes hereto. SWB and CCBC shareholders are urged
to read this Joint Proxy Statement/Prospectus and the accompanying Annexes in
their entirety.
The Parties to the Merger
SWB is a corporation organized under the laws of the State of
California. It is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). SWB owns one banking
subsidiary, Sierra Bank. Sierra Bank is a state banking corporation licensed by
the California Department of Financial Institutions (the "DFI") as a commercial
bank. SWB's principal office is located in Truckee, California. Sierra Bank has
an aggregate of 12 banking offices and eight separate loan production offices.
The banking offices and five loan production offices are located in California
and Nevada. The remaining three loan production offices are located in Oregon,
Colorado and Tennessee. SWB merged the operations of Sierra Bank with its former
separate subsidiary SierraWest Bank, Nevada in the spring of 1996. SWB acquired
the operations of Mercantile Bank, formerly of Sacramento, California, when
Mercantile Bank merged with and into Sierra Bank in June 1997. At September 30,
1997, SWB had consolidated assets of approximately $575 million, deposits of
approximately $513 million and shareholders' equity of approximately $51.4
million. SWB's principal executive office is located at 10181 Truckee-Tahoe
Airport Road, Truckee, California 96161 and its telephone number is (530)
582-3000.
CCBC is a corporation organized under the laws of the State of
Delaware. It is registered as a bank holding company under the BHC Act. CCBC is
the holding company for CP Bank. CP Bank is a state banking corporation licensed
by the DFI as a commercial bank. It was incorporated under the laws of the State
of California in 1983 and is headquartered in Vacaville, California. CP Bank
conducts a general commercial banking business through its seven offices in
Solano County and one office in Contra Costa County along the Interstate 80
corridor in Northern California. At September 30, 1997, CCBC had consolidated
assets of approximately $192 million, deposits of approximately $170 million and
shareholders' equity of approximately $15.4 million. CCBC's principal executive
office is located at 555 Mason Street, Suite 280, Vacaville, California 95688
and its telephone number is (707) 448-1200.
Both Sierra Bank and CP Bank have their deposits insured by
the Federal Deposit Insurance Corporation ("FDIC") up to applicable limits.
If the Merger had been consummated on September 30, 1997, the
combined company would have had, on a pro forma basis, total assets of
approximately $768 million and shareholders' equity of approximately $67
million, and for the nine months ended September 30, 1997 would have had net
income of approximately $6.6 million.
Date, Time and Place of the Meetings
The SWB Meeting will be held on March 26, 1998 at 8:00 a.m.
local time at the SWB Administration Building, 10181 Truckee-Tahoe Airport Road,
Truckee, California. The CCBC Meeting will be held on March 16, 1998 at 6:30
p.m. local time at Paradise Valley Golf Course, located at 3900 Paradise Valley
Drive, Fairfield, California.
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Purpose of the Meetings
At the Meetings, the shareholders of SWB and the shareholders
of CCBC will be asked to (1) consider and vote upon the Agreements; and (2)
consider and vote upon such other business as may properly come before the
respective Meetings.
THE BOARDS OF DIRECTORS OF SWB AND CCBC UNANIMOUSLY RECOMMEND
THAT THEIR RESPECTIVE SHAREHOLDERS VOTE THEIR SHARES OF SWB COMMON STOCK AND
CCBC COMMON STOCK IN FAVOR OF THE MERGER PROPOSAL.
Persons Entitled to Vote
SWB has fixed the close of business on January 30, 1998, as
the record date for determining persons entitled to notice of and to vote at the
SWB Meeting. CCBC has fixed the close of business on January 16, 1998, as the
record date for determining persons entitled to notice of and to vote at the
CCBC Meeting. At the close of business on December 19, 1997, there were
outstanding and entitled to vote 4,088,659 shares of SWB common stock and, at
the close of business on November 30, 1997, 1,108,076 shares of CCBC
common stock.
Vote Required
Under the Agreement and applicable law, approval of the Merger
by an affirmative vote of the holders of a majority of the outstanding shares of
SWB common stock and by an affirmative vote of the holders of a majority of the
outstanding shares of CCBC common stock is a condition to completion of the
Merger.
As a group, executive officers and directors of SWB and the
affiliates of such officers and directors beneficially owned 304,527 shares
(including 145,078 shares subject to options exercisable currently or within 60
days of the SWB Record Date), or approximately 7%, of SWB common stock
outstanding as of November 30, 1997. No executive officer or director of SWB or
any affiliate of any such officer or director beneficially owned any shares of
CCBC common stock as of such date.
As a group, executive officers and directors of CCBC and the
affiliates of such officers and directors beneficially owned 290,538 shares
(including 98,962 shares subject to options exercisable currently or within 60
days of the CCBC Record Date), or approximately 26%, of CCBC common stock
outstanding as of November 30, 1997. No executive officer or director of CCBC or
any affiliate of any such officer or director beneficially owned any shares of
SWB common stock as of such date.
For more information on the Meetings, see "THE SPECIAL MEETING
OF SHAREHOLDERS OF CCBC" AND "THE SPECIAL MEETING OF SHAREHOLDERS OF SWB."
Principal Terms of the Merger
Effective Date. The Merger will become effective on the date
(the "Effective Date") that the Merger Agreement is filed with the Secretaries
of State of the States of California and Delaware. The Bank Merger will become
effective on the date that the Bank Merger Agreement is approved by the DFI,
filed with the California Secretary of State and a copy thereof filed with the
California Commissioner of Financial Institutions (the "Commissioner"). Assuming
all conditions to the Merger are met, the parties anticipate that the Effective
Date will be on or about April 15, 1998, or as soon thereafter as practicable.
Upon completion of the Merger, CCBC will be merged with SWB and, upon completion
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of the Bank Merger, CP Bank will be merged with and into Sierra Bank. SWB will
be the surviving corporation in the Merger. Sierra Bank will be the surviving
corporation in the Bank Merger and will continue to operate as a wholly-owned
subsidiary of SWB.
Exchange Amount. For purposes of the Agreement, the following
terms have the following meanings:
CCBC Shares Issued and outstanding shares of CCBC
$0.10 par value common stock as of the
Effective Date.
Exchange Ratio The number of SWB Shares to be received
in exchange for each CCBC Share pursuant to
the calculation set forth in the Agreement
(described below).
Market Value The average of the closing prices of the
SWB Shares as reported in the western edition
of the Wall Street Journal for the 20 trading
days preceding the Determination Date. For
purpose of determining the average, the
divisor shall be only those days on which a
trade occurs.
Business Combination Any merger, sale or purchase of an
entity or subsidiary, sale or purchase of a
substantial portion of any entity's assets, or
tender offer or other means of acquisition of
substantially all the outstanding capital
stock of any entity.
Determination Date The fifth business day preceding the Effective
Date.
On the Effective Date, by virtue of the Merger and without any
action on the part of the holders of CCBC Shares, each outstanding CCBC Share
shall be converted into the right to receive shares of the common stock, no par
value, of SWB ("SWB common stock" or "SWB Shares") equal to the Exchange Ratio
as follows:
(i) If the Market Value is $22.75 or less, the Exchange Ratio
will be 1.1579.
(ii) If the Market Value is greater than $22.75 but not more
than $25.25, the Exchange Ratio will be determined by dividing $26.40 by the
Market Value.
(iii) If the Market Value is greater than $25.25 but not
more than $26.25, the Exchange Ratio will be 1.0476.
(iv) If the Market Value is greater than $26.25 but not more
than 28.25, the Exchange Ratio will be 1.0476 minus .000238 for each $0.01 by
which the Market Value is greater than $26.25.
(v) If the Market Value is $28.25, the Exchange Ratio will be
1.000.
(vi) If the Market Value is greater than $28.25 but not more
than $29.25, the Exchange Ratio will be determined by dividing (A) $28.25 plus
75% of the amount by which the Market Value exceeds $28.25 by (B) the Market
Value.
(vii) If the Market Value is greater than $29.25 but not more
than $30.25, the Exchange Ratio will be determined by dividing (A) $29.00 plus
50% of the amount by which the Market Value exceeds $29.25 by (B) the Market
Value.
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(viii) If the Market Value is greater than $30.25, the
Exchange Ratio will be determined by dividing (A) $29.50 plus 25% of the amount
by which the Market Value exceeds $30.25 by (B) the Market Value.
Notwithstanding the foregoing, (i) in the event that SWB
enters into a Business Combination with any other entity in which SWB shall not
be the continuing or surviving corporation or entity of such Business
Combination prior to the Determination Date, then, in the event that the Market
Value exceeds $28.25, the Exchange Ratio shall be 1.000; and (ii) in the event
that the Market Value is less than $21.59, then CCBC has the right to terminate
the Agreement. If CCBC notifies SWB that it intends to terminate the Agreement
because the Market Value is less than $21.59, then SWB has the right but not the
obligation to elect to issue an additional number of SWB Shares so that the
Exchange Ratio shall be equal to the quotient obtained by dividing $25.00 by the
Market Value. If SWB chooses not to exercise its right to issue such additional
SWB Shares, then CCBC may proceed to terminate the Agreement.
The following table indicates the Exchange Ratio as a function
of a range of Market Values for the SWB common stock and the corresponding
merger consideration per share of CCBC common stock expressed in dollars (the
"Exchange Amount"). No assurance can be given that the actual value of each
share of SWB common stock upon completion of the Merger will be equal to the
Market Value used to determine the Exchange Ratio.
<TABLE>
Market value Market value
of SWB Exchange Exchange of SWB Exchange Exchange
common stock(1) Ratio Amount common stock(1) Ratio Amount
<S> <C> <C> <C> <C> <C>
--------------------- --------------- -------------- --------------------- --------------- ------------
$20.00 1.1579 $23.16 $30.50 (4) 0.9693 $29.56
21.00 1.1579 24.32 30.75 0.9634 29.63
21.59 1.1579 25.00 31.00 0.9577 29.69
22.00 1.1579 25.47 31.25 0.9440 29.75
22.75 1.1579 26.34 31.50 0.9365 29.81
23.00 1.1478 26.40 31.75 0.9291 29.88
24.00 1.1000 26.40 32.00 0.9219 29.94
25.00 1.0560 26.40 32.75 0.9198 30.13
26.00 1.0476 27.24 33.00 0.8939 30.19
27.00 1.0298 27.80 34.00 0.8676 30.44
28.00 1.0060 28.17 35.00 0.8429 30.69
28.25 1.0000 28.25 36.00 0.8194 30.94
28.50 (2) 0.9978 28.44 37.00 0.7973 31.19
29.00 0.9935 28.81 38.00 0.7763 31.44
29.25 0.9915 29.00 39.00 0.7564 31.69
29.50 (3) 0.9873 29.13 40.00 0.7375 31.94
30.00 0.9792 29.38 41.00 0.7195 32.19
30.25 0.9752 29.50 42.00 0.7024 32.44
</TABLE>
(1) The Market Value, which will be used to determine the Exchange Amount and
the corresponding Exchange Ratio, is based upon the average of the closing
prices of SWB Shares for the 20 trading days preceding the Determination
Date. See "Principal Terms of the Merger; Exchange Amount."
(2) When the Market Value is greater than $28.25 but not more than $29.25, the
value of the Exchange Amount increases $0.75 for every $1.00 increase in
the Market Value.
(3) When the Market Value is greater than $29.25 but not more than $30.25, the
value of the Exchange Amount increases $0.50 for every $1.00 increase in
the Market Value.
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(4) When the Market Value is greater than $30.25, the value of the Exchange
Amount increases $0.25 for every $1.00 increase the Market Value.
On the Effective Date each outstanding CCBC Convertible
Subordinated Debenture Due April 30, 2003 ("CCBC Debentures") shall by virtue of
the Merger, be assumed by SWB in accordance with the terms of the related
Indenture Agreement, provided, however, and as required by the Indenture
Agreement the conversion price of such CCBC Debentures into SWB Shares shall be
adjusted by dividing the current conversion price of $12.75 by the Exchange
Ratio on the Effective Date. See "DESCRIPTION OF CCBC CAPITAL STOCK--Convertible
Subordinated Debentures."
If, between the date of the Agreement and the Effective Date,
the outstanding SWB Shares shall have been changed into a different number of
shares or a different class by reason of any reclassification, recapitalization,
split up, combination, exchange of shares or readjustment, or a stock dividend
thereon shall be declared with a record date within such period, the Exchange
Ratio and the number of SWB Shares to be issued and delivered in the Merger in
exchange for each outstanding CCBC Share will be correspondingly adjusted.
For a more complete description of the Exchange Ratio, see
"PROPOSAL ONE: THE MERGER--Principal Terms of the Merger."
Treatment of Stock Options. On the Effective Date, the
obligations under CCBC's 1990 and 1993 Stock Option Plans (the "CCBC Stock
Option Plans") shall be assumed by SWB. On the Effective Date, options to
purchase CCBC Shares issued pursuant to the CCBC Stock Option Plans shall be
converted, without any action on the part of the holders thereof, into options
to acquire, upon payment of the adjusted exercise price (which shall equal the
exercise price per share for the options immediately prior to the Merger,
divided by the Exchange Ratio), the number of shares of SWB shares the option
holder would have received pursuant to the Merger if he or she had exercised all
his or her options immediately prior thereto.The CCBC Stock Option Plans provide
that the service of a CCBC non-officer Director does not terminate as long as he
or she remains a Director or Advisory Director of SWB on and after the Effective
Date. SWB has agreed that it will, for purposes of the CCBC Stock Option Plans,
at or immediately following the Effective Date, offer each current non-officer
Director of CCBC a position as Advisory Director of SWB for a period of not less
than two years. SWB and CCBC have also agreed, subject to certain limitations,
to make any amendments to the CCBC Stock Option Plans and the stock option
agreements entered thereunder necessary to carry out SWB's assumption of CCBC
options as set forth herein. SHAREHOLDER APPROVAL OF THE MERGER INCLUDES
APPROVAL OF AND CONSENT TO ANY SUCH AMENDMENTS TO SWB'S AND CCBC'S STOCK OPTION
PLANS AND AGREEMENTS.
For a more complete description of the treatment of Stock
Options, see "PROPOSAL ONE: THE MERGER--Principal Terms of the Merger--Treatment
of Stock Options."
Indemnification. SWB has agreed upon completion of the Merger
to indemnify, to the extent permitted by law and its articles of incorporation
and bylaws, any person who is now, or has been at any time prior to the date of
the Agreement, or who becomes prior to the Effective Time, an officer or
director of CCBC in the event of any threatened or actual claim, action, suit,
proceeding or investigation which is based in whole or in part on, or arises in
whole or in part out of, (a) the fact that the indemnified party is or was a
director or officer of CCBC or any predecessor or (b) the Agreement or any of
the transactions contemplated by the Agreement. SWB has also agreed, for a
period of three years, to cause such person to be covered by SWB's directors'
and officers' liability insurance policies in effect on the Effective Date or to
obtain tail coverage for them under CCBC's directors' and officers' liability
insurance policies; provided, however, that SWB is not obligated to pay annual
premium for such insurance to the extent such premiums exceed 150% of the
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premium paid by CCBC for such insurance as of the date of the Agreement. See
"PROPOSAL ONE: THE MERGER--Principal Terms of the Merger--Indemnification of
CCBC Directors and Officers."
Conditions and Regulatory Approvals
Consummation of the Merger is subject to the satisfaction of
various conditions, including the accuracy of each party's representations and
warranties, each party's substantial compliance with its obligations under the
Agreement, the absence of any material adverse change (as defined in the
Agreement) in the business or financial condition of SWB or CCBC, receipt of
required regulatory approvals from the FDIC, Board of Governors of the Federal
Reserve System (the "FRB") and DFI, the effectiveness of SWB's Registration
Statement, receipt of a legal opinion as to the qualification of the Merger as a
tax-free reorganization, qualification of the Merger for accounting treatment on
the basis of the pooling-of-interests method, the exchange of current unaudited
financial information, each party's receipt of a fairness opinion from its
financial advisor and the adjustment (if necessary) of certain of CCBC's
reserves and asset classifications to conform to specified standards. See
"PROPOSAL ONE: THE MERGER--Principal Terms of the Merger--Representations and
Warranties," "-- Conditions to the Merger" and "--Required Regulatory
Approvals." Other than conditions which must be satisfied by law, the Boards of
Directors of SWB and CCBC have the corporate power and authority to waive
satisfaction of the conditions to their respective company's obligation to
consummate the Merger.
Termination and Amendment; Termination Payment
The Agreements may be terminated any time prior to the
Effective Date as follows: (a) by the mutual consent of the Boards of Directors
of SWB and CCBC; (b) by the Board of Directors of SWB on or after June 30, 1998,
if any of the conditions to the obligations of SWB have not been fulfilled or
waived, any material adverse change in CCBC or its properties, operations or
financial condition occurs or is learned, CCBC materially fails to comply with
its obligations under the Agreement, or CCBC enters into a transaction or series
of transactions with a third person or group providing for the acquisition of
all or a substantial part of CCBC, whether by way of merger, exchange or
purchase of stock, sale of assets or otherwise; (c) by the Board of Directors of
CCBC on or after June 30, 1998, if any of the conditions to the obligations of
CCBC have not been fulfilled or waived by CCBC (subject to SWB's right to pursue
certain litigation or administrative proceedings to obtain one or more of the
Governmental Approvals, but not beyond December 31, 1998), any material adverse
change in SWB or its properties, operations or financial condition occurs or is
learned, SWB materially fails to comply with its obligations under the Agreement
or SWB or its affiliates enter into a business combination with any other entity
which does not expressly contemplate the performance by SWB or its successor in
interest of SWB's obligations under the Agreement and SWB indicates it will not
consummate the Merger.
If either party willfully breaches the Agreement or enters
into another transaction (such as a merger or similar business combination) that
prevents performance of its obligations under the Agreement, either party may
terminate the Agreement and the nonbreaching party becomes entitled to
liquidated damages of $1,200,000. In addition, each party remains liable for its
expenses incurred in connection with the Merger.
See "PROPOSAL ONE: THE MERGER--Principal Terms of the
Merger--Termination and Amendment; Termination Payment."
Stock Option Agreement between SWB and CCBC
Concurrently with the execution and delivery of the Agreement,
SWB and CCBC entered into a Stock Option Agreement (the "Stock Option
Agreement"). Pursuant to the Stock Option Agreement, CCBC granted to SWB an
option (the "Option") to purchase up to 282,914 shares of CCBC common stock
(representing approximately 19.9% of the outstanding shares of CCBC common
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stock) at a per share price equal to the lower of (i) the average of the bid and
ask prices for CCBC common stock for the five trading days preceding the
execution of the Agreement or (ii) the per share price at which CCBC issues or
agrees to issue CCBC common stock to an acquiring person. The Option will only
become exercisable upon the occurrence of certain events that create the
potential for another party to acquire control of CCBC. The Stock Option
Agreement further provides that, after SWB has exercised the Option, SWB may
require CCBC to repurchase the CCBC common stock so acquired at a price equal to
the highest of (i) the exercise price paid by SWB, (ii) the highest price paid
or agreed to be paid for CCBC shares by an acquiror of 10% or more of the
outstanding CCBC common stock or (iii) in the event of a sale of all or
substantially all of CCBC's assets, (x) the sum of the price paid in such sale
and the current market value of the remaining assets of CCBC as determined by a
recognized investment banking firm, divided by (y) the number of shares of CCBC
common stock then outstanding; provided, however, that in no event will CCBC be
required to repurchase the shares of CCBC common stock at a repurchase price
that exceeds SWB's aggregate exercise price for such shares by more than $2
million. On December 24, 1997, the final bid price of CCBC common stock was
$28.00 per share, as reported by Nasdaq. See "THE STOCK OPTION AGREEMENT BETWEEN
SWB AND CCBC."
The Stock Option Agreement could have the effect of
discouraging persons, who now or prior to the Effective Time might be interested
in acquiring all or a significant interest in CCBC, from considering or
proposing such an acquisition, even if such persons were prepared to propose
greater consideration per share for CCBC common stock than the consideration per
share represented by the Exchange Amount. In addition, the Agreement provides
that CCBC will not initiate or solicit any inquiries or the making of any
proposal which constitutes, or may reasonably be expected to lead to, any
merger, consolidation, business combination, share exchange, sale or disposition
of 10% or more of CCBC's assets, or takeover proposal.
Expenses
SWB and CCBC have each agreed to pay the costs incurred by
them incident to the performance of their obligations under the Agreement,
including costs related to the Registration Statement and these Proxy Materials,
their respective financial statements and the fees of its counsel, accountants,
consultants and financial advisers. The costs of printing and distributing the
Registration Statement and the Proxy Materials, fees payable pursuant to state
"blue-sky" securities laws, fees related to obtaining a tax opinion, the fees
required to be paid to the SEC and to Nasdaq to register the shares of SWB
common stock will be shared equally by the parties.
Certain Income Tax Consequences
The Merger is intended to be a tax-free reorganization for
federal and California income tax purposes. As a condition to the consummation
of the Merger, SWB and CCBC will receive an opinion of McCutchen, Doyle, Brown &
Enersen, LLP , to the effect that the Merger will constitute a tax-free
reorganization for federal income tax purposes. Consequently, CCBC shareholders
receiving SWB common stock pursuant to the Merger are not expected to recognize
gain or loss for federal income tax purposes. Gain or loss may, however, be
recognized on the receipt of cash in lieu of fractional shares of SWB common
stock. The character and amount of such gain or loss may vary with each
shareholder's individual circumstances. CCBC's and SWB's shareholders are urged
to consult their own tax advisors regarding the federal (and any applicable
foreign, state and local) income tax consequences of the Merger. See "PROPOSAL
ONE: THE MERGER--Certain Income Tax Consequences."
Effective Date
The Merger will become effective on the date (the "Effective
Date") that the Merger Agreement is filed with the Secretaries of State of the
States of California and Delaware. The Bank Merger will become effective on the
date that the Bank Merger Agreement is approved by the DFI, filed with the
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California Secretary of State and a copy thereof filed with the Commissioner.
Assuming all conditions to the Merger are met, the parties anticipate that the
Effective Date will be on or about April 15, 1998, or as soon thereafter as
practicable. SWB and CCBC expect the Bank Merger to be completed on or about the
Effective Date as well.
Recommendations of the Boards of Directors
The Board of Directors of SWB believes that the Merger is in
the best interests of SWB and its shareholders. The Board is of the opinion that
combining the business of SWB and CCBC will enhance the prospects of SWB. The
Board of Directors of SWB voted to recommend to its shareholders a vote FOR
approval of the Merger. See "PROPOSAL ONE: THE MERGER--Reasons for the Merger
and Recommendations--SWB."
The Board of Directors of CCBC believes that the Merger is in
the best interests of CCBC and its shareholders. The Board is of the opinion
that combining the business of SWB and CCBC will enhance the prospects of the
combined companies. The Board of Directors of CCBC voted to recommend to its
shareholders a vote FOR approval of the Merger. See "PROPOSAL ONE: THE
MERGER--Reasons for the Merger and Recommendations--CCBC."
Fairness Opinions
CCBC has retained Van Kasper & Company ("Van Kasper") as its
financial advisor in connection with the Merger and to render an opinion to the
Board of Directors of CCBC as to whether the Exchange Ratio of the proposed
Merger is fair from a financial point of view to the shareholders of CCBC. Van
Kasper delivered its opinion to this effect on November 13, 1997. See "PROPOSAL
ONE: THE MERGER - Fairness Opinions" and Annex C.
SWB has retained NationsBanc Montgomery Securities, Inc.
("NationsBanc Montgomery") as its financial advisor in connection with the
Merger and to render an opinion to the Board of Directors of SWB as to whether
the Exchange Ratio in the proposed Merger is fair from a financial point of view
to SWB. NationsBanc Montgomery delivered its opinion to this effect on November
13, 1997. See "PROPOSAL ONE: THE MERGER - Fairness Opinions" and Annex D.
Dissenters' Rights of Appraisal
A holder of SWB common stock who, not later than the date of
the SWB Meeting, delivers to SWB a written demand for dissenters' rights, and
who votes against the approval of the Agreements and who complies with all other
applicable requirements of Chapter 13 ("Chapter 13") of the California General
Corporation Law (the "California Law"), will have the right to receive payment
in cash of the "fair market value" of such holder's shares of SWB common stock;
provided, however, that no holder of SWB common stock will be entitled to
dissenters' rights unless holders of at least 5% of the outstanding shares of
SWB common stock have perfected their dissenters' rights in accordance with
Chapter 13 of the California Law. The SWB Board has determined that the "fair
market value" of one share of SWB common stock for this purpose is $28.50, which
was the closing sales price for SWB common stock on November 12, 1997, the day
before the public announcement of the Merger. The procedure for perfecting
dissenters' rights is summarized under the caption "DISSENTERS' RIGHTS OF
APPRAISAL" and the pertinent provisions of Chapter 13 of the California Law are
included as Annex E to this Joint Proxy Statement/Prospectus.
Under applicable Delaware law, shareholders of CCBC do not
have dissenters' rights in connection with the Merger. See "DISSENTERS' RIGHTS
OF APPRAISAL."
Differences in Charter Documents and Applicable Law
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SWB is organized under the corporate law of California, while
CCBC is organized under the corporate law of the State of Delaware. There are
certain differences in the charter documents and law applicable to the two
companies. See "CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS."
Interests of Certain Persons in the Merger
As of November 30, 1997, the directors and executive officers
of CCBC owned an aggregate of 290,538 shares of CCBC common stock (including
98,962 shares subject to options exercisable currently or within 60 days of the
record date) which, if owned by them at the Effective Date, will be converted
into shares of SWB common stock with an approximate aggregate market value of
$8,572,007 (based on an assumed Market Value of $32.75). Under the Agreement,
SWB has agreed to appoint Bernard E. Moore and Walter A. Sunderman, currently
directors of CCBC, to its Board of Directors and to include them among
management's nominees for the board through the year 2000. Messrs. Moore and
Sunderman have certain rights to appoint successors to themselves from other
existing directors of CCBC under certain circumstances, provided such successor
meets SWB's then written criteria for selection of board nominees. Mr. Sunderman
and SWB will enter into a consulting agreement that will provide, in exchange
for providing services related to customer retention, new business development,
community representation and strategic planning and implementation to SWB,
Mr. Sunderman with approximately $40,000 each year for 4 years in addition to
directors' fees.
Mr. Sunderman, President and Chief Executive Officer of CCBC,
Andrew S. Popovich, Executive Vice President and Chief Financial Officer of
CCBC, Ronald A. Alfstad, Executive Vice President of CCBC, and Larry Fletcher,
Senior Vice President of CP Bank (the "CCBC Executive Officers") are parties to
employment agreements each dated August 1, 1993 and amended on May 20, 1997 (the
"Executive Agreements") that provide for severance benefits upon the occurrence
of a merger, acquisition or other change of control as defined in the Executive
Agreements (together a "Change of Control"). These agreements provide that in
the event of the termination of any of the Executive Agreements or any CCBC
Executive Officer, without cause, within either six months prior to or 12 months
after a Change of Control, Messrs. Sunderman, Popovich and Alfstad would be
entitled to receive a lump sum payment equal to two times his then current base
annual salary and Mr. Fletcher would be entitled to receive a lump sum payment
equal to one time his then current base annual salary. Under these provisions
Messrs. Sunderman, Popovich, Alfstad and Fletcher would be entitled to $318,150,
$207,480, $201,600, and $83,003 respectively.
In the event a Change of Control occurs but neither the
Executive Officer nor his Executive Agreement is terminated, Mr. Sunderman would
be entitled to receive a lump sum payment equal to one times his annual base
salary, and Messrs. Alfstad, Popovich and Fletcher would each be entitled to
receive a lump sum payment equal to one half of his current base annual salary.
Under these provisions Messrs. Sunderman, Popovich, Alfstad and Fletcher would
be entitled to $159,075, $51,870, and $50,400, and $41,502 respectively.
If a Change of Control is consummated for a total purchase or
investment price or value of more than 1.75 times the book value of CCBC's stock
as of the month prior to the announcement of the Change of Control, calculated
in accordance with the FDIC's regulatory capital requirements, but on a fully
diluted basis, then Messrs. Sunderman and Popovich each will be entitled to
receive an additional incentive payment calculated based upon a percentage of
the purchase price over the 1.75 threshold dependent upon the ratio of the
purchase price to fully diluted book value of CCBC's stock. However, in no event
shall the incentive payment exceed twice the CCBC Executive Officer's annual
base salary. The amounts payable under these provisions are not presently
calculable, but the maximum amounts payable under these provisions Messrs.
Sunderman and Popovich would be $318,150 and $207,480, respectively.
Jan Larsen, Senior Vice President and Branch Administrator, of
CP Bank is also a party to an employment agreement which provides for severance
16
<PAGE>
benefits. Under Ms. Larsen's agreement, in the event of a Change of Control the
term of her Agreement will be extended for a period of not less than one year
from the effective date of the Change of Control, or if her employment is
terminated, she shall receive a lump sum equal to twelve (12) months of her then
current annual base salary, less salary paid for employment under the agreement
from the time of Change of Control to the date of termination. Under this
provision, Ms. Larsen would receive a total of $56,223.
Additionally, Messrs. Sunderman, Popovich, Alfstad and
Fletcher are each party to a Supplemental Retirement Plan each dated as of
August 1, 1993 (the "Supplemental Plans"). Under the Supplemental Plans, the
benefits of each CCBC Executive Officer vests 100% in the case of a Change of
Control. The CCBC Executive Officers are entitled to receive fully vested
retirement benefits on the January 1st next following termination of employment
following a Change of Control, determined on the date of termination as though
the CCBC Executive Officer were age 62, and may elect to be paid in a single sum
cash payment or that payments commence following a certain term, e.g., 10 years
after the Change of Control. No interest shall be credited on any deferred
payments. Although the amounts payable under the Supplemental Plans are not
presently calculable, the following chart demonstrates Estimated Annual
Retirement Income to which CCBC Executive Officers are entitled under the
Supplemental Plans based on remuneration and years of service. During 1996, the
cash compensation of Messrs. Sunderman, Popovich, Mr. Alfstad and Fletcher
(including bonuses) were $178,018, $116,095, $111,948 and $92,887, respectively.
<TABLE>
Years of Service
Remuneration 10 Years 15 Years 20 Years 25+ Years
<S> <C> <C> <C> <C>
------------ -------- -------- -------- ---------
$ 75,000 $15,000 $25,500 $30,000 $ 37,500
100,000 20,000 30,500 40,000 50,000
125,000 25,000 37,500 50,000 62,500
150,000 30,000 45,000 60,000 75,000
175,000 35,000 52,500 70,000 87,500
200,000 40,000 60,000 80,000 100,000
</TABLE>
Years of service credit for CCBC's Executive Officers as of
December 12, 1997 were as follows: Mr. Alfstad, 14 years; Mr. Fletcher, 13
years; Mr. Popovich, 15 years; Mr. Sunderman, 15 years.
SWB has also authorized CCBC to make retention bonus payments, not to exceed six
month salary, to certain key CCBC employees who maintain their employment at
least through the Effective Date.
Risk Factors
The proposed Merger presents risk for shareholders of both
CCBC and SWB, including factors related to the Merger, to the banking industry
and to SWB itself. See "RISK FACTORS."
Market Price Data
SWB common stock and CCBC common stock are both traded on the
Nasdaq National Market under the symbols "SWBS" and "CCBC", respectively. The
following table sets forth historical per share market values for SWB common
stock and CCBC common stock and the equivalent pro forma market values for CCBC
common stock (i) on November 12, 1997, the last trading day prior to public
announcement of the Merger, (ii) on December 12, 1997 (the date on which the
unaudited pro forma financial information herein is based) and (iii) December
26, 1997. The historical per share market values shown below for SWB common
stock and CCBC common stock represent the last sale prices on the dates
indicated; such values for SWB may be higher or lower than the "Market Value" of
SWB common stock as such term is defined in the Agreement for purposes of
17
<PAGE>
determining the Exchange Ratio. The equivalent pro forma market value per share
of CCBC common stock reflects an Exchange Ratio which assumes the Market Value
is equivalent to the market price for SWB common stock shown in the table.
<TABLE>
CCBC Equivalent Pro
Forma Market Value
Historical Market Price
------------------------------------ -----------------------
<S> <C> <C> <C>
SWB CCBC
November 12, 1997 $28.50 $26.00 $28.44
December 12, 1997 $32.75 $27.00 $30.13
December 26, 1997 $34.00 $28.13 $30.44
</TABLE>
No assurance can be given that SWB's Market Value will not be
lower or higher than the amounts shown in the above table or that actual stock
prices for SWB's common stock will be equal to or greater than such Market Value
at any time after completion of the Merger. Following the Merger, CCBC will be
merged into SWB, and there will be no further public market for CCBC common
stock. SWB common stock will continue to be quoted on the Nasdaq National
Market.
Dividend Policy
In 1997, SWB paid an annual dividend of $.32 per share which
was paid in semi-annual installments. In 1996 and 1995, SWB paid annual
dividends of $.30 and $.24 per share, also in semi-annual installments. SWB did
not pay dividends for the years 1992 through 1994. Subject to the discretion of
its Board of Directors, SWB intends to continue paying dividends on a
semi-annual basis in the future.
Through 1997, CCBC has paid a quarterly dividend of $.15, or
$.60 per share on an annual basis. In 1996, CCBC paid a dividend of $.125 during
the first quarter and $.15 in each of the three following quarters. In 1995,
CCBC paid an annual dividend of $.50 per share which was paid in quarterly
installments.
18
<PAGE>
MARKET PRICE AND DIVIDEND INFORMATION
Market Quotations
SWB common stock is quoted on the Nasdaq National Market under
the symbol SWBS. CCBC's common stock is quoted on the Nasdaq National Market
under the symbol CCBC. As of December 19, 1997, there were approximately 966
holders of record of SWB common stock and approximately 963 holders of CCBC
common stock. The following table sets forth for SWB common stock and the CCBC
common stock the high and low sale prices, as reported on the Nasdaq National
Market.
<TABLE>
SWB CCBC
Common Stock Common Stock
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
High Low High Low
1996
First Quarter $13.13 $10.63 $16.00 $14.00
Second Quarter 15.38 12.50 14.50 13.25
Third Quarter 15.00 12.88 15.75 13.75
Fourth Quarter 15.75 14.13 16.50 15.75
1997
First Quarter 19.63 15.38 18.25 16.00
Second Quarter 21.13 17.50 17.75 16.00
Third Quarter 25.75 19.75 26.00 17.00
Fourth Quarter (through
December 27, 1997) 35.25 24.75 28.38 24.00
</TABLE>
19
<PAGE>
The following table sets forth the per share cash dividends
declared by SWB and by CCBC during each quarter since January 1, 1996.
SWB CCBC
1996
First Quarter -- $0.125
Second Quarter $0.15 0.15
Third Quarter 0.15 0.15
Fourth Quarter -- 0.15
1997
First Quarter 0.16 0.15
Second Quarter -- 0.15
Third Quarter 0.16 0.15
Fourth Quarter -- 0.15
SWB's Board of Directors considers the advisability and amount
of proposed dividends each quarter. Future dividends will be determined in light
of SWB's earnings, financial condition, future capital needs, regulatory
requirements and such other factors as the Board of Directors may deem relevant.
SWB's primary source of funds for payment of dividends to its shareholders will
be the receipt of dividends and management fees from its subsidiary. The payment
of dividends by banks is subject to various legal and regulatory restrictions.
CCBC's Board of Directors considers the advisability and
amount of proposed dividends each quarter. Future dividends will be determined
in light of CCBC's earnings, financial condition, future capital needs,
regulatory requirements and such other factors as the Board of Directors may
deem relevant. CCBC's primary source of funds for payment of dividends to its
shareholders will be the receipt of dividends and management fees from its
subsidiaries. The payment of dividends by banks is subject to various legal and
regulatory restrictions.
20
<PAGE>
RISK FACTORS
In deciding how to vote their shares at the special meetings,
holders of shares of SWB common stock and holders of shares of CCBC common stock
should carefully consider the following factors, in addition to the information
and other matters set forth in this Joint Proxy Statement/Prospectus.
Certain statements contained in this Joint Proxy
Statement/Prospectus, including, without limitation, statements containing the
words "believes," "anticipates," "intends," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
SWB or CCBC to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions in those areas in which SWB or CCBC operate; demographic changes;
competition; fluctuations in interest rates; changes in business strategy or
development plans; changes in governmental regulation; credit quality; the
availability of capital to fund the expansion of SWB's business; and other
factors referenced in or incorporated by reference into this Joint Proxy
Statement/Prospectus, including, without limitation, under the captions
"SUMMARY," and "RISK FACTORS." Given these uncertainties, shareholders are
cautioned not to place undue reliance on such forward-looking statements. SWB
and CCBC disclaim any obligation to update any such factors or to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
Risk Factors Relating to the Merger
Prospects of SWB After the Merger and Ability to Integrate
Operations. The earnings, financial condition and prospects of SWB after the
Merger will depend in part on SWB's ability to successfully integrate the
operations and management of CP Bank after its Merger into Sierra Bank. There
can be no assurance that SWB will be able to effectively and profitably
integrate the operations and management of CP Bank. In addition, there can be no
assurance that SWB will be able to fully realize any revenue enhancement or cost
savings as a result of the Merger. There can be no assurance that any cost
savings which are realized will not be offset by losses in revenues or other
charges to earnings. In addition, to the extent that present customers are not
retained by the combined company or additional expenses are incurred in
retaining them, there could be adverse effects on future results of operations
of SWB following the Merger. Realization of improvement in profitability is
dependent, in part, on the extent to which the revenues of CCBC and SWB are
maintained and enhanced.
Performance of Combined Loan Portfolios. SWB's performance and
prospects after the Merger also will be dependent to a significant extent on the
performance of the combined loan portfolios of Sierra Bank and CP Bank and
ultimately on the financial condition of the bank's borrowers and other
customers. The existing loan portfolios of Sierra Bank and CP Bank differ to
some extent in the types of borrowers, industries and credits represented. In
addition, there are differences in the documentation, classifications, credit
ratings and management of the portfolios. As a result, SWB's overall loan
portfolio will have a different risk profile than the loan portfolio of either
Sierra Bank and CP Bank before the Merger. The performance of the combined loan
portfolio will be adversely affected if any of such factors is worse than
currently anticipated.
Stability of Acquired Deposits. There can be no assurance that
the amount of deposits at each of CP Bank's branch offices will not decrease
between the date of this Joint Proxy Statement/Prospectus and the date the
Merger is completed, or at any time thereafter. If the amount of the deposits
declines before or after the Merger, SWB's return on equity may be adversely
affected because the amount of leverage on SWB's capital will be less than
currently anticipated by management. Although SWB anticipates that some CP Bank
depositors will choose to move their deposits elsewhere, the achievement of the
21
<PAGE>
Merger's anticipated benefits requires a substantial portion of the deposits to
remain with SWB after the Merger. The market for financial services is extremely
competitive and no assurance can be given that CP Bank's current deposit
customers will remain depositors of CP Bank or, after the Merger, SWB. See
"--Risk Factors Relating to the Industry--Competition."
Risk Factors Relating to the Industry
Interest Rate Risk. Bank earnings depend largely on the
relationship between the cost of funds, primarily deposits, and the yield on
earning assets. This relationship, known as the interest rate spread, is subject
to fluctuation and is affected by economic and competitive factors which
influence interest rates, the volume and mix of interest-earning assets and
interest-bearing liabilities, and the level of nonperforming assets.
Fluctuations in interest rates affect the demand of customers for SWB's and
CCBC's products and services. SWB and CCBC are subject to interest rate risk to
the degree that their interest-bearing liabilities reprice or mature more slowly
or more rapidly or on a different basis than their interest-earning assets.
Given SWB's and CCBC's current volume and mix of interest-bearing liabilities
and interest-earning assets, SWB's and CCBC's combined interest rate spread
could be expected to increase during times of rising interest rates and,
conversely, to decline during times of falling interest rates. Therefore,
significant declines in interest rates may have an adverse effect on SWB's and
CCBC's combined results of operations.
Economic Conditions and Geographic Concentration. The
operations of SWB and CCBC are primarily located in Northern California and
Northern Nevada and are concentrated primarily in the Reno and Carson City
regions of Nevada, the Lake Tahoe region of California and along the Interstate
80 corridor through Sacramento to Concord. As a result of this geographic
concentration, SWB's and CCBC's results depend largely upon economic conditions
in these areas, particularly in the tourism and outdoor recreation industries. A
deterioration in economic conditions in these market areas could have a material
adverse impact on the quality of SWB's and CCBC's loan portfolio and the demand
for their products and services and, accordingly, their respective results of
operations.
Government Regulation and Monetary Policy. The banking
industry is subject to extensive federal and state supervision and regulation.
Such regulation limits the manner in which SWB and CCBC conduct their respective
businesses, undertake new investments and activities and obtain financing. This
regulation is designed primarily for the protection of the deposit insurance
funds and consumers, and not for the benefit of holders of SWB's or CCBC's
securities. Financial institution regulation has been the subject of significant
legislation in recent years, and may be the subject of further significant
legislation in the future, none of which is in the control of SWB or CCBC.
Significant new laws or changes in, or repeals of, existing laws may cause SWB's
or CCBC's results to differ materially. Further, federal monetary policy,
particularly as implemented through the Federal Reserve System, significantly
affects credit conditions for financial institutions, primarily through open
market operations in United States government securities, the discount rate for
bank borrowings and bank reserve requirements. Any material change in these
conditions would be likely to have a material impact on SWB's and CCBC's
respective results of operations.
Competition. The banking and financial services business in
California and Nevada generally, and in SWB's and CCBC's market areas
specifically, is highly competitive. The increasingly competitive environment is
a result primarily of changes in regulation, changes in technology and product
delivery systems and the accelerating pace of consolidation among financial
services providers. SWB and CCBC compete for loans, deposits and customers for
financial services with other commercial banks, savings and loan associations,
securities and brokerage companies, mortgage companies, insurance companies,
finance companies, money market funds, credit unions and other nonbank financial
service providers. Many of these competitors are much larger in total assets and
capitalization, have greater access to capital markets and offer a broader array
of financial services than SWB or CCBC. There can be no assurance that SWB or
22
<PAGE>
CCBC will be able to compete effectively in their markets, and the results of
operations of SWB and CCBC could be adversely affected if circumstances
affecting the nature or level of competition change.
Credit Quality. A significant source of risk for financial
institutions such as SWB and CCBC arises from the possibility that losses will
be sustained because borrowers, guarantors and related parties may fail to
perform in accordance with the terms of their loans. SWB and CCBC have adopted
underwriting and credit monitoring procedures and credit policies, including the
establishment and review of the allowance for credit losses, that each company's
respective management believes are appropriate to minimize this risk by
assessing the likelihood of nonperformance, tracking loan performance and
diversifying the respective credit portfolios. Such policies and procedures,
however, may not prevent unexpected losses that could materially adversely
affect the respective companies' results of operations.
Risks Relating to SWB
Concentration of Lending Activities. At September 30, 1997,
approximately 73% of SWB's loans were secured by real estate. At such date,
approximately 41% of SWB's loans consisting of loans generated through SWB's
United States Small Business Administration (the "SBA") loan program, were
secured by commercial real estate, including small office buildings, owner-user
office/warehouses, mixed-use residential/commercial properties and retail
property. Approximately 25% of such loans are additionally guaranteed by the
SBA. Approximately 18% of the properties which secure SWB's loans are located in
Nevada with the remainder of the properties being located in California. The
ability of SWB to continue to originate real estate secured loans may be
impaired by adverse changes in local and regional economic conditions in the
real estate market, increasing interest rates, or by acts of nature (including
earthquakes and flooding, either of which may cause uninsured damage and other
loss of value to real estate that secures SWB's loans). Due to the concentration
of SWB's real estate collateral, such events could have a significant adverse
impact on the value of such collateral or SWB's earnings.
Reliance on SBA Loan Sales. In recent years, a substantial
portion of SWB's revenues, income, liquidity and growth have been derived from
SBA loan activities. Many of the terms and conditions of the SBA program are
subject to political and business considerations that could significantly
influence SWB's future efforts in this area. Although the SBA program has been
in effect since 1954, over the years a number of proposals to eliminate,
consolidate or otherwise alter the SBA program have been considered in both the
Executive Branch and Congress. Consequently, future income from this program
will depend upon, among other things, the continuation and funding of the SBA
program by the Federal government at or near present levels. In recent years,
the budgeted governmental funding for the SBA program has not met increasing
program demands and has required supplemental appropriations of funds by the
Congress. There is no assurance that future levels of government funding will be
adequate to fund the SBA program at current levels.
The SBA loan program includes certain risks not associated
with traditional bank lending programs, including, but not limited to, possible
loss of the SBA guarantee on individual loans if a loan is found to contain
deficiencies in documentation or servicing which contributed to a greater loss
to the SBA than would otherwise be incurred, additional risk associated with
those SBA loans with terms longer than non-SBA loans made by most banks, and
loan-to-value ratios higher than those normally utilized by SWB for non-SBA
loans.
In 1997, SWB began securitizing and selling SBA loans.
Recently, a significant portion of SWB's liquidity has been attributable to the
success of its SBA loan securitization program. The volume and growth of SWB's
sales of securitized loans could be adversely affected by a number of factors
including, but not limited to a decrease in the availability of SBA loans
available for securitization and sale resulting from an increase in competition
or a reduction in government funding, increased competition for SBA loans for
securitization; the imposition of new laws, regulations or governmental
23
<PAGE>
procedures making the securitization or sale of SBA loans impractical, more
costly or unlawful; or a change in economic conditions or other events adversely
affecting the market for securitized loans.
Prepayment Risk. A significant portion of SWB's reported
income relates to interest only strips and servicing income on SBA loans sold in
the past. The related servicing and interest only strip assets included in SWB's
Consolidated Financial Statements represent the recognition of the market value
of the servicing spread, which was based on certain estimates made by management
at the time SBA loans were sold or securitized. Such estimates were made based
on management's expectations of future prepayment rates and other
considerations. If actual prepayments with respect to sold SBA loans occur more
quickly than was projected at the time such loans were sold, the carrying value
of the related assets may have to be written down through a charge to earnings
in the period of adjustment.
Environmental Liabilities. In the course of its business, SWB
has acquired, and may in the future acquire, through foreclosure, properties
securing loans it has originated or purchased which are in default. Primarily
with respect to commercial properties securing SBA loans and commercial real
estate loans made outside the SBA guaranteed loan program, there is a risk that
hazardous substances or wastes, contaminants or pollutants could be discovered
on such properties after acquisition by SWB. In such event, SWB might be
required to remove such substances from the affected properties at its sole cost
and expense. There can be no assurance that the cost of such removal would not
substantially exceed the value of affected properties or the loans secured by
the properties, that SWB would have adequate remedies against the prior owner or
other responsible parties or that SWB would not find it difficult or impossible
to sell the affected properties either prior to or following any such removal.
Year 2000 Computer Considerations. Many existing computer
programs use only two digits to identify a year in the date datum field. As a
result, SWB, like most other companies, will face a potentially serious
information systems (computer) problem because many software applications and
operational programs written in the past may not properly recognize calendar
dates beginning in the year 2000. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000.
SWB began the process of identifying the changes required to
its computer chips and programs and hardware in 1997, in consultation with
software and hardware providers, a consulting firm and bank regulators. While
SWB believes it is taking all appropriate steps to assure that its information
systems are prepared for the year 2000, it is dependent on vendor compliance to
some extent. SWB is requiring its systems and software vendors to represent that
the services and products provided are, or will be, year 2000 compliant, and
contemplates a program of testing compliance to commence in 1998. SWB estimates
that its costs related to year 2000 compliance will be at least $200,000 and may
be significantly more. The " year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by the rollover
of the two digit year value to 00. Consequently, no assurance can be given that
year 2000 compliance can be achieved without costs and uncertainties that might
affect future financial results or cause reported financial information not to
be necessarily indicative of future operating results or future financial
condition.
SWB's customers, including its borrowers, are also faced with
potential year 2000 problems. SWB has adopted procedures to inquire of its
borrowers whether they are taking steps to address the problem. The failure of
its borrowers to resolve the problem could adversely affect their operations and
impair their ability to repay their loans to SWB. Therefore, even if SWB were to
resolve its own direct year 2000 problems, it could nevertheless be materially
and adversely affected if its borrowers do not also successfully resolve their
year 2000 problems.
Dependence on Key Personnel. SWB's success and its ability to
integrate the operations of CCBC depend to a significant extent on the
performance of its executive officers. SWB believes that its success will
24
<PAGE>
depend, in large part, on its ability to retain such personnel. There can be no
assurance that SWB will be successful in retaining such personnel.
Changes to capital adequacy guidelines. In December 1996 the
Federal Financial Institutions Examination Council's ("FFIEC") Task Force on
Supervision, acting under delegated authority, approved revisions to the
reporting requirements for the Reports of Condition and Income ("Call Report")
for 1997. These revisions included changes to provide for call reports to be
submitted on a GAAP basis versus special regulatory rules that had previously
been followed and interim guidance for the regulatory capital treatment of
servicing assets. The effect of this change to GAAP was to increase SWB's
regulatory capital by approximately $5.3 million.
On August 4, 1997 the FDIC, along with other federal banking
regulatory agencies, issued a request for public comment on proposed changes to
it's capital adequacy rules that would result in additional capital requirements
on servicing assets and could result in additional capital requirements on
interest-only strips receivable. At September 30, 1997, SWB had $2.1 million in
contractual servicing assets, $4.8 million in interest-only strips created in
the sale of government guaranteed portions of SBA loans and $11.4 million in
interest-only strips related to it's securitization of the SBA loans. In
addition, at this same date, SWB had recorded an unrealized gain, net of tax, on
these interest-only strips receivable of $701 thousand. The extent of any
required reductions in capital is not known at this time but could include a
deduction from stated capital of all or part of these assets. It is expected
but not certain that any adjustments to capital would be made net of the
related tax amounts. The FDIC is expected to issue it's final capital adequacy
rules in the first half of 1998.
25
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables present selected condensed historical and
unaudited pro forma financial data for SWB and CCBC. The following selected
condensed financial data for SWB and CCBC should be read in conjunction with the
consolidated financial statements and the related notes thereto of SWB and with
the consolidated financial statements and the related notes thereto of CCBC
incorporated by reference in this Joint Proxy Statement/Prospectus, the
unaudited pro forma combined condensed financial data of SWB and CCBC appearing
herein, and the notes to such statements and data. The selected condensed
historical financial data for SWB and CCBC as of and for the five years in the
period ended December 31, 1996 is derived from SWB's and CCBC's audited
financial statements. The selected condensed historical financial data as of and
for the nine months ended September 30, 1997 and 1996 is unaudited. The selected
condensed historical financial data for SWB as of September 30, 1997, includes
the June 30, 1997 purchase of Mercantile Bank. The selected condensed historical
financial data for SWB and CCBC for the nine month periods ended September 30,
1997 and 1996 includes, in the opinion of the management of SWB and CCBC,
respectively, all adjustments (comprising only of normal recurring accruals)
necessary for a fair presentation of the consolidated operating results and
financial position of SWB and CCBC for such interim periods. Results for the
interim periods are not necessarily indicative of the results for the full year
or any other period.
The unaudited selected pro forma combined condensed data
presents selected financial data based on the historical financial statements of
the parties, giving effect to the proposed combination based on the pooling of
interests accounting method and the assumptions and adjustments in the notes
thereto. The unaudited pro forma combined condensed financial data is not
necessarily indicative of operating results which would have been achieved had
the Merger been consummated as of the beginning of the periods presented and
should not be construed as representative of future operations.
26
<PAGE>
<TABLE>
Selected Condensed Historical Data of SWB
At or for the nine
months ended
September 30, At or for the year ended December 31,
------------- -------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Results of operations
Total interest income $32,131 $23,943 $33,269 $25,831 $19,657 $17,246 $16,597
Total interest expense 12,470 8,913 12,495 8,491 5,597 4,503 6,876
-------- ------- -------- ------- ------- ------- -------
Net interest income 19,661 15,030 20,774 17,340 14,060 12,743 9,721
Provision for possible
loan and lease losses 1,940 910 1,010 1,270 885 1,560 915
-------- ------ -------- ------- ------ ------- ------
Net interest income after
provision for possible
loan and lease losses 17,721 14,120 19,764 16,070 13,175 11,183 8,806
Total noninterest income 9,105 5,246 7,338 7,969 9,177 10,214 9,406
Total noninterest expense 18,139 16,302 21,697 20,944 17,486 17,023 15,616
Provision for income taxes 3,348 1,168 2,077 1,179 1,863 1,670 763
------- ------- ------- ------- ------- ------- ------
Net income $ 5,339 $ 1,896 $ 3,328 $ 1,916 $ 3,003 $ 2,704 $ 1,833
======= ======= ======= ======= ======= ======= =======
Balance sheet (end of period)
Total assets $575,303 405,241 447,889 337,518 259,975 250,065 243,758
Loans and leases, net (1) 402,098 300,584 318,820 236,124 169,393 156,347 152,603
Allowance for possible
loan and lease losses 6,634 4,577 4,546 3,845 3,546 3,472 2,742
Total deposits 513,029 358,949 399,651 293,154 218,876 220,768 211,976
Convertible debentures 0 9,035 8,520 10,000 10,000 250 250
Shareholders' equity 51,486 31,852 33,916 29,833 28,163 25,645 22,907
Per share information (2)
Net income, primary $ 1.47 $ .65 $ 1.13 $ .68 $ 1.07 $ .99 $ .70
Net income, fully diluted 1.34 .57 .96 .63 .91 .97 .68
Dividends declared .31 .29 .29 .23 0 0 0
Book value (3) 12.60 11.75 11.66 10.96 10.24 9.43 8.42
Weighted average shares
outstanding, primary 3,630 2,914 2,942 2,812 2,812 2,739 2,628
Weighted average shares
outstanding, fully 4,005 3,926 3,934 3,871 3,786 2,790 2,774
diluted
Selected Ratios
Return on average assets (3) 1.4% 0.7% 0.9% 0.7% 1.2% 1.2% 0.8%
Return on average equity (3) 16.6 8.1 10.5 6.5 11.2 11.1 8.6
Net interest margin (4) 5.8 6.3 6.2 7.1 6.5 6.7 5.4
Average shareholders'
equity/average assets 8.5 8.5 8.3 10.2 10.4 10.4 9.7
Dividend payout ratios (3)
Primary 15.8 32.8 25.7 33.3 0 0 0
Fully Diluted 17.3 37.4 30.2 36.8 0 0 0
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Quality Ratios
Allowance for possible
loan and lease losses to
total loans 1.6% 1.5% 1.4% 1.6% 2.1% 2.2% 1.8%
Allowance for possible
loan and lease losses to
nonaccrual loans 108.0 79.7 84.8 70.2 142.9 120.9 72.5
Net charge-offs to
average loans 0.3 0.1 0.1 0.5 0.5 0.4 0.5
Nonaccrual and
restructured performing
loans to total loans 1.7 1.9 1.7 2.3 1.5 1.9 2.5
Nonperforming assets to
total assets 1.3 1.5 1.3 1.8 1.4 1.6 2.0
</TABLE>
Notes to Selected Condensed Historical Data of SWB
(1) The term "Loans and leases, net" means total loans, including loans
held for sale, less the allowance for possible loan and lease losses.
(2) All per share information has been restated to show the effect of the
5% dividend issued August 20, 1997.
(3) Ratios for the nine month periods are annualized.
(4) Ratio of net interest income to total average interest-earnings assets.
28
<PAGE>
Selected Condensed Historical Data of CCBC
<TABLE>
At or for the nine
months ended September 30, At or for the year ended December 31,
-------------------------- -------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Results of operations
Total interest income $10,600 $9,595 $13,102 $12,310 $10,953 $10,582 $10,758
Total interest expense 4,583 3,909 5,465 5,481 4,096 3,742 4,025
-------- -------- -------- -------- -------- -------- --------
Net interest income 6,017 5,686 7,637 6,829 6,857 6,840 6,733
Provision for possible
loan and lease losses 244 276 411 324 256 269 397
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for possible
loan and lease losses 5,773 5,410 7,226 6,505 6,601 6,571 6,336
Total noninterest income 1,424 1,038 2,032 2,178 1,662 1,714 1,386
Total noninterest expense 5,214 4,601 6,781 6,630 6,478 6,526 5,831
Provision for income taxes 729 711 918 648 564 577 680
------- ------- ------- ------- ------- ------- -------
Net income $ 1,254 $ 1,136 $ 1,559 $ 1,405 $ 1,221 $ 1,182 $ 1,211
======== ======== ======== ======== ======== ======== ========
Balance sheet (end of period)
Total assets $192,243 $170,796 $191,829 $160,083 $156,732 $148,457 $137,700
Loans and leases, net (1) 119,410 112,218 111,925 109,234 109,148 105,726 103,022
Allowance for possible
loan and lease losses 1,220 1,116 1,101 1,158 1,108 1,090 933
Total deposits 170,424 149,510 170,343 142,234 140,727 131,121 127,677
Other borrowed funds 2,650 2,650 2,650 0 0 0 0
Convertible debentures 2,503 3,840 3,690 4,025 4,025 4,025 0
Shareholders' equity $15,446 $12,888 $13,369 $12,262 $10,726 $10,418 $ 9,615
Per share information
Net income, primary $1.12 $1.12 $1.53 $1.41 $1.24 $1.24 $1.28
Net income, fully diluted 1.00 .96 1.31 1.22 1.09 1.15 1.28
Dividends declared .45 .43 .58 .50 .50 .45 .41
Book value (2) 14.09 13.11 13.44 12.69 11.23 10.96 11.47
Weighted average shares
outstanding, primary 1,116 1,013 1,021 1,000 983 951 946
Weighted average shares
outstanding, fully 1,350 1,320 1,323 1,315 1,299 1,150 946
diluted
Selected Ratios
Return on average assets 0.88% 0.91% 0.92% 0.89% 0.80% 0.81% 0.95%
(2)
Return on average equity 11.80 12.03 12.25 12.31 11.59 11.91 13.26
(2)
Net interest margin (3) 4.72 5.21 5.04 4.83 5.10 5.23 5.83
Average shareholders'
equity/average assets 7.46 7.72 7.53 7.22 6.89 6.78 7.14
Dividend payout ratios(2)
Primary 40.0 38.4 37.9 35.5 40.3 36.3 32.0
Fully diluted 45.0 44.8 44.3 41.0 45.9 39.1 32.0
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Asset Quality Ratios
Allowance for possible
loan and lease losses to
total loans 1.0% 1.0% 1.0% 1.0% 1.0% 1.01% 0.9%
Allowance for possible
loan and lease losses to
nonaccrual loans 128.3 1377.8 1572.8 110.4 88.1 608.9 190.4
Net charge-offs to
average loans 0.1% 0.3 0.4 0.3 0.2 0.1 0.3
Nonaccrual and
restructured performing
loans to total loans 1.8 0.5 0.9 1.4 1.1 1.0 1.4
Nonperforming assets to
total assets 1.3 0.4 0.2 0.8 1.4 0.5 0.9
</TABLE>
Notes to Selected Condensed Historical Data of CCBC
(1) The term "Loans and leases, net" means total loans, including loans
held for sale, less the allowance for possible loan and lease losses.
(2) Ratios for the nine month periods are annualized.
(3) Ratio of net interest income to total average interest-earnings assets.
30
<PAGE>
Unaudited Selected Condensed Pro Forma Combined Data
<TABLE>
At or for the nine
SWB and CCBC months ended At or for
(pro forma combined) September 30, the year ended December 31,
1997(1) 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share data)
Results of operations
Total interest income $42,731 $46,371 $38,141 $30,610
Total interest expense 17,053 17,960 13,972 9,693
-------- -------- -------- -------
Net interest income 25,678 28,411 24,169 20,917
Provision for possible
loan and lease losses 2,184 1,421 1,594 1,141
-------- -------- -------- --------
Net interest income after
provision for possible
loan and lease losses 23,949 26,990 22,575 19,776
Total noninterest income 10,529 9,370 10,147 10,839
Total noninterest expense 23,353 28,478 27,574 23,964
Provision for income taxes 4,077 2,995 1,827 2,427
-------- -------- -------- --------
Net income $ 6,593 $ 4,887 $ 3,321 $ 4,224
======== ======== ======== ========
Balance sheet (end of period)
Total assets $767,546 $639,718 $497,601 $416,707
Loans and leases, net 521,508 430,745 345,358 278,541
Allowance for possible
loan and lease losses 7,854 5,647 5,003 4,654
Total deposits 683,453 569,994 435,388 359,603
Convertible debentures 2,503 12,210 14,025 14,025
Other borrowed funds 2,650 2,650 0 0
Shareholders' equity $66,932 $47,285 $42,095 $38,889
Per share information (2)
Net income, primary $1.42 $1.26 $0.89 $1.14
Net income, fully diluted 1.29 .98 .69 .89
Dividends declared 0.31 0.29 0.23 0.00
Book value (3) 13.13 14.84 12.09 11.00
Weighted average shares
outstanding, primary 4,657 3,881 3,732 3,716
Weighted average shares
outstanding, fully diluted 5,247 5,151 5,081 4,981
CCBC pro forma equivalent
per share (4)
Net income, primary $1.22 $1.66 $1.53 $1.35
Net income, fully diluted 1.09 1.43 1.33 1.18
Dividends declared 0.49 0.65 0.54 0.54
Book value (3) 15.32 14.61 13.38 12.20
Weighted average shares
outstanding, primary 1,027 939 920 904
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Weighted average shares
outstanding, fully diluted 1,242 1,217 1,210 1,195
Selected Ratios
Return on average assets 1.3% .9% .7% 1.0%
Return on average equity 15.4 11.0 8.2 11.3
Net interest margin 5.5 5.8 6.3 6.0
Average shareholders' 8.2 8.1 9.2 9.1
equity/average assets
Asset Quality Ratios
Allowance for possible
loan and lease losses to
total loans 1.5 1.3 1.4 1.6
Allowance for possible
loan and lease losses to
nonaccrual loans 123.7 103.9 76.7 124.4
Net charge-offs to
average loans .2 .3 .4 .4
Nonaccrual and
restructured performing
loans to total loans 1.7 1.5 2.0 1.4
Nonperforming assets to
total assets 1.4 .9 1.5 1.3
</TABLE>
32
<PAGE>
Notes to Unaudited Selected Condensed Pro Forma Combined Data
(1) Certain merger-related expenses have been recorded prior to September
30, 1997. Merger-related expenses to be incurred by SWB and CCBC
subsequent to September 30, 1997 are currently estimated to be $2.3
million after-tax based on information available as of the date of this
Joint Proxy Statement/Prospectus. These expenses, relating to separation
and benefit costs, professional and investment banking fees, and other
non-recurring Merger-related expenses, will be charged against income of
the combined company upon consummation of the Merger or the period in
which such costs are incurred. The effect of these costs has not been
reflected in the unaudited pro forma combined consolidated financial
information. The amount of Merger-related costs disclosed in these
unaudited pro forma combined financial statements may change as
additional information becomes available.
(2) All per share data has been adjusted to reflect stock dividends and
stock splits.
(3) Book value per share is calculated as total shareholders' equity divided
by the number of shares outstanding at the end of the period. Book value
per share has not been adjusted for the effect of stock options
outstanding or the conversion of convertible debentures.
(4) The pro forma equivalent CCBC per share information has been calculated
by multiplying the pro forma combined per share data by an Exchange
Ratio of .9198, assuming a Market Value of $32.75. There can be no
assurance that the Market Value will not be higher or lower than this
amount. See "Proposal One: THE MERGER--PRINCIPAL TERMS OF THE MERGER"
and "Unaudited Pro Forma Combined Financial Statements."
33
<PAGE>
THE SPECIAL MEETING OF SHAREHOLDERS OF CCBC
Introduction
This Joint Proxy Statement/Prospectus is furnished in
connection with the solicitation by the Board of Directors of CCBC of proxies to
be voted at the CCBC Meeting and any adjournments or postponements thereof. This
Joint Proxy Statement/ Prospectus also serves as the Prospectus of SWB with
regard to the offering of shares of SWB common stock to shareholders of CCBC.
At the CCBC Meeting, the shareholders of CCBC will be asked to
(1) consider and vote upon the Agreements and the transactions contemplated
thereby, including the Merger related amendments to the stock option plans of
CCBC, and (2) consider and vote upon such other business as may properly come
before the Meeting.
Voting And Proxies
Date, Time and Place of Meeting The CCBC Meeting will be held
on March 16, 1998 at 6:30 p.m. local time at Paradise Valley Golf Course,
located at 3900 Paradise Valley Drive, Fairfield, California.
Record Date and Voting Rights Only holders of record of CCBC
common stock at the close of business on January 16, 1998 (the "CCBC Record
Date") are entitled to notice of and to vote at the CCBC Meeting. At the CCBC
Record Date, there were approximately 963 shareholders of record and 1,108,076
shares of CCBC common stock outstanding and entitled to vote. Directors and
executive officers of CCBC and their affiliates owned beneficially as of the
CCBC Record Date an aggregate of 290,538 shares of CCBC common stock (including
98,962 shares subject to options exercisable currently or within 60 days of the
CCBC Record Date), or approximately 26% of the outstanding CCBC common stock.
Each CCBC shareholder is entitled to one vote for each share
of common stock he or she owns. Under the terms of the Agreement and applicable
law, approval of the Merger by the CCBC shareholders requires the affirmative
vote of the holders of a majority of the outstanding shares of CCBC common
stock.
CCBC SHAREHOLDER APPROVAL OF THE MERGER IS A CONDITION TO THE
MERGER. THE BOARD OF DIRECTORS OF CCBC URGES EVERY SHAREHOLDER OF CCBC TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED
PREPAID ENVELOPE.
Voting by Proxy Shareholders of CCBC may use the enclosed
proxy if they are unable to attend the Meeting in person or wish to have their
shares voted by proxy even if they attend the Meeting. All proxies that are
properly executed and returned, unless revoked, will be voted at the Meeting in
accordance with the instructions indicated thereon or, if no direction is
indicated, in favor of the Merger. The execution of a proxy will not affect the
right of a shareholder of CCBC to attend the CCBC Meeting and vote in person. A
person who has given a proxy may revoke it any time before it is exercised at
the CCBC Meeting by filing with the Secretary of CCBC a written notice of
revocation or a proxy bearing a later date or by attendance at the CCBC Meeting
and voting in person. Attendance at the Meeting will not, by itself, revoke a
proxy.
Adjournments. The CCBC Meeting may be adjourned, even if a
quorum is not present, by the vote of the holders of a majority of the shares
represented at the Meeting in person or by proxy. In the absence of a quorum at
the CCBC Meeting, no other business may be transacted at such Meeting.
34
<PAGE>
Notice of the adjournment of the CCBC Meeting need not be
given if the time and place thereof are announced at such Meeting at which the
adjournment is taken, provided that if the adjournment is for more than 45 days,
or if after the adjournment a new record date is fixed for the adjourned
Meeting, a notice of the adjourned Meeting shall be given to each shareholder of
record entitled to vote at such Meeting. At an adjourned Meeting, any business
may be transacted which might have been transacted at the original CCBC Meeting.
Solicitation of Proxies. The proxy relating to the CCBC
Meeting is being solicited by the Board of Directors of CCBC. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of CCBC common stock beneficially owned
by others to forward to such beneficial owners. CCBC may reimburse such persons
representing beneficial owners of its shares for their expenses in forwarding
solicitation material to such beneficial owners. Solicitation of proxies by mail
may be supplemented by telephone, telegram or personal solicitation by
directors, officers or other regular employees of CCBC, who will not be
additionally compensated therefor.
Each properly completed proxy returned in time for voting at
the CCBC Meeting will be voted in accordance with the instructions indicated on
the proxy or, if no instructions are provided, will be voted "FOR" approval and
adoption of the Agreements and the transactions contemplated thereby, including
the Merger. It is not expected that any matters other than those referred to in
this Joint Proxy Statement/Prospectus will be brought before the CCBC Meeting.
The grant of a proxy will also confer discretionary authority on the persons
named in the proxy to vote on the matters incident to the conduct of the CCBC
Meeting, including any adjournments or postponements thereof, except that
Proxies which have been voted against the proposal to approval the Agreements
and the transactions contemplated thereby may not be voted by the Proxy holder
for any proposal to adjourn the CCBC Meeting.
Shares of CCBC common stock which abstain from voting and
"broker non-votes" (shares as to which brokerage firms have not received voting
instructions from their clients and therefore do not have the authority to vote
the shares at the CCBC Meeting) will be counted for purposes of determining a
quorum. Because the affirmative vote of a majority of the outstanding shares of
CCBC common stock is required to approve the Merger, both abstentions and broker
non-votes will have the same legal effect as votes against the Merger.
35
<PAGE>
THE SPECIAL MEETING OF SHAREHOLDERS OF SWB
Introduction
This Joint Proxy Statement/Prospectus is furnished in
connection with the solicitation by the Board of Directors of SWB of proxies to
be voted at the SWB Meeting and any adjournments or postponements thereof. This
Joint Proxy Statement/ Prospectus also serves as the Prospectus of SWB with
regard to the offering of shares of SWB common stock to shareholders of CCBC.
At the SWB Meeting, the shareholders of SWB will be asked to
(1) consider and vote upon the Agreements and the transactions contemplated
thereby, including the Merger related amendments to the stock option plans of
SWB, and (2) consider and vote upon such other business as may properly come
before the SWB Meeting.
Voting And Proxies
Date, Time and Place of Meeting The SWB Meeting will be held
on March 26, 1998 at 8:00 a.m. local time at the administrative office of SWB,
10181 Truckee-Tahoe Airport Road, Truckee, California, 96160.
Record Date and Voting Rights Only holders of record of SWB
common stock at the close of business on January 30, 1998 (the "SWB Record
Date") are entitled to notice of and to vote at the Meeting. At the SWB Record
Date, there were approximately 966 shareholders of record and 4,088,659 shares
of SWB common stock outstanding and entitled to vote. Directors and executive
officers of SWB and their affiliates owned beneficially as of the Record Date an
aggregate of 304,527 shares of SWB common stock (including 145,078 shares
subject to options exercisable currently or within 60 days of the SWB Record
Date), or approximately 7% of the outstanding SWB common stock.
Each SWB shareholder is entitled to one vote for each share of
common stock he or she owns. Under the terms of the Agreement and California
law, approval of the Merger by the SWB shareholders requires the affirmative
vote of the holders of a majority of the outstanding shares of SWB common stock.
SWB SHAREHOLDER APPROVAL OF THE MERGER IS A CONDITION TO THE
MERGER. THE BOARD OF DIRECTORS OF SWB URGES EVERY SHAREHOLDER OF SWB TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENCLOSED
PREPAID ENVELOPE.
Voting by Proxy. Shareholders of SWB may use the enclosed
proxy if they are unable to attend the Meeting in person or wish to have their
shares voted by proxy even if they attend the Meeting. All proxies that are
properly executed and returned, unless revoked, will be voted at the Meeting in
accordance with the instructions indicated thereon or, if no direction is
indicated, in favor of the Merger. The execution of a proxy will not affect the
right of a shareholder of SWB to attend the Meeting and vote in person. A person
who has given a proxy may revoke it any time before it is exercised at the
Meeting by filing with the Secretary of SWB a written notice of revocation or a
proxy bearing a later date or by attendance at the Meeting and voting in person.
Attendance at the Meeting will not, by itself, revoke a proxy.
Adjournments. The Meeting may be adjourned, even if a quorum
is not present, by the vote of the holders of a majority of the shares
represented at the Meeting in person or by proxy. In the absence of a quorum at
the Meeting, no other business may be transacted at the Meeting.
36
<PAGE>
Notice of the adjournment of the Meeting need not be given if
the time and place thereof are announced at the Meeting at which the adjournment
is taken, provided that if the adjournment is for more than 45 days, or if after
the adjournment a new record date is fixed for the adjourned Meeting, a notice
of the adjourned Meeting shall be given to each shareholder of record entitled
to vote at the Meeting. At an adjourned Meeting, any business may be transacted
which might have been transacted at the original Meeting.
Solicitation of Proxies. The proxy relating to the SWB Meeting
is being solicited by the Board of Directors of SWB. Copies of solicitation
material will be furnished to brokerage houses, fiduciaries and custodians
holding in their names shares of SWB common stock beneficially owned by others
to forward to such beneficial owners.
SWB may reimburse such persons representing beneficial owners
of its shares for their expenses in forwarding solicitation material to such
beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telegram or personal solicitation by directors, officers or other
regular employees of SWB, who will not be additionally compensated therefor.
Each properly completed proxy returned in time for voting at
the SWB Meeting will be voted in accordance with the instructions indicated on
the proxy or, if no instructions are provided, will be voted "FOR" approval and
adoption of the Agreements and the transactions contemplated thereby, including
the Merger. It is not expected that any matters other than those referred to in
this Joint Proxy Statement/Prospectus will be brought before the SWB Meeting.
The grant of a proxy will also confer discretionary authority on the persons
named in the proxy to vote on the matters incident to the conduct of the SWB
Meeting, including any adjournments or postponements thereof, except that
Proxies which have been voted against the proposal to approval the Agreements
and the transactions contemplated thereby may not be voted by the Proxy holder
for any proposal to adjourn the SWB Meeting.
Shares of SWB common stock which abstain from voting and
"broker non-votes" (shares as to which brokerage firms have not received voting
instructions from their clients and therefore do not have the authority to vote
the shares at the SWB Meeting) will be counted for purposes of determining a
quorum. Because the affirmative vote of a majority of the outstanding shares of
SWB common stock is required to approve the Merger, both abstentions and broker
non-votes will have the same legal effect as votes against the Merger.
37
<PAGE>
PROPOSAL ONE: THE MERGER
Background
The terms of the Agreement are the result of arm's-length
negotiations between representatives of SWB and CCBC. The following is a brief
description of the events that led to the execution of the Agreement.
In June, 1997, representatives of SWB and CCBC held
preliminary discussions regarding a potential business combination of the two
companies. On June 30, 1997, SWB and CCBC signed a confidentiality agreement.
In connection with these discussions and CCBC's interest in evaluating other
possible strategic initiatives, on June 1, 1997, Van Kasper was engaged as
financial advisor to CCBC. Subsequently, the Board of directors appointed a
special committee to participate with its financial advisor in the evaluation
of CCBC's alternatives. As part of this process, Van Kasper contacted six
financial institutions to determine each institution's level of interest in a
possible business combination. As a result of this process, only SWB responded
favorably to CCBC's Board of Director's criteria for such a transaction.
At a meeting of CCBC's Board of Directors on September 16, 1997, Van Kasper
presented its evaluation of CCBC's alternatives. At this meeting, CCBC's Board
of Directors determined to proceed with further discussions with SWB concerning
the possibility of a business combination. During the remainder of the Fall
through November 11, CCBC and SWB, their respective attorneys, and their
financial advisors conducted additional discussions. Negotiations and due
diligence continued through October 1997, and negotiations and drafting of a
definitive agreement began on or about October 22, 1997. During this time, the
parties discussed the appropriate level of the allowance for loan losses for
each company. They also considered establishing a fixed Exchange Ratio rather
than a variable exchange ratio that might fluctuate up until the Effective Date.
During that time the Boards of Directors of CCBC and SWB met several times to
consider the Merger. The CCBC Board of Directors approved the Merger on November
11, 1997. The SWB Board of Directors approved the Merger on November 10, 1997.
The parties executed the Agreement as of November 13, 1997. A news release
announcing the proposed Merger was made on November 14, 1997.
Reasons for the Merger and Recommendations
CCBC. CCBC's Board of Directors has concluded that the terms
of the Merger are fair to, and in the best interests of, CCBC's shareholders. In
evaluating the terms of the Merger, the Board of Directors considered the number
and value of the shares of SWB common stock to be issued in exchange for each
outstanding share of CCBC common stock, the impact of the Merger upon their
depositors, customers and employees, the overall compatibility of their offices
and branch structures, the long-term prospects for both organizations in a
rapidly changing banking and financial services industry, the anticipated
ability of the combined entity to compete more effectively in its market area
and the tax-free nature of the Merger. CCBC's Board of Directors also considered
the greater liquidity of SWB common stock. CCBC's Board of Directors also
reviewed, among other things, the method of calculating the Exchange Ratio and
the Exchange Ratio in relation to the market value, book value and earnings per
share of CCBC common stock and SWB common stock, information concerning the
financial condition, results of operations and prospects of SWB and CCBC, the
benefits of economies of scale and the financial terms of other recent business
combinations in the California banking industry. In addition, the Board of
Directors of CCBC considered the opinion rendered by Van Kasper to the effect
that the terms of the Merger are fair to the CCBC shareholders from a financial
point of view as further described below. The Board of Directors of CCBC did not
assign any relative or specific weight to any of the foregoing factors. THE
BOARD OF DIRECTORS OF CCBC BELIEVES THAT THE TERMS OF THE MERGER ARE FAIR TO AND
IN THE BEST INTERESTS OF CCBC AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT ITS SHAREHOLDERS VOTE "FOR" THE MERGER.
SWB. The Board of Directors of SWB determined that the Merger
is in its best interests and the best interests of its shareholders. It also
considered the method of determining the Exchange Ratio and the Exchange Ratio
in relation to its own capital and managerial resources and prospects for future
operations. Among the important factors it considered were the following: (i) It
has conducted a due diligence examination of CCBC which indicates that CCBC is a
well capitalized institution with strong management and good earnings potential;
(ii) the geographic markets served by CP Bank complement the markets served by
Sierra Bank, and encompass areas into which Sierra Bank would like to expand its
services; (iii) the types of lending activities engaged in and products offered
by CP Bank complement the lending activities and products of Sierra Bank; (iv)
38
<PAGE>
the ability of Sierra Bank and CP Bank to cross-market products and services
will benefit consumers by increasing competition in the markets served by each
institution; (v) the diversification of SWB's customer base and loan portfolio
resulting from the Merger will help diversify risk in the SWB organization,
enabling SWB to better act as a source of strength to its subsidiary. The Board
of Directors of SWB did not assign any relative or specific weight to any of the
foregoing factors. THE BOARD OF DIRECTORS OF SWB BELIEVES THAT THE TERMS OF THE
MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF SWB AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT ITS SHAREHOLDERS VOTE "FOR" THE MERGER.
Fairness Opinions
Van Kasper's Fairness Opinion. CCBC retained the investment
banking firm of Van Kasper to act as its financial advisor in connection with
the proposed merger of CCBC and SWB and to render an opinion to CCBC's Board of
Directors as to whether the Exchange Ratio is fair from a financial point of
view to CCBC shareholders. No limitations were imposed by CCBC with respect to
the investigations made or procedures followed by Van Kasper in rendering its
opinion.
CCBC has agreed to pay Van Kasper a fee equal to one percent
of the aggregate merger consideration paid to CCBC shareholders, estimated to be
$393,000 and has agreed to reimburse it for reasonable out-of-pocket expenses
for its services in connection with the Merger, including the rendering of its
opinion as to the fairness of the Exchange Ratio. Under the terms of its
agreement, CCBC paid Van Kasper $25,000 of such amount prior to the date on
which the Agreement was signed, $75,000 upon the issuance of its fairness
opinion, and will pay $60,000 upon the mailing of this Joint Proxy Statement
Prospectus. The remaining amount payable and contingent upon the completion of
the Merger. CCBC has also agreed to indemnify Van Kasper against certain
liabilities, including liabilities under federal securities laws. CCBC's Board
of Directors selected Van Kasper to act as its advisor on the basis of Van
Kasper's expertise and experience in the banking industry.
The Board of Directors of CCBC retained Van Kasper, pursuant
to an engagement letter dated June 1, 1997, to provide financial advisory
services with respect to the proposed Merger, by rendering an opinion as to the
fairness of the Exchange Ratio in the Merger as set forth in Section 2.1(b) and
(c ) of the Agreement, from a financial point of view, to the holders of the
common shares of CCBC. Van Kasper is a California-based regional investment
banking and brokerage firm and, as part of its investment banking activities, is
regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. CCBC selected Van Kasper as it financial advisor on the basis of its
experience in transactions similar to the Merger, its knowledge of California
bank equities, and its reputation in the banking and investment communities. Van
Kasper also makes a market in CCBC's common stock.
A representative of Van Kasper attended the November 11, 1997
meeting of the CCBC Board of Directors and provided a report and its written
opinion dated November 11, 1997 that, based on the information then available
and the status of Van Kasper's analysis on that date that the Exchange Ratio in
the Merger as set forth in Section 2.1(b) and (c ) of the Agreement was fair,
from a financial point of view, to the holders of the common shares of CCBC. At
the November 11, 1997 meeting, the Board of Directors of CCBC approved the
execution of the Agreement.
No limitations were imposed by CCBC on Van Kasper with respect
to the investigations made or procedures followed in rendering its opinion. The
full text of Van Kasper's written opinion to the Board of Directors of CCBC,
which sets forth the assumptions made, procedures followed, matters considered,
and limitations on the scope of review by Van Kasper (the "Van Kasper Fairness
Opinion"), is attached hereto as Annex C and is incorporated herein by reference
and should be read carefully and in its entirety in connection with this Joint
Proxy Statement/Prospectus. The following summary of the Van Kasper Fairness
Opinion is qualified in its entirety by reference to the full text of the Van
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<PAGE>
Kasper Fairness Opinion. The Van Kasper Fairness Opinion is addressed to the
Board of Directors of CCBC and does not constitute a recommendation to the Board
of Directors of CCBC or to any shareholder of CCBC as to how the Board of
Directors of CCBC or any such shareholder should vote with respect to the
Merger.
In connection with the Van Kasper Fairness Opinion, Van
Kasper, among other things: (a) reviewed the Agreement; (b) reviewed certain
publicly available financial and other data with respect to CCBC and SWB,
including consolidated financial statements for recent years and interim periods
to September 30, 1997; (c) reviewed certain other publicly available financial
and other information concerning CCBC and SWB and the trading markets for the
publicly traded securities of CCBC and SWB; (d) reviewed certain publicly
available information concerning certain other banks and bank holding companies
and the trading markets for their securities; (e) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies that Van Kasper deemed to be relevant to their
inquiry; (f) reviewed and discussed with representatives of the management of
CCBC certain information of a business and financial nature regarding CCBC and
SWB provided to Van Kasper by CCBC and SWB, respectively, including financial
forecasts and related assumptions; (g) made inquiries regarding and discussed
the Merger and the Agreement and other matters related thereto with CCBC's
counsel; and (h) performed such other analyses and examinations as Van Kasper
deemed appropriate.
In conducting its review and in arriving at its opinion, Van
Kasper relied upon and assumed the accuracy and completeness of, without
independent verification, the financial and other information provided to Van
Kasper or publicly available, and did not assume any responsibility for
independent verification of such information. Van Kasper relied upon the
managements of CCBC and SWB as to the reasonableness of the financial and
operating forecasts, projections and projected operating cost savings (and the
assumptions and bases therefor) provided to Van Kasper, and Van Kasper assumed
that such forecasts, projections and projected operating cost savings reflect
the best currently available estimates and good faith judgments of the
applicable managements as to the expected future operating and financial
performance of their respective companies, consistent with historical data, and
assumed that the benefits contemplated by the Merger, as reflected in such
forecasts, will be achieved. Van Kasper did not review any individual credit
files In addition, Van Kasper did not make an independent evaluation, appraisal
or physical inspection of the assets or individual properties of CCBC or SWB,
nor was Van Kasper provided with any such appraisal and assumed that all
material assets and liabilities (including contingent or unknown liabilities) of
CCBC and SWB are as set forth in the financial statements of CCBC and SWB,
respectively. For purposes of the Van Kasper Fairness Opinion, Van Kasper
assumed that the Merger will have the tax, accounting and legal effects
(including, without limitation, that the Merger will qualify for accounting
treatment as a pooling-of-interests) described in the Agreement. Van Kasper
relied on advice of counsel to CCBC as to all legal matters with respect to
CCBC, the Merger, the Joint Proxy Statement/Prospectus and the Merger Agreement.
Further, the Van Kasper Fairness Opinion was based upon an analysis of the
foregoing in light of its assessment of general economic, market and financial
conditions existing as of the date of the opinion and on the assumption that the
Agreement will be consummated in accordance with the terms therefor, without any
amendments thereto, and without waiver by CCBC of any of the conditions to its
obligations thereunder.
Set forth below is a brief summary of certain analyses
performed by Van Kasper in preparing the Van Kasper Fairness Opinion. The
analysis also focused on core financial and operating projections and statistics
which were not specifically adjusted for nonrecurring charges, unless otherwise
stated. The Van Kasper Fairness Opinion is directed to the Board of Directors of
CCBC and the fairness to the shareholders of CCBC from a financial point of
view, of the Exchange Ratio to be received in the Merger and does not address
any other aspect of the Merger.
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<PAGE>
Contribution Analysis. Van Kasper analyzed the contribution of
each of CCBC and SWB to, among other things, total assets, total loans, total
deposits, and tangible equity of the pro forma combined company (the "Combined
Company") as of September 30, 1997 and to, among other things, core revenues
(net interest income and noninterest income), pretax pre-provision income,
pretax income of the Combined Company for 1996. This analysis was undertaken
without regard to the effect of merger costs or projected synergies.
This analysis showed, among other things, that based on
Combined Company's pro forma balance sheet as of September 30, 1997, CCBC would
contribute approximately 25% of total assets, approximately 23% of total loans,
approximately 25% of total deposits, and approximately 23% of the tangible
equity of the Combined Company.
The analysis showed, among other things, that based on the
Combined Company's pro forma income statements for projected fiscal year 1997,
CCBC would contribute approximately 20% of core revenues, approximately 17% of
pretax preprovision income, and approximately 18% of pretax income.
With an Exchange Ratio of 1.000 shares of CCBC Stock per one
shares of SWB Stock, the CCBC shareholders would own approximately 24% of the
Combined Company on a fully-diluted basis.
Dilution Analysis. Van Kasper analyzed the effect of the
Merger on a holder of CCBC stock by comparing, among other things, the book
value per share, the tangible book value per share, and the fully-diluted book
value per share as of December 31, 1998 through 2000 and the dividends per
common share and fully-diluted earnings per share for the fiscal years ending
December 31, 1998 through 2000 of CCBC with that of the Combined Company. This
analysis employs the Exchange Ratio.
The analysis assumed, unless otherwise stated, merger-related
operating cost savings projected by SWB to be realized in 1998 and subsequent
years. The analysis assumed that the Merger would be completed on March 31,
1998.
These projected operating cost savings represent approximately
6% of the Combined Company's projected noninterest expense in 1998, on a pre-tax
basis. This level of projected operating cost savings, expressed as a percentage
of the Combined Company's projected noninterest expense, is within the range of
similar savings as forecast by other banks in similar transactions reviewed by
Van Kasper.
The results of an analysis of changes in book value, tangible
book value, fully-diluted book value, dividends and fully-diluted earnings
(without giving effect to transaction expenses) attributable to one share of
CCBC Stock before the Merger compared to one share of CCBC Stock after the
Merger, assuming projected CCBC and SWB earnings and merger-related operating
cost savings, indicate the following: book value per share, tangible book value
per share, and fully-diluted book value would be greater assuming the Merger
than without the Merger and this benefit of the Merger to the CCBC shareholder
would increase in the subsequent two years ending December 31, 1999 and 2000.
Dividends would decrease from the current indicated dividend of $0.60 to $0.32
on a per share basis.
Comparable Company Analysis. Using publicly and other
available information, Van Kasper compared financial ratios of CCBC and SWB
including, among other things: the ratio of net income to average total assets,
the ratio of net income to average total equity, the ratio of equity to assets
and certain credit ratios for the twelve months ended June 30, 1997 to a proxy
group consisting of 46 selected banks located in California. While CCBC's
statistics were included in the proxy group, no other bank used in the analysis
is believed to be identical to CCBC or SWB. The analysis necessarily involved
complex considerations and judgments concerning differences in financial and
operating characteristics of the comparable companies. The results of this
analysis indicated that CCBC's earnings performance ratios were below the median
of the peer group and SWB's earnings performance ratios were above the median of
the peer group. CCBC's asset quality ratio were below than the peer group, while
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<PAGE>
SWB's were better. CCBC's capital ratios were below and SWB's capital ratios
were above the median of the peer group.
Analysis of Selected Bank Merger Transactions. Van Kasper
reviewed the consideration paid in recently announced transactions whereby
California banks were acquired. Using selection criteria, specifically, Van
Kasper reviewed 16 comparable transactions involving acquisitions of selected
banks in the State of California that were either announced or completed between
January 1, 1996 and October 31, 1997. For each bank acquired or to be acquired
in such transactions, Van Kasper compiled figures illustrating, among other
things, at announcement the ratio of the offer price to book value and the ratio
of offer price to last twelve months ("LTM") earnings. At announcement the
median offer price to book value was 1.7 times and the median offer price to
last twelve month earnings was 16.6 times. On November 11, 1997, the market
value of SWB was $28.25 and, pursuant to the Agreement, the Exchange Ratio was
1.00, so that the merger consideration at that date was $28.25, or approximately
2.1 times CCBC estimated year-end book value and 20.5 times CCBC's estimated
fully-diluted earnings per share for 1997.
No other bank, company or transaction used in the above
analysis as a comparison is identical to CCBC, SWB, or the Merger. Accordingly,
an analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors that
could affect the public trading value of the companies to which CCBC, SWB, and
the Merger are being compared.
Discounted Cash Flow Analysis. Van Kasper examined the results
of a discounted cash flow analysis designed to compare the present value, under
certain assumptions, that would be attained if CCBC remained independent through
2002 or was acquired in 2002 by a larger financial institution. This analysis
was based solely upon information, including forecasted statements of operations
and balance sheet data or financial assumptions, provided by CCBC and SWB to Van
Kasper for the years 1998 through 2002. The cash flows were based on the
Exchange Ratio of 1.0059 shares of SWB Stock per one share of CCBC Stock. The
results produced in the analyses did not purport to be indicative of actual
values or expected values of CCBC or the Combined Company at such future date.
All cases were analyzed assuming realization of operating cost savings,
estimated by SWB, in the amounts and time periods previously indicated.
The discount rates used ranged from 10% to 20%. For the CCBC
stand alone analysis, the terminal price multiples applied to the 2000 estimated
book value ranged from 1.6x to 2.4x. The mid-levels of the price/book values
multiples range reflected an estimated future trading range of CCBC or the
Combined Company, while the higher levels of the price/book value multiples
range were more indicative of a future sale of CCBC or the Combined Company to a
larger financial institution.
For the CCBC stand alone analysis, the cash flows were
comprised of the projected stand alone dividends per share in years 1998 through
2002 plus the terminal value of CCBC Stock at year-end 2002 (calculated by
applying each one of the assumed terminal price/book value multiples as stated
above to the 2002 projected CCBC book value per share). A similar analysis was
done for the Combined Company. The discount rates described above were then
applied to these cash flows to obtain the present values per share of CCBC
Stock.
The Van Kasper analysis assumed that projected earnings, among
other things, would be achieved; that projected operating cost savings are fully
realized (for the Combined Company case); a present value discount rate of 15%;
and a terminal price/book value multiple of 2.0x for CCBC and 2.2x for the
Combined Company. Assuming CCBC remains independent through 2002 and is then
acquired by a larger financial institution, a holder of one share of CCBC Stock
today would receive cash flows with a present value of $23.91. Assuming the
Merger is consummated and that Combined Company remains independent through 2002
and is then acquired by a larger financial institution, a holder of one share of
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<PAGE>
CCBC Stock today would receive cash flows with a present value of $29.68. This
analysis was completed in conjunction with the November 11, 1997 meeting of the
Board of Directors of CCBC and recent market values of SWB common stock may
exceed these present values.
Overall Analysis. The foregoing summarizes the material
portions of Van Kasper's analysis, but does not purport to be a complete
description of the presentation by Van Kasper to CCBC's Board of Directors or of
the analyses performed and factors considered by Van Kasper. The preparation of
a fairness opinion is not necessarily susceptible to partial analysis or summary
description. Van Kasper believes that its analyses and the summary set forth
above must be considered as a whole and that selecting portions of its analysis
and the factors considered, without considering all analyses and factors, would
create an misleading view of the process underlying the analyses set forth in
its presentation to CCBC's Board of Directors. In addition, Van Kasper may have
given certain analyses more or less weight than other analyses and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Van Kasper's view of the actual value of CCBC, SWB, or
the Combined Company which may be significantly more or less favorable. The fact
that any specific analysis has been referred to in the summary above is not
meant to indicate that such analysis was given greater weight than any other
analysis. Because such analyses, and any estimates contained therein, are
inherently subject to uncertainty, neither CCBC, Van Kasper or any other person
assumes responsibility for the accuracy.
In performing its analyses, Van Kasper made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of CCBC or
SWB. The analyses performed by Van Kasper are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Van Kasper's analysis of the fairness, from a financial point of view,
of the Exchange Ratio in the Merger to CCBC's shareholders and were provided to
CCBC's Board of Directors in connection with the delivery of the Van Kasper
Fairness Opinion. The analyses do not purport to be appraisals or to reflect the
prices at which any securities may trade at the present time or at any time in
the future. Van Kasper used in its analyses various projections of future
performance prepared by the management of CCBC and SWB. The projections are
based on numerous variables and assumptions which are inherently unpredictable
and must be considered not certain of occurrence as projected. Accordingly,
actual results could vary significantly from those set forth in such
projections.
As described above, the Van Kasper Fairness Opinion and
presentations to the Board of Directors of CCBC were among the many factors
taken into consideration by CCBC's Board of Directors in making its
determination to approve the Merger Agreement.
CCBC agreed to pay Van Kasper $75,000 for financial advisory
services with respect to the preparation of the Van Kasper Fairness Opinion and
such fee was paid to Van Kasper on November 11, 1997 upon delivery of the
attached Van Kasper Fairness Opinion. No portion of this fee was contingent upon
the consummation of the Merger.
CCBC also paid Van Kasper a retainer and partial fee of
$12,500 on July 15, 1997 and $12,500 on August 15, 1997. Van Kasper will receive
an additional fee of $60,000 upon mailing of the Joint Proxy
Statement/Prospectus and an additional amount to be determined based on 1% of
the transaction value at the Determination Date, less the aggregate of all of
the fees paid prior to the Determination Date. CCBC also has agreed to reimburse
Van Kasper for certain of its reasonable out-of-pocket expenses, including
reasonable fees and expenses of Van Kasper's counsel, and to indemnify Van
Kasper and its officers, directors, employees, agents and controlling persons
against certain liabilities, including liabilities under federal securities
laws. [mention other services provided by Van Kasper to CCBC & SWB]
NationsBanc Montgomery's Fairness Opinion. SWB has retained
the investment banking firm of NationsBanc Montgomery to act as its financial
advisor in connection with the proposed merger of SWB and CCBC and to render an
opinion to SWB's Board of Directors as to whether the Exchange Ratio is fair
from a financial point of view to SWB. No limitations were imposed by SWB with
respect to the investigations made or procedures followed by NationsBanc
Montgomery in rendering its opinion.
General. Pursuant to an engagement letter dated August 19,
1997 (the "Engagement Letter"), SWB engaged NationsBanc Montgomery to assist SWB
in its potential acquisition of CCBC. As part of its engagement, NationsBanc
Montgomery provided a full range of advisory services which included assisting
in the negotiations of the Acquisition as well as consulting with SWB regarding
financial aspects of the Merger. NationsBanc Montgomery also agreed to render to
SWB's Board an opinion with respect to the fairness of the consideration to be
paid by SWB from a financial point of view. NationsBanc Montgomery is a
nationally recognized investment banking firm and, as part of its investment
banking activities, is regularly engaged in the valuation of businesses and
their securities in connection with merger transactions and other types of
acquisitions, negotiated underwritings, private placements and valuations for
corporate and other purposes. The SWB selected NationsBanc Montgomery to render
the opinion on the basis of its experience and expertise in California bank
merger transactions and its reputation in the banking and investment
communities.
At a meeting of SWB's Board of Directors on November 10, 1997,
NationsBanc Montgomery delivered its oral opinion that the consideration to be
paid by SWB pursuant to the Merger Agreement was fair to SWB's shareholders from
a financial point of view, as of the date of its opinion. NationsBanc
Montgomery's oral opinion was confirmed in writing as of November 13, 1997.
The full text of NationsBanc Montgomery's written opinion to
SWB's Board of Directors, dated November 13, 1997, which sets forth the
assumptions made, matters considered, and limitations of the review by
NationsBanc Montgomery, is attached hereto as Annex D to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. The following
summary of NationsBanc Montgomery's opinion is qualified in its entirety by
reference to the full text of the opinion, which should be read carefully and in
its entirety. In furnishing such opinion, NationsBanc Montgomery does not admit
that it is an expert with respect to the Registration Statement of which this
Proxy Statement - Prospectus is part within the meaning of the term "experts" as
used in the Securities Act and the rules and regulations promulgated thereunder
nor does it admit that its opinion constitutes a report or valuation within the
meaning of Section 11 of the Securities Act. NationsBanc Montgomery's opinion is
directed to SWB's Board, covers only the fairness of the consideration to be
paid by SWB from a financial point of view as of the date of the opinion and
does not constitute a recommendation to any holder of SWB's Common Stock as to
how such shareholder should vote at the SWB Meeting.
In connection with its November 10, 1997 presentation to SWB's
Board, NationsBanc Montgomery, among other things: (i) reviewed certain publicly
available financial and other data with respect to SWB and CCBC, including the
audited, consolidated financial statements of SWB and CCBC for the fiscal years
ended December 31, 1995 and 1996 and unaudited consolidated financial statements
of SWB and CCBC for the nine months ended September 30, 1997 and certain other
relevant financial and operating data relating to SWB and CCBC made available to
NationsBanc Montgomery from published sources and from the internal records of
SWB and CCBC; (ii) reviewed a draft of the Merger Agreement dated November 7,
1997; (iii) reviewed certain publicly available information concerning the
trading of, and the trading market for, SWB's Common Stock and CCBC's Common
Stock; (iv) compared SWB and CCBC from a financial point of view with certain
companies which it deemed to be relevant; (v) considered the financial terms, to
the extent publicly available, of selected recent business combinations of
companies in the banking industry which NationsBanc Montgomery deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of SWB and CCBC certain information of a
business and financial nature regarding SWB and CCBC, furnished to it by them,
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including financial forecasts and related assumptions of SWB and CCBC; (vii)
made inquiries regarding and discussed the Merger and the Merger Agreement and
other matters related thereto with SWB's counsel; and (viii) performed such
other analyses and examinations as NationsBanc Montgomery deemed appropriate.
In connection with NationsBanc Montgomery's review,
NationsBanc Montgomery did not assume any obligation independently to verify the
foregoing information and relied on its being accurate and complete in all
material respects. With respect to the financial forecasts for SWB and CCBC
provided to it by their respective managements, upon their advice and with SWB's
consent, NationsBanc Montgomery assumed for purposes of its opinion that the
forecasts (including the assumption regarding potential cost savings resulting
from the merger) were reasonably prepared on bases reflecting the best available
estimates and judgment of their respective managements as to the future
financial performance of SWB and CCBC and that they provided a reasonable basis
upon which NationsBanc Montgomery could form its opinion. NationsBanc Montgomery
assumed that there were no material changes in SWB's or CCBC's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to NationsBanc
Montgomery. NationsBanc Montgomery relied on advice of counsel and independent
accountants to SWB as to all legal and financial matters with respect to SWB,
the Merger and the Merger Agreement. NationsBanc Montgomery assumed that the
Merger will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act, the Exchange Act and all other
applicable federal and state statutes, rules and regulations. NationsBanc
Montgomery is not an expert in the evaluation of loan portfolios for purposes of
assessing the adequacy of the allowances for losses with respect thereto and
assumed, with SWB's consent, that such allowances for each of SWB and CCBC were
in the aggregate adequate to cover such losses. In addition, NationsBanc
Montgomery did not assume responsibility for reviewing any individual credit
files, or making an independent evaluation, appraisal or physical inspection of
any of the assets or liabilities (contingent or otherwise) of SWB or CCBC, nor
was NationsBanc Montgomery furnished with any such appraisals. The SWB informed
NationsBanc Montgomery, and NationsBanc Montgomery assumed, that the Merger
would qualify for treatment as a pooling of interests under generally accepted
accounting principles. Finally, NationsBanc Montgomery's opinion was based on
economic, monetary and market and other conditions as in effect on, and the
information made available to NationsBanc Montgomery as of, the date of the
opinion. Accordingly, although subsequent developments may affect the opinion,
NationsBanc Montgomery has not assumed any obligation to update, revise or
reaffirm its opinion.
Set forth below is a brief summary of the report presented by
NationsBanc Montgomery to SWB's Board of Directors on November 10, 1997 in
connection with its opinion. For purposes of the report, NationsBanc Montgomery
assumed 1.37 million fully diluted shares of CCBC's Common Stock outstanding,
1.43 million shares to be issued by SWB in the Merger for 100% of the shares
outstanding and CCBC's balance sheet figures as of September 30, 1997.
Analysis of Selected Merger Transactions. NationsBanc
Montgomery reviewed the consideration paid in selected categories of bank
transactions. Specifically, NationsBanc Montgomery reviewed bank transactions
from January 1, 1996 to November 7, 1997 involving (i) mergers in California
where the transaction value was equal to or greater than $10 million and (ii)
national mergers where the transaction value was equal to or greater than $25
million and equal to or less than $50 million. For each transaction, NationsBanc
Montgomery analyzed data illustrating, among other things, purchase price to
book value, purchase price to tangible book value, purchase price as a
percentage of deposits, the ratio of the premium (i.e., purchase price in excess
of tangible book value) as a percentage of core deposits, and purchase price to
last twelve-months ("LTM") earnings.
A summary of the median multiples used in NationsBanc
Montgomery's analysis is as follows:
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<TABLE>
Price to
Book Price to Premium Price to # of
Value Tan. Bk. Price to to Core LTM Trans.
Transaction Categories Value Deposits Deposits Earnings Examined
- ---------------------------------------- ---------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mergers in California in 1997 with
transaction value greater than $10
million 2.09x 2.22x 24.79% 15.56% 21.94x 7
Mergers in California in 1996 and 1997
with transaction value greater than
$10 million 1.91x 1.94x 19.15% 11.16% 17.66x 28
National mergers in 1997 with transaction value equal to or greater than $25
million and equal to or less
than $50 million 2.36x 2.38x 25.09% 18.09% 21.15x 34
</TABLE>
A summary of the results of NationsBanc Montgomery's analysis
concerning the Merger is as follows:
Price to Price to Premium to Price to
Book Value Tan. Bk. Price to Core LTM
Value Deposits Deposits Earnings
SWB/CCBC 2.03x 2.09x 22.68% 14.25% 20.86x
NationsBanc Montgomery used a group of 34 U.S. bank
acquisitions announced since January 1, 1994 with purchase prices of equal to or
greater than $25 million and equal to or less than $50 million, where pricing
information was available to analyze premiums paid compared to the seller stock
price at various times prior to the announcement of the acquisition. These
figures produced: (i) a median premium to CCBC's stock price one month prior to
announcement of 37.8%; (ii) a median premium to CCBC's stock price six days
prior to announcement of 27.4%; and (iii) a median premium to CCBC's stock price
the day prior to announcement of 26.6%. In comparison, SWB's offer of $28.17 per
share based on SWB's stock price of $28.00 per share exceeded CCBC's stock price
one month prior to the announcement by 3.4%, CCBC's stock price six days prior
to the announcement by 2.4% and CCBC's stock price one day prior to the
announcement by (0.3%).
Contribution Analysis. NationsBanc Montgomery analyzed the
contribution of each of SWB and CCBC to loans, assets, deposits, common equity,
net interest income, non-interest expense and net income of the pro forma
combined companies for the period ending September 30, 1997 and projected net
income for the calendar year ending December 31, 1998. This analysis showed,
among other things, that based on pro forma combined balance sheets and income
statements for SWB and CCBC at September 30, 1997, CCBC would have contributed
22.9% of the loans, 25.0% of assets, 24.9% of deposits, 25.9% of common equity,
23.9% of net interest income, 23.1% of non-interest expense, and 19.2% of net
income. The pro forma projected income statement for the period ending December
31, 1998 showed that CCBC would contribute 19.3% of the net income. Based on
SWB's stock price of $28.00 per share and an offer price of $28.17, holders of
CCBC's Common Stock would own approximately 25.0% of the combined companies.
Dilution Analysis. Using earnings estimates and projected
growth rates for SWB and CCBC provided by their managements, NationsBanc
Montgomery compared estimated reported earnings per share ("Reported EPS") of
SWB on a stand-alone basis to the estimated Reported EPS of the pro forma
combined company for the calendar year ending December 31, 1998. NationsBanc
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Montgomery noted that, based upon management estimates after giving effect to
management's pretax cost savings estimates and certain assumptions as to, among
other things, the merger consideration, the Merger would be accretive to SWB's
Reported EPS for the year ending December 31, 1998. NationsBanc Montgomery also
completed a similar analysis with estimates for SWB provided by First Call, a
nationally recognized independent source of earnings estimates, and, after
giving effect to management's pretax cost savings estimates and certain
assumptions as to, among other things, the merger consideration, the Merger
would be accretive to SWB's Reported EPS for the year ending December 31, 1998.
These estimates were used for purposes of this analysis only and are not
necessarily indicative of expected results or plans of SWB, or the combined
institution.
Comparable Company Analysis. Using public and other available
information, NationsBanc Montgomery compared certain financial ratios of SWB and
CCBC, including the ratio of net income to average total assets ("return on
average assets"), the ratio of net income to average total equity ("return on
average equity"), the ratio of equity to assets, the ratio of noninterest
expense to revenue ("efficiency"), net interest margin and numerous other credit
ratios for the three years ended December 31, 1996 and for the nine month period
ended September 30, 1997. The analysis necessarily involved complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies.
The summary set forth above does not purport to be a complete
description of the presentation by NationsBanc Montgomery to SWB's Board or of
the analyses performed by NationsBanc Montgomery. The preparation of a fairness
opinion is not necessarily susceptible to partial analysis or summary
description. NationsBanc Montgomery believes that its analyses and the summary
set forth above must be considered as a whole and that selecting a portion of
its analyses and factors, without considering all analyses and factors, would
create an incomplete view of the process underlying the analyses set forth in
its presentation to SWB's Board. In addition, NationsBanc Montgomery may have
given various analyses more or less weight than other analyses, and may have
deemed various assumptions more or less probable than other assumptions, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be NationsBanc Montgomery's view of the actual value of
SWB or the combined companies. The fact that any specific analysis has been
referred to in the summary above is not meant to indicate that such analysis was
given greater weight than any other analysis.
In performing its analyses, NationsBanc Montgomery made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
SWB or CCBC. The analyses performed by NationsBanc Montgomery are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. Such
analyses were prepared solely as part of NationsBanc Montgomery's analysis of
the fairness of the consideration to be paid by SWB in the Merger and were
provided to SWB's Board in connection with the delivery of NationsBanc
Montgomery's opinion. The analyses do not purport to be appraisals or to reflect
the prices at which SWB might actually be sold or the prices at which any
securities may trade at the present time or any time in the future. The
forecasts used by NationsBanc Montgomery in certain of its analyses are based on
numerous variables and assumptions which are inherently unpredictable and must
be considered not certain of occurrence as projected. Accordingly, actual
results could vary significantly from those contemplated in such forecasts.
NationsBanc Montgomery's opinion and presentation to SWB's
Board were among the many factors taken into consideration by SWB's Board in
making its determination to approve the Merger Agreement. See "THE
MERGER--Reasons for the Merger and Recommendation--SWB."
Pursuant to the Engagement Letter, SWB paid NationsBanc
Montgomery a fee of $150,000 upon delivery of its November 13, 1997 fairness
opinion. NationsBanc Montgomery will also receive an amount not to exceed
$325,000 upon the closing of the Merger. Accordingly, a significant portion of
NationsBanc Montgomery's fee is contingent upon the closing of the Merger. The
SWB has also agreed to reimburse NationsBanc Montgomery for its reasonable
out-of-pocket expenses, including any fees and disbursements for NationsBanc
Montgomery's legal counsel and other experts retained by NationsBanc Montgomery.
The SWB has agreed to indemnify NationsBanc Montgomery, its affiliates, and
their respective partners, directors, officers, agents, consultants, employees
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and controlling persons against certain liabilities, including liabilities under
the federal securities laws.
Interests of Certain Persons in the Merger
As of December 12, 1997, the directors and executive officers
of CCBC owned an aggregate of 290,538 shares of CCBC common stock (including
options and CCBC Debentures which are exercisable or convertible into CCBC
shares within 60 days of January 16, 1998) which, if owned by them at the
Effective Date, will be converted into shares of SWB common stock with an
approximate aggregate market value of $8,752,007, assuming the Exchange Ratio as
of the Effective Date is .9198 based on the last reported sale price of SWB
common stock on the Nasdaq National Market on December 12 1997. Under the
Agreement, SWB has agreed to appoint Messrs. Moore and Sunderman, currently
directors of CCBC, to SWB's and Sierra Bank's Boards of Directors and to include
them among management's nominees for the boards through the year 2000. Messrs.
Moore and Sunderman have certain rights to appoint successors to themselves from
other existing directors of CCBC under certain circumstances, provided such
successor meets SWB's then written criteria for selection of board nominees. Mr.
Sunderman and SWB will enter into a consulting agreement that will provide, in
exchange for providing services related to customer retention, new business
development, community representation and strategic planning and implementation
to SWB, Mr. Sunderman with approximately $40,000 each year for 4 years in
addition to board fees and other benefits he may receive as a director of SWB.
The CCBC Executive Officers are parties to Executive
Agreements that provide for severance benefits upon the occurrence of a Change
of Control. These agreements provide that in the event of the termination of any
of the Executive Agreements or any CCBC Executive Officer, without cause, within
either six months prior to or 12 months after a Change of Control, Messrs.
Sunderman, Popovich and Alfstad would be entitled to receive a lump sum payment
equal to two times his then current base salary and Mr. Fletcher would be
entitled to receive a lump sum payment equal to one time his then current base
annual salary. Under these provisions Messrs. Sunderman, Popovich, Alfstad and
Fletcher would be entitled to $318,150, $207,480, $201,600, and $83,003
respectively.
In the event a Change of Control occurs but neither the
Executive Officer nor his Executive Agreement is terminated, Mr. Sunderman would
be entitled to receive a lump sum payment equal to one times his annual base
salary, and Messrs. Alfstad, Popovich and Fletcherwould each be entitled to
receive a lump sum payment equal to one half of his current base salary. Under
these provisions Messrs. Sunderman, Popovich, Alfstad and Fletcher would be
entitled to $159,075, $51,870, $50,400 and $41,502, respectively.
If a Change of Control is consummated for a total purchase or
investment price or value of more than 1.75 times the book value of CCBC's stock
as of the month prior to the announcement of the Change of Control, calculated
in accordance with the FDIC's regulatory capital requirements, but on a fully
diluted basis, then Messrs. Sunderman and Popovich each will be entitled to
receive an additional incentive payment calculated based upon a percentage of
the purchase price over the 1.75 threshold dependent upon the ratio of the
purchase price to fully diluted book value of CCBC's stock. However, in no event
shall the incentive payment exceed twice the CCBC Executive Officer's annual
base salary. The amounts payable under these provisions are not presently
calculable, but the maximum amounts payable under these provisions Messrs.
Sunderman and Popovich would be $318,150 and $207,480, respectively.
Ms. Larsen is also a party to an employment agreement which
provide for severance benefits. Under Ms. Larsen's agreement, in the event of a
Change of Control the term of her agreement will be extended for a period of not
less than one year from the effective date of the Change of Control, or if her
employment is terminated, she shall receive a lump sum equal to twelve (12)
months of her then current annual base salary, less salary paid for employment
under the agreement from the time of the Change of Control to the date of
termination. Under this provision, Ms. Larsen would receive a total of $56,223.
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Additionally, Messrs. Sunderman,Popovich, Alfstad and Fletcher
are each party to the Supplemental Plans. Under the Supplemental Plans, the
benefits of each CCBC Executive Officer vests 100% in the case of a Change of
Control. The CCBC Executive Officers are entitled to receive fully vested
retirement benefits on the January 1st next following termination of employment
following a Change of Control, determined on the date of termination as though
the CCBC Executive Officer were age 62, and may elect to be paid in a single sum
cash payment or that payments commence following a certain term, e.g., 10 years
after the Change of Control. No interest shall be credited on any deferred
payments. Although the amounts payable under the Supplemental Plans are not
presently calculable, the following chart demonstrates Estimated Annual
Retirement Income. During 1996, the cash compensation of Messrs. Sunderman,
Popovich, Alfstad and Fletcher (including bonuses) were $178,018, $116,095,
$111,948 and $92,887, respectively.
Years of Service
Remuneration 10 Years 15 Years 20 Years 25+ Years
- ------------ -------- -------- -------- ---------
$ 75,000 $15,000 $25,500 $30,000 $ 37,500
100,000 20,000 30,500 40,000 50,000
125,000 25,000 37,500 50,000 62,500
150,000 30,000 45,000 60,000 75,000
175,000 35,000 52,500 70,000 87,500
200,000 40,000 60,000 80,000 100,000
Years of service credit for the CCBC Executive Officers as of December 12,
1997 were as follows: Mr. Alfstad, 14 years; Mr. Fletcher, 13 years; Mr.
Popovich, 15 years; Mr. Sunderman, 15 years.
SWB has also authorized CCBC to make retention bonus payments,
not to exceed six months' salary, to certain key CCBC employees who maintain
their employment at least through the Effective Date.
For other information concerning the interests of directors,
officers, and employees of CCBC or CP Bank in the Merger, see "PROPOSAL ONE: THE
MERGER--Principal Terms of the Merger--Personnel Matters;" "--Treatment of Stock
Options;" and "--Indemnification of CCBC Directors and Officers."
SWB and CCBC have agreed that, as of Effective Date, SWB will
assume CCBC's obligations under the CCBC Stock Option Plans and the outstanding
options to purchase CCBC common stock will become options to purchase shares of
SWB common stock. See "--Treatment of Stock Options."Directors and officers of
CCBC hold options to acquire an additional 98,962 shares of CCBC common stock.
These shares have a potential approximate aggregate market value of $2,981,077,
assuming the Exchange Ratio as of the Effective Date is .9198. In addition, SWB
has agreed to indemnify the officers and directors of CCBC if certain lawsuits
and actions related to the Merger arise. See "--Indemnification of CCBC Officers
and Directors."
Principal Terms of the Merger
General. The following description of the principal terms of
the Merger is subject to and qualified in its entirety by reference to the terms
of the Agreements, copies of which are annexed to this Joint Proxy
Statement/Prospectus as Annex A.
Effective Date. The Agreement provides that the Merger will be
consummated upon the filing of the Merger Agreement with the California and
Delaware Secretaries of State and with the Commissioner in accordance with the
laws of California and Delaware. It is contemplated that the Effective Date will
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<PAGE>
occur on or about April 15, 1998, or as soon thereafter as practicable, assuming
the conditions set forth in the Merger Agreement are fully satisfied or waived.
See " --Representations and Warranties" and "--Conditions to the Merger." CCBC
and SWB expect the Bank Merger to become effective on or about the same date as
the Merger.
Exchange Amount. For purposes of the Agreement, the following
terms have the following meanings:
CCBC Shares Issued and outstanding shares of CCBC $0.10
par value common stock as of the Effective
Date.
Exchange Ratio The number of SWB Shares to be received
in exchange for each CCBC Share pursuant to
the calculation set forth in Section 2.1(b)
below.
Market Value The average of the closing prices of the
SWB Shares as reported in the western edition
of the Wall Street Journal for the 20 trading
days preceding the Determination Date. For
purpose of determining the average, the
divisor shall be only those days on which a
trade occurs.
Business Combination Any merger, sale or purchase of an
entity or subsidiary, sale or purchase of a
substantial portion of any entity's assets, or
tender offer or other means of acquisition of
substantially all the outstanding capital
stock of any entity.
Determination Date The fifth business day preceding the Effective
Date.
On the Effective Date, by virtue of the Merger and without any
action on the part of the holders of CCBC Shares, each outstanding CCBC Share
will be converted into the right to receive SWB Shares equal to the Exchange
Ratio as follows:
(i) If the Market Value is $22.75 or less, the Exchange Ratio
will be 1.1579.
(ii) If the Market Value is greater than $22.75 but not more
than $25.25, the Exchange Ratio will be determined by dividing $26.40 by the
Market Value.
(iii) If the Market Value is greater than $25.25 but not
more than $26.25, the Exchange Ratio will be 1.0476.
(iv) If the Market Value is greater than $26.25 but not more
than 28.25, the Exchange Ratio will be 1.0476 minus .000238 for each $0.01 by
which the Market Value is greater than $26.25.
(v) If the Market Value is $28.25, the Exchange Ratio will be
1.000.
(vi) If the Market Value is greater than $28.25 but not more
than $29.25, the Exchange Ratio will be determined by dividing (A) $28.25 plus
75% of the amount by which the Market Value exceeds $28.25 by (B) the Market
Value.
(vii) If the Market Value is greater than $29.25 but not more
than $30.25, the Exchange Ratio will be determined by dividing (A) $29.00 plus
50% of the amount by which the Market Value exceeds $29.25 by (B) the Market
Value.
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(viii) If the Market Value is greater than $30.25, the
Exchange Ratio will be determined by dividing (A) $29.50 plus 25% of the amount
by which the Market Value exceeds $30.25 by (B) the Market Value.
Notwithstanding the foregoing: (i) in the event that SWB
enters into a Business Combination with any other entity in which SWB shall not
be the continuing or surviving corporation or entity of such Business
Combination prior to the Determination Date, then, in the event that the Market
Value exceeds $28.25, the Exchange Ratio shall be 1.000; and (ii) in the event
that the Market Value is less than $21.59, then CCBC has the right to terminate
the Agreement. If CCBC notifies SWB that it intends to terminate the Agreement
because the Market Value is less than $21.59, then SWB shall have the right but
not the obligation to elect to issue an additional number of SWB Shares so that
the Exchange Ratio shall be equal to the quotient obtained by dividing $25.00 by
the Market Value. If SWB chooses not to exercise its right to issue such
additional SWB Shares, then CCBC may proceed to terminate the Agreement.
On the Effective Date, CCBC's obligations pursuant to the CCBC
Debentures will be assumed by SWB in accordance with the terms of the Indenture
Agreement and the CCBC Debentures will thereafter be convertible into SWB
Shares, provided, however, that the conversion price of such debentures into SWB
Shares shall be adjusted by dividing the current conversion price of $12.75 by
the Exchange Ratio on the Effective Date. See "DESCRIPTION OF CCBC CAPITAL
STOCK--Convertible Subordinated Debentures."
If, prior to the Effective Date, the number of outstanding SWB
Shares changes into a different number of shares or a different class as the
result of any reclassification, recapitalization, split, reverse split, exchange
of shares, readjustment, or a stock dividend on SWB Shares is be declared with a
record date within such period, corresponding adjustments will be made to the
number of SWB Shares to be issued and delivered in the Merger in exchange for
each outstanding CCBC Share.
The following table indicates the Exchange Ratio as a function
of a range of Market Values for the SWB common stock and the corresponding
Exchange Amount per share of CCBC common stock expressed in dollars. No
assurance can be given that the actual value of each share of SWB common stock
upon completion of the Merger will be equal to the Market Value used to
determine the Exchange Ratio.
<TABLE>
Market value Market value
of SWB Exchange Exchange of SWB Exchange Exchange
common stock(1) Ratio Amount common stock(1) Ratio Amount
<S> <C> <C> <C> <C> <C>
--------------------- --------------- -------------- --------------------- --------------- ---------------
$20.00 1.1579 $23.16 $30.50 (4) 0.9693 $29.56
21.00 1.1579 24.32 30.75 0.9634 29.63
21.59 1.1579 25.00 31.00 0.9577 29.69
22.00 1.1579 25.47 31.25 0.9440 29.75
22.75 1.1579 26.34 31.50 0.9365 29.81
23.00 1.1478 26.40 31.75 0.9291 29.88
24.00 1.1000 26.40 32.00 0.9219 29.94
25.00 1.0560 26.40 32.75 0.9198 30.13
26.00 1.0476 27.24 33.00 0.8939 30.19
27.00 1.0298 27.80 34.00 0.8676 30.44
28.00 1.0060 28.17 35.00 0.8429 30.69
28.25 1.0000 28.25 36.00 0.8194 30.94
28.50 (2) 0.9978 28.44 37.00 0.7973 31.19
29.00 0.9935 28.81 38.00 0.7763 31.44
29.25 0.9915 29.00 39.00 0.7564 31.69
29.50 (3) 0.9873 29.13 40.00 0.7375 31.94
30.00 0.9792 29.38 41.00 0.7195 32.19
30.25 0.9752 29.50 42.00 0.7024 32.44
</TABLE>
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(1) The Market Value, which will be used to determine the Exchange Amount and
the corresponding Exchange Ratio, is based upon the average of the closing
prices of SWB Shares for the 20 trading days preceding the Determination
Date.
(2) When the Market Value is greater than $28.25 but not more than $29.25, the
value of the Exchange Amount increases $0.75 for every $1.00 increase in
the Market Value.
(3) When the Market Value is greater than $29.25 but not more than $30.25, the
value of the Exchange Amount increases $0.50 for every $1.00 increase in
the Market Value.
(4) When the Market Value is greater than $30.25, the value of the Exchange
Amount increases $0.25 for every $1.00 increase the Market Value.
On the Effective Date each outstanding CCBC Convertible
Subordinated Debenture Due April 30, 2003 ("CCBC Debentures") shall by virtue of
the Merger, be assumed by SWB in accordance with the terms of the related
Indenture Agreement, provided, however, and as required by the Indenture
Agreement the conversion price of such CCBC Debentures into SWB Shares shall be
adjusted by dividing the current conversion price of $12.75 by the Exchange
Ratio on the Effective Date. See "DESCRIPTION OF CCBC CAPITAL STOCK--Convertible
Subordinated Debentures."
Treatment of Stock Options. On the Effective Date, SWB will
assume CCBC's obligations under the CCBC Stock Option Plans. As of that time,
options to purchase CCBC Shares issued pursuant to the CCBC Stock Option Plans
will be converted, without any action on the part of the option holders, into
options to acquire SWB Shares upon payment of an adjusted exercise price, which
shall equal the exercise price per share for the options immediately prior to
the Merger, divided by the Exchange Ratio.
The CCBC Stock Option Plans and the stock option agreements
entered into thereunder provide that a CCBC non-officer Director's service does
not terminate as long as he or she remains a Director or Advisory Director of
SWB on and after the Effective Date. SWB has agreed that it will, for purposes
of the CCBC Stock Option Plans, at or immediately following the Effective Date,
offer each current non-officer Director of CCBC a position as an Advisory
Director of SWB for a period of at least two years. SHAREHOLDER APPROVAL OF THE
MERGER INCLUDES APPROVAL OF AND CONSENT TO ANY SUCH AMENDMENTS TO SWB'S AND
CCBC'S STOCK OPTION PLANS AND AGREEMENTS.
SWB and CCBC have also agreed, subject to their expectation
that the Merger will qualify for accounting treatment based on the
pooling-of-interests method of accounting, to make any amendments to their
respective stock option plans, obtain any required shareholder approvals of such
amendments, and, as necessary, amend all stock option agreements and obtain any
required participant consents necessary to implement SWB's assumption of the
CCBC Stock Option Plans, the adjustment of the exercise price and the provisions
regarding the nontermination of non-officer Director's service.
Rights of Holders After Effective Date; Dividends. Promptly
after the consummation of the Merger, SWB will appoint an exchange agent (the
"Exchange Agent"), who will forward a letter of transmittal to former
shareholders of CCBC containing detailed instructions for surrender of
certificates representing CCBC common stock. Certificates should not be
surrendered by shareholders until the letter of transmittal is received. For
purposes of voting and establishing record of ownership of SWB common stock for
the period from and after the Effective Date, any holder of CCBC common stock
who does not surrender the certificates representing such shares to the Exchange
Agent, as discussed above, (i) shall be deemed to hold that number of shares of
SWB common stock that such holder would otherwise be entitled to receive if such
certificates had been surrendered, and (ii) shall be entitled to vote in regard
to any matter submitted to the SWB shareholders for their approval. Persons
entitled to receive certificates for SWB common stock will not receive any
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<PAGE>
dividends or other distributions of any kind which are declared payable to
shareholders of record of the SWB common stock after the Effective Date until
they have surrendered their certificates representing CCBC common stock. Upon
surrender of their certificates, the holder will be paid, without interest, any
dividends or other distributions with respect to the SWB common stock as to
which the record date and payment date occurred on or after the Effective Date.
Except as described in this paragraph, after the Effective Date, the holders of
certificates formerly representing CCBC common stock shall have no rights with
respect to such shares.
Exchange of CCBC Stock Certificates; Fractional Interests.
After the Effective Date, each holder of a certificate or certificates
representing shares of CCBC common stock immediately prior to the Merger will,
upon the surrender thereof to the Exchange Agent, be entitled to receive a
certificate or certificates representing the number of whole shares of SWB
common stock into which shares of CCBC common stock will have been converted and
a payment in cash with respect to fractional shares, if any, determined as
described below. The certificates representing shares of SWB common stock also
represent an equal number of rights under SWB's Shareholder Rights Plan. See
"CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS--Shareholder Rights Plan."
In lieu of fractional shares, each holder shall receive, at
the time of surrender of the certificate or certificates representing the
holder's CCBC common stock, an amount in cash equal to the Market Value per
share of the common stock of SWB, multiplied by the fraction of a share of SWB
common stock to which such holder otherwise would be entitled. No holder shall
be entitled to dividends, voting rights, interest on the value of, or any other
rights in respect of a fractional share.
As promptly as practicable after the Effective Date, letters
of transmittal will be mailed to holders of certificates representing shares of
CCBC common stock for use in exchanging such certificates for cash and shares of
SWB common stock. CCBC SHAREHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THEY HAVE BEEN NOTIFIED THAT THE MERGER HAS BEEN CONSUMMATED AND
THEY HAVE RECEIVED A LETTER OF TRANSMITTAL.
Personnel Matters.
Employment At Effective Date. On the Effective Date, except
for employees with contracts that will be assumed by SWB, CCBC employees shall
become employees at will of SWB. Prior to the Effective Date, CCBC may, with the
consent of SWB, make additional special bonus payments not to exceed six months
salary to retain employees who are deemed necessary to complete the Merger and
the Bank Merger. In the event that CCBC terminates employees prior to the
Effective Date, it shall abide by all internal policies and all legal
requirements for termination of employment. CCBC has agreed that, from the date
of the Agreement through the Effective Date, it will consult with a human
resources representative of SWB and keep that representative advised as to all
matters related to employment. After the Effective Date, former employees of
CCBC who become employees of SWB may be terminated by SWB at any time, with or
without cause, for any reason not prohibited by law.
Retirement Benefits. Employees of CP Bank formerly employed by
CCBC on the Effective Date will be eligible for participation in the SWB 401(k)
plan and employee stock option plan at the earliest normal entry date following
the Effective Date as allowed by applicable law and the provisions of SWB's
benefit plans, so long as such employees then meet the eligibility requirements
for participation in the SWB plan. The former employees of CCBC who are employed
by Sierra Bank will be credited for years of prior service with CCBC for vesting
(non-forfeitability) of accrued benefits in the SWB plans to the fullest extent
such credit for such prior service is permitted by SWB's plans and by the laws,
rules and regulations of the Internal Revenue Service and the Employee Income
Security Act of 1974, as amended.
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<PAGE>
Other Benefit Plans. After the Effective Date, any or all CCBC
welfare benefit plans will be terminated by SWB. Employees formerly employed by
CCBC immediately prior to the Effective Date will be eligible for participation
in any existing SWB plan, so long as such employee would otherwise be eligible
to participate in such plan. Employees formerly employed by CCBC on the
Effective Date will receive credit for length of service with CCBC for
determination of eligibility or participation in the SWB health service plans or
long-term disability, voluntary accident and life insurance plans.
Employees formerly employed by CCBC on the Effective Date will
retain vacation benefits accrued with CCBC prior to the Effective Date, subject
to SWB's maximum accrual and carryover limitations for such benefits. They will
also retain the amount of sick leave benefit eligibility on CCBC's records prior
to the Effective Date, to be available subject to SWB's policy for sick leave
benefits, but will not be entitled to payment for carry-over sick leave upon
termination as is provided in SWB's sick leave policy. CCBC will have accrued
the cost of such benefits on the books of CCBC on or before the Adjustment Date.
Following the Effective Date, all employees will be subject to the standard
policies of SWB for accrual of such benefits.
Employees formerly employed by CCBC on the Effective Date will
be subject to the severance policies in effect for all SWB employees.
Conduct of Business Prior to the Merger. The Agreement
contains mutual covenants concerning the obligations of each party to use its
best efforts to consummate the Merger, the right of each party to review the
other party's books and records, and other customary matters.
Under the Agreement CCBC has agreed to conduct its businesses
in the ordinary course as previously conducted; to preserve its business and
customer goodwill intact; to consult with SWB as to the making of any decisions
or the taking of any actions in matters other than in the ordinary course; on
reasonable request, to permit a designated representative or representatives of
SWB to attend and participate (but not vote) in all loan committee meetings and
board of directors meetings, except as to Merger-related matters or other
privileged matters; to maintain its properties; to comply in all material
respects with all laws, regulations decrees and regulatory orders applicable to
the conduct of its business; to keep in force its present insurance to the
extent practicable; to make all required governmental filings, returns and
reports in a timely manner; to conduct an environmental audit prior to
foreclosure on any property that it knows or should know is contaminated with
any hazardous substance and provide the results of such audit to and consult
with SWB prior to the foreclosure on any such property; to not sell, lease,
pledge, assign, encumber or otherwise dispose of any of its assets except other
real estate owned or other property in the ordinary course) in each case for
adequate value, without recourse and consistent with its customary practice; to
not take any action to create, relocate or terminate any branch or other office
or to form any new subsidiary or affiliated entity; to not settle any litigation
or disputes involving a claim of more than $50,000 without the consent of SWB,
which consent shall not be unreasonably withheld; to maintain an adequate
allowance for loan losses; not to commit itself to any loan or renewal or
restructure of an existing loan with a principal amount in excess of $100,000 if
unsecured, or in excess of $500,000 and with a loan-to-value ratio above 75% if
secured by real property; not to purchase or sell any investment security with a
maturity in excess of three years; not to issue any certificate of deposit for a
term greater than 12 months with a rate of interest in excess of 50 basis points
above the rate sheets provided weekly to CCBC by SWB; and not to enter into or
renew any contract having a duration extending beyond nine months from the date
of the Agreement.
SWB has agreed to advise the Board of Directors of CCBC if it
determines to undertake any transaction or series of transactions outside the
ordinary course of business prior to the Effective Date; to preserve its
business and customer goodwill; to maintain its properties; to comply with all
laws, regulations, decrees and regulatory orders applicable to the conduct of
its business; to keep in force its present insurance to the extent practicable;
to make all required governmental filings, returns and reports in a timely
manner; and not to sell, lease, pledge, assign, encumber or otherwise dispose of
any of its assets except for adequate value, without recourse and consistent
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<PAGE>
with its customary practice. SWB has also agreed to permit Mr. Sunderman,
currently a director of CCBC, to attend and participate (but not vote) in all
loan committee meetings, provided such CCBC representative may be excluded from
any portion of a meeting which relates to the Merger or any examination report
or response thereto, or is reasonably determined to be the subject of the
attorney client privilege.
Indemnification of CCBC Directors and Officers. Under the
Agreement, SWB has agreed upon completion of the Merger to indemnify persons who
were directors or officers of CCBC as of the date of the Agreement or who become
officers or directors prior to the Effective time (each, an "Indemnified Party")
against threatened or actual claims, suits, proceedings or investigations,
including any claim, suit, proceeding or investigation arising in whole or in
part out of (i) the fact that the Indemnified party is or was a director or
officer of CCBC or (ii) the Agreement or any of the transactions contemplated
thereby, whether asserted or arising before or after the Effective Date. SWB has
agreed to provide indemnification to each Indemnified Party to fullest extent
permitted by law and SWB's bylaws against any losses, claims, damages,
liabilities, costs, expenses (including reasonable attorney's fees and expenses
in advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by law
upon receipt of any undertaking required by applicable law), fines and amounts
paid in settlement. The Indemnified Parties are entitled to retain counsel after
consultation with SWB; provided, however, that (i) SWB may assume the defense of
the Indemnified Parties and upon such assumption shall not be liable to any
Indemnified Party for any other legal expenses subsequently incurred by any
Indemnified Party in connection with such defense, except that in certain cases
involving issues which raise conflicts of interest between SWB and the
Indemnified Parties, the Indemnified Parties may retain counsel after
consultation with SWB, (ii) SWB is obligated to pay for only one firm of counsel
for all Indemnified Parties, unless an Indemnified Party shall have reasonably
concluded; based on the advice of counsel, that in order to be adequately
represented, separate counsel is necessary, (iii) SWB will not be liable for any
settlement effected without its prior written consent and (iv) SWB will have no
obligation to any Indemnified Party if a court determines that indemnification
of such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law and such determination becomes final and unappealable. SWB's
obligations under the Agreement continue for a period of four years from the
Effective Date; provided, however, that all rights to indemnification in respect
of any claim asserted or made within such period continue until the final
disposition of the Claim. SWB has the right of setoff against any payments
required to be made by SWB to an Indemnified Party to the extent that such
Indemnified Party receives indemnification from an insurer under a directors'
and officers' liability insurance policy maintained by CCBC or SWB. SWB has also
agreed, for a period of three years, to cause the Indemnified Parties to be
covered by the directors' and officer' liability insurance policies covering
SWB's directors and officers on the Effective Date or to obtain tail coverage
for them under CCBC's directors' and officers liability insurance policies in
effect on the Effective Date; provided, however, that SWB is not obligated to
pay annual premiums for such insurance to the extent such premiums exceed 150%
of the premium paid by CCBC for such insurance as of the date of the Agreement.
Representations and Warranties. The Agreement contains
representations and warranties by SWB and CCBC regarding, among other things,
their respective organizations, authorization to enter into the Agreements,
capitalization, financial statements, compliance with applicable laws, payments
of taxes, absence of undisclosed liabilities, loan quality, employment
arrangements, adequacy of its allowance for loan losses and pending and
threatened litigation. The Agreement provides that these representations and
warranties must be true immediately prior to the consummation of the Merger but
will not survive beyond the Effective Date except to the extent they relate to
covenants or obligations to be performed after the Effective Date.
Conditions to the Merger. The Merger will occur only if the
Merger is approved by the requisite votes of CCBC shareholders and SWB
shareholders. Consummation of the Merger is subject to satisfaction of certain
other conditions. Such conditions include, but are not limited to, the
following, applicable to both parties: each party's representations and
warranties shall be true and correct; each party shall have substantially
complied with its obligations under the Agreement; neither party shall have
suffered a material adverse change in its business, financial condition or
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results of operations taken as a whole since September 30, 1997; each party
shall have delivered to the other certain officers' certificates; SWB and CCBC
shall have received certain opinions from each other's legal counsel; no action
or proceeding to enjoin or impede the Merger shall be pending or threatened; the
Registration Statement shall have been declared effective by the SEC and remain
effective; all necessary regulatory approvals, including the FDIC and the
Commissioner, shall have been received without any materially burdensome
conditions (see "Required Regulatory Approvals" below); CCBC and SWB shall have
received a legal opinion from the law firm of McCutchen, Doyle, Brown & Enersen,
LLP to the effect that the exchange of shares of CCBC common stock for SWB
common stock pursuant to the Merger will be tax-free to the CCBC shareholders
and SWB shareholders, respectively; and SWB and CCBC shall have exchanged
unaudited financial information as of the month-end before the Effective Date.
In addition, CCBC's obligations to complete the Merger are
subject to its receipt of an opinion from its financial advisor to the effect
that the Merger is fair to it from a financial point of view. Van Kasper has
delivered such an opinion. See "--Fairness Opinions--Van Kasper's Fairness
Opinion."
SWB's obligations to complete the Merger are similarly subject
to its receipt of an opinion from NationsBanc Montgomery to the effect that the
Exchange Ratio in the Merger is fair to SWB from a financial point of view.
NationsBanc Montgomery has delivered such an opinion. See "--Fairness Opinion."
The parties have also agreed that SWB's obligations will be subject to each
non-employee director of CCBC entering into an agreement not to engage in a
business competitive to that of SWB or CCBC in Solano, Sacramento or Contra
Costa counties for a period of three years from the date of the Merger. Each
non-employee director of CCBC has entered into such an agreement. SWB's
obligations are further subject to the additional condition that all directors
of CCBC shall have entered into a shareholder's agreement by which such
shareholders agree to vote their shares and any shares over which such
shareholders have voting authority in favor of the Merger and further agreeing,
to the extent permitted by law and the bylaws of CCBC, to vote in favor of the
Merger by consent solicitation. The directors of CCBC have entered into such
agreements.
The Board of Directors of each party may waive any conditions
to that party's performance of the Agreement unless doing so would violate
applicable law.
Required Regulatory Approvals. The Merger and the Bank Merger
are subject to approval by the FDIC under the Bank Merger Act, by the DFI under
the California Banking Law and by the FRB under the BHC Act. The Bank Merger Act
provides that no transaction may be approved which would result in a monopoly or
which would be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or the effect of which in any section of the country may be to
substantially lessen competition, or to tend to create a monopoly or which in
any other manner might restrain trade, unless it is determined that the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served. In conducting a review of
any application for approval, the FDIC is required to consider the financial and
managerial resources and future prospects of the company or companies and the
banks concerned and the convenience and needs of the community to be served. An
application may be denied if it is determined that the financial or managerial
resources of the acquiring entity are inadequate.
A transaction approved by the FDIC may not be consummated for
15 days after such approval. During the 15-day period, the Department of Justice
may commence legal action challenging the transaction under the antitrust laws.
If, however, the Justice Department does not commence a legal action during the
15-day period, it may not thereafter challenge the transaction except in an
action commenced under the antimonopoly provisions of Section 2 of the Sherman
Antitrust Act. The Bank Merger Act provides for the publication of notice and
the opportunity for administrative hearings relating to the application for
approval under the Bank Merger Act and authorizes the FDIC to permit interested
parties to intervene in the proceedings. If an interested party is permitted to
intervene, such intervention could substantially delay the regulatory approval
required for consummation of the Merger.
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The Bank Merger is also subject to approval by the
Commissioner pursuant to the California Financial Code. The Financial Code
requires the Commissioner to consider factors and standards substantially
similar to those under the Bank Merger Act.
Under the BHC Act, the Merger is subject to approval by the
FRB. SWB has requested a waiver from this requirement on the basis that the
FDIC, as the primary federal regulator for both Sierra Bank and CP Bank, will
review the Bank Merger under the Bank Merger Act. Based on existing precedents,
SWB and CCBC expect that such a waiver will be granted; if it is not, however,
SWB will be required to submit an application to the FRB to approve the Merger.
Based on existing precedents, the managements of SWB and CCBC
believe that the Merger will be approved by the appropriate regulatory agencies
and will not be subject to challenge by the Department of Justice under the
antitrust laws. However, no assurance can be provided that the regulatory
agencies or the Department of Justice will concur in this assessment or that any
approval by the regulatory agencies will not contain conditions which are
materially burdensome to SWB or CCBC.
Non Solicitation Covenants. Subject to the fiduciary
obligations of its Board of Directors, CCBC has agreed that neither it nor any
of its officers, directors, affiliates or other agents shall initiate
negotiations toward, or otherwise effect or agree to effect, any proposal for
any merger, sale of capital stock resulting in a change of control, sale of all
or substantially all of the assets, or any other means of acquisition of
substantially all the outstanding capital of any entity of CCBC. The Agreement
also requires CCBC to notify the other party immediately of the receipt by it of
any unsolicited proposal to effect any such transaction with another entity. As
of the date of this Joint Proxy Statement/Prospectus, CCBC has not received such
a proposal since the announcement of the proposed Merger.
Termination and Amendment; Termination Payment. The Agreements
may be terminated any time prior to the Effective Date by the mutual consent of
the Boards of Directors of both SWB and CCBC.
In addition, the Agreements may be terminated by the Board of
Directors of SWB (a) on or after June 30, 1998 if any of the conditions to the
obligations of SWB have not been fulfilled or waived by SWB; (b) if
it becomes aware of any facts or circumstances of which it was not aware on the
date of the Agreement which materially adversely affect CCBC, its properties,
operations or financial condition taken as a whole, (c) if a materially adverse
change occurs at any time after September 30, 1997 in the business, financial
condition, results of operations or properties of CCBC, or (d) if there is a
material failure or prospective material failure on the part of CCBC to comply
with its obligations under the Agreement, or any material failure or prospective
failure to comply with any of the conditions to the Merger set forth in the
Agreement or (e) if CCBC enters into a transaction or series of transactions
with a third party providing for the acquisition of all or a substantial part of
CCBC, whether by way of merger, exchange or purchase of stock, sale of assets or
otherwise
The Agreements may be terminated by the Board of Directors of
CCBC (a) on or after June 30, 1998, if any of the conditions to the obligations
of CCBC have not been fulfilled or waived by CCBC, provided, however, that if
SWB is engaged at the time in litigation (including an administrative appeal
procedure) relating to an attempt to obtain one or more of the governmental
approvals necessary to consummate the Merger or if SWB shall be contesting in
good faith any litigation which seeks to prevent consummation of the any of the
transactions contemplated by the Agreement, such nonfulfillment shall not give
CCBC the right to terminate the Agreements until the later of (i) June 30, 1998,
and (ii) 60 days after the completion of such litigation and of any further
regulatory or judicial action pursuant thereto, including any further action by
a governmental agency as a result of any judicial remand, order or directive or
otherwise or any waiting period with respect thereto provided such date shall
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not occur beyond December 31, 1998; (b) it has become aware of any facts or
circumstances of which it was not aware on the date of the Agreement and which
can or do materially adversely affect SWB or its properties, operations or
financial condition taken as a whole, (c) a materially adverse change shall have
occurred since September 30, 1997 in the business, financial condition, results
of operations or assets of SWB, or (d) there has been a material failure or
prospective material failure on the part of SWB to comply with its obligations
under the Agreements, or any material failure or prospective material failure to
comply with any conditions to the obligations of CCBC set forth in the
Agreement; or (e) in the event SWB or its affiliates enter into a business
combination with any other entity which does not expressly contemplate the
performance by SWB or its successor in interest of SWB's obligations under the
Agreement and SWB indicates it will not consummate the Agreement or (f) two days
prior to the Effective Date if it determines that the Market Value is less than
$21.59, provided, however that if CCBC notifies SWB that it intends to so
terminate the Agreement because the Market Value is less than $21.59, then SWB
has the right but not the obligation to elect to issue an additional number of
SWB Shares so that the Exchange Ratio shall be equal to the quotient obtained by
dividing $25.00 by the Market Value.
If SWB or CCBC terminates the Agreement because of a willful
breach of the Agreement by CCBC or because CCBC has entered into a transaction
or series of transactions with a third person or group providing for the
acquisition of all or a substantial part of CCBC, CCBC shall pay to SWB, on
demand, the sum of $1,200,000. If CCBC or SWB terminates the Agreement because
of a willful breach by SWB or because SWB has entered into an agreement for a
business combination that does not expressly contemplate the performance by SWB
or its successor in interest of SWB's obligations under the Agreement and SWB
indicates it will not consummate the Agreement, SWB shall pay to CCBC, on
demand, the sum of $1,200,000. These payments are deemed consideration or
liquidated damages for expenses incurred and the lost opportunity cost for time
devoted to the transactions contemplated by the Agreement. In the event of such
a termination, each party remains liable for its expenses as set forth in the
Agreement. See "--Expenses."
Expenses. CCBC and SWB have each agreed to pay the costs
incurred by them incident to the performance of their obligations under the
Agreement, including costs related to the Registration Statement and these Joint
Proxy Materials, their respective financial statements and the fees of its
counsel, accountants, consultants and financial advisers. The costs of printing
and distributing the Registration Statement and the Proxy Materials, fees
payable pursuant to state "blue-sky" securities laws, fees related to obtaining
a tax opinion, the fee required to be paid to the SEC to register the shares of
SWB common stock will be shared equally by the parties.
Certain Income Tax Consequences.
As a condition to the consummation of the Merger, SWB and CCBC
will receive an opinion acceptable to them from McCutchen, Doyle, Brown &
Enersen, LLP that for federal and California income tax purposes: (i) the Merger
will qualify as a "reorganization" within the meaning of Internal Revenue Code
Section 368(a)(1)(A); (ii) except for cash received in lieu of any fractional
share, no gain or loss will be recognized by holders of shares of CCBC common
stock who receive shares of SWB common stock in exchange for the shares of CCBC
common stock which they hold; (iii) the holding period of shares of SWB common
stock exchanged for shares of CCBC common stock (including any fractional share
prior to its conversion into cash) will include the holding period of the shares
of CCBC common stock for which they are exchanged, assuming the shares of CCBC
common stock are capital assets in the hands of the holder thereof at the
Effective Date; (iv) the basis of the shares of SWB common stock received in the
exchange will be the same as the basis of the shares of CCBC common stock for
which they are exchanged, less any basis attributable to fractional shares for
which cash is received; (v) no gain or loss will be recognized by SWB or CCBC in
connection with the Merger or the Bank Merger; (vi) any cash received by a
shareholder of CCBC in lieu of a fractional share will, to the extent such share
was a capital asset in the hands of the CCBC shareholder, result in recognition
of capital gain or loss by such shareholder measured by the difference between
the cash received and the basis of such fractional share; (vii) provided the
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options to buy shares of SWB common stock are not actively traded on an
established securities market, no gain or loss will be recognized by the holders
of nonqualifed options to buy shares of CCBC common stock upon the conversion
those options into nonqualifed options to buy shares of SWB common stock under
the same terms and conditions as in effect immediately prior to the proposed
transaction; (viii) no gain or loss will be recognized by the holders of
incentive stock options to buy shares of CCBC common stock upon the conversion
of those options into incentive stock options to buy shares of SWB common stock
under the same terms and conditions as in effect immediately prior to the
proposed transaction; and (ix) no gain or loss will be recognized (and no amount
will be included in income) by a holder of CCBC convertible debentures (whether
or not such holder also holds CCBC Share) upon the assumption of such debentures
by SWB..
A shareholder who perfects dissenters' rights and receives
payment for his or her SWB shares will be treated as if such shares were
redeemed. In general, if the shares are held as a capital asset at the Effective
Date, the dissenting shareholder will recognize a capital gain or loss measured
by the difference between the amount of cash received and the basis of the
shares in the hands of the dissenting shareholder. However, if such dissenting
shareholder owns, directly or indirectly through the application of Section 318
of the Code, any shares of common stock as to which dissenters' rights are not
exercised and perfected and which are therefore exchanged for SWB common stock
in the Merger, such shareholder may be treated as having received a dividend in
the amount of cash paid to the shareholder in exchange for the shares as to
which dissenter's rights were perfected. Under Section 318 of the Code, an
individual is deemed to own stock that is actually owned (or deemed to be owned)
by certain members of his or her family (spouse, children, grandchildren and
parents, with certain exceptions) and other related parties, including, for
example, certain entities in which the individual has a direct or indirect
interest (including partnerships, estates, trusts and corporations), as well as
stock that such individual (or a related person) has the right to acquire upon
exercise of an option or conversion right held by such individual (or a related
person). Each SWB shareholder who intends to dissent from the Merger (see
"DISSENTERS' RIGHTS OF APPRAISAL") should consult his or her own tax advisor
with respect to the application of the constructive ownership rules to the
shareholder's particular circumstances.
For federal tax purposes, the highest marginal tax rate for
individuals on ordinary income is 39.6%, compared to 28% for capital gains on
assets held more then 12 months but not held more than 18 months and 20% for
capital gains on assets held more than 18 months, and the highest marginal tax
rate for corporations is 35% on ordinary income and capital gain. Capital losses
are treated differently than ordinary losses. Essentially, a capital loss for
any taxable year may be deducted by a corporation in that year only to the
extent of capital gain, and by an individual in that year only to the extent of
capital gain plus up to $3,000 of ordinary income. Capital losses not deductible
in the year they occur may be carried forward indefinitely by individuals and
may be carried back up to three years and forward up to five years by
corporations.
This Joint Proxy Statement/Prospectus does not provide
information about the tax consequences of the Merger under any other state,
local or foreign tax laws. The shareholders of CCBC are urged to consult their
own tax advisors with respect to all tax consequences of the Merger. Expenses
incurred by any shareholder arising from disputes with the IRS or any state or
foreign tax agency over the tax consequences of the Merger will not be borne by
CCBC or SWB.
Accounting Treatment.
The management of CCBC and SWB expect that the Merger will
qualify for treatment based on the pooling-of-interests method of accounting. It
is a condition to closing that prior to the Effective Date, SWB shall have
received a written opinion from Deloitte & Touche LLP, SWB's independent public
accountant, to the effect that the Merger qualifies for pooling-of-interests
accounting treatment if consummated in accordance with the terms of the Merger
Agreements. Under this method of accounting, SWB's prior period financial
statements will be restated on a combined basis with those of CCBC, with all
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intercompany accounts being eliminated and all expenses relating to the
combination being deducted from current combined income. The pro forma results
of this accounting treatment are shown in the unaudited pro forma financial data
included elsewhere in this Joint Proxy Statement/Prospectus.
Resales of SWB Common Stock.
The shares of SWB common stock to be issued to CCBC
shareholders in connection with the Merger have been registered under the 1933
Act. Such shares will be freely transferable under the 1933 Act, except for
shares issued to each person who may be deemed to be an "affiliate" of CCBC
within the meaning of Rule 145 under the 1933 Act (each an "Affiliate"). The
shares of SWB common stock received by Affiliates may not be sold without
additional registration under the 1933 Act unless an exemption (including the
exemption provided by Rule 145) from such registration requirement is available.
The Affiliates have entered into agreements concerning the foregoing
restrictions on transfer with respect to the shares of SWB common stock they
will receive in connection with the Merger. The exemption under Rule 145 permits
sale of shares if the issuer is current in its filings required under the 1934
Act, the Affiliate does not sell more than the greater of 1% of the issuer's
outstanding shares or the number of shares equal to the weekly average trading
volume over the preceding four weeks in any three-month period, all sales are
conducted as "broker's transactions" or with a market maker and, in the case of
persons who become Affiliates of SWB after the Merger, the Affiliate files Form
144 with the SEC upon placing a sell order.
Conduct of Business of SWB and CCBC Following the Merger.
When the Merger is consummated, the directors and officers of
SWB and Sierra Bank will remain their directors and officers. After the Merger,
CCBC will be merged into SWB and CCBC's separate existence will cease. Upon
completion of the Bank Merger, CP Bank will be merged into Sierra Bank and the
separate existence of CP Bank will cease. The former branches of CP Bank will
continue to operate as branches of Sierra Bank. SWB has agreed to appoint two of
CCBC's directors, Messrs. Bernard E. Moore and Walter A. Sunderman, to the
Boards of Directors of SWB and Sierra Bank upon completion of the Merger.
THE STOCK OPTION AGREEMENT BETWEEN SWB AND CCBC
General
Concurrently with the execution and delivery of the Agreement,
and as a condition and inducement thereto, CCBC and SWB entered into the Stock
Option Agreement, pursuant to which CCBC granted SWB an option (the "Option") to
purchase up to 282,914 shares of CCBC common stock (representing approximately
19.9% of the outstanding shares of CCBC common stock) at a per share price equal
to the lesser of (i) the average of the bid and ask prices for CCBC common stock
for the five trading days preceding the execution of the Agreement or (ii) the
per share price at which CCBC issues or agrees to issue CCBC common stock to an
acquiring person. The Option will only become exercisable upon the occurrence of
certain events that create the potential for another party to acquire control of
CCBC.
The following is a summary of the material provisions of the
Stock Option Agreement, which is attached as Annex B to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. The following summary
is qualified in its entirety by reference to the Stock Option Agreement.
Exercise of Stock Option
At SWB's election, the Option may be exercised in whole or in
part only after the occurrence of one of the following events by a person or
group other than SWB (each a "Purchase Event"):
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(i) CCBC, without SWB's prior written consent, enters into an agreement
with any person (other than SWB or any affiliate of SWB) to (A) effect
a merger, consolidation or similar transaction involving CCBC or (B)
acquire all or substantially all of the assets of CCBC, or 10% or more
of CCBC's voting power (any of the foregoing is defined as an
"Acquisition Transaction");
(ii) any person or group of persons acting in concert acquires
beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act) or the right to acquire beneficial ownership of 24.99% or
more of the outstanding CCBC common stock;
(iii) the CCBC shareholders have not approved the Agreement, the CCBC
Meeting has not been held or has been canceled or the CCBC Board has
withdrawn or modified in a manner adverse to SWB its recommendation
with respect to the Agreement, in each case after any person (other
than SWB) has (A) publicly announced a proposal, or publicly disclosed
an intention to make a proposal, to engage in an Acquisition
Transaction, (B) commenced a tender offer, or (C) filed an application
(or given a notice) with a bank regulatory authority to engage in an
Acquisition Transaction;
(iv) any person (other than SWB or other than in connection with a
transaction which SWB has given prior written consent), shall have
filed an application (or given a notice) with a bank regulatory
authority to engage in an Acquisition Transaction;
(v) CCBC has willfully breached the Agreement in anticipation of
engaging in a Purchase Event, and following such breach SWB would be
entitled to terminate the Agreement; or
(vi) a public announcement by CCBC of an Acquisition Transaction,
exchange offer or tender offer or a public announcement of an intended
Acquisition Transaction, exchange offer or tender offer.
Adjustment of Number of Shares Subject to Option
The number and type of securities subject to the Option and
the purchase price of shares will be adjusted for any change in CCBC common
stock by reason of stock split, reverse split, dividend, exchange of shares or
similar transaction, such that SWB will receive (upon exercise of the Option)
the same number and type of securities as if the Option had been exercised
immediately prior to the change in CCBC common stock. The number of shares of
CCBC common stock subject to the Option will also be adjusted in the event CCBC
issues additional shares of CCBC common stock, so that the number of shares of
CCBC common stock subject to the Option represents 19.9% of issued and
outstanding CCBC common stock. In the event of a capital reorganization, merger
or consolidation of CCBC with or into another corporation, or the sale of all or
substantially all of CCBC's assets to any other person, then, as a part of any
such transaction, provision shall be made so that SWB shall be entitled to
receive an option of the succeeding corporation, any person that controls the
succeeding corporations or CCBC, at the election of SWB.
Repurchase of Option Shares
During the 12-month period after the occurrence of a Purchase
Event, SWB has the right to require that CCBC repurchase the shares of CCBC
common stock received by SWB upon exercise of the Option by SWB. The shares will
be repurchased at a price equal to the highest of (i) 100% of the exercise
price; (ii) the highest price paid or agreed to be paid for shares of CCBC
common stock by an acquiror in any tender offer, exchange offer or other
transaction or series of related transactions involving the acquisition of 10%
or more of the outstanding shares of CCBC common stock; and (iii) in the event
of a sale of all or substantially all of CCBC's assets, (x) the sum of the price
paid in such sale and the current market value of the remaining assets of CCBC
as determined by a recognized investment banking firm, divided by (y) the number
of shares of CCBC common stock then outstanding; provided, however, that in no
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event will CCBC be required to repurchase the shares of CCBC common stock at a
repurchase price which exceeds SWB's aggregate exercise price by more than$2
million.
Restrictions on Transfer
Prior to the occurrence of a Purchase Event, SWB is prohibited
from selling, assigning or otherwise transferring the Option.
Registration Rights
SWB has certain rights to require registration of any shares
of CCBC common stock purchased pursuant to the Stock Option Agreement under the
securities laws if necessary to enable SWB to sell such shares.
Effect of Stock Option Agreement
The Stock Option Agreement is intended to increase the
likelihood that the Merger will be consummated on the terms set forth in the
Agreement. Consequently, certain aspects of the Stock Option Agreement may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in CCBC from
considering or proposing such an acquisition, even if such persons were prepared
to offer higher consideration per share for CCBC common stock than the
consideration set forth in the Agreement. The Option granted to SWB pursuant to
the Stock Option Agreement generally terminates upon the earlier of the
Effective Time of the Merger or 12 months following the date of any Purchase
Event.
DISSENTERS' RIGHTS OF APPRAISAL.
SWB. Because the SWB common stock is traded on Nasdaq,
dissenters' rights will be available to the shareholders of SWB only if the
holders of five percent or more of SWB common stock make a written demand upon
SWB for the purchase of dissenting shares in accordance with Chapter 13 of the
California Law. If this condition is satisfied and the Merger is consummated,
shareholders of SWB who dissent from the Merger by complying with the procedures
set forth in Chapter 13 would be entitled to receive an amount equal to the fair
market value of their shares as of November 12, 1997, the day before the public
announcement of the Merger. The closing sales price for SWB common stock on
November 12, 1997 was $28.50. A copy of Chapter 13 of the California Law is
attached hereto as Annex E and should be read for more complete information
concerning dissenters' rights. THE REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 OF
THE CALIFORNIA LAW MUST BE FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE
LOST. The information set forth below is a general summary of dissenters' rights
as they apply to SWB shareholders and is qualified in its entirety by reference
to Annex E.
In order to be entitled to exercise dissenters' rights, a
shareholder of SWB must vote "AGAINST" the Merger. Thus, any shareholder who
wishes to dissent and executes and returns a proxy in the accompanying form must
specify that his or her shares are to be voted "AGAINST" the proposal to approve
the principal terms of the Agreements. If the shareholder returns a proxy
without voting instructions or with instructions to vote "FOR" the proposal to
approve the principal terms of the Agreements, his or her shares will
automatically be voted in favor of the Merger and the shareholder will lose any
dissenters' rights. In addition, if the shareholder abstains from voting his or
her shares, the shareholder will lose his or her dissenters' rights.
Furthermore, in order to preserve his or her dissenters'
rights, a shareholder must make a written demand upon SWB for the purchase of
dissenting shares and payment to such shareholder of their fair market value,
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specifying the number of shares held of record by such shareholder and a
statement of what the shareholder claims to be the fair market value of those
shares as of November 12, 1997. Such demand must be addressed to SierraWest
Bancorp, P.O. Box 61000, 10181 Truckee-Tahoe Airport Road, Truckee, California
96160-9010, Attn: David Broadley, and must be received by SWB not later than the
date of SWB Meeting. A vote "AGAINST" the Merger does not constitute such
written demand.
If the holders of five percent or more of the outstanding
shares of SWB common stock have submitted a written demand for SWB to purchase
their shares, and these demands are received by SWB on or before the date of the
SWB Meeting and the Merger is approved by the shareholders, SWB will have 10
days after such approval to send to those shareholders who have voted against
the approval of the Merger written notice of such approval accompanied by a copy
of Chapter 13 of the California Law, a statement of the price determined by SWB
to represent the fair market value of the dissenting shares as of November 12,
1997, and a brief description of the procedure to be followed if a shareholder
desires to exercise the dissenters' rights. Within 30 days after the date on
which the notice of the approval of the Merger is mailed, the dissenting
shareholder must surrender to SWB, at the office designated in the notice of
approval, the certificate representing the dissenting shares to be stamped or
endorsed with a statement that they are dissenting shares or to be exchanged for
certificates of appropriate denomination to stamped or endorsed. Any shares of
SWB common stock that are transferred prior to their submission for endorsement
lose their status as dissenting shares.
If SWB and the dissenting shareholder agree that the
surrendered shares are dissenting shares and agree upon the price of the shares,
the dissenting shareholder will be entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of the agreement. Payment
of the fair market value of the dissenting shares shall be made within 30 days
after the amount thereof has been agreed upon or 30 days after any statutory or
contractual conditions to the Merger have been satisfied, whichever is later,
subject to the surrender of the certificates therefor, unless provided otherwise
by agreement.
If SWB denies that the shares surrendered are dissenting
shares, or SWB and the dissenting shareholder fail to agree upon a fair market
value of such shares of SWB common stock, then the dissenting shareholder of SWB
must, within six months after the notice of approval is mailed, file a complaint
at the Superior Court of the proper county requesting the court to make such
determinations or intervene in any pending action brought by any other
dissenting shareholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' rights are lost. If the fair market value of the dissenting shares
is at issue, the court will determine, or will appoint one or more impartial
appraisers to determine, such fair market value. A dissenting shareholder may
not withdraw his or her dissent or demand for payment unless SWB consents to
such withdrawal.
The receipt of a cash payment for dissenting shares will
result in recognition of gain or loss for federal and California state income
tax purposes by dissenting shareholders. See "THE MERGER - Certain Federal
Income Tax Consequences."
CCBC. Under Delaware law, shareholders do not have dissenters'
rights if the shares of the corporation are designated as a national market
security on Nasdaq, subject to certain exceptions not applicable in connection
with the Merger. The common stock of CCBC is so designated, and therefore
shareholders of CCBC have no dissenters' rights in connection with the Merger.
63
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial
statements give effect to the Merger of SWB and CCBC based on the pooling of
interests accounting method. Under this method of accounting, SWB's prior period
financial statements will be restated on a combined basis with those of CCBC,
with all intercompany accounts eliminated. The unaudited pro forma combined
balance sheet assumes the Merger took place on September 30, 1997. The unaudited
pro forma combined statements of income assume the Merger was consummated as of
the beginning of each period presented. Share information was calculated using
an estimated Exchange Ratio of .9198, which corresponds to a SWB Market Value of
$32.75. No assurance can be given that the Market Value as of the Effective Date
will not be higher or lower than $32.75.
These unaudited pro forma combined financial statements should
be read in conjunction with the historical consolidated financial statements and
the related notes thereto of SWB and the historical consolidated financial
statements and related notes thereto of CCBC incorporated by reference or
included in this Joint Proxy Statement/Prospectus. The unaudited pro forma
statements of income are not necessarily indicative of operating results which
would have been achieved had the Merger been consummated as of the beginning of
the periods presented and should not be construed as representative of future
operations.
64
<PAGE>
SWB and CCBC
Unaudited Pro Forma Combined Balance Sheet
(Amounts in thousands)
September 30, 1997
-----------------------------------------
Historical Historical Pro Forma
SWB CCBC Combined
Assets
Cash and due from banks $35,907 $11,519 $47,426
Federal funds sold 35,600 0 35,600
------- -------- -------
Total cash and cash equivalents 71,507 11,519 83,026
Investment securities:
Investments in mutual funds
available for sale 2,793 0 2,793
Held to maturity, market value
SWB $1,001 and CCBC $0 1,000 0 1,000
Available for sale 56,314 51,161 107,475
Loans and leases 408,732 120,630 529,362
Allowance for possible loan and
lease losses (6,634) (1,220) (7,854)
------- ------- -------
Net loans and leases 402,098 119,410 521,508
Other assets 41,591 10,153 51,744
-------- -------- --------
Total assets $575,303 $192,243 $767,546
======== ======== ========
Liabilities and Shareholders'
Equity
Deposits:
Noninterest bearing demand $112,538 $29,646 $142,184
Savings and interest-bearing
transaction 175,816 81,920 257,736
Time 224,675 58,858 283,533
------- ------ -------
Total deposits 513,029 170,424 683,453
Other borrowed funds 0 2,650 2,650
Interest payable and other 10,788 1,220 12,008
liabilities
Convertible debentures 0 2,503 2,503
-------- ------- -------
Total liabilities 523,817 176,797 700,614
------- ------- -------
Preferred stock 0 0 0
Common stock 29,347 12,339 41,686
Retained earnings 21,111 3,296 24,407
Net unrealized gain (loss) 1,028 (189) 839
------ ------- -------
Total shareholders' equity 51,486 15,446 66,932
------ ------ ------
Total liabilities and
shareholders' equity $575,303 $192,243 $767,546
======== ======== ========
Pro Forma Pro Forma
Historical Equivalent Combined
Shares outstanding(2) 4,089 1,008 5,097
65
<PAGE>
Unaudited Pro Forma Combined Statements of Income
(Dollars in thousands, except per share amounts)
<TABLE>
Nine Months Ended September 30, 1997 Year Ended December 31, 1996
------------------------------------ ----------------------------
Historical Historical Pro Forma Historical Historical Pro Forma
SWB CCBC Combined SWB CCBC Combined
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans and
leases $28,501 $8,181 $36,682 $30,506 $10,704 $41,210
Interest on federal funds sold 1,436 92 1,528 938 183 1,121
Interest on investment 2,194 2,327 4,521 1,825 2,215 4,040
----- ----- ----- ----- ----- -----
securities
Total interest income 32,131 10,600 42,731 33,269 13,102 46,371
------ ------ ------ ------ ------ ------
Interest on deposits 12,277 4,218 16,495 11,735 4,957 16,692
Interest on other borrowed 0 167 167 0 146 146
funds
Interest on convertible 60 173 233 764 308 1,072
debentures
Other interest expense 133 25 158 (4) 54 50
------ ----- ------ ------ ----- -------
Total interest expense 12,470 4,583 17,053 12,495 5,465 17,960
------ ----- ------ ------ ----- ------
Net interest income 19,661 6,017 25,678 20,774 7,637 28,411
Provision for possible loan
and lease losses 1,940 244 2,184 1,010 411 1,421
----- --- ----- ----- --- -----
Net interest income after
provision for possible loan
and lease losses 17,721 5,773 23,494 19,764 7,226 26,990
Service charges on deposit 1,703 663 2,366 1,722 843 2,565
accts.
Other operating income 7,402 761 8,163 5,616 1,189 6,805
----- ----- ------ ----- ----- -----
Total noninterest income 9,105 1,424 10,529 7,338 2,032 9,370
----- ----- ------ ----- ----- -----
Salaries and employee benefits 10,077 2,528 12,605 12,086 3,342 15,428
Occupancy and equipment
expense 3,085 1,093 4,178 3,486 1,366 4,852
Other operating expense 4,977 1,593 6,570 6,125 2,073 8,198
----- ----- ----- ----- ----- -----
Total noninterest expense 18,139 5,214 23,353 21,697 6,781 28,478
------ ----- ------ ------ ----- ------
Income before provision for
income taxes 8,687 1,983 10,670 5,405 2,477 7,882
Provision for income taxes 3,348 729 4,077 2,077 918 2,995
----- ----- ------ ----- ----- -------
Net income $5,339 $1,254 $6,593 $3,328 $1,559 $4,887
====== ====== ====== ====== ====== ======
Pro Forma Pro Forma Pro Forma Pro Forma
Historical Equivalent Combined Historical Equivalent Combined
Net income per share, primary $1.47 $1.22 $1.42 $1.13 $1.66 $1.26
Weighted average common
shares outstanding, primary 3,630 1,027 4,657 2,942 939 3,881
Net income per share, fully $1.34 $1.09 $1.29 $0.96 $1.43 $0.98
diluted
Weighted average common shares
outstanding, fully diluted 4,005 1,242 5,247 3,934 1,217 5,151
</TABLE>
66
<PAGE>
<TABLE>
Unaudited Pro Forma Combined Statements of Income
(Dollars in thousands, except per share amounts)
Year Ended December 31, 1995 Year Ended December 31, 1994
Historical Historical Pro Forma Historical Historical Pro Forma
SWB CCBC Combined SWB CCBC Combined
<S> <C> <C> <C> <C> <C> <C>
Interest and fees on loans and
leases $23,582 $10,370 $33,952 $17,386 $9,500 $26,886
Interest on federal funds sold 594 116 710 478 54 532
Interest on investment 1,655 1,824 3,479 1,793 1,399 3,192
----- ----- ----- ----- ----- -----
securities
Total interest income 25,831 12,310 38,141 19,657 10,953 30,610
------ ------ ------ ------ ------ ------
Interest on deposits 7,633 5,063 12,696 4,770 3,711 8,481
Interest on other borrowed 0 0 0 0 0 0
funds
Interest on convertible 850 346 1,196 783 328 1,111
debentures
Other interest expense 8 72 80 44 57 101
------ ------- ------- ------- ------- -------
Total interest expense 8,491 5,481 13,972 5,597 4,096 9,693
----- ----- ------ ----- ----- -----
Net interest income 17,340 6,829 24,169 14,060 6,857 20,917
Provision for possible loan
and lease losses 1,270 324 1,594 885 256 1,141
----- --- ----- --- --- -----
Net interest income after
provision for possible loan
and lease losses 16,070 6,505 22,575 13,175 6,601 19,776
Service charges on deposit 1,755 819 2,574 1,517 793 2,310
accts.
Other operating income 6,214 1,359 7,573 7,660 869 8,529
----- ----- ----- ----- --- -----
Total noninterest income 7,969 2,178 10,147 9,177 1,662 10,839
----- ----- ------ ----- ----- ------
Salaries and employee benefits 10,627 3,137 13,764 10,081 3,148 13,229
Occupancy and equipment
expense 3,401 1,374 4,775 2,960 1,333 4,293
Other operating expense 6,916 2,119 9,035 4,445 1,997 6,442
----- ----- ----- ----- ----- -----
Total noninterest expense 20,944 6,630 27,574 17,486 6,478 23,964
------ ----- ------ ------ ----- ------
Income before provision for
income taxes 3,095 2,053 5,148 4,866 1,785 6,651
Provision for income taxes 1,179 648 1,827 1,863 564 2,427
------- ------ ------- ------ ------ ------
Net income $1,916 $1,405 $3,321 $3,003 $1,221 $4,224
====== ====== ====== ====== ====== ======
Pro Forma Pro Forma Pro Forma Pro Forma
Historical Equivalent Combined Historical Equivalent Combined
Net income per share, primary $0.69 $1.53 $0.89 $1.07 $1.35 $1.14
Weighted average common
shares outstanding, primary 2,812 920 3,732 2,812 904 3,716
Net income per share, fully $0.63 $1.33 $0.69 $0.91 $1.18 $0.89
diluted
Weighted average common shares
outstanding, fully diluted 3,871 1,210 5,081 3,786 1,195 4,981
</TABLE>
67
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
(1) The pro forma combined per share data for net income has been calculated
using pro forma combined average shares outstanding. SWB and CCBC pro
forma combined average shares outstanding have been calculated using the
number of SWB average shares outstanding during the periods presented,
after giving effect to the five percent stock dividend of August 1997,
increased by the anticipated number of shares of SWB Common Stock to be
issued to CCBC shareholders using an Exchange Ratio of .9198, assuming a
Market Value of $32.75, per share of SWB Common Stock, for each of the
average shares of CCBC Common Stock outstanding during each of the
periods presented as if these shares were outstanding during each of the
periods presented. Such pro forma per share data assumes no dissenting
SWB shareholders and no exercise of outstanding CCBC or SWB stock
options or other similar rights or conversion of CCBC, Convertible
Debentures. The Exchange Ratio is subject to potential adjustments in
certain circumstances as provided in the Agreement.
See "Proposal One: The Merger--Purchase Price and Potential
Adjustments." See also "Unaudited Pro Forma Combined Financial
Statements."
(2) The equivalent pro forma CCBC, per share information has been calculated
by multiplying historical CCBC share data by an Exchange Ratio of .9198,
assuming a Market Value of $32.75 for SWB common stock. There can be no
assurance that the Market Value will not be higher or lower than $32.75.
(3) The pro forma equivalent for CCBC is based on an Exchange Ratio of
.9198, which assumes a Market Value of a share of SWB common stock of
$32.75 (which corresponds to the closing price per share of $32.75 for
SWB common stock on December 12, 1997), for each of the average shares
of CCBC common stock outstanding during the nine-month period ended
September 30, 1997. There can be no assurance that the Market Value will
not be higher or lower than $32.75.
(4) Certain merger-related expenses have been recorded prior to September
30, 1997. Merger-related expenses to be incurred by SWB and CCBC
subsequent to September 30, 1997 are currently estimated to be $2.3
million after-tax based on information available as of the date of this
Joint Proxy Statement/Prospectus. These expenses, relating to separation
and benefit costs, professional and investment banking fees, and other
non-recurring Merger-related expenses, will be charged against income of
the combined company upon consummation of the Merger or the period in
which such costs are incurred. Accordingly, the effect of these costs
has not been reflected in the unaudited pro forma combined consolidated
financial information. The amount of Merger-related costs disclosed in
these unaudited pro forma combined financial statements may change as
additional information becomes available.
68
<PAGE>
INFORMATION ABOUT SWB
General
SWB was incorporated under the name Sierra Tahoe Bancorp under
the laws of the State of California on December 5, 1985, as a bank holding
company. Pursuant to a plan of reorganization, SWB acquired 100% of the
outstanding shares of common stock of Sierra Bank, then named Truckee River Bank
in a one-for-one exchange of its stock for the stock of Sierra Bank on July 31,
1986. The activities of SWB are subject to the supervision of the FRB. SWB may
engage, directly or through subsidiary corporations, in those activities closely
related to banking which are specifically permitted under the BHC Act. SWB's
principal executive office is located at 10181 Truckee-Tahoe Airport Road,
Truckee, California 96161 and its telephone number is (530) 582-3000.
Sierra Bank was incorporated under the laws of the State of
California as Truckee River Bank on March 19, 1980, and, with the approval of
the Commissioner, opened for business on January 20, 1981. Truckee River Bank
commenced operations in Truckee, California, a small tourist-based town located
in the County of Nevada and situated in the High Sierra about 12 miles north of
Lake Tahoe. Truckee River Bank changed its name to SierraWest Bank in early
1996. Sierra Bank currently maintains twelve branch offices in the following
communities: Truckee (two branches), South Lake Tahoe, Tahoe City, Kings Beach,
Grass Valley (two branches), Auburn and Sacramento (two branches), California,
and (following the merger in October of 1996 of SierraWest Bank and SierraWest
Bank, Nevada, then a wholly-owned Nevada bank subsidiary of SWB) in Reno and
Carson City, Nevada. In addition, Sierra Bank maintains ten lending offices,
primarily for its SBA lending activities, in the following communities: Truckee,
San Francisco, Sacramento, Fresno and Chico, California; Reno and Las Vegas,
Nevada; Portland, Oregon; Denver, Colorado; and Chattanooga, Tennessee. Sierra
Bank's deposits are insured by the FDIC up to applicable limits.
In June 1997, SWB acquired Mercantile Bank, a state-chartered
commercial bank with its principal office formerly in Sacramento, California,
through a merger of Mercantile Bank with and into Sierra Bank. On the
acquisition date, Mercantile Bank had assets of $42.8 million, deposits of $37.7
million and shareholders' equity of $4.9 million. The consideration for the
acquisition was a combination of cash and shares of SWB common stock with an
aggregate value of approximately $6.7 million. The merger was accounted for by
the purchase method of accounting.
69
<PAGE>
Beneficial Ownership of Stock
The following table shows the number and percentage of shares
beneficially owned as of November 30, 1997 by SWB's Directors and named
executive officers and each person known by SWB to beneficially own more than 5%
of the Common Stock.
<TABLE>
Total
Shares Owned with Shares Owned Beneficial
Sole Voting and with Shared Shares Ownership as a
Investment Power Voting and Acquirable Total Percent of
Name and Address of Investment Power within 60 Beneficial Shares
Beneficial Owner(1) days(2) Ownership Outstanding
- ------------------------------- ------------------- ------------------ --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Directors and Named Executive
Officers
David W. Clark 1,030 15,818 6,872 23,720 *
William T. Fike (3) 5,232 15,348 83,436 104,016 2.5%
Ralph J. Coppola 4,516 1,205 2,267 7,988 *
Jerrold T. Henley 49,825 9,143 58,968 1.4
John J. Johnson 1,278 2,265 2,160 5,703 *
Ronald A. Johnson 2,927 1,453 4,380 *
A. Morgan Jones 1,727 650 9,111 11,488 *
Jack V. Leonesio 14,890 3,913 18,803 *
William W. McClintock 8,374 105 9,111 17,590 *
Richard Gaston 116 3,600 2,112 5,828 *
Thomas M. Watson 6,360 1,742 10,063 18,166 *
David C. Broadley (3) 20,866 14,586 1,657 37,109 *
Patrick S. Day 1,575 3,780 5,355 *
Total for Directors and
Executive Officers (numbering
13) 68,891 90,558 145,078 304,527 7.3%
Principal Shareholders
Investors of America, L.P. 297,045 297,045 7.3%
39 Glen Eagles Drive
St. Louis, MO 63124
- ------------------
* less than one percent
</TABLE>
(1) The address for all Directors and Named Executive Officers is c/o SierraWest
Bancorp, P.O. Box 61000, 10181 Truckee-Tahoe Airport Road, Truckee,
California 96160.
(2) Includes shares that can be purchased through SWB's stock option plan. For
non-employee directors, includes 448 shares earned under the Directors
Deferred Compensation and Stock Award Plan for all but Mr. Clark (465
shares), Mr. Henley (480 shares), Mr. Watson (1,400 shares) and Mr. Coppola
(1,343 shares).
(3) Messrs. Fike and Broadley have voting authority for 14,586 shares of
unallocated SWB common stock held by the SWB ESOP Plan.
70
<PAGE>
INFORMATION ABOUT CCBC
General
CCBC is a corporation organized under the laws of the State of
Delaware. CP Bank was organized as a California state banking corporation in May
1983, and commenced operations in November 1983. In 1995, the CP Bank's Board of
Directors and shareholders approved a bank holding company formation and
corporate reorganization by which the bank would become a wholly-owned
subsidiary of CCBC. The reorganization was consummated on February 29, 1996.
CCBC's primary activity is serving as the holding company for
CP Bank. CP Bank is a California banking corporation incorporated in California.
It is licensed by the DFI as a commercial bank. Its headquarters is in
Vacaville, California. CP Bank engages in the general commercial banking
business, in Solano and Contra Costa counties in the State of California. In
addition to its head banking offices located at 141 Parker Street, Vacaville,
California, CP Bank has six full service branch offices in Vacaville, Fairfield,
Benicia, Vallejo (2), and Concord, California. The Concord branch was acquired
from Tracy Federal Bank in October 1996. CP Bank also has an express branch for
deposit services in Fairfield. At September 30, CCBC had consolidated assets of
approximately $192 million, consolidated deposits of approximately $170 million
and consolidated shareholders' equity of approximately $15.4 million. CCBC's
principal executive office is located at 555 Mason Street, Suite 280, Vacaville,
California 95688 and its telephone number is (707) 448-1200.
CCBC and CP Bank are subject to extensive federal and state
governmental supervision, regulation and control. CP Bank's deposits are insured
by the FDIC up to applicable limits. From time to time, CCBC is involved in
litigation as an incident to its business. In the opinion of management, no
pending or threatened litigation is likely to have a material adverse effect on
CCBC's financial condition or results of operations.
Beneficial Ownership of Stock
The following table shows the number and percentage of shares
beneficially owned as of November 30, 1997 by CCBC's Directors and named
executive officers and each person known by CCBC to beneficially own more than
5% of the outstanding CCBC Shares.
<TABLE>
Name and Address of Beneficial
Owner(1) Beneficial Ownership(2) Percent of Class(2)
- --------------------------------------- ----------------------------- --------------------------
<S> <C> <C>
Ronald A. Alfstad 26,137 (3) 2.4%
Dorce L. Daniel 18,522 (4) 1.7
William J. Hennig 33,600 (5) 3.0
Bernard E. Moore 9,050 (6) 0.8
Melvin M. Norman 31,586 (7) 2.9
Andrew S. Popovich 11,478 (8) 1.0
Stephen R. Schwimer 37,261 (9) 3.4
Donald E. Sheahan 31,120 (10) 2.8
Dr. Gary E. Stein 21,432 (11) 2.1
Walter O. Sunderman 40,073 (12) 3.6
John C. Usnick 28,230 (13) 2.6
All directors and officers as a group 288,489 (14)(15) 26.2%
(11 in number)
- ------------------------
</TABLE>
71
<PAGE>
(1) The address for all persons is c/o California Community Bancshares
Corporation, 555 Mason Street, Suite 280, Vacaville, California
95688-4612.
(2) Includes shares beneficially owned, directly and indirectly, together
with associates. Subject to applicable community property laws and
shared voting and investment power with a spouse, the persons listed
have sole voting and investment power with respect to such shares
unless otherwise noted.
(3) Includes options to acquire 11,601 shares which are exercisable within
60 days of the CCBC Record Date. Also, includes 2,077 held in an
individual retirement account. Also includes conversion rights,
pursuant to CCBC Debentures, to acquire 2,353 shares.
(4) Includes options to acquire 8,465 shares which are exercisable
currently or within 60 days of the CCBC Record Date.
(5) Includes options to acquire 8,465 shares which are exercisable
currently or within 60 days of the CCBC Record Date. Also includes
25,135 shares held by the Bill and Joan Hennig Family Trust, of which
Mr. Hennig and his wife, Joan, are trustees.
(6) Includes options to acquire 1,675 shares which are exercisable
currently or within 60 days of the CCBC Record Date.
(7) Includes options to acquire 8,465 shares which are exercisable
currently or within 60 days of the CCBC Record Date. Also includes
23,121 shares held by Melvin M. Norman Construction, Inc. Profit
Sharing Plan, over which Mr. Norman has sole voting and investment
power.
(8) Includes options to acquire 1,126 which are exercisable currently or
within 60 days of the CCBC Record Date. Also, includes 1,930 shares
held by Mr. Popovich as custodian for his daughter, Sara Kate; and 958
shares held by Mr. Popovich as custodian for his daughter, Amy Beth.
Also, includes 2,028 shares held in an individual retirement account
and 150 held in an individual retirement account for his wife. Also
includes conversion rights, pursuant to CCBC Debentures, to acquire 549
shares.
(9) Includes options to acquire 2,049 shares which are exercisable
currently or within 60 days of the CCBC Record Date.
(10) Includes options to acquire 5,537 shares which are execericable
currently or within 60 days of the CCBC Record Date. Includes 20,438
shares held by the Donald and Patricia Sheahan Family Trust, of which
Mr. Sheahan and his wife, Patricia, are trustees. Also, includes 5,145
shares held in an individual retirement account.
(11) Includes options to acquire 8,465 shares which are exercisable
currently or within 60 days of the CCBC Record Date. Also includes
2,049 shares owned by Dr. Stein's wife, Dr. Jana Boyce-Stein, as to
which shares Dr. Stein disclaims beneficial ownership. Also, includes
2,061 held in an individual retirement account.
(12) Includes options to acquire 18,541 shares which are exercisable
currently or within 60 days of the CCBC Record Date. Also, includes
2,016 shares held in an individual retirement account for Mr. Sunderman
and includes 880 shares held in an individual retirement account for
his wife Mary I. Sunderman. Also, includes 261 shares held by Mr.
Sunderman as custodian for his son, Paul David.
(13) Includes options to acquire 8,465 shares which are exercisable
currently or within 60 days of the CCBC Record Date. Includes 1,398
shares held by Mr. Usnick as custodian for his daughter, Adrian; and
2,172 shares held by Mr. Usnick as custodian for his daughter, Alexis.
Also, includes 355 shares held in an individual retirement account.
72
<PAGE>
(14) Includes options with respect to 31,268 shares held by Mr. Sunderman
and the executive officers of CCBC as a group and options with respect
to 64,792 shares held by nonemployee directors subject to options
exercisable within 60 days which are deemed outstanding, and these
options have been added to the shares which are outstanding for the
purpose of determining the percent of the class held by the group.
(15) Includes conversion rights, pursuant to CCBC Debentures, to acquire
2,902 shares as a group.
73
<PAGE>
SELECTED STATISTICAL INFORMATION-SWB
The following tables that are referenced or presented contain
certain statistical information concerning the business of SWB. This information
should be read in conjunction with SWB's Financial Statements and the Notes for
the nine months ended September 30, 1997. SWB has not engaged in any foreign
activities.
Statistical information below is generally based on average daily amounts.
74
<PAGE>
Average Balance Sheet and Analysis of Net Interest Income. The
following table presents the average balances of assets and liabilities and
average rates earned and paid for the nine-month periods ended September 30,
1997 and 1996. The Average Balance Sheet and Analysis of Net Interest Income for
each of the three years in the period ended December 31, 1996 appear on page 14
of the SWB 10-K.
<TABLE>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Average Interest Average Interest
Average Interest Income/ Average Interest Income/
Balance Rate Expense Balance Rate Expense
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets
Loans (1) $364,223 10.46% $28,501 $272,826 10.77% $22,001
Investment securities 45,896 5.95% 2,042 27,269 5.58% 1,139
Mutual funds 2,944 2.45% 54 1,342 7.08% 71
Federal funds sold 36,050 5.33% 1,436 16,917 5.15% 652
Other deposits 2,333 5.61% 98 2,210 4.84% 80
------- ------ ------- ------
Total interest-earning assets: 451,446 9.52% 32,131 320,564 9.98% 23,943
------- ----- ------ ------- ------- ------
Allowance for loan losses (5,410) (4,466)
Noninterest-earning assets
Cash and due from banks 27,248 19,333
Bank premises and equipment, net 12,113 10,912
Servicing assets and I/0 strips on sold loans 17,038 15,073
Interest receivable and other assets 5,923 5,196
--------- --------
Total assets $508,358 $366,612
======== ========
Liabilities & Shareholders' Equity
Interest-bearing liabilities
Transaction accounts $140,253 2.91% $ 3,049 $ 99,025 2.49% $1,848
Savings accounts 13,209 2.07% 205 13,685 2.08% 213
Certificates of deposit 208,635 5.78% 9,023 148,263 5.68% 6,302
Convertible debentures 3,405 2.36% 60 9,473 8.35% 592
Other liabilities 272 65.41% 133 279 (20.13)% (42)
--------- ----- -------- -----
Total interest-bearing liabilities 365,774 4.56% 12,470 270,725 4.40% 8,913
------- ------ ------- -----
Noninterest-bearing liabilities
Transaction accounts 91,362 60,375
Other liabilities 8,146 4,349
-------- --------
Total liabilities 465,282 335,449
------- -------
Shareholders' equity
Common stock 19,185 11,253
Retained earnings 23,298 20,069
Unrealized gain (loss) 593 (159)
------- --------
Total shareholders' equity 43,076 31,163
-------- --------
Total liabilities and shareholders' equity $508,358 $366,612
======== ========
Net interest income $19,661 $15,030
======= =======
Interest income as a percentage of interest-earning 9.52% 9.98%
----- -----
assets
Interest expense as a percentage of 3.69% 3.72%
----- -----
interest-earning assets
Net interest margin(2) 5.82% 6.30%
===== =====
</TABLE>
(1) Includes nonaccrual loans with an average balance of $5.4 million at
September 30, 1997.
(2) Net interest margin is computed by dividing net interest
income by total average interest-earning assets.
75
<PAGE>
Net Interest Income Changes Due to Volume and Rate. The
following table sets forth, for the periods indicated, a summary of the changes
in average asset and liability balances and interest earned and interest paid
resulting from changes in average asset and liability balances (volume) and
changes in average interest rates. The change in interest due to both rate and
volume has been allocated to change in rate. Nonaccruing loans are included in
the table for computational purposes, but the nonaccrued interest thereon is
excluded. Changes in net interest income due to volume and rate for 1996
compared to 1995 and 1995 compared to 1994 appear on page 36 the SWB 10-K
Nine Months Ended September 30,
1997 vs. 1996
Increase (Decrease)
Due to Due to Total
Volume Rate Change
Interest income: (Dollars in thousands)
Loans $7,358 $(858) $6,500
Mutual funds 85 (102) (17)
Taxable investment securities 640 121 761
Nontaxable investment securities 132 10 142
Federal funds sold 737 47 784
Other deposits 4 14 18
----- ---- ------
Total interest-earning assets: 8,956 (768) 8,188
----- ----- -----
Interest expense:
Savings accounts (7) (1) (8)
Transaction accounts 768 433 1,201
Time deposits 2,562 159 2,721
----- ----- -----
Total deposits 3,323 591 3,914
Other borrowings 1 174 175
Convertible debentures (380) (152) (532)
----- ----- -----
Total interest-bearing liabilities 2,944 613 3,557
------ ----- -----
Net increase (decrease) $6,012 $(1,381) $4,631
====== ======== ======
76
<PAGE>
Interest Rate Sensitivity. The following table sets forth the
distribution of repricing opportunities of SWB's interest-earning assets and
interest-bearing liabilities, the interest rate sensitivity gap (i.e.,
interest-rate sensitive assets less interest-rate sensitive liabilities), the
cumulative interest rate sensitivity gap and the cumulative gap as a percentage
of total interest-earnings assets as of September 30, 1997. The table also sets
forth the time periods during which interest-earning assets and interest-bearing
liabilities will mature or may reprice in accordance with their contractual
terms. The interest rate relationships between the repriceable assets and
repriceable liabilities are not necessarily constant and may be affected my many
factors, including the behavior of customers in response to changes in interest
rates. This table should therefore be used only as a guide as to the possible
effect changes in interest rates might have on the net margins of SWB.
<TABLE>
September 30, 1997
By Repricing Interval
After 1
After 3 year,
Within months, within
three within five After five
Immediately months one year years years Total
<S> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Federal funds sold $35,600 $ 0 $ 0 $ 0 $ 0 $35,600
Mutual funds 2,793 0 0 0 0 2,793
Taxable investment securities 0 3,197 8,598 34,933 2,569 49,297
Nontaxable investment securities 0 0 150 195 7,672 8,017
Loans 179,218 124,095 19,993 57,370 28,056 408,732
------- ------- ------ ------ ------ -------
Total interest-earning assets 217,611 127,292 28,741 92,498 38,297 504,439
------- ------- ------ ------ ------ -------
Liabilities and shareholders' equity
Savings deposits(1) 175,816 0 0 0 0 175,816
Time deposits 116 96,440 110,897 16,886 336 224,675
Lease obligations 0 2 7 63 227 299
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 175,932 96,442 110,904 16,949 563 400,790
------- ------ ------- ------ ------- -------
Net interest-earning assets (liabilities) $41,679 $30,850 $(82,163) $75,549 $37,734 $103,649
======= ======= ========= ======= ======= ========
Cumulative net interest-earning assets
(liabilities) ("Gap") $41,679 $72,529 $(9,634) $65,915 $103,649
======= ======= ======== ======= ========
Cumulative Gap as a percentage of total
interest-earning assets 8.3% 14.4% (1.9)% 13.1% 20.5%
==== ===== ====== ===== =====
</TABLE>
(1) Savings deposits include interest-bearing transaction accounts.
(2) Includes loans that matured on or prior to September 30, 1997.
At September 30, 1997, SWB had $373.6 million in assets and
$383.3 million in liabilities repricing within one year. This means that $9.7
million more in interest-rate sensitive liabilities than interest-rate sensitive
assets will change to the current interest rate (changes occur due to the
instruments being at a variable rate or because the maturity of the instrument
requires its replacement at the then current rate). Interest income is likely to
be affected to a greater extent than interest expense for any changes in
interest rates during the Immediately to one year periods. If rates were to fall
during this period, interest income would decline by a greater amount than
interest expense and net income would be reduced. Conversely, if rates were to
rise, the reverse would apply. The repricing of interest-earning assets and
interest bearing liabilities as of December 31, 1996 appears on page 17 of the
SWB 10-K.
77
<PAGE>
Investment Portfolio. Securities classified as
available-for-sale are carried at their market value, and securities classified
as held-to-maturity are carried at amortized cost. The following table sets
forth the composition of the investment portfolio by major categories at
September 30, 1997. A table setting forth the composition of the investment
portfolio by major categories at December 31, 1996, 1995 and 1994 appears on
page 15 of the SWB 10-K.
Investment Portfolio
(Dollars in thousands)
September 30, 1997
Book Market
U.S. Treasury securities $33,623 $33,624
Securities of U.S. government agencies 2,609 2,609
Securities of states and political 8,017 8,017
subdivisions
Other securities 13,065 13,065
------- -------
Total $57,314 $57,315
======= =======
In addition, SWB invests in mutual funds whose assets are
invested primarily in U.S. government securities. At September 30, 1997, mutual
funds with an estimated market value of $2.8 million have been classified as
available for sale. At this same date, SWB had recorded an unrealized loss on
mutual funds, net of tax, of $19,000. The weighted average maturity of portfolio
securities held by the mutual funds at September 30, 1997 was 6.2 years.
Scheduled maturities of securities (except for investments in
mutual funds with a carrying value of $2,793,000) as of September 30, 1997 are
shown below. Yields on nontaxable securities have not been calculated on a
tax-equivalent basis. Schedule maturities of securities as of December 31, 1996
appear on page 15 of the SWB 10-K.
<TABLE>
Maturity and Repricing Schedule and Weighted Average Yields of Securities
(Dollars in thousands)
At September 30, 1997
After one but After five
Within one year within five years but within 10 years After 10 years Total
--------------- ----------------- ------------------- -------------- -----
Amount Yield Amount Yield Amount Yield Amount Yield Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $8,485 5.82% $25,138 6.22% $ 0 $ 0 $33,623
Securities of U.S.
government agencies 250 5.41 2,359 6.56 2,609
Securities of states and
political subdivisions 150 3.50 195 4.00 260 4.84% 7,412 5.28% 8,017
Other securities 694 5.81 694
------ ------ ------ ------ -------
Total $9,579 $27,692 $ 260 $7,412 $44,943
====== ======= ====== ====== =======
</TABLE>
In addition to the above, SWB had $12,371 thousand in
mortgage-backed securities with a weighted average yield of 6.8%.
The Bank does not own securities of a single issuer (other
than U.S. government agencies and corporations) whose aggregate book value is in
excess of 10% of its total equity.
78
<PAGE>
Loans Outstanding. Tables showing the composition of the loan
portfolio at September 30, 1997 and December 31, 1996 appear in the SWB's Form
10-Q for the period ended September 30, 1997 (the "SWB September 10-Q") on page
13 and in the SWB 10-K on page 8, respectively.
The following table sets forth the distribution by maturity
date of certain of SWB's loan categories (in thousands) as of September 30,
1997. In addition, the table shows the distribution between total loans with
predetermined (fixed) interest rates and those with variable interest rates. A
table showing loan maturities and sensitivity to changes in interest rates as of
December 31, 1996 appears on page 13 of the SWB 10-K.
<TABLE>
Loan Maturities and Sensitivity to Changes in Interest Rates
(In thousands)
At September 30, 1997
Within 1 After 1 but
year (1) within 5 years After 5 years Total
-------- -------------- ------------- -----
<S> <C> <C> <C> <C>
Commercial, except SBA $2,587 $26,641 $ 1,556 $ 80,784
SBA 9,371 17,935 120,880 148,186
Real estate-construction 45,413 3,973 9,938 59,324
Distribution between fixed and floating interest rate:
Loans with variable interest rates 107,517 64,248 152,565 324,330
Loans with fixed interest rates 22,267 34,078 28,057 84,402
</TABLE>
(1) Demand loans and overdrafts are shown as "Within 1 year."
Nonperforming Assets. A table summarizing SWB's nonaccrucal,
past due and restructured assets as of September 30, 1997 and 1996 is included
on page 13 of the SWB September 10-Q and as of the five most recently reported
fiscal years on page 10 of the SWB Form 10-K.
Reconciliation of Allowance For Possible Credit Losses. An
analysis of SWB's allowance for possible loan losses and provisions for loan
losses as of September 30, 1997 appears on page 14 of the SWB September 10-Q. An
analysis of the allowance for possible loan losses and provisions for loan
losses as of SWB's five most recently reported fiscal years is included on page
11 of the SWB Form 10-K.
Allocation of the Allowance for Loan Losses. A table
summarizing the breakdown of the allocation of the allowance for loan losses at
September 30, 1997 and at the end of SWB's five most recently reported fiscal
years appear on page 15 of the SWB September 10-Q and on page 12 of the SWB Form
10-KSB, respectively.
Deposits. A table setting forth the average balance and
average rate paid for the major categories of deposits for the nine months ended
September 30, 1997 and the year ended December 31, 1996 appears on page 77 of
this Joint Proxy Statement/Prospectus and page 14 of the SWB Form 10-K,
respectively.
Maturities of Time Certificates of Deposits of $100,000 or More. Maturities of
time certificates of deposit of $100,000 or more outstanding at December 31,
1997 are set forth on page 17 of the SWB 10-K. Maturities of time certificates
of deposit of $100,000 or more outstanding at September 30, 1997 are summarized
as follows:
September 30, 1997
Remaining Maturity: (In thousands)
Three months or less $51,492
Over three through six months 23,486
Over six through twelve months 28,774
Over twelve months 8,206
--------
Total $111,959
========
79
<PAGE>
Return on Average Equity and Assets. SWB's return on average
assets, return on average equity, dividend payout ratio and average equity to
average assets are included under the heading "SELECTED FINANCIAL INFORMATION"
in this Joint Proxy Statement/Prospectus
Short Term Borrowings. SWB had no short term borrowings at
September 30, 1997.
Selected Quarterly Financial Information. Information
concerning SWB's selected quarterly results of operations for the past two
complete years appears on page 31 of the SWB 10-K and, for the first three
quarters of 1997, in the following table.
First Second Third
1997 Quarter Quarter Quarter
Interest income $9,692 $10,564 $11,876
Interest expense 3,767 4,069 4,634
Provision for loan losses 450 950 540
Net interest income 5,925 6,495 7,242
Noninterest income 1,880 4,644 2,581
Noninterest expense 5,475 6,622 6,042
Provision for income taxes 713 1390 1245
Net income $1,167 $2,177 $1,996
====== ====== ======
Net income per share
- --Primary $ 0.36 $ 0.56 $ 0.47
- --Fully diluted $ 0.31 $ 0.51 $ 0.47
80
<PAGE>
SELECTED STATISTICAL INFORMATION-CCBC
The following tables that are presented or referenced contain
certain statistical information concerning the business of CCBC. This
information should be read in conjunction with CCBC's Financial Statements and
the Notes for the nine months ended September 30, 1997. CCBC has not engaged in
any foreign activities. Statistical information below is generally based on
average daily amounts.
81
<PAGE>
Average Balance Sheet and Analysis of Net Interest Income. The
average balances of assets and liabilities and average rates earned and paid for
the nine months ended September 30, 1997 and 1996 are set forth on page 16 of
CCBC's Quarterly Report on Form 10-QSB for the period ended September 30, 1997
(the "CCBC September 10-QSB"). The Average Balance Sheet and Analysis of Net
Interest Income for each of the three years ended December 31, 1996 appear on
page 22 of the CCBC 10-KSB.
Net Interest Income Changes Due to Volume and Rate. A summary
of the changes in average asset and liability balances and interest earned and
interest paid resulting from changes in average asset and liability balances
(volume) and changes in average interest rates for the for the nine months ended
September 30, 1997 and 1996 is included on page 19 of the CCBC September 10-QSB
and, for the years ended December 31, 1996 and 1995 on pages 23 and 24 of the
CCBC 10-KSB.
Interest Rate Sensitivity. The interest rate gaps reported in
the following table arise when assets are funded with liabilities having
different repricing intervals. Since these gaps are actively managed and change
daily as adjustments are made in interest rate views and market outlook,
positions at the end of any period may not be reflective of CCBC's interest rate
sensitivity in subsequent periods. Active management dictates that longer-term
economic views are balanced against prospects for short-term interest rate
changes in all repricing intervals. For purposes of the above analysis,
repricing of fixed-rate instruments is based upon the contractual maturity of
the applicable instruments. Actual payment patterns may differ from contractual
payment patterns. The repricing of interest-earning assets and interest
bearing liabilities as of December 31, 1996 appears on page 41 of the CCBC
10-KSB.
<TABLE>
September 30, 1997
By Repricing Interval
(In thousands)
After 3 After 1 After five
Within months, year, years
three months within one within
Immediately year five years Total
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Investment securities 0 28,182 4,322 14,217 4,440 51,161
Loans 17,955 14,762 59,425 18,066 10,933 121,141
------ ------ ------ ------ ------ -------
Total interest-earning assets 17,955 42,944 63,747 32.283 15,373 172,302
------ ------ ------ ------ ------ -------
Cumulative interest-earning assets 17,955 60,899 124,646 156,929 172,302 172,302
------ ------ ------- ------- ------- -------
Liabilities and Stockholders' Equity
Interest-bearing transaction accounts 23,268 0 0 0 0 23,268
Savings accounts 58,652 0 0 0 0 58,652
Time deposits 0 24,381 29,933 4,544 0 58,858
Federal funds purchased and security
repurchase agreements 0 324 0 0 0 324
Subordinated debentures 0 0 2,503 0 0 2,503
------ ------ ------- ------- ------- -----
Total interest-bearing liabilities 81,920 24,705 32,436 4,544 0 143,605
------ ------ ------- ------- ------- -------
Cumulative interest-earning liabilities 81,920 106,625 138,961 143,605 143,605 143,605
------ ------- ------- ------- ------- -------
Cumulative net interest-earning
assets (liabilities) ("GAP") ($63,965) ($45,526) $(14,415) $13,324 28,697 $28,697
========= ========= ======== ======= ====== =======
Cumulative GAP as a percentage of total
interest-earning assets (37.1%) (26.4%) (8.4%) 7.7% 16.6%
</TABLE>
82
<PAGE>
Investment Portfolio. Securities classified as
available-for-sale are carried at their market value, and securities classified
as held-to-maturity are carried at amortized cost. The following table sets
forth the composition of CCBC's investment portfolio by major categories at
September 30, 1997. Certain information concerning CCBC's investment portfolio
at December 31, 1996 is included in the CCBC 10-KSB on page 38.
Investment Portfolio
(Dollars in thousands)
September 30, 1997
Book Market
Available-for-Sale
U.S. Treasury securities $10,985 $11,002
Securities of U.S. government agencies 35,326 34,922
Securities of states and political 4,594 4,654
subdivisions
Other securities 583 583
------- -------
Total available-for-sale $51,488 $51,161
======= =======
Scheduled maturities of securities as of September 30, 1997
are shown below. Yields on nontaxable securities have not been calculated on a
tax-equivalent basis. Scheduled maturities of securities as of December 31, 1996
appear on page 38 of the CCBC 10-KSB
<TABLE>
Maturity Schedule and Weighted Average Yields of Securities
(Dollars in thousands)
At September 30, 1997
After one but After five
Within one year within five years but within 10 years After 10 years Total
--------------- ----------------- ------------------- --------------- -----
Amount Yield Amount Yield Amount Yield Amount Yield Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $5,059 5.80% $13,549 5.99% $ 594 6.86% $26,722 5.86% $45,924
and securities of
government agencies and
corporations
Securities of states and 261 5.92 951 4.08 3,015 4.97 427 5.55 4,654
political subdivisions
Mortgage-backed securities 583 6.43 0 0 0 583
----- ------- ------ ----- -------
Other securities
Total $5,903 $14,500 $3,609 $27,149 $51,161
====== ======= ====== ======= =======
</TABLE>
83
<PAGE>
The Bank does not own securities of a single issuer (other
than U.S. government agencies and corporations) whose aggregate book value is in
excess of 10% of its total equity.
Loans Outstanding. The following table shows the composition
of the loan portfolio at September 30, 1997. A table showing the composition of
CCBC's loan portfolio at December 31, 1996 appears on page 29 of the CCBC
10-KSB.
September 30, 1997
(Dollars in thousands)
Commercial, financial and agricultural $10,830
Real estate, construction 5,396
Real estate, mortgage 102,207
Installment and other 2,708
---------
Total loans 121,141
Deferred loan fees 511
Less: Allowance for possible loan losses 1,220
---------
Total loans, net $119,410
========
At September 30, 1997, CCBC had $16.7 million in undisbursed
loan commitments, of which $2.4 million related to real estate construction
loans, compared with $14,370,000 at December 31, 1996, of which $1.7 million
related to real estate construction loans.
The following table shows the maturity of commercial and real
estate construction loans outstanding as of September 30, 1997. Also provided
are the amounts due after one year classified according to the sensitivity to
changes in interest rates. Nonperforming loans are included in this table based
on nominal maturities, even though CCBC may be unable to collect such loans or
compel repricing of such loans at the maturity date. Included in the totals are
unearned income on such loans, such as deferred loan fees. Loan maturities and
sensitivity to changes in interest rates as of December 31, 1996 appear on page
43 of the CCBC 10-KSB.
<TABLE>
Loan Maturities and Sensitivity to Changes in Interest Rates
(In thousands)
At September 30, 1997
After 1 but
Within 1 year within 5 years After 5 years Total
------------- -------------- ------------- -----
<S> <C> <C> <C> <C>
Commercial $1,093 $6,253 $3,484 $ 10,830
Real estate-construction 2,036 3,163 198 5,396
Distribution between fixed
and floating interest rate:
Loans with fixed interest rates $ 828 $4,237 $ 333 $ 5,397
Loans with variable interest rates 2,301 5,180 3,349 10,829
</TABLE>
84
<PAGE>
Nonperforming Assets. A table summarizing CCBC's nonaccrucal,
past due and restructured assets as of September 30, 1997 and 1996 is included
on page 24 of the CCBC September 10-QSB and as of the five most recently
reported fiscal years on page 32 of the CCBC 10-KSB.
Reconciliation of Allowance For Possible Credit Losses. The
following table sets forth an analysis of CCBC's allowance for possible loan
losses and provisions for loan losses as of September 30, 1997. An analysis of
the allowance for possible loan losses and provisions for loan losses as of
CCBC's five most recently reported fiscal years is included on page 35 of the
CCBC 10-KSB.
Sept. 30, 1997
(Dollars in
thousands)
Balance at beginning of period $1,101
Provision for possible loan losses 244
Subtotal 1,345
- ----------
Charge-Offs:
- -----------
Commercial, financial and agricultural 49
Real estate construction 5
Real estate mortgage 19
Installment and other 89
-----
Total loans charged off 162
Recoveries:
- ----------
Commercial, financial and agricultural 20
Real estate construction 0
Real estate mortgage 12
Installment and other 5
------
Total recoveries 37
Net loans charged off 125
Balance at end of period $1,220
Loans:
Average loans outstanding during period, gross $117,497
Total loans at end of period, gross 121,141
Net charge-offs/average loans outstanding .11%
The provision for possible loan losses represents management's
determination of the amount necessary to be added to the allowance for loan
losses to bring it to a level which is considered adequate in relation to the
risk of foreseeable losses inherent in the loan portfolio. Upon determination of
a specific loss in the portfolio, an adjustment to the loan loss reserve is
made.
In making this determination, management takes into
consideration the overall growth trend in the loan portfolio, examinations of
supervisory authorities, internal and external credit reviews, prior loan loss
experience for CCBC, concentrations of credit risk, delinquency trends, general
and local economic conditions and the interest rate environment.
The allowance for loan losses does not represent a specific
judgment that loan charge-offs of that magnitude will necessarily occur. It is
always possible that future economic or other factors may adversely affect
CCBC's borrowers, and thereby cause loan losses to exceed the current allowance.
85
<PAGE>
Allocation of the Allowance for Loan Losses. The following
table summarizes a breakdown of the allowance for loan losses by loan category
and the percentage of loans in each category to total loans at September 30,
1997. A table summarizing the breakdown of the allocation of the allowance for
loan losses at the end of CCBC's five most recently reported fiscal years
appears on page 36 of the CCBC 10-KSB.
September 30, 1997
Amount % of Loans
to Total
(Dollars in thousands)
Commercial, financial and agricultural $ 204 9%
Real estate, construction 135 5
Real estate, mortgage 666 84
Installment and other 210 2
Unallocated 5 0
---- ----
Total $1,220 100%
====== ====
86
<PAGE>
Deposits. The following table sets forth the average balance
and the average rate paid for the major categories of interest-bearing
deposits for the nine months ended September 30, 1997 and the year ended
December 31, 1996. A table showing the average balance and average rate paid for
the major categories of interest-bearing deposits for the three years in the
period ended December 31, 1996 appears on page 22 of the CCBC 10-KSB.
Nine Months Ended
(Dollars in thousands) September 30, 1997
Amount Yield
NOW accounts $23,214 1.24%
Savings deposits 59,073 3.76
Time deposits under $100,000 38,560 5.15
Time deposits $100,00 and more 21,590 5.31
------ ----
Total interest-bearing deposits $142,437 3.96%
======== =====
Maturities of Time Certificates of Deposits of $100,000 or
More. Maturities of time certificates of deposit of $100,000 or more outstanding
at September 30, 1997 aare summarized in the following table. Maturities of time
certificates of deposit of $100,000 or more outstanding as of December 31, 1996
appear on page 39 of the CCBC 10-KSB.
(Dollars in thousands) September 30, 1997
------------------
Remaining Maturity:
Three months or less $ 9,697
Over three through six months 5,473
Over six through twelve months 5,229
Over twelve months 1,137
-------
Total $21,536
Return on Average Equity and Assets. CCBC's return on average
assets, return on average equity, dividend payout ratio and average equity to
average assets are included under the heading "SELECTED FINANCIAL INFORMATION"
in this Joint Proxy Statement/Prospectus
Short Term Borrowings. CCBC had no short term borrowings at
September 30, 1997.
Selected Quarterly Financial Information. The following tables
set forth selected operating results for the last two full years and the first
three quarters of 1997 (In thousands except per share data).
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
Interest income $2,962 $3,079 $3,155 $3,114
Interest expense 1,283 1,409 1,430 1,359
Provision for loan losses 69 61 91 103
------ ------ ------ ------
Net interest income 1,610 1,609 1,634 1,652
Noninterest income 399 399 494 871
Noninterest expense 1,580 1,558 1,593 1,884
Provision for income taxes 100 141 178 229
------ ------ ------ ------
Net income $ 329 $ 309 $ 357 $ 410
====== ====== ====== ======
Net income per share $.29 $.27 $.31 $.35
==== ==== ==== ====
87
<PAGE>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
Interest income $3,083 $3,242 $3,270 $3,507
Interest expense 1,255 1,297 1,357 1,556
Provision for loan losses 114 93 69 135
------ ------ ------ ------
Net interest income 1,714 1,852 1,844 1,816
Noninterest income 513 467 447 605
Noninterest expense 1,650 1,692 1,648 1,791
Provision for income taxes 215 242 254 207
------ ------ ------ ------
Net income $ 362 $ 385 $ 389 $ 423
====== ====== ====== ======
Net income per share $.31 $.32 $.33 $.35
==== ==== ==== ====
First Second Third
1997 Quarter Quarter Quarter
Interest income $3,447 $3,521 $3,632
Interest expense 1,538 1,519 1,526
Provision for loan losses 89 80 75
Net interest income 1,820 1,922 2,031
Noninterest income 476 457 492
Noninterest expense 1,728 1,677 1,810
Provision for income taxes 204 261 264
----- ----- -----
Net income $ 364 $ 441 $ 449
====== ====== ======
Net income per share $.30 $.35 $.35
==== ==== ====
88
<PAGE>
DESCRIPTION OF SWB CAPITAL STOCK
The authorized capital stock of SWB consists of 10,000,000
shares of common stock, no par value, and 10,000,000 shares of preferred stock,
including 200,000 designated as Series A preferred stock. As of November 30,
1997, there were 4,088,659 shares of SWB common stock outstanding and no shares
of preferred stock or Series A preferred stock outstanding. As of such date,
options to acquire 353,811 shares of SWB common stock had been issued and were
outstanding, and an additional 335,500 shares of the authorized SWB common stock
were available for grant under the 1996 Stock Option Plan. SWB has reserved
160,000 shares for issuance in connection with its Deferred Compensation and
Stock Award Plan and 200,000 shares for the conversion of preferred shares.
Common Stock
Holders of SWB Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders.
Shareholders have the right to cumulate their votes for the election of
directors. Shareholders are entitled to receive ratably such dividends as may be
legally declared by SWB's Board of Directors. There are legal and regulatory
restrictions on the ability of SWB to declare and pay dividends. See "MARKET
PRICE AND DIVIDEND INFORMATION." In the event of a liquidation, shareholders are
entitled to share ratably in all assets remaining after payment of liabilities.
Shareholders have no preemptive or conversion rights. Shares are not subject to
further call or assessment. The transfer agent and registrar for SWB Common
Stock is American Stock Transfer & Trust Company.
Preferred Stock
The Board of Directors of SWB is authorized to fix the
preferences, limitations, relative rights, qualifications and restrictions of
the preferred stock and may establish series of preferred stock and determine
the variations between series. If and when any preferred stock is issued, the
holders of preferred stock may have a preference over holders of SWB Common
Stock upon the payment of dividends, upon liquidation of SWB, in respect of
voting rights and in the redemption of the capital stock of SWB.
For discussion of SWB's Series A Preferred Stock, see "CERTAIN
DIFFERENCES IN RIGHTS OF SHAREHOLDERS --Shareholders Protection Plan" below.
DESCRIPTION OF CCBC CAPITAL STOCK
The authorized capital stock of CCBC consists of 4,000,000
shares of CCBC common stock, par value $.10 and 1,000,000 shares of preferred
stock. As of November 30, 1997, there were 1,108,076 shares of CCBC common stock
outstanding and $2,493,000 of CCBC Debentures convertible into 195,529 shares of
CCBC common stock at $12.75 per share. In addition, options to acquire an
additional 118,075 shares of CCBC common stock were issued and outstanding under
the CCBC 1990 and 1993 Stock Option Plans. As of December 12, 1997, no shares of
preferred stock were issued and outstanding.
Common Stock
Holders of CCBC common stock are entitled to one vote for each
share held of record on all matters submitted to a vote of shareholders.
Shareholders may not cumulate their votes in the election of directors.
Shareholders are entitled to receive ratably such dividends as may be legally
declared by CCBC's Board of Directors. There are legal and regulatory
restrictions on the ability of CCBC to declare and pay dividends. See "MARKET
PRICE AND DIVIDEND INFORMATION." In the event of a liquidation, shareholders are
89
<PAGE>
entitled to share ratably in all assets remaining after payment of liabilities.
Shareholders have no preemptive or conversion rights. Shares are not subject to
further call or assessment. U.S. Trust of California is the transfer agent and
registrar for CCBC common stock.
Preferred Stock
The Board of Directors of CCBC is authorized to fix the
preferences, limitations, relative rights, qualifications and restrictions of
the preferred stock and may establish series of preferred stock and determine
the variations between series. If and when any preferred stock is issued, the
holders of preferred stock may have a preference over holders of CCBC Common
Stock upon the payment of dividends, upon liquidation of CCBC, in respect of
voting rights and in the redemption of the capital stock of CCBC.
Convertible Subordinated Debentures
In 1993, CP Bank issued $4,025,000 of Convertible Subordinated
Debentures Due April 30, 2003, with an initial interest rate of 8%. During 1996,
as part of the plan of reorganization by which CCBC became the bank holding
company for CP Bank, CCBC assumed the debentures under the original terms and
provisions. Interest on the CCBC debentures is payable by CCBC semiannually on
April 1 and October 1 of each year, based on a variable rate of 1.5% over the
average annual yield on the 10-year U.S. Treasury bond for the month ending two
months prior to the beginning of each six month interest period, subject to a
minimum of 8% and a maximum of 10%. The CCBC debentures may be converted into
CCBC Shares at any time at the option of the holder at the conversion price of
$12.75 per share. CCBC may currently redeem the CCBC debentures at its option,
either in whole or in part, at 104% of principal value until March 31, 1998 and
at 100% of principal value thereafter.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
General
SWB is incorporated under and subject to all the provisions of
the corporate law of California. CCBC is incorporated under and subject to all
of the provisions of the Delaware General Corporation Law (the "Delaware Law").
Upon consummation of the Merger, the shareholders of CCBC will become
shareholders of SWB.
The following is a general discussion of certain differences
between the rights of SWB shareholders and CCBC shareholders under the
respective articles of incorporation and bylaws and applicable corporate laws.
Declaration of Dividends
Under California Law, the directors of SWB may declare and pay
dividends upon the shares of its capital stock either (a) out of its retained
earnings, or (b) out of capital, provided the company would, after making the
distribution, meet two conditions, which generally stated are as follows: (i)
the corporation's assets must equal at least 125% of its liabilities; and (ii)
the corporation's current assets must equal at least its current liabilities or,
if the average of the corporation's earnings before taxes on income and before
interest expense for the two preceding fiscal years was less than the average of
the corporation's interest expense for such fiscal years, then the corporation's
current assets must equal at least 125% of its current liabilities.
Under Delaware law, CCBC may pay a dividend out of any
surplus.
Under the California Banking Law, Sierra Bank and CP Bank each
may pay to their respective holding companies a dividend equal to its retained
earnings or its net income from the last three years, whichever is less, or,
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with the prior approval of the Commissioner, it may pay dividends up to the
greatest of its retained earnings, its net income for its last fiscal year or
its net income for its current fiscal year.
Limitation on Directors' Monetary Liability
The SWB articles indemnify directors of SWB for monetary
damages to the fullest extent permissible under California law as it now exists
or may be amended. The CCBC Articles currently provide for a similar
limitation on directors' monetary liability.
Indemnification of Directors and Executive Officers
The SWB Articles provide that the liability of directors for
monetary damages is eliminated to the fullest extent permissible under the
California Law. This provision relieves directors of SWB of liability to SWB for
simple negligence but not for liability where the director was either grossly
negligent or guilty of a willful breach of his or her loyalty to SWB. The SWB
Articles do not, and under the California Law cannot, eliminate or limit the
liability of a director resulting from the following actions:
(a) acts or omissions that involve intentional conduct or a
knowing and culpable violation of law;
(b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders or that involve the
absence of good faith on part of the director;
(c) any transaction from which a director derived an improper
personal benefit;
(d) acts or omissions that show a reckless disregard for the
director's duty to the corporation or its shareholders in circumstances in which
the director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the corporation
or its shareholders;
(e) acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
corporation or its shareholders;
(f) any transaction between the corporation and (i) a
director, or (ii) a corporation, firm or association in which the director has a
material financial interest; or
(g) any distribution to shareholders, and for any loan or
guaranty to officers or directors, that violates specified provisions of the
California Law.
The CCBC Certificate provides that, to the fullest extent
permitted by the Delaware Law, as the same exists or may hereafter be amended,
no director of CCBC shall be personally liable to the corporation or to its
shareholders for monetary damages for breach of fiduciary duty as a director.
The fiduciary duty is a duty of care owed by directors in making corporate
business decisions. The Delaware Supreme Court has held that the duty of care
requires the exercise of an informed business judgment. An informed business
judgment means that directors have informed themselves of all material
information reasonably available to them. Having become so informed, they then
must act with requisite care in the discharge of their duties. The CCBC
Certificate does not eliminate the duty of care but eliminates the remedy of
monetary damage awards occasioned by breaches of that duty. Thus, any
shareholder may seek to enjoin a proposed transaction from occurring or seek
other non-monetary relief. After the transaction has occurred, however, the
shareholder would no longer have a claim for monetary damages against the
directors based on a breach of the duty of care even if that breach involved
gross negligence on the part of the directors.
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The CCBC Certificate does not limit or eliminate liability
arising from or based upon (a) any breach of a director's duty of loyalty to the
corporation or its shareholders, (b) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) acts
under Title 8, Section 174 of the Delaware Law, which imposes liability on all
directors, except absent or dissenting directors, under whose administration
there occurs a willful or negligent violation of certain purchases or stock
redemptions, or (d) any transaction from which a director derived an improper
personal benefit. Thus, liability for monetary damages still exists if it is
based on these grounds.
Insofar as indemnification for liabilities arising under the
1933 Act may be permitted to directors, officers and other agents of SWB or CCBC
pursuant to the foregoing provisions or otherwise, however, SWB has been advised
that, in the opinion of the SEC, such indemnification is contrary to public
policy expressed in the 1933 Act and is therefore unenforceable, absent a
decision to the contrary by a court of competent jurisdiction.
Cumulative Voting
Shareholders of SWB are entitled to cumulate their votes for
the election of directors, while shareholders of CCBC are not entitled to
cumulate votes in the election of directors. Cumulative voting allows a
shareholder to cast a number of votes equal to the number of directors to be
elected multiplied by the number of shares held in the shareholder's name on the
record date. This total number of votes may be cast for one nominee or may be
distributed among as many candidates as the shareholder desires. The candidates
(up to the number of directors to be elected) receiving the highest number of
votes are elected.
A California corporation that is a "listed corporation" may,
by amending its articles or bylaws, eliminate cumulative voting for directors.
Because SWB's common stock is quoted on the Nasdaq National Market, it qualifies
as a listed corporation. Such an amendment requires the approval of holders of a
majority of the outstanding shares of SWB common stock. SWB has no present plan
to propose an amendment to eliminate cumulative voting.
Under the Delaware Law, shareholders of a Delaware corporation
do not have cumulative voting rights unless the certificate of incorporation is
amended to provide for cumulative voting. The CCBC certificate of incorporation
has not been so amended.
Classified Board of Directors
At present, the SWB Bylaws and the CCBC Bylaws provide that
directors will be elected for a one-year term at each annual meeting of
shareholders. A California corporation that is a "listed corporation" may, by
amending its articles or bylaws, provide for a staggered or classified Board of
Directors. Such an amendment requires the approval of holders of a majority of
the outstanding shares of SWB common stock. Because SWB common stock is quoted
on the Nasdaq National Market, it qualifies as a listed corporation. SWB has no
present plan to propose an amendment to provide for a classified Board of
Directors.
The Delaware Law permits CCBC upon amendment of its
certificate of incorporation to provide for a classified Board of Directors. The
CCBC certificate of incorporation has not been so amended.
Dissenters' Rights in Mergers and Other Reorganizations
Under the California Corporation Law, a dissenting shareholder
of a corporation participating in certain business combinations may, under
varying circumstances, receive cash in the amount of the fair market value of
his or her shares in lieu of the consideration he or she would otherwise receive
under the terms of the transaction. The California Corporation Law generally
does not require dissenters' rights of appraisal with respect to shares which,
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immediately prior to the merger, are (i) listed on any national securities
exchange certified by the SEC or (ii) listed on the list of over-the-counter
margin stock issued by the FRB. SWB common stock is listed on the list of
over-the-counter margin stocks issued by the FRB.
Under the Delaware Law, shareholders do not have dissenters'
rights in connection with a business combination if the shares of the
corporation were either listed on a national securities exchange or designated
as a national market security on Nasdaq or held of record by 2,000 or more
shareholders or if the transaction does not require approval of the corporations
shareholders. Notwithstanding the foregoing, shareholders have dissenters'
rights if shareholder approval is required and the holders would be required to
accept for their shares any consideration other than shares of stock of the
surviving corporation, shares of another corporation if such shares are listed
on a national exchange or designated as a national market system security on
Nasdaq or cash in lieu of fractional shares. As CCBC's stock is designated as a
national market security on Nasdaq, CCBC shareholders have no dissenters' rights
in connection with the Merger.
CCBC shareholders generally have more limited dissenters'
rights in connection with business combinations than do SWB shareholders.
Dissenters' rights are not available to the shareholders of a corporation
surviving a merger if no vote of the shareholders of the surviving corporation
is required.
Delaware Anti-Takeover Statute
Section 203 of the Delaware Law would prohibit a "business
combination" (defined generally to include mergers, sales and leases of assets,
issuances of securities and similar transactions) by CCBC or a subsidiary with
an Interested Shareholder (as defined in the Delaware Law) within three years
after the person or entity becomes an Interested Shareholder, unless (a) prior
to the person or entity becoming an Interested Shareholder, the business
combination or the transaction pursuant to which such person or entity became an
Interested Shareholder shall have been approved by the Board of Directors of
CCBC, (b) upon the consummation of the transaction in which the person or entity
became an Interested Shareholder, the Interested Shareholder holds at least 85%
of the voting stock of CCBC (excluding shares held by persons who are both
officers and directors of CCBC and shares held by certain employee benefit
plans), or (c) the business combination is approved by the Board of Directors of
CCBC and by the holders of at least two-thirds (2/3) of the outstanding voting
stock of CCBC, excluding shares held by the Interested Shareholder. The Merger
is not subject to the limitations set forth in Section 203.
The California Law requires that in certain transactions
involving tender offers or acquisition proposals made to a target corporation's
shareholders by a person who either (a) controls the target corporation, (b) is
an officer or director of the target or is controlled by an officer or director
of the target, or (c) is an entity in which a director or executive officer of
the target has a material interest, a written opinion of an independent expert
be provided as to the fairness of the consideration to the shareholders of the
target corporation. The statute also provides that if a competing proposal is
made at least ten (10) days before shareholders are to vote or shares are to be
purchased under the pending offer by the affiliated party, the latter offer must
be communicated to shareholders and they must be given a reasonable opportunity
to revoke their vote or withdraw their shares, as the case may be.
Shareholder Vote For Mergers And Other Reorganizations
Generally, the California Law requires a shareholder vote for
mergers and other reorganizations in more situations than does Delaware law. For
example, the Delaware Law generally provides for a vote by the shareholders of
each "constituent corporation" to a merger and by shareholders of a corporation
selling all or substantially all of its assets, whereas, in addition to the
foregoing, California law provides for a shareholder vote (a) of an acquiring
corporation in either a share-for-share exchange or a sale-of-assets
reorganization, and (b) of a parent corporation (even though it is not a
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"constituent corporation") whose equity securities are being issued in
connection with a corporate reorganization such as a triangular merger. With
certain exceptions, the California Law also requires a class vote when a
shareholder vote is required in connection with these transactions. In contrast,
the Delaware Law generally does not require class voting, except where the
transaction involves an amendment to the certificate of incorporation that
adversely affects a class of shares.
Inspection Of Shareholder Lists
The California Law provides a right of inspection of the
corporation's shareholder list to any shareholder holding five percent or more
of a corporation's voting shares or a shareholder holding one percent or more of
a corporation's shares who has filed a Schedule 14B with the SEC (Schedule 14B
is filed in connection with certain proxy contests relating to the election of
directors). In addition, the California Law provides a right of inspection of
shareholder lists by any shareholder for a purpose reasonably related to such
holder's interest as a shareholder. The Delaware Law does not provide any
similar absolute right of inspection, but does permit any shareholder of record
to inspect the shareholder list for any purpose reasonably related to such
person's interest as a shareholder and, for a ten-day period preceding a
shareholders' meeting, for any purpose germane to the meeting.
Shareholder Rights Plan
In December 1995, the Board of Directors of SWB declared a
dividend of one preferred share purchase right (a "Right") for each outstanding
share of common stock. Each Right entitles the registered holder to purchase
from SWB one one-hundredth of a share of Series A Preferred Stock, no par value
(the "Preferred Shares"), of SWB at a price of $40 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment.
Initially, the Rights will be attached to all certificates
representing common shares then outstanding or later issued. The Rights will
separate from the common shares and a Stock Acquisition Date will occur upon the
earlier of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons have acquired beneficial ownership of 10% or
more of the outstanding common shares (other than a person or such a group who
obtains the prior written approval of the Board of Directors) (an "Acquiring
Person"), or (ii) 10 business days (or later as determined by the Board of
Directors) following the commencement of, or announcement of an intention to
make, a tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a person or group of 10% or more of such outstanding
common shares (unless SWB's Board of Directors has approved the offer).
Until the Stock Acquisition Date, the Rights will be
transferred with and only with the common shares. As soon as practicable
following the Stock Acquisition Date, separate certificates evidencing the
Rights ("Right Certificates") will be mailed to holders of record of the common
shares. The Rights are not exercisable until the Stock Acquisition Date. The
Rights will expire on January 16, 2006 (the "Final Expiration Date"), unless the
Rights are earlier redeemed or exchanged by SWB, in each case as described
below. The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time under certain circumstances to prevent dilution.
Because of the nature of the Preferred Shares' dividend, liquidation and voting
rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
common share.
Following a Stock Acquisition Date, each holder of a Right,
other than Rights beneficially owned by an Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of common shares (or, in the event that there are insufficient
authorized common shares, substitute consideration such as cash, property, or
other securities of SWB, such as Preferred Stock) having a market value of two
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times the exercise price of the Right. In the event that SWB is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, each holder of a Right will have
the right to receive, upon the exercise thereof at then current exercise price
of the Right, that number of shares of common stock of two times the exercise
price of the Right. At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 10% or more of the
outstanding common shares and prior to the acquisition by such person or group
of 50% or more of the outstanding common shares, the Board of Directors of SWB
may exchange the Rights (other than Rights owned by such person or group which
have become void), in whole or in part, at an exchange ratio of one common
share, or one one-hundredth of a Preferred Share (or of a share of a class or
series of SWB's preferred stock having equivalent rights, preferences and
privileges), per Right (subject to adjustment).
At any time before a person becomes an Acquiring Person, the
Board of Directors of SWB may redeem the Rights in whole, but not in part, at a
price of $0.001 per Right (the "Redemption Price"). After the redemption period
has expired, SWB's rights of redemption may be reinstated if, prior to
completion of certain recapitalizations, mergers or other business combinations,
an Acquiring Person reduces its beneficial ownership to less than 10% of the
outstanding common shares in a transaction or series of transactions not
involving SWB. The terms of the Rights may be amended by the Board of Directors
of SWB without the consent of the holders of the Rights, except that from and
after such time as any person becomes an Acquiring Person no such amendment may
adversely affect the interests of the holders of the Rights.
A copy of the Rights Agreement describing the Rights has been
filed with the SEC as an exhibit to a Form 8-K. A copy of the Rights Agreement
is available free of charge from SWB. This summary description of the Rights
does not purport to be complete and is qualified in its entirety by reference to
the Rights Agreement, which is hereby incorporated herein by reference.
CCBC has not adopted any shareholders protection plan.
Nomination of Directors
Under SWB's bylaws, nominations for election of members of the
Board of Directors of SWB may be made by the Board of Directors or by any holder
of any outstanding class of capital stock of SWB entitled to vote for the
election of directors. Notice of intention to make any nominations by
shareholders) are required to be made in writing and to be delivered or mailed
to the President of SWB by the later of: (i) the close of business 21 days prior
to any meeting of shareholders called for the election of directors, or (ii) ten
days after the date of mailing of notice of the meeting to shareholders. Such
notification must contain : (a) the nominee's name, address, principal
occupation and the number of shares of capital stock of SWB owned; (b) the
nominating shareholder's name, residence address, number of shares of capital
stock of SWB owned; (c) the number of shares of capital stock of any bank, bank
holding company, savings and loan association or other depository institution
owned beneficially by the nominee or by the notifying shareholder and the
identities and locations of any such institutions; and (d) other information
that is normally required to be included in a proxy statement under the
Securities Exchange Act of 1934. The foregoing requirements do not apply to the
nominations of a person to replace a proposed nominee who has become unable to
serve as a director between the last day for giving notice in accordance with
this paragraph and the date of election of directors if the procedure called for
in this paragraph was followed with respect to the nomination of the proposed
nominee.
Under CCBC's bylaws, nominations of persons for election to
the Board of Directors of CCBC may be made at the meeting of shareholders (a) by
or at the direction of the Board of Directors or (b) by any shareholder of CCBC
entitled to vote for the election of Directors at the meeting who has complied
with the notice procedures set forth in this Section. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of CCBC. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
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principal executive offices of CCBC not less than 30 days nor more than 60 days
prior to the meeting: provided, however, that if less than 40 days' notice of
the date of the meeting is given to shareholders, notice by the shareholder to
be timely must be so received not later than the close of business on the tenth
day following the day on which such notice of the date of the meeting was
mailed. A shareholder's notice shall set forth (a) all information about the
nominee that is normally required to be included in a proxy statement under the
Securities Exchange Act of 1934; and (b) the nominating shareholder's name and
address and number of shares of CCBC's stock which are owned by such
shareholders.
Amendment of Articles or Certificate
The SWB Articles may be amended with the approval of the Board
of Directors and a majority of the outstanding SWB Shares. Under certain
circumstances the articles of incorporation of a California corporation may be
amended without shareholder approval in connection with stock splits.
Under the Delaware Law, the CCBC Certificate may be amended
with the approval of the Board of Directors and a majority of the shareholders.
In addition, if CCBC were to have more than one class stock outstanding,
amendments that would adversely affect the rights of any class would require the
vote of majority of the shares of that class. The CCBC Certificate further
provides that the vote of two-thirds of all of the outstanding shares of the
stock of CCBC entitled to vote is required to amend or repeal the provisions of
the CCBC Certificate relating to:
(a) The number of authorized directors, the right of such
directors to change the number and to the vacancies on the Board of Directors,
the terms of office of the members of the Board of Directors and the provisions
setting forth the vote of the shareholders required to remove a director for
cause;
(b) The authority of the Board of Directors and the
shareholders to amend the CCBC Bylaws;
(c) The elimination of directors' personal liability for
monetary damages arising from their negligence and gross negligence;
(d) Indemnification of directors, officers or employees;
and
(e) The percentage of the shares of CCBC stock necessary to
amend the CCBC Certificate.
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EXPERTS
The consolidated financial statements incorporated in this
Joint Proxy Statement / Prospectus by reference from SierraWest Bancorp's Annual
Report on Form 10-K for the year ended December 31, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing. Representatives of Deloitte & Touche, LLP will be present at the SWB
Meeting.
The consolidated financial statements incorporated in this
Joint Proxy Statement / Prospectus by reference from California Community
Bancshare's Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing. Representatives of Deloitte & Touche, LLP will be
present at the CCBC Meeting.
LEGAL MATTERS
Certain legal matters with respect to SWB, including the
validity of the SWB common stock to be issued in connection with the Merger,
will be passed upon for SWB by McCutchen, Doyle, Brown & Enersen, LLP, San
Francisco, California. Certain legal matters with respect to CCBC will be on
passed by Lillick & Charles LLP, San Francisco, California.
OTHER MATTERS
The Board of Directors of SWB know of no other matters which
will be brought before the SWB Meeting, but if such matters are properly
presented to the SWB Meeting, proxies solicited hereby relating to the SWB
Meeting will be voted in accordance with the judgment of the persons holding
such proxies. All shares represented by duly executed proxies will be voted at
the SWB Meeting.
The Board of Directors of CCBC know of no other matters which
will be brought before the CCBC Meeting, but if such matters are properly
presented to the CCBC Meeting, proxies solicited hereby relating to the CCBC
Meeting will be voted in accordance with the judgment of the persons holding
such proxies. All shares represented by duly executed proxies will be voted at
the CCBC Meeting.
Copies of SWB's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, Form 10-Q for the quarter ended September 30, 1997,
CCBC's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1996
and Form 10-QSB for the quarter ended September 30, 1997 accompany this Joint
Proxy Statement/Prospectus. Additional copies can be obtained without charge
(except for certain exhibits) by contacting David Broadley, Executive Vice
President/Chief Financial Officer, SierraWest Bancorp, P.O. Box 61000, 10181
Truckee-Tahoe Airport Road, Truckee, California 96160 (as to SWB) and Andrew S.
Popovich, Executive Vice President/Chief Administrative Officer, California
Community Bancshares Corporation, 555 Mason Street, Suite 280, Vacaville,
California 95688 (as to CCBC).
CCBC shareholders who wish to submit a proposal for
consideration at CCBC's 1998 Annual Meeting of Shareholders (which will be held
only if the Merger has not been consummated prior to the date the meeting is to
be held) must submit the proposal to California Community Bancshares
Corporation, 555 Mason Street, Suite 280, Vacaville, California 95688,
Attention: Corporate Secretary. Such proposals must have been received not later
than December 12, 1997 for inclusion, if appropriate, in CCBC's proxy statement
and form of proxy relating to its 1998 Annual Meeting and are subject to the
SEC's rules regarding the inclusion of shareholder proposals.
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SWB shareholders who wish to submit a proposal for
consideration at SWB's 1998 Annual Meeting of Shareholders must submit the
proposal to SierraWest Bancorp, P.O. Box 61000, 10181 Truckee-Tahoe Airport
Road, Truckee, California 96160, Attention: Corporate Secretary. Such proposals
must have been received not later than December 19, 1997 for inclusion, if
appropriate, in SWB's proxy statement and form of proxy relating to its 1998
Annual Meeting and are subject to the SEC's rules regarding the inclusion of
shareholder proposals.
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Annex A Plan of Acquisition and Merger dated November 13, 1997
Annex B Stock Option Agreement dated November 13, 1997.
Annex C Fairness Opinion of Van Kasper
Annex D Fairness Opinion of NationsBanc Montgomery
Annex E Excerpts of Chapter 13 of the California Corporations Code
regarding Dissenters' Rights
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Annex A
Plan of Acquisition and Merger
THIS PLAN OF ACQUISITION AND MERGER, dated as of November 13, 1997
("Agreement"), is made by and between SierraWest Bancorp ("Bancorp"), a
California corporation and a registered bank holding company under the Federal
Bank Holding Company Act of 1956 as amended ("BHCA"), SierraWest Bank ("Sierra
Bank"), a California banking corporation (collectively "Sierra") and California
Community Bancshares Corporation ("Bancshares"), a Delaware corporation and a
registered bank holding company under the BHCA, and its wholly owned subsidiary,
Continental Pacific Bank ("CPB"), a California state banking corporation
(collectively "CCBC").
WITNESSETH:
A. The Boards of Directors of Sierra and CCBC deem it advisable and in
the best interests of Sierra, CCBC and their shareholders that Sierra and CCBC
enter into a business combination whereby Bancshares will be merged with and
into Bancorp ("Merger") with Bancorp as the surviving corporation and Bancorp's
wholly owned subsidiary, Sierra Bank will be merged with CPB ("Bank Merger"),
with Sierra Bank being the surviving corporation.
B. The Agreement and Plan of Merger attached as Exhibit A is intended
to be filed with the California Secretary of State and the Delaware Secretary of
State ("Agreement and Plan of Merger") and the Bank Merger Agreement attached as
Exhibit B is intended to be filed with the California Secretary of State when it
has been approved by the Department of Financial Institutions of the State of
California ("Bank Merger Agreement"), (collectively the "Merger Agreements").
C. The Merger is intended to qualify as a tax free reorganization
within the meaning of the provisions of Section 368 of the Internal Revenue Code
of 1986, as amended (the "IRC") and to qualify as a "pooling of interests".
D. Pursuant to the Merger, each Bancshares shareholder will receive, in
exchange for each share of Bancshares common stock of Bancorp, the number of
shares of Bancorp common stock determined in accordance with the Exchange Ratio
as more fully set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
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Section 1. THE MERGER AND BANK MERGER.
1.1 Effective Date. Subject to the terms and conditions of this
Agreement, the Merger shall become effective at the date on which an executed
copy of the Agreement and Plan of Merger has been filed with the California
Secretary of State and the Delaware Secretary of State ("Effective Date"). On
the Effective Date, the Bank Merger Agreement will be certified by the
California Secretary of State and filed with the Commissioner of Financial
Institutions of the State of California ("Commissioner") pursuant to Section
4887 of the California Financial Code, in each case on the Closing Date as
defined in Section 9.1 hereof.
1.2 Effect of the Bank Merger. Subject to the terms and conditions of
this Agreement, on the Effective Date, CPB shall be merged with and into Sierra
Bank and Sierra Bank shall be the surviving bank ("Surviving Bank") in the Bank
Merger. All assets, rights, privileges, immunities, power, franchises and
interests of CPB in and to every type of property (real, personal and mixed) and
choses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests,
shall pass and be transferred to and vest in Sierra Bank as the Surviving Bank
by virtue of the Bank Merger on the Effective Date without any deed, conveyance
or other transfer; the separate existence of CPB shall cease and the corporate
existence of Sierra Bank as the Surviving Bank shall continue unaffected and
unimpaired by the Bank Merger; and the Surviving Bank shall be deemed to be the
same entity as each of CPB and Sierra Bank and shall be subject to all of their
duties and liabilities of every kind and description. The Surviving Bank shall
be responsible and liable for all the liabilities and obligations of each of
Sierra Bank and CPB; and any claim existing or action or proceeding pending by
or against Sierra Bank or CPB may be prosecuted as if the Bank Merger had not
taken place, or the Surviving Bank may be substituted in its place. Neither the
rights of creditors nor any liens upon the property of Sierra, Sierra Bank or
CPB shall be impaired by reason of the Bank Merger. The articles of
incorporation of Sierra Bank shall be the articles of incorporation of the
Surviving Bank and the bylaws of Sierra Bank shall be the bylaws of the
Surviving Bank. On the Effective Date, Sierra Bank shall assume the operations
of, as successor to, CPB. Subject to Section 1.4, on the Effective Date the
board of directors of Sierra Bank will continue to serve until successors are
duly elected and qualified. Sierra Bank shall remain a wholly-owned subsidiary
of Bancorp.
1.3 Effect of the Merger. Subject to the terms and conditions of this
Agreement, on the Effective Date, Bancshares shall be merged with and into
Bancorp with Bancorp as the surviving corporation ("Surviving Corporation") in
the merger. All assets, rights, privileges, immunities, power, franchises and
interests of Bancshares in and to every type of property (real, personal and
mixed) and choses in action, as they exist as of the Effective Date, including
appointments, designations and nominations and all other rights and interests,
shall pass and be transferred to and vest in Bancorp as the Surviving
Corporation by virtue of the Merger on the Effective Date without any deed,
conveyance or other transfer; the separate existence of Bancshares shall cease
and the corporate existence of Bancorp as the Surviving Corporation shall
continue unaffected and unimpaired by the merger; and the Surviving Corporation
shall be deemed to be the same entity as each of Bancshares and Bancorp and
shall be subject to all of their duties and liabilities of every kind and
description. The Surviving Corporation shall be responsible and liable for all
the liabilities and obligations of each of Bancorp and Bancshares; and any claim
existing or action or proceeding pending by or against Bancorp or Bancshares may
be prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place. Neither the rights of creditors nor any liens
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upon the property of Sierra, Bancorp or Bancshares shall be impaired by reason
of the Merger. The articles of incorporation of Bancorp shall be the articles of
incorporation of the Surviving Corporation and the bylaws of Bancorp shall be
the bylaws of the Surviving Bank. On the Effective Date, Bancorp shall assume
the operations of, as successor to, Bancshares. Subject to Section 1.4, on the
Effective Date the board of directors of Bancorp will continue to serve until
successors are duly elected and qualified. Sierra Bank shall remain a
wholly-owned subsidiary of Bancorp.
1.4 Board Composition After the Merger. As soon as practicable
following the Effective Date, the Boards of Directors of Bancorp and of Sierra
Bank shall appoint two existing directors of Bancshares, Mr. Bernard E. Moore
and Mr. Walter D. Sunderman, to the Boards of Directors of Bancorp and Sierra
Bank. In the event Mr. Moore and/or Mr. Sunderman (each a "CCBC Appointee")
resigns or chooses not to serve as a director of Bancorp and/or Sierra Bank,
such CCBC Appointee shall recommend his successor from those persons who were
directors of CCBC on the Effective Date (a "Successor Director") to the
Nominating Committee of the Bancorp Board of Directors. Assuming that such
recommended Successor Director meets the then existing written criteria for
selection of board nominees, the recommended Successor Director will be
appointed to the Boards of Directors of Bancorp and Sierra Bank. If because of
death, disability, or otherwise, either Mr. Moore or Sunderman is incapable of
selecting his successor, then the remaining CCBC Appointee shall recommend the
Successor Director for the CCBC Appointee who is so incapacitated. In the event
that any Successor Director resigns, chooses not to serve, or otherwise cannot
serve, then Bancorp shall have no further obligation to offer any other existing
director a position on Bancorp's or Sierra Bank's Boards of Directors. Once
appointed to the Boards, subject to the written performance criteria applicable
to all Bancorp directors, the nominating committee of Bancorp shall nominate and
recommend for approval such CCBC Appointee (or a Successor Director thereof) for
one year terms at the annual meetings of Bancorp for the years 1998, 1999 and
2000; provided, however, if any such director is not re-elected by the
shareholders of Bancorp, then Bancorp shall have no further obligation to
further nominate or appoint such director to the Boards of Directors of Bancorp
or Sierra Bank and shall have no further obligation to offer any other existing
director a position on Bancorp's or Sierra Bank's Boards of Directors. In the
event of a change of control of Bancorp occurs in which the acquirer elects a
majority of the Board of Directors, then the requirements of this Section 1.4
shall cease.
Section 2. CONVERSION AND CANCELLATION OF SHARES.
2.1 Exchange Amount; Conversion of Shares of Bancshares Common Stock.
(a) For purposes of this Agreement, capitalized terms have the
following meanings:
CCBC Shares Issued and outstanding shares of Bancshares
$0.10 par value common stock ("CCBC Shares")
as of the Effective Date.
Business Combination Any merger, sale or purchase of an entity or
subsidiary, sale or purchase of a
substantial portion of any entity's assets, or
tender offer or other means of acquisition of
substantially all the outstanding capital
stock of any entity.
Exchange Ratio The number of Sierra Shares to be
received in exchange for each CCBC Share
pursuant to the calculation set forth in
Section 2.1(b) below.
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Market Value The average of the closing prices of the
Sierra Shares as reported in the western
edition of the Wall Street Journal for the 20
trading days preceding the Determination Date.
For purpose of determining the average, the
divisor shall be only those days on which a
trade occurs.
Determination Date The fifth business day preceding the Effective
Date.
(b) On the Effective Date, by virtue of the Merger and without any
action on the part of the holders of CCBC Shares, each outstanding CCBC Share
(other than any shares as to which dissenters' rights have been perfected) shall
be converted into the right to receive shares of the common stock, no par value,
of Bancorp ("Sierra common stock" or "Sierra Shares") equal to the Exchange
Ratio as follows:
(i) If the Market Value is between $22.76 and $25.24,
inclusive, the Exchange Ratio shall be determined by dividing $26.40 by the
Market Value.
(ii) If the Market Value is between $25.25 and $26.25,
inclusive, the Exchange Ratio shall be 1.0476.
(iii) If the Market Value is between $26.26 and 28.24,
inclusive, the Exchange Ratio shall be 1.0476 minus .000238 for each $0.01 by
which the Market Value is greater than $26.25.
(iv) If the Market Value is $28.25, the Exchange Ratio shall
be 1.000.
(v) Subject to the limitations set forth in Section 2.1(c)
below, if the Market Value is between $28.26 and $29.25, inclusive, the Exchange
Ratio shall be determined by dividing (A) $28.25 plus 75% of the amount by which
the Market Value exceeds $28.25 by (B) the Market Value.
(vi) Subject to the limitations set forth in Section 2.1(c)
below, if the Market Value is between $29.26 and $30.25, inclusive, the Exchange
Ratio shall be determined by dividing (A) $29.00 plus 50% of the amount by which
the Market Value exceeds $29.25 by (B) the Market Value.
(vii) Subject to the limitations set forth in Section 2.1(c)
below, if the Market Value exceeds $30.26, the Exchange Ratio shall be
determined by dividing (A) $29.50 plus 25% of the amount by which the Market
Value exceeds $30.25 by (B) the Market Value.
(viii) Subject to the limitations set forth in Section
2.1(d) below, if the Market Value is $22.75 or less, the Exchange Ratio shall
be 1.1579.
(c) In the event that Sierra enters into a Business Combination with
any other entity in which Sierra shall not be the continuing or surviving
corporation or entity of such Business Combination prior to the Determination
Date, then, in the event that the Market Value exceeds $28.25, the Exchange
Ratio shall be 1.000.
(d) In the event that the Market Value is less than $21.59, then CCBC
has the right to terminate this Agreement pursuant to the terms of Section 11(h)
hereof. If CCBC notifies Sierra that it intends to terminate this Agreement
pursuant to the provisions of Section 11(h), then Sierra shall have the right
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but not the obligation to elect to issue an additional number of Sierra Shares
so that the Exchange Ratio shall be equal to the quotient obtained by dividing
$25.00 by the Market Value. If Sierra chooses not to exercise its right to issue
such additional Sierra Shares, then CCBC may proceed to terminate this Agreement
pursuant to Section 11(h).
(e) On the Effective Date each outstanding Bancshares debenture, as
defined in Section 4.4, shall be by virtue of the Merger, assumed by Bancorp,
provided, however, the conversion of such Bancshares debentures into Sierra
Shares shall be adjusted to reflect the Exchange Ratio on the Effective Date.
(f) All references in this Agreement to Sierra Shares or Sierra common
stock shall be deemed to include the corresponding rights to purchase shares of
Sierra common stock, including common stock equivalent preferred stock of
Bancorp, pursuant to that Rights Agreement dated as of January 16, 1996 between
American Stock Transfer and Trust Company and Sierra Tahoe Bancorp. Each
certificate representing Sierra Shares will bear a notation incorporating the
Rights Agreement by reference.
2.2 Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of Sierra common stock shall be issued to holders of CCBC
Shares. In lieu thereof, each such holder entitled to a fraction of a share of
Sierra common stock shall receive, at the time of surrender of the certificate
or certificates representing such holder's CCBC Shares, an amount in cash equal
to the Market Value per share of the common stock of Sierra, multiplied by the
fraction of a share of Sierra 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.
2.3 Surrender of CCBC Shares.
(a) Prior to the Effective Date, Sierra shall appoint any bank or trust
company mutually acceptable to Bancshares and Sierra, as exchange agent (the
"Exchange Agent") for the purpose of exchanging certificates representing the
CCBC Shares at and after the Effective Date, Sierra shall issue and deliver to
the Exchange Agent certificates representing the Sierra Shares, as shall be
required to be delivered to holders of CCBC Shares. As soon as practicable after
the Effective Date, each holder of CCBC Shares converted pursuant to Section
2.1, upon surrender to the Exchange Agent of one or more certificates for such
CCBC Shares for cancellation, will be entitled to receive a certificate
representing the number of Sierra Shares determined in accordance with Section
2.1 and a payment in cash with respect to fractional shares, if any, determined
in accordance with Section 2.2.
(b) No dividends or other distributions of any kind which are declared
payable to stockholders of record of the Sierra Shares after the Effective Date
will be paid to persons entitled to receive such certificates for Sierra Shares
until such persons surrender their certificates representing CCBC Shares. Upon
surrender of such certificate representing CCBC Shares, the holder thereof shall
be paid, without interest, any dividends or other distributions with respect to
the Sierra Shares 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 Sierra Shares is to be issued in a name
other than that in which the certificate for CCBC Shares 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
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such Sierra Shares in a name other than the registered holder of the certificate
surrendered, or such persons shall establish to the satisfaction of Sierra 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 2.2 in lieu of fractional shares, if held by the Exchange Agent for
payment or delivery to the holders of unsurrendered certificates representing
CCBC 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 Sierra, and after such time any holder of a certificate
representing CCBC Shares who has not surrendered such certificate to the
Exchange Agent shall, subject to applicable law, look as a general creditor only
to Sierra for payment or delivery of such dividends or distributions or cash, as
the case may be.
2.4 No Further Transfers of CCBC Shares. At the Effective Date, the
stock transfer books of Bancshares shall be closed and no transfer of CCBC
Shares theretofore outstanding shall thereafter be made.
2.5 Adjustments. If, between the date of this Agreement and the
Effective Date, the outstanding Sierra Shares shall have been changed into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within such period, the number of Sierra Shares to be issued and delivered in
the Merger in exchange for each outstanding CCBC Share shall be correspondingly
adjusted.
2.6 Treatment of Stock Options.
(a) On the Effective Date, the obligations under any stock option plans
of CCBC shall be assumed by Sierra. On the Effective Date, options to purchase
CCBC Shares issued pursuant to CCBC's stock option plans shall be converted,
without any action on the part of the holders thereof, into options to acquire,
upon payment of the adjusted exercise price (which shall equal the exercise
price per share for the options immediately prior to the Merger, divided by the
Exchange Ratio), the number of shares of Sierra shares the option holder would
have received pursuant to the Merger if he or she had exercised all his or her
options immediately prior thereto.
(b) Such stock option plan as shall be applicable to CCBC stock options
shall be deemed to be amended to the effect that a non-officer Director's
service does not terminate as long as he or she remains a Director or advisory
Director of Sierra on and after the Effective Date. Sierra covenants that it
will, for purposes of the CCBC stock option plan, at or immediately following
the Effective Date, offer each current non-officer Director of CCBC a position
as advisory Director of Sierra for a period of not less than 2 years.
(c) Subject to the mutual intent of the parties that the Merger will be
accounted for under the pooling-of-interests method, Sierra and CCBC shall
otherwise amend their respective option plans and obtain any required
shareholder approvals of such option plan amendments and shall amend, as
necessary, any and all option agreements (including obtaining any required
participant consents) prior to the Effective Date to make them consistent with
this Section 2.6.
2.7 Personnel Matters.
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(a) Employment At Effective Date. On the Effective Date, except for
employees with contracts that will be assumed by Sierra, CCBC employees shall
become employees at will of Sierra. Prior to the Effective Date, CCBC may, with
the consent of Sierra, make additional special bonus payments not to exceed six
months salary to retain employees who are deemed necessary to complete the
Merger and the Bank Merger. In the even that CCBC terminates employees prior to
the Effective Date, it shall abide by all internal policies and all legal
requirements for termination of employment. From the date of this agreement
through the Effective Date, CCBC shall consult with the human resources
representative of Sierra, who shall be designated in writing to CCBC by Sierra,
and keep that representative advised as to all matters related to employment.
From the day of the Effective Date or any time thereafter, former employees of
CCBC who are employed by Sierra following the Effective Date may be terminated
by Sierra, with or without cause, for any reason not prohibited by law.
(b) Retirement Benefits. Employees of Sierra formerly employed by CCBC
on the Effective Date shall be eligible for participation in the Sierra 401(k)
plan and employee stock option plan at the earliest normal entry date following
the Effective Date as allowed by applicable law and the provisions of Sierra's
benefit plans, so long as such employees then meet the eligibility requirements
for participation in the Sierra plan. The former employees of CCBC who are
employed by Sierra Bank will be credited for years of prior service with CCBC
for vesting (non-forfeitability) of accrued benefits in the Sierra plans to the
fullest extent such credit for such prior service is permitted by Sierra's plans
and by the laws, rules and regulations of the Internal Revenue Service and the
Employee Income Security Act of 1974, as amended.
(c) Other Benefit Plans.
(i) After the Effective Date, any or all CCBC welfare benefit
plans shall be terminated by Sierra. Sierra Bank employees formerly employed by
CCBC immediately prior to the Effective Date shall be eligible for participation
in any existing Sierra plan, so long as such employee would otherwise be
eligible to participate in such plan.
(ii)Employees of Sierra Bank formerly employed by CCBC on the
Effective Date will receive credit for length of service with CCBC for
determination of eligibility or participation in the Sierra (A) health service
plans, or (B) long-term disability, voluntary accident and life insurance plans.
(d) Other Benefits.
(i) Employees of Sierra formerly employed by CCBC on the
Effective Date will retain vacation benefits accrued with CCBC prior to the
Effective Date, subject to Sierra's maximum accrual and carryover limitations
for such benefits; and will also retain the amount of sick leave benefit
eligibility on CCBC's records prior to the Effective Date, to be available
subject to Sierra's policy for sick leave benefits; provided, however, such
employees shall not be entitled to payment for carry-over CCBC sick leave upon
termination of employment as is provided under Sierra's sick leave policy, and,
provided further, CCBC shall have accrued the cost of such benefits on the books
of CCBC on or before the Determination Date. Following the Effective Date, all
employees shall be subject to the standard policies of Sierra for accrual of
such benefits.
(ii)Employees of Sierra Bank formerly employed by CCBC on the
Effective Date will be subject to the severance policies in effect for all
Sierra employees.
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Section 3. COVENANTS OF THE PARTIES.
3.1 Mutual Covenants.
(a) Government Approvals. Each party will use its reasonable best
efforts in good faith to take or cause to be taken as promptly as practicable
all such steps within their reasonable control to obtain (i) the waiver of an
application or prior approval of the Merger by the Board of Governors of the
Federal Reserve System ("FRB") under the BHCA, (ii) the prior approval of the
Commissioner to the Merger; (iii) the prior approval of the Federal Deposit
Insurance Corporation ("FDIC") under the Bank Merger Act, and (iv) all other
consents and approvals of government agencies as are required by law or
otherwise, and shall do any and all acts and things necessary or appropriate in
order to cause the Merger and Bank Merger to be consummated on the terms
provided in the Merger Agreements and this Agreement as promptly as practicable.
The approvals referred to in clauses (i)-(iv) of this Section 3.1(a) are
hereinafter referred to as the "Government Approvals." Each party shall respond
to a written request for information sought by the other for the purpose of
obtaining the Government Approvals promptly and in all cases within 10 days
after receipt of such request.
(b) Notification of Breach of Representations, Warranties and
Covenants. Each party shall promptly give written notice to the other party upon
becoming aware of the occurrence or impending or threatened occurrence of any
event which would cause or constitute a material breach of any of the
representations, warranties or covenants of that party contained or referred to
in the Merger Agreements or this Agreement and shall use its reasonable best
efforts to prevent the same or remedy the same promptly.
(c) Financial Statements.
(i) Each party has delivered or shall deliver to the other
party promptly after they become available true and correct copies of audited
financial statements as of such date and covering such period as may be
necessary to satisfy the minimum requirements of the Securities and Exchange
Commission ("SEC") and other governmental authorities having approval authority
over the Merger and Bank Merger. The financial statements for such year ends
have been or shall be audited by their respective independent certified public
accounting firms which have been engaged in the past and include or shall
include an unqualified opinion of each such accounting firm, to the effect that
such financial statements have been prepared in accordance with GAAP
consistently applied and present fairly, in all material respects, the
consolidated financial position, results of operations and cash flows of the
respective parties at the dates indicated and for the periods then ending.
(ii) Each party shall provide to the other party promptly
after they become available copies of all financial statements and proxy
statements issued to either party's shareholders and/or directors after December
31, 1996, or to be issued at or prior to the Effective Date.
(iii) Each party has delivered or shall deliver, to the other
party true and complete copies of its Annual Report to Shareholders for the
years ended December 31, 1996, 1995 and 1994, all periodic reports (including
interim quarterly financial statements) since December 31, 1994, all proxy
statements and other written material furnished to its shareholders since
December 31, 1994, and all other material reports, including year-end call
reports, relating to Sierra or CCBC filed by Sierra or CCBC with the SEC, the
FRB, the Commissioner or the FDIC during 1994 through 1996 and in 1997 prior to
the Effective Date. As of its date, each of the documents described in the
preceding sentence complied or shall comply in all material respects with all
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legal and regulatory requirements applicable thereto.
(d) Press Releases. Neither party shall issue any press release or
written statement for general circulation relating to this Agreement unless
previously provided to the other party for review and approval (which approval
will not be unreasonably withheld or delayed) and shall cooperate with the other
party in the development and distribution of all news releases and other public
information disclosures with respect to the Bank Merger, the Merger, this
Agreement or the Agreement and Plan of Merger or Bank Merger Agreement; provided
that either party may, without the consent of the other party, make any
disclosure with regard to this Agreement that it determines, upon advice of
counsel, is required under any applicable law or regulation.
(e) Access to Properties, Books and Records; Confidentiality. Prior to
the Effective Date, each party shall (except as may be prohibited by applicable
law) give the other party and its officers, employees, agents and
representatives full access, during normal business hours and upon reasonable
notice, to all of its properties, books, contracts, records and facilities
including, but not limited to, the corporate, financial and operational records,
papers, reports, instructions, procedures, tax returns and filings, tax
settlement letters, material contracts or commitments, regulatory examinations
and correspondences. Each party shall also use its reasonable best efforts to
cause its independent accounting firm to make available to the other party, its
accountants, counsel and other agents, to the extent reasonably requested in
connection with such review, such firm's work papers and documentation relating
to its work papers and its audits of the books and records of each party. Each
party shall make available to the other originals or copies, at the responding
party's election, of such documents and records as the other may reasonably
request. The availability or actual delivery of such information about either
party shall not affect the covenants, representations and warranties of either
party contained in this Agreement, the Bank Merger Agreement and the Agreement
and Plan of Merger. Each party shall respond to any written request for
information promptly and in all cases within 10 days after receipt of such
request. Each party shall use its reasonable best efforts to cause its officers,
directors, employees, auditors and attorneys to cooperate with the other in its
reasonable requests for information except that no information which is
reasonably determined to be the subject of the attorney client privilege shall
be required to be disclosed. Each party shall treat as confidential all such
information in the same manner as each party treats similar confidential
information of its own, and if this Agreement is terminated, each party shall
continue to treat all such information as confidential and to cause its
employees to keep all such information confidential and shall return such
documents therefore delivered by the other party as the other party shall
request, and shall use such information, or cause it to be used, solely for the
purposes of evaluating and completing the transactions contemplated hereby;
provided that each party may disclose any such information to the extent
required by federal or state securities laws or otherwise required by any
governmental agency or authority, or by generally accepted accounting
principles. The foregoing confidentiality obligations shall not apply in respect
of any information publicly available or to any information previously known to
the party in question, the use of which is not otherwise restricted.
(f) Additional Agreements. In case at any time after the Effective Date
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation and the Surviving Bank with full
title to all properties, assets, rights, approvals, immunities and franchises of
any of the parties to the Merger and the Bank Merger, the proper officers and
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directors of each party to this Agreement shall take all such necessary action
as may be reasonably requested by, and at the sole expense of, Sierra. Pending
the Effective Date, Sierra and CCBC shall consult with one another and cooperate
as reasonably requested by Sierra to facilitate the integration of their
respective operations as promptly as practicable after the Effective Date. Such
cooperation shall include, if requested, communicating with employees, customers
and depositors; consultation regarding material contracts, renewals, and capital
commitments to be entered into by CCBC; coordination regarding third-party
service agreements with a view to providing common products and services as
expeditiously as practicable following the Effective Date; making arrangements
for employee training prior to the Effective Date; and taking action to
facilitate an orderly conversion of data processing operations to occur promptly
following the Effective Date, provided that the cooperation required under this
Section 3.1(f) shall not be deemed to require actions that would materially
delay or impede the Merger.
(g) Advice of Changes. Sierra and CCBC shall promptly advise the other
party of any change or event having, or that would be reasonably likely to have,
a material adverse effect on it or which it believes would or would be
reasonably likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein.
(h) Legal Conditions to Merger. Each of Sierra and CCBC shall use their
reasonable best efforts (a) to take, or cause to be taken, all actions
necessary, proper, or advisable to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and, subject to
the respective conditions set forth in Sections 7 and 8 hereof, to consummate
the transactions contemplated by this Agreement and (b) to obtain (and to
cooperate with the other party to obtain) any consent, authorization, order or
approval of, or any exemption by, any governmental entity and any other third
party which is required to be obtained by CCBC or Sierra in connection with the
Merger and the other transactions contemplated by this Agreement.
3.2 Covenants of CCBC.
(a) Approval by Shareholders. CCBC shall cause the Merger, the Bank
Merger, this Agreement, the Bank Merger Agreement and the Agreement and Plan of
Merger to be submitted promptly for the approval of its shareholders in the most
expeditious manner available to cause approval of the Merger and Bank Merger at
a meeting to be called and held in accordance with applicable laws. CCBC shall
cause the Joint Proxy Materials (as defined in Section 6.1), when approved or
otherwise deemed effective, with any amendments thereto that may, in the
judgment of its counsel, be necessary or desirable, to be mailed to shareholders
of Bancshares. Subject to the fiduciary duty of the Board of Directors of
Bancshares, the Joint Proxy Materials shall include therein a recommendation
that Bancshares shareholders vote to approve the proposed Merger. The Joint
Proxy Materials shall be subject to prior approval by Sierra. In the event that
such is required by applicable securities laws, Sierra shall prepare for
inclusion in the Joint Proxy Materials an appropriate registration
statement/prospectus which CCBC shall assist with by providing such information
and documents as may be required in an expeditious and timely manner. Bancshares
shall hold its shareholder meeting as soon as possible but no later than March
31, 1998 unless prevented from doing so by the regulatory authorities or by
delays in obtaining or conditions imposed by the Government Approvals. Subject
to its continuing fiduciary duty to the shareholders of Bancshares, the members
of the Board of Directors of Bancshares shall at all times prior to and during
such meeting of its shareholders recommend that the transactions contemplated
hereby be adopted and approved and, subject to such duty, use its reasonable
best efforts to cause such adoption and approval.
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(b) Compensation. Except for obligations under contracts with executive
officers including salary continuation plans and standard annual review of
employees and the normal wage increases incident thereto and subject to the
provision of Section 2.7(a) hereof, CCBC shall not make or approve any increase
in the compensation payable or to become payable by it to any of its directors,
officers, employees or agents (including but not limited to compensation through
any profit sharing, pension, retirement, severance, incentive or other employee
benefit program or arrangement), provided that CCBC may, with the prior written
consent of Sierra, make agreements to provide special bonus payments not to
exceed six months salary to retain employees who are deemed necessary to
complete the Merger and the Bank Merger; nor shall any bonus payment or any
agreement or commitment to make a bonus payment be made other than the
obligations to make distributions reflecting 1997 profits under Bancshares'
profit sharing plan and obligations under the 1997 bonus plans, nor shall any
stock option, warrant or other right to acquire capital stock be granted; nor
shall any existing employment agreement be extended or renewed or modified on
terms more favorable to the employee than those that are currently contained in
such contract; nor shall any employment agreement (other than any such
employment agreement that may arise by operation of law upon the hiring of any
new employee) or consulting agreement be entered into by CCBC with any such
directors, officers, employees or agents unless Sierra has given its prior
written consent. Without prior notification to Sierra, CCBC shall not hire any
new employee at an annual rate in excess of current customary practice or, in
any event, in excess of $40,000 per year.
(c) Conduct of Business in the Ordinary Course. Prior to the Effective
Date:
(i) Except as expressly contemplated or permitted in this
Agreement, CCBC shall conduct its businesses in the Ordinary Course as
heretofore conducted. For purposes of this Agreement, the "Ordinary Course" of
CCBC shall consist of banking and related businesses as presently conducted or
consistent with good banking practices and permitted under applicable laws.
Unless Sierra has given its previous written consent to any act or omission to
the contrary (which Sierra shall not unreasonably withhold), CCBC shall, until
the Effective Date, cause its officers to use their reasonable best efforts to:
(A) preserve its business and business organizations
intact;
(B) preserve the good will of customers and others having
business relations with it and take no action that would impair the benefit to
the other party of the goodwill of it or the other benefits of the Merger;
(C) consult with Sierra as to the making of any decisions
or the taking of any actions in matters other than in the Ordinary Course and
cooperate with all reasonable requests of Sierra that, in the reasonable
judgment of Sierra, are necessary to successfully complete the transactions
contemplated by this Agreement, including permitting a designated
representative or representatives of Sierra to attend and participate
(but not vote) in all loan committee meetings and board of directors
meetings, provided such Sierra representative may be excluded from any portion
of a board of directors meeting which relates to the Merger or any
examination report or response thereto, or is reasonably determined to be the
subject of the attorney client privilege;
(D) maintain its properties in customary repair, working
order and condition (reasonable
wear and tear excepted);
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(E) comply in all material respects with all laws,
regulations and decrees applicable to
the conduct of its business;
(F) keep in force at not less than its present limits all
policies of insurance, including
deposit insurance of the FDIC, to the extent reasonably practicable in light
of the prevailing market conditions in the insurance industry;
(G) keep available to the other party the services of its
present officers and employees
(it being understood that both parties shall have the right to terminate the
employment of any of its officers or employees in accordance with its
established employment procedures);
(H) comply in all material respects with all orders,
agreements and memoranda of
understanding with respect to it made by or with any regulatory authority of
competent jurisdiction, and promptly forward to the other party all
communications received from any such authority that are not prohibited by such
authority from being so disclosed and inform the other party of any material
restrictions imposed by any governmental authority on its business;
(I) file in a timely manner (taking into account any
extensions duly obtained) all
reports, tax returns and other documents required to be filed with federal,
state, local and other authorities;
(J) conduct an environmental audit prior to foreclosure on
any property concerning which
it has knowledge, or should have knowledge, that asbestos or asbestos-containing
material, PCB's or PCB-contaminated materials, any petroleum product, or
hazardous substance or waste (as defined under any applicable environmental
laws) was or is present, manufactured, recycled, reclaimed, released, stored,
treated, or disposed of, and provide the results of such audit to and consult
with the other party regarding the significance of the audit prior to the
foreclosure on any such property;
(K) not make, renegotiate, renew, increase, extend or
purchase any loans, advances or loan
commitments, in each case to any of CCBC's officers, directors or any affiliated
or related persons of such directors or officers except in the Ordinary Course
consistent with CCBC's established loan procedures and in compliance with FRB
Regulation O;
(L) not settle or otherwise take any action to release or
reduce any of its rights with
respect to any litigation involving a claim of more than $50,000 in which it is
a party without the consent of Sierra which consent shall not be unreasonably
withheld; and
(M) maintain an allowance for loan losses which shall be
in substantial compliance with
the comments of the FDIC in its most recent Report of Examination.
(ii)CCBC shall not, without first having obtained the written
consent of Sierra which consent shall not be unreasonably withheld, cause its
officers to:
(A) commit itself to any loan or renewal or restructure of
an existing loan with a principal amount in excess of $100,000 if unsecured,
or in excess of $500,000 and with a loan-to-value ratio above 75% if secured by
real property, provided that Sierra's consent shall be deemed given unless
it objects and states the basis of its objection in writing, or verbally with
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prompt written confirmation, within two business days after receipt of written
notice directed to the Chief Credit Officer of Sierra, together with sufficient
supporting information to allow Sierra to make an informed judgment, and Sierra
shall not unreasonably withhold its consent; provided, further, that any
consent given by Sierra shall be binding only if given by such person or persons
who are identified in writing by Sierra;
(B) purchase or sell any investment security with a
maturity in excess of three years;
(C) issue any certificate of deposit in excess of 12
months with a rate of interest in
excess of the rate sheets provided weekly to CCBC by Sierra or any other
certificate of deposit in excess of 50 basis points greater than the rates set
forth on the rate sheets provided weekly to CCBC by Sierra;
(D) enter into or renew any contract having a duration
extending beyond 9 months from the
date of this Agreement, whether or not in the Ordinary Course.
(E) sell, lease, pledge, assign, encumber or otherwise
dispose of any of its assets except
other real estate owned or other property in the Ordinary Course, in each case
for adequate value, without recourse and consistent with its customary practice;
or
(F) take any action to create, relocate or terminate the
operations of any banking office
or branch, or to form any new subsidiary or affiliated entity;
(iii) Except as otherwise specifically provided, it is
understood and agreed by the parties hereto that any consent sought of Sierra or
required by CCBC pursuant to any provision of this Agreement shall be deemed to
be given following five (5) business days advanced notice by CCBC to Sierra,
which notice shall include such information as Sierra shall reasonably request.
(iv) CCBC shall conduct its business, in all material
respects, in accordance with its 1997-1998 operating and revenue budgets
heretofore delivered to Sierra and shall deliver to Sierra monthly reports in
sufficient detail to demonstrate material compliance with such budgets.
(d) No Merger or Solicitation.
(i) Prior to the Effective Date, CCBC and its Boards of
Directors and officers shall not initiate negotiations toward, or otherwise
effect or agree to effect, any Business Combination involving CCBC, acquire or
agree to acquire any of its own capital stock or the capital stock (except in a
fiduciary capacity) or assets (except in the Ordinary Course) of any other
entity, or commence any proceedings for winding up and dissolution affecting
CCBC, provided, however, that to the extent required by the fiduciary
obligations of the Board of Directors of CCBC, as determined in good faith by
the Board of Directors based on the advice of counsel, CCBC shall not be
prohibited from reviewing or responding in any way to unsolicited proposals
involving a Business Combination.
(ii)Prior to the Effective Date, neither CCBC nor any officer,
director or affiliate of CCBC, nor any investment banker, attorney, accountant
or other agent, advisor or representative retained by CCBC shall (A) solicit or
initiate, directly or indirectly, any inquiries, discussions or proposals for,
continue, propose or enter into discussions or negotiations looking toward, or
enter into any agreement or understanding providing for, any Business
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Combination with CCBC; or (B) disclose, directly or indirectly, any nonpublic
information to any corporation, partnership, person or other entity or group
concerning CCBC's business and properties or afford any such other party access
to CCBC's properties, books or records or otherwise assist or encourage any such
other party in connection with the foregoing except in satisfaction of the Board
of Directors' fiduciary duties as determined on the advice of counsel; or (C)
furnish or cause to be furnished any information concerning the business,
financial condition, operations, properties or prospects of CCBC to another
person, having any actual or prospective role with respect to any such
transaction, provided, however, that to the extent required by the fiduciary
obligations of the Board of Directors of CCBC, as determined in good faith by
the Board of Directors based on the advice of counsel, CCBC shall not be
prohibited from reviewing or responding in any way to unsolicited proposals
involving such transactions.
(iii) CCBC shall notify Sierra immediately of the details of
any indication of interest of any person, corporation, firm, association or
group to acquire by any means a controlling interest in it or engage in any
Business Combination with it.
(e) Changes in Capital Stock; Dividends. At or after the date hereof
and at or prior to the Effective Date, except with the prior written consent of
Sierra or as otherwise provided in this Agreement:
(i) Bancshares shall not amend its Certificate of
Incorporation or Bylaws; other than pursuant to an outstanding stock option
agreement or the conversion of debentures make any change in its authorized,
issued or outstanding capital stock or any other equity security; issue, sell,
pledge, assign or otherwise encumber or dispose of, or purchase, redeem or
otherwise acquire, any of its shares of capital stock or other equity securities
or enter into any agreement, call or commitment of any character to do so; grant
or issue any stock option relating to, right to acquire, or security convertible
into, shares of its capital stock or other equity security; purchase, redeem,
retire or otherwise acquire (other than in a fiduciary capacity) any shares of,
or any security convertible into, capital stock or other equity security of its
companies, or agree to do any of the foregoing, except as expressly provided
herein; and
(ii)Bancshares shall not declare, set aside or pay any cash or
stock dividend or other distribution in respect of its common stock other than
regular cash dividends not to exceed $0.15 per share on a quarterly basis.
(f) Employee Welfare Benefit Plans. CCBC agrees that its employee
welfare benefit plans, as defined in Section 3(1) of ERISA, may be terminated,
frozen, modified or merged into Sierra's employee welfare benefit plans as of or
after the Effective Date, as determined by Sierra, in each case consistent with
Section 4980B of the Internal Revenue Code ("IRC"). On the Effective Date, CCBC
employees will commence participation in Sierra's welfare benefit plans on the
same terms and limitations as Sierra employees.
(g) Shareholder Lists and Other Information. After execution hereof,
Bancshares shall from time to time make available to Sierra, upon request, a
list of its shareholders and their addresses, a list showing all transfers of
the its common stock and such other information as Sierra shall reasonably
request regarding both the ownership and prior transfers of Bancshares' common
stock.
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(h) Capital Commitments and Expenditures. After the execution of this
Agreement, no new capital commitments shall be entered into and no capital
expenditures shall be made by CCBC, including but not limited to creation of any
new branches and acquisitions or leases of real property, except commitments or
expenditures within existing operating and capital budgets furnished to and
approved by Sierra and commitments and expenditures not exceeding $25,000 in the
aggregate.
(i) Asset Review. CCBC shall continue to engage its internal asset
review examiners to identify potential losses with respect to loans and other
assets on its books and who shall have reviewed all nonperforming loans,
including other real estate owned, and other classified or criticized assets as
of a date within the end of the month preceding the Determination Date. CCBC
shall promptly provide a copy of such reports to Sierra. Between the date of
this Agreement and the end of the month preceding the Determination Date, all
assets of CCBC, including classified or criticized and NPAs, may be reviewed by
Sierra and Sierra shall provide, not later than the last day of the month
preceding the Determination Date, a report thereon to CCBC setting forth
Sierra's grading or other assessment thereof (including accounting treatment and
loss recognition) utilizing CCBC's regular loan/OREO review criteria consistent
with GAAP and RAP. CCBC may either accept and implement Sierra's grading or
other assessments (including accounting treatment and loss recognition)
concerning loans or OREO, or, if it does not agree with Sierra's conclusions as
set forth in the report, refer the matter for resolution by the independent loan
and appraisal experts agreed to in writing by the parties (the "Independent Loan
Reviewer" or "Independent Appraiser") who shall immediately review and/or
appraise said loan(s) or OREO utilizing CCBC's regular loan/OREO review criteria
consistent with GAAP and RAP. The parties agree that if the Independent Loan
Reviewer believes it necessary to retain an Independent Appraiser (or if such an
Appraiser is required by the penultimate sentence below), the selection and
supervision thereof of said Appraiser shall be at the discretion and under the
control of the Independent Loan Reviewer. CCBC agrees to recognize on its books
and records all loan losses and record all OREO at their net realizable value
(and record related OREO expenses) based on the review/appraisal by the
Independent Loan Reviewer or Independent Appraiser no later than the
Determination Date. Sierra and CCBC agree to accept the determinations of the
Independent Loan Reviewer and Independent Appraiser. With respect to any OREO,
based on all known information available from time to time, if it appears that
the then current independent appraisals may not be accurate or upon request of
and at the expense of Sierra, CCBC shall immediately obtain updated independent
appraisals by an Independent Appraiser (utilizing CCBC's regular criteria
consistent with GAAP and RAP) and provide copies of all such appraisals to
Sierra. Any new or additional writedowns or OREO expenses shall be recorded
immediately upon receiving any updated independent appraisal. The costs of the
neutral loan reviewer shall be shared equally by the parties.
(j) Execution of Stock Option Agreement. Concurrently with the
execution of this Agreement and as a condition thereto, Bancshares shall have
executed and delivered a stock option agreement (the "CCBC Stock Option
Agreement") which grants to Sierra an option to acquire up to 19.9% of the
issued and outstanding CCBC Shares including unconverted debentures and
unexercised options to acquire CCBC Shares (including the CCBC Shares to be
granted pursuant to the CCBC Stock Option Agreement upon the occurrence of
certain circumstances, substantially in the form of Exhibit C hereto.
(k) Pre-Closing Adjustments. On or before the Effective Date, CCBC
shall, in a manner mutually satisfactory to the parties, establish such
additional accruals and reserves consistent with GAAP and RAP as may be directed
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by Sierra; provided, however, that CCBC shall not be required to take such
action (a) more than five days prior to the Effective Date, (b) unless Sierra
agrees in writing that all conditions to closing set forth in Section 7 have
been satisfied or waived, and (c) unless CCBC shall have received a written
waiver by Sierra of its rights to terminate this Agreement, and no accrual or
reserve made by CCBC pursuant to this Section 3.2(k) or any litigation or
regulatory proceeding arising out of any such accrual or reserve, shall
constitute or be deemed to be a breach, violation of or failure to satisfy any
representation, warranty, covenant, condition or other provisions of this
Agreement or otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred.
3.3 Covenants of Sierra.
(a) Approval by Shareholders. Sierra shall cause the Merger, the Bank
Merger, this Agreement, the Bank Merger Agreement and the Agreement and Plan of
Merger to be submitted promptly for the approval of its shareholders in the most
expeditious manner available to cause approval of the Merger and Bank Merger at
a meeting to be called and held in accordance with applicable laws. Sierra shall
cause the Joint Proxy Materials (as defined in Section 6.1), when approved or
otherwise deemed effective, with any amendments thereto that may, in the
judgment of its counsel, be necessary or desirable, to be mailed to shareholders
of Bancorp. Subject to the fiduciary duty of the Board of Directors of Bancorp,
the Joint Proxy Materials shall include therein a recommendation that Bancorp
shareholders vote to approve the proposed Merger. The Joint Proxy Materials
shall be subject to prior approval by Sierra. In the event that such is required
by applicable securities laws, Sierra shall prepare an appropriate registration
statement/prospectus which CCBC shall assist with by providing such information
and documents as may be required in an expeditious and timely manner. Bancorp
shall hold its shareholder meeting as soon as possible but no later than March
31, 1998 unless prevented from doing so by the regulatory authorities or by
delays in obtaining or conditions imposed by the Government Approvals. Subject
to its continuing fiduciary duty to the shareholders of Bancorp, the members of
the Board of Directors of Bancorp shall at all times prior to and during such
meeting of its shareholders recommend that the transactions contemplated hereby
be adopted and approved and, subject to such duty, use its reasonable best
efforts to cause such adoption and approval.
(b) Conduct of Business in the Ordinary Course. Prior to the Effective
Date:
(i) In the event that Sierra undertakes any transaction or
series of transactions outside the ordinary course of business prior to the
Effective Date, as soon as is practicable following the determination to proceed
with such a transaction or transactions, Sierra shall advise the board of
directors of CCBC of such determination. For purposes of this Agreement, the
"Ordinary Course" of Sierra shall consist of banking and related businesses as
permitted under applicable banking laws. Unless CCBC has given its previous
written consent to any act or omission to the contrary, Sierra shall, until the
Effective Date, cause its officers to use their reasonable best efforts to:
(A) preserve its business and business organizations
intact;
(B) preserve the good will of customers and others having
business relations with it and take no action that would materially impair
the benefit to the other party of the goodwill of it or the other benefits
of the Merger;
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(C) permit Walter O. Sunderman to attend and participate
(but not vote) in all loan committee meetings, provided such CCBC
representative may be excluded from any portion of a meeting which relates to
the Merger or any examination report or response thereto, or is reasonably
determined to be the subject of the attorney client privilege;
(D) maintain its properties in customary repair, working
order and condition (reasonable wear and tear excepted);
(E) comply with all laws, regulations and decrees
applicable to the conduct of its business;
(F) use its reasonable best efforts to keep in force at
not less than its present limits all policies of insurance, including deposit
insurance of the FDIC, to the extent reasonably practicable in light of the
prevailing market conditions in the insurance industry;
(G) comply with all orders, agreements and memoranda of
understanding with respect to it made by or with any regulatory authority of
competent jurisdiction;
(H) file in a timely manner (taking into account any
extensions duly obtained) all reports, tax returns and other documents required
to be filed with federal, state, local and other authorities;
(I) not sell, lease, pledge, assign, encumber or otherwise
dispose of any of its assets except for adequate value, without recourse and
consistent with its customary practice; and
(J) not make, renegotiate, renew, increase, extend or
purchase any loans, advances or loan commitments, in each case to any of its
officers, directors or any affiliated or related persons of such directors or
officers except in the Ordinary Course consistent with its established
loan procedures and in compliance with FRB Regulation O.
(ii)It is understood and agreed by the parties hereto that any
consent sought of CCBC or required by Sierra pursuant to any provision of this
Agreement shall be deemed to be given following five (5) business days advanced
notice by Sierra to CCBC, which notice shall include such information as CCBC
shall reasonably request or unless the comments of CCBC have been addressed by
Sierra.
(c) Dividends. At or after the date hereof and at or prior to the
Effective Date, except for stock dividends for which adjustments are provided in
Section 2.5 or with the prior written consent of CCBC or as otherwise provided
in this Agreement, Sierra shall not declare, set aside or pay any cash dividend
or other distribution in respect of its common stock other than, in the
discretion of the board of directors of Sierra, regular cash dividends not to
exceed $0.50 per share on an annual basis.
(d) Indemnification; Insurance.
(i) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative,
including, without limitation, any such claim, action, suit, proceeding or
investigation in which any person who is now, or has been at any time prior to
the date of this Agreement, or who becomes prior to the Effective Time, a
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director or officer of CCBC ("Indemnified Parties") is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a director or officer of
CCBC or any predecessor or (ii) this Agreement or any of the transactions
contemplated hereby, whether in any case asserted or arising before or after the
Effective Date, the parties hereto agree to cooperate and use their best efforts
to defend against and respond thereto. It is understood and agreed that after
the Effective Date, Sierra shall indemnify and hold harmless, as and to the
fullest extent permitted by law, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation and in the
event of any such threatened or actual claim, action, suit, proceeding, or
investigation (whether asserted or arising before or after the Effective Date),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Sierra; provided, however, that (1) Sierra shall have the
right to assume the defense thereof and upon such assumption Sierra shall not be
liable to any Indemnified Party for any legal expenses of other counsel or any
other expenses subsequently incurred by any Indemnified Party in connection with
the defense thereof, except that if Sierra elects not to assume such defense or
counsel for the Indemnified Parties reasonably advises the Indemnified Parties
that there are issues which raise conflicts of interest between Sierra and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Sierra, and Sierra shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties, (2)
Sierra shall be obligated pursuant to this paragraph to pay for only one firm of
counsel for all Indemnified Parties, unless an Indemnified Party shall have
reasonably concluded; based on the advice of counsel, that in order to be
adequately represented, separate counsel is necessary for such Indemnified
Party, in which case, Sierra shall be obligated to pay for such separate
counsel, (3) Sierra shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld), and
(4) Sierra shall have no obligation hereunder to any Indemnified Party when and
if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 3.3(d), upon learning of any such claim, action, suit, proceeding
or investigation, shall notify Sierra thereof, provided that the failure to so
notify shall not affect the obligations of Sierra under this Section 3.3(d)
except to the extent such failure to notify materially prejudices Sierra.
Sierra's obligations under this Section 3.3(d) continue in full force and effect
for a period of four (4) years from the Effective Date; provided, however, that
all rights to indemnification in respect of any claim ("Claim") asserted or made
within such period shall continue until the final disposition of such Claim and
provided further that Sierra shall have the right of setoff against any payments
required to be made by Sierra to an Indemnified Party pursuant to this Section
3.3(d) to the extent that such Indemnified Party shall have received the
indemnification to which such Indemnified Party is entitled from an insurer
under a directors' and officers' liability insurance policy maintained by CCBC
or Sierra.
(ii)Sierra, from and after the Effective Date, will directly or
indirectly cause the persons who served as directors or officers of CCBC on or
before the Effective Date to be covered by Sierra's existing directors' and
officers' liability insurance policy (provided that Sierra may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) or so-called tail
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coverage obtained in connection with CCBC's directors' and officers' liability
insurance policies in effect as of the Effective Date; provided that Sierra
shall not be obligated to make annual premium payments for such insurance to the
extent such premiums exceed 150% of the premiums paid as of the date hereof by
CCBC for such insurance. Subject to the preceding sentence, such insurance
coverage, shall commence on the Effective Date and will be provided for a period
of no less than three years after the Effective Date. From the date hereof
through the Effective Date and subject to the foregoing, CCBC shall use its best
efforts to arrange for tail coverage related to its then current policies of
directors' and officers' liability insurance and following the Effective Date
Sierra shall exercise those rights which it may have to in order to commence
such coverage.
(iii) In the event Sierra or any of its successors or assigns (A)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (B) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Sierra
assume the obligations set forth in this section. The provisions of this Section
3.3(d) are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party and his or her heirs and representatives.
Section 4. REPRESENTATIONS AND WARRANTIES OF CCBC.
CCBC represents and warrants to Sierra that, except as set forth in
writing corresponding in number with the applicable section:
4.1 Corporate Status and Power to Enter Into Agreements. (i) Bancshares
is a corporation duly incorporated, validly existing under Delaware law and in
good standing under the laws of the states of Delaware and California, (ii)
subject to the Government Approvals and to the approval of this Agreement and
the transactions contemplated hereby by the shareholders of Bancshares, CCBC has
all necessary corporate power to enter into this Agreement, the Bank Merger
Agreement and the Agreement and Plan of Merger and to carry out all of the terms
and provisions hereof and thereof to be carried out by it, (iii) CPB is a
California banking corporation duly licensed by the Commissioner to engage in
the business of commercial banking in California at its principal office in
Vacaville, California and at its branch offices and (iv) neither Bancshares nor
CPB is subject to any order of the FRB, the FDIC, the Commissioner or any other
regulatory authority having jurisdiction over its business or any of its assets
or properties. Neither the scope of the business of CCBC nor the location of its
properties requires it to be licensed to do business in any jurisdiction other
than the State of California. CPB's deposits are insured by the FDIC to the
maximum extent permitted by applicable law and regulation.
4.2 Articles, Bylaws, Books and Records. The copies of the Certificate
of Incorporation of Bancshares, Articles of Incorporation of CPB and Bylaws of
CCBC heretofore delivered to Sierra are complete and accurate copies thereof as
in effect on the date hereof. The minute books of CCBC made available to Sierra
contain a complete and accurate record of all meetings of CCBC's Board of
Directors (and committees thereof) and shareholders. The corporate books and
records (including financial statements) of CCBC fairly reflect the material
transactions to which CCBC is a party or by which its properties are subject or
bound, and such books and records have been properly kept and maintained.
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4.3 Compliance With Laws, Regulations and Decrees. CCBC (i) has the
corporate power to own or lease its properties and to conduct its business as
currently conducted, (ii) has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a commercial bank other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of its
business or is not likely to otherwise have a material adverse effect on CCBC
taken as a whole, (iii) has not failed to file with the proper federal, state,
local or other authorities any material report or other document required to be
filed, and (iv) has all approvals, authorizations, consents, licenses,
clearances and orders of, and has currently effective all registrations with,
all governmental and regulatory authorities which are necessary to the business
and operations of CCBC as now being conducted.
4.4 Capitalization. As of October 31, 1997, the authorized capital
stock of Bancshares consists of 4,000,000 CCBC Shares, $0.10 par value, of which
1,096,331 are duly authorized, validly issued, fully paid and nonassessable and
currently outstanding, 1,000,000 shares of preferred stock none of which is
outstanding. Said stock has been issued in compliance with all applicable
securities laws. As of October 31, 1997, there were outstanding $2,503,000 of
Bancshares debentures ("Bancshares Debentures") convertible into 196,314 CCBC
Shares. There are currently outstanding options to purchase 129,036 CCBC Shares,
at a weighted average exercise price of $10.82 per share, issued pursuant to its
1990 and 1993 Stock Option Plan. Said options were issued and, upon issuance in
accordance with the terms of the outstanding options said shares shall be
issued, in compliance with all applicable securities laws. Otherwise, there are
no outstanding (i) options, agreements, calls or commitments of any character
which would obligate Bancshares to issue, sell, pledge, assign or otherwise
encumber or dispose of, or to purchase, redeem or otherwise acquire, any Sierra
common stock or any other equity security of Bancshares, or (ii) warrants or
options relating to, rights to acquire, or debt or equity securities convertible
into, shares of Bancshares common stock or any other equity security of
Bancshares. The outstanding common stock of Bancshares has been duly and validly
registered with the SEC pursuant to the 1934 Act, to the extent required
thereunder
4.5 Equity Interest in Any Entity. Except as collateral for outstanding
loans held in its loan portfolio and its ownership of CPB and its wholly owned
subsidiary, CCBC does not own, directly or indirectly, any equity interest in
any bank, corporation or other entity.
4.6 Financial Statements, Regulatory Reports. No financial statement or
other document to be provided to Sierra by CCBC under this Agreement, as of the
date of such document, contained, or as to documents to be delivered after the
date hereof, will contain, any untrue statement of a material fact, or, at the
date thereof, omitted or will omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such statements were or will be made, not misleading; provided, however,
that information as of a later date shall be deemed to modify information as of
any earlier date. CCBC has filed all material documents and reports required to
be filed by it with the SEC, the FRB, the FDIC, the Commissioner and any other
governmental authority having jurisdiction over its business or any of its
assets or properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to CCBC required by governmental authorities and
regulatory agencies having jurisdiction over either Bancshares or CPB have been
taken, including compliance with any of the FRB, the FDIC or the Commissioner in
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their most recent Reports of Examination. CCBC's composite CAMELS rating in its
most recent Reports of Examination is a "1" or a "2" and its CRA rating is
"outstanding" or "satisfactory' and CCBC has not been notified formally or
informally that such ratings may be changed by any bank regulatory agency having
authority over CCBC. CCBC has not received any notification, formally or
informally, from any agency or department of any federal, state or local
government or any regulatory agency or the staff thereof (i) asserting that it
is not in compliance with any of the statutes, regulations or ordinances which
such government or regulatory authority enforces, where such non-compliance or
default is likely to result in a material limitation on the conduct of its
business or is not likely to otherwise have a material adverse effect on CCBC
taken as a whole, or (ii) threatening to revoke any license, franchise, permit
or governmental authorization. CCBC has paid all assessments made or imposed by
any governmental agency. CCBC has delivered to Sierra copies of all annual
management letters and opinions, and has made available to Sierra for inspection
all reviews, correspondence and other documents in the files of CCBC prepared by
its independent accounting firm delivered to CCBC since December 31, 1996. The
financial records of CCBC have been, and are being and shall be, maintained in
all material respects in accordance with all applicable legal and accounting
requirements sufficient to insure that all transactions reflected therein are,
in all material respects, executed in accordance with management's general or
specific authorization and recorded in conformity with generally accepted
accounting principles at the time in effect. The data processing equipment, data
transmission equipment, related peripheral equipment and software used by CCBC
in the operation of its business to generate and retrieve its financial records
are adequate for the current needs of CCBC.
4.7 Tax Returns.
(i) CCBC has timely filed (taking into account any extensions
duly obtained) all federal, state, county, local and foreign tax returns
required to be filed by it, including, without limitation, estimated tax, use
tax, excise tax, real property and personal property tax reports and returns,
employer's withholding tax returns, other withholding tax returns and Federal
Unemployment Tax Returns, and all other reports or other information required or
requested to be filed by it, and each such return, report or other information
was, when filed, complete and accurate in all material respects. CCBC has paid
all taxes, fees and other governmental charges, including any interest and
penalties thereon, shown on such returns as due, except those that are being
contested in good faith, which contested matters have been disclosed to Sierra
and are disclosed on Schedule 4.7 hereto. CCBC has not been requested to give or
has given any currently effective waivers extending the statutory period of
limitation applicable to any tax return required to be filed by it for any
period. Other than as disclosed in writing to Sierra, there are no claims
pending against CCBC for any alleged deficiency in the payment of any taxes, and
no officer of CCBC responsible for tax matters knows of any pending or
threatened audits, investigations or claims for unpaid taxes or relating to any
liability in respect of any taxes. As to such tax claims, CCBC has accrued on
its books an amount that is believed to be sufficient to pay all such taxes,
including interest and penalties that may be due, and has reduced tangible
shareholders' equity by such amount. There has been no event, including a change
in ownership, that would result in a reappraisal and establishment of a new
base-year full value for purposes of Article XIII.A of the California
Constitution, of any real property owned in whole or in part by CCBC or to
CCBC's knowledge, of any real property leased by CCBC.
(ii)CCBC has delivered to Sierra copies of all its income and
franchise tax returns with respect to taxes payable to the United States of
America and the State of California for the fiscal years ended December 31, 1995
and 1996.
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(iii) No consent has been filed relating to CCBC pursuant to
Section 341(f) of the IRC.
4.8 Material Adverse Change. Except as heretofore disclosed in writing
by CCBC to Sierra, since December 31, 1996, there has been (i) no material
adverse change in the business, assets, licenses, permits, franchises, results
of operations or financial condition of CCBC (whether or not in the Ordinary
Course), (ii) no change in any of the assets, licenses, permits or franchises of
CCBC that has had or can reasonably be expected to have a material adverse
effect on any of the items listed in clause (i) above, (iii) no damage,
destruction, or other casualty loss (whether or not covered by insurance) that
has had or can reasonably be expected to have a material adverse effect on any
of the items listed in clause (i) above, (iv) no amendment, modification, or
termination of any existing, or entering into of any new, contract, agreement,
plan, lease, license, permit or franchise that is material to the business,
financial condition, assets, liabilities or operations of CCBC, except in the
Ordinary Course; and (v) no disposition by CCBC of one or more assets that,
individually or in the aggregate, are material to CCBC, except sales of assets
in the Ordinary Course.
4.9 No Undisclosed Liabilities. Except as previously disclosed and
except for items for which reserves have been established or accrued and
recorded in the audited balance sheets of CCBC as of December 31, 1996, CCBC has
not incurred or discharged, and is not legally obligated with respect to any
indebtedness, liability (including, without limitation, a liability arising out
of an indemnification, guarantee, hold harmless or similar arrangement) or
obligation (accrued or contingent, whether due or to become due, and whether or
not subordinated to the claims of its general creditors), which would have a
material effect on the capital or earnings of CCBC other than as a result of
operations in the Ordinary Course after such date. No agreement pursuant to
which any loans or other assets have been or will be sold by CCBC entitled the
buyer of such loans or other assets, unless there is material breach of a
representation or covenant by the seller, to cause CCBC to repurchase such loan
or other asset or the buyer to pursue any other form of recourse against CCBC.
CCBC has not knowingly made and shall not make any representation or covenant in
any such agreement that contained or shall contain any untrue statement of a
material fact or omitted or shall omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances
under which such representations and/or covenants were made or shall be made,
not misleading. Other than regular quarterly dividends, no cash, stock or other
dividend or any other distribution with respect to the stock of CCBC has been
declared, set aside or paid, nor have any shares of the stock of CCBC been
purchased, redeemed or otherwise acquired, directly or indirectly, by CCBC since
December 31, 1996.
4.10 Properties and Leases.
(a) CCBC has good and marketable title, free and clear of all liens and
encumbrances and the right of possession, subject to existing leaseholds, to all
real properties and good title, free and clear of all liens and encumbrances, to
all other property and assets, tangible and intangible, reflected in the CCBC
balance sheet as of December 31, 1996 (except property held as lessee under
leases disclosed in writing prior to the date hereof and except personal
property sold or otherwise disposed of since December 31, 1996, in the Ordinary
Course), except (i) liens for taxes or assessments not delinquent, (ii) such
other liens and encumbrances and imperfections of title as do not materially
affect the value of such property as reflected in the CCBC balance sheet as of
December 31, 1996, or as currently shown on the books and records of CCBC and
which do not interfere with or impair its present and continued use, (iii)
exceptions disclosed in title reports and preliminary title reports, copies of
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which have been provided to Sierra. All tangible properties of CCBC conform in
all material respects with all applicable ordinances, regulations and zoning
laws. All tangible properties of CCBC are in a good state of maintenance and
repair and are adequate for the current business of CCBC. No properties of CCBC,
and, to CCBC's knowledge, no properties in which it holds a collateral or
contingent interest or purchase option, are the subject of any pending or
threatened investigation, claim or proceeding relating to the use, storage or
disposal on such property of or contamination of such property by any toxic or
hazardous waste material or substance. To CCBC's knowledge, CCBC does not own,
possess or have a collateral or contingent interest or purchase option in any
properties or other assets which contain or have located within or thereon any
hazardous or toxic waste material or substance unless the location of such
hazardous or toxic waste material or other substance or its use thereon conforms
in all material respect with all federal, state and local laws, rules,
regulations or other provisions regulating the discharge of materials into the
environment. As to any asset not owned or leased by CCBC, CCBC has not
controlled, directed or participated in the operation or management of any such
asset or any facilities or enterprise conducted thereon, such that it has become
an owner or operator of such asset under applicable environmental laws.
(b) All properties held by CCBC under leases are held by it under
valid, binding and enforceable leases, with such exceptions as are not material
and do not interfere with the conduct of the business of CCBC, and CCBC enjoys
quiet and peaceful possession of such leased property. CCBC is not in default in
any respect under any material lease, agreement or obligation regarding its
properties to which it is a party or by which it is bound.
(c) Except as disclosed to Sierra in writing, all of CCBC's rights and
obligations under the leases referred to in Section (b) above do not require the
consent of any other party to the transactions contemplated by this Agreement
and the Merger Agreements. Where required, CCBC shall obtain, prior to the
Effective Date, the consent of all parties to any such transaction.
4.11 Material Contracts. Except as previously disclosed to Sierra in
writing and excluding loans, lines of credit, loan commitments or letters of
credit to which CCBC is a party, CCBC is not a party to or bound by any contract
or other agreement made in the Ordinary Course which involves aggregate future
payments by or to CCBC of more than $25,000 and which is made for a fixed period
expiring more than one year from the date hereof, and CCBC is not a party to or
bound by any agreement not made in the Ordinary Course which is to be performed
at or after the date hereof. Each of the contracts and agreements disclosed to
Sierra pursuant to this Section is a legal and binding obligation (subject to
applicable bankruptcy, insolvency and similar laws affecting creditors' rights
generally and subject, as to enforceability, to equitable principles of general
applicability), and no material breach or default (and no condition which, with
notice or passage of time, or both, could become a material breach or default)
exists with respect thereto.
4.12 Loans. CCBC has disclosed to Sierra in writing prior to the date
hereof, and will promptly inform Sierra of the amounts of all loans, leases,
other extensions of credit or commitments, or other interest-bearing assets of
CCBC, that have been classified as of the date hereof or hereafter by any
internal bank examiner or any bank regulatory agency or the Commissioner as
"Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful,"
"Loss," or words of similar import in the case of loans (or that would have been
so classified, in the case of other interest-bearing assets, had they been
loans). CCBC has furnished and will continue to furnish to Sierra true and
accurate information concerning the loan portfolio of CCBC, and no material
information with respect to the loan portfolio has been or will be withheld from
Sierra. All loans and investments of CCBC are legal, valid and binding
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obligations enforceable in accordance with its terms and are not subject to any
setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency
and similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general applicability), except as
disclosed to Sierra in writing or reserved for in the balance sheet of CCBC as
of September 30, 1997, and were duly authorized under and made in compliance
with applicable federal and state laws and regulations. CCBC does not have any
extensions of credit, investments, guarantees, indemnification agreements or
commitments for the same (including without limitation commitments to issue
letters of credit, to create acceptances, or to repurchase securities, federal
funds or other assets) other than those documented on the books and records of
CCBC.
4.13 Restrictions on Investments. Except for pledges to secure public
and trust deposits and repurchase agreements in the Ordinary Course, none of the
investments reflected in the CCBC unaudited balance sheet as of September 30,
1997, and none of the investments made by CCBC since September 30, 1997, is
subject to any restriction, whether contractual or statutory, which materially
impairs the ability of CCBC to freely dispose of such investment at any time
except as restricted by any applicable banking, securities or government
regulations.
4.14 Employment Contracts and Benefits.
(a) CCBC shall deliver to Sierra an accurate list setting forth all
bonus, incentive compensation, profit-sharing, pension, retirement, stock
purchase, stock option, deferred compensation, severance, hospitalization,
medical, dental, vision, group insurance, death benefits, disability and other
fringe benefit plans, trust agreements, arrangements and commitments of CCBC
(including but not limited to such plans, agreements, arrangements and
commitments applicable to former employees or retired employees, or for which
such persons are eligible), if any, together with copies of all such plans,
agreements, arrangements and commitments that are documented, any and all
contracts of employment and has made available to Sierra any Board of Directors'
minutes (or committee minutes) authorizing, approving or guaranteeing such plans
and contracts.
(b) All contributions, premiums or other payments due from CCBC to (or
under) any plan listed in subsection (a) have been fully paid or adequately
provided for through periodic accruals or otherwise on its unaudited financial
statements for the period ended September 30, 1997. Except as previously
discussed, all accruals thereon (including, where appropriate, proportional
accruals for partial periods) have been made in accordance with generally
accepted accounting principles consistently applied on a reasonable basis.
(c) To CCBC's actual knowledge without conducting due diligence, each
plan listed in subsection (a) complies with all material requirements of (i) the
Age Discrimination in Employment Act of 1967, as amended, and the regulations
thereunder and (ii) Title VII of the Civil Rights Act of 1964, as amended, and
the regulations thereunder.
(d) To CCBC's actual knowledge without conducting due diligence, each
plan listed in subsection (a) complied with all material requirements of the
health care continuation coverage provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 and the regulations thereunder.
(f) CCBC has heretofore disclosed in writing to Sierra the names of
each director, officer and employee of CCBC.
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4.15 Compliance with ERISA. CCBC has not, since its inception, either
maintained or contributed to an employee pension benefit plan, as defined in
Section 3(2) of ERISA, including multi-employer plans, other than the
Continental Pacific Bank Profit Sharing Plan (the "CCBC Plan") which was
originally adopted by CCBC on November 1, 1988 and amended and restated as of
January 1, 1996, and a true and accurate copy of which has been provided to
Sierra. With respect to the CCBC Plan and its related trust (the "CCBC Trust"),
as of the Effective Date to CCBC's actual knowledge based upon written
communication from the California Bankers Association ("CBA") and any agents of
the CBA responsible for oversight of the CCBC Plan and the CCBC Trust, (i) the
CCBC Plan will in all material respects be (and currently is) in compliance with
all the applicable requirements of Section 401(a) of the IRC, and the CCBC Trust
will be exempt from income tax under Section 501(a) of the IRC; (ii) the CCBC
Plan is a adaptation of a prototype document which has received a favorable
opinion letter from the IRS, the qualified status of the CCBC Plan as adopted,
under Section 401(a) of the IRC will be determined upon the filing with the IRS
of a request for a favorable determination to be made before September 26, 1991,
or such other date prescribed by the IRS, and the IRS has not raised any
question on audit or otherwise with respect to the qualified status of the CCBC
Plan or the CCBC Trust prior to the Effective Date; (iii) CCBC shall not have
amended the CCBC Plan or administered the CCBC Plan in such a manner that would
preclude the issuance of a favorable Determination Letter to the CCBC Plan and
Trust; (iv) no contributions have exceeded the limitations set forth in Section
415 of the IRC; (v) all required and necessary filings with the IRS, Department
of Labor and any other governmental agencies with respect to the CCBC Plan and
CCBC Trust for all periods ending at or prior to the Effective Date will have
been made on a timely basis by CCBC and the plan administrator; (vi) with
respect to participation of CCBC employees in the CCBC Plan, there shall have
been no material violation of Parts 1 and 4 of Subtitle B of Title I of ERISA or
of Section 4975 of the IRC; and (vii) with respect to participation of CCBC
employees in the CCBC Plan, there shall have been no action, claim or demand of
any kind known to CCBC brought or threatened by any potential claimant or
representative of such claimant under the CCBC Plan or CCBC Trust where CCBC may
be either (A) liable directly on such action, claim or demand, or (B) obligated
to indemnify any person, group of persons or entity with respect to such action,
claim or demand, unless such action, claim or demand is covered by adequate
reserves reflected in CCBC's September 30, 1997 unaudited financial statements
or an insurer of CCBC has agreed to defend against and pay the amount of any
resulting liability without reservation.
4.16 Collective Bargaining and Employment Agreements. Except as
provided in this Agreement or as previously disclosed to Sierra in writing, CCBC
does not have any union or collective bargaining or written employment
agreements, contracts or other agreements with any labor organization or with
any member of management, or any management or consultation agreement not
terminable at will by CCBC and no such contract or agreement has been requested
by, or is under discussion by management with, any group of employees, any
member of management or any other person. There are no material controversies
pending between CCBC and any current or former employees, and to CCBC's
knowledge, there are no efforts presently being made by any labor union seeking
to organize any of such employees.
4.17 Compensation of Officers and Employees. Except as previously
disclosed to Sierra in writing, (i) no officer or employee of CCBC is receiving
aggregate direct remuneration at a rate exceeding $60,000 per annum, and (ii)
the consummation of the transactions contemplated by this Agreement, the Bank
Merger Agreement and the Agreement and Plan of Merger will not (either alone or
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upon the occurrence of any additional or further acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from CCBC or Sierra
to any employee of CCBC.
4.18 Legal Actions and Proceedings. Except as previously disclosed to
Sierra in writing, CCBC is not a party to, or so far as either of them is aware,
threatened with, and to CCBC's knowledge, there is no reasonable basis for, any
legal action or other proceeding or investigation before any court, any
arbitrator of any kind or any government agency, and CCBC is not subject to any
potential adverse claim, the outcome of which could involve the payment or
receipt by CCBC of any amount in excess of $50,000, unless an insurer of CCBC
has agreed to defend against and pay the amount of any resulting liability
without reservation, or, if any such legal action, proceeding, investigation or
claim will not involve the payment by CCBC of a monetary amount, which could
materially adversely affect CCBC or its business or property or the transactions
contemplated hereby. CCBC has no knowledge of any pending or threatened claims
or charges under the Community Reinvestment Act, before the Equal Employment
Opportunity Commission, the California Department of Fair Housing & Economic
Development, the California Unemployment Appeals Board, or any human relations
commission. There is no labor dispute, strike, slow-down or stoppage pending or,
to CCBC's knowledge, threatened against CCBC.
4.19 Execution and Delivery of the Agreements.
(a) The execution and delivery of this Agreement have been duly
authorized by the Boards of Directors of CCBC and, when the Merger, this
Agreement, the Bank Merger Agreement and the Agreement and Plan of Merger have
been or will be duly approved by the affirmative vote of the holders of a
majority of the outstanding shares of Bancshares common stock at a meeting of
shareholders duly called and held, the Merger, this Agreement and the Merger
Agreements will be duly and validly authorized by all necessary corporate action
on the part of CCBC.
(b) This Agreement has been duly executed and delivered by CCBC and
(assuming due execution and delivery by Sierra) constitutes, and the Bank Merger
Agreement and the Agreement and Plan of Merger upon execution and delivery by
CCBC (and assuming due execution and delivery by Sierra) will constitute, legal
and binding obligations of CCBC in accordance with its terms except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditor's rights and remedies generally.
(c) The execution and delivery by CCBC of this Agreement, the Bank
Merger Agreement and the Agreement and Plan of Merger and the consummation of
the transactions herein and therein contemplated (i) do not violate any
provision of the Certificate of Incorporation of Bancshares, the Articles of
Incorporation of CPB or Bylaws of CCBC or, to CCBC's knowledge, any provision of
federal or state law or any governmental rule or regulation (assuming (A)
receipt of the Government Approvals, (B) receipt of the requisite Bancshares
shareholder approval, (C) due registration of the Sierra Shares under the
Securities Act of 1933, as amended ("1933 Act"), (D) receipt of appropriate
permits or approvals under state securities or "blue sky" laws, and (E) accuracy
of the representations of Sierra set forth herein), and (ii) to CCBC's
knowledge, do not require any consent of any person except as contemplated
herein, conflict with or result in a breach of, or accelerate the performance
required by any of the terms of, any material debt instrument, lease, license,
covenant, agreement or understanding to which CCBC is a party or by which it is
bound or any order, ruling, decree, judgment, arbitration award or stipulation
to which CCBC is subject, or constitute a default thereunder or result in the
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creation of any lien, claim, security interest, encumbrance, charge, restriction
or right of any third party of any kind whatsoever upon any of the properties or
assets of CCBC.
4.20 Retention of Broker or Consultant. Other than Van Kasper and
Company, no broker, agent, finder, consultant or other party (other than legal,
compliance, loan auditors and accounting advisors) has been retained by CCBC or
is entitled to be paid based upon any agreements, arrangements or understandings
made by CCBC in connection with any of the transactions contemplated by this
Agreement or the Merger Agreements. Van Kasper and Company will render an
opinion regarding the fairness of the Merger from a financial point of view.
CCBC shall provide Sierra with a true and accurate copy of its agreement(s) with
such firm. Except as previously disclosed, all costs related to such opinion
shall be paid or accrued prior to the Effective Date.
4.21 Insurance. CCBC is and continuously since its inception has been,
insured with reputable insurers against all risks normally insured against by
California commercial banks, and all of the insurance policies and bonds
maintained by CCBC are in full force and effect, CCBC is not in default
thereunder and all material claims thereunder have been filed in due and timely
fashion. In the best judgment of the management of CCBC, such insurance coverage
is adequate for CCBC. Except as disclosed to Sierra in writing, there has not
been any damage to, destruction of, or loss of any assets of CCBC not covered by
insurance that could materially and adversely affect the business, financial
condition, properties, assets or results of operations of CCBC.
4.22 Loan Loss Reserves. To the knowledge of CCBC's management, the
allowance for loan losses as of the Effective Date will be adequate in all
material respects under the requirements of all applicable state and federal
laws and regulations to provide for possible loan losses on outstanding loans,
net of recoveries.
4.23 Transactions With Affiliates. Except as may arise in the Ordinary
Course, CCBC has not extended credit, committed itself to extend credit, or
transferred any asset to or assumed or guaranteed any liability of the employees
or directors of CCBC, or any spouse or child of any of them, or to any of their
"affiliates" or "associates" as such terms are defined in Rule 405 under the
1933 Act. CCBC has not entered into any other transactions with the employees or
directors of CCBC or any spouse or child of any of them, or any of their
affiliates or associates, except as disclosed in writing to Sierra. Any such
transactions have been on terms no less favorable to CCBC than those which would
prevail in an arms-length transaction with an independent third party.
4.24 Information in Sierra Registration Statement. The information
pertaining to CCBC which has been or will be furnished to Sierra for or on
behalf of CCBC for inclusion in the Sierra Registration Statement and the Joint
Proxy Materials, or in the applications to be filed to obtain the Government
Approvals ("Applications"), does not and will not contain any untrue statement
of any material fact or omit or will omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
information of a later date shall be deemed to modify information as of an
earlier date. All financial statements of CCBC included in the Joint Proxy
Materials will present fairly the financial condition and results of operations
of CCBC at the dates and for the periods covered by such statements in
accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements. CCBC shall promptly advise
Sierra in writing if prior to the Effective Date CCBC shall obtain knowledge of
any facts that would make it necessary to amend or supplement the Sierra
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Registration Statement, the Joint Proxy Materials or the Applications, in order
to make the statements therein not misleading or to comply with applicable law.
4.25 Pooling of Interests. CCBC knows of no reason relating to it or
any of its subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
4.26 Derivatives Contracts; Structured Notes; Etc. Except as previously
disclosed, CCBC is not a party to nor has it agreed to enter into an exchange
traded or over-the-counter equity, interest rate, foreign exchange or other
swap, forward, future, option, cap, floor or collar or any other contract that
is not included on the balance sheet and is a derivatives contract (including
various combinations thereof) (each, a "Derivatives Contract") nor does it own
securities that (1) are referred to generically as "structured notes," high risk
mortgage derivatives," "capped floating rate notes" or "capped floating rate
mortgage derivatives" or (2) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into in
the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidelines, and previously disclosed in writing to
Sierra. All of such Derivatives Contracts or other instruments are legal, valid
and binding obligations of CCBC enforceable in accordance with their terms
(except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally), and are in
full force and effect. CCBC has duly performed in all material respects all of
their material obligations thereunder to the extent that such obligations to
perform have accrued; and, to CCBC's knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder which would have or would reasonably be expected to have a Material
Adverse Effect.
4.27 Accuracy of Representations and Warranties. No representation or
warranty by CCBC, and no statement by CCBC in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreements, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make such representation, warranty or statement
not misleading to Sierra; provided, however, that information as of a later date
shall be deemed to modify information as of an earlier date.
Section 5. REPRESENTATIONS AND WARRANTIES OF SIERRA.
Sierra represents and warrants to CCBC that, except as set forth in
writing corresponding in number to the appropriate section:
5.1 Corporate Status and Power to Enter Into Agreements. (i) Bancorp is
a corporation duly incorporated, validly existing and in good standing under
California law, and is a registered bank holding company under the BHCA, (ii)
subject to the approval of this Agreement and the transactions contemplated
hereby by the Commissioner, the FDIC and, unless waived, the FRB, Sierra has all
necessary corporate power to enter into this Agreement and the Merger Agreements
and to carry out all of the terms and provisions hereof and thereof to be
carried out by it, (iii) Sierra Bank is a California banking corporation duly
licensed by the Commissioner to engage in the commercial banking business as now
conducted by it, and (iv) neither Sierra nor any of its subsidiaries is subject
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to any order of the FRB, the FDIC, the Commissioner or any other regulatory
authority having jurisdiction over its business or any of its assets or
properties. Neither the scope of the business of Sierra nor the location of its
properties requires it to be licensed to do business in any jurisdictions other
than states of California and Nevada. Sierra Bank's deposits are insured by the
FDIC to the maximum extent permitted by applicable law and regulation.
5.2 Articles, Bylaws, Books and Records. The copies of the Articles of
Incorporation and Bylaws of Sierra made available to CCBC are complete and
accurate copies thereof as in effect on the date hereof. The minute books of
Sierra contain a complete and accurate record of all meetings of Sierra's Boards
of Directors (and committees thereof) and shareholders. The corporate books and
records (including financial statements) of Sierra fairly reflect the material
transactions to which Sierra is a party or by which its properties are subject
or bound, and such books and records have been properly kept and maintained.
5.3 Compliance With Laws, Regulations and Decrees. Sierra (i) has the
corporate power to own or lease its properties and to conduct its business as
currently conducted, (ii) has complied with, and is not in default of any laws,
regulations, ordinances, orders or decrees applicable to the conduct of its
business and the ownership of its properties, including but not limited to all
federal and state laws (including but not limited to the Bank Secrecy Act),
rules and regulations relating to the offer, sale or issuance of securities, and
the operation of a commercial bank, other than where such noncompliance or
default is not likely to result in a material limitation on the conduct of the
business of Sierra or is not likely to otherwise have a material adverse effect
on Sierra taken as a whole, (iii) has not failed to file with the proper
federal, state, local or other authorities any material report or other document
required to be to filed, and (iv) has all approvals, authorizations, consents,
licenses, clearances and orders of, and has currently effective all
registrations with, all governmental and regulatory authorities which are
necessary to the business and operations of Sierra as now being conducted.
5.4 Capitalization. As of October 31, 1997, the authorized capital
stock of Sierra consists of 10,000,000 shares of Sierra common stock, no par
value, of which 4,088,659 are duly authorized, validly issued, fully paid and
nonassessable and currently outstanding, 9,800,000 shares of preferred stock
none of which is outstanding, 200,000 shares of series A preferred stock none of
which are issued or outstanding. Said stock has been issued in compliance with
all applicable securities laws. There are currently outstanding options to
purchase 345,383 shares of Sierra common stock, at a weighted average exercise
price of $11.56 per share, issued pursuant to its 1988 and 1996 Stock Option
Plan. Said options were issued and, upon issuance in accordance with the terms
of the outstanding options said shares shall be issued, in compliance with all
applicable securities laws. Sierra has adopted a Board of Directors Deferred
Compensation and Stock Award Plan under which the members of Sierra's Board of
Directors can elect to defer earned director compensation and take such
compensation upon retirement from the Board either in the form of Sierra Shares
or in cash. Otherwise, there are no outstanding (i) options, agreements, calls
or commitments of any character which would obligate Sierra to issue, sell,
pledge, assign or otherwise encumber or dispose of, or to purchase, redeem or
otherwise acquire, any Sierra common stock or any other equity security of
Sierra, or (ii) warrants or options relating to, rights to acquire, or debt or
equity securities convertible into, shares of Sierra common stock or any other
equity security of Sierra. The outstanding common stock of Sierra has been duly
and validly registered with the SEC pursuant to the 1934 Act, to the extent
required thereunder.
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5.5 Financial Statements, Regulatory Reports. No financial statement or
other document to be provided to CCBC by Sierra under this Agreement, as of the
date of such document, contained, or as to documents to be delivered after the
date hereof, will contain, any untrue statement of a material fact, or, at the
date thereof, omitted or will omit to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such statements were or will be made, not misleading; provided, however,
that information as of a later date shall be deemed to modify information as of
any earlier date. Sierra has filed all material documents and reports required
to be filed by it with the FDIC, the Commissioner, the FRB, the SEC and any
other governmental authority having jurisdiction over its business or any of its
assets or properties. All such reports conform in all material respects with the
requirements promulgated by such regulatory agencies. All compliance or
corrective action relating to Sierra required by governmental authorities and
regulatory agencies having jurisdiction over either Bancorp or Sierra Bank have
been taken, including compliance with any of the FRB, the FDIC or the
Commissioner in their most recent Reports of Examination. Sierra's composite
CAMELS rating in its most recent Reports of Examination is a "1" or a "2" and
its CRA rating is "outstanding" or "satisfactory' and Sierra has not been
notified formally or informally that such ratings may be changed by any bank
regulatory agency having authority over Sierra. Sierra has not received any
notification, formally or informally, from any agency or department of any
federal, state or local government or any regulatory agency or the staff thereof
(i) asserting that it is not in compliance with any of the statutes, regulations
or ordinances which such government or regulatory authority enforces, or (ii)
threatening to revoke any license, franchise, permit or governmental
authorization of Sierra. Sierra has paid all assessments made or imposed by any
governmental agency. Sierra has delivered to CCBC copies of all annual
management letters and opinions, and has made available to CCBC for inspection
all reviews, correspondence and other documents in the files of Sierra prepared
by Deloitte & Touche or any other certified public accountant engaged by Sierra
and delivered to Sierra since December 31, 1996. The financial records of Sierra
have been, are being and shall be maintained in all material respects in
accordance with all applicable legal and accounting requirements sufficient to
insure that all transactions reflected therein are, in all material respects,
executed in accordance with management's general or specific authorization and
recorded in conformity with generally accepted accounting principles at the time
in effect. The data processing equipment, data transmission equipment, related
peripheral equipment and software used by Sierra in the operation of its
business to generate and retrieve its financial records are adequate for the
current needs of Sierra.
5.6 Tax Returns.
(a) Sierra has timely filed all federal, state, county, local and
foreign tax returns required to be filed by it, including, without limitation,
estimated tax, use tax, excise tax, real property and personal property tax
reports and returns, employer's withholding tax returns, other withholding tax
returns and Federal Unemployment Tax Returns, and all other reports or other
information required or requested to be filed by each of them, and each such
return, report or other information was, when filed, complete and accurate in
all material respects. Sierra has paid all taxes, fees and other governmental
charges, including any interest and penalties thereon, when they have become
due, except those that are being contested in good faith, which contested
matters have been disclosed to CCBC. Except as set forth below, neither Sierra
nor any of its subsidiaries has been requested to give or has given any
currently effective waivers extending the statutory period of limitation
applicable to any tax return required to be filed by either of them for any
period. Except as set forth below, there are no claims pending against Sierra or
any of its subsidiaries for any alleged deficiency in the payment of any taxes,
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and Sierra does not know of any pending or threatened audits, investigations or
claims for unpaid taxes or relating to any liability in respect of any taxes.
(b) No consent has been filed relating to Sierra pursuant to Section
341(f) of the IRC.
5.7 Material Adverse Change. Except as heretofore disclosed in writing
by Sierra to CCBC, since September 30, 1997, there has been no material adverse
change in the business, assets, licenses, permits, franchises, results of
operations or financial condition of Sierra (whether or not in the Ordinary
Course).
5.8 Legal Actions and Proceedings. Except as previously disclosed to
CCBC in writing, Sierra is not a party to, or so far as either of them is aware,
threatened with, and to Sierra's knowledge, there is no reasonable basis for,
any legal action or other proceeding or investigation before any court, any
arbitrator of any kind or any government agency, and Sierra is not subject to
any potential adverse claim, the outcome of which could involve the payment or
receipt by Sierra of any amount in excess of $200,000, unless an insurer of
Sierra has agreed to defend against and pay the amount of any resulting
liability without reservation, or, if any such legal action, proceeding,
investigation or claim will not involve the payment by Sierra of a monetary
amount, which could materially adversely affect Sierra or its business or
property or the transactions contemplated hereby. Sierra has no knowledge of any
pending or threatened claims or charges under the Community Reinvestment Act,
before the Equal Employment Opportunity Commission, the California Department of
Fair Housing & Economic Development, the California Unemployment Appeals Board,
or any human relations commission. There is no labor dispute, strike, slow-down
or stoppage pending or, to the knowledge of Sierra, threatened against Sierra.
5.9 Execution and Delivery of the Agreement.
(a) The execution and delivery of this Agreement have been duly
authorized by the Boards of Directors of Sierra and, when the Merger, this
Agreement, the Bank Merger Agreement and the Agreement and Plan of Merger have
been or will be duly approved by the affirmative vote of the holders of a
majority of the outstanding shares of Bancorp common stock at a meeting of
shareholders duly called and held, the Merger, this Agreement and the Merger
Agreements will be duly and validly authorized by all necessary corporate action
on the part of Sierra.
(b) This Agreement has been duly executed and delivered by Sierra and
(assuming due execution and delivery by CCBC) constitutes, and the Merger
Agreements, upon execution and delivery by Sierra (and assuming due execution
and delivery by CCBC) will constitute, legal and binding obligations of Sierra
in accordance with its terms.
(c) The execution and delivery by Sierra of this Agreement and the
Merger Agreements and the consummation of the transactions herein and therein
contemplated (i) do not violate any provision of the Articles of Incorporation
or Bylaws of Sierra or, to Sierra's knowledge, any provision of federal or state
law or any governmental rule or regulation (assuming (A) receipt of the
Government Approvals, (B) due registration of the Sierra Shares under the 1933
Act, (C) receipt of appropriate permits or approvals under state securities or
"blue sky" laws, and (D) accuracy of the representations of CCBC set forth
herein), and (ii) to Sierra's knowledge, do not require any consent of any
person under, conflict with or result in a breach of, or accelerate the
performance required by any of the terms of, any material debt instrument,
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lease, license, covenant, agreement or understanding to which Sierra is a party
or by which it is bound or any order, ruling, decree, judgment, arbitration
award or stipulation to which Sierra is subject, or constitute a default
thereunder or result in the creation of any lien, claim, security interest,
encumbrance, charge, restriction or right of any third party of any kind
whatsoever upon any of the properties or assets of Sierra.
5.10 No Undisclosed Liabilities. Except for items for which reserves
have been established in the audited balance sheets of Sierra as of December 31,
1996, Sierra has not incurred or discharged, and is not legally obligated with
respect to any indebtedness, liability (including, without limitation, a
liability arising out of an indemnification, guarantee, hold harmless or similar
arrangement) or obligation (accrued or contingent, whether due or to become due,
and whether or not subordinated to the claims of its general creditors), which
would have a material effect on the capital or earnings of Sierra other than as
a result of operations in the Ordinary Course after such date. No agreement
pursuant to which any loans or other assets have been or will be sold by Sierra
entitled the buyer of such loans or other assets, unless there is material
breach of a representation or covenant by the seller, to cause Sierra to
repurchase such loan or other asset or the buyer to pursue any other form of
recourse against Sierra. Sierra has not knowingly made and shall not make any
representation or covenant in any such agreement that contained or shall contain
any untrue statement of a material fact or omitted or shall omit to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which such representations and/or covenants
were made or shall be made, not misleading. Other than regular quarterly cash
dividends by Sierra, no cash, stock or other dividend or any other distribution
with respect to the stock of Sierra has been declared, set aside or paid, nor
have any shares of the stock of Sierra been purchased, redeemed or otherwise
acquired, directly or indirectly, by Sierra since December 31, 1996.
5.11 No Material Environmental Liabilities. To Sierra's knowledge,
Sierra does not own, possess or have a collateral or contingent interest or
purchase option in any properties or other assets which contain or have located
within or thereon any hazardous or toxic waste material or substance unless the
location of such hazardous or toxic waste material or other substance or its use
thereon conforms in all material respect with all federal, state and local laws,
rules, regulations or other provisions regulating the discharge of materials
into the environment the liability of remediation for which would cause a
material adverse change in the capital or earnings of Sierra.
5.12 No Material Liabilities Under ERISA. No governmental agency or
claimant or representative of such claimant have alleged a material violation of
ERISA by Sierra the liability for which, if adversely determined, would result
in a material adverse change in the capital or earnings of Sierra.
5.13 Retention of Broker or Consultant. Other than NationsBanc
Montgomery Securities, Inc., no broker, agent, finder, consultant or other party
(other than legal, compliance, loan auditors and accounting advisors) has been
retained by Sierra or is entitled to be paid based upon any agreements,
arrangements or understandings made by Sierra in connection with any of the
transactions contemplated by this Agreement or the Merger Agreements.
NationsBanc Montgomery Securities, Inc. will render an opinion regarding the
fairness of the Merger from a financial point of view.
5.14 Loan Loss Reserves. To the knowledge of Sierra's management, the
allowance for loan losses in the Sierra balance sheet dated September 30, 1997,
and as of the Effective Date are and will be adequate in all material respects
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under the requirements of all applicable state and federal laws and regulations
to provide for possible loan losses on outstanding loans, net of recoveries,
including compliance with the comments of the FDIC in its most recent Report of
Examination.
5.15 Information in Sierra Registration Statement. The information
pertaining to Sierra which has been or will be furnished for or on behalf of
Sierra for inclusion in the Sierra Registration Statement or the Joint Proxy
Materials, or in the Applications, does not and will not contain any untrue
statement of any material fact or omit or will omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading; provided,
however, that information of a later date shall be deemed to modify information
as of an earlier date. All financial statements of Sierra included in the Joint
Proxy Materials will present fairly the financial condition and results of
operations of Sierra at the dates and for the periods covered by such statements
in accordance with generally accepted accounting principles consistently applied
throughout the periods covered by such statements. Sierra shall promptly advise
CCBC in writing if prior to the Effective Date Sierra shall obtain knowledge of
any facts that would make it necessary to amend the Sierra Registration
Statement, the Joint Proxy Materials or any Application, or to supplement the
prospectus, in order to make the statements therein not misleading or to comply
with applicable law.
(a) Pooling of Interests. Sierra knows of no reason relating to it or
any of its subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
5.16 Equity Interest in Any Entity. Except as collateral for
outstanding loans held in its loan portfolio and its ownership of Sierra Bank,
Bancorp does not own, directly or indirectly, any equity interest in any bank,
corporation or other entity.
5.17 Loans. Sierra has disclosed to CCBC in writing prior to the date
hereof, and will promptly inform CCBC of the amounts of all loans, leases, other
extensions of credit or commitments, or other interest-bearing assets of Sierra,
that have been classified as of the date hereof or hereafter by any internal
bank examiner or any bank regulatory agency or the Commissioner as "Other Loans
Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," or
words of similar import in the case of loans (or that would have been so
classified, in the case of other interest-bearing assets, had they been loans).
Sierra has furnished and will continue to furnish to CCBC true and accurate
information concerning the loan portfolio of Sierra, and no material information
with respect to the loan portfolio has been or will be withheld from CCBC. All
loans and investments of Sierra are legal, valid and binding obligations
enforceable in accordance with its terms and are not subject to any setoffs,
counterclaims or disputes (subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general applicability), except as
disclosed to CCBC in writing or reserved for in the balance sheet of Sierra as
of September 30, 1997, and were duly authorized under and made in compliance
with applicable federal and state laws and regulations. Sierra does not have any
extensions of credit, investments, guarantees, indemnification agreements or
commitments for the same (including without limitation commitments to issue
letters of credit, to create acceptances, or to repurchase securities, federal
funds or other assets) other than those documented on the books and records of
Sierra.
5.18 Derivatives Contracts; Structured Notes; Etc. Except as previously
disclosed, Sierra is not a party to nor has it agreed to enter into an exchange
traded or over-the-counter equity, interest rate, foreign exchange or other
swap, forward, future, option, cap, floor or collar or any other contract that
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is not included on the balance sheet and is a derivatives contract (including
various combinations thereof) (each, a "Derivatives Contract") nor does it own
securities that (1) are referred to generically as "structured notes," high risk
mortgage derivatives," "capped floating rate notes" or "capped floating rate
mortgage derivatives" or (2) are likely to have changes in value as a result of
interest or exchange rate changes that significantly exceed normal changes in
value attributable to interest or exchange rate changes, except for those
Derivatives Contracts and other instruments legally purchased or entered into in
the ordinary course of business, consistent with safe and sound banking
practices and regulatory guidelines, and previously disclosed in writing to
CCBC. All of such Derivatives Contracts or other instruments are legal, valid
and binding obligations of Sierra enforceable in accordance with their terms
(except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally), and are in
full force and effect. Sierra has duly performed in all material respects all of
their material obligations thereunder to the extent that such obligations to
perform have accrued; and, to Sierra's knowledge, there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder which would have or would reasonably be expected to have a Material
Adverse Effect.
5.19 Accuracy of Representations and Warranties. No representation or
warranty by Sierra, and no statement by Sierra in any certificate, agreement,
schedule or other document furnished in connection with the transactions
contemplated by this Agreement or the Merger Agreements, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make such representation, warranty or statement
not misleading to CCBC; provided, however, that information as of a later date
shall be deemed to modify information as of an earlier date.
Section 6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934.
6.1 Preparation and Filing of Registration Statement. Sierra shall
promptly prepare and file with the SEC a registration statement on the
appropriate form (the "Sierra Registration Statement") under and pursuant to the
provisions of the 1933 Act for the purpose of registering the Sierra Shares to
be issued in the Acquisition. Sierra and CCBC shall promptly prepare joint proxy
materials (the "Joint Proxy Materials") for the purpose of submitting this
Agreement, the Bank Merger and the Agreement and Plan of Merger to the
respective shareholders of Sierra and CCBC for approval. Sierra and CCBC shall
cooperate in all reasonable respects with regard to the preparation of the
Sierra Registration Statement and the Joint Proxy Materials. The Joint Proxy
Materials in definitive form are expected to serve as the prospectus to be
included in the Sierra Registration Statement. Sierra and CCBC shall each
provide promptly to the other such information concerning its business and
financial condition and affairs as may be required or appropriate for inclusion
in the Sierra Registration Statement or the Joint Proxy Materials, and shall
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the Sierra Registration Statement and the Joint
Proxy Materials.
6.2 Effectiveness of Registration Statement and Listing of Shares.
Sierra and CCBC shall use their commercially reasonable efforts to have the
Sierra Registration Statement and any amendments or supplements thereto declared
effective under the 1933 Act as soon as practicable, and thereafter CCBC shall
distribute the Proxy Materials to holders of its common stock in accordance with
applicable laws. Sierra shall use commercially reasonable efforts to cause the
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Sierra Shares issued to effect the Merger to be approved for listing on the
Nasdaq National Market System when such Sierra Shares are issued to Bancshares'
shareholders.
6.3 Sales and Resales of Common Stock. Sierra shall not be required to
maintain the effectiveness of the Sierra Registration Statement for the purpose
of sale or resale of the Sierra Shares by any person.
6.4 Rule 145 and Related Matters. At Sierra's option, securities
representing Sierra Shares issued to "affiliates", as that term is defined in
the 1933 Act, of CCBC (as determined by counsel to Sierra and CCBC) under Rule
145 of the Rules and Regulations under the 1933 Act pursuant to the Merger
Agreements will be subject to stop transfer orders and will bear a restrictive
legend in substantially the following form:
"The Securities Represented by this Certificate Have been
Issued in a Transaction to Which Rule 145 Promulgated under
the Securities Act of 1933, as Amended, Applies and May Only
Be Sold or Otherwise Transferred in Compliance with the
Requirements of Rule 145 or Pursuant to an Effective
Registration Statement under Said Act or in a Transaction
Which, in the Opinion of Counsel Satisfactory to the Issuer,
satisfies an Exemption from Such Registration."
Should any opinion of counsel described in the foregoing legend indicate that
the legend and any stop transfer order then in effect with respect to the shares
may be removed, Sierra will upon request substitute unlegended securities and
remove any stop transfer orders.
Section 7. CONDITIONS TO THE OBLIGATIONS OF SIERRA.
The obligations of Sierra under this Agreement are, at its option,
subject to fulfillment at or prior to the Effective Date of each of the
following conditions; provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Sierra at any time at or prior to the
Effective Date:
7.1 Representations and Warranties. The representations and warranties
of CCBC in Section 4 hereof shall be true and correct in all material respects
on and as of the Effective Date, with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically relates to an earlier date.
7.2 Compliance and Performance Under Agreement. CCBC shall have
performed and complied in all material respects with all terms of this Agreement
and the Merger Agreements required to be performed or complied with by it at or
prior to the Effective Date.
7.3 Material Adverse Change. No materially adverse change shall have
occurred since September 30, 1997, in the business, financial condition or
results of operations of CCBC and CCBC shall not be a party to or, so far as
CCBC is aware, threatened with, and to CCBC's knowledge there is no reasonable
basis for, any legal action or other proceeding before any court, any arbitrator
of any kind or any Government agency if, in the reasonable judgment of Sierra,
such legal action or proceeding could materially adversely affect CCBC, or its
business, financial condition or results of operations.
<PAGE>
7.4 Approval of Agreement. The Merger, this Agreement and the Merger
Agreements shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding shares of Sierra Shares and CCBC Shares.
7.5 Officer's Certificate. Sierra shall have received a certificate,
dated the Effective Date, signed on behalf of CCBC by the respective Presidents
and Chief Financial Officers of Bancshares and CPB to the effect that the
conditions in Sections 7.1-7.4 have been satisfied.
7.6 Opinion of Counsel. CCBC shall have delivered to Sierra such
documents as may reasonably be requested by Sierra to evidence compliance by
CCBC with the provisions of this Agreement and the Merger Agreements, including
an opinion of its counsel in a form substantially as set forth on Exhibit 7.6.
7.7 Absence of Legal Impediment. On the Effective Date, there shall be
an absence of: (a) any suit, action or proceeding, or order against CCBC or
Sierra with respect to any part of this Agreement, or the Merger, or
challenging, enjoining, or otherwise affecting the consummation of the Merger
which, in the opinion of counsel for Sierra, materially affects the Merger or
the consummation of this Agreement; or (b) any pending or threatened action or
proceeding by the United States Department of Justice or other federal
governmental agency seeking to enjoin, prohibit or otherwise impede the Merger;
or (c) a banking moratorium or other suspension of payment by banks in the
United States or any general limitation on extension of credit by lending banks
in the United States.
7.8 Effectiveness of Registration Statement. The Sierra Registration
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act. No stop order suspending the effectiveness of such
Registration Statement shall be in effect and no proceedings for such purpose
shall have been initiated or threatened by or before the SEC. All state
securities and "blue sky" permits or approvals required to consummate the
transactions contemplated by this Agreement and the Merger Agreements shall have
been received.
7.9 Government Approvals. All Government Approvals shall be in effect,
and all conditions or requirements prescribed by law or by any such Governmental
Approval shall have been satisfied; provided, however, that no Government
Approval shall be deemed to have been received if it shall require the
divestiture or cessation of any of the present businesses or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which Sierra in its reasonable judgment shall deem to be materially
burdensome (in which case Sierra shall promptly notify CCBC). For purposes of
this Agreement no condition shall be deemed to be "materially burdensome" if
such condition does not materially differ from conditions regularly imposed by
the FRB, the Commissioner, or FDIC in orders approving transactions of the type
contemplated by this Agreement and compliance with such condition would not:
(a) require the taking of any action inconsistent with the manner in
which Sierra or CCBC has conducted its business previously;
(b) have a material adverse effect upon the business, financial
condition or results of operations of Sierra or CCBC; or
(c) preclude satisfaction of any of the conditions to consummation of
the transactions contemplated by this Agreement.
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7.10 Tax Opinion. Sierra and CCBC shall have received an opinion of
counsel or accountants satisfactory to both parties, subject to assumptions and
exceptions normally included, in form and substance reasonably satisfactory to
both parties, substantially to the effect that under federal income tax law and
California income and franchise tax law:
(a) The Merger will qualify as a "reorganization" within the meaning of
Internal Revenue Code Section 368(a)(1)(A);
(b) Except for any cash received in lieu of any fractional share, no
gain or loss will be recognized by holders of CCBC Shares who receive Sierra
Shares in exchange for the CCBC Shares which they hold;
(c) The holding period of Sierra Shares exchanged for CCBC Shares
(including any fractional share prior to its conversion into cash) will include
the holding period of the CCBC Shares for which they are exchanged, assuming the
shares of CCBC Shares are capital assets in the hands of the holder thereof at
the Effective Date;
(d) The basis of the Sierra Shares received in the exchange will be the
same as the basis of the CCBC Shares for which they are exchanged, less any
basis attributable to fractional shares for which cash is received;
(e) No gain or loss will be recognized by Bancshares or CPB in
connection with the Merger or the Bank Merger;
(f) Any cash received by a shareholder of CCBC in lieu of a fractional
share will, to the extent such share was a capital asset in the hands of the
CCBC shareholder, result in recognition of capital gain or loss by such
shareholder measured by the difference between the cash received and the basis
of such fractional share;
(g) Provided the options to buy Sierra Shares are not actively traded
on an established market, no gain or loss will be recognized by the holders of
nonqualified options to buy CCBC Shares upon the conversion of those options
into nonqualified options to buy Sierra Shares under the same terms and
conditions as in effect immediately prior to the proposed transaction;
(h) No gain or loss will be recognized by the holders of incentive
stock options to buy CCBC Shares upon the conversion of those options into
incentive stock options to buy Sierra Shares under the same terms and conditions
as in effect immediately prior to the proposed transaction;
(i) A CCBC shareholder who dissents to the transaction and receives
cash in exchange for the shareholder's CCBC Shares will be treated as having
received a distribution in redemption of the shareholder's CCBC Shares, subject
to the provisions and limitations of Section 302. Where, as a result of such
distribution, the shareholder owns no Sierra Shares, either directly or by
reason of Section 318, and provided the CCBC Shares were capital assets in such
shareholder's hands, the redemption will result in the recognition of capital
gain or loss by such shareholder measured by the difference between the amount
of cash received and the adjusted basis of the CCBC Shares surrendered; and
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(j) No gain or loss will be recognized (and no amount will be included
in income) by a holder of CCBC convertible debentures (whether or not such
holder also holds CCBC Shares) upon the assumption of such debentures by Sierra.
7.11 Unaudited Financials. Not later than the Determination Date, CCBC
shall have furnished Sierra a copy of its most recently prepared unaudited
consolidated financial statements for the period beginning January 1, 1997 and
ending the month end immediately preceding the Determination Date, including a
balance sheet and statement of income of CCBC for that period.
7.12 Rule 145 Undertaking. Each director, executive officer and other
person who is an "affiliate" (for purposes of Rule 145 under the Securities Act)
of CCBC shall have delivered to Sierra, as soon as practicable after the date of
this Agreement, and prior to the date of the shareholder meeting called by
Bancshares to approve this Agreement, a written agreement, in the form of
Exhibit 7.12 hereto, providing that such person will not sell, pledge, transfer
or otherwise dispose of any Sierra Shares to be received by such "affiliate" in
the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder. Notwithstanding any
other provision of this Agreement, no certificate for Sierra Shares shall be
delivered in exchange for CCBC Shares held by any such "affiliate" who shall not
have executed and delivered such an agreement.
7.13 Closing Documents. Sierra shall have received such certificates
and other closing documents as counsel for Sierra shall reasonably request.
7.14 Consents. CCBC shall have received, or Sierra shall have satisfied
itself that CCBC will receive, all consents of other parties to and required by
material mortgages, notes, leases, franchises, agreements, licenses and permits
applicable to CCBC, in each case in form and substance reasonably satisfactory
to Sierra, and no such consent or license or permit shall have been withdrawn or
suspended.
7.15 Shareholder Agreements. All directors of CCBC shall have entered
into a shareholder's agreement in the form attached hereto as Exhibit 7.15
contemporaneously with the execution of this Agreement by which such
shareholders agree to vote their shares and any shares over which such
shareholders have voting authority in favor of the Merger and further agreeing,
to the extent permitted by law and the bylaws of CCBC, to vote in favor of the
Merger by consent solicitation.
7.16 Noncompetition Agreements. All existing non-employee directors of
CCBC shall have entered into a written agreement not to engage in a business
competitive to that of Sierra or CCBC in Solano, Sacramento and Contra Costa
Counties for a period of three years from the closing of the Acquisition.
Restricted activities shall include participation in organizing or any stock
ownership in a new bank, acquisition of equity securities of any competing bank
that has operations within the aforementioned counties with less than $5 billion
of assets or acting as a director of any competing institution within such area
for such period; provided that this provision shall not preclude the acquisition
of such securities if the securities so acquired do not exceed in the aggregate
the lesser of $50,000 in market value at the time of acquisition or 1% of the
outstanding equities of the competing bank.
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7.17 Fairness Opinion. The Board of Directors of Bancorp shall have
received an opinion of its financial advisor to the effect that the terms of the
Merger are fair, from a financial point of view, to Bancorp and its
shareholders.
7.18 Pooling of Interests. Prior to the Effective Date, Sierra shall
have received a written opinion from Deloitte & Touche that the Merger will
qualify for pooling of interests accounting treatment. In making its
determination that the Merger will qualify for such treatment, Deloitte & Touche
shall be entitled to assume that cash will be paid with respect to all shares
held of record by any holder of dissenting shares.
7.19 Resignations. Sierra shall have received resignations of all of
the directors of CCBC, which resignations shall be effective on the Effective
Date.
Section 8. CONDITIONS TO THE OBLIGATIONS OF CCBC.
The obligations of CCBC under this Agreement are, at its option,
subject to the fulfillment at or prior to the Effective Date of each of the
following conditions provided, however, that any one or more of such conditions
may be waived by the Board of Directors of Bancshares at any time at or prior to
the Effective Date:
8.1 Representations and Warranties. The representations and warranties
of Sierra in Section 5 hereof shall be true and correct in all material respects
on and as of the Effective Date with the same effect as though such
representations and warranties had been made on and as of such date except as to
any representation or warranty which specifically related to an earlier date.
8.2 Compliance and Performance Under Agreement. Sierra shall have
performed and complied in all material respects with all of the terms of this
Agreement and the Merger Agreements required to be performed or complied with by
them at or prior to the Effective Date.
8.3 Material Adverse Change. No materially adverse change shall have
occurred since September 30, 1997, in the business, financial condition, results
of operations or properties of Sierra and its subsidiaries taken as a whole, and
Sierra shall not be engaged in, or a party to or so far as Sierra is aware,
threatened with, and to Sierra's knowledge no grounds shall exist for, any legal
action or other proceeding before any court, any arbitrator of any kind or any
government agency if, in the reasonable judgment of CCBC, such legal action or
proceeding could materially adversely affect Sierra or its business, financial
condition, results of operations or assets.
8.4 Approval of Agreement. The Merger, this Agreement and the Merger
Agreements shall have been duly approved by the affirmative vote of the holders
of a majority of the outstanding Sierra Shares and CCBC Shares.
8.5 Officer's Certificate. CCBC shall have received a certificate,
dated the Effective Date, signed on behalf of Sierra by the respective
Presidents and Chief Financial Officers of Bancorp and Sierra Bank, certifying
to the fulfillment of the conditions stated in Sections 8.1-8.4 hereof.
8.6 Opinion of Counsel. Sierra shall have delivered to CCBC such
documents as may reasonably be requested by CCBC to evidence compliance by
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Sierra with the provisions of this Agreement and the Merger Agreements,
including an opinion of its counsel in a form substantially as set forth on
Exhibit 8.6.
8.7 Absence of Legal Impediment. On the Effective Date, there shall be
an absence of: (a) any suit, action or proceeding, or order against CCBC or
Sierra with respect to any part of this Agreement, or the Merger, or
challenging, enjoining, or otherwise affecting the consummation of the Merger
which, in the opinion of counsel for CCBC, materially affects the Merger or the
consummation of this Agreement; or (b) any pending or threatened action or
proceeding by the United States Department of Justice or other federal
governmental agency seeking to enjoin, prohibit or otherwise impede the Merger;
or (c) a banking moratorium or other suspension of payment by banks in the
United States or any general limitation on extension of credit by lending banks
in the United States.
8.8 Effectiveness of Registration Statement. The Sierra Registration
Statement and any amendments or supplements thereto shall have become effective
under the 1933 Act. No stop order suspending the effectiveness of the Sierra
Registration Statement shall be in effect and no proceedings for such purpose
shall have been initiated or threatened by or before the SEC. All state
securities and "blue sky" permits or approvals required to consummate the
transactions contemplated by this Agreement and the Merger Agreements shall have
been received.
8.9 Government Approvals. The Government Approvals shall have been
received and shall be in effect, and all conditions or requirements prescribed
by law or by any such approval shall have been satisfied; provided, however that
no Government Approval shall be deemed to have been received if it shall require
the divestiture or cessation of any of the present business or operations
conducted by either of the parties hereto or shall impose any other condition or
requirement, which CCBC in its reasonable judgment shall deem to be materially
burdensome (in which case CCBC shall promptly notify Sierra).
8.10 Tax Opinion or Ruling. Sierra and CCBC shall have received the
opinion referred to in Section 7.10 hereof which opinion shall meet the
requirements of such section.
8.11 Unaudited Financials. Not later than the Determination Date,
Sierra shall have furnished CCBC a copy of its most recently prepared unaudited
year-to-date consolidated financial statements for the period beginning January
1, 1997 and ending the month immediately preceding the Determination Date,
including a balance sheet and year-to-date statement of income of Sierra.
8.12 Closing Documents. CCBC shall have received such certificates and
other closing documents as counsel for CCBC shall reasonably request.
8.13 Fairness Opinion. The Board of Directors of Bancshares shall have
received an opinion of its financial advisor to the effect that the Exchange
Ratio in the Merger as set forth in Section 2.1(b) of this Agreement is fair,
from a financial point of view, to the shareholders of Bancshares.
Section 9. CLOSING.
9.1 Closing Date. The closing of the transactions contemplated by this
Agreement ("Closing") shall, unless another date, time or place is agreed to in
writing by Sierra and CCBC, be held at the offices of McCutchen, Doyle, Brown &
Enersen LLP, San Francisco, California on the Effective Date.
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9.2 Delivery of Documents. At the Closing, the opinions, certificates
and other documents required to be delivered by this Agreement shall be
delivered.
9.3 Filings. At the Closing, Sierra and CCBC shall instruct its
representatives to make or confirm such filings as shall be required in the
opinion of counsel to Sierra and CCBC to give effect to the Merger and the Bank
Merger.
Section 10. EXPENSES.
Each party hereto agrees to pay, without right of reimbursement from
the other party and whether or not the transactions contemplated by this
Agreement or the Merger Agreements shall be consummated, the costs incurred by
such party incident to the performance of its obligations under this Agreement
and the Merger Agreements, including without limitation, costs incident to the
preparation of the Merger Agreements, this Agreement, the Sierra Registration
Statement and the Proxy Materials (including the audited financial statements of
the parties contained therein) and incident to the consummation of the
Acquisition and of the other transactions contemplated herein and in the Merger
Agreements, including the fees and disbursements of counsel, accountants,
consultants and financial advisers employed by such party in connection
therewith. CCBC shall pay 50% of the printing costs of the Sierra Registration
Statement, the Joint Proxy Materials, all fees payable pursuant to state
"blue-sky" securities laws, fees related to obtaining a tax opinion, the fee
required to be paid to the SEC to register the Sierra Shares and the costs of
distributing the Joint Proxy Materials and other information relating to these
transactions to shareholders of CCBC.
Section 11. AMENDMENT; TERMINATION.
11.1 Amendment. This Agreement and the Merger Agreements may be amended
by Sierra and CCBC at any time prior to the Effective Date without the approval
of the shareholders of Bancshares with respect to any of their terms except,
after Bancshares shareholders have approved the Merger, the terms relating to
the form or amount of consideration to be delivered to Bancshares shareholders
in the Merger.
11.2 Termination. This Agreement and the Merger Agreements may be
terminated as follows:
(a) By the mutual consent of the Boards of Directors of both Bancorp
and Bancshares at any time prior to the consummation of the Merger.
(b) By the Board of Directors of Bancorp on or after June 30, 1998, if
(i) any of the conditions in Section 7 to which the obligations of Sierra are
subject have not been fulfilled, or (ii) such conditions have been fulfilled or
waived by Sierra and CCBC shall have failed to complete the Merger.
(c) By the Board of Directors of Bancorp if (i) it has become aware of
any facts or circumstances of which it was not aware on the date hereof and
which materially adversely affect CCBC taken as a whole or its properties,
operations or financial condition, (ii) a materially adverse change shall have
occurred since September 30, 1997, in the business, financial condition, results
of operations or properties of CCBC, or (iii) there has been material failure or
prospective material failure on the part of CCBC to comply with its obligations
41
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under this Agreement or the Merger Agreements, or any material failure or
prospective failure to comply with any of the conditions set forth in Section 7
hereof.
(d) By the Board of Directors of either party in the event that CCBC
approves, recommends or enters into an agreement for a Business Combination with
any third party or group or announces publicly or privately its intention to
enter into a transaction or series of transactions with a third person or group
providing for the acquisition of all or a substantial part of CCBC, whether by
way of merger, exchange or purchase of stock, sale of assets or otherwise.
(e) By the Board of Directors of Bancshares on or after June 30, 1998,
if (i) any of the conditions contained in Section 8 to which the obligations of
CCBC are subject have not been fulfilled, or (ii) such conditions have been
fulfilled or waived but Sierra shall have failed to complete the Merger;
provided, however, that if Sierra is engaged at the time in litigation
(including an administrative appeal procedure) relating to an attempt to obtain
one or more of the Governmental Approvals or if Sierra shall be contesting in
good faith any litigation which seeks to prevent consummation of the
transactions contemplated hereby, such nonfulfillment shall not give CCBC the
right to terminate this Agreement until the later of (A) June 30, 1998, and (B)
60 days after the completion of such litigation and of any further regulatory or
judicial action pursuant thereto, including any further action by a governmental
agency as a result of any judicial remand, order or directive or otherwise or
any waiting period with respect thereto provided such date shall not occur
beyond December 31, 1998.
(f) By the Board of Directors of Bancshares if (i) it has become aware
of any facts or circumstances of which it was not aware on the date hereof and
which can or do materially adversely affect Sierra taken as a whole or its
properties, operations or financial condition, (ii) a materially adverse change
shall have occurred since September 30, 1997 in the business, financial
condition, results of operations or assets of Sierra, or (iii) there has been a
material failure or prospective material failure on the part of Sierra to comply
with its obligations under this Agreement or the Merger Agreements, or any
material failure or prospective material failure to comply with any condition
set forth in Section 8.
(g) By the Board of Directors of either party in the event Sierra or
its affiliates enter into a Business Combination with any other entity which
does not expressly contemplate the performance by Sierra or its successor in
interest of Sierra's obligations under this Agreement and Sierra indicates it
will not consummate this Agreement.
(h) By the Board of Directors of Bancshares, if the Board of Directors
determines at any time during the two business-day period commencing one day
after the Determination Date, if the Market Value is less than $21.59; provided,
however, if CCBC elects to exercise its termination right pursuant to this
Section 11(h), it shall give prompt written notice to Sierra (provided that such
notice of election to terminate may be withdrawn at any time within the
aforementioned two business-day period), in which case, within such two
business-day period, commencing on the day after receipt of such notice, Sierra
shall have the option of adjusting the Exchange Ratio to a number equal to a
quotient (rounded to the nearest ten thousandth), the numerator of which is
$25.00 and the denominator of which is the Market Value. If Sierra makes an
election contemplated by the preceding sentence, it shall give prompt written
notice to CCBC of such election and the revised Exchange Ratio, whereupon no
termination shall have occurred pursuant to this Section and this Agreement
shall remain in effect in accordance with its terms (except as the Exchange
Ratio shall have been so modified), and any references in this Agreement to
42
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shall have been so modified), and any references in this Agreement to "Exchange
Ratio" shall thereafter be deemed to refer to the Exchange Ratio as adjusted
pursuant to this Section.
11.3 Notice of Termination. The power of termination hereunder may be
exercised by Sierra or CCBC, as the case may be, only by giving written notice,
signed on behalf of such party by its Chief Executive Officer or President, to
the other party.
11.4 Breach of Obligations. If there has been a material breach by
either party in the performance of any of the obligations herein which shall not
have been cured within twenty business days after written notice thereof has
been given to the defaulting party, the nondefaulting party shall have the right
to terminate this Agreement upon written notice to the other party. In any
event, the nondefaulting party shall have no obligation to consummate any
transaction or take any further steps toward such consummation contemplated
hereunder until such breach is cured.
11.5 Termination and Expenses.
(a) If this Agreement is terminated for any reason, the Bank Merger
Agreement and the Agreement and Plan of Merger shall automatically terminate.
Termination of this Agreement shall not terminate or affect the obligations of
the parties to pay expenses as provided in Section 10, to maintain the
confidentiality of the other party's information pursuant to Section 3.1(f), or
the provisions of this Section 11.5 or of Sections 12.1-12.7.
(b) If this Agreement is terminated pursuant to Section 11.2(d) or
because of a willful breach of the Agreement by CCBC, CCBC shall pay to Sierra,
on demand, the sum of $1,200,000. If this Agreement is terminated pursuant to
Section 11.2(g) or because of a willful breach of the Agreement by Sierra,
Sierra shall pay to CCBC, on demand, the sum of $1,200,000. In each case, the
amount indicated shall be deemed consideration or liquidated damages for
expenses incurred and the lost opportunity cost for time devoted to the
transactions contemplated by this Agreement, provided, however, each party shall
remain liable for expenses as set forth in Section 10.
Section 12. MISCELLANEOUS.
12.1 Notices. Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally, or by overnight courier, or by facsimile or sent by first class
United States mail, postage prepaid, registered or certified mail, addressed as
follows:
To Sierra: To CCBC:
SierraWest Bancorp California Community Bancshares Corporation
10181 Truckee-Tahoe Airport Road 555 Mason Street, Suite 280
Truckee, California 96160 Vacaville, CA 95688-3985
Attention: William T. Fike Attention: Walter O. Sunderman
President & CEO President & CEO
43
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With a copy to: With a copy to:
McCutchen, Doyle, Brown & Enersen Lillick & Charles
Three Embarcadero Center Two Embarcadero Center
San Francisco, CA 94111 San Francisco, CA 94111
Attention: James M. Rockett Attention: Ronald W. Bachli
or to such other address as either party may designate by notice to the other,
and shall be deemed to have been given upon receipt.
12.2 Binding Agreement. This Agreement is binding upon and is for the
benefit of Sierra and CCBC and its successors and permitted assigns. This
Agreement is not made for the benefit of any person, firm, corporation or
association not a party hereto, and no other person, firm, corporation or
association shall acquire or have any right under or by virtue of this
Agreement. No party may assign this Agreement or any of its rights, privileges,
duties or obligations hereunder without the prior written consent of the other
party to this Agreement.
12.3 Survival of Representations and Warranties. No investigation by
Sierra or CCBC made before or after the date of this Agreement shall affect the
representations and warranties which are contained in this Agreement and such
representations and warranties shall survive such investigation, provided that,
except for the obligations of Sierra as set forth in Section 1.4,
representations, warranties, covenants and agreements of Sierra and CCBC
contained in this Agreement shall not survive the Closing.
12.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
12.5 Attorneys' Fees. In any action at law or suit in equity in
relation to this Agreement, the prevailing party in such action or suit shall be
entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
12.6 Entire Agreement; Severability. This Agreement and the documents,
certificates, agreements, letters, schedules and exhibits attached or required
to be delivered pursuant hereto set forth the entire agreement and
understandings of the parties in respect of the transactions contemplated
hereby, and supersede all prior agreements, arrangements and understanding
relating to the subject matter hereof. Each provision of this Agreement shall be
interpreted in a manner to be effective and valid under applicable law, but if
any provision hereof shall be prohibited or ruled invalid under applicable law,
the validity, legality and enforceability of the remaining provisions shall not,
except as otherwise required by law, be affected or impaired as a result of such
prohibition or ruling.
12.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, Sierra and CCBC have caused this Agreement and Plan
of Merger to be signed by its Chief Executive Officer or Chairman as of the day
and year first above written.
CALIFORNIA COMMUNITY BANCSHARES SIERRAWEST BANCORP
CORPORATION
By_________________________________ By_______________________________
Walter O. Sunderman William T. Fike
President and Chief Executive Officer President and Chief Executive Officer
CONTINENTAL PACIFIC BANK SIERRAWEST BANK
By_______________________________ By________________________________
Walter O. Sunderman William T. Fike
President and Chief Executive Officer President and Chief Executive Officer
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
Section 1. THE MERGER AND BANK MERGER.............................................................................2
1.1 Effective Date....................................................................................2
1.2 Effect of the Bank Merger.........................................................................2
1.3 Effect of the Merger..............................................................................2
1.4 Board Composition After the Merger................................................................3
Section 2. CONVERSION AND CANCELLATION OF SHARES.............................................................3
2.1 Exchange Amount; Conversion of Shares of Bancshares Common Stock..................................3
2.2 Fractional Shares.................................................................................5
2.3 Surrender of CCBC Shares..........................................................................5
2.4 No Further Transfers of CCBC Shares...............................................................6
2.5 Adjustments.......................................................................................6
2.6 Treatment of Stock Options........................................................................6
2.7 Personnel Matters.................................................................................7
(a) Employment At Effective Date................................................................7
(b) Retirement Benefits.........................................................................7
(c) Other Benefit Plans.........................................................................7
(d) Other Benefits..............................................................................8
Section 3. COVENANTS OF THE PARTIES..........................................................................8
3.1 Mutual Covenants..................................................................................8
(a) Government Approvals........................................................................8
(b) Notification of Breach of Representations, Warranties and Covenants.........................8
(c) Financial Statements........................................................................8
(d) Press Releases..............................................................................9
(e) Access to Properties, Books and Records; Confidentiality....................................9
(f) Additional Agreements......................................................................10
(g) Advice of Changes..........................................................................10
(h) Legal Conditions to Merger.................................................................10
3.2 Covenants of CCBC................................................................................11
(a) Approval by Shareholders...................................................................11
</TABLE>
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<TABLE>
<S> <C> <C>
(b) Compensation...............................................................................11
(c) Conduct of Business in the Ordinary Course.................................................11
(d) No Merger or Solicitation..................................................................14
(e) Changes in Capital Stock; Dividends........................................................14
(f) Employee Welfare Benefit Plans.............................................................15
(g) Shareholder Lists and Other Information....................................................15
(h) Capital Commitments and Expenditures.......................................................15
(i) Asset Review...............................................................................15
(j) Execution of Stock Option Agreement........................................................16
(k) Pre-Closing Adjustments....................................................................16
3.3 Covenants of Sierra..............................................................................16
(a) Approval by Shareholders...................................................................16
(b) Conduct of Business in the Ordinary Course.................................................17
(c) Dividends..................................................................................18
(d) Indemnification; Insurance.................................................................18
Section 4. REPRESENTATIONS AND WARRANTIES OF CCBC...........................................................20
4.1 Corporate Status and Power to Enter Into Agreements..............................................20
4.2 Articles, Bylaws, Books and Records..............................................................20
4.3 Compliance With Laws, Regulations and Decrees....................................................20
4.4 Capitalization...................................................................................20
4.5 Equity Interest in Any Entity....................................................................21
4.6 Financial Statements, Regulatory Reports.........................................................21
4.7 Tax Returns......................................................................................22
4.8 Material Adverse Change..........................................................................22
4.9 No Undisclosed Liabilities.......................................................................23
4.10 Properties and Leases............................................................................23
4.11 Material Contracts...............................................................................24
4.12 Loans............................................................................................24
4.13 Restrictions on Investments......................................................................25
4.14 Employment Contracts and Benefits................................................................25
4.15 Compliance with ERISA............................................................................25
4.16 Collective Bargaining and Employment Agreements..................................................26
</TABLE>
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<TABLE>
<S> <C> <C>
4.17 Compensation of Officers and Employees...........................................................26
4.18 Legal Actions and Proceedings....................................................................26
4.19 Execution and Delivery of the Agreements.........................................................27
4.20 Retention of Broker or Consultant................................................................27
4.21 Insurance........................................................................................28
4.22 Loan Loss Reserves...............................................................................28
4.23 Transactions With Affiliates.....................................................................28
4.24 Information in Sierra Registration Statement.....................................................28
4.25 Pooling of Interests.............................................................................29
4.26 Derivatives Contracts; Structured Notes; Etc.....................................................29
4.27 Accuracy of Representations and Warranties.......................................................29
Section 5. REPRESENTATIONS AND WARRANTIES OF SIERRA.........................................................29
5.1 Corporate Status and Power to Enter Into Agreements..............................................29
5.2 Articles, Bylaws, Books and Records..............................................................30
5.3 Compliance With Laws, Regulations and Decrees....................................................30
5.4 Capitalization...................................................................................30
5.5 Financial Statements, Regulatory Reports.........................................................31
5.6 Tax Returns......................................................................................31
5.7 Material Adverse Change..........................................................................32
5.8 Legal Actions and Proceedings....................................................................32
5.9 Execution and Delivery of the Agreement..........................................................32
5.10 No Undisclosed Liabilities.......................................................................33
5.11 No Material Environmental Liabilities............................................................33
5.12 No Material Liabilities Under ERISA..............................................................33
5.13 Retention of Broker or Consultant................................................................33
5.14 Loan Loss Reserves...............................................................................34
5.15 Information in Sierra Registration Statement.....................................................34
(a) Pooling of Interests.......................................................................34
5.16 Equity Interest in Any Entity....................................................................34
5.17 Loans............................................................................................34
5.18 Derivatives Contracts; Structured Notes; Etc.....................................................35
5.19 Accuracy of Representations and Warranties.......................................................35
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 6. SECURITIES ACT OF 1933; SECURITIES EXCHANGE ACT OF 1934..........................................35
6.1 Preparation and Filing of Registration Statement.................................................35
6.2 Effectiveness of Registration Statement and Listing of Shares....................................36
6.3 Sales and Resales of Common Stock................................................................36
6.4 Rule 145 and Related Matters....................................................................36
Section 7. CONDITIONS TO THE OBLIGATIONS OF SIERRA..........................................................36
7.1 Representations and Warranties...................................................................36
7.2 Compliance and Performance Under Agreement.......................................................37
7.3 Material Adverse Change..........................................................................37
7.4 Approval of Agreement............................................................................37
7.5 Officer's Certificate............................................................................37
7.6 Opinion of Counsel...............................................................................37
7.7 Absence of Legal Impediment......................................................................37
7.8 Effectiveness of Registration Statement..........................................................37
7.9 Government Approvals.............................................................................38
7.10 Tax Opinion......................................................................................38
7.11 Unaudited Financials.............................................................................39
7.12 Rule 145 Undertaking.............................................................................39
7.13 Closing Documents................................................................................39
7.14 Consents.........................................................................................39
7.15 Shareholder Agreements...........................................................................40
7.16 Noncompetition Agreements........................................................................40
7.17 Fairness Opinion.................................................................................40
7.18 Pooling of Interests.............................................................................40
7.19 Resignations.....................................................................................40
Section 8. CONDITIONS TO THE OBLIGATIONS OF CCBC............................................................40
8.1 Representations and Warranties...................................................................40
8.2 Compliance and Performance Under Agreement.......................................................41
8.3 Material Adverse Change..........................................................................41
8.4 Approval of Agreement............................................................................41
8.5 Officer's Certificate............................................................................41
8.6 Opinion of Counsel...............................................................................41
</TABLE>
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<TABLE>
<S> <C> <C> <C>
8.7 Absence of Legal Impediment......................................................................41
8.8 Effectiveness of Registration Statement..........................................................41
8.9 Government Approvals.............................................................................41
8.10 Tax Opinion or Ruling............................................................................42
8.11 Unaudited Financials.............................................................................42
8.12 Closing Documents................................................................................42
8.13 Fairness Opinion.................................................................................42
Section 9. CLOSING..........................................................................................42
9.1 Closing Date.....................................................................................42
9.2 Delivery of Documents............................................................................42
9.3 Filings..........................................................................................42
Section 10. EXPENSES.........................................................................................42
Section 11. AMENDMENT; TERMINATION...........................................................................43
11.1 Amendment........................................................................................43
11.2 Termination......................................................................................43
11.3 Notice of Termination............................................................................44
11.4 Breach of Obligations............................................................................44
11.5 Termination and Expenses.........................................................................45
Section 12. MISCELLANEOUS....................................................................................45
12.1 Notices..........................................................................................45
12.2 Binding Agreement................................................................................45
12.3 Survival of Representations and Warranties.......................................................46
12.4 Governing Law....................................................................................46
12.5 Attorneys' Fees..................................................................................46
12.6 Entire Agreement; Severability...................................................................46
12.7 Counterparts.....................................................................................46
</TABLE>
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BANK MERGER AGREEMENT
This merger agreement ("Bank Merger Agreement") is entered into as of
__________, 19__ by and among SierraWest Bank ("Sierra Bank"), a California
banking corporation, Continental Pacific Bank ("Continental"), a California
banking corporation, as follows:
Section 1. Outstanding Shares.
(a) Sierra Bank is a California banking corporation authorized by the
California Department of Financial Institutions. Sierra Bank has [____________]
authorized shares of no par value common stock of which [____________] are
outstanding and of which [__________] are subject to issued and outstanding
stock options. Sierra Bank has no outstanding shares of preferred stock or
warrants. All of the issued and outstanding shares of Sierra Bank common stock
are owned by SierraWest Bancorp, a California corporation.
(b) Continental is a California banking corporation authorized by the
California Department of Financial Institutions. Continental has [____________]
authorized shares of common stock of which [____________] are outstanding.
Continental has no outstanding shares of preferred stock, options or warrants.
All of the issued and outstanding shares of Continental common stock are owned
by California Community Bancshares, a Delaware corporation.
Section 2. The Merger.
Continental shall be merged into Sierra Bank ("Bank Merger"). Sierra
Bank shall be the surviving corporation (the "Surviving Corporation").
Section 3. Stock.
On the Effective Date, the outstanding shares of Continental shall be
canceled and no shares of Sierra Bank shall be issued in exchange therefor.
Section 4. Articles of Incorporation and By-Laws.
(a) The Articles of Incorporation of Sierra Bank shall, upon the
Effective Date, be the Articles of Incorporation of the Surviving Corporation.
It is the intention of the parties that the Merger will be treated as a tax free
reorganization pursuant to Section 368 of the Internal Revenue Code.
(b) The By-Laws of Sierra Bank, as they exist on the Effective Date,
shall be the By-Laws of the Surviving Corporation until the same are amended.
Section 5. Effect of Merger And Effective Date.
The effect of the Merger and the Effective Date of the Merger are as
prescribed by law.
Section 6. Officers and Directors
Subject to the provisions of Section 1.4 of the Plan, the officers and
directors of Sierra Bank holding office on the Effective Date shall be the
officers and directors of the Surviving Corporation until removed as provided by
law or until the election of their respective successors.
Section 7. Acts of Merging Corporation
Continental, as the merging corporation, shall from time to time, as
and when requested by the Surviving Corporation, execute and deliver all such
documents and instruments and take all such action necessary or desirable to
evidence or carry out this Merger.
Section 8. Definitions.
All capitalized terms herein shall have the meanings ascribed to them
in this Merger Agreement; provided, however, if no meaning is separately
ascribed to such capitalized terms in this Merger Agreement, then such terms
will have the meanings ascribed to them in the Plan of Acquisition and Merger
dated November 13, 1997, among SierraWest Bancorp, SierraWest Bank, California
Community Bancshares and Continental Pacific Bank ("Plan").
In witness whereof the parties have executed this Merger Agreement.
CONTINENTAL PACIFIC BANK
By___________________________________
Walter O. Sunderman
President and Chief Executive Officer
By___________________________________
John Usnick
Corporate Secretary
SIERRAWEST BANK
By___________________________________
William T. Fike
President and Chief Executive Officer
By___________________________________
A. Morgan Jones
Corporate Secretary
<PAGE>
Annex B
STOCK OPTION AGREEMENT
This AGREEMENT is dated as of November 13, 1997, between SierraWest
Bancorp ("Sierra"), a California corporation, and California Community
Bancshares, a California corporation ("CCBC").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Sierra and CCBC have approved an
Plan of Acquisition and Merger ("Plan") dated as of the date hereof which
contemplates the acquisition by Sierra of CCBC by means of the merger of CCBC
with and into Sierra, with Sierra as the entity surviving the merger;
WHEREAS, as a condition to Sierra's entry into the Plan and to induce
such entry, CCBC has agreed to grant to Sierra the option set forth herein to
purchase shares of CCBC's authorized but unissued common stock, par value $.10
per share ("Common Stock");
Unless otherwise provided in this Agreement, capitalized terms shall
have the meanings ascribed to such terms in the Plan.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1 Grant of Option. Subject to the terms and conditions set forth
herein, CCBC hereby grants to Sierra an option (the "Option") to purchase up to
282,914 shares of Common Stock (the "Option Shares"), at a per share price equal
to the average of the bid and ask prices for CCBC Common Stock for the five
trading days preceding the execution of the Plan (the "Exercise Price");
provided, however, that in the event CCBC issues or agrees to issue any shares
of Common Stock to an Acquiring Person (as that term is defined in Section 6
herein) at a price less than the Exercise Price, the Exercise Price shall be
equal to such lesser price.
2 Exercise of Option.
(a) Sierra may exercise the Option, in whole or in part, in
accordance with and to the extent permitted by applicable law at any time or
from time to time but only upon or after the occurrence of a Purchase Event (as
that term is defined in Paragraph (b) below of this section); provided that to
the extent the Option shall not have been exercised, it shall terminate and be
of no further force and effect upon the earliest to occur (such earliest date,
the "Expiration Date") of (i) the termination of the Plan pursuant to Section
11.2 (a) and (g) thereof; (ii) the date of termination pursuant to Section 11.2
(b), (c), (d), (e) or (h) thereof if such date is prior to a Purchase Event;
1
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(iii) the effective time of the acquisition of CCBC by Sierra pursuant to the
Plan, or (iv) twelve months following the occurrence of the earliest to occur of
(A) the date-of any termination of the Plan other than as described in (i) or
(ii) above or (B) the date of first occurrence of a Purchase Event.
Notwithstanding the foregoing, CCBC shall not be obligated to issue the Option
Shares upon exercise of the Option (i) in the absence of any required
governmental or regulatory waiver, consent or approval necessary for CCBC to
issue such Option Shares or for Sierra or any transferee to exercise the Option
or prior to the expiration or termination of any waiting period required by law,
or (ii) so long as any injunction or other order, decree or ruling issued by any
federal or state court of competent jurisdiction is in effect which prohibits
the sale or delivery of the Option Shares.
(b) As used herein, a "Purchase Event" shall have occurred
when: (i) CCBC or any subsidiary of CCBC, (without the prior written consent of
Sierra) enters into an agreement with any person (other than Sierra or any of
its subsidiaries) pursuant to which such person would: (x) merge or consolidate
with, or enter into any similar transaction with CCBC or any subsidiary of CCBC,
(y) purchase, lease or otherwise acquire all or substantially all of the assets
of CCBC or (z) purchase or otherwise acquire (by merger, consolidation, share
exchange or any similar transaction) securities representing 10 percent or more
of the voting shares of CCBC (the transactions referred to in subparagraph (x),
(y) and (z) are referred to as an "Acquisition Transaction"); (ii) any person or
group of persons acting in concert (other than Sierra or any of its
subsidiaries) acquires the beneficial ownership or the right to acquire
beneficial ownership of securities representing 24.99 percent or more of the
voting shares of CCBC (the term "beneficial ownership" for purposes of this
Agreement shall have the meaning set forth in Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the regulations
promulgated thereunder); (iii) the shareholders of CCBC fail to approve the
business combination between CCBC and Sierra contemplated by the Plan at any
meeting of such shareholders which has been held for that purpose or any
adjournment or postponement thereof, the failure of such a shareholder meeting
to occur prior to termination of the Plan, or the withdrawal or modification (in
a manner adverse to Sierra) of the recommendation of CCBC's Board of Directors
of the Merger and Plan that the shareholders of CCBC approve the Merger and the
Plan, in each case, after there shall have been a public announcement that any
person (other than Sierra or any of its subsidiaries), shall have (A) made, or
publicly disclosed an intention to make, a proposal to engage in an Acquisition
Transaction, (B) commenced a tender offer, as defined herein, or filed a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to an exchange offer, as defined herein, or (C)
filed an application (or given a notice), whether in draft or final form, with
the Department of Financial Institutions of the State of California or other
federal or state bank regulatory authority, which application or notice has been
accepted for processing, for approval to engage in an Acquisition Transaction;
(iv) any person (other than Sierra or other than in connection with a
transaction which Sierra has given its prior written consent), shall have filed
an application or notice with the Department of Financial Institutions of the
State of California or other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for approval to engage
in an Acquisition Transaction, exchange offer or tender offer; (v) CCBC shall
have willfully breached any covenant or obligation contained in the Plan in
anticipation of engaging in a Purchase Event, and following such breach Sierra
would be entitled to terminate the Plan (whether immediately or after the giving
of notice or passage of time or both); or (vi) a public announcement by CCBC of
the authorization, recommendation or endorsement by CCBC of an Acquisition
Transaction, exchange offer or tender offer or a public announcement by CCBC of
an intention to authorize, recommend or announce an Acquisition Transaction,
exchange offer or tender offer. If a Purchase Event has occurred, the Option
shall continue to be exercisable until its termination in accordance with
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Section 2(a) hereof. CCBC shall notify Sierra promptly in writing upon learning
of the occurrence of a Purchase Event, it being understood that the giving of
such notice by CCBC shall not be a condition to the right of Sierra to transfer
or exercise the Option. As used in this Agreement, "person" shall have the same
meaning set forth in the Plan. As used in this paragraph "tender offer" or
"exchange offer" shall mean, respectively, the commencement (as such term is
defined in Rule 14d-2 promulgated under the Exchange Act) by any person (other
than Sierra or any subsidiary of Sierra) of, or the filing by any person (other
than Sierra or any subsidiary of Sierra) of a registration statement under the
Securities Act with respect to, a tender offer or exchange offer, respectively,
to purchase shares of CCBC Stock such that, upon consummation of such offer,
such person would own or control 10 percent or more of the then-outstanding
shares of CCBC Stock.
(c) In the event a Purchase Event occurs, Sierra may elect to
exercise the Option. If Sierra wishes to exercise the Option, it shall send to
CCBC a written notice (the date of which shall be referred to herein as the
"Notice Date") which specifies (i) the total number of Option Shares to be
purchased, and (ii) a place and date not earlier than two business days nor
later than ten business days from the Notice Date for the closing (the
"Closing") of such purchase (the "Closing Date"); provided however, that if
prior notification to or approval of the Department of Financial Institutions of
the State of California or any other regulatory agency is required in connection
with such purchase, the Holder, as defined below, shall promptly file the
required notice or application for approval, shall promptly notify CCBC of such
filing, and shall expeditiously process the same and the period of time that
otherwise would run pursuant to this sentence shall run instead from the date on
which any required notification periods have expired or been terminated or such
approvals have been obtained and any requisite waiting period or periods shall
have passed. Any exercise of the Option shall be deemed to occur on the Notice
Date relating thereto, subject to receipt of any required regulatory approvals.
3 Payment and Delivery of Certificates; Sierra Representation.
(a) If Sierra elects to exercise the Option, then at the
Closing, Sierra shall pay to CCBC the aggregate purchase price for the Option
Shares purchased pursuant to the exercise of the Option in immediately available
funds by a wire transfer to a bank designated by CCBC.
(b) At such Closing, simultaneously with the delivery of the
purchase price for the Option Shares as provided in Paragraph (a) hereof, CCBC
shall deliver to Sierra a certificate or certificates, registered in the name of
Sierra or its designee, representing the number of Option Shares purchased by
Sierra. Such certificates may be endorsed with any legend required pursuant to
any permit or exemption granted by the Department of Financial Institutions of
the State of California or any other regulatory agency, as well as the following
legend:
THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO CERTAIN PROVISIONS OF AN AGREEMENT BETWEEN THE REGISTERED HOLDER
HEREOF AND THE ISSUER, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE OF THE ISSUER. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER
HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A REQUEST THEREFOR.
Any such legend shall be removed by delivery of a substitute certificate without
such legend if Sierra shall have delivered to CCBC an opinion of counsel, in
form and substance satisfactory to CCBC, that such legend is not required for
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purposes of assuring compliance with applicable securities or other law or with
this Agreement.
(c) Except as otherwise provided herein, Sierra hereby
represents and warrants to CCBC that the Option is being, and any Option Shares
issued upon exercise of the Option will be, acquired by Sierra for its own
account and not with a view to any distribution thereof, and Sierra will not
sell any Option Shares purchased pursuant to exercise of the Option except in
compliance with applicable securities and other laws.
4 Representations. CCBC hereby represents and warrants to Sierra
as follows:
(a) CCBC has all requisite corporate power and authority to
enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement and all of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of CCBC. This Agreement has been duly executed and
delivered by CCBC and constitutes a valid and binding agreement of CCBC,
enforceable against CCBC in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting the rights of creditors generally or by equitable
principles, whether such enforcement is sought in law or equity.
(b) The execution and delivery by CCBC of this Agreement and
the consummation of the transactions herein contemplated do not and will not
violate or conflict with CCBC's Certificate of Incorporation or Bylaws, any
statute, regulation, judgment, order, writ, decree or injunction applicable to
CCBC (other than as may be effected by Sierra's ownership of CCBC Common Stock
exceeding certain limits set forth by statute or regulation) or its properties
or assets and do not and will not violate, conflict with, result in a breach of,
constitute a default (or an event which with due notice and/or lapse of time
would constitute a default) under, result in a termination of, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets of
CCBC under the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, or loan agreement or other agreement, instrument or
obligation to which CCBC is a party, or by which CCBC or any Of its properties
or assets may be bound or affected.
(c) CCBC has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms, will
have reserved for issuance upon the exercise of the Option a number of shares of
Common Stock sufficient to satisfy the exercise of the Option in full, all of
which Common Stock, upon issuance pursuant hereto, shall be duly authorized,
validly issued, fully paid and nonassessable, and shall be delivered free and
clear of all claims, liens, encumbrances, security interests and preemptive
rights.
5 Adjustment Upon Changes in Capitalization.
(a) In the event of any stock dividend, stock split, split-up,
recapitalization, reclassification, combination, exchange of shares or similar
transaction or event with respect to Common Stock, the type and number of shares
or securities subject to the Option and the Exercise Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction so that Sierra shall receive, upon exercise of the
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Option, the number and class of shares or other securities or property that
Sierra would have received in respect of Common Stock if the Option had been
exercised immediately prior to such event, or the record date thereof, as
applicable. If any shares of Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 5(a)), the number of shares of Common Stock subject to the Option
shall be adjusted so that, after such issuance, it, together with any shares of
Common Stock previously issued to Sierra pursuant hereto, equals 19.9 percent of
the number of shares of Common Stock then issued and outstanding, without giving
effect to any shares subject to or issued pursuant to this Option.
(b) In the event that CCBC, shall, prior to the Expiration
Date, enter into an agreement: (i) to consolidate with or merge into any person,
other than Sierra or one of its subsidiaries, and shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than Sierra or one of its subsidiaries, to merge into CCBC and
CCBC shall be the continuing or surviving corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of CCBC or any other person or cash
or any other property or the outstanding shares of Common Stock immediately
prior to such merger shall after such merger represent less than 50 percent of
the outstanding shares and share equivalents of the merged company; or (iii) to
sell or otherwise transfer all or substantially all of its assets to any person,
other than Sierra or one of its subsidiaries, then, and in each such case, the
agreement governing such transaction shall make proper provisions so that the
Option shall, upon the consummation of any such transaction and upon the terms
and conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Sierra, of either (x) the
Succeeding Corporation (as defined below), (y) any person that controls the
Succeeding Corporation, or (z) in the case of a merger described in clause (ii),
CCBC (in each case, such person being referred to as the "Substitute Option
Issuer.")
(c) The Substitute Option shall have the same terms as the
Option, provided, that, if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to Sierra. The Substitute Option Issuer shall
also enter into an agreement with the then-holder or holders of the Substitute
Option in substantially the form as this Agreement, which shall be applicable to
the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of the Substitute Common Stock (as hereinafter defined) as is equal to
the Assigned Value (as hereinafter defined) multiplied by the number of shares
of Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "Substitute Option Price")
shall then be equal to the Exercise Price multiplied by a fraction in which the
numerator is the number of shares of the Common Stock for which the Option was
theretofore exercisable and the denominator is the number of shares for which
the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Succeeding Corporation" shall mean (x) the continuing or
surviving corporation of a consolidation or merger with CCBC (if other than
CCBC), (y) CCBC in a merger in which CCBC is the continuing or surviving person,
and (z) the transferee of all or any substantial part of CCBC assets (or the
assets of its subsidiaries).
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(ii)"Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price
per share of Common Stock at which a tender offer or exchange offer therefor has
been made by any person (other than Sierra or its subsidiaries) (y) the price
per share of Common Stock to be paid by any person (other than Sierra or any of
its subsidiaries) pursuant to an agreement with CCBC, and (z) the highest
closing sales price per share of Common Stock as quoted on the Nasdaq National
Market (or if Common Stock is not quoted on the Nasdaq National Market, the
highest bid price per share on any day as quoted on the principal trading market
or securities exchange on which such shares are traded as reported by a
recognized source chosen by Sierra) within the six-month period immediately
preceding the agreement referred to in (y); provided, that in the event of a
sale of less than all of CCBC's assets, the Assigned Value shall be the sum of
the price paid in such sale for such assets and the current market value of the
remaining assets of CCBC as determined by a nationally recognized investment
banking firm selected by Sierra and reasonably acceptable to CCBC, divided by
the number of shares of Common Stock outstanding at the time of such sale. In
the event that an exchange offer is made for Common Stock or an agreement is
entered into for a merger or consolidation involving consideration other than
cash, the value of the securities or other property issuable or deliverable in
exchange for the Common Stock shall be determined by a nationally recognized
investment banking firm mutually selected by Sierra and CCBC (or if applicable,
the Succeeding Corporation), provided that if a mutual selection cannot be made
as to such investment banking firm, it shall be selected by Sierra.
(iv)"Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day preceding
such consolidation, merger or sale, provided that if CCBC is the issuer of the
Substitute Option, the Average Price shall be computed with respect to a share
of common stock issued by CCBC, the person merging into CCBC or by any company
which controls or is controlled by such merging person, as Sierra may elect.
(f) In no event pursuant to any of foregoing paragraphs shall
the Substitute Option be exercisable for more than 19.9 percent of the aggregate
of the shares of the Substitute Common Stock outstanding immediately prior to
exercise of the Substitute Option. In the event that the Substitute Option would
be exercisable for more than 19.9 percent of the aggregate of the shares of
Substitute Common Stock but for this clause (f), the Substitute Option Issuer
shall make a cash payment to Sierra equal to the excess of (i) the value of the
Substitute Option without giving effect to the limitation in this clause (f)
over (ii) the value of the Substitute Option after giving effect to the
limitation in this clause (f). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Sierra and the
Substitute Option Issuer.
(g) CCBC shall not enter into any transaction described in
subsection (b) of this Section 5 unless the Succeeding Corporation and any
person that controls the Succeeding Corporation assume in writing all the
obligations of CCBC hereunder and take all other actions that may be necessary
so that the provisions of this Agreement, including but not limited to this
Section 5, are given full force and effect (including, without limitation, any
action that may be necessary so that the shares of Substitute Common Stock are
in no way distinguishable from or have lesser economic value than other shares
of common stock issued by the Substitute Option Issuer).
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6 Purchase of Option Shares and Options by CCBC.
(a) From and after the first date a transaction specified in
Section 5(b) herein is consummated (the "Repurchase Event"), and subject to
applicable regulatory restrictions, Sierra or a holder or former holder of any
Options (a "Holder") who has exercised the Options in whole or in part shall
have the right to require CCBC to purchase some or all of the Option Shares at a
purchase price per share (the "Purchase Price") equal to the highest of (i) 100
percent of the Exercise Price, (ii) the highest price paid or agreed to be paid
for shares of Common Stock by an Acquiring Person (as defined in Paragraph (b)
of this Section) in any tender offer, exchange offer or other transaction or
series of related transactions involving the acquisition of 10 percent or more
of the outstanding shares of Common Stock during the one-year period immediately
preceding the Purchase Date (as defined in Paragraph (d) of this Section) and
(iii) in the event of a sale of all or substantially all of CCBC's assets, (x)
the sum of the price paid in such sale for such assets and the current market
value of the remaining assets of CCBC as determined by a recognized investment
banking firm jointly selected by such Holder and CCBC, each acting in good
faith, divided by (y) the number of shares of Common Stock then outstanding;
provided, however, that the amount calculated pursuant to clauses (ii) and (iii)
of this Section 6(a) shall not exceed $2.0 million. In the event that any of the
consideration paid or agreed to be paid by an Acquiring Person for any shares of
Common Stock or for any of CCBC's assets consists in whole or in part of
securities, the value of such securities for purposes of determining the
Purchase Price shall be determined (i) if there is an existing public trading
market therefor, by the average of the last sales prices for such securities on
the ten trading days ending three trading days prior to the payment of such
consideration (if such consideration has been paid) or prior to the date of
determination (if such consideration has not yet been paid) and (ii) if there is
no existing public trading market for such securities, by a recognized
investment banking firm jointly selected by the Holder and CCBC, each acting in
good faith. The Holder's right to require CCBC to purchase some or all of the
Option Shares under this Section shall expire on the day which is one year
following the Repurchase Event; provided, that if CCBC is prohibited under
applicable regulations from purchasing Common Stock as to which a Holder has
given notice hereunder, then the Holder's right to require CCBC to purchase such
shares shall expire on the date which is one year following the date on which
CCBC no longer is prohibited from purchasing such shares: provided further, that
CCBC shall use its best efforts to obtain any consent or approval and make any
filing required for CCBC to consummate as quickly as possible the purchase of
the Common Stock contemplated hereunder.
(b) For purposes of this Agreement, "Acquiring Person" shall
mean a person or group (as such terms are defined in the Exchange Act and the
rules and regulations thereunder) other than Sierra or a subsidiary of Sierra
who on or after the date of this Agreement engages in a transaction which gives
rise to a Purchase Event.
(c) Subject to applicable regulatory restrictions, from and
after a Repurchase Event or after Sierra receives official notice that an
approval of the Department of Financial Institutions of the State of California,
or any other regulatory authority, required for the exercise of the Option and
purchase of the Option Shares will not be issued or granted, a Holder shall have
the right to require CCBC to purchase some or all of the Options held by such
Holder at a price equal to the Purchase Price minus the Exercise Price on the
Purchase Date (as defined in Paragraph (d) of this Section) multiplied by the
number of shares of Common Stock that may be purchased on the Purchase Date upon
the exercise of the Options elected to be purchased; provided, however, that the
amount calculated pursuant to this Section 6(c) shall not exceed $2.0 million.
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Notwithstanding the termination date of the Options, the Holder's right to
require CCBC to purchase some or all of the Options under this Section shall
expire on the day which is one year following the Repurchase Event; provided,
that if CCBC is prohibited under applicable regulations from purchasing the
Options as to which an Holder has given notice hereunder, then the Holder's
right to require CCBC to purchase such Options shall expire on the day which is
one year following the date on which CCBC no longer is prohibited from
purchasing such Options; provided further, that CCBC shall use its best efforts
to obtain any consent or approval and make any filing required for CCBC to
consummate as quickly as possible the purchase of the Options contemplated
hereunder.
(d) A Holder may exercise its right to require CCBC to
purchase the Common Stock or Options (collectively, "Securities") pursuant to
this Section by surrendering for such purpose to CCBC, at its principal office
or at such other office or agency maintained by CCBC for that purpose, within
the period specified above, the certificates or other instruments representing
the Securities to be purchased accompanied by a written notice stating that it
elects to require CCBC to purchase all or a specified number of such Securities.
Within five business days after the surrender of such certificates or
instruments and the receipt of such notice relating thereto, to the extent it is
legally permitted to do so, CCBC shall deliver or cause to be delivered to the
Securities Holder (i) a bank cashier's or certified check payable to the
Securities Holder in an amount equal to the applicable purchase price therefor,
and (ii) if less than the full number of Securities evidenced by the surrendered
instruments are being purchased, a new certificate or instrument, for the number
of Securities evidenced by such surrendered certificates or other instruments
less the number of Securities purchased. Such purchases shall be deemed to have
been made at the close of business on the date (the "Purchase Date") of the
receipt of such notice and of such surrender of the certificates or other
instruments representing the Securities to be purchased and the rights of the
Securities Holder, except for the right to receive the applicable purchase price
therefor in accordance herewith, shall cease on the Purchase Date.
7 Demand Registration Rights. As promptly as practicable upon
Sierra's request after a Purchase Event, CCBC agrees to prepare and file not
more than two registration statements, prospectuses or permit or exemption
applications ("Registration Event") as appropriate, under federal and any
applicable state securities laws, with respect to any proposed sale of any
warrants, options or other securities representing any of Sierra's rights under
this Agreement or proposed dispositions by Sierra of any or all of the Option
Shares, if such registrations or filings are required by law or regulation, and
to use its best efforts to cause any such registration statements or
prospectuses to become effective, or to have any permit or exemption granted, as
expeditiously as possible and to keep such registration statement, prospectus,
permit or exemption effective for a period of not less than 180 days unless, in
the written opinion of counsel to CCBC, addressed to Sierra and satisfactory in
form and substance to Sierra and its counsel, registration (or filing of a
prospectus, or grant of a permit or exemption) is not required for such proposed
transactions. All fees, expenses and charges of any kind or nature whatsoever
incurred in connection with any registration of, or the preparation of any
registration statement, prospectus or permit or exemption application relating
to, the Options or the Option Shares pursuant to this Section 7 shall be borne
and paid by CCBC; provided, however, that in no event shall this Section 7 be
construed to require CCBC to bear the expense of any change of control notice or
similar regulatory filing made by any purchaser or acquiror of Option Shares
issued to Sierra pursuant to this Agreement. In the event Sierra exercises its
registration rights under this Section 7, CCBC shall provide Sierra, its
affiliates, each of their respective officers and directors and any underwriters
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used by Sierra, with indemnifications, representations and warranties and shall
cause its attorneys and accountants to deliver to Sierra and any such
underwriters attorneys' opinions and "comfort letters", all of a type
customarily provided or delivered in connection with public underwritten
offerings of securities. In the event CCBC effects a registration of Common
Stock for its own account or for any other shareholder of CCBC, it shall allow
Sierra to participate in such registration. Notwithstanding the foregoing, CCBC
shall have the right to delay (a "Delay Right") a Registration Event for a
period of up to thirty (30) days, in the event it receives a request from Sierra
to effect a Registration Event, if CCBC (i) is involved in a material
transaction, or (ii) determines, in the good faith exercise of its reasonable
business judgment, that such registration and offering could adversely effect or
interfere with bona fide material financing plans of CCBC or would require
disclosure of information, the premature disclosure of which could materially
adversely affect CCBC or any transaction under active consideration by CCBC. For
purposes of this Agreement, the term "material transaction" shall mean a
transaction which, if CCBC were subject to the reporting requirements under the
Exchange Act, would require CCBC to file a current report on Form 8-K with the
Securities Exchange Commission. CCBC shall have the right to exercise two Delay
Rights in any eighteen (18) month period.
8 Listing.
If Common Stock or any other securities to be acquired upon exercise of
the Option are then authorized for quotation or trading or listing on the Nasdaq
National Market or any other securities exchange or automated quotation system,
CCBC, or any successor thereto, upon the request of the holder of the Option,
will promptly file an application, if required, to authorize for listing or
trading or quotation the shares of Common Stock or other securities to be
acquired upon exercise of the Option on the Nasdaq National Market or any other
securities exchange or automated quotation system and will use its best efforts
to obtain approval, if required, of such listing or quotation as soon as
possible.
9 Total Profit.
Notwithstanding any other provision of this Agreement to the contrary,
in no event shall Sierra purchase under the terms of this Agreement that number
of Option Shares which have a Spread Value, as defined below, in excess of $2.0
million. In the event the Spread Value exceeds $2.0 million, the number of
Option Shares which Sierra is entitled to purchase at the Closing Date shall be
reduced to the extent required such that the Spread Value following such
reduction is equal to or less than $2.0 million. "Spread Value" shall mean the
difference between (i) the product of (1) the sum of the total number of Option
Shares Sierra (x) intends to purchase at a Closing pursuant to the exercise of
the Option and (y) previously purchased pursuant to the prior exercise of the
Option, and (2) the closing price of CCBC Common Stock as quoted on the Nasdaq
National Market on the last trading day immediately preceding the Closing Date,
and (ii) the product of (1) the total number of Option Shares Sierra (x) intends
to purchase at the Closing Date pursuant to the exercise of the Option and (y)
previously purchased pursuant to the prior exercise of the Option and (2) the
applicable Option Price of such Option Shares.
10 Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
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(b) Entire Agreement. Except as otherwise expressly provided herein,
this Agreement contains the entire agreement between the parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto, and their respective successors and assigns, any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided herein.
(c) Assignment. At any time after a Purchase Event occurs, Sierra may
sell, assign or otherwise transfer its rights and obligations hereunder, in
whole or in part, by issuing Options or otherwise, to any person or group of
persons, subject to applicable law, rule or regulation. In order to effectuate
the foregoing, Sierra (or any direct or indirect assignee or transferee of
Sierra) shall be entitled to surrender this Agreement to CCBC in exchange for
two or more Agreements entitling the holders thereof to purchase in the
aggregate the same number of shares of Common Stock as may be purchasable
hereunder.
(d) Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or by confirmed facsimile transmission or sent by registered or certified mail
or overnight courier, postage prepaid, with return receipt requested, addressed
as follows:
If to Sierra:
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
Truckee, California 96160
Attention: William T. Fike, President & CEO
Facsimile Number: (916) 582-2953
With a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3 Embarcadero Center, #1800
San Francisco, California 94111
Attention: James M. Rockett, Esq.
Facsimile Number: (415) 393-2286
If to CCBC:
California Community Bancshares Corporation
555 Mason Street, Suite 280
Vacaville, California 95688-3985
Attention: Walter O. Sunderman, President & CEO
Facsimile Number: (707) 448-1731
With a copy to:
Lillick and Charles
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2 Embarcadero Center, #2600
San Francisco, California 94111
Attention: Ronald W. Bachli, Esq.
Facsimile Number: (415) 421-4799
A party may change its address for notice purposes by written notice to
the other party hereto.
(e)..Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f)..Specific Performance. The parties hereto agree that irreparable
harm would occur in the event that any of the provisions of this Agreement were
not performed by them in accordance with their specific terms or conditions or
were otherwise breached and that money damages are an inadequate remedy for
breach of this Agreement because of the difficulty of ascertaining the amount of
damage that will be suffered by the parties in the event that this Agreement is
not performed in accordance with its terms or conditions or otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement by the parties and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which it is entitled at law or in equity.
(g)..Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
(h)..Best Efforts. Each of Sierra and CCBC will use its best efforts to
make all filings with, and to obtain consents of, all third parties and
governmental authorities necessary to the consummation of the transactions
contemplated by this Agreement, including without limitation applying to the
Department of Financial Institutions of the State of California for approval to
acquire or issue the shares issuable hereunder.
(i)..Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference and are not intended to be part of or to affect the
meaning or interpretation of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, as of the day and year first written above.
SIERRAWEST BANCORP
By:
William T. Fike, President and
Chief Executive Officer
CALIFORNIA COMMUNITY BANCSHARES
CORPORATION
By:
Walter O. Sunderman, President and
Chief Executive Officer
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Annex C
Van Kasper & Company Letterhead
November 11, 1997
Board of Directors
California Community Bancshares Corporation
555 Mason Street, Suite 280
Vacaville, CA 95688
Members of the Board:
You have requested our opinion as investment bankers as to the fairness, from a
financial point of view, to the holders of common shares of California Community
Bancshares Corporation ("CCBC") of the consideration to be received by CCBC, in
the proposed merger (the "Merger") of CCBC with and into SierraWest Bancorp
("Sierra"). Pursuant to the Agreement and Plan of Merger (the "Agreement") and
subject to the terms and conditions contained therein, each holder of common
shares of CCBC will receive, in exchange for common shares of CCBC, Sierra
common shares in the ratio of 1.000 shares of Sierra common shares for each
share of CCBC common stock subject to certain adjustments as described in the
Agreement.
We have acted for CCBC and for the Board of Directors as financial advisor in
connection with this transaction and will receive a fee for our services. We
have previously provided investment banking and financial advisory services to
both CCBC and Sierra. We are not currently providing investment banking or
financial advisory services to Sierra. We currently are a market maker in CCBC's
common shares.
In arriving at our opinion, we have reviewed and analyzed, among other things,
the following: (i) the Agreement; (ii) certain publicly available financial and
other data with respect to CCBC and Sierra, including consolidated financial
statements and recent years and interim periods to September 30, 1997; (iii)
certain other publicly available financial and other information concerning CCBC
and Sierra and the trading markets for the publicly traded securities of CCBC
and Sierra; (iv) publicly available information concerning other banks and
holding companies, the trading markets for their securities and the nature and
terms of certain other merger transactions we believed relevant to our inquiry;
and (v) evaluations and analyses prepared and presented to the Board of
Directors of CCBC or a committee thereof in connection with the Merger. We have
held discussions with senior management of CCBC and of Sierra concerning their
past and current operations, financial condition and prospects, as well as the
results of regulatory examinations.
We have reviewed with senior management of CCBC earnings projections for CCBC as
a stand-alone entity, assuming the Merger does not occur, prepared by CCBC. We
have reviewed with senior management of Sierra earnings projections as a
stand-alone entity, assuming the Merger does not occur, prepared by Sierra. We
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have also reviewed with the senior management of Sierra the projected operating
cost savings reasonably expected by Sierra resulting from the Merger with CCBC.
Certain pro forma financial projections for the combined companies and for CCBC
and Sierra as stand-alone entities were derived by us based upon the projections
and growth assumptions discussed above, as well as our own assessment of general
economic, market and financial conditions. In certain cases, such combined pro
forma financial projections included projected operating cost savings derived by
us based upon the projections discussed above and believed by us to be
realizable in the Merger.
In conducting our review and in arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the financial and other information
provided to us or publicly available, and we have not assumed any responsibility
for independent verification of the same. We have relied upon the managements of
CCBC and Sierra as to the reasonableness of the financial and operating
forecasts, projections and projected operating cost savings (and the assumptions
and bases therefor) provided to us, and we have assumed that such forecasts,
projections and projected operating cost savings reflect the best currently
available estimates and judgments of the applicable managements. We have also
assumed, without assuming any responsibility for the independent verification of
same, that the aggregate allowances for loan losses for CCBC and Sierra are
adequate to cover such losses. We have not made or obtained any evaluations or
appraisals of the property of CCBC or Sierra, nor have we examined any
individual loan credit files. For purposes of this opinion, we have assumed that
the Merger will have the tax, accounting and legal effects (including, without
limitation, that the Merger will be accounted for as a pooling-of-interests)
described in the Agreement and assumed the accuracy of the disclosures set forth
in the Agreement. Our opinion as expressed herein is limited to the fairness,
from a financial point of view, to the holders of common shares of CCBC of the
Exchange Ratio in the Merger as set forth in Section 2.1(b) and (c) of the
Agreement and does not address CCBC's underlying business decision to proceed
with the Merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of CCBC
and Sierra, including interest income, interest expense, net interest income,
net interest margin, provision for loan losses, non-interest income,
non-interest expense, earnings, dividends, internal capital generation, book
value, intangible assets, return on assets, return on shareholders' equity,
capitalization, the amount and type of non-performing assets, loan losses and
the reserve for loan losses, all as set forth in the financial statements for
CCBC and for Sierra; (ii) the assets and liabilities of CCBC and Sierra,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and liquidity;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our assessment
of general economic, market and financial conditions and our experience in other
transactions, as well as our experience in securities valuation and our
knowledge of the banking industry generally. Our opinion is necessarily based
only upon conditions as they exist and can be evaluated on the date hereof and
the information made available to us through the date hereof.
It is understood that this letter is for the information of the Board of
Directors of CCBC and may not be relied upon by any other person or used for any
other purpose without our prior written consent except a copy of this letter may
be included in CCBC's proxy statement with respect to the Merger. This letter
does not constitute a recommendation to the Board of Directors or to any
shareholder of CCBC with respect to any approval of the Merger.
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Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the Exchange Ratio in the Merger as set
forth in Section 2.2(b) and (c) of the Agreement is fair, from a financial point
of view, to the holders of the common shares of CCBC.
Very truly yours,
VAN KASPER & COMPANY
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Annex D
NationsBanc Montgomery Securities, Inc.
Letterhead
November 13, 1997
Board of Directors
SierraWest Bancorp
101891 Truckee-Tahoe Airport Road
Truckee, CA 96161
Gentlemen:
We understand that California Community Bancshares Corporation a Delaware
corporation ("Seller"), and SierraWest Bancorp, a California corporation
("Buyer"), have entered into a Plan of Acquisition and Merger dated November 13,
1997 (the "Merger Agreement"), pursuant to which Seller will be merged with and
into Buyer, which will be the surviving entity (the "Merger"). Pursuant to the
Merger, as more fully described in the Merger Agreement and as further described
to us by management and counsel of Buyer, we understand that each outstanding
share of the common stock, $0.10 par value, per share of Seller ("Seller Common
Stock"), will be converted into and exchangeable for that number of shares of
the common stock, no par value, per share of Buyer ("Buyer Common Stock"), equal
to the Exchange Ratio (as defined in the Merger Agreement) as follows:
(i) if the average of the closing prices of Buyer Common Stock for
the 20 trading days preceding the fifth business day prior to
the Effective Date and as further defined in the Merger
Agreement ("Market Value") is between $22.76 and $25.24,
inclusive, the Exchange Ratio shall be determined by dividing
$26.40 by the Market Value;
(ii) if the Market Value is between $25.25 and 26.25, inclusive,
the Exchange Ratio shall be 1.0476; (iii) if the Market Value
is between $26.26 and 28.24, inclusive, the Exchange Ratio shall
be 1.0476 minus .000238 for each $0.01 by which the Market
Value is greater than $26.25; (iv) if the Market Value is
$28.25, the Exchange Ratio shall be 1.000; (v) if the Market
Value is between $28.26 and $29.25, inclusive, the Exchange
Ratio shall be determined by dividing (A) $28.25 plus 75% of the
amount by which the Market Value exceeds $28.25 by (B) the
Market Value;
(vi) if the Market Value is between $29.26 and $30.25, inclusive, the
Exchange Ratio shall be determined by dividing (A) $29.00 plus
50% of the amount by which the Market Value exceeds $29.25 by
(B) the Market Value;
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(vii) if the Market Value exceeds $30.26, the Exchange Ratio shall be
determined by dividing (A) $29.50 plus 25% of the amount by
which the Market Value exceeds $30.25 by (B) the Market Value;
and
(viii) if the Market Value is $22.75 or less, the Exchange Ratio shall
be 1.1579;
subject to certain adjustments, including in the event that the Market Value is
less than $21.59 then Seller has the right to terminate the Merger Agreement
unless Buyer increases the Exchange Ratio to equal the quotient obtained by
dividing $25.00 by the Market Value, (the "Consideration"). The terms and
conditions of the Merger are set forth in more detail in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger Agreement is fair to
Buyer from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller and
Buyer, including the audited consolidated financial statements for the fiscal
years ended December 31, 1995 and 1996 and unaudited consolidated financial
statements for the interim periods ended September 30, 1997, and certain other
relevant financial and operating data relating to Seller and Buyer made
available to us from published sources and from the internal records of Seller
and Buyer; (ii) reviewed the financial terms and conditions of the Merger
Agreement dated November 7, 1997; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Seller Common
Stock and Buyer Common Stock; (iv) compared Seller and Buyer from a financial
point of view with certain other companies which we deemed to be relevant; (v)
considered the financial terms, to the extent publicly available, of selected
recent business combinations which we deemed to be comparable, in whole or in
part, to the Merger; (vi) reviewed and discussed with representatives of the
management of Seller and Buyer certain information of a business and financial
nature regarding Seller and Buyer, furnished to us by them, including financial
forecasts and related assumptions of Seller and Buyer; (vii) made inquiries
regarding and discussed the Merger and the Merger Agreement and other matters
related thereto with Buyer's counsel; and (viii) performed such other analyses
and examinations as we have deemed appropriate.
In connection with our review and with your consent, we have not assumed
any obligation independently to verify the foregoing information and have relied
on its being accurate and complete in all material respects. With respect to the
financial forecasts for Seller and Buyer provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts (including the assumption regarding
potential cost savings resulting from the Merger) have been reasonably prepared
on bases reflecting the best available estimates and judgments of their
respective managements as to the future financial performance of Seller and
Buyer and that they provide a reasonable basis upon which we can form our
opinion. We have also assumed that there have been no material changes in
Seller's or Buyer's assets, financial condition, results of operations, business
or prospects since the respective dates of their last financial statements made
available to us. We have relied on advice of the counsel and independent
accountants to Buyer as to all legal and financial reporting matters with
respect to Buyer, the Merger and the Merger Agreement. We have assumed that the
Merger will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934 and all other applicable federal and
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state statutes, rules and regulations. In addition, we have not assumed
responsibility for reviewing any individual credit files, or making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of Seller or Buyer, nor have we been
furnished with any such appraisals. We are not experts in the evaluation of loan
portfolios for purposes of assessing the adequacy of the allowance for losses
with respect thereto and have assumed, with your consent, that such allowance
for each of Seller and Buyer is in the aggregate adequate to cover such losses.
You have informed us, and we have assumed, that the Merger will be recorded as a
pooling of interests under generally accepted accounting principles. Finally,
our opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Buyer of any of
the conditions to its obligations thereunder. We have also assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, no
restrictions, including any divestiture requirements, will be imposed that could
have a meaningful effect on the contemplated benefits of the merger.
We have acted as financial advisor to Buyer in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we may trade the equity securities of
Seller and Buyer for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also performed various investment banking services for Buyer.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger Agreement is fair to Buyer from a financial point of view, as of the date
hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any shareholder as to
how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the fairness of the Consideration to the shareholders
from a financial point of view and does not address the relative merits of the
Merger and any alternatives to the Merger, Buyer's underlying decision to
proceed with or effect the Merger, or any other aspect of the Merger. This
opinion may not be used or referred to by Buyer, or quoted or disclosed to any
person in any manner, without our prior written consent, which consent is hereby
given to the inclusion of this opinion in any proxy statement or registration
statement filed with the Securities and Exchange Commission in connection with
the Merger. In furnishing this opinion, we do not admit that we are experts
within the meaning of the term "experts" as used in the Securities Act and the
rules and regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY
SECURITIES, INC.
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Annex E
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION CODE
ss. 1300. Right to Require Purchase - "Dissenting Shares" and "Dissenting
Shareholder" Defined.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-term merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short- form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-term merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of Section
25100 or (B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes the provisions of this
section and Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or regulation;
and provided, further, that this provision does not apply to any class of shares
described in subparagraph (A) or (B) if demands for payment are filed with
respect to 5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted in
favor of the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective date
of a short-term merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement,
in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
ss. 1301. Demand for Purchase.
(a) If, in the case of a reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval, accompanied
by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of
the price determined by the corporation to represent the fair market value of
the dissenting shares, and a brief description of the procedure to be followed
if the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand upon
the corporation for the purchase of such shares and payment to the shareholder
in cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) [sic] of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
ss. 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
ss. 1303. Agreed Price -- Time for Payment.
(a)..If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
ss. 1304. Dissenter's Action to Enforce Payment.
(a) If the corporation denies that the shares are dissenting shares,
or the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152) or
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting shares is
in issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine the fair market value of the shares.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
Section 317 of the California General Corporation Law permits
indemnification of directors, officers and employees of corporations under
certain conditions and subject to certain limitations. Article 6 of the Articles
of Incorporation of the registrant contains provisions limiting the monetary
liability of directors for breaches of the duty of care. Article 6 of the
Articles of Incorporation of the registrant also contains provisions for the
indemnification of directors, officers and employees to the fullest extent
permitted, and in excess of that authorized, under Section 317. In addition, the
registrant maintains officers and directors liability insurance for an annual
aggregate maximum of $10,000,000.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
Exhibits Description of Exhibits
2.1 Plan of Acquisition and Merger by and between
SierraWest Bancorp, SierraWest Bank and
Mercantile Bank, filed as Exhibit 2 to
Registrant's Form 8-K dated January 24, 1997,
and by this reference incorporated herein.
2.2 Plan of Acquisition and Merger dated November
13, 1997 among SierraWest Bancorp, SierraWest
Bank, California Community Bancshares and
Continental Pacific Bank (included as Annex A)
3.1 Articles of Incorporation and by-laws, filed as
Exhibit 3.1 to Registrant's 1993 Annual Report
on Form 10-K, and by this reference
incorporated herein.
3.2 Amendment to Articles of Incorporation and
by-laws, filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
4.1 Form of Indenture between the Registrant and
American Stock Transfer & Trust Company, as
Trustee, relating to the issuance of the 8.5%
Subordinated Convertible Debentures due 2004,
filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-2, dated
February 5, 1994 (Registration No. 33-72498),
and by this reference incorporated herein.
4.2 Form of Debenture (included in Exhibit 4.1).
4.3 Rights Agreement between Sierra Tahoe Bancorp
and American Stock Transfer & Trust Co., dated
January 16, 1996, filed as Exhibit 4 to
Registrant's Form 8-A dated January 3, 1996,
and by this reference incorporated herein.
5 Opinion of McCutchen, Doyle, Brown & Enersen,
LLP.
8 Opinion of McCutchen, Doyle, Brown & Enersen,
LLP regarding tax matters.
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10.1 Form of Financial Advisory and Sales Agency
Agreement, filed as Exhibit 10.1 to
Registrant's Registration Statement on Form
S-2, dated February 5, 1994 (Registration
NO. 33-72498), and by this reference
incorporated herein.
10.2 Sierra Tahoe Bancorp KSOP Plan, filed as
Exhibit 10(m) to the Registrant's 1992
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.3 Interest Rate Swap Agreement between Truckee
River Bank and Sanwa Bank California,
dated March 1, 1996, filed as Exhibit 10.3 to
Registrant's 1995 Annual Report on
Form 10-K and by this reference incorporated
herein.
10.4 Sublease Agreement between Truckee River Bank
and Pacific Pawnbrokers, effective
February 1, 1996, filed as Exhibit 10.4 to
Registrant's 1995 Annual Report on Form
10-K and by this reference incorporated herein.
10.5 License and Service Agreement between
Registrant and Essieh & Associates, Inc.,
dated October 6, 1992, filed as Exhibit 10(r)
to Registrant's 1992 Annual Report on
Form 10-K, and by this reference incorporated
herein.
10.6 Rental lease between Truckee River Bank and
Haciett Management Corporation (SBA
Reno office) dated January 28, 1993, filed as
Exhibit 10(t) to Registrant's 1992
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.7 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and Mary Jane
Posnien, dated January 10, 1996, filed as
Exhibit 10.7 to Registrant's 1996 Annual Report
on Form 10-K, and by this reference
incorporated herein.
10.8 Purchase and Sale Agreement between Rubin-Sadd
Development Company and Sierra Bank
of Nevada dated December 15, 1995, filed as
Exhibit 10.8 to Registrant's 1995
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.9 Agreement between Registrant and American
Institute of Banking/California, filed as
Exhibit 10(v) to Registrant's 1992 Annual
Report on Form 10-K, and by this
reference incorporated herein.
10.10 Amendments to Sierra Tahoe Bancorp KSOP Plan,
dated June 24, 1993 and September
14, 1994, filed as Exhibit 10.10 to
Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.11 Three Agreements re Deferred Compensation for
Executives, filed as Exhibit 10(d) to
the Registrant's 1986 Annual Report on Form
10-K, and by this reference incorporated
herein.
10.12 Stock Plan Agreement, Incentive Stock Option
Agreement and a Non-Qualified Stock Option
Agreement for the Registrant, filed as Exhibit
10(b) to Registrant's 1988 Annual Report on
Form 10-K, and by this reference incorporated
herein.
10.13 Equipment Sale Agreement between Sierra Tahoe
Service Company and Information Technology
Inc., dated November 22, 1991, filed as Exhibit
10(g) to Registrant's 1991 Annual Report on
Form 10-K, and by this reference incorporated
herein.
2
<PAGE>
10.14 Employment Agreement between Registrant and
William T. Fike, dated December 22,
1994, filed as Exhibit 10.14 to Registrant's
1994 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.15 Stock Option Agreement between Sierra Tahoe
Bancorp and Richard S. Gaston dated
August 17, 1995, filed as Exhibit 10.15 to
Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated
herein.
10.16 Contract between Registrant and Federal Home
Loan Mortgage Corporation, dated
March 31, 1992, and Attachment to Master
Commitment Agreement, dated April 9, 1992,
filed as Exhibit 28(5) to Registrant's March
31, 1992 Quarterly Report on
Form 10-Q, and by this reference incorporated
herein.
10.17 Stock Option Agreement between Sierra Tahoe
Bancorp and David W. Clark dated August
17, 1995, filed as Exhibit 10.17 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.18 Stock Option Agreement between Sierra Tahoe
Bancorp and William W. McClintock dated
August 17, 1995, filed as Exhibit 10.18 to
Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated
herein.
10.19 Sierra Tahoe Bancorp 1996 Stock Appreciation
Rights Plan, filed as Exhibit C to
Registrant's Proxy Statement for its July 23,
1996 annual meeting of shareholders,
and by this reference incorporated herein.
10.20 Employee Stock Ownership Plan, filed as Exhibit
9 to Registrant's Registration Statement on
Form S-4, (Registration No. 33-3915), and by
this reference incorporated herein.
10.21 Cafeteria Plan Agreement, filed as Exhibit
10(f) to Registrant's 1986 Annual Report
on Form 10-K, and by this reference
incorporated herein.
10.22 Form of Trust Indenture, filed as Exhibit 4 to
Registrant's Registration Statement
on Form S-2, dated June 25, 1991 (Registration
No. 33-41398), and by this reference
incorporated herein.
10.23 Directors' Agreement, filed as Exhibit 2.3 to
Registrant's Registration Statement on Form
S-4, (Registration No. 33-34954), and by this
reference incorporated herein.
10.24 Sierra Tahoe Bancorp 1988 Stock Option Plan,
filed as Exhibit 28 to Registrant's
Registration Statement on Form S-8, dated April
10, 1989 (Registration No. 33-28004), and by
this reference incorporated herein.
10.25 Lease Agreement "Gateway at Donner Pass
Limited" between Truckee River Bank (Tenants)
and Gateway at Donner Pass Limited (Landlords),
dated May 21, 1991, filed as Exhibit 28(G) to
Registrant's September 30, 1991 Quarterly
Report on Form 10-Q, and by this reference
incorporated herein.
10.26 Grass Valley Lease Agreement between Ray Stone
Incorporated and Truckee River Bank,
filed as Exhibit 28(G) to Registrant's
September 30, 1990 Quarterly Report on
Form 10-Q, and by this reference incorporated
herein.
3
<PAGE>
10.27 Lease and Memorandum of Lease between Walter
Neal Olson and Patricia Olson
(Lessors) and Wells Fargo Bank, a California
banking corporation (Lessee), dated
November 5, 1962, as amended on March 8, 1973,
filed as Exhibit 10.29 to Registrant's
Registration Statement on Form S-2, dated
February 5, 1994 (Registration NO. 33-72498),
and by this reference incorporated herein.
10.28 Sublease between Wells Fargo Bank, N.A., a
national banking association (Sublessor), and
Truckee River Bank, a California Statement Bank
(Sublessee), dated December 1, 1984, filed as
Exhibit 10.30 to Registrant's Registration
Statement on Form S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this
reference incorporated herein.
10.29 Lease between Jerome Bunch, for himself and his
assigns (Lessor), and Truckee River
Bank (Lessee), dated July 10, 1984, filed as
Exhibit 10.31 to Registrant's Registration
Statement on Form S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this
reference incorporated herein.
10.30 Lease between Charles E. Nagy and Martha Nagy
(Lessor) and Truckee River Bank (Lessee), dated
June 10, 1989, filed as Exhibit 10.32 to
Registrant's Registration Statement on Form
S-2, dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated
herein.
10.31 Lease between Truckee River Bank (Sublessor)
and Tran-Sierra Investment, Inc. (Sublessee),
dated February 27, 1991, filed as Exhibit 10.33
to Registrant's Registration Statement on Form
S-2, dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated
herein.
10.32 Credit Agreement between Sanwa Bank California
and Truckee River Bank dated October 10, 1995,
filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.33 Equipment Sale Agreement between Information
Technology, Inc., and Truckee River Bank, filed
as Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.34 Lease between Midby-Rancho Partnership (Lessor)
and Truckee River Bank (Lessee), dated November
23, 1993, filed as Exhibit 10.34 to
Registrant's 1993 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.35 Stock Option Agreement between Sierra Tahoe
Bancorp and Thomas M. Watson dated August 17,
1995, filed as Exhibit 10.35 to Registrant's
1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.36 Stock Option Agreement between Sierra Tahoe
Bancorp and Jerrold T. Henley dated August 17,
1995, filed as Exhibit 10.36 to Registrant's
1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.37 Stock Option Agreement between Sierra Tahoe
Bancorp and A. Morgan Jones dated August 17,
1995, filed as Exhibit 10.37 to Registrant's
1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
4
<PAGE>
10.38 Sierra Tahoe Bancorp 1996 Stock Option Plan,
filed as Exhibit A to Registrant's Proxy
Statement for its July 23, 1996 annual meeting
of shareholders, and by this reference
incorporated herein.
10.39 Director's remuneration continuation agreement
between Sierra Tahoe Bancorp and David Clark,
dated October 1, 1993, filed as Exhibit 10.39
to Registrant's 1993 Annual Report on Form
10-K, and by this reference incorporated
herein.
10.40 Settlement Agreement and Mutual Release of All
Claims re: American River Bank, et al. v.
Mutual Fund, Inc., et al. dated March 22, 1996,
filed as Exhibit 10.40 to Registrant's 1995
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.41 Federal funds facility agreement between Union
Bank of California and Truckee River Bank dated
April 8, 1996, filed as Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and by this
reference incorporated herein.
10.42 First Amendment to Senior Management Benefits
Agreement between Sierra Tahoe Bancorp and
David C. Broadley, dated April 2, 1996, filed
as Exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.43 Incentive Stock Option Agreement between
Registrant and Martin R. Sorensen, dated May
18, 1994, filed as Exhibit 10.44 to
Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.44 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and Patrick S.
Day, dated January 10, 1996, including First
Amendment dated April 2, 1996, filed as Exhibit
10.1 to Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996, and
by this reference incorporated herein.
10.45 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Thomas M. Watson, dated June 19,
1996, filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.46 Federal Funds Agreement between Bank of
California and Truckee River Bank, dated
March 31, 1994, filed as Exhibit 10.47 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.47 Agreement between American Financial Skylink
and Sierra Tahoe Bancorp, dated August 1, 1994,
filed as Exhibit 10.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended
September 30, 1994, and by this reference
incorporated herein.
10.48 Deferred Fee Agreement between Sierra Tahoe
Bancorp and R. Coppola, dated June 12, 1996,
filed as Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference
incorporated herein.
5
<PAGE>
10.49 Revolving Line of Credit Agreement between
First Security Bank of Idaho and Truckee River
Bank, dated September 23, 1994, filed as
Exhibit 10.50 to Registrant's 1994 Annual
Report on Form 10-K, and by this reference
incorporated herein.
10.50 Credit Agreement between Sanwa Bank California
and Truckee River Bank, dated July 29, 1994,
filed as Exhibit 10.51 to Registrant's 1994
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.51 Modification to sublease dated September 24,
1994 between First Commercial Title, Inc. and
Sierra Tahoe Mortgage Company, dated January
31, 1995, filed as Exhibit 10.52 to
Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.52 Lease Agreement between Hulse-Kinsey Trust and
Truckee River Bank, dated February 10, 1995,
filed as Exhibit 10.53 to Registrant's 1994
Annual Report on Form 10-K, and by this
reference incorporated herein.
10.53 Assignment of License Agreements between
Information Technology, Inc., Sierra Tahoe
Servicing Corporation and Truckee River Bank,
dated March 3, 1993, filed as Exhibit
10.54 to Registrant's 1994 Annual Report on
Form 10-K, and by this reference incorporated
herein.
10.54 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Ronald A. Johnson, dated May 23,
1996, filed as Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.55 Fourth Addendum to Lease Agreement between
Edwin Holt and Sierra Bank of Nevada, dated
February 17, 1995, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, and by this
reference incorporated herein.
10.56 Credit Agreement between Sierra Bank of Nevada
and Bank of California, dated March 21, 1995,
filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1995, and by this reference incorporated
herein.
10.57 Lease Agreement between Truckee River Bank and
Realty Advisors, Inc., filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, and by this
reference incorporated herein.
10.58 Lease Agreement Between Truckee River Bank and
Western Investment Real Estate Trust and
Pinecreek Shopping Center Associates, filed as
Exhibit 10.2 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1995, and by this reference incorporated
herein.
10.59 Construction agreement between Sierra Bank of
Nevada and Shaver Construction, Inc., filed as
Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September
30, 1995, and by this reference incorporated
herein.
10.60 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and Martin R.
Sorensen dated January 17, 1996, filed as
Exhibit 10.61 to Registrant's 1995 Annual
Report on Form 10-K, and by this reference
incorporated herein.
6
<PAGE>
10.61 Executive Salary Continuation Agreement between
Sierra Tahoe Bancorp and Martin R. Sorensen,
dated March 31, 1995, filed as Exhibit 10.63 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.62 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and Martin R. Sorensen dated
December 20, 1995, filed as Exhibit 10.64 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.63 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and William T. Fike dated
December 20, 1995, filed as Exhibit 10.67 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.64 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and Pat Day dated December 20,
1995, filed as Exhibit 10.68 to Registrant's
1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.65 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and David Broadley dated December
20, 1995, filed as Exhibit 10.69 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.66 Incentive Stock Option Agreement between
SierraWest Bancorp and Mary Jane Posnien, dated
December 23, 1996, filed as Exhibit 10.66 to
Registrant's 1996 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.67 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and David C.
Broadley dated January 17, 1996, filed as
Exhibit 10.71 to Registrant's 1995 Annual
Report on Form 10-K, and by this reference
incorporated herein.
10.68 Deferred Fee Agreement between Sierra Tahoe
Bancorp and David W. Clark, dated May 28, 1996,
filed as Exhibit 10.5 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended June
30, 1996, and by this reference incorporated
herein.
10.69 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Richard S. Gaston, dated June 19,
1996, filed as Exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.70 Deferred Fee Agreement between Sierra Tahoe
Bancorp and A. Morgan Jones, dated June 7,
1996, filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.71 Deferred Fee Agreement between Sierra Tahoe
Bancorp and John J. Johnson, dated June 20,
1996, filed as Exhibit 10.8 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.72 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Jack V. Leonesio, dated June 19,
1996, filed as Exhibit 10.9 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
7
<PAGE>
10.73 Deferred Fee Agreement between Sierra Tahoe
Bancorp and William McClintock, dated June 13,
1996, filed as Exhibit 10.10 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.74 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Jerrold T. Henley, dated May 29,
1996, filed as Exhibit 10.11 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.75 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and William T. Fike, dated July
1, 1996, filed as Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.76 Nonqualified Stock Option Agreement between
Sierra Tahoe Bancorp and William T. Fike, dated
July 1, 1996, filed as Exhibit 10.13 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and by this
reference incorporated herein.
10.77 Fixed Price Construction Agreement between
SierraWest Bank and Shaver Construction, dated
June 12, 1996, filed as Exhibit 10.14 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and by this
reference incorporated herein.
10.78 Amendment No. 1 to Employment Agreement between
SierraWest Bancorp and William T. Fike, dated
June 27, 1996, filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and by
this reference incorporated herein.
10.79 Amendment No. 1 to Executive Salary
Continuation Agreement between SierraWest
Bancorp and William T. Fike, dated June 27,
1996, filed as Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and by this reference
incorporated herein.
10.80 Amendment No. 1 to Executive Salary
Continuation Agreement between SierraWest
Bancorp and David C. Broadley, dated June 27,
1996, filed as Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and by this reference
incorporated herein.
10.81 Amendment No. 1 to Executive Salary
Continuation Agreement between SierraWest
Bancorp and Martin R. Sorensen, dated June 27,
1996, filed as Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.82 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and William W. McClintock, dated June
27, 1996, filed as Exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
8
<PAGE>
10.83 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Jerrold T. Henley, dated June 27,
1996, filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.84 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and A. Morgan Jones, dated June 27,
1996, filed as Exhibit 10.8 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.85 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Jack V. Leonesio, dated June 27,
1996, filed as Exhibit 10.9 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and by this reference
incorporated herein.
10.86 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Thomas M. Watson, dated June 27,
1996, filed as Exhibit 10.10 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.87 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and David W. Clark, dated June 27,
1996, filed as Exhibit 10.11 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.88 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Richard S. Gaston, dated June 27,
1996, filed as Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.89 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and John J. Johnson, dated June 27,
1996, filed as Exhibit 10.13 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.90 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Ralph J. Coppola, dated June 27,
1996, filed as Exhibit 10.14 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.91 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Ronald A. Johnson, dated June 27,
1996, filed as Exhibit 10.15 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.92 Sierra Tahoe Bancorp Board of Directors
Deferred Compensation and Stock Award Plan,
filed as Exhibit B to Registrant's Proxy
Statement for its July 23, 1996 annual meeting
of shareholders, and by this reference
incorporated herein.
11.1 Statement re computation of earnings per share,
included in Note 1 of the consolidated
financial statements included in SWB's Annual
Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
9
<PAGE>
12.1 Statement re Ratio of Earnings to Fixed
Charges. - Not applicable
13.1 SWB's Form 10-K for the year ended December 31,
1996, incorporated herein by reference.
13.2 SWB's report on Form 10-Q for the period ended
September 30, 1997, and incorporated herein by
reference.
13.1 CCBC's Form 10-KSB for the year ended December
31, 1996, incorporated herein by reference.
13.2 CCBC's report on Form 10-QSB for the period
ended September 30, 1997, and incorporated
herein by reference.
21 List of significant subsidiaries of the
Registrant SierraWest Bank, a California
Corporation.
23.1 Consent of McCutchen, Doyle, Brown & Enersen,
LLP (included in their opinion filed as Exhibit
5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of NationsBanc Montgomery Securities,
Inc. (included in their opinion filed as
Annex D)
23.5 Consent of Van Kasper & Company (included in
their opinion filed as Annex C)
23.5 Consent of McCutchen, Doyle, Brown & Enersen
LLP re tax opinion (included in their opinion
filed as Exhibit 8).
23.6 Consent of Walter Sunderman
23.7 Consent of Bernard E. Moore
24 Power of Attorney of directors of SWB (included
in Part II of Registration Statement filed with
the Commission on January 31, 1997).
99.1 Proxy card of SWB
99.2 Proxy card of CCBC
(b) Financial Statement Schedules.
Included in SierraWest's Form 10-K for the year ended
December 31, 1996, incorporated herein by reference.
10
<PAGE>
Item. 22
Undertakings.
(1) The undersigned registrant hereby undertakes to deliver or cause
to be delivered with the Prospectus, to each person to whom the Prospectus is
sent or given, the latest annual report to security holders that is incorporated
by reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934 (the "1934 Act"); and, where interim financial information required to be
presented by Article 3 of Regulation S-X of the 1934 Act are not set forth in
the Prospectus, to deliver, or cause to be delivered to each person to whom the
Prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim financial
information.
(2) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, as amended (the "1933 Act"), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 1933 Act and is used in connection
with an offering of securities subject to Rule 415 of the 1933 Act, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the 1933 Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the 1933
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
(5) SierraWest hereby undertakes that, for purposes of determining any
liability under the 1933 Act, each filing of SierraWest's annual report pursuant
to Section 13(a) or Section 15(d) 1934 Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
1934 Act) that is incorporated by reference in the Registration Statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) SierraWest hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4 within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
11
<PAGE>
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(7) SierraWest hereby undertakes to supply by means of a
post-effective amendment all information concerning its merger transaction with
Mercantile Bank that was not the subject of and included in this Registration
Statement when it became effective.
(8) SierraWest hereby undertakes:
(a) To file during any period in which offers of sales
are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
of the 1933 Act;
(ii)to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(b) That, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-4 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Truckee, State of California, on December 31, 1997.
SIERRAWEST BANCORP
(Registrant)
By /s/ W. T. Fike
William T. Fike
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant in the capacities and on the dates indicated.
Signature Title Date
/s/ W. T. Fike President and Chief December 31, 1997
- --------------------------- Executive Officer
William T. Fike and Director (Principal
Executive Officer)
/s/ D. Broadley Executive Vice President December 31, 1997
- --------------------------- and Chief Financial Officer
David C. Broadley (Principal Financial and
Accounting Officer)
/s/ Jerrold T. Henley Director and Chairman December 31, 1997
- ---------------------------
Jerrold T. Henley
/s/ David W. Clark Director December 31, 1997
- ---------------------------
David W. Clark
/s/ Ralph J. Coppola Director December 31, 1997
- ---------------------------
Ralph J. Coppola
/s/ Richard S. Gaston Director December 31, 1997
- ---------------------------
Richard S. Gaston
/s/ John Johnson Director December 31, 1997
- ---------------------------
John J. Johnson
/s/ Ronald A. Johnson Director December 31, 1997
- ---------------------------
Ronald A. Johnson
/s/ Jack V. Leonesio Director December 31, 1997
- ---------------------------
Jack V. Leonesio
13
<PAGE>
Signatures (Continued)
Signature Title Date
/s/ A. Morgan Jones Director December 31, 1997
- ---------------------------
A. Morgan Jones
/s/ William W. McClintock Director December 31, 1997
- -------------------------------
William W. McClintock
/s /Thomas M. Watson Director December 31, 1997
- ---------------------------
Thomas M. Watson
* By ______________________
Attorney -in-fact
14
<PAGE>
POWER OF ATTORNEY
Know all men by these presents that each of the undersigned does hereby
make, constitute and appoint William T. Fike and David C. Broadley, or either of
them, as the true and lawful attorney-in-fact of the undersigned, with full
power of substitution and revocation, for and in the name, place and stead of
the undersigned, to execute and deliver the Registration Statement on Form S-4,
and any and all amendments thereto, including without limitation pre-effective
and post-effective amendments thereto; such Form S-4 and each such amendment to
be in such form and to contain such terms and provisions as said attorney or
substitute shall deem necessary or desirable; giving and granting unto said
attorney, or to such person as in any case may be appointed pursuant to the
power of substitution herein given, full power and authority to do and perform
any and every act and thing whatsoever requisite, necessary or, in the opinion
of said attorney or substitute, able to be done in such matter as the
undersigned might or could do if personally present, hereby ratifying and
confirming all that said attorney or such substitute shall lawfully do or cause
to be done by virtue hereof.
In witness whereof, each of the undersigned has duly executed this
Power of Attorney.
/s/ David W. Clark December 31, 1997
- --------------------------------------------------------------
David W. Clark
/s / Ralph J. Coppola December 31, 1997
- --------------------------------------------------------------
Ralph J. Coppola
/s/ Richard S. Gaston December 31, 1997
- --------------------------------------------------------------
Richard S. Gaston
/s/ Jerrold T. Henley December 31, 1997
- --------------------------------------------------------------
Jerrold T. Henley
/s / John Johnson December 31, 1997
- --------------------------------------------------------------
John J. Johnson
/s/ Ronald A. Johnson December 31, 1997
- --------------------------------------------------------------
Ronald A. Johnson
/s/ Jack V. Leonesio December 31, 1997
- --------------------------------------------------------------
Jack V. Leonesio
/s/ A. Morgan Jones December 31, 1997
- --------------------------------------------------------------
A. Morgan Jones
/s/ William W. McClintock December 31, 1997
- --------------------------------------------------------------
William W. McClintock
/s/ Thomas M. Watson December 31, 1997
- --------------------------------------------------------------
Thomas M. Watson
15
<PAGE>
Exhibit 5
December 31, 1998 Direct: (415) 393-2188
[email protected]
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, D.C. 20549
SierraWest Bancorp
Ladies and Gentlemen:
We have acted as counsel for SierraWest Bancorp, a California
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 filed by the Company under the Securities Act of 1933, as amended,
relating to the registration of 1,650,000 shares of the Company's Common Stock,
no par value (the "Shares") which are expected to be issued to shareholders of
California Community Bancshares Corporation ("CCBC") in exchange for their
shares of common stock of CCBC in accordance with the terms of a Plan of
Acquisition and Merger dated as of November 13, 1997, among the Company, its
subsidiary SierraWest Bank, CCBC and its subsidiary, Continental Pacific Bank.
We are of the opinion that the Shares have been duly authorized and,
when sold pursuant to the terms described in the Registration Statement and in
conformity with applicable state securities laws, will be duly and validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
McCutchen, Doyle, Brown & Enersen, LLP
/s/ Thomas G. Reddy
Thomas G. Reddy
<PAGE>
Exhibit 8
__________, 1998 FORM OF OPINION
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
Truckee, California 96160
California Community Bancshares Corporation
555 Mason Street, Suite 280
Vacaville, California 95688
Merger of California Community Bancshares Corporation into SierraWest Bancorp
Ladies and Gentlemen:
We have acted as counsel for SierraWest Bancorp, a California
corporation ("Sierra") and SierraWest Bank, a California banking corporation
("Sierra Bank"), in connection with the merger of California Community
Bancshares Corporation, a Delaware banking corporation ("CCBC"), with and into
Sierra, and the related merger of Continental Pacific Bank, a California banking
corporation ("CPB") with and into Sierra Bank, pursuant to the Plan of
Acquisition and Merger dated as of November 13, 1997 (the "Agreement") and
Exhibits A and B thereto (respectively, the "Merger Agreement" and the "Bank
Merger Agreement"). This opinion is delivered to you pursuant to Section 7.10 of
the Agreement. Capitalized terms used in this letter without definition have the
respective meanings given them in the Agreement.
The Merger Agreement provides that upon the filing of the Merger
Agreement with the California Secretary of State, CCBC will be merged with and
into Sierra, with Sierra as the surviving corporation. In the Merger, each of
the CCBC Shares (other than fractional shares) will be converted into Sierra
Shares. No fractional shares of Sierra common stock will be issued in the
Merger, but CCBC shareholders who would otherwise be entitled to receive
fractional shares will receive cash in lieu thereof.
Each option to purchase CCBC Shares outstanding on the Effective Date
will be assumed by Sierra. Each such option will be converted into an option to
acquire, in accordance with its original terms and upon payment of the adjusted
option price (which shall equal the exercise price per share for the options
immediately prior to the Merger, divided by the Exchange Ratio), the number of
Sierra Shares the option holder would have received pursuant to the Merger if he
or she had exercised all his or her options immediately prior thereto.
The Bank Merger Agreement provides that on the Effective Date CPB will
be merged with and into Sierra Bank, with Sierra Bank as the surviving
corporation. In the Bank Merger, the outstanding shares of CPB stock will be
cancelled.
In rendering the opinions expressed in this letter, we have assumed the
following factual matters to be true:
(a) The transactions described in the Agreement, the Merger Agreement
and the Bank Merger Agreement will be carried out in all respects as provided
therein;
(b) Including payments for fractional shares, no shareholder or group
of shareholders of CCBC has any plan or intention to sell or otherwise dispose
of any amount of Sierra Shares to be received by them in the Merger that would
reduce their holdings of Sierra Shares in the aggregate to a value of less than
50% of the total value of the CCBC Shares outstanding prior to the Merger;
(c) Sierra has no plan or intention to reacquire any of its stock to
be issued in the Merger;
(d) Sierra has no plan or intention to sell or otherwise dispose of any
of the assets of CCBC to be acquired in the Merger, except for the disposition
of the CPB shares in the Bank Merger and dispositions made in the ordinary
course of business;
(e) Sierra Bank has no plan or intention to sell or otherwise dispose
of any of the assets of CPB to be acquired in the Bank Merger, except for
dispositions made in the ordinary course of business;
(f) No two parties to the transactions are investment companies as
defined in Section 368(a)(2)(F) of the Internal Revenue Code of 1986, as amended
(the "Code");
(g) There is no intercorporate indebtedness existing between Sierra and
CCBC, or between Sierra Bank and CPB, that was issued, acquired, or will be
settled at a discount;
(h) No Sierra Shares received by any shareholder of CCBC in the Merger
will represent consideration for, or be properly allocable to, services to be
rendered to Sierra by such shareholder or any covenant not to compete with
Sierra subsequent to the Merger;
(i) The payment of cash in lieu of fractional shares of Sierra common
stock is solely for the purpose of avoiding the expense and inconvenience to
Sierra of issuing fractional shares and does not represent separately
bargained-for consideration. The fractional share interests of each CCBC
shareholder will be aggregated and no CCBC shareholder will receive cash in an
amount greater than the value of one full share of Sierra common stock; and
(j) The sum of the CPB liabilities assumed by Sierra Bank in the Bank
Merger, plus the amount of the liabilities to which the the CPB properties is
subject, will not exceed the adjusted basis of the CPB properties transferred to
Sierra Bank in the Bank Merger.
Based upon our understanding of the transaction as described above and
the above assumptions, and upon existing statutes, regulations, court decisions
and published rulings of the Internal Revenue Service, it is our opinion that,
for Federal income tax and California income and franchise tax purposes:
1 The Merger will qualify as a "reorganization" within the meaning
of Section 368(a)(1)(A) of the Code and corresponding provisions of the
California Revenue and Taxation Code.
2 No gain or loss will be recognized by holders of CCBC stock on the
exchange of CCBC Shares for Sierra Shares, except to the extent gain is
recognized with respect to any cash received in lieu of fractional shares.
3 The holding period of Sierra Shares received in exchange for CCBC
Shares (including any fractional share prior to its conversion into cash) will
include the holding period of the CCBC Shares for which they are exchanged,
assuming that the shares of CCBC stock are capital assets in the hands of the
holder at the Effective Date.
4 The basis of the Sierra Shares received by a CCBC shareholder in
the Merger will be the same as the basis of the CCBC Shares surrendered in
exchange therefor, less any basis attributable to fractional shares for which
cash is received.
5 No gain or loss will be recognized by CCBC or CPB in connection
with the Merger or the Bank Merger.
6 Cash received by a CCBC shareholder in lieu of a fractional share
of Sierra common stock will, to the extent the CCBC stock was a capital asset in
the hands of the CCBC shareholder, result in recognition of capital gain or loss
by such shareholder measured by the difference between the amount received and
the basis of such fractional share.
<PAGE>
7 Provided the options to buy Sierra Shares are not actively traded
on an established market, no gain or loss will be recognized by the holders of
nonstatutory options to buy CCBC Shares upon the conversion of those options
into nonstatutory options to buy Sierra Shares.
8 No gain or loss will be recognized by the holders of incentive
stock options to buy CCBC Shares upon the conversion of those options into
incentive stock options to buy Sierra Shares under the same terms and conditions
as in effect immediately prior to the Merger.
9 No gain or loss will be recognized (and no amount will be included
in income) by a holder of CCBC convertible debentures (whether or not such
holder also holds CCBC Shares) upon the assumption of such debentures by Sierra.
We hereby consent to the filing of this opinion as an exhibit to the
Sierra Registration Statement on Form S-4 and the reference to the name of our
firm therein and under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in
the Joint Proxy Statement/Prospectus furnished in connection with the
solicitation of proxies by the Boards of Directors of Sierra and CCBC.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By
A Member of the Firm
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
SierraWest Bancorp on Form S-4 of our report dated January 24, 1997 appearing in
the Annual Report on Form 10-K of SierraWest Bancorp for the year ended December
31, 1996 and the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Sacramento, California
December 31, 1997
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
SierraWest Bancorp on Form S-4 of our report dated February 21, 1997 appearing
in the Annual Report on Form 10-KSB of California Community Bancshares
Corporation for the year ended December 31, 1996 and the reference to us under
the heading "Experts" in the Joint Proxy Statement/Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Sacramento, California
December 31, 1997
<PAGE>
Exhibit 23.6
To: The Board of Directors
California Community Bancshares Corporation
In connection with the Joint Proxy Statement/Prospectus to be used by
California Community Bancshares Corporation ("CCBC") in connection with
soliciting the approval by the CCBC shareholders of the Plan of Acquisition and
Merger among SierraWest Bancorp ("Sierra"), SierraWest Bank, CCBC, and
Continental Pacific Bank dated as of November 13, 1997 and the transactions
contemplated thereunder (the "Merger") and in connection with the application to
be filed with the Federal Deposit Insurance Corporation by Sierra seeking
approval of the Merger, I hereby verify as follows:
1. Number of shares of CCBC Common Stock beneficially owned by me as of
the date hereof: 21,532
2. Number of shares of CCBC Common Stock subject to options held by me as
of the date hereof: 18,541.
3. Number of shares of CCBC Common Stock subject to options held by me and
which are exercisable within 60 days of January 16, 1998: 18,541.
4. Number of shares of Sierra Common Stock beneficiary owned by me as of
the date hereof: NONE.
5. I do not own 3% or more of the common stock of any other financial
institution, including shares held in a fiduciary capacity for which I have
voting power, except as listed below. (List the name of the financial
institution, the number of shares owned, and the percentage of that financial
institution's outstanding common stock owned).
NONE
6. If I am to be a director of Sierra after the Effective Date of the
Merger, I consent to the listing of my name as such in the Joint Proxy
Statement/Prospectus.
Dated: December 16, 1997 /s/ Walter Sunderman
-----------------------
(Signature)
<PAGE>
Exhibit 23.7
To: The Board of Directors
California Community Bancshares Corporation
In connection with the Joint Proxy Statement/Prospectus to be used by
California Community Bancshares Corporation ("CCBC") in connection with
soliciting the approval by the CCBC shareholders of the Plan of Acquisition and
Merger among SierraWest Bancorp ("Sierra"), SierraWest Bank, CCBC, and
Continental Pacific Bank dated as of November 13, 1997 and the transactions
contemplated thereunder (the "Merger") and in connection with the application to
be filed with the Federal Deposit Insurance Corporation by Sierra seeking
approval of the Merger, I hereby verify as follows:
1. Number of shares of CCBC Common Stock beneficially owned by me as of
the date hereof: 585.
2. Number of shares of CCBC Common Stock subject to options held by me as
of the date hereof: 8,465
3. Number of shares of CCBC Common Stock subject to options held by me and
which are exercisable within 60 days of January 16, 1998: 8,465
4. Number of shares of Sierra Common Stock beneficiary owned by me as of
the date hereof: 0
5. I do not own 3% or more of the common stock of any other financial
institution, including shares held in a fiduciary capacity for which I have
voting power, except as listed below. (List the name of the financial
institution, the number of shares owned, and the percentage of that financial
institution's outstanding common stock owned).
none
6. If I am to be a director of Sierra after the Effective Date of the
Merger, I consent to the listing of my name as such in the Joint Proxy
Statement/Prospectus.
Dated: December 16, 1997 /s/ Bernard E. Moore
-----------------------
(Signature)
<PAGE>
Exhibit 99.1
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of the
Notice of Special Meeting of Shareholders of SierraWest Bancorp, a California
corporation ("SierraWest"), and the accompanying Joint Proxy
Statement/Prospectus dated February __, 1998, and revoking any proxy heretofore
given, hereby constitutes and appoints David W. Clark, Jerrold T. Henley,
William W. McClintock and Thomas M. Watson, and each of them, with full power of
substitution, as attorney and proxy to appear and vote all of the shares of
common stock of SierraWest standing in the name of the undersigned which the
undersigned could vote if personally present and acting at the Special Meeting
of the Shareholders of SierraWest to be held at Truckee, California, on March
26, 1997 at 8:00 a.m. local time or at any adjournments thereof, upon the
following items as set forth in the Notice of Meeting and more fully described
in the Joint Proxy Statement/Prospectus.
1 Proposal One: The Merger. To approve the Plan of Acquisition and
Merger dated November 13, 1997 among SierraWest, SierraWest's wholly owned
subsidiary SierraWest Bank, a California banking corporation ("Sierra Bank"),
California Community Bancshares Corporation ("CCBC") and CCBC's wholly owned
subsidiary Continental Pacific Bank, a California banking corporation ("CP
Bank"), a related Agreement and Plan of Merger between SierraWest and CCBC
pursuant to which CCBC would merge with and into SierraWest, and a related Bank
Merger Agreement pursuant to which CP Bank would merge with and into Sierra Bank
(collectively, the "Merger Agreements") and the transactions contemplated
thereby, including any related amendments to SierraWest's and CCBC's respective
stock option plans. The Merger Agreements are set forth in their entirety as
Annex A to the accompanying Joint Proxy Statement/Prospectus.
_____ FOR _____ AGAINST _____ ABSTAIN
2 Other Business: The proxies are authorized to vote in their
discretion on such other business as may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
AND ADOPT PROPOSAL ONE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED TO
SIERRAWEST, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" PROPOSAL ONE TO APPROVE AND ADOPT THE MERGER
AGREEMENTS. IF OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXYHOLDERS.
SHAREHOLDER(S)
---------------------------------
(Signature)
---------------------------------
(Signature)
---------------------------------
(No. of Common Shares)
Date________________________, 1998
I/We do__ or do not __ expect to attend this meeting.
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
To assure a quorum, you are urged to date and sign this Proxy and mail it
promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
<PAGE>
Exhibit 99.2
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of the
Notice of Special Meeting of Shareholders of California Community Bancshares
Corporation, a Delaware corporation ("CCBC"), and the accompanying Joint Proxy
Statement/Prospectus dated February __, 1998, and revoking any proxy heretofore
given, hereby constitutes and appoints Walter O. Sunderman, John C. Usnick and
Bernard E. Moore, and each of them, with full power of substitution, as attorney
and proxy to appear and vote all of the shares of common stock of CCBC standing
in the name of the undersigned which the undersigned could vote if personally
present and acting at the Special Meeting of the Shareholders of CCBC to be held
at Fairfield, California, on March 16, 1997 at 6:30 p.m. local time or at any
adjournments thereof, upon the following items as set forth in the Notice of
Meeting and more fully described in the Joint Proxy Statement/Prospectus.
1 Merger. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SierraWest Bancorp, a California corporation ("SWB"),
SWB's wholly owned subsidiary SierraWest Bank, a California banking corporation
("Sierra Bank"), CCBC and CCBC's wholly owned subsidiary Continental Pacific
Bank, a California banking corporation ("CP Bank"), and a related Agreement and
Plan of Merger between SWB and CCBC pursuant to which CCBC would merge with and
into SWB, and a related Bank Merger Agreement pursuant to which CP Bank would
merge with and into Sierra Bank (collectively, the "Merger Agreements") and the
transactions contemplated thereby, including any related amendments to either
SWB's and CCBC's respective stock option plans. The Merger Agreements are set
forth in their entirety as Annex A to the accompanying Joint Proxy
Statement/Prospectus.
_____ FOR _____ AGAINST _____ ABSTAIN
2 Other Business: The proxies are authorized to vote in their
discretion on such other business as may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF DIRECTORS
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
AND ADOPT THE MERGER AGREEMENTS. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED
TO CCBC, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENTS. IF OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXYHOLDERS.
SHAREHOLDER(S)
---------------------------------
(Signature)
---------------------------------
(Signature)
---------------------------------
(No. of Common Shares)
Date________________________, 1998
I/We do__ or do not __ expect to attend this meeting.
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
To assure a quorum, you are urged to date and sign this Proxy and mail
it promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors.
Section 317 of the California General Corporation Law permits
indemnification of directors, officers and employees of corporations under
certain conditions and subject to certain limitations. Article 6 of the Articles
of Incorporation of the registrant contains provisions limiting the monetary
liability of directors for breaches of the duty of care. Article 6 of the
Articles of Incorporation of the registrant also contains provisions for the
indemnification of directors, officers and employees to the fullest extent
permitted, and in excess of that authorized, under Section 317. In addition, the
registrant maintains officers and directors liability insurance for an annual
aggregate maximum of $10,000,000.
<TABLE>
Item 21. Exhibits and Financial Statement Schedules.
<S> <C> <C> <C>
(a) Exhibits.
Exhibits Description of Exhibits
2.1 Plan of Acquisition and Merger by and between SierraWest Bancorp, SierraWest
Bank and Mercantile Bank, filed as Exhibit 2 to Registrant's Form 8-K dated
January 24, 1997, and by this reference incorporated herein.
2.2 Plan of Acquisition and Merger dated November 13, 1997 among SierraWest
Bancorp, SierraWest Bank, California Community Bancshares and Continental
Pacific Bank (included as Annex A)
3.1 Articles of Incorporation and by-laws, filed as Exhibit 3.1 to Registrant's 1993
Annual Report on Form 10-K, and by this reference incorporated herein.
3.2 Amendment to Articles of Incorporation and
by-laws, filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996,
and by this reference incorporated herein.
4.1 Form of Indenture between the Registrant and
American Stock Transfer & Trust Company, as
Trustee, relating to the issuance of the 8.5%
Subordinated Convertible Debentures due 2004,
filed as Exhibit 4.1 to Registrant's
Registration Statement on Form S-2, dated
February 5, 1994 (Registration No. 33-72498),
and by this reference incorporated herein.
4.2 Form of Debenture (included in Exhibit 4.1).
4.3 Rights Agreement between Sierra Tahoe Bancorp
and American Stock Transfer & Trust Co., dated
January 16, 1996, filed as Exhibit 4 to
Registrant's Form 8-A dated January 3, 1996,
and by this reference incorporated herein.
5 Opinion of McCutchen, Doyle, Brown & Enersen, LLP.
8 Opinion of McCutchen, Doyle, Brown & Enersen, LLP regarding tax matters.
10.1 Form of Financial Advisory and Sales Agency
Agreement, filed as Exhibit 10.1 to
Registrant's Registration Statement on Form
S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this reference incorporated herein.
10.2 Sierra Tahoe Bancorp KSOP Plan, filed as Exhibit 10(m) to the Registrant's 1992
Annual Report on Form 10-K, and by this reference incorporated herein.
10.3 Interest Rate Swap Agreement between Truckee River Bank and Sanwa Bank California,
dated March 1, 1996, filed as Exhibit 10.3 to Registrant's 1995 Annual Report on
Form 10-K and by this reference incorporated herein.
10.4 Sublease Agreement between Truckee River Bank and Pacific Pawnbrokers, effective
February 1, 1996, filed as Exhibit 10.4 to Registrant's 1995 Annual Report on Form
10-K and by this reference incorporated herein.
10.5 License and Service Agreement between Registrant and Essieh & Associates, Inc.,
dated October 6, 1992, filed as Exhibit 10(r) to Registrant's 1992 Annual Report on
Form 10-K, and by this reference incorporated herein.
10.6 Rental lease between Truckee River Bank and Haciett Management Corporation (SBA
Reno office) dated January 28, 1993, filed as Exhibit 10(t) to Registrant's 1992
Annual Report on Form 10-K, and by this reference incorporated herein.
10.7 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and Mary Jane
Posnien, dated January 10, 1996, filed as
Exhibit 10.7 to Registrant's 1996 Annual Report
on Form 10-K, and by this reference
incorporated herein.
10.8 Purchase and Sale Agreement between Rubin-Sadd Development Company and Sierra Bank
of Nevada dated December 15, 1995, filed as Exhibit 10.8 to Registrant's 1995
Annual Report on Form 10-K, and by this reference incorporated herein.
10.9 Agreement between Registrant and American Institute of Banking/California, filed as
Exhibit 10(v) to Registrant's 1992 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.10 Amendments to Sierra Tahoe Bancorp KSOP Plan, dated June 24, 1993 and September
14, 1994, filed as Exhibit 10.10 to Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.11 Three Agreements re Deferred Compensation for Executives, filed as Exhibit 10(d) to
the Registrant's 1986 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.12 Stock Plan Agreement, Incentive Stock Option
Agreement and a Non-Qualified Stock Option
Agreement for the Registrant, filed as Exhibit
10(b) to Registrant's 1988 Annual Report on
Form 10-K, and by this reference incorporated
herein.
10.13 Equipment Sale Agreement between Sierra Tahoe
Service Company and Information Technology
Inc., dated November 22, 1991, filed as Exhibit
10(g) to Registrant's 1991 Annual Report on
Form 10-K, and by this reference incorporated
herein.
10.14 Employment Agreement between Registrant and William T. Fike, dated December 22,
1994, filed as Exhibit 10.14 to Registrant's 1994 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.15 Stock Option Agreement between Sierra Tahoe Bancorp and Richard S. Gaston dated
August 17, 1995, filed as Exhibit 10.15 to Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.16 Contract between Registrant and Federal Home Loan Mortgage Corporation, dated
March 31, 1992, and Attachment to Master Commitment Agreement, dated April 9, 1992,
filed as Exhibit 28(5) to Registrant's March 31, 1992 Quarterly Report on
Form 10-Q, and by this reference incorporated herein.
10.17 Stock Option Agreement between Sierra Tahoe Bancorp and David W. Clark dated August
17, 1995, filed as Exhibit 10.17 to Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.18 Stock Option Agreement between Sierra Tahoe Bancorp and William W. McClintock dated
August 17, 1995, filed as Exhibit 10.18 to Registrant?s 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.19 Sierra Tahoe Bancorp 1996 Stock Appreciation Rights Plan, filed as Exhibit C to
Registrant's Proxy Statement for its July 23, 1996 annual meeting of shareholders,
and by this reference incorporated herein.
10.20 Employee Stock Ownership Plan, filed as Exhibit 9 to Registrant's Registration
Statement on Form S-4, (Registration No. 33-3915), and by this reference
incorporated herein.
10.21 Cafeteria Plan Agreement, filed as Exhibit 10(f) to Registrant's 1986 Annual Report
on Form 10-K, and by this reference incorporated herein.
10.22 Form of Trust Indenture, filed as Exhibit 4 to Registrant's Registration Statement
on Form S-2, dated June 25, 1991 (Registration No. 33-41398), and by this reference
incorporated herein.
10.23 Directors' Agreement, filed as Exhibit 2.3 to
Registrant's Registration Statement on Form
S-4, (Registration No. 33-34954), and by this
reference incorporated herein.
10.24 Sierra Tahoe Bancorp 1988 Stock Option Plan,
filed as Exhibit 28 to Registrant's
Registration Statement on Form S-8, dated April
10, 1989 (Registration No. 33-28004), and by
this reference incorporated herein.
10.25 Lease Agreement "Gateway at Donner Pass
Limited" between Truckee River Bank (Tenants)
and Gateway at Donner Pass Limited (Landlords),
dated May 21, 1991, filed as Exhibit 28(G) to
Registrant's September 30, 1991 Quarterly
Report on Form 10-Q, and by this reference
incorporated herein.
10.26 Grass Valley Lease Agreement between Ray Stone Incorporated and Truckee River Bank,
filed as Exhibit 28(G) to Registrant's September 30, 1990 Quarterly Report on
Form 10-Q, and by this reference incorporated herein.
10.27 Lease and Memorandum of Lease between Walter Neal Olson and Patricia Olson
(Lessors) and Wells Fargo Bank, a California banking corporation (Lessee), dated
November 5, 1962, as amended on March 8, 1973, filed as Exhibit 10.29 to
Registrant's Registration Statement on Form S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this reference incorporated herein.
10.28 Sublease between Wells Fargo Bank, N.A., a
national banking association (Sublessor), and
Truckee River Bank, a California Statement Bank
(Sublessee), dated December 1, 1984, filed as
Exhibit 10.30 to Registrant's Registration
Statement on Form S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this
reference incorporated herein.
10.29 Lease between Jerome Bunch, for himself and his assigns (Lessor), and Truckee River
Bank (Lessee), dated July 10, 1984, filed as Exhibit 10.31 to Registrant's
Registration Statement on Form S-2, dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated herein.
10.30 Lease between Charles E. Nagy and Martha Nagy
(Lessor) and Truckee River Bank (Lessee), dated
June 10, 1989, filed as Exhibit 10.32 to
Registrant's Registration Statement on Form
S-2, dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated
herein.
10.31 Lease between Truckee River Bank (Sublessor)
and Tran-Sierra Investment, Inc. (Sublessee),
dated February 27, 1991, filed as Exhibit 10.33
to Registrant's Registration Statement on Form
S-2, dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated
herein.
10.32 Credit Agreement between Sanwa Bank California
and Truckee River Bank dated October 10, 1995,
filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.33 Equipment Sale Agreement between Information
Technology, Inc., and Truckee River Bank, filed
as Exhibit 10.3 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.34 Lease between Midby-Rancho Partnership (Lessor)
and Truckee River Bank (Lessee), dated November
23, 1993, filed as Exhibit 10.34 to
Registrant's 1993 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.35 Stock Option Agreement between Sierra Tahoe Bancorp and Thomas M. Watson dated
August 17, 1995, filed as Exhibit 10.35 to Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.36 Stock Option Agreement between Sierra Tahoe Bancorp and Jerrold T. Henley dated
August 17, 1995, filed as Exhibit 10.36 to Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.37 Stock Option Agreement between Sierra Tahoe Bancorp and A. Morgan Jones dated
August 17, 1995, filed as Exhibit 10.37 to Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.38 Sierra Tahoe Bancorp 1996 Stock Option Plan, filed as Exhibit A to Registrant's
Proxy Statement for its July 23, 1996 annual meeting of shareholders, and by this
reference incorporated herein.
10.39 Director's remuneration continuation agreement
between Sierra Tahoe Bancorp and David Clark,
dated October 1, 1993, filed as Exhibit 10.39
to Registrant's 1993 Annual Report on Form
10-K, and by this reference incorporated
herein.
10.40 Settlement Agreement and Mutual Release of All Claims re: American River Bank, et
al. v. Mutual Fund, Inc., et al. dated March 22, 1996, filed as Exhibit 10.40 to
Registrant's 1995 Annual Report on Form 10-K, and by this reference incorporated
herein.
10.41 Federal funds facility agreement between Union
Bank of California and Truckee River Bank dated
April 8, 1996, filed as Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, and by this
reference incorporated herein.
10.42 First Amendment to Senior Management Benefits
Agreement between Sierra Tahoe Bancorp and
David C. Broadley, dated April 2, 1996, filed
as Exhibit 10.6 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1996, and by this reference incorporated
herein.
10.43 Incentive Stock Option Agreement between
Registrant and Martin R. Sorensen, dated May
18, 1994, filed as Exhibit 10.44 to
Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.44 Senior Manager Separation Benefits Agreement between Sierra Tahoe Bancorp and
Patrick S. Day, dated January 10, 1996, including First Amendment dated April 2,
1996, filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and by this reference incorporated herein.
10.45 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Thomas M. Watson, dated June 19,
1996, filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.46 Federal Funds Agreement between Bank of California and Truckee River Bank, dated
March 31, 1994, filed as Exhibit 10.47 to Registrant's 1995 Annual Report on Form
10-K, and by this reference incorporated herein.
10.47 Agreement between American Financial Skylink and Sierra Tahoe Bancorp, dated August
1, 1994, filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994, and by this reference incorporated herein.
10.48 Deferred Fee Agreement between Sierra Tahoe Bancorp and R. Coppola, dated June 12,
1996, filed as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and by this reference incorporated herein.
10.49 Revolving Line of Credit Agreement between
First Security Bank of Idaho and Truckee River
Bank, dated September 23, 1994, filed as
Exhibit 10.50 to Registrant's 1994 Annual
Report on Form 10-K, and by this reference
incorporated herein.
10.50 Credit Agreement between Sanwa Bank California and Truckee River Bank, dated July
29, 1994, filed as Exhibit 10.51 to Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.51 Modification to sublease dated September 24,
1994 between First Commercial Title, Inc. and
Sierra Tahoe Mortgage Company, dated January
31, 1995, filed as Exhibit 10.52 to
Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.52 Lease Agreement between Hulse-Kinsey Trust and Truckee River Bank, dated February
10, 1995, filed as Exhibit 10.53 to Registrant's 1994 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.53 Assignment of License Agreements between Information Technology, Inc., Sierra Tahoe
Servicing Corporation and Truckee River Bank, dated March 3, 1993, filed as Exhibit
10.54 to Registrant's 1994 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.54 Deferred Fee Agreement between Sierra Tahoe Bancorp and Ronald A. Johnson, dated
May 23, 1996, filed as Exhibit 10.4 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, and by this reference incorporated herein.
10.55 Fourth Addendum to Lease Agreement between
Edwin Holt and Sierra Bank of Nevada, dated
February 17, 1995, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995, and by this
reference incorporated herein.
10.56 Credit Agreement between Sierra Bank of Nevada
and Bank of California, dated March 21, 1995,
filed as Exhibit 10.2 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended March
31, 1995, and by this reference incorporated
herein.
10.57 Lease Agreement between Truckee River Bank and
Realty Advisors, Inc., filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, and by this
reference incorporated herein.
10.58 Lease Agreement Between Truckee River Bank and
Western Investment Real Estate Trust and
Pinecreek Shopping Center Associates, filed as
Exhibit 10.2 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30,
1995, and by this reference incorporated
herein.
10.59 Construction agreement between Sierra Bank of Nevada and Shaver Construction, Inc.,
filed as Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and by this reference incorporated herein.
10.60 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and Martin R.
Sorensen dated January 17, 1996, filed as
Exhibit 10.61 to Registrant's 1995 Annual
Report on Form 10-K, and by this reference
incorporated herein.
10.61 Executive Salary Continuation Agreement between Sierra Tahoe Bancorp and Martin R.
Sorensen, dated March 31, 1995, filed as Exhibit 10.63 to Registrant's 1995 Annual
Report on Form 10-K, and by this reference incorporated herein.
10.62 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and Martin R.
Sorensen dated December 20, 1995, filed as Exhibit 10.64 to Registrant's 1995
Annual Report on Form 10-K, and by this reference incorporated herein.
10.63 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and William T. Fike dated
December 20, 1995, filed as Exhibit 10.67 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.64 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and Pat Day dated
December 20, 1995, filed as Exhibit 10.68 to Registrant's 1995 Annual Report on
Form 10-K, and by this reference incorporated herein.
10.65 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and David Broadley dated December
20, 1995, filed as Exhibit 10.69 to
Registrant's 1995 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.66 Incentive Stock Option Agreement between SierraWest Bancorp and Mary Jane Posnien,
dated December 23, 1996, filed as Exhibit 10.66 to Registrant's 1996 Annual Report
on Form 10-K, and by this reference incorporated herein.
10.67 Senior Manager Separation Benefits Agreement
between Sierra Tahoe Bancorp and David C.
Broadley dated January 17, 1996, filed as
Exhibit 10.71 to Registrant's 1995 Annual
Report on Form 10-K, and by this reference
incorporated herein.
10.68 Deferred Fee Agreement between Sierra Tahoe Bancorp and David W. Clark, dated May
28, 1996, filed as Exhibit 10.5 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and by this reference incorporated herein.
10.69 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Richard S. Gaston, dated June 19,
1996, filed as Exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.70 Deferred Fee Agreement between Sierra Tahoe
Bancorp and A. Morgan Jones, dated June 7,
1996, filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.71 Deferred Fee Agreement between Sierra Tahoe
Bancorp and John J. Johnson, dated June 20,
1996, filed as Exhibit 10.8 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.72 Deferred Fee Agreement between Sierra Tahoe
Bancorp and Jack V. Leonesio, dated June 19,
1996, filed as Exhibit 10.9 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.73 Deferred Fee Agreement between Sierra Tahoe
Bancorp and William McClintock, dated June 13,
1996, filed as Exhibit 10.10 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.74 Deferred Fee Agreement between Sierra Tahoe Bancorp and Jerrold T. Henley, dated
May 29, 1996, filed as Exhibit 10.11 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, and by this reference incorporated herein.
10.75 Incentive Stock Option Agreement between Sierra
Tahoe Bancorp and William T. Fike, dated July
1, 1996, filed as Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference
incorporated herein.
10.76 Nonqualified Stock Option Agreement between
Sierra Tahoe Bancorp and William T. Fike, dated
July 1, 1996, filed as Exhibit 10.13 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and by this
reference incorporated herein.
10.77 Fixed Price Construction Agreement between
SierraWest Bank and Shaver Construction, dated
June 12, 1996, filed as Exhibit 10.14 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, and by this
reference incorporated herein.
10.78 Amendment No. 1 to Employment Agreement between
SierraWest Bancorp and William T. Fike, dated
June 27, 1996, filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and by
this reference incorporated herein.
10.79 Amendment No. 1 to Executive Salary Continuation Agreement between SierraWest
Bancorp and William T. Fike, dated June 27, 1996, filed as Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
and by this reference incorporated herein.
10.80 Amendment No. 1 to Executive Salary Continuation Agreement between SierraWest
Bancorp and David C. Broadley, dated June 27, 1996, filed as Exhibit 10.4 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996
and by this reference incorporated herein.
10.81 Amendment No. 1 to Executive Salary Continuation Agreement between SierraWest
Bancorp and Martin R. Sorensen, dated June 27, 1996, filed as Exhibit 10.5 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996, and by this reference incorporated herein.
10.82 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and William W. McClintock, dated June
27, 1996, filed as Exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.83 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Jerrold T. Henley, dated June 27,
1996, filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.84 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and A. Morgan Jones, dated June 27,
1996, filed as Exhibit 10.8 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.85 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Jack V. Leonesio, dated June 27,
1996, filed as Exhibit 10.9 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and by this reference
incorporated herein.
10.86 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Thomas M. Watson, dated June 27,
1996, filed as Exhibit 10.10 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.87 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and David W. Clark, dated June 27,
1996, filed as Exhibit 10.11 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.88 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Richard S. Gaston, dated June 27,
1996, filed as Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.89 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and John J. Johnson, dated June 27,
1996, filed as Exhibit 10.13 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.90 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Ralph J. Coppola, dated June 27,
1996, filed as Exhibit 10.14 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.91 Director's Amended and Restated Payment
Continuation Agreement between SierraWest
Bancorp and Ronald A. Johnson, dated June 27,
1996, filed as Exhibit 10.15 to Registrant's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, and by this reference
incorporated herein.
10.92 Sierra Tahoe Bancorp Board of Directors
Deferred Compensation and Stock Award Plan,
filed as Exhibit B to Registrant's Proxy
Statement for its July 23, 1996 annual meeting
of shareholders, and by this reference
incorporated herein.
11.1 Statement re computation of earnings per share, included in Note 1 of the
consolidated financial statements included in SWB's Annual Report on Form 10-K for
the year ended December 31, 1996 and incorporated herein by reference.
12.1 Statement re Ratio of Earnings to Fixed Charges.
13.1 SWB's Form 10-K for the year ended December 31, 1996, incorporated herein
by reference.
13.2 SWB's report on Form 10-Q for the period ended September 30, 1997, and incorporated
herein by reference.
13.1 CCBC's Form 10-KSB for the year ended December 31, 1996, incorporated herein by
reference.
13.2 CCBC's report on Form 10-QSB for the period ended September 30, 1997, and
incorporated herein by reference.
21 List of significant subsidiaries of the
Registrant SierraWest Bank, a California
Corporation.
23.1 Consent of McCutchen, Doyle, Brown & Enersen,
LLP (included in their opinion filed as Exhibit
5).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of NationsBanc Montgomery Securities, Inc. (included in their opinion
filed as Annex D)
23.5 Consent of Van Kasper & Company (included in their opinion filed as Annex C)
23.5 Consent of McCutchen, Doyle, Brown & Enersen LLP re tax opinion (included
in their opinion filed as Exhibit 8).
23.6 Consent of Walter Sunderman
23.7 Consent of Bernard E. Moore
24 Power of Attorney of directors of SWB (included
in Part II of Registration Statement filed with
the Commission on January 31, 1997).
99.1 Proxy card of SWB
99.2 Proxy card of CCBC
(b) Financial Statement Schedules.
Included in SierraWest's Form 10-K for the year ended
December 31, 1996, incorporated herein by reference.
</TABLE>
<PAGE>
Item. 22
Undertakings.
(1) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the Prospectus, to each person to whom the Prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934 (the "1934 Act"); and, where interim financial information
required to be presented by Article 3 of Regulation S-X of the 1934 Act are not
set forth in the Prospectus, to deliver, or cause to be delivered to each person
to whom the Prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the Prospectus to provide such interim
financial information.
(2) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the meaning of
Rule 145(c) of the Securities Act of 1933, as amended (the "1933 Act"), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(3) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph (2) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the 1933 Act and is used in
connection with an offering of securities subject to Rule 415 of the 1933 Act,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the 1933 Act, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under
the 1933 Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
(5) SierraWest hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of SierraWest's annual
report pursuant to Section 13(a) or Section 15(d) 1934 Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the 1934 Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(6) SierraWest hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4 within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(7) SierraWest hereby undertakes to supply by means of a
post-effective amendment all information concerning its merger transaction with
Mercantile Bank that was not the subject of and included in this Registration
Statement when it became effective.
(8) SierraWest hereby undertakes:
(a) To file during any period in which offers of
sales are being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required
by Section 10(a)(3) of the 1933 Act;
(ii) to reflect in the Prospectus any facts
or events arising after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) to include any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(b) That, for the purpose of determining any
liability under the 1933 Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant certifies it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and has caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Truckee, State of California, on December 31, 1997.
SIERRAWEST BANCORP
(Registrant)
By /s/ W. T. Fike
William T. Fike
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed below by the following persons on
behalf of the registrant in the capacities and on the dates indicated.
<TABLE>
Signature Title Date
<S> <C> <C> <C>
/s/ W. T. Fike President and Chief Executive Officer December 31, 1997
William T. Fike and Director (Principal Executive
Officer)
/s/ D. Broadley Executive Vice President and Chief December 31, 1997
- ------------------------------------
David C. Broadley Financial Officer (Principal
Financial and Accounting Officer)
/s/ Jerrold T. Henley Director and Chairman December 31, 1997
- --------------------------------------------
Jerrold T. Henley
/s/ David W. Clark Director December 31, 1997
- --------------------------------------------
David W. Clark
/s/ Ralph J. Coppola Director December 31, 1997
- --------------------------------------------
Ralph J. Coppola
/s/ Richard S. Gaston Director December 31, 1997
- --------------------------------------------
Richard S. Gaston
/s/ John Johnson Director December 31, 1997
John J. Johnson
/s/ Ronald A. Johnson Director December 31, 1997
- --------------------------------------------
Ronald A. Johnson
/s/ Jack V. Leonesio Director December 31, 1997
- --------------------------------------------
Jack V. Leonesio
Signature Title Date
/s/ A. Morgan Jones Director December 31, 1997
- --------------------------------------------
A. Morgan Jones
/s/ William W. McClintock Director December 31, 1997
- ------------------------------------
William W. McClintock
/s /Thomas M. Watson Director December 31, 1997
- --------------------------------------------
Thomas M. Watson
</TABLE>
* By
Attorney -in-fact
<PAGE>
POWER OF ATTORNEY
Know all men by these presents that each of the undersigned
does hereby make, constitute and appoint William T. Fike and David C. Broadley,
or either of them, as the true and lawful attorney-in-fact of the undersigned,
with full power of substitution and revocation, for and in the name, place and
stead of the undersigned, to execute and deliver the Registration Statement on
Form S-4, and any and all amendments thereto, including without limitation
pre-effective and post-effective amendments thereto; such Form S-4 and each such
amendment to be in such form and to contain such terms and provisions as said
attorney or substitute shall deem necessary or desirable; giving and granting
unto said attorney, or to such person as in any case may be appointed pursuant
to the power of substitution herein given, full power and authority to do and
perform any and every act and thing whatsoever requisite, necessary or, in the
opinion of said attorney or substitute, able to be done in such matter as the
undersigned might or could do if personally present, hereby ratifying and
confirming all that said attorney or such substitute shall lawfully do or cause
to be done by virtue hereof.
In witness whereof, each of the undersigned has duly executed
this Power of Attorney.
/s/ David W. Clark December 31, 1997
- -----------------------------------------------
David W. Clark
/s / Ralph J. Coppola December 31, 1997
- -----------------------------------------------
Ralph J. Coppola
/s/ Richard S. Gaston December 31, 1997
- -----------------------------------------------
Richard S. Gaston
/s/ Jerrold T. Henley December 31, 1997
- -----------------------------------------------
Jerrold T. Henley
/s/ John Johnson December 31, 1997
- -----------------------------------------------
John J. Johnson
/s/ Ronald A. Johnson December 31, 1997
- -----------------------------------------------
Ronald A. Johnson
/s/ Jack V. Leonesio December 31, 1997
- -----------------------------------------------
Jack V. Leonesio
/s/ A. Morgan Jones December 31, 1997
- -----------------------------------------------
A. Morgan Jones
/s/ William W. McClintock December 31, 1997
- ------------------------------------------------
William W. McClintock
/s/ Thomas M. Watson December 31, 1997
- ------------------------------------------------
Thomas M. Watson
<PAGE>
Exhibit 5
December 31, 1998 Direct: (415) 393-2188
[email protected]
Securities and Exchange Commission
Judiciary Plaza
450 5th Street, N.W.
Washington, D.C. 20549
SierraWest Bancorp
Ladies and Gentlemen:
We have acted as counsel for SierraWest Bancorp, a California
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 filed by the Company under the Securities Act of 1933, as amended,
relating to the registration of 1,650,000 shares of the Company's Common Stock,
no par value (the "Shares") which are expected to be issued to shareholders of
California Community Bancshares Corporation ("CCBC") in exchange for their
shares of common stock of CCBC in accordance with the terms of a Plan of
Acquisition and Merger dated as of November 13, 1997, among the Company, its
subsidiary SierraWest Bank, CCBC and its subsidiary, Continental Pacific Bank.
We are of the opinion that the Shares have been duly
authorized and, when sold pursuant to the terms described in the Registration
Statement and in conformity with applicable state securities laws, will be duly
and validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Registration Statement and in the Prospectus included
therein.
Very truly yours,
McCutchen, Doyle, Brown & Enersen, LLP
/s/ Thomas G. Reddy
Thomas G. Reddy
<PAGE>
Exhibit 8
__________, 1998 FORM OF OPINION
SierraWest Bancorp
10181 Truckee-Tahoe Airport Road
Truckee, California 96160
California Community Bancshares Corporation
555 Mason Street, Suite 280
Vacaville, California 95688
Merger of California Community Bancshares Corporation into SierraWest Bancorp
Ladies and Gentlemen:
We have acted as counsel for SierraWest Bancorp, a California
corporation ("Sierra") and SierraWest Bank, a California banking corporation
("Sierra Bank"), in connection with the merger of California Community
Bancshares Corporation, a Delaware banking corporation ("CCBC"), with and into
Sierra, and the related merger of Continental Pacific Bank, a California banking
corporation ("CPB") with and into Sierra Bank, pursuant to the Plan of
Acquisition and Merger dated as of November 13, 1997 (the "Agreement") and
Exhibits A and B thereto (respectively, the "Merger Agreement" and the "Bank
Merger Agreement"). This opinion is delivered to you pursuant to Section 7.10 of
the Agreement. Capitalized terms used in this letter without definition have the
respective meanings given them in the Agreement.
The Merger Agreement provides that upon the filing of the
Merger Agreement with the California Secretary of State, CCBC will be merged
with and into Sierra, with Sierra as the surviving corporation. In the Merger,
each of the CCBC Shares (other than fractional shares) will be converted into
Sierra Shares. No fractional shares of Sierra common stock will be issued in the
Merger, but CCBC shareholders who would otherwise be entitled to receive
fractional shares will receive cash in lieu thereof.
Each option to purchase CCBC Shares outstanding on the
Effective Date will be assumed by Sierra. Each such option will be converted
into an option to acquire, in accordance with its original terms and upon
payment of the adjusted option price (which shall equal the exercise price per
share for the options immediately prior to the Merger, divided by the Exchange
Ratio), the number of Sierra Shares the option holder would have received
pursuant to the Merger if he or she had exercised all his or her options
immediately prior thereto.
The Bank Merger Agreement provides that on the Effective Date
CPB will be merged with and into Sierra Bank, with Sierra Bank as the surviving
corporation. In the Bank Merger, the outstanding shares of CPB stock will be
cancelled.
In rendering the opinions expressed in this letter, we have
assumed the following factual matters to be true:
(a) The transactions described in the Agreement, the Merger
Agreement and the Bank Merger Agreement will be carried out in all respects as
provided therein;
(b) Including payments for fractional shares, no shareholder
or group of shareholders of CCBC has any plan or intention to sell or otherwise
dispose of any amount of Sierra Shares to be received by them in the Merger that
would reduce their holdings of Sierra Shares in the aggregate to a value of less
than 50% of the total value of the CCBC Shares outstanding prior to the Merger;
(c) Sierra has no plan or intention to reacquire any of its
stock to be issued in the Merger;
(d) Sierra has no plan or intention to sell or otherwise
dispose of any of the assets of CCBC to be acquired in the Merger, except for
the disposition of the CPB shares in the Bank Merger and dispositions made in
the ordinary course of business;
(e) Sierra Bank has no plan or intention to sell or otherwise
dispose of any of the assets of CPB to be acquired in the Bank Merger, except
for dispositions made in the ordinary course of business;
(f) No two parties to the transactions are investment
companies as defined in Section 368(a)(2)(F) of the Internal Revenue Code of
1986, as amended (the "Code");
(g) There is no intercorporate indebtedness existing between
Sierra and CCBC, or between Sierra Bank and CPB, that was issued, acquired, or
will be settled at a discount;
(h) No Sierra Shares received by any shareholder of CCBC in
the Merger will represent consideration for, or be properly allocable to,
services to be rendered to Sierra by such shareholder or any covenant not to
compete with Sierra subsequent to the Merger;
(i) The payment of cash in lieu of fractional shares of Sierra
common stock is solely for the purpose of avoiding the expense and inconvenience
to Sierra of issuing fractional shares and does not represent separately
bargained-for consideration. The fractional share interests of each CCBC
shareholder will be aggregated and no CCBC shareholder will receive cash in an
amount greater than the value of one full share of Sierra common stock; and
(j) The sum of the CPB liabilities assumed by Sierra Bank in
the Bank Merger, plus the amount of the liabilities to which the the CPB
properties is subject, will not exceed the adjusted basis of the CPB properties
transferred to Sierra Bank in the Bank Merger.
Based upon our understanding of the transaction as described
above and the above assumptions, and upon existing statutes, regulations, court
decisions and published rulings of the Internal Revenue Service, it is our
opinion that, for Federal income tax and California income and franchise tax
purposes:
1. The Merger will qualify as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Code and corresponding provisions of the
California Revenue and Taxation Code.
2. No gain or loss will be recognized by holders of CCBC stock
on the exchange of CCBC Shares for Sierra Shares, except to the extent gain is
recognized with respect to any cash received in lieu of fractional shares.
3. The holding period of Sierra Shares received in exchange
for CCBC Shares (including any fractional share prior to its conversion into
cash) will include the holding period of the CCBC Shares for which they are
exchanged, assuming that the shares of CCBC stock are capital assets in the
hands of the holder at the Effective Date.
4. The basis of the Sierra Shares received by a CCBC
shareholder in the Merger will be the same as the basis of the CCBC Shares
surrendered in exchange therefor, less any basis attributable to fractional
shares for which cash is received.
5. No gain or loss will be recognized by CCBC or CPB in
connection with the Merger or the Bank Merger.
6. Cash received by a CCBC shareholder in lieu of a fractional
share of Sierra common stock will, to the extent the CCBC stock was a capital
asset in the hands of the CCBC shareholder, result in recognition of capital
gain or loss by such shareholder measured by the difference between the amount
received and the basis of such fractional share.
7. Provided the options to buy Sierra Shares are not actively
traded on an established market, no gain or loss will be recognized by the
holders of nonstatutory options to buy CCBC Shares upon the conversion of those
options into nonstatutory options to buy Sierra Shares.
8. No gain or loss will be recognized by the holders of
incentive stock options to buy CCBC Shares upon the conversion of those options
into incentive stock options to buy Sierra Shares under the same terms and
conditions as in effect immediately prior to the Merger.
9. No gain or loss will be recognized (and no amount will be
included in income) by a holder of CCBC convertible debentures (whether or not
such holder also holds CCBC Shares) upon the assumption of such debentures by
Sierra.
We hereby consent to the filing of this opinion as an exhibit
to the Sierra Registration Statement on Form S-4 and the reference to the name
of our firm therein and under the caption "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" in the Joint Proxy Statement/Prospectus furnished in connection
with the solicitation of proxies by the Boards of Directors of Sierra and CCBC.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By
A Member of the Firm
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
SierraWest Bancorp on Form S-4 of our report dated January 24, 1997 appearing in
the Annual Report on Form 10-K of SierraWest Bancorp for the year ended December
31, 1996 and the reference to us under the heading "Experts" in the Joint Proxy
Statement/Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Sacramento, California
December 31, 1997
<PAGE>
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
SierraWest Bancorp on Form S-4 of our report dated February 21, 1997 appearing
in the Annual Report on Form 10-KSB of California Community Bancshares
Corporation for the year ended December 31, 1996 and the reference to us under
the heading "Experts" in the Joint Proxy Statement/Prospectus, which is part of
this Registration Statement.
/s/ Deloitte & Touche LLP
Sacramento, California
December 31, 1997
<PAGE>
Exhibit 23.6
To: The Board of Directors
California Community Bancshares Corporation
In connection with the Joint Proxy Statement/Prospectus to be used by
California Community Bancshares Corporation ("CCBC") in connection with
soliciting the approval by the CCBC shareholders of the Plan of Acquisition and
Merger among SierraWest Bancorp ("Sierra"), SierraWest Bank, CCBC, and
Continental Pacific Bank dated as of November 13, 1997 and the transactions
contemplated thereunder (the "Merger") and in connection with the application to
be filed with the Federal Deposit Insurance Corporation by Sierra seeking
approval of the Merger, I hereby verify as follows:
1. Number of shares of CCBC Common Stock beneficially owned by me
as of the date hereof: 21,532
2. Number of shares of CCBC Common Stock subject to options held by me
as of the date hereof: 18,541.
3. Number of shares of CCBC Common Stock subject to options held by me
and which are exercisable within 60 days of January 16, 1998: 18,541.
4. Number of shares of Sierra Common Stock beneficiary owned by me as
of the date hereof: NONE.
5. I do not own 3% or more of the common stock of any other financial
institution, including shares held in a fiduciary capacity for which I have
voting power, except as listed below. (List the name of the financial
institution, the number of shares owned, and the percentage of that financial
institution's outstanding common stock owned).
NONE
6. If I am to be a director of Sierra after the Effective Date of the
Merger, I consent to the listing of my name as such in the Joint Proxy
Statement/Prospectus.
Dated: December 16, 1997 /s/ Walter Sunderman
-----------------------
(Signature)
<PAGE>
Exhibit 23.7
To: The Board of Directors
California Community Bancshares Corporation
In connection with the Joint Proxy Statement/Prospectus to be used by
California Community Bancshares Corporation ("CCBC") in connection with
soliciting the approval by the CCBC shareholders of the Plan of Acquisition and
Merger among SierraWest Bancorp ("Sierra"), SierraWest Bank, CCBC, and
Continental Pacific Bank dated as of November 13, 1997 and the transactions
contemplated thereunder (the "Merger") and in connection with the application to
be filed with the Federal Deposit Insurance Corporation by Sierra seeking
approval of the Merger, I hereby verify as follows:
1. Number of shares of CCBC Common Stock beneficially owned by me
as of the date hereof: 585.
2. Number of shares of CCBC Common Stock subject to options held
by me as of the date hereof: 8,465
3. Number of shares of CCBC Common Stock subject to options held by me
and which are exercisable within 60 days of January 16, 1998: 8,465
4. Number of shares of Sierra Common Stock beneficiary owned by
me as of the date hereof: 0
5. I do not own 3% or more of the common stock of any other financial
institution, including shares held in a fiduciary capacity for which I have
voting power, except as listed below. (List the name of the financial
institution, the number of shares owned, and the percentage of that financial
institution's outstanding common stock owned).
none
6. If I am to be a director of Sierra after the Effective Date of the
Merger, I consent to the listing of my name as such in the Joint Proxy
Statement/Prospectus.
Dated: December 16, 1997 /s/ Bernard E. Moore
-----------------------
(Signature)
<PAGE>
Exhibit 99.1
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of
the Notice of Special Meeting of Shareholders of SierraWest Bancorp, a
California corporation ("SierraWest"), and the accompanying Joint Proxy
Statement/Prospectus dated February __, 1998, and revoking any proxy heretofore
given, hereby constitutes and appoints David W. Clark, Jerrold T. Henley,
William W. McClintock and Thomas M. Watson, and each of them, with full power of
substitution, as attorney and proxy to appear and vote all of the shares of
common stock of SierraWest standing in the name of the undersigned which the
undersigned could vote if personally present and acting at the Special Meeting
of the Shareholders of SierraWest to be held at Truckee, California, on March
26, 1997 at 8:00 P.m. local time or at any adjournments thereof, upon the
following items as set forth in the Notice of Meeting and more fully described
in the Joint Proxy Statement/Prospectus.
1. Proposal One: The Merger. To approve the Plan of
Acquisition and Merger dated November 13, 1997 among SierraWest, SierraWest's
wholly owned subsidiary SierraWest Bank, a California banking corporation
("Sierra Bank"), California Community Bancshares Corporation ("CCBC") and CCBC's
wholly owned subsidiary Continental Pacific Bank, a California banking
corporation ("CP Bank"), a related Agreement and Plan of Merger between
SierraWest and CCBC pursuant to which CCBC would merge with and into SierraWest,
and a related Bank Merger Agreement pursuant to which CP Bank would merge with
and into Sierra Bank (collectively, the "Merger Agreements") and the
transactions contemplated thereby, including any related amendments to
SierraWest's and CCBC's respective stock option plans. The Merger Agreements are
set forth in their entirety as Annex A to the accompanying Joint Proxy
Statement/Prospectus.
_____ FOR _____ AGAINST _____ ABSTAIN
2. Other Business: The proxies are authorized to vote in their
discretion on such other business as may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT PROPOSAL ONE. THIS PROXY, WHEN PROPERLY EXECUTED AND RETURNED
TO SIERRAWEST, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" PROPOSAL ONE TO APPROVE AND ADOPT THE MERGER
AGREEMENTS. IF OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXYHOLDERS.
SHAREHOLDER(S)
---------------------------------
(Signature)
---------------------------------
(Signature)
---------------------------------
(No. of Common Shares)
Date________________________, 1998
I/We do__ or do not __ expect to attend this meeting.
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
To assure a quorum, you are urged to date and sign this Proxy and mail it
promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
<PAGE>
Exhibit 99.2
REVOCABLE PROXY
The undersigned holder of common stock acknowledges receipt of
the Notice of Special Meeting of Shareholders of California Community Bancshares
Corporation, a Delaware corporation ("CCBC"), and the accompanying Joint Proxy
Statement/Prospectus dated February __, 1998, and revoking any proxy heretofore
given, hereby constitutes and appoints Walter O. Sunderman, John C. Usnick and
Bernard E. Moore, and each of them, with full power of substitution, as attorney
and proxy to appear and vote all of the shares of common stock of CCBC standing
in the name of the undersigned which the undersigned could vote if personally
present and acting at the Special Meeting of the Shareholders of CCBC to be held
at Fairfield, California, on March 16, 1997 at 6:30 p.m. local time or at any
adjournments thereof, upon the following items as set forth in the Notice of
Meeting and more fully described in the Joint Proxy Statement/Prospectus.
1. Merger. To approve the Plan of Acquisition and Merger dated
November 13, 1997 among SierraWest Bancorp, a California corporation ("SWB"),
SWB's wholly owned subsidiary SierraWest Bank, a California banking corporation
("Sierra Bank"), CCBC and CCBC's wholly owned subsidiary Continental Pacific
Bank, a California banking corporation ("CP Bank"), and a related Agreement and
Plan of Merger between SWB and CCBC pursuant to which CCBC would merge with and
into SWB, and a related Bank Merger Agreement pursuant to which CP Bank would
merge with and into Sierra Bank (collectively, the "Merger Agreements") and the
transactions contemplated thereby, including any related amendments to either
SWB's and CCBC's respective stock option plans. The Merger Agreements are set
forth in their entirety as Annex A to the accompanying Joint Proxy
Statement/Prospectus.
_____ FOR _____ AGAINST _____ ABSTAIN
2. Other Business: The proxies are authorized to vote in their
discretion on such other business as may properly come before the meeting or any
adjournments or postponements thereof.
THIS PROXY IS SOLICITED BY, AND ON BEHALF OF, THE BOARD OF
DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE AND ADOPT THE MERGER AGREEMENTS. THIS PROXY, WHEN PROPERLY EXECUTED AND
RETURNED TO CCBC, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE AND ADOPT THE MERGER
AGREEMENTS. IF OTHER BUSINESS IS PRESENTED, THIS PROXY SHALL BE VOTED IN
ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXYHOLDERS.
SHAREHOLDER(S)
---------------------------------
(Signature)
---------------------------------
(Signature)
---------------------------------
(No. of Common Shares)
Date________________________, 1998
I/We do__ or do not __ expect to attend this meeting.
Please sign exactly as your name(s) appear(s). When signing as attorney,
executor, administrator, trustee, officer, partner, or guardian, please give
full title. If more than one trustee, all should sign. WHETHER OR NOT YOU PLAN
TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN THIS PROXY AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POST-PAID ENVELOPE.
To assure a quorum, you are urged to date and sign this Proxy and mail it
promptly in the enclosed envelope, which requires no additional postage if
mailed in the United States or Canada.
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-15450
SIERRAWEST BANCORP
(Exact name of registrant as specified in its charter)
California 68-0091859
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10181 Truckee-Tahoe Airport Road
P.O. Box 61000 Truckee, CA 96160-9010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: (916) 582-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value,
8 1/2 % Convertible Subordinated Debentures due February 1, 2004
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 1997: $52,938,000 (based on closing sales price at
February 28, 1997)
Number of shares of Common Stock outstanding at March 1, 1997: 2,923,064.
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page No.
PART I
<S> <C> <C>
ITEM 1. BUSINESS................................................................................................3
ITEM 2. PROPERTIES..............................................................................................27
ITEM 3. LEGAL PROCEEDINGS.......................................................................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................27
PART II
ITEM 5. MARKET FOR THE BANCORP'S COMMON STOCK...................................................................28
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA....................................................................29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................................................32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.....................................................................79
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.....................................................80
ITEM 11. EXECUTIVE COMPENSATION.................................................................................82
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.........................................87
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................................ 88
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K..................................... 89
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of the Business
SierraWest Bancorp ("Bancorp", or together with its subsidiary, the "Company")
was incorporated under the laws of the State of California on December 5, 1985
as a bank holding company. Pursuant to a plan of reorganization and merger dated
December 19, 1985, Bancorp acquired 100% of the outstanding shares of common
stock of SierraWest Bank (formerly Truckee River Bank) in a one-for-one exchange
of its stock for the stock of SierraWest Bank. The merger was consummated on
July 31, 1986.
On October 29, 1990, Bancorp acquired 100% of the outstanding shares of Sierra
Bank of Nevada in a one-for-one exchange of its stock for the stock of Sierra
Bank of Nevada. During the first quarter of 1996 Sierra Bank of Nevada's name
was changed to SierraWest Bank and effective October 1, 1996 this subsidiary was
merged into the California subsidiary. Sierra Bank of Nevada was incorporated
under the laws of the State of Nevada on January 12, 1989, and, with the
approval of the Nevada Department of Commerce, Division of Financial
Institutions (the "NDFI"), opened for business in Reno, Nevada on January 9,
1990. In 1995, a second branch was opened in Carson City, Nevada. Bancorp and
SierraWest Bank collectively comprise the operations of the Company.
SierraWest Bank was incorporated under the laws of the State of California on
March 19, 1980, and, with the approval of the Superintendent of Banks of the
State of California (the "CSBD"), opened for business on January 20, 1981.
SierraWest Bank commenced operations in 1981 in Truckee, California, a small
tourist-based town located in the County of Nevada and situated in the High
Sierras about 12 miles north of Lake Tahoe. SierraWest Bank currently maintains
eleven branches offices in the following communities: Truckee (two branches),
South Lake Tahoe, Tahoe City, Kings Beach, Grass Valley (two branches), Auburn
and Sacramento, California, Reno and Carson City, Nevada. In addition,
SierraWest Bank maintains seven separate lending offices, primarily for its
United States Small Business Administration (the "SBA") lending activities, in
the following communities: Truckee, San Francisco, Sacramento, Fresno, and
Chico, California, and Reno and Las Vegas, Nevada.
The Company offers commercial banking services, including the acceptance of
demand, savings and time deposits, and the making of commercial, real estate,
personal, home improvement, automobile and other installment and term loans. It
offers traveler's checks, safe deposit boxes, note collection services, notary
public, ATMs and other customary bank services, except international banking and
trust services. Annuities and mutual fund investments are also offered through
third party providers. Merchant drafts are processed pursuant to established
bank card programs, and customers are offered MasterCard and Visa credit cards
through a correspondent bank. During 1995 the Company expanded its services to
provide a 24 hour automated telephone inquiry service, introduced a P.C. banking
product for its business customers and opened an equipment leasing division. In
1996, the Company started a loan purchase program for the acquisition of real
estate loans which it hopes to securitize in the future in marketable parcels.
Additionally, in January 1997, the Company entered into a definitive agreement
for the acquisition of Mercantile Bank, a Sacramento bank which specializes in
commercial business and has an asset base of approximately $46 million. The
acquisition is expected to be completed by July 1, 1997, subject to the approval
of Mercantile's shareholders and federal and state regulators. Mercantile
shareholders will receive total compensation of $6.6 million, subject to certain
adjustments primarily based upon the level of deposits and capital, consisting
of 50% cash and 50% stock.
Certain statements in this document include forward-looking information within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the "safe harbor" created by those sections. These forward-looking statements
involve certain risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, the following factors:
competitive pressure in the banking industry increases significantly; changes in
the interest rate environment reduce margins; general economic conditions,
either nationally or regionally, are less favorable than expected, resulting in,
among other things, a deterioration in credit quality and an increase in the
provision for possible loan losses; changes in the regulatory environment;
changes in business conditions; volatility of rate sensitive deposits;
operational risks including data processing system failures or fraud;
asset/liability matching risks and liquidity risks; and changes in the
securities markets.
-3-
<PAGE>
Narrative Description of Business
The Company's total assets have grown from $219.6 million at December 31, 1991
to $447.9 million at December 31, 1996, a compound annual increase of 15.3%. The
Company's assets grew 32.7% in 1996 and are expected to grow at a relatively
high rate in 1997. The Company has had earnings in excess of $1.8 million in
each of the last five years. For the year ended December 31, 1996, the Company
reported net income of $3.3 million, or a return on average assets of
approximately 0.87% and return on average equity of 10.5%. At December 31, 1996,
the Company had total loans of $323.4 million, loan loss reserves of $4.5
million, deposits of $399.7 million and total equity capital of $33.9 million.
General Lending Overview
The five general areas in which the Company has directed its lending activities
are: SBA loans; residential and non-SBA commercial real estate loans; commercial
loans; consumer loans to individuals (including home equity lines of credit);
and beginning in 1995, commercial leases. As of December 31, 1996, these five
categories accounted for approximately 45%, 30%,18%,4% and 3%, respectively, of
the Company's total loan portfolio.
SBA Lending
The Company ranked 18th in the nation by number of SBA government guaranteed
("SBA 7(a)") loans generated by banks for the SBA's fiscal year ended September
30, 1996 as published by the SBA, and was the 8th largest SBA lending bank, by
loan count, in Region IX (consisting of the far western states, Hawaii and
Guam), the largest region in the country. In 1996 the Federal government
approved a level of SBA loans guaranteed of $7.8 billion and in 1997 this level
is expected to increase to over $8.5 billion.
The SBA is headquartered in Washington, D.C., and operates through ten regions
throughout the United States. The SBA administers three levels of lender
participation in its general business loan program, pursuant to Section 7(a) of
the Small Business Act of 1953, as amended, and the rules and regulations
promulgated thereunder (the "Small Business Act"). Under the first level of
lender participation, commonly known as the Guaranteed Participant Program or
"Section 7(a)", the lender gathers and processes data from applicants and
forwards it, along with its request for the SBA's guarantee, to the local SBA
office. The SBA then completes an independent analysis and makes its decision on
the loan application. SBA turnaround time on such applications can vary greatly,
depending on the backlog of loan applications.
Under the second level of lender participation, known as the Certified Lender
Program, the lender (the "Certified Lender") gathers and processes the
application and makes its request to the SBA, as in the Guaranteed Participant
Program procedure. The SBA then performs a review of the lender's credit
analysis on an expedited basis, which review is generally completed within three
working days. The SBA requires that lenders originate loans meeting certain
portfolio quality and volume criteria before authorizing lenders to participate
as Certified Lenders. Authorization to act as a Certified Lender is granted
independently by each SBA district office.
The Company operates in California and Nevada as a Preferred Lender ("Preferred
Lender"). This designation is the third and highest lender status granted by the
SBA. Under this level of lender participation, the lender has the authority to
approve a loan and to obligate the SBA to guarantee the loan without submitting
an application to the SBA for credit review. The Preferred Lender is required to
promptly notify the SBA of the approved loan, along with the submission of
pertinent SBA documents. The standards established for participants in the
Preferred Lender Program are more stringent than those for participants in the
lower two levels and involve meeting additional portfolio quality and volume
requirements. In addition, before being granted Preferred Lender status in a
particular SBA district, the lender must have been a Certified Lender in such
SBA district for at least 12 months. The Company may, at its option, submit
loans for approval under the Certified Lender Program.
The Company has, over the last ten years, developed an in-house expertise in the
generation and sale of SBA guaranteed loans. The Company's activities in the SBA
loan area are expected to continue to be a significant factor in the earnings of
the Company. In the past, the Company has acquired SBA loans, mortgage loans and
the rights to service these loans from the RTC and others.
-4-
<PAGE>
The following table summarizes the Company's SBA 7(a) activities for the years
ended December 31, 1996, 1995, 1994, 1993 and 1992 (in thousands).
<TABLE>
Summary of SBA Loan Activity
Year Ended December 31
-------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SBA loans sold........................... 5,621 5,646 38,238 35,120 42,136
Net SBA servicing income................. 4,087 4,660 4,443 4,332 4,443
Net gain on sale of SBA loans............ 339 307 2,300 3,200 2,638
Excess Servicing receivable.............. 14,188 14,813 16,027 16,579 18,576
</TABLE>
The Company has historically sold the guaranteed portion of SBA 7(a) loans
(typically secured by first trust deeds on commercial real estate), generally
70% to 90% of the SBA 7(a) loan value, that it generates in the secondary
marketplace and retained the remaining percentage for its own portfolio.
Currently, the maximum guarantee is 80%. The percentage of the retained portion
of SBA 7(a) loans to total loans included in the loan portfolio of the Company
at December 31, 1996, 1995 and 1994 was 26%, 30% and 46%, respectively. In 1995,
the Company made a decision to change its strategy with respect to the sale of
SBA 7(a) loans. The guaranteed portion of loans is now being retained, and the
Company intends to securitize and sell portions of the unguaranteed amount of
the loans. The Company's first securitization is planned for 1997, pending SBA
approval, and will include approximately $50 million in loans. The Company has
in the past and will continue in the future to sell selected guaranteed portions
of loans to reduce credit concentrations in a particular industry or for other
reasons.
SBA 7(a) loans are made for terms from 7 to 25 years depending on the purpose of
the loan. In addition to being guaranteed by the SBA, most of the Company's SBA
7(a) loans are collateralized by real estate. In the event of a default, the
Company shares in the proceeds upon the sale of collateral on a pro rata basis
with the SBA, e.g., if the unguaranteed portion of a loan is 20%, then 20% of
the net liquidation proceeds would be available to the Company for payment of
the unguaranteed portion of the loan.
Since 1983, to support its SBA program, the Company has relied in part on SBA
packagers who refer SBA loans to the Company and provide certain services to the
borrowers. The packagers receive fees of a fixed amount from the borrower,
subject to limits prescribed by the SBA. The packagers also receive a fee from
the Company for referring SBA loans to the Company. The referral fee payments
are included in the basis of the loans and hence are not disclosed separately in
the Company's financial statements. Referral fees incurred by the Company for
SBA 7(a) loans from the years ended December 31, 1996, 1995 and 1994 were $90
thousand, $200 thousand and $481 thousand, respectively.
The Company's relationship with its SBA packagers are informal arrangements. SBA
packagers accounted for approximately 32% and 27% of the Company's SBA 7(a) loan
volume during the years ended December 31, 1996 and 1995, respectively. During
these same periods, a single SBA packager provided 7% and 26% of the Company's
SBA 7(a) loan volume, respectively. The reduction in packagers volume during
1995 and 1996 includes the loss of loan packages to competition based on price
and underwriting factors and the focus by the Company on its loan production
offices as its primary source for generating new loans.
SBA Guarantees. On October 12, 1995 the President signed the Small Business
Lending Enhancement Act of 1995. This act amended the maximum guarantee
percentage for loans made under the SBA's 7(a) program to 80% for loans up to
$100 thousand and 75% for all loans above $100 thousand. The maximum amount of
any loan that the guarantee can apply to was set at $750 thousand. At the same
time, the fee structure was revised to include a fee of 0.5% per annum on the
guaranteed portion of the outstanding balance of all loans approved on or after
October 12, 1995. Prior to this act in the case of loans made under the
Guaranteed Participant and Certified Lender Programs, the SBA guaranteed 90% of
loans of $155 thousand or less, and 85% of loans in excess of $155 thousand with
terms of less than 10 years. For loans in excess of $155 thousand with terms
greater than 10 years, the maximum guarantee was 75% available under the
Guaranteed Participant and Certified Lender Programs. Under the Preferred Lender
Program, the maximum guarantee was 75% regardless of loan size or terms. Prior
to January 1, 1995, subject to certain exceptions, the SBA's maximum guarantee
per borrower was $750 thousand. Late in 1994, the SBA announced a new ruling
that, beginning January 1, 1995, reduced the maximum loan that may be made under
the SBA 7(a) program to $500 thousand. At the same time, the SBA agreed that
banks would be allowed to make companion loans to accommodate borrowers in need
of financing in excess of the $500 thousand limit. This ruling was reversed with
the October 12, 1995
-5-
<PAGE>
act. Currently the SBA guarantee extends to 80% of the loan amount, with a
maximum guarantee of $750 thousand. As of December 31, 1996, included in total
SBA loans of $147.0 million were portions of loans guaranteed by the SBA
totaling $37.0 million.
The SBA guarantee is conditional upon compliance with SBA regulations. In
connection with the underwriting and closing/servicing process, the Company
examines all loan files for compliance with SBA regulations; however, there can
be no assurance that all loans will comply with SBA regulations in all
instances. In the event of a default by a borrower on an SBA loan, if the SBA
establishes that any resulting loss is attributable to significant technical
deficiencies in the manner in which the loan was originated, documented or
funded by the Company, the SBA may seek recovery of funds from the Company. With
respect to the guaranteed portion of SBA loans that have been sold in the
secondary market, the SBA will honor its guarantee and may then seek
reimbursement from the Company in the event a proven loss is deemed to be
attributable to technical deficiencies. Loss of all or part of the SBA guarantee
on a loan could result in a loss to the Company if the underlying collateral on
the loan is insufficient to cover the outstanding loan value on such loan. The
Company maintains insurance coverage of $2.5 million against losses of the SBA
guarantee related to technical deficiencies.
SBA Servicing. As of December 31, 1996, 1995 and 1994, the Company serviced
1,402, 1,370 and 1,355 SBA loans, respectively, with a total unpaid principal
balance of approximately $420 million, $413 million and $412 million,
respectively.
The servicing of SBA loans entails the collection of principal and interest
payments from borrowers, the remission of the investor's share of principal and
interest payments to Colson Securities Corp. (the exclusive Fiscal and Transfer
Agent for the guaranteed portion of SBA loans sold into the secondary market),
the review of financial statements of borrowers and site inspections. Servicing
also entails the taking of certain actions required to protect the Company's and
the SBA's position in the event of default by the borrower, including the
liquidation of collateral.
To compensate it for the cost of servicing, the Company, pursuant to generally
accepted accounting principles ("GAAP"), sets aside part of the interest
receivable on the portion of loans sold to cover its future costs and a
reasonable future profit. See Note 5 of Notes to the Company's Consolidated
Financial Statements.
SBA Sales. SBA 7(a) loans are primarily written at variable rates of interest
which are limited to a maximum of 275 basis points over the lowest prime lending
rate published in the Western Edition of The Wall Street Journal. The interest
rate on most of the Company's SBA 7(a) loans adjusts on the first day of each
month. With respect to loans sold, the guaranteed portions of SBA loans are
converted into government guaranteed certificates, which are sold to investors,
and which yield for the investor a rate that is lower than the note rates. The
investor may pay a premium over the principal amount of the loan purchased and
additionally a portion of the interest on the sold portion of the loan will be
retained by SierraWest Bank. The difference between the rate on the loan that is
retained by the Company and the rate that the investor receives plus a fee of
0.5% collected by the SBA is referred to as the servicing spread. The servicing
spread less the normal cost of servicing is referred to as "Excess Servicing"
("Excess Servicing"). Lenders are required by the SBA to maintain a minimum of
40 basis points of servicing spread unless loans are sold for cash premiums, in
which case this increases to 100 basis points. When the SBA lender retains
higher levels of Excess Servicing, lower cash premiums are received from
investors. Prior to 1992, the Company sold most of its SBA loans for little or
no cash premium, emphasizing the retention of higher levels of Excess Servicing.
This Excess Servicing was valued in the year of sale under prevailing accounting
rules and recorded as income in the year of the sale. See Note 5 of Notes to
Consolidated Financial Statements.
As of December 31, 1996, the remaining balance of Excess Servicing previously
recorded as a gain was $14.2 million. In addition the Company has purchased
mortgage servicing rights on SBA 7(a) loans with a balance of $0.6 million at
December 31, 1996. Income from the servicing spread received for the years ended
December 31, 1996, 1995 and 1994, was $5.6 million, $6.2 million and $6.4
million, respectively. Amortization of the Excess Servicing asset and purchased
mortgage servicing rights on SBA loans for these same periods was $1.5 million,
$1.5 million and $2.0 million, respectively. The surplus income from the
servicing spread over the amortization represents an important part of the
Company's income. The related Excess Servicing asset included in the Company's
Consolidated Financial Statements represents the book value of the Excess
Servicing, which is based on certain estimates made by management at the time
loans are sold. Such estimates
-6-
<PAGE>
are made based on management's expectations of future prepayment rates and other
considerations. If actual prepayments with respect to sold loans occur more
quickly than was projected at the time such loans were sold, the carrying value
of the Excess Servicing asset may have to be written down through a charge to
earnings in the period of adjustment. Through the period ending December 31,
1996, no write downs have been necessary. If actual prepayments with respect to
sold loans occur more slowly than estimated, the carrying value of the Excess
Servicing asset on the Company's Consolidated Statement of Financial Condition
would not increase, although total income would exceed previously estimated
amounts.
Beginning in 1997, the Company will be required to account for its SBA loan
sales in accordance with Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinquishments
of Liabilities. See Accounting Pronouncements.
The SBA provides long term financing to small businesses through its 504 loan
program, by partnering with banks to assist small businesses in buying land,
buildings, machinery and equipment. Under this program, the bank provides 50% of
the financing and obtains a first lien position on the collateral. The SBA works
through a local Certified Development Company to provide 40% of the required
financing and the small business provides 10% of the project cost. There are no
government guarantees provided under this program, however the bank mitigates
its risk with these loans by having a low loan to value on the collateral, which
is usually real property. Included in the Company's SBA loan portfolio at
December 31, 1996 are loans totaling $24.9 million related to this and similar
lending programs in conjunction with the SBA.
Other Government Lending
The U.S. Department of Agriculture Rural Development ("USDA")offers a guaranteed
loan program, known as the Business & Industry ("B&I") Loan Program. This
program is designed to stimulate economic activity in rural communities with
populations of 50,000 or less. Commercial and industrial businesses and real
estate projects are the target of the program. The Bank participates by
financing up to $10,000,000, with the USDA providing an 80% guarantee on loans
up to $5,000,000 and 70% on loans from $5,000,000 to $10,000,000. These
guarantees are similar to those offered through the SBA 7(a) program and can be
sold on the secondary market. Included in the Company's loan portfolio are B&I
loans totaling $5.8 million at December 31, 1996. In 1996, the Company sold $3.6
million in guaranteed portions of B&I Loans.
Other Lending Activities
The Company's commercial loans are primarily made to small- and medium-sized
businesses and are for terms ranging from one to ten years, with the majority of
loans being due in less than five years. The Bank provides conventional
commercial term real estate loans, both owner occupied and investor owned, with
maturities of 5-7 years and monthly amortizing payments scheduled over 20 years.
Construction loans are also provided, for residential and commercial purposes,
with terms ranging from 6 to 18 months. Consumer loans are typically for a
maximum term of 36 months for unsecured loans and for a term of not more than
the depreciable life of tangible property used as collateral for secured loans.
Beginning in 1996, the Company began to provide 100% equipment lease financing
to small and medium-sized businesses and municipalities. Terms range from two to
seven years, with the current average term approximately 50 months.
Loan Commitments
In the normal course of business, there are various outstanding commitments to
extend credit that are not reflected in the financial statements. As of December
31, 1996, the Company had approximately $78 million in undisbursed loan
commitments and $2 million in standby letters of credit. About 26 percent of the
undisbursed loan commitments relate to SBA loans, while the remaining represent
undisbursed construction, commercial, real estate and personal loans (including
equity lines of credit). Most of these off-balance sheet items are or will be
secured by real estate or other assets; however, a portion are unsecured
commercial lines of credit. Off- balance sheet items undergo a level of
underwriting scrutiny similar to the criteria applied to the Company's loan
portfolio, and outstanding balances are monitored to minimize risk and loss
exposure.
-7-
<PAGE>
Distribution of Loans
The distribution of the Company's loan portfolio, as of the dates indicated, is
shown in the following table (in thousands):
<TABLE>
December 31,
Type of Loan: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SBA loans:
SBA guaranteed loans in process(1)... $ 62,409 $ 45,864 $ 16,299 $ 16,825 $ 15,937
SBA guaranteed loans purchased(2).... 0 0 0 0 1,132
Retained portion of SBA loans(3)..... 84,612 71,201 79,649 71,683 71,160
-------- -------- --------- -------- --------
Total SBA Loans....................... 147,021 117,065 95,948 88,508 88,229
-------- -------- --------- -------- --------
Real estate loans (includes loans secured primarily by real estate, except for
SBA loans):
Construction and land development... 36,261 31,564 18,310 15,450 14,928
Mortgage ........................... 62,883 35,484 18,268 17,908 12,634
Equity lines of credit.............. 4,725 3,735 1,689 1,058 5,980
-------- -------- --------- -------- --------
Total Real Estate Loans............... 103,869 70,783 38,267 34,416 33,542
-------- -------- --------- -------- --------
Commercial and industrial loans....... 57,325 42,204 31,157 26,850 22,796
Individual and other loans............ 6,847 6,537 7,365 9,828 10,270
Lease receivables..................... 8,304 3,380 202 217 508
-------- -------- --------- -------- --------
Total Loans........................... 323,366 239,969 172,939 159,819 155,345
Less allowance for possible loan losses 4,546 3,845 3,546 3,472 2,742
-------- ---------- --------- -------- --------
Total Net Loans....................... $318,820 $236,124 $ 169,393 $156,347 $152,603
======== ======== ========= ======== ========
</TABLE>
(1) Loans guaranteed in part by the SBA which are in process of
disbursement, available for sale, or awaiting sale. The total
guaranteed portion was $37.0 million, $29.2 million, $11.6 million,
$12.6 million and $12.7 million at December 31, 1996, 1995, 1994, 1993
and 1992, respectively.
(2) SBA guaranteed loans repurchased by the Company under repurchase
agreements. These loans are fully guaranteed by the SBA.
(3) Includes primarily the unguaranteed retained portion of loans for which
the guaranteed portion has been sold to investors.
Credit Risk Management
In managing its loan portfolio, the Company utilizes procedures designed to
achieve an acceptable level of qual ity and to bring any potential losses or
potential defaults in existing loans to the attention of the appropriate
management personnel. As used in this discussion, the term "loan" encompasses
both loans and leases. Each loan officer is granted a lending limit by the Chief
Credit Officer, subject to review and approval by the Board of Directors of
SierraWest Bank. Each lending officer has primary responsibility to conduct
credit and documentation reviews of the loans for which he or she is
responsible. The Chief Credit Officer is responsible for the general supervision
of the loan portfolio and adherence by the loan officers to the loan policy of
such bank.
Loan officers evaluate the applicant's financial statements, credit reports,
business reports and plans and other data to determine if the credit and
collateral satisfy the Company's standards as to historic debt service coverage,
reasonableness of projections, strength of management and sufficiency of
secondary repayment and SBA eligibility rules, if applicable. Recommended
applications are approved by loan officers up to their designated lending
limits. Those loans in excess of individual lending limits are approved by the
Chief Credit Officer or other officer with appropriate administrative lending
authority. If a loan exceeds the Chief Credit Officer's lending limit, it is
forwarded to the Director's Loan Committee for approval. Approved SBA loan
applications are then submitted to the district SBA office for approval, except
in the case of loans made pursuant to the Preferred Lender Program for which SBA
credit approval is not required. All SBA loans are secured by various collateral
including, where appropriate, real estate, machinery and equipment, inventory
and accounts
-8-
<PAGE>
receivable, or such other assets as are specified in the SBA loan authorization.
In the case of the Company's SBA loans, approximately 90% were collateralized by
commercial real estate at December 31, 1996. Prior to submission of the
application to the SBA for guarantee, any real property to be taken as
collateral is appraised by independent appraisers.
SierraWest Bank's management presents a written report to the Director's Loan
Committee monthly, listing all loans, regardless of amount, which are 30 days or
more past due. Management and the board of directors of SierraWest Bank also
review all loan evaluations made during periodic examinations by the FDIC and
CSBD. The Director's Loan Committee of SierraWest Bank reviews and approves the
Bank's credit policy, as well as management reports on the quality of the loan
portfolio.
The Company maintains an allowance for possible loan losses to provide for
potential losses in its loan portfolio. The allowance is established through
charges to earnings in the form of provision for possible loan losses. Loan
losses are charged to, and recoveries credited to, the allowance for possible
loan losses. The provision for possible loan losses is determined after
considering various factors such as loan loss experience, current economic
conditions, maturity of the loan portfolio, size of the loan portfolio, industry
concentrations, borrower credit history, the existing allowance for possible
loan losses, independent loan reviews, current charges and recoveries and the
overall quality of the portfolio, as determined by management, regulatory
agencies and independent credit review consultants retained by the Company.
While these factors are essentially subjective, management considers the
allowance of $4.5 million at December 31, 1996 to be adequate.
The Company's credit services department is responsible for monitoring,
collecting and liquidating loans. In addition, on a selective basis, the
servicing staff conducts site inspections after loan funding and periodically
during the life of the loan to verify the use of the proceeds and maintenance of
collateral and to assist in the collection process and management of classified
loans.
Asset Quality
The performance of the Company's loan portfolio is evaluated regularly by
management. The Company places a loan on nonaccrual status when any installment
of principal or interest is 90 days or more past due, unless, in management's
opinion, the loan is well secured and the collection of principal and interest
is probable, or management determines the ultimate collection of principal or
interest on a loan to be unlikely. When a loan is placed on nonaccrual status,
the Company's general policy is to reverse and charge against current income
previously accrued but unpaid interest. Interest income on such loans is
subsequently recognized only to the extent that cash is received and future
collection of principal is deemed by management to be probable.
Loans for which the collateral has been repossessed are written down to fair
value and classified as Other Real Estate Owned ("OREO") or, if the collateral
is personal property, as other assets, on the Company's financial statements.
-9-
<PAGE>
The following table sets forth the amount of the Company's nonperforming assets
as of the dates indicated (amounts in thousands except percentage amounts).
<TABLE>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonperforming Assets:
Nonaccrual loans:
SBA............................ $ 4,985 $5,351 $ 2,423 $2,517 $ 2,561
Other. . . . . . . . . . . . . 378 125 59 355 1,223
In-substance foreclosures.......... 0 0 572 711 732
Other real estate owned............ 446 758 542 456 460
------- ------ ------- ------ -------
Total nonperforming assets..... $ 5,809 $6,234 $ 3,596 $4,039 $ 4,976
======= ====== ======= ====== =======
Accruing loans past due 90 days or more:
SBA............................ $ 1,071 $ 816 $ 1,754 $ 496 $ 435
Other. . . . . . . . . . . . . 1,061 207 9 1,029 538
Restructured loans (in compliance
with modified terms)............. $ 275 $ 78 $ 194 $ 201 $ 61
Nonperforming assets to
total assets..................... 1.3% 1.8% 1.4% 1.6% 2.0%
Allowance for possible loan and lease
losses to nonaccrual loans....... 84.8% 70.2% 142.9% 120.9% 72.5%
</TABLE>
Of total gross loans and leases at December 31, 1996, $5.4 million were
considered to be impaired. The allowance for possible loan and lease losses
included $565 thousand related to these loans. The amount of interest received
and recognized on these impaired loans in 1996 was $310 thousand. The average
recorded investment in impaired loans during 1996 was $5.6 million.
Of total gross loans and leases at December 31, 1995, $5.5 million were
considered to be impaired. The allowance for possible loan and lease losses
included $446 thousand related to these loans. The amount of interest received
and recognized on these impaired loans in 1995 was $221 thousnad. The average
recorded investment in impaired loans during 1995 was $3.4 million.
Although the level of nonperforming assets will depend on the future economic
environment, as of March 1, 1997, in addition to the assets disclosed in the
above chart, management of the Company has identified approximately $358
thousand in potential problem loans as to which it has serious doubts as to the
ability of the borrowers to comply with the present repayment terms and which
may become nonperforming assets, based on known information about possible
credit problems of the borrower.
-10-
<PAGE>
The following table shows the loans outstanding, actual charge-offs, recoveries
on loans previously charged off, the allowance for possible loan losses and
pertinent ratios during the periods and as of the dates indicated (amounts in
thousands except percentage amounts).
<TABLE>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans....................... $ 284,487 $203,231 $ 166,366 $ 159,463 $ 149,597
Total loans at end of period........ 323,366 239,969 172,939 159,819 155,345
Allowance for possible loan and lease
losses: Balance--beginning of period $ 3,845 $ 3,546 $ 3,472 $ 2,742 $ 2,525
--------- -------- --------- --------- ---------
Actual charge-offs:
SBA............................... 114 595 447 391 671
Commercial and industrial......... 337 350 467 143 65
Leases. . . . . . . . . . . . . . 84 0 0 0 0
Real estate....................... 0 40 60 190 12
Installment....................... 58 40 101 42 32
--------- -------- --------- --------- ---------
Total........................... 593 1,025 1,075 766 780
--------- -------- --------- --------- ---------
Less recoveries:
SBA............................... 87 20 74 14 23
Commercial and industrial......... 182 26 187 52 57
Real estate....................... 0 0 0 0 0
Installment....................... 15 8 3 6 2
--------- -------- --------- --------- ---------
Total........................... 284 54 264 72 82
--------- -------- --------- --------- ---------
Net charge-offs..................... 309 971 811 694 698
Allowance applicable to sold loans.. 0 0 0 (136) 0
Provision for possible loan and lease
losses............................ 1,010 1,270 885 1,560 915
--------- -------- --------- --------- ---------
Balance--end of period.............. $ 4,546 $ 3,845 $ 3,546 $ 3,472 $ 2,742
========= ======== ========= ========= =========
Ratios:
Net loans charged off to average
loans outstanding.............. 0.11% 0.48% 0.49% 0.44% 0.47%
Net loans charged off to total loans
at end of period............... 0.10 0.41 0.47 0.43 0.45
Provision for possible loan and lease
losses to average loans........ 0.36 0.62 0.53 0.98 0.61
Provision for possible loan and lease
losses to total loans at end of period 0.31 0.53 0.51 0.98 0.59
Net loans charged off to end of
period allowance for possible
loan and lease losses.......... 6.80 25.25 22.87 19.99 25.46
</TABLE>
-11-
<PAGE>
The following table sets forth management's historical allocation of the
allowance for possible loan losses by loan category and percentage of loans in
each category. Percentage amounts are the percentage of loans in each category
to total loans at the dates indicated (in thousands except percentage amounts).
<TABLE>
December 31,
1996 1995
---------------------- ------------------------
Amount Percentage Amount Percentage
<S> <C> <C> <C> <C>
SBA loans........................................ $1,561 45% $1,468 38%
Commercial and industrial loans (2).............. 1,720 21 1,592 41
Real estate loans................................ 1,010 30 564 15
Consumer loans to individuals(1)................. 255 4 221 6
------ ----- ------ ----
Total........................................ $4,546 100% $3,845 100%
====== === ====== ===
</TABLE>
<TABLE>
December 31,
1994 1993 1992
----------------------- ---------------------- ------------------------
Amount Percentage Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C>
SBA loans...................... $2,372 56% $2,379 55% $2,127 57%
Commercial and industrial loans 627 18 541 17 233 15
Real estate loans.............. 366 21 334 22 138 18
Consumer loans to
individuals(1)............... 181 5 218 6 244 10
------ ------- ------ ---- ------ -----
Total...................... $3,546 100% $3,472 100% $2,742 100%
====== ===== ========== === ====== ===
</TABLE>
(1) Includes equity lines of credit.
(2) Includes commercial leases.
In allocating the Company's loan loss reserve, management has considered the
credit risk in the various loan categories in its portfolio. Historically, most
of the Company's loan losses have been in its commercial lending area. This area
includes local commercial loans and SBA loans. From inception of its SBA lending
program in 1983, the Company has sustained a relatively low level of losses from
these loans, averaging less than 0.5% of loans outstanding per year. Most of the
Company's other commercial loan losses have been for loans to businesses within
the Tahoe basin area or in Reno, Nevada. The Company believes that it has taken
steps to minimize its commercial loan losses, including centralization of
lending approval and processing functions. It is important to the Company to
maintain good relations with local business concerns and, to this end, it
supports small local businesses with commercial loans. To offset the added risk
these loans represent, the Company charges a higher interest rate. It also
attempts to manage risk in this area through its loan review process.
Because the Company's residential real estate loans consist primarily of
construction lending with prearranged loan takeouts, losses on such loans have
been minimal. The Company has not participated in commercial real estate
development projects. Through mid-1995 mortgages were made on single family
residences secured by first deeds of trust and were generally sold in the
secondary market. Mortgage operations were terminated in July, 1995.
While every effort has been made to allocate the reserve to specific categories
of loans, management believes that any breakdown or allocation of the loan loss
reserve into loan categories lends an appearance of exactness which does not
exist, in that the reserve is utilized as a single unallocated reserve available
for losses on all types of loans.
-12-
<PAGE>
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table sets forth the distribution by maturity date of certain of
the Company's loan categories (in thousands) as of December 31, 1996. In
addition, the table shows the distribution between total loans with
predetermined (fixed) interest rates and those with variable (floating) interest
rates (in thousands). Floating rates generally fluctuate with changes in the
prime rate of leading banking institutions.
<TABLE>
Year Ended
December 31, 1996
After One
Within But Within After
One Year(1) Five Years Five Years Total
<S> <C> <C> <C> <C>
Real estate - construction.................. 27,294 4,109 4,858 36,261
Commercial, except SBA...................... 33,939 16,285 7,101 57,325
SBA......................................... 11,229 19,439 116,353 147,021
Distribution between fixed and floating interest rate:
Fixed interest rates..................... 17,203 24,314 5,989 47,506
Floating interest rates.................. 69,114 59,737 147,009 275,860
</TABLE>
(1) Demand loan and overdrafts are shown as "Within One Year"
-13-
<PAGE>
Average Assets, Liabilities and Shareholders' Equity;Interest Income and Expense
The following table presents, for the periods indicated, the distribution of
average assets, liabilities and share holders' equity, as well as the total
dollar amount of interest income from average interest-earning assets and
resultant yields and the dollar amounts of interest expense and average
interest-bearing liabilities and resultant rates (in thousands except percentage
amounts):
<TABLE>
Year Ended December 31,
1996 1995 1994
--------------------------------- ------------------------------- -----------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Interest Balance Rate Interest Balance Rate Interest
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans(1)........... $ 284,487 10.72% $ 30,506 $203,231 11.60% $ 23,582 $ 166,366 10.45% $ 17,386
Investment securities(2)28,712 5.62 1,614 26,546 5.29 1,403 31,168 4.68 1,459
Mutual funds....... 1,342 7.30 98 1,627 8.05 131 4,178 5.43 227
Federal funds sold. 18,017 5.21 938 10,534 5.64 594 11,872 4.03 478
Other deposits..... 2,225 5.08 113 2,097 5.77 121 1,983 5.40 107
--------- --------- -------- -------- --------- ---------
Total interest-earning
assets......... 334,783 9.94 33,269 244,035 10.58 25,831 215,567 9.12 19,657
Allowance for possible
loan losses......... (4,497) (3,685) (3,653)
Non-earning assets:
Cash and due from
banks.......... 19,894 16,444 15,936
Premises and equipment,
net............ 11,224 7,817 7,178
Excess Servicing on
SBA loans...... 14,304 15,492 16,114
Other assets..... 5,912 6,091 6,467
--------- -------- ---------
Total average assets$ 381,620 $286,194 $ 257,609
========= ======== =========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities:
Transaction account $ 102,963 2.54% $2,620 $ 87,600 2.28% $ 1,995 $ 94,430 2.01% $ 1,894
Savings accounts. 13,573 2.09 283 13,409 2.13 286 14,696 2.16 317
Certificates of deposit155,585 5.68 8,832 91,517 5.85 5,352 61,408 4.17 2,559
Convertible debentures 9,294 8.22 764 10,000 8.50 850 9,155 8.55 783
Other liabilities 289 (1.38) (4) 376 2.13 8 351 12.54 44
--------- -------- ------------ -------- --------- ---------
Total interest-bearing
liabilities...... 281,704 4.44 12,495 202,902 4.18 8,491 180,040 3.11 5,597
Non-interest-bearing liabilities:
Transaction accounts 63,638 51,261 48,421
Other liabilities 4,556 2,767 2,289
--------- -------- ---------
Total liabilities 349,898 256,930 230,750
Shareholders' equity:
Common stock..... 11,450 10,799 10,865
Retained earnings 20,399 18,793 16,338
Unrealized loss on
securities....... (127) (328) (344)
--------- --------- ---------
Total shareholders'
equity......... 31,722 29,264 26,859
--------- -------- ---------
Total liabilities and
shareholders'
equity......... $ 381,620 $ 286,194 $ 257,609
========= ========= ==========
-------- --------- --------
Net interest income. $ 20,774 $ 17,340 $ 14,060
-========= ========== =======
Interest income as a
percentage of interest -
earning assets 9.94% 10.58% 9.12%
Interest expense as a
percentage of interest -
earning assets. . . (3.73) (3.48) (2.60)
------ ----- -----
Net interest margin 6.21% 7.10% 6.52%
==== ==== =====
</TABLE>
(1) Includes nonaccrual loans with an average balance of $5.6 million, $3.4
million, and $3.0 million for the years ended December 31, 1996, 1995
and 1994, respectively.
(2) Applicable nontaxable securities yields have not been calculated on a
tax-equivalent basis because such securities are not significant.
Investment Securities & Investments in Mutual Funds
The Company's current investment policy provides for the purchase of U.S.
Treasury securities, obligations of U.S. government agencies, U.S. government
sponsored agencies, corporate bonds, commercial paper, banker's acceptances,
pass-through mortgage-backed securities, adjustable rate mortgage pass-through
securities, collateralized mortgage obligations, asset-backed securities,
municipal general obligation and revenue bonds, and certificates of deposit. The
Company's policy requires all corporate bonds, commercial paper, mortgage-backed
securities, collateralized mortgage obligations or municipal securities be rated
"A" or better by any
-14-
<PAGE>
nationally recognized rating agency. If a local municipality is issuing an
unrated bond, the Company may purchase it after normal credit underwriting
procedures are performed.
The Company's investment committee reviews all securities transactions on a
monthly basis and presents a monthly report to the Board of Directors of the
Company covering this review. Under California law, SierraWest Bank may not
invest an amount exceeding 15% of its shareholders' equity in the securities of
any one obligor, subject to certain exceptions (e.g., obligations of the United
States and the State of California). Acceptable securities (i.e., Federal or
state government or any county or municipality securities) may be pledged to
secure public deposits in excess of $100 thousand.
In May 1993, FASB issued Statement of Financial Accounting Standards No. 115
("SFAS No. 115") entitled "Accounting for Certain Investments in Debt and Equity
Securities." SFAS No. 115 requires, among other things, that certain investments
in debt and equity securities be classified under three categories--held to
maturity, trading securities and securities available for sale. Securities
classified as held to maturity are to be reported at amortized/ accreted cost.
Securities classified as trading securities are to be reported at fair value
with unrealized gains and losses included in earnings. Securities classified as
available for sale are to be reported at fair value with unrealized gains and
losses excluded from earnings and reported as a separate component of
shareholders' equity. The Company adopted SFAS No. 115 effective at December 31,
1993. At December 31, 1996 and 1995, $31.9 million and $25.0 million of the
Company's investment securities were classified as available for sale. The
remaining $2.0 million and $3.4 million, consisting primarily of pledged or
formerly pledged securities, were classified as held to maturity. The Company
does not classify any securities as trading securities.
The following table summarizes the amounts and the distribution of the Company's
investment securities (in thousands):
<TABLE>
December 31,
1996 1995 1994
-------------------- -------------------- ------------------
Book Market Book Market Book Market
Value(1) Value Value(1) Value Value(1) Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities.................... $ 19,463 $ 19,462 $ 18,137 $ 18,144 $ 23,873 $ 23,711
Securities of U.S. government
agencies.................................. 1,005 1,005 7,486 7,486 6,363 6,363
Securities of states and
political subdivisions.................... 5,991 5,991 2,608 2,608 418 418
Other securities............................ 7,422 7,422 112 112 429 429
----- ------ ------------ ----------- --------- ---------
Total..................................... $ 33,881 $ 33,880 $ 28,343 $ 28,350 $ 31,083 $ 30,921
======== ======== ========= ========== ========== ==========
</TABLE>
(1) Securities held to maturity are stated at cost, adjusted for
amortization of premium and accretion of discount. Securities
available for sale are recorded at market.
In addition the Company invests in mutual funds whose assets are invested
primarily in U.S. government securities. At December 31, 1996 and 1995, mutual
funds with an estimated market value of $1.3 million and $1.4 million have been
classified as available for sale. At these same dates the Company had recorded
an unrealized loss on mutual funds, net of tax, of $99 thousand and $72
thousand. The weighted average maturity of portfolio securities held by the
mutual funds at December 31, 1996 and 1995 was 7.2 and 7.6 years.
-15-
<PAGE>
Maturity of Investment Securities
The following table presents the maturities for investment securities (except
for investments in mutual funds with a carrying value of $1,335 thousand) as of
December 31, 1996 (in thousands except percentage amounts).
<TABLE>
December 31, 1996
Weighted
Book Average Market
Value Rate Value
<S> <C> <C> <C>
U.S. Treasury securities:
Within 1 year................................................................... $ 7,014 5.41% $ 7,014
After 1 year but within 5 years............................................... 12,449 6.06 12,448
--------- ---------
Total U.S. Treasury securities................................................ 19,463 5.82 19,462
--------- ---------
U.S. government agencies:
Within 1 year................................................................... 1,005 6.00 1,005
Securities of states and political subdivisions(1):
After 1 year but within 5 years................................................. 344 3.78 344
After 5 years but within 10 years............................................... 99 4.55 99
Over 10 years................................................................... 5,548 5.29 5,548
--------- ---------
Total securities of states and political subdivisions ...................... 5,991 5.19 5,991
--------- ---------
Mortgage - backed securities:..................................................... 7,422 6.39 7,422
--------- ---------
Total............................................................................. $ 33,881 5.84 $ 33,880
========= =========
</TABLE>
(1) Interest on these tax-exempt obligations has not been grossed up for
the related tax benefits in calculating the average yield.
Deposits
As of December 31, 1996, the Company had a total of $200.9 million in demand
deposits (including money market and NOW accounts), with an average account
balance of $10,688; $13.3 million in savings deposits for individuals and
corporations, with an average balance of $2,135; and $185.4 million in CDs, of
which $58.1 million were in the form of CDs in denominations greater than $100
thousand. Average CD balances for the year ended December 31, 1994 were 28.1% of
average total deposits. Average CD balances increased to 37.5% of average total
deposits for the year ended December 31, 1995 and increased again to 46.3% of
average total deposits for the year ended December 31, 1996. Deposit accounts at
SierraWest Bank are insured by the FDIC to the maximum amount permitted by law.
As of December 31, 1996, approximately 5% of total deposits were held on behalf
of public entities. Deposits of public entities in excess of amounts insured by
the FDIC are secured by SierraWest Bank by pledging securities and/or the
guaranteed portion of SBA loans. Included in deposits at December 31, 1996 were
certificates of deposit of $10.6 million which were generated directly through
brokers.
In 1992, SierraWest Bank began to make available to its customers money market
investment funds and annui ties. Only a modest volume of business has been
generated to date. The Company does not believe that placement by customers of
funds in these alternative investment sources has had any overall negative
impact on the level of the Banks' deposits.
The Company's business is subject to some seasonal influences. Deposits tend to
decrease during the off- season for tourism, which is between March and May.
-16-
<PAGE>
The following table indicates the maturity of the Company's CDs in excess of
$100 thousand as of December 31, 1996 (amounts in thousands except percentage
amounts):
<TABLE>
December 31, 1996
Percentage
Balance of Total
<S> <C> <C>
Three months or less................................................................... $23,041 39.6%
Over three months through six months................................................... 18,533 31.9
Over six months through twelve months.................................................. 12,379 21.3
Over twelve months.................................................................... 4,157 7.2
--------- -------
Total.................................................................................. $58,110 100.0%
========= =====
</TABLE>
Repricing of Interest-Earning Assets and Interest-Bearing Liabilities
The following table sets forth the distribution of repricing opportunities of
the Company's interest-earning assets and interest-bearing liabilities, the
interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), the cumulative interest rate sensitivity
gap and the cumulative gap as a percentage of total interest-earning assets, as
of December 31, 1996. The table also sets forth the time periods during which
interest-earning assets and interest-bearing liabilities will mature or may
reprice in accordance with their contractual terms. The interest rate
relationships between the repriceable assets and repriceable liabilities are not
necessarily constant and may be affected by many factors, including the behavior
of customers in response to changes in interest rates. This table should,
therefore, be used only as a guide as to the possible effect changes in interest
rates might have on the net margins of the Company (amounts in thousands except
percentage amounts).
<TABLE>
December 31, 1996
Next Day Over Three One Year
to Three Months Through Through Over
Immediately Months Twelve Months Five Years Five Years Total
<S> <C> <C> <C> <C> <C> <C>
Assets:
Federal funds sold............... $ 32,200 $ 0 $ 0 $ 0 $ 0 $ 32,200
Mutual funds..................... 1,335 0 0 0 0 1,335
Taxable investment securities.... 0 3,238 5,919 16,209 2,524 27,890
Non-taxable investment securities 0 0 0 344 5,647 5,991
Loans............................ 128,472(2) 154,064 10,525 24,314 5,991 323,366
---------- ---------- --------- --------- --------- ---------
Total interest-earning assets 162,007 157,302 16,444 40,867 14,162 390,782
---------- ----------- ---------- ---------- ---------- -----------
Liabilities:
Savings deposits(1).............. 133,706 0 0 0 0 133,706
Time deposits.................... 0 65,497 96,611 23,037 275 185,420
Convertible debentures........... 0 0 0 0 8,520 8,520
Lease obligations................ 0 2 5 39 227 273
--------- ---------- --------- --------- --------- ---------
Total interest-bearing liabilities 133,706 65,499 96,616 23,076 9,022 327,919
--------- --------- --------- --------- --------- ---------
Net interest-earning assets (liabilities) $ 28,301 $ 91,803 $ (80,172) 17,791 $ 5,140 $ 62,863
========= ============ ========== ========= ========= =========
Cumulative net interest earning assets
(liabilities) ("GAP")............ $ 28,301 $ 120,104 $ 39,932 $ 57,723 $ 62,863
=========== =========== =========== =========== =========
Cumulative GAP as a percentage of
total interest-earning assets.... 7.2% 30.7% 10.2% 14.8% 16.1%
=========== =========== =========== ========== ==========
</TABLE>
(1) Savings deposits include interest-bearing transaction accounts.
(2) Includes loans which matured on or prior to December 31, 1996.
At December 31, 1996, the Company had $335.8 million in assets and $295.8
million in liabilities repricing within one year. This means that $40 million
more in interest rate sensitive assets than interest rate sensitive liabilities
will change to the then current rate (changes occur due to the instruments being
at a variable rate or because the maturity of the instrument requires its
replacement at the then current rate). Interest income is likely to be affected
to a greater extent than interest expense for any changes in interest rates
during the Immediately to Twelve Month periods. If rates were to fall during
this period, interest income would decline by a greater amount than interest
expense and net income would be reduced. Conversely, if rates were to rise, the
reverse would apply.
-17-
<PAGE>
Competition from Other Financial Institutions
The Company competes for deposits and loans principally with major commercial
banks, other independent banks, savings and loan associations, savings banks,
thrift and loan associations, credit unions, mortgage companies, insurance
companies and other lending institutions. With respect to deposits, additional
significant competition arises from corporate and governmental debt securities,
as well as money market mutual funds. Several of the nation's largest savings
and loan associations and commercial banks have a significant number of branch
offices in the areas in which the Company conducts operations. Among the
advantages of the larger of these institutions are their ability to make larger
loans, finance extensive advertising campaigns, access international money
markets and generally allocate their investment assets to regions of highest
yield and demand.
The Company ranked 18th in the nation by number of SBA 7(a) loans generated by
banks for the SBA's fiscal year ended September 30, 1996.
The Company's competitive position in respect to deposit gathering in its
respective market places is illustrated in the following chart(1) (dollar
amounts in thousands):
<TABLE>
Total Deposits Held
# of Company # of Banking Deposits Held by all Banks
County State Branches Offices by Company and offices
<S> <C> <C> <C> <C> <C>
El Dorado California 1 20 $ 22,986 $ 548,789
Nevada California 5 19 $ 157,780 $ 588,853
Placer California 2 49 $ 48,098 $ 1,310,081
Sacramento California 1 162 $ 22,887 $ 6,985,162
Carson City Nevada 1 10 $ 8,198 $ 453,899
Washoe Nevada 1 59 $ 76,255 $ 2,379,689
</TABLE>
A total of 8 banks in Nevada County at June 30, 1996 were included in the above
survey. Of these eight, SierraWest Bank ranked second in terms of total deposits
held. In Placer County, SierraWest Bank ranked sixth out of fourteen banks. As
disclosed above, SierraWest Bank's presence in the other counties is not
significant.
(1) Based on the annual survey of banking office deposits as of June 30, 1996
conducted by the FDIC. Banking offices include each banking office of branch
banking systems and each U.S. branch of a foreign bank for all FDIC insured
commercial banks, savings banks, and U.S. branches of foreign banks.
Supervision and Regulation
The Effect of Governmental Policy on Banking
The earnings and growth of SierraWest Bank are affected not only by local market
area factors and general economic conditions, but also by government monetary
and fiscal policies. For example, the Federal Reserve influences the supply of
money through its open market operations in U.S. Government securities and
adjustments to the discount rates applicable to borrowings by depository
institutions and others. Such actions influence the growth of loans, investments
and deposits and also affect interest rates charged on loans and paid on
deposits. The nature and impact of future changes in such policies on the
business and earnings of SierraWest Bank cannot be predicted.
As a consequence of the extensive regulation of commercial banking activities in
the United States, the business of the Company is particularly susceptible to
being affected by the enactment of Federal and state legislation which may have
the effect of increasing or decreasing the cost of doing business, modifying
permissible activities or enhancing the competitive position of other financial
institutions. Any change in applicable laws or regulations may have a material
adverse effect on the business and prospects of the Company. See "Recently
Enacted Legislation" herein.
-18-
<PAGE>
Regulation and Supervision of Bank Holding Companies
Bancorp is a bank holding company subject to the Bank Holding Company Act of
1956, as amended ("BHCA"). Bancorp reports to, registers with, and may be
examined by, the Federal Reserve. The Federal Reserve also has the authority to
examine Bancorp's subsidiary. The costs of any examination by the Federal
Reserve are payable by Bancorp.
The Federal Reserve has significant supervisory and regulatory authority over
Bancorp and its affiliates. The Federal Reserve requires Bancorp to maintain
certain levels of capital. See "--Capital Standards." The Federal Reserve also
has the authority to take enforcement action against any bank holding company
that commits any unsafe or unsound practice, or violates certain laws,
regulations or conditions imposed in writing by the Federal Reserve. See
"--Prompt Corrective Action and Other Enforcement Mechanisms."
Under the BHCA, a company generally must obtain the prior approval of the
Federal Reserve before it exercises a controlling influence over, or acquires
directly or indirectly, more than 5% of the voting shares or substantially all
of the assets of any bank or bank holding company. Thus, Bancorp is required to
obtain the prior approval of the Federal Reserve before it acquires, merges or
consolidates with any bank or bank holding company; any company seeking to
acquire, merge or consolidate with Bancorp also would be required to obtain the
approval of the Federal Reserve.
Bancorp is generally prohibited under the BHCA from acquiring ownership or
control of more than 5% of the voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than banking, managing banks, or providing services to affiliates of the
holding company. A bank holding company, with the approval of the Federal
Reserve, may engage, or acquire the voting shares of companies engaged, in
activities that the Federal Reserve has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. A
bank holding company must demonstrate that the benefits to the public of the
proposed activity will outweigh the possible adverse effects associated with
such activity.
The Federal Reserve generally prohibits a bank holding company from declaring or
paying a cash dividend which would impose undue pressure on the capital of
subsidiary banks or would be funded only through borrowing or other arrangements
that might adversely affect a bank holding company's financial position. The
Federal Reserve's policy is that a bank holding company should not continue its
existing rate of cash dividends on its common stock unless its net income is
sufficient to fully fund each dividend and its prospective rate of earnings
retention appears consistent with its capital needs, asset quality and overall
financial condition.
Transactions between Bancorp and its subsidiary are subject to a number of other
restrictions. Federal Reserve policies forbid the payment by bank subsidiaries
of management fees which are unreasonable in amount or exceed the fair market
value of the services rendered (or, if no market exists, actual costs plus a
reasonable profit). Additionally, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit, sale or lease of property, or furnishing of services.
Subject to certain limitations, depository institution subsidiaries of bank
holding companies may extend credit to, invest in the securities of, purchase
assets from, or issue a guarantee, acceptance, or letter of credit on behalf of,
an affiliate, provided that the aggregate of such transactions with affiliates
may not exceed 10% of the capital stock and surplus of the institution, and the
aggregate of such transactions with all affiliates may not exceed 20% of the
capital stock and surplus of such institution. Bancorp may only borrow from
depository institution subsidiaries if the loan is secured by marketable
obligations with a value of a designated amount in excess of the loan. Further,
Bancorp may not sell a low-quality asset to a depository institution subsidiary.
Commercial banking organizations, insured depository institutions, and mortgage
bankers are subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations. In addition to
substantive penalties and corrective measures that may be required for a
violation of such laws, the Federal banking agencies may take compliance with
such laws into account when regulating and supervising other activi ties. The
Federal Reserve may not approve applications to acquire the voting shares of
another insured depository institution based on incorrect reporting of home
mortgage lending data, and the possibility that applicants may have engaged in
discriminatory treatment of minorities in mortgage lending in violation of the
Equal Credit Opportunity Act.
-19-
<PAGE>
Bank Regulation and Supervision
As a California state-chartered bank, SierraWest Bank is regulated, supervised
and regularly examined by the CSBD. Under California law, SierraWest Bank is
subject to various restrictions on, and requirements regarding, its operations
and administration including the maintenance of branch offices and automated
teller machines, capital and reserve requirements, deposits and borrowings,
stockholder rights and duties, and investment and lending activities. Whenever
it appears that the contributed capital of a California bank is impaired, the
CSBD shall order the bank to correct such impairment. If the bank is unable to
correct the impairment, such bank is required to levy and collect an assessment
upon its common shares. If such assessment becomes delinquent, such common
shares are to be sold by the bank. SierraWest Bank is not a member of the
Federal Reserve System; SierraWest Bank, however, is subject to certain
regulations of the Federal Reserve including reserve requirements. The primary
Federal regulator of SierraWest Bank is the FDIC.
Capital Standards
The FDIC and other Federal banking agencies have risk based capital adequacy
guidelines intended to provide a measure of capital adequacy that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. government securities, to 100% for assets with
relatively higher credit risk, such as business loans.
A banking organization's risk based capital ratios are obtained by dividing its
qualifying capital by its total risk- adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common
stock, retained earnings, noncumulative perpetual preferred stock and minority
interests in certain subsidiaries, less most intangible assets. Tier 2 capital
may consist of a limited amount of the allowance for possible loan and lease
losses, cumulative preferred stock, term preferred stock, term subordinated debt
and certain other instruments with certain characteristics of equity. The
inclusion of elements of Tier 2 capital are subject to certain other
requirements and limitations of the Federal banking agencies. Since December 31,
1992, the Federal banking agencies have required a minimum ratio of qualifying
total capital to risk-adjusted assets and off balance sheet items of 8%, and a
minimum ratio of Tier 1 capital to risk-adjusted assets and off balance sheet
items of 4%.
In addition to the risked-based guidelines, Federal banking regulators require
banking organizations to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets must
be 3%. It is improbable, however, that an institution with a 3% leverage ratio
would receive the highest rating by the regulators since a strong capital
position is a significant part of the regulators' rating. For all banking
organizations not rated in the highest category, the minimum leverage ratio must
be at least 100 to 200 basis points above the 3% minimum. Thus, the effective
minimum leverage ratio, for all practical purposes, must be at least 4% to 5%.
In addition to these uniform risk based capital guidelines and leverage ratios
that apply across the industry, the regulators have the discretion to set
individual minimum capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires the regulators to improve capital standards to take account of risks
other than credit risk. On September 1, 1995, the Federal banking agencies
(excluding the Office of Thrift Supervision) issued a final rule to take account
of interest rate risk in calculating risk based capital. The final rule did not
put forth the process for measuring a bank's exposure to interest rate risk. On
June 26, 1996 a joint agency policy statement was issued by all of the Federal
banking agencies except the OTS to provide guidance on sound practices for
managing interest rate risk. The agencies did not in the policy statement elect
to implement a standardized measure and quantitative capital charge, though the
matter was left open for future implementation. Rather, the policy statement
provided standards for the banking agencies to evaluate the adequacy and
effectiveness of a bank's interest rate risk management and guidance to bankers
for managing interest rate risk. Specifically, effective interest rate risk
management requires that there be (i) effective board and senior management
oversight of the bank's interest rate risk activities, (ii) appropriate policies
and practices in place to control and limit risks, (iii) accurate and timely
-20-
<PAGE>
identification and measurement of interest rate risk, (iv) an adequate system
for monitoring and reporting risk exposures and (v) appropriate internal
controls for effective risk management.
In determining the capital level SierraWest Bank is required to maintain, the
FDIC does not, in all respects, follow GAAP and has special rules which have the
effect of reducing the amount of capital it will recognize for purposes of
determining the capital adequacy of SierraWest Bank. These rules are called
Regulatory Accounting Principles ("RAP"). SierraWest Bank's qualifying capital,
as calculated under RAP, at December 31, 1996, totaled $31.7 million. This
compares to $37.1 million as calculated under GAAP at the same date. The most
significant factor in the difference between the capital level calculated under
RAP and the capital level calculated under GAAP is the use of cash basis
accounting for RAP in the recognition of the gain on sale of SBA loans.
Effective in 1997 regulatory reports of condition and income will be reported on
a GAAP basis; however regulatory capital ratios will continue to be calculated
in accordance with the regulatory agency's capital standards. This can result in
significant differences in the amount of capital reported under GAAP and the
amount included in the regulatory ratios. Future changes in FDIC regulations or
practices could further reduce the amount of capital recognized for purposes of
capital adequacy. Such changes could affect the ability of the Company to grow
and could restrict the amount of profits, if any, available for the payment of
dividends.
The Company, as a registered bank holding company, is regulated by the Federal
Reserve. In computing the capital level required for bank holding companies, the
Federal Reserve follows GAAP in the computation of the components of the capital
ratios. The following tables present the capital ratios for the Company and
SierraWest Bank, computed in accordance with their applicable regulatory
guidelines, compared to the standards for well- capitalized depository
institutions, as of December 31, 1996 (amounts in thousands except percentage
amounts). Because of the above-referred to differences in accounting principles,
the capital adequacy ratios of the Company as a whole and SierraWest Bank vary
significantly.
<TABLE>
The Company
Actual Well Minimum
Qualifying Capitalized Capital
Capital Ratio Ratio Requirement
<S> <C> <C> <C> <C>
Leverage...................................... $ 33,846 7.9% N/A 4.0%
Tier 1 Risk Based............................. 33,846 9.8 N/A 4.0
Total Risk Based.............................. 46,668 13.6 N/A 8.0
</TABLE>
<TABLE>
SierraWest Bank
Actual Well Minimum
Qualifying Capitalized Capital
Capital Ratio Ratio Requirement
<S> <C> <C> <C> <C>
Leverage...................................... $ 31,670 7.6% 5.0% 4.0%
Tier 1 Risk Based............................. 31,670 9.4 6.0 4.0
Total Risk Based.............................. 35,866 10.7 10.0 8.0
</TABLE>
Prompt Corrective Action and Other Enforcement Mechanisms
FDICIA requires each Federal banking agency to take prompt corrective action to
resolve the problems of insured depository institutions, including but not
limited to those that fall below one or more prescribed minimum capital ratios.
The most recent regulations from the Federal banking agencies defined the
following five categories in which an insured depository institution will be
placed, based on the level of its capital ratios: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
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<PAGE>
"Well capitalized"
Total risk-based capital of at least 10%; Tier 1 risk-based capital of at least
6%; and Leverage ratio of at least 5%.
"Adequately capitalized" Total risk-based capital of at least 8%; Tier 1
risk-based capital of at least 4%; and Leverage ratio of at least 4%.
"Undercapitalized" Total risk-based capital less than 8%; Tier 1 risk-based
capital less than 4%; or Leverage ratio less than 4%. "Significantly
undercapitalized" Total risk-based capital less than 6%; Tier 1 risk-based
capital less than 3%; or Leverage ratio less than 3%.
"Critically undercapitalized"
Tangible equity to total assets less than
2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "under capitalized" may be treated as
though it were in the next lower capital category if the appropriate Federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The Federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
If an insured depository institution is undercapitalized, it will be closely
monitored by the appropriate Federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. Further restrictions and sanctions
are required to be imposed on insured depository institutions that are
critically undercapitalized. The most important additional measure is that the
appropriate Federal banking agency is required to either appoint a receiver for
the institution within 90 days, or obtain the concurrence of the FDIC in another
form of action.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the Federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver, the
issuance of a cease-and-desist order that can be judicially enforced, the
termination of insurance of deposits (in the case of a depository institution),
the imposition of civil money penalties, the issuance of directives to increase
capital, the issuance of formal and informal agreements, the issuance of removal
and prohibition orders against institution-affiliated parties and the
enforcement of such actions through injunctions or restraining orders based upon
a judicial determination that the agency would be harmed if such equitable
relief was not granted. Additionally, a holding company's inability to serve as
a source of strength to its subsidiary banking organizations could serve as an
additional basis for a regulatory action against the holding company.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions on transactions and
required Federal banking regulators to adopt overall safety and soundness
standards for depository institutions related to internal control, loan
underwriting and documentation and asset growth. Among other things, FDICIA
limits the interest rates paid on deposits by undercapitalized institutions, the
use of brokered deposits and the aggregate extensions of credit by a depository
institution to an executive officer, director, principal shareholder or related
interest, and reduces deposit insurance coverage for deposits offered by
undercapitalized institutions for deposits by certain employee benefits
accounts.
In addition to the statutory limitations, FDICIA requires the Federal banking
agencies to prescribe, by regulation, standards for all insured depository
institutions for such things as classified loans and asset growth. The Riegle
Community Development and Regulatory Improvement Act of 1994 amended FDICIA to
allow the Federal banking regulators to implement these standards by either
regulation or guidelines. See "Recently Enacted Legislation."
In December 1992, the Federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by
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<PAGE>
real estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory limits
prescribed by the regulations.
On July 10, 1995 the federal banking agencies published Interagency Guidelines
Establishing Standards for Safety and Soundness. By adopting the standards as
guidelines, the agencies retained the authority to require an institution to
submit to an acceptable compliance plan as well as the flexibility to pursue
other more appropriate or effective courses of action given the specific
circumstances and severity of an institution's noncompliance with one or more
standards.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to
declare a cash dividend or other distribution with respect to capital is subject
to statutory and regulatory restrictions which limit the amount available for
such distribution depending upon the earnings, financial condition and cash
needs of the institution, as well as general business conditions. FDICIA
prohibits insured depository institutions from paying management fees to any
controlling persons or, with certain limited exceptions, making capital
distributions, including dividends, if, after such transaction, the institution
would be undercapitalized.
In addition to the restrictions imposed under Federal law, banks chartered under
California law generally may only pay cash dividends to the extent such payments
do not exceed the lesser of retained earnings of the bank or the bank's net
income for its last three fiscal years (less any distributions to shareholders
during such period). In the event a bank desires to pay cash dividends in excess
of such amount, the bank may pay a cash dividend with the prior approval of the
CSBD in an amount not exceeding the greatest of the bank's retained earnings,
the bank's net income for its last fiscal year, or the bank's net income for its
current fiscal year.
State and federal regulators also have authority to prohibit a depository
institution from engaging in business practices which are considered to be
unsafe or unsound, possibly including payment of dividends or other payments
under certain circumstances even if such payments are not expressly prohibited
by statute.
Community Reinvestment Act and Fair Lending Developments
SierraWest Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantive penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
On March 8, 1994, the federal Interagency Task Force on Fair Lending issued a
policy statement on discrimination in lending. The policy statement describes
the three methods that federal agencies will use to prove discrimination: overt
evidence of discrimination, evidence of disparate treatment, and evidence of
disparate impact.
In 1996, new compliance and examination guidelines for the CRA were promulgated
by each of the federal banking regulatory agencies, fully replacing the prior
rules and regulatory expectations with new ones ostensibly more performance
based than before to be fully phased in as of July 1, 1997. The guidelines
provide for streamlined examinations of smaller institutions.
Premiums for Deposit Insurance and Assessments for Examinations
FDICIA established several mechanisms to increase funds to protect deposits
insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is
authorized to borrow up to $30 billion from the United States Treasury; up to
90% of the fair market value of assets of institutions acquired by the FDIC as
receiver from the Federal Financing Bank; and from depository institutions that
are members of the BIF. Any borrowings not repaid by asset sales are to be
repaid through insurance premiums assessed to member institutions. Such premiums
must be sufficient to repay any borrowed funds within 15 years and provide
insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also
provides authority for special assessments against insured deposits. See
Recently Enacted Legislation - 1996 Act. Effective November 14, 1995, the new
assessment rate schedule for deposit premiums ranges from $0 per $100 of
deposits to $.27 per $100 of deposits applicable to BIF members.
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<PAGE>
FDICIA requires all insured depository institutions to undergo a full-scope,
on-site examination by their primary Federal banking agency at least once every
12 months. A special rule allows for examination of certain small well
capitalized and well managed institutions every 18 months. The cost of
examinations of insured depository institutions and any affiliates may be
assessed by the appropriate Federal banking agency against each institution or
affiliate as it deems necessary or appropriate.
Recently Enacted Legislation
On September 29, 1994, the President signed into law the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"),
which has eliminated many of the current restrictions to interstate banking and
branching. The Interstate Banking Act permits full nationwide interstate banking
to adequately capitalized and adequately managed bank holding companies
beginning September 29, 1995 without regard to whether such transaction is
expressly prohibited under the laws of any state. The Interstate Banking Act's
branching provisions permit full nationwide interstate bank merger transactions
to adequately capitalized and adequately managed banks beginning June 1, 1997.
However, states retain the right to completely opt out of interstate bank
mergers and to continue to require that out-of-state banks comply with the
states' rules governing entry.
The states that opt out must enact a law after September 29, 1994 and before
June 1, 1997 that (i) applies equally to all out-of-state banks and (ii)
expressly prohibits merger transactions with out-of-state banks. States which
opt out of allowing interstate bank merger transactions will preclude the
mergers of banks in the opting out state with banks located in other states. In
addition, banks located in states that opt out are not permitted to have
interstate branches. States can also "opt in" which means states can permit
interstate branching earlier than June 1, 1997.
The laws governing interstate banking and interstate bank mergers provide that
transactions, which result in the bank holding company or bank controlling or
holding in excess of ten percent of the total deposits nationwide or thirty
percent of the total deposits statewide, will not be permitted except under
certain specified conditions. However, any state may waive the thirty percent
provision for such state. In addition, a state may impose a cap of less than
thirty percent of the total amount of deposits held by a bank holding company or
bank provided such cap is not discriminatory to out-of-state bank holding
companies or banks.
On September 23, 1994, the President signed into law the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "1994 Act") which covers
a wide range of topics including small business and commercial real estate loan
securitization, money laundering, flood insurance, consumer home equity loan
disclosure and protection as well as the funding of community development
projects and regulatory relief.
The major items of regulatory relief contained in the 1994 Act include an
examination schedule that has been eased for the top rated banks and will be
every 18 months for CAMEL 1 banks with less than $250 million in total assets
and CAMEL 2 banks with less than $100 million in total assets (the $100 million
amount was amended to $250 million by the 1996 Act discussed below). The 1994
Act amends the Federal Deposit Insurance Corporation Improvement Act of 1991
with respect to Section 124, the mandate to the federal banking agencies to
issue safety and soundness regulations, including regulations concerning
executive compensation allowing the federal banking regulatory agencies to issue
guidelines instead of regulations.
Further regulatory relief is provided in the 1994 Act, as each of the federal
regulatory banking agencies including the National Credit Union Administration
Board is required to establish an internal regulatory appeals process for
insured depository institutions within 6 months. In addition, the Department of
Justice 30 day waiting period for mergers and acquisitions is reduced by the
1994 Act to 15 days for certain acquisitions and mergers.
In the area of currency transaction reports, the 1994 Act requires the Secretary
of the Treasury to allow financial institutions to file such reports
electronically. The 1994 Act also requires the Secretary of the Treasury to
publish written rulings concerning the Bank Secrecy Act, and staff commentary on
Bank Secrecy Act regulations must also be published on an annual basis.
The procedures for forming a bank holding company have also been simplified. The
formal application process is now a simplified 30 day notice procedure.
On September 28, 1995, Governor Pete Wilson signed Assembly Bill 1482 (known as
the Caldera, Weggeland, and Killea California Interstate Banking and Branching
Act of 1995 and referred to herein as the "CIBBA") which allows
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<PAGE>
for early interstate branching in California. Under the federally enacted
Interstate Banking Act, discussed above and in more detail below, individual
states could "opt-out" of the federal law that would allow banks on an
interstate basis to engage in interstate branching by merging out-of-state banks
with host state banks after June 1, 1997. In addition under the Interstate
Banking Act, individual states could also "opt-in" and allow out-of-state banks
to merge with host state banks prior to June 1, 1997. The host state is allowed
under the Interstate Banking Act to impose certain nondiscriminatory conditions
on the resulting depository institution until June 1, 1997.
Section 3824 of the California Financial Code ("Section 3824") as added by CIBBA
provides for the election of California to "opt-in" under the Interstate Banking
Act allowing interstate bank merger transactions prior to July 1, 1997 of an
out-of -state bank with a California bank that has been in existence for at
least five years. The early "opt in" has the reciprocal effect of allowing
California banks to merge with out-of-state banks where the states of such
out-of-state banks have also "opted in" under the Interstate Banking Act. The
five year age limitation is not required when the California bank is in danger
of failing or in certain other emergency situations.
Under the Interstate Banking Act, California may also allow interstate branching
through the acquisition of a branch in California without the acquisition of an
entire California bank. Section 3824 provides an express prohibition against
interstate branching through the acquisition of a branch in California without
the acquisition of the entire California bank. The Interstate Banking Act also
has a provision allowing states to "opt-in" with respect to permitting
interstate branching through the establishment of de novo or new branches by
out-of-state banks. Section 3824 provides that California expressly prohibits
interstate branching through the establishment of de novo branches of
out-of-state banks in California, or in other words, California did not "opt-in"
this aspect of the Interstate Banking Act. CIBBA also amends the California
Financial Code to include agency provisions to allow California banks to
establish affiliated insured depository institution agencies out of state as
allowed under the Interstate Banking Act.
Other provisions of CIBBA amend the intrastate branching laws, govern the use of
shared ATM's, allow the repurchase of stock with the prior written consent of
the Superintendent, and amend intrastate branch acquisition and bank merger
laws. Another banking bill enacted in California in 1995 was Senate Bill 855
(known as the State Bank Parity Act and is referred to herein as the "SBPA").
SBPA went into effect on January 1, 1996, and its purpose is to allow a
California state bank to be on a level playing field with a national bank by the
elimination of certain disparities and allowing the California Superintendent of
Banks authority to implement certain changes in California banking law which are
parallel to changes in national banking law such as closer conformance of
California's version of Regulation O to the FRB's version of Regulation O.
The Economic Growth and Regulatory Paperwork Reduction Act (the "1996 Act") as
part of the Omnibus Appropriations Bill was enacted on September 30, 1996 and
includes many banking related provisions. The most important banking provision
is the recapitalization of the Savings Association Insurance Fund ("SAIF"). The
1996 Act provides for a one time assessment of approximately 65 basis points per
$100 of deposits of SAIF insured deposits including Oakar deposits payable on
November 30, 1996. For the years 1997 through 1999 the banking industry will
assist in the payment of interest on FICO bonds that were issued to help pay for
the clean up of the savings and loan industry. Banks will pay approximately 1.3
cents per $100 of deposits for this special assessment, and after the year 2000,
banks will pay approximately 2.4 cents per $100 of deposits until the FICO bonds
mature in 2017. There is a three year moratorium on conversions of SAIF deposits
to BIF deposits. The 1996 Act also has certain regulatory relief provisions for
the banking industry. Lender liability under the Superfund is eliminated for
lenders who foreclose on property that is contaminated provided that the lenders
were not involved with the management of the entity that contributed to the
contamination. There is a five year sunset provision for the elimination of
civil liability under the Truth in Savings Act. The FRB and Department of
Housing and Urban Development are to develop a single format for Real Estate
Settlement Procedures Act and Truth in Lending Act ("TILA") disclosures. TILA
disclosures for adjustable mortgage loans are to be simplified. Significant
revisions are made to the Fair Credit Reporting Act ("FCRA") including requiring
that entities which provide information to credit bureaus conduct an
investigation if a consumer claims the information to be in error. Regulatory
agencies may not examine for FCRA compliance unless there is a consumer
complaint investigation that reveals a violation or where the agency otherwise
finds a violation. In the area of the Equal Credit Opportunity Act, banks that
self-test for compliance with fair lending laws will be protected from the
results of the test provided that appropriate corrective action is taken when
violations are found.
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Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets to be Disposed Of, which was adopted by the Company January 1, 1996. SFAS
No. 121 established standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill for all entities. It does not apply to
financial instruments, long-term customer relationships of a financial
institution, mortgage or other servicing rights, or deferred tax assets.
Adoption of SFAS No. 121 has not had a significant impact on the financial
condition or operations of the Company.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation. This standard defines a fair value
method of accounting for stock options and other equity instruments, such as
stock purchase plans. Under this method, compensation cost is measured based on
the fair value of the stock award when granted and is recognized as an expense
over the service period, which is usually the vesting period. SFAS No. 123
permits companies to continue accounting for equity transactions with employees
under existing accounting rules, requiring disclosure in the notes to the
financial statements of the proforma net income and earnings per share as if the
new method had been applied. This statement was adopted by the Company January
1, 1996. The Company has elected to continue to account for stock based
compensation under the existing accounting rules and include the pro forma
disclosures; accordingly, this statement has not had an impact on the financial
condition or operations of the Company.
The Company is required to adopt SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinquishments of Liabilities, in 1997. SFAS
No. 125 provides accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities. This standard is based
on consistent application of a financial-component approach that focuses on
control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and liabilities it has
incurred, derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. Management has not assessed the
effect that the adoption of SFAS No. 125 will have on the financial condition or
operations of the Company.
Employees
As of March 1, 1997, the Company employed 282 persons (238 full-time and 44
part-time). The Company's employees are not represented by a union or covered by
a collective bargaining agreement and management believes that, in general, its
employee relations are good.
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ITEM 2. PROPERTIES
The Company currently maintains an administrative facility in Truckee,
California which is utilized by Bancorp and SierraWest Bank. During 1996 the
Company completed construction on a regional facility/branch in Reno, Nevada and
a branch in Carson City, Nevada. Additionally, the Company maintains eleven
branches, four stand-alone loan production offices, and one remote off-site ATM
machine. All branches and loan production offices are leased to the Company
except for the administrative facility and the Reno and Caron City branches
which are owned by the Company. The Company believes that it has adequate space
within its current facilities to provide for expansion and growth in the near
future.
ITEM 3. LEGAL PROCEEDINGS
During 1987, SierraWest Bank ("the Bank") took title, through foreclosure, of a
property located in Placer County which subsequent to the Bank's sale of the
property was determined to be contaminated with a form of hydrocarbons. At the
time it owned the property, the Bank became aware of and investigated the status
of certain underground tanks that had existed on the property. The Bank hired a
consultant to study the tanks and properly seal them. Several years later, and
after resale of the property, contamination was observed in the area of at least
one of the buried tanks and along an adjoining riverbank of the Yuba River. The
Bank, at the time of resale of the property, was not aware of this contamination
adjacent to the tanks but was aware of the existence of the tanks and disclosed
this to its purchaser.
A formal plan of remediation has not been approved by the County of Placer or
the State Regional Water Quality Board but is being finalized by an independent
consultant retained for this purpose. As a result of the discovery of the
contamination, two civil lawsuits were instituted against the Bank and other
prior owners by the current owner of the property, Rainbow Holding Company, who
is also the Bank's borrower. One of the actions, the state court matter, was
dismissed by agreement of the parties. The other matter, filed in the summer of
1995 in the U.S. District Court, Eastern District of California, is ongoing,
with a settlement conference anticipated in the next several months.
The Bank's external and internal counsel on this matter believe that the Bank's
share of the cost of remediation and the costs of defense will not be material
to the Bank's or the Company's performance and will be within existing reserves
established by the Bank for this matter. It is also expected that clean-up of
the property will be undertaken during 1997.
In addition, the Company is subject to some minor pending and threatened legal
actions which arise out of the normal course of business and, in the opinion of
Management and the Company's General Counsel, the disposition of these claims
currently pending will not have a material adverse affect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1996 to a vote of
security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR THE BANCORP'S COMMON STOCK
On July 16, 1991 Bancorp's Common Stock commenced quotation on Nasdaq under the
symbol "STBS". Effective with the change in the Bancorp's name during 1996 to
SierraWest Bancorp, this symbol changed to "SWBS". The following table sets
forth the high and low sales prices of the Bancorp's stock as reported on Nasdaq
for the periods indicated.
High Low
1995
First Quarter.............................. 9.25 7.50
Second Quarter............................. 9.50 8.25
Third Quarter.............................. 11.25 8.25
Fourth Quarter............................. 12.00 10.50
1996
First Quarter.............................. 13.13 10.63
Second Quarter............................. 15.38 12.50
Third Quarter.............................. 15.00 12.88
Fourth Quarter............................. 15.75 14.13
1997
First Quarter (through March 1, 1997)...... 19.25 15.38
At March 1, 1997, there were 956 shareholders of record, although management
believes there are approximately 2,200 beneficial holders of its Common Stock.
On February 28, 1997, the closing sales price of Bancorp's common stock on
Nasdaq was $19.00.
Bancorp paid cash dividends of $0.30 per share in 1996 and $0.24 per share in
1995. During 1997, Bancorp's Board of Directors will continue its policy of
reviewing dividend payments on a semi-annual basis. No dividends were paid in
1994, 1993 or 1992 because of temporary restrictions placed on the Company by
the FDIC, Federal Reserve and the Nevada Department of Commerce, Division of
Financial Institutions.
There are regulatory limitations on cash dividends that may be paid by Bancorp,
as well as limitations on cash dividends that may be paid by the Bank, which
could, in turn, limit Bancorp's ability to pay dividends. Under Federal law and
applicable Federal regulations, capital distributions would be prohibited, with
limited exceptions, if a bank were categorized as "undercapitalized." Further,
the FDIC has the authority to prohibit the payment of dividends by SierraWest
Bank if it finds that such payment would constitute an unsafe or unsound
practice. See "Supervision and Regulation--Bank Regulation and Supervision."
Additionally, further restrictions on the payment of dividends are imposed by
covenants under the Company's 8 1/2% convertible subordinated debentures,
including the prohibition of the payment of dividends in the event of default on
payment of principal or interest on the debentures until such default is cured.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company as of and for each of the five years in the period ended December 31,
1996. The statements of operations data and statements of financial condition
data for each of the five years in the period ended December 31, 1996 are
derived from the consolidated financial statements of the Company and the notes
thereto. The information below is qualified in its entirety by the detailed
information included elsewhere herein and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the Consolidated Financial Statements and Notes
thereto included elsewhere herein. Average assets and equity are computed as the
average of daily balances (dollars in thousands, except per share amounts).
<TABLE>
At or for the Year Ended
December 31,
---------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statements of Operations Data
Total interest income.................................. $ 33,269 $ 25,831 $ 19,657 $ 17,246 $ 16,597
Total interest expense................................. 12,495 8,491 5,597 4,503 6,876
-------- --------- --------- --------- ---------
Net interest income.................................... 20,774 17,340 14,060 12,743 9,721
Provision for possible loan and lease losses........... 1,010 1,270 885 1,560 915
-------- --------- --------- --------- ---------
Net interest income after provision for possible
loan and lease losses................................ 19,764 16,070 13,175 11,183 8,806
Total non-interest income.............................. 7,338 7,969 9,177 10,214 9,406
Total non-interest expense............................. 21,697 20,944 17,486 17,023 15,616
Provision for income taxes............................. 2,077 1,179 1,863 1,670 763
-------- --------- --------- --------- ---------
Net income............................................. $ 3,328 $ 1,916 $ 3,003 $ 2,704 $ 1,833
======== ========= ========= ========= =========
Statements of Financial Condition Data
Total assets........................................... $447,889 $ 337,518 $ 259,975 $ 250,065 $ 243,758
Loans and leases, net(1)............................... 318,820 236,124 169,393 156,347 152,603
Allowance for possible loan and lease losses........... 4,546 3,845 3,546 3,472 2,742
Total deposits......................................... 399,651 293,154 218,876 220,768 211,976
Convertible debentures................................. 8,520 10,000 10,000 250 250
Shareholders' equity................................... 33,916 29,833 28,163 25,645 22,907
Per Share Data(2)
Book value............................................. $ 12.24 $ 11.51 $ 10.75 $ 9.90 $ 8.84
Net income:
Primary.............................................. 1.19 0.72 1.12 1.04 0.73
Fully diluted........................................ 1.01 0.66 0.96 1.02 0.71
Cash dividends declared................................ 0.30 0.24 0 0 0
Shares used to compute net income per share:
Primary.............................................. 2,802 2,678 2,678 2,609 2,503
Fully diluted........................................ 3,747 3,687 3,606 2,657 2,642
Dividend payout ratio:
Primary.............................................. 25.2% 33.3% 0.0% 0.0% 0.0%
Fully diluted........................................ 29.7 36.4 0.0 0.0 0.0
Selected Ratios
Return on average assets............................... 0.9% 0.7% 1.2% 1.2% 0.8%
Return on average shareholders' equity................. 10.5 6.5 11.2 11.1 8.6
Net interest margin(3)................................. 6.2 7.1 6.5 6.7 5.4
Average shareholders' equity to average assets......... 8.3 10.2 10.4 10.4 9.7
</TABLE>
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<TABLE>
At or for the Year Ended
December 31,
---------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Asset Quality Ratios
Allowance for possible loan and lease losses to total loans 1.4% 1.6% 2.1% 2.2% 1.8%
Allowance for possible loan and lease
losses to nonaccrual loans............................. 84.8 70.2 142.9 120.9 72.5
Net charge-offs to average loans outstanding.............. 0.1 0.5 0.5 0.4 0.5
Nonaccrual and restructured performing loans to total loans 1.7 2.3 1.5 1.9 2.5
Nonperforming assets to total assets...................... 1.3 1.8 1.4 1.6 2.0
Ratio of Earnings to Fixed Charges(4)
Excluding interest paid on deposits..................... 5.0x 3.2x 5.0x 13.1x 8.2x
Including interest paid on deposits..................... 1.4x 1.3x 1.8x 1.9x 1.4x
</TABLE>
(1) The term "Loans and leases, net" means total loans, including loans
held for sale, less the allowance for possible loan and lease losses.
(2) All per share data has been adjusted to reflect stock dividend and
stock splits. See "Market for the Bancorp's Common Stock." Book value
per share is calculated as total shareholders' equity divided by the
number of shares outstanding at the end of the period.
(3) Ratio of net interest income to total average earning assets.
(4) Computed by dividing income before income taxes plus fixed charges by
fixed charges. Fixed charges excluding interest paid on deposits
consist of interest on other borrowings, interest on convertible
debentures and amortization of debt expense. Fixed charges including
interest paid on deposits consist of the foregoing plus interest on
deposits.
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Selected Quarterly Financial Information
The following table sets forth the Company's unaudited data regarding operations
for each quarter of 1996 and 1995. This information, in the opinion of
management, includes all adjustments (which are of a normal recurring nature)
necessary to state fairly the information therein. The operating results for any
quarter are not necessarily indicative of results for any future period (amounts
in thousands except per share data).
<TABLE>
Quarter
First Second Third Fourth
1996
<S> <C> <C> <C> <C>
Interest income.................................... $ 7,426 $ 7,803 $ 8,714 $ 9,326
Interest expense................................... 2,748 2,889 3,275 3,583
---------- ------------ ----------- -----------
Net interest income................................ 4,678 4,914 5,439 5,743
Provision for possible loan and lease losses....... 510 150 250 100
------------ -------------- ------------- ------------
Net interest income after provision for possible
loan and lease losses............................ 4,168 4,764 5,189 5,643
Total non-interest income.......................... 1,666 1,755 1,825 2,092
Total non-interest expense......................... 4,910 5,920 5,472 5,395
---------- ------------- ------------- -------------
Income before provision for income taxes........... 924 599 1,542 2,340
Provision for income taxes......................... 357 211 602 907
------------ -------------- ------------- ------------
Net income......................................... $ 567 $ 388 $ 940 $ 1,433
========== ============ ============ ============
Primary earnings per share......................... $ 0.21 $ 0.14 $ 0.33 $ 0.50
Fully diluted earnings per share................... 0.18 0.13 0.28 0.41
1995
Interest income.................................... $ 5,601 $ 6,134 $ 6,766 $ 7,330
Interest expense................................... 1,625 1,930 2,286 2,650
-------- --------- --------- ---------
Net interest income................................ 3,976 4,204 4,480 4,680
Provision for possible loan and lease losses....... 270 320 390 290
-------- --------- --------- ---------
Net interest income after provision for possible
loan and lease losses............................ 3,706 3,884 4,090 4,390
Total non-interest income.......................... 2,157 1,924 1,977 1,911
Total non-interest expense......................... 5,034 5,105 5,020 5,785
-------- --------- --------- ---------
Income before provision for income taxes........... 829 703 1,047 516
Provision for income taxes......................... 301 267 424 187
-------- --------- --------- ---------
Net income......................................... $ 528 $ 436 $ 623 $ 329
======== ========= ========= =========
Primary earnings per share......................... $ 0.20 $ 0.16 $ 0.23 $ 0.12
Fully diluted earnings per share................... 0.18 0.15 0.20 0.12
</TABLE>
-31-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations For the Years Ended December 31, 1996, 1995 and 1994
The Company derives or has derived income from three principal areas of
business: (1) net interest income, which is the difference between the interest
income the Company receives on interest-bearing loans and investments and the
interest expense it pays on interest-bearing liabilities such as deposits and
borrowings; (2) the origination and sale of SBA loans; and (3) servicing fee
income which results from the ongoing servicing of loans sold by the Company and
other loans pursuant to purchased servicing rights.
Net income for the year ended December 31, 1996 increased 73.7%, from $1.9
million during 1995 to $3.3 million during 1996. This increase resulted from a
19.8% increase in net interest income. Partially offsetting the increase in net
interest income was a decline of 7.9% in non-interest income and an increase of
3.6% in non-interest expenses.
The following table summarizes the operating results for the years ended
December 31, 1996, 1995, and 1994 (amounts in thousands except percentage
amounts):
<TABLE>
December 31, 1996 over 1995 1995 over 1994
------------------------------------ ---------------------- ------------------
1996 1995 1994 Amount Percentage(1) Amount Percentage(1)
---- ---- ---- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income......... $ 33,269 $ 25,831 $19,657 $ 7,438 28.8% $ 6,174 31.4%
Total interest expense........ 12,495 8,491 5,597 4,004 47.2 2,894 51.7
------- ------- ------- ------- -------
Net interest income........... 20,774 17,340 14,060 3,434 19.8 3,280 23.3
Provision for possible
loan and lease losses....... 1,010 1,270 885 (260) (20.5) 385 43.5
------- ------- ------- --------- -------
Net interest income after
provision for possible
loan and lease losses. . 19,764 16,070 13,175 3,694 23.0 2,895 22.0
Total non-interest income..... 7,338 7,969 9,177 (631) ( 7.9) (1,208) (13.2)
Total non-interest expense.... 21,697 20,944 17,486 753 3.6 3,458 19.8
------- ------- ------- ------- -------
Income before provision for taxes 5,405 3,095 4,866 2,310 74.6 (1,771) (36.4)
Provision for income taxes . . 2,077 1,179 1,863 898 76.2 (684) (36.7)
----- ------- ------- ------- --------
Net Income $ 3,328 $ 1,916 $ 3,003 $ 1,412 73.7 $(1,087) (36.2)
======= ======= ======= ======== ========
</TABLE>
(1) Increase (decrease) over previous year's amount.
Net Interest Income. Net interest income is influenced by a number of factors
such as the volume and distribu tion of interest earning assets, the rate
charged on loans for interest and fees, the rate earned on investments and
federal funds sold and the rate paid for deposits and other liabilities.
-32-
<PAGE>
The following table sets forth (in thousands), for the periods indicated, a
summary of the changes in interest income and interest expense resulting from
changes in volume and from changes in rates. Income from tax-exempt securities
has not been presented on a tax-equivalent basis as it is not significant. For
purposes of this table, the change not solely attributable to volume or rate has
been allocated to change due to rate.
<TABLE>
1996 over 1995 1995 over 1994
---------------------------------- -----------------------
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Interest Income:
Loans....................................... $ 9,429 $ (2,505) $ 6,924 $ 3,853 $ 2,343 $ 6,196
Mutual funds................................ (23) (10) (33) (139) 43 (96)
Taxable securities.......................... (57) 99 42 (231) 163 (68)
Tax-exempt securities....................... 139 30 169 16 (4) 12
Federal funds sold.......................... 422 (78) 344 (54) 170 116
Other deposits.............................. 7 (15) (8) 6 8 14
-------- --------- --------- -------- -------- ---------
Total....................................... 9,917 (2,479) 7,438 3,451 2,723 6,174
-------- --------- -------- -------- -------- ---------
Increase (Decrease) in Interest Expense:
Deposits:
Savings deposits.......................... 3 (6) (3) (28) (3) (31)
Transaction accounts...................... 350 275 625 (137) 238 101
Time deposits............................. 3,747 (267) 3,480 1,255 1,538 2,793
-------- --------- -------- -------- -------- ---------
Total....................................... 4,100 2 4,102 1,090 1,773 2,863
-------- -------- -------- -------- -------- ---------
Other borrowings............................ (2) (10) (12) 5 (41) (36)
Convertible debentures...................... (60) (26) (86) 72 (5) 67
--------- --------- --------- -------- --------- ---------
Total....................................... 4,038 (34) 4,004 1,167 1,727 2,894
-------- --------- -------- -------- -------- ---------
Increase in
net interest income....................... $ 5,879 $ (2,445) $ 3,434 $ 2,284 $ 996 $ 3,280
======== ========= ======== ======== ======== =========
</TABLE>
As disclosed in the foregoing table, the Company's net interest income in 1996
and 1995 increased over preceding years. In both 1996 and 1995 volume increases
were related to an increase in the asset size of the Company. During 1996 and
1995, total daily average assets increased by 33.3% and 11.1%, respectively.
During these same periods, the volume component of the increase in net interest
income was 33.9% and 16.3%, respectively.
During 1995 and 1996, the rate of increase in the volume component of the
increase in net interest income exceeded the increase in average daily assets,
primarily as a result of an increase in the percentage of average interest
earning assets to average total assets from 83.7% in 1994 to 85.3% during 1995
and 87.7% in 1996. This increase in average interest earning assets was
partially offset by a decrease in average non-interest-bearing deposits as a
percentage of average total deposits from 22.0% in 1994 to 21.0% in 1995 and
19.0% during 1996.
During 1994 and in 1995 and 1996, the Company found itself in the position of
funding much of its growth through the use of interest-bearing deposits. The
Company charges interest rates and fees in accordance with general economic
conditions, capital and liquidity constraints, and desired net interest margin
levels.
Approximately 79% of the Company's loan portfolio consists of variable rate
loans tied to the prime rate for leading west coast U.S. banks. The prime
interest rate is influenced by forces outside the Company's control. Because the
Company has less variable rate deposits than variable rate loans, the Company
would expect to incur a reduction in its net interest margin when interest rates
fall, and when interest rates rise, the reverse would be expected to apply.
-33-
<PAGE>
During the first quarter of 1996 the Company moved to mitigate the effect of the
change in the prime rate on its net interest income by entering into a three
year $20 million notional amount interest rate swap agreement with a major bank.
Under this agreement the other bank pays a fixed rate of 8.17% and receives from
the Company the prime rate. If prime increases by 1%, the Company would pay the
other bank $216 thousand on an annual basis. Conversely, if prime decreases by
1%, the other bank would pay the Company $184 thousand on an annual basis. At
the current prime rate of 8.25%, the Company will pay the other bank $16
thousand annually. Any payments made or received by the Company under the terms
of the agreement are more than offset by the corresponding increase or decrease
in interest on its variable rate loans. This transaction has a similar effect to
that of converting approximately 7% of the Company's variable rate loans to a
fixed rate.
The average prime rate for leading banks and as used by the Company ("prime
rate") for 1996 was 8.27% compared to 8.83% in 1995. This decrease equates to a
negative price variance in 1996 of $1.3 million compared to an actual negative
price variance of $2.5 million. The difference includes a decrease in the
contribution of loan fees. As a percentage of average loans, loan fees
represented 0.42% in 1996, 0.55% in 1995 and 0.78% in 1994. In addition to the
decrease in prime and the decline in loan fees as a percentage of average loans,
during 1996 the Company has experienced increased competition in the pricing of
its loans.
In 1995, the average prime rate was 8.83% compared to 7.13% for 1994. This 1995
increase equated to a positive price variance in 1995 of $2.9 million compared
to an actual positive price variance of $2.3 million. The difference is
primarily related to a decrease in the contribution of loan fees.
The positive volume variance in federal funds sold during 1996 resulted from the
Company's increase in liquid assets as its overall size increased. During 1995
and continuing into 1996 the positive spread between short-term U.S. Government
securities and federal funds sold narrowed from 1994 levels and the Company
therefore increased its reliance on federal funds sold for short-term investment
purposes. In addition, a higher level of federal funds sold was desired given
the increase in loan funding levels.
The 1996 and 1995 rate variances in federal funds sold are primarily attributed
to the interest rate changes during these periods. The negative volume variance
in 1995 includes the effect of the Company's lowering its average investment in
these funds while increasing its holdings of the guaranteed portion of SBA
loans.
The Company has kept its investment portfolio relatively short-term in recent
years, with the goal of focusing its attention on short-term liquidity needs.
During 1995 and 1996 the Company increased its holding of guaranteed portions of
SBA loans. These loans, which can be sold in relatively short periods of time,
provide an available source of additional liquidity. During 1996 the Company has
decreased its reliance on short-term U.S. securities in funding its liquidity
needs while increasing its holdings of longer term tax-exempt securities. These
tax-exempt securities provide an attractive investment alternative given the
current interest rate environment and the increase in the average maturity of
the investment portfolio is consistent with the additional sources of short-term
liquidity.
The positive rate variance during 1996 in taxable investment securities and
tax-exempt securities is primarily related to an increase in the average
maturity of these portfolios, from a weighted average of 2.2 years in 1995 to
4.0 years in 1996, excluding mortgage-backed securities.
Mutual funds consist of investments in mutual funds whose assets are invested
primarily in U.S. government securities. Mutual funds held during 1995 and 1996
related to a non money market mutual fund held principally for investment
purposes. The price variances for both 1995 and 1996 reflect the general changes
in interest rates during these periods and additionally during 1995 includes the
effect of the discontinuance of the use of money market mutual funds in the
Company's investment portfolio.
Other assets consist primarily of the cash surrender value of officers' life
insurance policies. Interest earned on these policies is reduced by insurance
costs incurred including, at the start of the second and third years for each
policy, a surrender charge. The modest volume increases in both 1996 and 1995 is
due to retention of accrued interest in the policies. Because the Company is now
funding new employee participation with traditional pay as you go life insurance
versus single premium life insurance, the volume increases in this asset will
for the future be limited to retained income for existing single premium
policies. The rate variances in 1995 and 1996 are associated with market rate
conditions.
-34-
<PAGE>
The average balance and average rate paid on interest bearing transaction
accounts during 1996 and 1995 are as follows:
<TABLE>
Year Ended December 31,
1996 1995
---------------------------------- -------------
Money Money
NOW Market NOW Market
<S> <C> <C> <C> <C>
Average Balance.................. $ 43,660 $59,303 $36,995 $50,606
Rate paid........................ 1.23% 3.51% 1.26% 3.02%
</TABLE>
The rates paid on the Company's deposits are primarily driven by market
conditions in its service areas. During 1995 the Company incurred an increase in
the average rate paid on its time deposits, from 4.17% in 1994 to 5.85% in 1995.
The average rate paid on interest bearing transaction accounts increased as
well, however at a slower rate.
In 1996 the average rate paid on time deposits declined to 5.68%, but the rate
paid on money market accounts increased. The increase in money market rates
includes the effect of tiering money market accounts at the Company's Nevada
operations and general market conditions in the Company's service area.
Average interest bearing transaction accounts increased by $15.4 million in
1996. During 1995 the Company added four new branches located in Carson City,
Nevada, and in Sacramento, South Grass Valley and Auburn, California. Average
interest bearing transaction accounts increased in 1996 by $14.9 million at
these branches.
The Company has relied on time deposits to fund most of its growth during 1995
and 1996. Average time deposits increased by $64.1 million during 1996. Of this
increase, $23.0 million was generated at the four new branches and average
out-of-area CD's increased by $8.6 million. In addition, average time deposits
held by public agencies increased by $8.3 million. Out-of-area CD's totaled
$45.8 million at December 31, 1996 or 11.5% of total deposits at that same date.
During the 1995 period the Company's average time deposits increased by $30.1
million or 49.0% while its average Money Market accounts decreased by $11.3
million or 18.3%. The Company attributes the decrease in Money Market accounts
both to a movement into higher interest rate time deposits and a movement into
non-bank money market accounts.
The increase in average time deposits during 1995 included both an increase in
out-of-area CD's as well as retail CD's generated through the Company's branch
network. Out-of-area CD's at December 31, 1995 totaled $34.8 million or 11.9% of
total deposits at this same date. This represents an increase of $17.1 million
over the December 31, 1994 balance. Total CD's increased by $70.7 million
between December 31, 1994 and December 31, 1995 while average CD's increased by
$30.1 million during this same time period of which $6.5 million represents
out-of-area time deposits.
The rate variances in time deposits for 1995 and 1996 primarily relate to market
conditions.
Other borrowings consist primarily of federal funds purchased from other banks
and a $300 thousand capital lease related to the Company's Gateway branch. The
negative rate variance experienced during 1995 and 1996 includes the effect of
capitalizing interest expense on the construction of branch facilities in Reno
and Carson City, Nevada.
The volume variance in convertible debentures in 1995 relates to the issuance of
the Bancorp's 8 1/2% optional convertible debentures. The negative rate and
volume variances during 1996 in convertible debentures relate to the conversion
into common stock of debentures having a principal balance of $1.48 million.
When presented for conversion any accrued but unpaid interest on debentures is
forfeited by the debenture holder.
Provision for Possible Loan and Lease Losses. At December 31, 1996,
approximately 73% of the Company's loan portfolio was held in loans
collateralized primarily by real estate. Particular attention is given by the
Company to factors affecting the real estate markets. The primary risk elements
considered by management with respect to commercial real estate loans are
changes in real estate values in the Company's market area and
-35-
<PAGE>
general economic conditions. The primary risks associated with other commercial
loans are the financial condition of the borrower, general economic conditions
in the Company's market area, the sufficiency of collateral, the timeliness of
payment, and interest rate fluctuations. The primary risk elements considered by
management with respect to other loans are the lack of timely payment and the
value of collateral. The Company has a reporting system that monitors past due
loans and management has adopted policies to preserve the Company's position as
a creditor.
The Company maintains its allowance for possible loan and lease losses to
provide for potential losses in its loan and lease portfolio. The allowance is
established through charges to earnings in the form of provision for possible
loan and lease losses. Loan losses are charged to, and recoveries are credited
to, the allowance for possible loan and lease losses. The provision for possible
loan and lease losses is determined after considering various factors such as
loan loss experience, current economic conditions, maturity of the loan
portfolio, size of the loan portfolio, industry concentrations, borrower credit
history, the existing allowance for possible loan and lease losses, independent
loan reviews, current charges and recoveries and the overall quality of the
portfolio, as determined by management, regulatory agencies and independent
credit review consultants retained by the Company.
In evaluating the Company's loan loss reserve, management considers the credit
risk in the various categories in its portfolio. Historically, most of the
Company's loan losses have been in its commercial lending portfolio which
includes SBA loans and local commercial loans. From inception of its SBA lending
program in 1983, the Company has sustained a relatively low level of losses from
these loans, averaging less than 0.5% of loans outstanding per year.
Most of the Company's non-SBA commercial loan losses have been for loans to
businesses within the Tahoe basin area and during 1994 and 1995 at the Company's
Reno, Nevada branch. The Company believes that it has taken steps to minimize
its commercial loan losses, including centralization of lending approval and
processing functions. It is important for the Company to maintain good relations
with local business concerns and, to this end, it supports small local
businesses with commercial loans. To offset the added risk these loans may
represent, the Company typically charges a higher interest rate. It also
attempts to mitigate this risk through the loan review and approval process.
The provision for loan and lease losses for the year ended December 31, 1996 was
$1.0 million and net loan losses were $309 thousand. The provision in 1996 is
primarily attributable to growth in the loan portfolio. Excluding the guaranteed
portion of loans, loans increased $76 million and $49 million during 1996 and
1995, respectively. The end of period allowance for possible loan and lease
losses was $4.55 million or 1.41% of loans and leases at December 31, 1996.
During 1995 the provision for possible loan and lease losses was $1.3 million
and net loan losses were $971 thousand. The allowance for possible loan and
lease losses at December 31, 1995 totaled $3.85 million, which represented 1.60%
of loans and leases outstanding. Excluding loans and portions of loans
guaranteed by the federal government, the allowance for possible loan and lease
losses to total loans and leases was 1.59% at December 31, 1996 and 1.83% at
December 31, 1995.
The following table sets forth the ratio of the allowance for possible loan and
lease losses to nonperforming loans, the ratio of the allowance for possible
loan and lease losses to total loans and leases and the ratio of nonperforming
loans to total loans and leases as of the dates indicated.
<TABLE>
Year Ended December 31,
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Allowance for possible loan and lease losses to nonperforming loans............. 84.8% 70.2% 142.9%
Allowance for possible loan and lease losses to total loans and leases.......... 1.4% 1.6% 2.1%
Nonperforming loans to total loans and leases................................... 1.7% 2.3% 1.4%
</TABLE>
The balance of nonperforming loans at December 31, 1995 includes $564 thousand
in loans which were classified as in-substance foreclosures at December 31,
1994. Non-performing loans at December 31, 1996 and 1995 include loans and
portions of loans guaranteed by the federal government totaling $2.2 million
and $1.9 million, respectively. There were no non-performing loans guaranteed
by the federal government at December 31, 1994. Excluding the guaranteed loans
the allowance for possible loan and lease losses to nonperforming loans
-36-
<PAGE>
increases to 141.8% at December 31, 1996 and 107.1% at December 31, 1995.
Additionally, nonperforming loans to total loans and leases drops to 1.0% at
December 31, 1996 and 1.5% at December 31, 1995.
Management considers the allowance of $4.55 million at December 31, 1996, to be
adequate as a reserve against foreseeable losses at that time.
Total Non-Interest Income. Total non-interest income for the year ended December
31, 1996 decreased by 7.9% from the 1995 level. For 1995 non-interest income
decreased by 13.2% as compared to 1994.
The following table summarizes the principal elements of total non-interest
income and discloses the increases (decreases) and percent of increases
(decreases) for 1996 and 1995 (amounts in thousands except percentage amounts):
<TABLE>
Increase (Decrease)
Year Ended December 31, 1996 over 1995 1995 over 1994
1996 1995 1994 Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C> <C>
Service charges $ 1,722 $1,755 $1,517 $ (33) (1.9)% $ 238 15.7%
Securities (losses)/gains...... (8) (62) (4) 54 87.1 (58) (1,450.0)
Net gain on sale of loans...... 373 307 2,300 66 21.5 (1,993) (86.7)
Net loan servicing income...... 4,087 4,667 4,474 (580) (12.4) 193 4.3
Other income................... 1,164 1,302 890 (138) (10.6) 412 46.3
------- ------ ------ ------ -------
$ 7,338 $7,969 $9,177 $ (631) (7.9) $(1,208) (13.2)
======= ====== ====== ====== ========
</TABLE>
Service charges on deposit accounts increased by 15.7% in 1995 over 1994 levels
and declined 1.9% in 1996 as compared to 1995 levels. The increase in 1995
includes the effect of an increase in average non-interest-bearing demand
accounts and an increase in overdraft charges generated from the Company's
Nevada operations.
The securities loss of $62 thousand incurred in 1995 included a loss of $46
thousand generated on the sale of $500 thousand in mutual funds. The Company
currently maintains in its investment portfolio mutual funds with a market value
of $1.34 million at December 31, 1996 and an original cost of $1.5 million at
this same date. The net gain on the sale of loans includes net gains on sale of
SBA loans of $339 thousand, $307 thousand and $2.3 million in 1996, 1995 and
1994, respectively.
Sales of SBA 7(a) loans in 1996, 1995, and 1994 were $5.6 million, $5.6 million,
and $38.2 million, respectively. In 1995 the Company altered its strategy with
respect to the sale of SBA 7(a) loans. Rather than continuing to sell the
guaranteed portion of the portfolio the Company began to retain the guaranteed
portion and plans to securitize and sell portions of unguaranteed SBA loans. The
Company estimates that the decline in sales between 1994 and 1995 would have
been reduced by up to $15.4 million if it had continued to sell the guaranteed
portion of loans available for sale in 1995, resulting in an estimated decline
in sales of approximately $17.2 million. This decline includes the effect of
temporary restrictions in the SBA program which were in place during most of
1995. These temporary restrictions reduced the maximum loan that could be made
under the SBA 7(a) program and in most cases eliminated guarantees for
refinanced debt. At December 31, 1996 the Company had $29.1 million of
guaranteed portions of SBA loans, which it could sell, an increase of $13.7
million over the $15.4 million held at December 31, 1995. SBA loan sales during
1996 primarily relate to loans to the hotel/motel industry. By selling these
guaranteed portions the Company is able to take advantage of new lending
opportunities in this industry while maintaining an acceptable level of loans to
this industry in its portfolio. The decline in SBA loan production in 1996 as
compared to 1994 and earlier years includes the effect of increased competition
in the SBA market place, a temporary shortage of qualified SBA underwriters and
a reduction in the dollar volume of loans referred by SBA loan packagers.
To support its SBA program the Company has, since 1983, relied in part on third
party SBA loan packagers. In 1996, approximately 32% of the Company's SBA loans
were generated by SBA packagers. This compares to 27% during 1995. The packagers
refer proposed SBA loans to the Company and provide certain services to the
borrowers. The packagers receive fees of a fixed amount from the borrowers, not
exceeding limits prescribed by the SBA, for preparing the SBA loan application
for the borrower. They also receive a fee from the Company for referring the
loans. These referral fee payments are included in the basis of loans and hence
are not disclosed separately in the Company's financial statements. Referral
fees for 1996, 1995, and 1994 totaled $90
-37-
<PAGE>
thousand, $200 thousand, and $481 thousand, respectively. The reduction in
packagers volume in 1995 and 1996 includes the loss of loan packages to
competition based on price and underwriting factors and the focus by the Company
on its loan production offices as its primary source for generating new loans.
To mitigate the effect of the changes in the SBA program, the Company has begun
expanding its ability to generate an increased volume of SBA loans through the
establishment of new loan production offices in Las Vegas in December 1993, in
Buena Park in Southern California in February 1995 and in Fresno in December
1995, and the addition of personnel at other offices. During 1997 the Company
expects to open a new loan production office in Denver, Colorado.
The Company experienced disappointing results at its Buena Park facility and
closed it during 1996. In lieu of providing a full office, the Company
contracted with an established loan broker to provide SBA loan referrals from
the Southern California market. The contract gives the Company an exclusive
right of first refusal on all 7(a) loans referred by this broker. To date, loans
referred through this source have not been significant.
In addition, the Company has increased its efforts to diversify its lending
activities and during 1995 and 1996 has experienced significant gains in its
construction, real estate and non-SBA commercial loan portfolios.
Net loan servicing income decreased by 12.4% in 1996 as compared to 1995. This
compares to an increase of 4.3% in 1995 over 1994. Net loan servicing income
primarily consists of net servicing income on SBA loans. For the years ended
December 31, 1996, 1995 and 1994, net servicing income on SBA loans totaled $4.1
million, $4.7 million and $4.5 million, respectively. Servicing income on SBA
loans is reported net of the amortization of the Excess Servicing recorded on
the sale of the same loans and the amortization of purchased servicing.
Amortization is based on the expected average life of the related loans. To
date, actual prepayment experience reflects an average life in excess of the
estimated life.
The increase in net servicing income on SBA loans in 1995 is primarily
attributable to a change made by the Company during the third quarter of 1994
related to its estimates of the prepayment speeds of the SBA loans it services.
The effect of this change was to decrease amortization expense by approximately
$400 thousand in 1994 and $800 thousand in 1995. Servicing income exclusive of
amortization, has declined from $6.4 million in 1994 to $6.2 million in 1995 and
$5.6 million during 1996. These declines relate to payments on existing loans
including normal amortization and prepayments. During 1996 the Company
experienced an increase in prepayments associated with refinancing by other
banks.
Other income consists primarily of merchant credit card fees and gains during
1995 and 1994 on sale of the right to service mortgage loans. In 1996 the
Company increased its staffing and emphasis on sale of mutual funds and
annuities through a third party marketer generating revenue of $333 thousand
from this source, an increase of $240 thousand from the $93 thousand generated
from these sales during 1995.
Merchant credit card revenue totaled $473 thousand in 1996, $442 thousand in
1995 and $410 thousand in 1994.
Gain on sales of servicing rights on mortgage loans totaled $190 thousand in
1995 and $223 thousand in 1994. During 1994 and into 1995 the Company
experienced a reduction in demand and a decline in profit margins in its
mortgage banking operations. During 1995, as a result of the decline in
profitability of this operation and to focus on the Company's most strategically
important activities, the Company closed its mortgage banking operations. As a
result of a termination of its mortgage banking operations, the Company did not
generate gains from the sale of mortgage servicing rights in 1996.
Other significant sources of Other income during 1996 include rental income of
$129 thousand and an $84 thousand insurance recovery on a 1995 foreclosure loss.
During 1995 the Company recorded income of $242 thousand related to its mortgage
banking operations and $83 thousand in rental income. Additionally, during
December 1995, the Company sold $5.3 million in commercial real estate loans
from the portfolio and recorded a gain of $176 thousand on this sale.
Non-Interest Expense. The ratio of the Company's non-interest expenses to total
assets is higher than for California banks in general because SierraWest Bank
experiences higher operating expenses in its Lake Tahoe area of operation and
employs additional personnel and utilizes additional facilities to manage its
SBA loan program. Because of the extreme climatic conditions in the Lake Tahoe
area of operations (temperatures range
-38-
<PAGE>
from -35 degrees to +100 degrees and average snow levels exceed 150 inches per
year), local building codes require more expensive construction and the Company
experiences added costs of heating and snow removal which increase occupancy
costs. Additionally, the Company's supplies are generally more expensive than in
larger metropolitan regions because of the added cost of freight.
The following table computes the ratio of major non-interest expense categories
to total average assets (in thousands except for percentage amounts):
<TABLE>
Salaries Occupancy
and and Other
Year Ended Average Related Equipment Non-Interest
December 31, Assets Benefits(1) Expenses Expenses
<S> <C> <C> <C> <C> <C>
1996 $381,620 3.1% 0.9% 1.6%
1995 286,194 3.7 1.2 2.4
1994 257,609 3.7 1.1 1.7
</TABLE>
(1) Excludes bonuses. Including bonuses, percentages would be 3.2%, 3.7% and
3.9% for the years ended December 31, 1996, 1995 and 1994, respectively.
The following table summarizes the principal elements of non-interest expenses
and discloses the increases (decreases) and percent of increases (decreases) for
1996 and 1995 (amounts in thousands except percentage amounts):
<TABLE>
Increase (Decrease)
Year Ended December 31, 1996 over 1995 1995 over 1994
1996 1995 1994 Amount Percentage Amount Percentage
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries and related benefits $11,884 $10,564 $ 9,537 $ 1,320 12.5% $ 1,027 10.8%
Bonuses...................... 202 63 544 139 220.6 (481) (88.4)
Occupancy and equipment...... 3,486 3,401 2,960 85 2.5 441 14.9
Insurance.................... 242 277 286 (35) (12.6) (9) (3.1)
Postage...................... 337 304 249 33 10.9 55 22.1
Stationery and supplies...... 416 334 252 82 24.6 82 32.5
Telephone.................... 374 350 262 24 6.9 88 33.6
Advertising.................. 600 715 298 (115) (16.1) 417 139.9
Legal fees................... 484 470 149 14 3.0 321 215.4
Consulting fees.............. 506 263 128 243 92.4 135 105.5
Audit and accounting fees.... 151 150 131 1 0.7 19 14.5
Directors' fees and expenses. 429 909 349 (480) (52.8) 560 160.5
FDIC assessments............. 4 284 575 (280) (98.6) (291) (50.6)
Other........................ 2,582 2,860 1,766 (278) (9.7) 1,094 61.9
------- ------- ------- -------- -------
$21,697 $20,944 $17,486 $ 753 3.6 $ 3,458 19.8
======= ======= ======= ======= =======
</TABLE>
The increase in salary expense includes the effect of the four new branches
opened in 1995, partially offset by the termination of the Company's mortgage
operations. In addition in 1996, the Company has increased the number of
employees whose compensation is partially commission based and has changed the
commission structure of many of its loan production personnel. In total,
commissions and incentive pay have, exclusive of mortgage banking operations,
increased by $883 thousand during 1996 as compared to 1995, including a $438
thousand increase in commissions paid for the generation of SBA and other
government guaranteed loans. This increase includes the changes described above
as well as an increase in volume of loan originations.
During 1996, the Company maintained four bonus plans. The first plan pays
bonuses to full time noncommissioned employees below the rank of Senior Vice
President. A total of $93 thousand was paid under this plan during 1996. A
second plan provides optional bonuses to employees below the rank of Assistant
Vice President for accomplishments that are beyond the general expectation of
their supervisor. Payments totaled $37 thousand under this plan in 1996. A third
plan is reserved for the Audit and Legal departments of the
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<PAGE>
Company whose bonus is determined by the Company's Audit and Personnel
Committees. A total of $37 thousand is included in bonus expense at December 31,
1996 for this plan. The fourth plan covers Senior management of the Company and
is payable upon achieving certain predefined goals. No incentive bonuses were
earned in 1996 under this plan. Additionally, the Company's CEO may make
recommendations to the Personnel Committee outside of the plans for bonus
payments to Senior Management employees. Included in the 1996 bonus expense is
$35 thousand related to these recommendations.
The bonus expense in 1995 relates to the Legal and Audit departments. In
addition, during 1995 the Company had an incentive plan in place covering all
non-commissioned employees; however, no bonuses were earned under this plan. A
total of $544 thousand was earned under bonus plans in place during 1994.
The Company maintains a financial institutions bond for its operations and
directors and officers insurance. The decrease in overall insurance costs from
1994 levels resulted from a softening of the insurance market for financial
institutions and a change in insurance carriers. The increase in postage
includes both an increase in the size of the Company and an increase in rates
effective January, 1995. Stationery and supplies costs increased in excess of
the increase in average assets during 1995 primarily related to $45 thousand
incurred for the start up and 1995 operations of the four new branches. This
cost remained high in 1996 because of costs associated with printing forms and
supplies following the change in the Company's name. Telephone costs during 1995
and 1996 included the costs of an expanded branch system and an upgrade and
expansion of the Company's data communication telephone lines. Advertising in
1995 includes an expanded budget and costs related to the new branches.
The increase in legal expense during 1996 relates primarily to two litigation
matters. One matter went to trial in June 1996 and was decided in the Company's
favor. Increased costs were incurred in the second matter, which is ongoing and
relates to a property acquired by the Company through foreclosure and
subsequently sold. See Item 3. "Legal Proceedings" for a description of this
matter. The increase in legal expenses during 1995 relates to general litigation
matters and a voluntary internal investigation of the Company's investment in an
entity known as Community Assets Management. The change in consulting costs
during 1995 is primarily related to a corporate identity study, a review of
directors' compensation and assistance in strategic planning. The increase in
consulting during 1996 primarily relates to costs associated with the changing
of the name of the Company's subsidiary. Other significant components of
consulting expenses during 1996 include payments made for outside credit reviews
of the Company's loan portfolio and $90 thousand paid to an SBA loan broker who
provides referrals from the southern California marketplace.
The decrease in FDIC assessments is related to a reduction in rates. Effective
June 1, 1995, the FDIC revised its rate schedule reducing rates to reflect the
fact that the Bank Insurance Fund was fully recapitalized at the end of May
1995.
Included in other expense in 1996 are $352 thousand related to a reduction in
staffing effective May 1, 1996, $70 thousand on a litigation matter and $114
thousand related to a servicing error on an SBA loan. Other expense in 1995
includes a $100 thousand business loss related to other real estate owned, $232
thousand related to two litigation matters, $243 thousand related to the
termination of the Company's mortgage operations, and a pretax charge of $530
thousand during the fourth quarter related to the closing of the Company's
branch located in the Crescent V Shopping Center in South Lake Tahoe,
California. The customer accounts formerly maintained in this branch were
transferred to the Company's Bijou branch which is located approximately one
mile away.
Provision for Income Taxes. The provision for income taxes was $2.08 million,
$1.18 million and $1.86 million for the years ended December 31, 1996, 1995 and
1994, respectively, representing 38.4%, 38.1% and 38.3%, of income before
taxation for the respective years.
Included in the Company's earnings are items which are exempt from federal and,
in some cases, state income taxes. These items include interest on certain loans
and securities of state and county municipalities and the increase in the cash
surrender value of life insurance policies on certain officers and directors.
-40-
<PAGE>
Liquidity
Liquidity refers to the Company's ability to maintain adequate cash flows to
fund operations and meet obligations and other commitments on a timely basis.
The Company's liquidity management policies are structured so as to maximize the
probability of funds being available to meet present and future financial
obligations and to take advantage of business opportunities. Financial
obligations arise from withdrawals of deposits, repayment on maturity of
purchased funds, extensions of loans or other forms of credit, purchase of
loans, payment of interest on deposits and borrowings, payment of operating
expenses, and capital expenditures.
The Company has various sources of liquidity. Increases in liquidity result from
the maturity or sale of assets. Other than cash itself, short-term investments
like federal funds sold are the most liquid assets. Also, investment securities
available for sale can be sold prior to maturity as part of prudent
asset/liability management in response to changes in interest rates and/or
prepayment risk as well as to meet liquidity needs. Additionally, liquidity is
provided by loan repayments and by selling loans in the normal course of
business. At December 31, 1996, the Company had $29.1 million in guaranteed
portions of SBA loans available for sale, most of which could be sold within a
short period of time compared to $15.4 million of SBA loans available for sale
at December 31, 1995. In management's view, these loans represent an available
source of liquidity. Deposits such as demand deposits, savings deposits and
retail time deposits also provide a source of liquidity. They tend to be stable
sources of funds except that they are subject to seasonal fluctuations. The
Company maintains an adequate level of cash and quasi-cash items to meet its
day-to-day needs and in addition, at December 31, 1996, the Company had
unsecured lines of credit totaling $6 million with its correspondent banks.
During 1995 the Company changed its strategy from the selling of the guaranteed
portion of SBA loans to retaining these portions of loans in its portfolio.
Additionally the Company announced that it intends to securitize and sell the
unguaranteed portion of SBA loans. The Company expects to complete the first
such securitization during 1997 and expects to include up to $50 million of the
unguaranteed portion of SBA loans in this securitization.
Cash and due from banks and federal funds sold as a percentage of total deposits
were 14.7% at December 31, 1996 as compared to 13.4% at December 31, 1995. Cash
and due from banks totaled $26.4 million at December 31, 1996 as compared to
$18.7 million at December 31, 1995, and federal funds sold totaled $32.2 million
at December 31, 1996 as compared to $20.5 million at December 31, 1995. Federal
funds sold represent deposits with major banks and are predominantly uninsured.
The uninsured portion of these deposits together with the uninsured portion of
cash deposited with other institutions totaled $32.6 million as of December 31,
1996. In the event of a failure of any of these institutions, the Company could
lose all or part of its deposits. To mitigate this risk, the Company
periodically examines the financial statements of these institutions and limits
the amount it deposits with any single institution.
The federal funds levels at December 31, 1996 is higher than the Company
currently considers necessary for day-to-day liquidity needs. Consistent with
the Company's on-going asset/liability management policies the Company will look
to invest excess federal fund holdings in appropriate alternative
interest-earning assets.
Total gross loans and leases, exclusive of unearned income on leases and
deferred loan fees/costs, increased by $84.3 million from $240.8 million at
December 31, 1995 to $325.1 million at December 31, 1996. The increase included
$29.7 million in SBA loans, $15.1 million in other commercial loans, $28.5
million in real estate mortgage, $4.9 million in real estate-construction, $5.8
million in leases and $0.3 million in individual and other loans. The increase
in SBA loans relates primarily to the Company's decision to retain the
guaranteed portion of SBA loans and additionally to an increase in lending
directed towards the SBA's 504 program. The increase in other loans reflects the
Company's efforts to expand and diversify its non-SBA lending activities. The
increase in real estate - mortgage loans primarily relates to Sacramento and
Reno operations. The $84.3 million increase in the loan portfolio since December
31, 1995 was primarily funded with increased time deposits and an increase in
other deposits acquired at the Company's four branches opened in 1995.
Deposits increased by $106.5 million from $293.2 million at December 31, 1995 to
$399.7 million at December 31, 1996. A decrease of $0.4 million in savings
accounts was offset by increases of $29.1 million in interest-bearing
transaction accounts, $20.0 million in non-interest-bearing demand accounts and
$57.8 million in time deposits.
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<PAGE>
The increase in time deposits includes an increase in out-of-area certificates
of deposit of $11.1 million, an increase in time deposits to public entities of
$11.6 million and time deposit growth at the four new branches of $26.7 million.
Non-interest bearing demand accounts grew by $7.4 million at the new branches
and interest-bearing transaction accounts grew by $19.0 million at the same
branches.
In part to mitigate the effect of seasonality of its deposit sources which is
due to the local tourist-based economy in much of the Company's service area,
SierraWest Bank utilizes a "money desk" to solicit out-of-area CDS. These CDs
supplement its other deposit sources, provide additional liquidity and
additionally, help support its loan growth. These deposits, which at December
31, 1994, 1995 and 1996 totaled $17.6 million, $34.7 million and $45.8 million,
respectively, represented 8.0%, 11.9% and 11.5% of total deposits as of December
31, 1994, 1995 and 1996, respectively.
To attract out-of-area CDS, SierraWest Bank subscribes to a listing service
which lists nationally the rate the Bank is prepared to pay. Customers call
SierraWest Bank directly and place deposits. Additionally, beginning in 1995
SierraWest Bank began accepting referrals by brokers which can result in a
slightly lower cost of those deposits. At December 31, 1996 $10.6 million of
out-of-area CD's have been acquired through broker referrals. To attract
deposits, SierraWest Bank pays a market rate which may at times be above the
comparable rate offered by SierraWest Bank to its local depositors. The overhead
costs associated with these out-of-area deposits is, however, lower than that
for local deposits since local deposits require the use of bank branch
facilities and hence the Company believes the cost of these funds does not
normally exceed the cost SierraWest Bank incurs to generate comparable deposits
through its branch system. While out-of-area deposits are acquired at an
acceptable cost, SierraWest Bank monitors the level of these deposits because it
is concerned that out-of- area deposits are more rate sensitive and volatile and
that there may be some exposure for increased costs in the future should the
supply tighten. If interest rates rise rapidly, the Company's reliance on these
deposits could have an adverse impact on net interest income if the costs to
retain those deposits rise faster than rates charged on interest-earning assets.
Capital Resources
At December 31, 1996, the Company had shareholders' equity of $33.9 million as
compared to $29.8 million at December 31, 1995. The Company's growth strategy is
to expand its banking business, internally and through possible acquisitions.
Such expansion is contingent on the retention of internally generated earnings,
and the possible issuance of new equity or additional debt, as well as the
satisfaction of other factors including obtaining regulatory approvals.
The Company's strategy is to expand its banking business, through internal
growth and acquisitions, both within its present service areas, particularly in
the Reno metropolitan market and adjacent areas, and the Sacramento Valley
locations. It also plans to increase the volume and geographic scope of its SBA
lending to leverage on its SBA loan origination and servicing capabilities. In
connection with this objective, the Company established a loan production office
in Las Vegas during December 1993, in February 1995 in Buena Park in southern
California, and during December 1995 in Fresno, California. The Buena Park
office was closed in 1996. See page 38 herein. The Company plans to finance its
expansion program through the retention of internally generated earnings,
through the use of the proceeds of its $10 million debt offering completed in
February 1994, and through the possible future issue of equity and/or further
debt offerings. Factors which could impede the Company's growth strategy include
possible non-approval by the banking regulators of applications for acquisitions
or new branches, and the possible inability of Bancorp to raise future capital
through the issuance of equity or debt.
On January 24, 1997 the Company announced that it had signed a definitive
agreement to acquire Mercantile Bank. Based in Sacramento, Mercantile is a
business bank primarily servicing the commercial and real estate loan industry
and has total assets of $46 million. The acquisition, which is scheduled to
close in June, 1997, is subject to the approval of Mercantile's shareholders and
federal and state regulators. Under the terms of the proposed transaction,
shareholders of Mercantile will receive total compensation of $6.6 million,
subject to certain adjustments primarily based upon the level of deposits and
capital. The compensation will consist of 50% cash and 50% stock.
During June 1996 the Company completed construction of a new regional facility
in Reno, Nevada. Total costs incurred for the land and building at December 31,
1996 was $3.8 million. The Company currently occupies
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<PAGE>
approximately 13,000 square feet of this 28,600 square foot facility. The
remaining space is leased or to be leased until needed by the Company for
expansion. At February 28, 1997 a total of 3,375 square feet had been leased
out. Tenant improvements paid for by the Company are not expected to exceed $0.3
million on this facility.
During December 1996, the Company completed construction on its Carson City
facility. This 5,200 square foot facility was built at a cost of $1.3 million.
Prior to occupying this new building, the Company's Carson City office was
located in a 780 square foot leased facility.
On February 8, 1994, the Company sold to the public $10,000,000 of 8 1/2%
optional convertible subordinated debentures, convertible at the option of the
holder at $10.00 per share. These debentures mature on February 1, 2004 and are
redeemable on or after February 1, 1997 in whole or in part at the option of the
Company. Convertible debentures outstanding at December 31, 1996 and 1995
consisted of $8,520,000 and $10,000,000, respectively of these 8 1/2% optional
convertible subordinated debentures. A total of $1,480,000 of debentures were
converted into 148,000 shares of common stock during 1996 and there have been
significant conversions in 1997.
A portion of the net proceeds from these debentures have been utilized to pay
operating expenses of the holding company, to provide a $2.3 million equity
infusion into the Company's subsidiary bank, to repurchase 50,000 shares of
stock on the open market and to pay dividends to the Company's shareholders. Of
the $2.7 million remainder at December 31, 1996, $1.8 million has been used to
reduce the Company's reliance on out-of-area time deposits, and $0.9 million
provides operating cash resources for the holding company.
The Company paid dividends of fifteen cents per share during April and September
1996 and twelve cents per share during March and September 1995. During June
1995, the Company repurchased 50,000 shares of its common stock on the open
market at a total cost of $445 thousand.
On December 21, 1995, the Company designated 200,000 shares of its 10,000,000
authorized preferred shares as Series A Junior Participating Preferred Stock.
These shares were created by the Company to facilitate a shareholder protection
rights plan. During January of 1996 a dividend of rights was made to existing
stockholders to acquire stock of the Company. This plan is designed to protect
the Company and its stockholders against abusive takeover attempts and tactics.
In essence, the rights plan would dilute the interests of an entity attempting
to take control of the Company if the attempt is not deemed by the Board of
Directors to be in the best interests of all stockholders. If the Board of
Directors determines that an offer is in the best interests of the stockholders,
the stock rights may be redeemed for nominal value, allowing the entity to
acquire control of the Company.
In the first quarter of 1996, the names of both the Bancorp's banking
subsidiaries were changed to SierraWest Bank. Effective October 1, 1996 the
operations of the Company's Nevada subsidiary were merged into the California
subsidiary.
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<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
<S> <C>
Independent Auditors' Report................................................................................45
Consolidated Financial Statements of SierraWest Bancorp
Consolidated Statements of Financial Condition............................................................46
Consolidated Statements of Income.........................................................................48
Consolidated Statements of Shareholders' Equity...........................................................50
Consolidated Statements of Cash Flows.....................................................................51
Notes to Consolidated Financial Statements................................................................55
</TABLE>
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
SierraWest Bancorp
Truckee, California
We have audited the consolidated statements of financial condition of SierraWest
Bancorp and Subsidiary ("Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SierraWest
Bancorp and Subsidiary at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Sacramento, California
January 24, 1997
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31,
1996 1995
(in thousands)
Cash and cash equivalents:
<S> <C> <C>
Cash and due from banks................................... $ 26,434 $ 18,689
Federal funds sold........................................ 32,200 20,500
---------- -----------
Total Cash and Cash Equivalents........................... 58,634 39,189
Investment securities (Note 2):
Investments in mutual funds available for sale............ 1,335 1,391
Held to maturity, market value $2,000 and $3,380.......... 2,001 3,373
Available for sale........................................ 31,880 24,970
Loans held for sale (Note 3)................................. 29,489 16,529
Loans and leases, net of allowance for possible loan
and lease losses of $4,546 and $3,845 (Note 3)............ 289,331 219,595
Excess servicing on SBA loans (Note 5)....................... 14,338 14,813
Bank premises, leasehold improvements
and equipment, net (Note 4)............................... 12,358 8,972
Accrued interest receivable and
other assets.............................................. 8,523 8,686
----------- ----------
TOTAL ASSETS.............................................. $447,889 $337,518
======== ========
</TABLE>
See notes to consolidated financial
statements.
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
December 31,
1996 1995
(in thousands except share amounts)
Deposits (Note 6):
<S> <C> <C>
Non-interest-bearing demand............................... $ 80,525 $ 60,579
Savings................................................... 13,289 13,693
Interest bearing transaction accounts..................... 120,417 91,273
Time ..................................................... 185,420 127,609
------------ ------------
Total Deposits............................................ 399,651 293,154
Other liabilities and interest payable....................... 5,802 4,531
Convertible debentures (Note 13)............................. 8,520 10,000
------------ ------------
Total Liabilities......................................... 413,973 307,685
Shareholders' equity (Notes 15 and 16):
Preferred stock, no par value;
9,800,000 shares authorized;
none issued............................................. 0 0
Preferred stock series A, no par value; 200,000
shares authorized; none issued.......................... 0 0
Common stock, no par value; 10,000,000
shares authorized; 2,771,139 and 2,592,419 shares
issued and outstanding at December 31, 1996 and
1995, respectively...................................... 12,291 10,709
Retained earnings......................................... 21,654 19,131
Unrealized loss on investment securities
available for sale, net of tax of
$21 and $6.............................................. (29) (7)
------------ ------------
Total Shareholders' Equity................................ 33,916 29,833
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY.................................... $ 447,889 $ 337,518
=========== ============
</TABLE>
See notes to consolidated financial
statements.
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1996 1995 1994
(in thousands, except per share amounts)
Interest income:
<S> <C> <C> <C>
Loans and leases.............................................. $ 30,506 $ 23,582 $ 17,386
Federal funds sold............................................ 938 594 478
Investment securities
U.S. Treasury............................................... 931 976 1,103
U.S. Government agencies.................................... 85 385 272
States and political subdivisions........................... 198 29 17
Other....................................................... 498 144 294
Other assets.................................................. 113 121 107
---------- ---------- -----------
Total Interest Income......................................... 33,269 25,831 19,657
Interest expense:
Savings deposits.............................................. 283 286 317
Transaction accounts.......................................... 2,620 1,995 1,894
Time deposits ................................................ 8,832 5,352 2,559
Convertible debentures (Note 13).............................. 764 850 783
Other......................................................... (4) 8 44
---------- ---------- -----------
Total Interest Expense........................................ 12,495 8,491 5,597
---------- ---------- -----------
Net Interest Income........................................... 20,774 17,340 14,060
Provision for possible loan and lease losses (Note 3)......... 1,010 1,270 885
---------- ---------- -----------
Net Interest Income After Provision for Possible
Loan and Lease Losses....................................... 19,764 16,070 13,175
</TABLE>
See notes to consolidated financial
statements.
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(continued)
Year Ended December 31,
1996 1995 1994
(in thousands, except per share amounts)
Non-interest income:
<S> <C> <C> <C>
Net servicing income (Note 5).............................. $ 4,087 $ 4,667 $ 4,474
Net gain on sale of loans (Note 5)......................... 373 307 2,300
Service charges on deposit accounts........................ 1,722 1,755 1,517
Other...................................................... 1,156 1,240 886
---------- ---------- -----------
Total Non-interest Income................................. 7,338 7,969 9,177
Non-interest expense:
Salaries and related benefits.............................. 12,086 10,627 10,081
Net occupancy and equipment expense (Notes 4 and 8) 3,486 3,401 2,960
Other expense (Note 17).................................... 6,125 6,916 4,445
---------- ----------- -----------
Total Non-interest Expense................................. 21,697 20,944 17,486
---------- ---------- -----------
Income before provision for income taxes................... 5,405 3,095 4,866
Provision for income taxes (Note 7)........................ 2,077 1,179 1,863
---------- ---------- -----------
Net Income................................................. $ 3,328 1,916 $ 3,003
========== ========== ===========
Income per common and equivalent share, based on
weighted average shares outstanding (including dilutive
effect of options)
(Notes 1, 12 and 13):
Primary.................................................... $ 1.19 $ 0.72 $ 1.12
Weighted average shares outstanding........................ 2,802 2,678 2,678
Fully diluted.............................................. $ 1.01 $ 0.66 $ 0.96
Weighted average shares outstanding........................ 3,747 3,687 3,606
Dividends per share.......................................... $ 0.30 $ 0.24 $ 0.00
</TABLE>
See notes to consolidated financial
statements.
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Loss on
Common Stock Retained Investment
Shares Amounts Earnings Securities Total
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994.................. 2,591 $ 10,825 $ 14,836 $ (16) $ 25,645
Net Income............................... 0 0 3,003 0 3,003
Stock options exercised.................. 2 12 0 0 12
Common stock issued on
conversion of debentures............... 27 165 0 0 165
Net change in unrealized loss on
investment securities available for
sale, net of tax ...................... 0 0 0 (662) (662)
------------------------------------------- ------- ---------
Balance at December 31, 1994................ 2,620 11,002 17,839 (678) 28,163
Net Income . . . . . . . . . . . . . . . . 0 0 1,916 0 1,916
Stock options exercised . . . . . . . . . . 20 142 0 0 142
Common stock issued on
conversion of debentures............... 2 10 0 0 10
Common stock repurchased . . . . . . (50) (445) 0 0 (445)
Dividends paid........................... 0 0 (624) 0 (624)
Net change in unrealized loss on
investment securities available
for sale, net of tax................... 0 0 0 671 671
------------ ----------- -------------- -------- -------
Balance at December 31, 1995 ............... 2,592 10,709 19,131 (7) 29,833
Net Income . . . . . . . . . . . . . . . . 0 0 3,328 0 3,328
Stock options exercised . . . . . . . . . . 31 212 0 0 212
Common stock issued on
conversion of debentures............... 148 1,370 0 0 1,370
Dividends paid........................... 0 0 (805) 0 (805)
Net change in unrealized loss on
investment securities available
for sale, net of tax................... 0 0 0 (22) (22)
------------ ---------- ------------ ---------- ----------
Balance at December 31, 1996 ............... 2,771 $ 12,291 $ 21,654 $ (29) $ 33,916
============= ======== ========== ========= ========
</TABLE>
See notes to consolidated financial
statements.
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<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
(in thousands)
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
Cash flows from operating activities:
<S> <C> <C> <C>
Interest and fees received................................. $ 32,506 $ 24,411 $ 18,900
Service charges............................................ 1,722 1,754 1,517
Servicing income received.................................. 5,574 6,186 6,439
Other income received...................................... 1,038 1,147 877
Interest paid.............................................. (12,292) (8,251) (5,221)
Cash paid to suppliers and employees....................... (20,141) (18,142) (13,916)
Income taxes paid.......................................... (1,640) (1,334) (1,838)
Mortgage loans originated or purchased for sale............ 0 (25,176) (26,769)
Government guaranteed loans originated for sale............ (7,672) (22,163) (36,276)
Mortgage loans sold........................................ 0 27,000 28,352
Government guaranteed loans sold........................... 9,214 5,646 38,238
---------- ----------- ----------
Net cash provided by (used in) operating activities........ 8,309 (8,922) 10,303
Cash flows from investing activities:
Proceeds from:
Sales of mutual funds................................... 0 454 6,516
Maturities of investment securities held to maturity.... 1,378 773 1,854
Maturities of investment securities available for
sale.................................................. 10,958 3,500 13,025
Sales of investment securities available for sale....... 8,239 8,484 4,986
Sales of investment securities -
held to maturity (Note 2)............................. 0 999 0
Purchase of investment securities -
held to maturity......................................... 0 0 (1,488)
Purchase of investment securities -
available for sale....................................... (26,248) (9,999) (28,370)
Loans made net of principal collections.................... (84,700) (52,571) (19,531)
Capital expenditures....................................... (4,536) (3,012) (1,317)
Decrease (increase) in other assets........................ 141 83 (109)
---------- --------- -------
Net cash used in investing activities...................... (94,768) (51,289) (24,434)
</TABLE>
See notes to consolidated financial
statements.
-51-
<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
1996 1995 1994
(in thousands)
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase in demand, interest bearing,
and savings accounts........................................ 48,686 3,606 5,389
Net increase (decrease) in time deposits...................... 57,811 70,672 (7,281)
Proceeds from issuance of debentures.......................... 0 0 10,000
Net proceeds from issuance of common stock ................... 212 142 12
Dividend paid................................................. (805) (624) 0
Repurchase of common stock.................................... 0 (445) 0
Cash paid to redeem debentures................................ 0 0 (73)
---------- ---------- -----------
Net cash provided by financing activities..................... 105,904 73,351 8,047
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents......... 19,445 13,140 (6,084)
Cash and cash equivalents - beginning of period............... 39,189 26,049 32,133
---------- ---------- -----------
Cash and cash equivalents - end of period..................... $ 58,634 $ 39,189 $ 26,049
========= ========== ===========
</TABLE>
See notes to consolidated financial
statements.
-52-
<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
1996 1995 1994
---- ---- ----
(in thousands)
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income.................................................... $ 3,328 $ 1,916 $ 3,003
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization.............................. 1,197 1,119 1,139
Provision for possible loan and lease losses............... 1,010 1,270 885
Deferred taxes............................................. 309 (140) 29
(Increase) decrease in prepaid expenses.................... (313) 110 44
Gain on sale of government guaranteed loans
(over)/under cash received ............................... (392) 108 321
Amortization of excess servicing on SBA loans.............. 1,315 1,348 1,793
Amortization of purchased mortgage servicing
rights.................................................... 172 172 172
Change in:
Interest receivable....................................... (347) (534) (501)
Interest payable.......................................... 203 241 376
Deferred loan fees........................................ 14 (312) 309
Other deferred income..................................... (13) (101) 17
Accrued expenses.......................................... 671 1,139 (261)
Current taxes payable..................................... 127 (15) (6)
Write down of other real estate owned ..................... 21 16 54
Amortization of premium/discount on securities............. 133 (104) (58)
Amortization of premium/discount on loans.................. (563) (469) (507)
Increase in cash surrender value of life
insurance policies........................................ (113) (121) (105)
Deferred gain on sale of other loans....................... 0 66 0
Loss on sale of securities................................. 8 62 4
Decrease (increase) in loans originated for sale........... 1,542 (14,693) 3,545
Write off of investments................................... 0 0 50
---------- ---------- -----------
Total adjustments.......................................... 4,981 (10,838) 7,300
---------- ----------- -----------
Net cash provided by (used in) operating activities $ 8,309 $ (8,922) $ 10,303
========== =========== ===========
</TABLE>
See notes to consolidated financial
statements.
-53-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Supplemental Schedule of Non Cash Investing and Financing Activities
Common stock was issued in conversion of $1,370,000, $10,000 and $167,000
of convertible debentures in 1996, 1995 and 1994, respectively. The $1,370,000
is net of $110,000 of debenture offering costs.
For the years ended December 31, 1996, 1995 and 1994, $446,000, $373,000
and $682,000 of loans, respectively, were transferred to other real estate
owned.
In the 1995 period, $572,000 of assets formerly classified as in-substance
foreclosures were reclassified as loans.
In 1996, $9.2 million of government guaranteed loans were transferred to
held for sale status and subsequently sold and included in the Statement of Cash
Flows.
In 1995, $20.0 million of unguaranteed SBA loans originated in earlier
years were transferred to held for sale status. Concurrently, $21.4 million of
guaranteed SBA loans were transferred to the Company's investment portfolio at
cost, which was lower than market.
See notes to consolidated financial
statements.
-54-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting and Reporting Policies:
The accompanying consolidated financial statements include the accounts of
SierraWest Bancorp ("Bancorp") and its subsidiary, SierraWest Bank (collectively
referred to as the "Company"). Bancorp was incorporated under the laws of the
State of California on December 5, 1985. During 1996, SierraWest Bancorp's two
banking subsidiaries changed their names to SierraWest Bank (the "Bank"), and on
October 1, 1996, Bancorp's Nevada subsidiary, formerly Sierra Bank of Nevada,
was merged into its California subsidiary, formerly Truckee River Bank.
Effective December 19, 1996, SierraWest Bank's subsidiary, Sierra Tahoe Mortgage
Company, was dissolved. Operations of this line of business were terminated in
1995.
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and general practices within the banking
industry. The more significant accounting and reporting policies not described
elsewhere in these notes to financial statements are discussed below.
Significant intercompany transactions have been eliminated in consolidation.
Nature of Operations. The Company is a one-bank holding company and
operates nine branches in Northern California and two in Northern Nevada. Its
primary source of revenue is interest on SBA, real estate, and other commercial
loans provided to customers, who are predominantly small businesses and
individuals.
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents. Cash and cash equivalents in the consolidated
statements of cash flows include cash and due from banks and federal funds sold.
Investments in Mutual Funds. Investments in mutual funds consist of mutual
funds whose assets are invested primarily in U.S. Government securities. At
December 31, 1996 and 1995, all mutual fund investments are classified as
available for sale and carried at market value. Unrealized gains and losses on
mutual funds are reported, net of tax, as a separate component of shareholders'
equity. Interest income on mutual funds is recorded as earned.
Investment Securities. In accordance with Statement of Financial Accounting
Standards ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities", the Company has classified its investment securities and mutual
funds as held to maturity or available for sale. Securities held to maturity are
carried at cost adjusted by the accretion of discounts and amortization of
premiums. The Company's policy of carrying such investment securities at
amortized cost is based upon its ability and management's intent to hold these
investment securities to maturity. Securities available for sale may be sold to
implement the Company's asset/liability management strategies and in response to
changes in interest rates, prepayment rates and similar factors. These
securities are recorded at their market values. Unrealized gains or losses are
included as a separate component of shareholders' equity, net of tax. Gains or
losses on sales of investment securities are based on the specific
identification method.
Loans Held for Sale. Loans held for sale are valued at the lower of cost or
market value. Valuation adjustments, if any, are charged through the income
statement. In practice, the adjustment is charged against the gain (loss) on
sale of loans. At December 31, 1996 and 1995, SBA loans held for sale consist of
the unguaranteed portion of loans which the Company intends to sell on a
securitized basis. (See Note 3).
Loans and Loan Fees. Loans receivable that Management has the intent and
ability to hold for the foreseeable future or until maturity or payoff are
reported at their outstanding principal balances reduced by any charge-offs and
net of any deferred fees or costs and unamortized premiums and discounts on
purchased loans.
-55-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Interest income on loans and leases is recognized as earned. When a loan is 90
days past due with respect to principal or interest, and in the opinion of
Management, interest or principal is not collectible, or at such earlier time as
Management determines that the collectibility of such principal or interest is
unlikely, the accrual of interest is discontinued and all accrued but
uncollected interest income is reversed. Cash payments subsequently received on
nonaccrual loans are recognized as income only where the future collection of
the recorded value of the loan is considered by management to be probable. Loan
fees net of certain related direct costs to originate loans are deferred and
amortized over the contractual life of the loan using a method that approximates
the interest method.
Allowance for Possible Loan and Lease Losses. The allowance for possible
loan and lease losses is maintained at a level considered adequate to provide
for losses that can be reasonably anticipated. The allowance is increased by
provisions and reduced by charge-offs (net of recoveries). The Company's
provision is based on Management's overall evaluation of the inherent risks in
the loan and lease portfolio and detailed evaluations of the collectibility of
specific loans. This evaluation process requires the use of current estimates,
which may vary from the ultimate collectibility experienced in the future. The
estimates used are reviewed periodically, and, as adjustments become necessary,
they are charged to operations in the period in which they become known.
The Company has adopted Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan" and No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure". SFAS No. 114 requires that impaired loans be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or as a practical expedient at the loan's observable market rate
or the fair value of the collateral if the loan is collateral dependent. The
Company's impaired loans are collateral dependent and therefore measured using
the fair value of the collateral. SFAS No. 114 also requires that impaired loans
for which foreclosure is probable should be accounted for as loans. SFAS No. 118
amends SFAS No. 114 to allow a creditor to use existing methods for recognizing
interest income on impaired loans and requires certain information to be
disclosed. Interest is recognized on impaired loans when cash is received and
the future collection of principal is considered by management to be probable.
A loan is impaired when, based upon current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the contractual terms of the loan agreement. Loans are measured for impairment
as part of the Company's normal loan review process. Impairment losses are
included in the allowance for possible loan and lease losses through a charge to
provision for loan and lease losses.
Lease Receivables. Leases are accounted for as direct financing leases and
are carried net of unearned income. Income from these leases is recognized on a
basis which produces a level yield on the outstanding net investment in the
lease.
Bank Premises, Leasehold Improvements and Equipment. Premises, leasehold
improvements and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is computed principally by the straight-line method
over the estimated useful lives of the assets, which are: buildings, 30 years;
leasehold improvements, 1 to 10 years; furniture and equipment, 3 to 5 years.
Fixed assets are assessed for impairment in accordance with SFAS No. 121.
Other Real Estate Owned. Property acquired by the Company through
foreclosure is initially recorded in the consolidated statements of financial
condition at the lower of estimated fair value less the cost to sell or cost at
the date of foreclosure. At the time a property is acquired, if the fair value
is less than the loan amounts outstanding, any difference is charged against the
allowance for possible loan and lease losses. After acquisition, valuations are
periodically performed and, if the carrying value of the property exceeds the
fair value, less estimated costs to sell, a valuation allowance is established
by a charge to operations.
Operating costs on foreclosed real estate are expensed as incurred. Costs
incurred for physical improve ments to foreclosed real estate are capitalized if
the value is recoverable through future sale.
-56-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Property held at December 31, 1996 and 1995 in the amounts of $446,000 and
$714,000, respectively, are expected to be disposed of within one year.
Sales and Servicing of SBA Loans. The Company originates loans to customers
under a Small Business Administration ("SBA") program that generally provides
for SBA guarantees of up to 80% of each loan. Prior to 1995, the Company sold
the guaranteed portion of each loan to a third party and retained the
unguaranteed portion in its own portfolio. Beginning in 1995, the Company
retained both the guaranteed and unguaranteed portions of most of the loans
generated in its portfolio. For SBA loans sold, the Company may be required to
refund the sales premium received on such sales, if the borrower defaults or the
loan prepays within 90 days of the settlement date. A gain is recognized on the
sale of SBA loans through collection on sale of a premium over the adjusted
carrying value, through retention of an ongoing rate differential less a normal
service fee (excess servicing fee) between the rate paid by the borrower to the
Company and the rate paid by the Company to the purchaser, or both.
To calculate the gain (loss) on sale, the Company's investment in an SBA
loan is allocated among the retained portion of the loan, the excess servicing
retained and the sold portion of the loan, based on the relative fair market
value of each portion. The gain (loss) on the sold portion of the loan is
recognized at the time of sale based on the difference between the sale proceeds
and the allocated investment. As a result of the relative fair value allocation,
the carrying value of the retained portion is discounted, with the discount
accreted to interest income over the life of the loan. The excess servicing fees
are reflected as an asset which is amortized over an estimated life using a
method approximating the level yield method; in the event future prepayments
exceed Management's estimates and future expected cash flows are inadequate to
cover the unamortized excess servicing asset, additional amortization would be
recognized. In its calculation of excess servicing fees the Company has used
0.4% as its estimate of a normal servicing fee.
Stock-Based Compensation. The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with APB No. 25,
Accounting for Stock Issued to Employees. Accordingly, nocompensation expense
has been recognized in the financial statements for employee stock arrangements.
However, the required pro forma disclosures have been presented in accordance
with SFAS No. 123.
Accounting Pronouncements. On January 1, 1996 the Company adopted SFAS 121,
Accounting for the Impairment of Long-Lived Assets to Be Disposed Of. SFAS 121
establishes standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill for all entities. It does not apply to
financial instruments, long-term customer relationships of a financial
institution, mortgage or other servicing rights, or deferred tax assets.
Adoption of SFAS 121 has not had a significant impact on the financial condition
or operations of the Company.
The Company is required to adopt SFAS No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" in 1997. The
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. These
standards are based on consistent application of a financial-component approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. Management has not
assessed the effect that the adoption of SFAS 125 will have on the financial
condition or results of operations of the Company.
Income Taxes. Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
-57-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Earnings per Share. Primary earnings per share are based on net income,
divided by the weighted average shares outstanding (including the dilutive
effect of stock options). Fully diluted earnings per share are determined by
adjusting net income for the after tax effect of interest on convertible
debentures and dividing this by the weighted average shares outstanding adjusted
for the conversion of the convertible debentures.
Derivative Financial Instruments. Through the date of termination of
mortgage banking operations in 1995, the Company utilized forward sales
commitments on mortgage loans as part of its interest rate risk management
strategy. These commitments could be optional or mandatory. Under optional
commitments, a commitment fee was paid and the Company was not at risk of loss
if it did not fulfill the commitment. Mandatory commitments could entail
possible financial risk to the Company if it did not deliver sufficient mortgage
loans to fulfill the commitment.
During the first quarter of 1996, the Company entered into an interest rate
swap agreement with a major bank to reduce its exposure to fluctuations in
interest rates. The notional principal amount is $20 million, and the term is
three years. Under the agreement, the other bank pays a fixed rate of 8.17% and
receives from the Company the prime rate. Net interest income or expense
resulting from the differential between the fixed and prime rates is recorded on
a current basis and any resultant accrual is settled quarterly. The related
amount payable to or receivable from the other bank is included in other
liabilities or assets. The fair value of the swap is not recognized in the
financial statements. The net interest expense recognized in 1996 was
approximately $13,000.
Reclassifications. Certain items in the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
-58-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Investment Securities and Investments in Mutual Funds:
The amortized cost and estimated market values of investments in securities
and mutual funds are as follows (amounts in thousands):
<TABLE>
Gross Gross Estimated
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
December 31, 1996
Held to Maturity:
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities................ $ 2,001 $ 0 $ 1 $ 2,000 $ 2,001
Other securities........................ 0 0 0 0 0
----------- ------------ -------- -------- --------
Total held to maturity.................. $ 2,001 $ 0 $ 1 $ 2,000 $ 2,001
=========== ============= ======== ======== =========
Available for Sale:
U.S. Treasury securities................ $ 17,428 $ 49 $ 15 $ 17,462 $ 17,462
Securities of U.S.
government agencies................. 999 6 0 1,005 1,005
Securities of states and
political subdivisions.............. 5,951 59 19 5,991 5,991
Mortgage-backed securities.............. 7,387 45 10 7,422 7,422
---------- ---------- -------- ---------- ---------
Total available for sale................ $ 31,765 $ 159 $ 44 $ 31,880 $ 31,880
========== ========= ========= ========= ========
Mutual funds............................ $ 1,500 $ 0 $ 165 $ 1,335 $ 1,335
=========== ========== ========== ========== ========
December 31, 1995
Held to Maturity:
U.S. Treasury securities................ $ 3,261 $ 10 $ 3 $ 3,268 $ 3,261
Other securities........................ 112 0 0 112 112
----------- ----------- -------- ---------- ---------
Total held to maturity.................. $ 3,373 $ 10 $ 3 $ 3,380 $ 3,373
=========== ========== ========= =========== =========
Available for Sale:
U.S. Treasury securities................ $ 14,792 $ 105 $ 21 $ 14,876 $ 14,876
Securities of U.S.
government agencies................. 7,494 40 48 7,486 7,486
Securities of states and
political subdivisions.............. 2,575 38 5 2,608 2,608
----------- ----------- -------- ---------- ----------
Total available for sale................ $ 24,861 $ 183 $ 74 $ 24,970 $ 24,970
=========== =========== ======== =========== ==========
Mutual funds............................ $ 1,500 $ 0 $ 109 $ 1,391 $ 1,391
============ =========== ======== =========== ==========
</TABLE>
-59-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Scheduled maturities of investment securities at December 31, 1996 were as
follows:
<TABLE>
Held to Maturity Available for Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Within 1 year.............................................. $ 1,001 $ 1,001 $ 7,015 $ 7,018
After 1 year but within 5 years............................ 1,000 999 11,759 11,792
After 5 years but within 10 years.......................... 0 0 100 99
After 10 years............................................. 0 0 5,504 5,549
-------- -------- ---------- ----------
2,001 2,000 24,378 24,458
Mortgage-backed securities. . . . . . . . . . . . . . . . . 0 0 7,387 7,422
---- -------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,001 $ 2,000 $ 31,765 $ 31,880
======= ========= ========== ==========
</TABLE>
Expected maturities of mortgage-backed securities can differ from
contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties. In addition, such
factors as prepayments and interest rates may affect the yield and the carrying
value of mortgage-backed securities. At December 31, 1996 and 1995, the Company
had no high-risk collateralized mortgage obligations as defined by regulatory
agencies.
The weighted average maturity of portfolio securities held by mutual
funds classified as available for sale was 7.2 years at December 31, 1996.
Assets, principally loans and investment securities, carried at
approximately $24,201,000 at December 31, 1996 and $14,594,000 at December 31,
1995 were pledged to secure public deposits and for other purposes required or
permitted by law.
Proceeds from sales of investments in debt securities were $8,351,000
during 1996, and $9,483,000 and $4,986,000 during 1995 and 1994, respectively.
The Company recorded gross realized losses of $8,000 and $62,000 on the sales of
investment securities during 1996 and 1995, respectively. The Company realized
tax benefits of $3,000 and $25,000 on securities losses in 1996 and 1995,
respectively. Sales of investment securities classified as held to maturity in
1995 consisted of a single security which was sold within 90 days of its
maturity date. The amortized cost at the date of sale was $998,203 and the loss
realized was $1,172.
3. Loans, Leases, Allowance for Possible Loan and Lease Losses and Loans Held
for Sale:
The Company's customers are located throughout its service areas covering
primarily the whole of Northern California including San Francisco and
Sacramento and Reno, Nevada. Approximately 45% of the Company's loans at
December 31, 1996, have been generated through the Company's SBA lending
activities. Of these loans, the SBA guarantee extends to approximately 25%.
$69,030,000 of the Company's loan portfolio represents the retained portion of
SBA loans for which the SBA guaranteed portion has been sold to investors.
Approximately 90% of these loans are collateralized by commercial real estate
and the balance by other business assets. The Company's loans are not
concentrated in any particular industry segment.
-60-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
At December 31, 1996 and 1995, the loan portfolio consisted of the
following (amounts in thousands):
<TABLE>
1996 1995
----- ----
<S> <C> <C>
Commercial................................................................ $ 174,445 $ 142,622
Real estate--mortgage..................................................... 67,690 39,219
Real estate--construction................................................. 36,633 31,718
Individual and other...................................................... 6,824 6,530
Lease receivables......................................................... 9,994 4,164
------------- --------
Total gross loans and leases.............................................. 295,586 224,253
Unearned income on leases................................................. 1,690 808
Net deferred loan fees.................................................... 19 5
Allowance for possible loan and lease losses.............................. 4,546 3,845
------------- -----------
Total loans and leases, net of unearned income on leases, net
deferred fees and allowance for possible loan and lease losses......... $ 289,331 $ 219,595
=========== ===========
Loans held for sale....................................................... $ 29,489 $ 16,529
============ ============
</TABLE>
Included in commercial loans and loans held for sale are SBA loans
totaling $146,266,000 and $116,529,000 at December 31, 1996 and 1995,
respectively. The guaranteed portion of SBA loans in process of disbursement
totaled $5,559,000 and $11,448,000 at December 31, 1996 and 1995, respectively.
When these loans are fully disbursed, they will be available for sale. The
guaranteed portion of loans which are in the Company's loan portfolio and
available for sale totaled $29,066,000 and $15,377,000 at December 31, 1996 and
1995, respectively. Loans and portions of loans guaranteed by the federal
government were approximately $37,444,000 and $29,947,000 at December 31, 1996
and 1995, respectively.
The following schedule provides a summary of the future minimum lease
receivable payments to be received over the next five years (in thousands).
1997 $ 2,924
1998 2,725
1999 1,837
2000 1,336
2001 750
Thereafter 422
--------
Total $ 9,994
========
There are no contingent rentals included in income for each of the three years
in the period ended December 31, 1996.
Of total gross loans and leases at December 31, 1996, $5,400,000 were
considered to be impaired. The allowance for possible loan and lease losses
included $565,000 related to these loans. The amount of interest received and
recognized on these impaired loans in 1996 was $310,000. The average recorded
investment in impaired loans during 1996 was $5,600,000.
Of total gross loans and leases at December 31, 1995, $5,500,000 were
considered to be impaired. The allowance for possible loan and lease losses
included $446,000 related to these loans. The amount of interest received and
recognized on these impaired loans in 1995 was $221,000. The average recorded
investment in impaired loans during 1995 was $3,400,000.
-61-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The changes in the allowance for possible loan and lease losses for the
years ended December 31, 1996, 1995, and 1994 were as follows (amounts in
thousands):
<TABLE>
Year Ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning of year.................................... $ 3,845 $ 3,546 $ 3,472
Provision for possible loan and lease losses.................. 1,010 1,270 885
Loans charged off............................................. (593) (1,025) (1,075)
Recoveries.................................................... 284 54 264
--------- --------- --------
Balance, end of period........................................ $ 4,546 $ 3,845 $ 3,546
======== ======== ========
</TABLE>
As of December 31, 1996 and 1995, loans totaling $5,363,000 and $5,476,000,
respectively, were on nonaccrual status. Interest earned but not recorded on
loans that were on nonaccrual status for the years ended December 31, 1996, 1995
and 1994, was $320,000, $243,000, and $97,000, respectively. Cash collections of
interest on nonaccrual loans for the same periods of $310,000, $221,000, and
$145,000, respectively, were included in interest on loans in the Consolidated
Statements of Income. The principal balance of loans where scheduled payments
are more than 90 days past their due date and where interest has been accrued
totaled $2,132,000 ,$1,023,000, and $1,763,000, as of December 31, 1996, 1995
and 1994, respectively. These loans are adequately secured and Management
believes interest recorded on these loans will be collected.
Other real estate owned was $446,000 and $758,000 at December 31, 1996, and
1995, respectively, and is recorded in other assets. At December 31, 1996 and
1995 the balance in the allowance for losses on other real estate owned was
zero. During the years ended December 31, 1996 and 1995, there was no
significant activity in the allowance for losses on other real estate owned.
4. Bank Premises, Leasehold Improvements and Equipment:
Bank premises, leasehold improvements and equipment at December 31, 1996
and 1995, consisted of the following (amounts in thousands):
<TABLE>
December 31, 1996
Accumulated
Depreciation/ Net
Cost Amortization Book Value
<S> <C> <C> <C>
Land...................................................... $ 1,425 $ 0 $ 1,425
Buildings................................................. 9,439 1,059 8,380
Leasehold improvements.................................... 639 501 138
Furniture and equipment................................... 6,814 4,399 2,415
-------------- --------------- ------------
Total..................................................... $ 18,317 $ 5,959 $ 12,358
============== ============= ============
</TABLE>
-62-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
December 31, 1995
Accumulated
Depreciation/ Net
Cost Amortization Book Value
<S> <C> <C> <C>
Land...................................................... $ 958 $ 0 $ 958
Building ................................................. 6,729 796 5,933
Leasehold improvements.................................... 740 603 137
Furniture and equipment................................... 5,890 3,946 1,944
-------------- ------------- -------------
Total..................................................... $ 14,317 $ 5,345 $ 8,972
============== ============= =============
</TABLE>
Depreciation and amortization amounts included in net occupancy and
equipment expenses were $1,145,000, $1,076,000 and $1,061,000, for the years
ended December 31, 1996, 1995 and 1994, respectively.
5. Sales and Servicing of SBA Loans:
A summary of the activity in SBA loans for the years ended December 31,
1996, 1995 and 1994, is as follows (amounts in thousands):
<TABLE>
December 31,
1996 1995 1994
<S> <C> <C> <C>
SBA loans sold............................................................. $ 5,621 $ 5,646 $ 38,238
Premium received at sale................................................... 52 496 3,132
Excess servicing retained(1)............................................... 690 134 1,241
Amortization charged against earnings...................................... 1,315 1,348 1,793
Balance of excess servicing retained at period end......................... 14,188 14,813 16,027
</TABLE>
(1) Net of estimated future servicing fee rate.
For the years ended December 31, 1996 and 1995, $7.3 million and $22.2
million of unguaranteed portions of SBA loans, respectively, were originated for
sale. For the year ended December 31, 1994, $36.3 million of guaranteed portions
of SBA loans were originated for sale.
In addition to the above, excess servicing retained at December 31, 1996
includes $150,000 generated on the sale of business and industry loans
guaranteed by Farmer Mac.
During 1994, the Company changed its estimates regarding the prepayment
speeds of SBA loans it originates and services for investors. The net effect on
income before provision for income taxes for 1994 was an increase of
approximately $330,000.
During June 1990, the Company purchased the rights to service the
guaranteed portion of SBA loans from a third party. The unpaid principal balance
of such loans serviced for others by the Company exclusive of nonaccrual loans,
was $11,651,000 and 11,580,000 at December 31, 1996 and 1995, respectively. The
balance of purchased servicing rights was $600,000 and $772,000 at December 31,
1996 and 1995, respectively. Amortization of purchased servicing rights was
$172,000 in 1996, 1995 and 1994.
-63-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. Deposits:
The aggregate amount of certificates of deposit with balances in excess of
$100,000, was $58,110,000 and $31,595,000 at December 31, 1996 and 1995,
respectively.
Maturities of certificates of deposit at December 31, 1996 were as follows
(amounts in thousands):
Year
1997...................................... $157,908
1998...................................... 25,024
1999...................................... 1,477
2000...................................... 857
2001...................................... 154
------------
$185,420
============
7. Income Taxes:
The current and deferred amounts of the tax provision for the years ended
December 31, 1996, 1995 and 1994 are as follows (amounts in thousands):
<TABLE>
December 31,
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal Currently payable...................... $ 1,392 $ 1,030 $ 1,439
Deferred............................... 234 (93) 50
State Currently payable...................... 376 289 395
Deferred............................... 75 (47) (21)
---------- ---------- ----------
$ 2,077 $ 1,179 $ 1,863
========== =========== ==========
Total Currently payable...................... $ 1,768 $ 1,319 $ 1,834
Deferred............................... 309 (140) 29
---------- ---------- ----------
$ 2,077 $ 1,179 $ 1,863
========== =========== ==========
</TABLE>
-64-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of the Company's
net deferred tax liability as of December 31, 1996 and 1995 are as follows
(amounts in thousands):
<TABLE>
December 31,
Deferred Tax Liabilities: 1996 1995
------ ------
<S> <C> <C>
Unamortized book gain in excess of unamortized tax gain
on sale of SBA loans $ 2,285 $ 2,091
Deferred loan costs 618 342
Loans marked to market 573 339
Other 351 250
-------- ---------
3,827 3,022
Deferred Tax Assets:
Book loan loss allowance in excess of tax loan loss allowance 1,603 1,363
State taxes paid or accrued 153 109
Accrued personal leave 248 234
Deferred compensation 222 159
Unrealized loss on investment securities 21 0
Accrued expenses 582 586
Other 275 157
-------- ---------
3,104 2,608
-------- ---------
Net deferred tax liability $ 723 $ 414
======== =========
</TABLE>
The Company believes that it is more likely than not that it will realize
the above deferred tax assets in future periods; therefore, no valuation
allowance has been provided against its deferred tax assets.
The total tax provision differs from the statutory federal income tax
rates for the reasons shown in the following table:
<TABLE>
December 31,
-------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Tax at statutory federal rate ............................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit.......................... 5.0 4.4 5.4
Income exempt from federal taxation.......................... (1.7) (0.4) (0.1)
Increase in cash surrender value
of life insurance policies................................. (0.7) (1.3) (0.9)
Other, net................................................... 0.8 0.4 (1.1)
----- ------ ------
Effective tax rate........................................... 38.4% 38.1% 38.3%
==== ===== =====
</TABLE>
8. Commitments and Contingent Liabilities:
Lease Payments. The Company is obligated for rental payments under certain
operating lease, capitalized lease and contract agreements, some of which
contain renewal options. Total rental expense included in net occupancy and
equipment expense amounted to $1,106,000, $1,211,000 and $922,000, for the years
ended December 31, 1996, 1995 and 1994, respectively. At December 31, 1996,
future minimum rentals to be received under noncancelable subleases were
approximately $419,000.
-65-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
At December 31, 1996, future minimum payments, by year and in the
aggregate, under the capital leases and noncancellable operating leases with
initial or remaining terms of one year or more consisted of the following (in
thousands):
<TABLE>
Capital Operating
Year Leases Leases
<S> <C> <C>
1997...................................... $ 38 $ 997
1998...................................... 38 828
1999...................................... 38 860
2000...................................... 38 789
2001...................................... 38 556
Thereafter................................ 378 1,789
------- --------
Total minimum lease payments.............. 568 $ 5,819
========
Less amount representing interest......... (295)
-------
Present value of net minimum
lease payments.......................... $ 273
=======
</TABLE>
Commitments to Lend. In the normal course of business, there are
outstanding various commitments and contingent liabilities, such as commitments
to extend credit and letters of credit, which are not reflected in the
consolidated financial statements. As of December 31, 1996 and 1995, the Company
had outstanding $78,053,000 and $46,030,000, respectively, in commitments to
extend credit and $2,024,000 and $1,083,000, respectively, in standby letters of
credit. At December 31, 1996, no losses are anticipated as a result of these
commitments.
Loan commitments are typically contingent upon the borrower meeting
certain financial and other covenants, and such commitments typically have fixed
expiration dates and sometimes require payment of fees. Approximately
$20,639,000 of the commitments at December 31, 1996, relate to SBA loans which
may require a construction phase, generally lasting less than 12 months. The
remainder relate primarily to commercial lines of credit, construction loans,
equity lines of credit, and commercial loans. The Company evaluates each
potential borrower and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank deposits, debt or equity
securities, or business assets.
Standby letters of credit are conditional commitments written by the
Company to guarantee the performance of a client to a third party. These
guarantees are issued to the Company's commercial clients, and are typically
short-term in nature. Credit risk is similar to that involved in extending loan
commitments to customers, and the Company accordingly uses evaluation and
collateral requirements similar to those for loan commitments. Most such
commitments are collateralized.
Legal Actions. During 1987, the Bank took title, through foreclosure, of a
property located in Placer County which subsequent to the Bank's sale of the
property was determined to be contaminated with a form of hydrocarbons. At the
time it owned the property, the Bank became aware of and investigated the status
of certain underground tanks that had existed on the property. The Bank hired a
consultant to study the tanks and properly seal them. Several years later, and
after resale of the property, contamination was observed in the area of at least
one of the buried tanks and along an adjoining riverbank of the Yuba River. The
Bank, at the time of resale of the property, was not aware of this contamination
adjacent to the tanks but was aware of the existence of the tanks and disclosed
this to its purchaser.
A formal plan of remediation has not been approved by the County of Placer or
the State Regional Water Quality Board but is being finalized by an independent
consultant retained for this purpose. As a result of the discovery of the
contamination, two civil lawsuits were instituted against the Bank and other
prior owners by the current owner of the property, Rainbow Holding Company, who
is also the Bank's borrower. One of the actions, the state court
-66-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
matter, was dismissed by agreement of the parties. The other matter, filed in
the summer of 1995 in the U.S. District Court, Eastern District of California,
is ongoing, with a settlement conference anticipated in the next several months.
The Bank's external and internal counsel on this matter believe that the Bank's
share of the cost of remediation and the costs of defense will not be material
to the Bank's or the Company's performance and will be within existing reserves
established by the Bank for this matter. It is also expected that clean-up of
the property will be undertaken during 1997.
In addition, the Company is subject to some minor pending and threatened legal
actions which arise out of the normal course of business and, in the opinion of
Management and the Company's General Counsel, the disposition of these claims
currently pending will not have a material adverse affect on the Company's
financial position or results of operations.
Reserves. The Company is required to maintain reserves with the Federal
Reserve Bank of San Francisco equal to a percentage of its reservable deposits.
The reserve requirement at December 31, 1996 and 1995 was $5,054,000 and
$2,855,000, respectively.
9. Capital Requirements and Regulatory Restrictions:
The Company is regulated by the Federal Reserve Board and is limited as to
the payment of dividends by California corporate law to the amount of its
retained earnings. SierraWest Bank is regulated by the Federal Deposit Insurance
Corporation (the "FDIC"), whose regulations generally do not limit the payment
of dividends. In addition to the FDIC, SierraWest Bank is also regulated by the
California State Banking Department. California banking laws limit cash
dividends to the lesser of retained earnings or net income for the last three
years, net of the amount of distributions made to shareholders during such
period. At December 31, 1996, in accordance with statutory restrictions,
$11,647,000 of Bancorp's retained earnings were restricted as to the payment of
dividends; however, banking regulations also require that each bank maintain
certain capital ratios. These requirements may further act to limit the payment
of dividends.
The Company and the Bank are subject to various regulatory capital
requirements administered by federal and state 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 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 judgements 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 Tier I capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1996, that the Company and the Bank meet all capital adequacy requirements to
which they are subject.
The most recent notification from the Federal Deposit Insurance
Corporation for the Bank as of December 31, 1996 and 1995 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.
-67-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company's and the Bank's actual capital amounts (in thousands) and ratios
are also presented, respectively, in the following tables.
<TABLE>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Consolidated $ 46,668 13.6% $ 27,452 8.0% N/A N/A
SierraWest Bank 35,866 10.7% 26,816 8.0% 33,520 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 33,846 9.8% 13,815 4.0% N/A N/A
SierraWest Bank 31,670 9.4% 13,477 4.0% 20,215 6.0%
Tier I Capital (to Average Assets):
Consolidated 33,846 7.9% 17,137 4.0% N/A N/A
SierraWest Bank 31,670 7.6% 16,668 4.0% 20,836 5.0%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated $ 42,610 16.6% $ 20,535 8.0% N/A N/A
Truckee River Bank 23,824 12.5% 15,247 8.0% 19,059 10.0%
Sierra Bank of Nevada 6,900 12.0% 4,600 8.0% 5,750 10.0%
Tier I Capital (to Risk Weighted Assets):
Consolidated 29,787 11.6% 10,271 4.0% N/A N/A
Truckee River Bank 21,685 11.3% 7,676 4.0% 11,514 6.0%
Sierra Bank of Nevada 6,216 10.7% 2,324 4.0% 3,486 6.0%
Tier I Capital (to Average Assets):
Consolidated 29,787 9.1% 13,093 4.0% N/A N/A
Truckee River Bank 21,685 9.2% 9,428 4.0% 11,785 5.0%
Sierra Bank of Nevada 6,216 7.7% 3,229 4.0% 4,036 5.0%
</TABLE>
SierraWest Bank's ratios are calculated under regulatory accounting
principles, which differ from generally accepted accounting principles.
10. Disclosures About Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Company disclose the
fair value of financial instruments for which it is practicable to estimate that
value. Although Management uses its best judgment in assessing fair value, there
are inherent weaknesses in any estimating technique that may be reflected in the
fair values disclosed. The fair value estimates are made at a discrete point in
time based on relevant market data, information about the financial instruments
and other factors. Estimates of fair value of instruments without quoted market
prices are subjective in nature and involve various assumptions and estimates
that are matters of judgment. Changes in the assumptions used could
significantly affect
-68-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
these estimates. Fair value has not been adjusted to reflect changes in market
condition for the period subsequent to December 31, 1996 and 1995. Therefore,
estimates presented herein are not necessarily indicative of amounts which could
be realized in a current transaction.
The following estimates and assumptions were used at December 31, 1996 and
1995, to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value:
Cash and Cash Equivalents. For cash and cash equivalents, the carrying
amount is estimated to be fair value.
Investment Securities and Mutual Funds. For investment securities and
mutual funds, fair values are based on quoted market prices or dealer quotes. If
a quoted price is not available, fair value is estimated using quoted market
prices for similar securities.
Loan Receivables. The fair value of non-SBA loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The fair value of loans held or available for sale is
estimated using quoted market prices for similar loans or the expected gain in
the case of loans being pooled for securitization. SBA loans in process which
will become available for sale after final disbursement are valued at cost plus
the estimated gain on sale but excluding any gain allocable to the undisbursed
portion of the loans. In assigning current market rates, it has been assumed
that these reflect future losses and that no additional provision for loan and
lease losses is required. The unguaranteed portion of SBA loans not being pooled
have been valued at book value, which approximates fair value. Loans on
nonaccrual or work out status have been valued at an estimated average
realization value for the underlying collateral based on past experience in
liquidation of comparable loans.
Excess Servicing. The unsold interest element of portions of SBA loans
that have been sold is valued at the current rate paid by the market for SBA
interest strips at December 31, 1996 and 1995.
Cash Surrender Value of Life Insurance. The carrying amount is estimated
to be the fair value.
Deposit Liabilities. The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
Convertible Debentures. Fair value is based on quoted market prices at
December 31, 1996 and 1995.
Commitments to Fund/Sell Loans. The Company's commitments to fund loans
are primarily for adjustable rate loans indexed to the prime rate. For these
commitments, there is no difference between the committed amount and fair value.
At December 31, 1996 and 1995, the Company's commitments to fund fixed rate
loans were at rates which approximated market. The unrealized gain from the
subsequent sale of the commitment portion of SBA loans in process at December
31, 1996 and 1995 is estimated to be $839 thousand and $596 thousand,
respectively.
Derivative Financial Instruments. Based on quoted market prices at
December 31, 1996, the interest rate swap had a negative fair value of $149
thousand.
Letters of Credit. The Company's standby letters of credit have been
valued based on the fees charged for such instruments at December 31, 1996 and
1995. The difference between the letter of credit amounts and the fair value of
such amounts is immaterial.
The Company did not hold any commitments to sell loans at December 31,
1996 or 1995.
-69-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The estimated fair values of the Company's financial instruments are as follows
(in thousands):
<TABLE>
December 31, 1996
Carrying Fair
Amount Value
Financial Assets:
<S> <C> <C>
Cash and cash equivalents............................................. $ 58,634 $ 58,634
Mutual funds.......................................................... 1,335 1,335
Investment securities................................................. 33,881 33,880
Loans receivable...................................................... 318,820 328,971
Excess servicing...................................................... 14,338 17,242
Cash surrender value of life insurance................................ 2,292 2,292
------------- -------------
$ 429,300 $ 442,354
============= =============
Financial Liabilities:
Deposits.............................................................. $ 399,651 $ 400,471
Convertible debentures................................................ 8,520 13,036
------------- -------------
$ 408,171 $ 413,507
============= =============
</TABLE>
<TABLE>
December 31, 1995
Carrying Fair
Amount Value
<S> <C> <C>
Financial Assets:
Cash and cash equivalents............................................. $ 39,189 $ 39,189
Mutual funds.......................................................... 1,391 1,391
Investment securities................................................. 28,343 28,350
Loans receivable...................................................... 236,124 240,099
Excess servicing...................................................... 14,813 16,797
Cash surrender value of life insurance................................ 2,170 2,170
------------- -------------
$ 322,030 $ 327,996
============= ==============
Financial Liabilities:
Deposits.............................................................. $ 293,154 $ 294,046
Convertible debentures................................................ 10,000 11,200
------------- -------------
$ 303,154 $ 305,246
============= ==============
</TABLE>
11. Related Party Transactions:
In the ordinary course of business, the Company makes loans to directors,
senior officers and shareholders on substantially the same terms, including
interest rates and collateral, as comparable transactions with unaffiliated
persons. As of December 31, 1995, loans outstanding to directors, senior
officers, and principal shareholders and their known associates which in
aggregate exceeded $60,000 were approximately $208,000, including loans to a
director who retired in 1996. There were no such loans outstanding at December
31, 1996. During 1996 there were $90,000 in loan disbursements and $234,000 in
loan payments with respect to the loans outstanding at December 31, 1995.
-70-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. Employee Stock Option Plan:
Under the Company's 1988 stock option plan, 495,000 shares of stock were
reserved for employee stock options. Options under this plan could be granted to
full-time salaried officers and employees and to directors of Bancorp and its
subsidiaries at the fair market value of the stock on the date of grant. With
the exception of non-employee director options granted after August 16, 1995,
options granted under the 1988 plan are exercisable for a period of five years,
with 20% of the options vesting each year. Options granted to non-employee
directors after August 16, 1995 are fully vested upon grant and have a term and
exercise period of ten years. The 1988 plan was terminated in 1996 and replaced
by a new plan, under which 450,000 shares are available for issuance. Options
under this plan may be granted to full-time salaried officers and employees at
the fair market value of the stock on the date of the grant. The options have a
term of ten years and vesting provisions are determined by a committee of the
Board of Directors, with a minimum of 20% of the options vesting each year.
The following is a summary of stock option activity:
<TABLE>
Number of Weighted Average
Shares Exercise Price
<S> <C> <C>
Outstanding, January 1, 1994 ................................... 359,148 $6.86
Granted...................................................... 25,000 8.60
Terminated................................................... (42,604) 7.68
Exercised.................................................... (1,890) 6.40
----------
Outstanding, December 31, 1994 (65,626 exercisable
at a weighted average price of $6.79)........................... 339,654 6.89
Granted ..................................................... 163,288 10.34
Terminated ........................................... . . . (108,763) 6.70
Exercised ................................................... (20,590) 6.91
---------
Outstanding, December 31, 1995 (149,198 exercisable
at a weighted average price of $8.33).......................... 373,589 8.45
Granted...................................................... 75,000 14.31
Terminated................................................... (25,340) 7.80
Exercised.................................................... (30,720) 6.91
----------
Outstanding, December 31, 1996.................................. 392,529 9.74
</TABLE>
Additional information regarding options outstanding as of December 31, 1996 is
as follows:
<TABLE>
Options Outstanding Options Exercisable
Weighted Average
Remaining
Range of Number Contractual Weighted Average Number Weighted Average
Exercise Prices Outstanding Life (Yrs) Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$ 4.75 - 5.00 13,250 0.9 $4.91 8,950 $4.89
$ 6.50 - 8.00 139,916 1.7 7.03 75,162 7.01
$ 9.25 - 9.75 96,163 7.5 9.67 82,163 9.73
$ 11.25 - 15.50 143,200 6.9 12.87 64,000 13.60
------- --------
$ 4.75 -15.50 392,529 5.0 9.74 230,275 9.73
======= =======
</TABLE>
At December 31, 1996, 375,000 shares were available for future grants under the
1996 plan.
-71-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net
income and earnings per share had the Company adopted the fair value method as
of the beginning of 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The Company's calculations
were made using a binomial options pricing model with the following assumptions:
For non-employee grants made in 1995: expected life, seven years; risk free
interest rate, 5.93%. For fully vested grants made in 1996: expected life, seven
years; risk free interest rate, 5.97%. For all other employee grants made in
1996 and 1995: expected life, four years; risk free interest rates, 5.76% in
1996 and 5.79% in 1995. For all grants made in 1996 and 1995, stock volatility
was assumed to be 30% and dividends were assumed to be payable at 2.5%. The
Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1995 and 1996 awards had been amortized to expense over the vesting period of
the awards, pro forma net income would have been $1,722 thousand ($0.60 per
share fully diluted) in 1995 and $3,133 thousand ($0.96 per share fully diluted)
in 1996. However, the impact of outstanding non-vested stock options granted
prior to 1995 has been excluded from the pro forma calculation; accordingly, the
1995 and 1996 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
13. Convertible Debentures:
During 1987, Bancorp sold to the public $250,000 of 9% optional
convertible debentures, convertible at the option of the holder at the end of
seven years from the date of issue at $6.06 per share or redeemable at par.
During 1994, $167,400 of Bancorp's 9% optional convertible debentures were
converted into 27,619 shares of Bancorp common stock. The conversion rate was
$6.06 per share. Of the remaining debentures, $72,600 were redeemed for cash,
and $10,000 were converted into 1,650 shares in 1995.
On February 8, 1994, Bancorp sold to the public $10,000,000 of 8 1/2 %
optional convertible subordinated debentures, convertible at the option of the
holder at $10.00 per share. These debentures mature on February 1, 2004 and are
redeemable on or after February 1, 1997 in whole or in part at the option of
Bancorp. The balance of convertible debentures outstanding at December 31, 1996
and 1995 was $8,520,000 and $10,000,000, respectively.
14. Salary Continuation Plan:
The Company has a Salary Continuation Plan covering certain of its senior
officers and directors. Under this plan, the officers and directors or their
beneficiaries will receive monthly payments after retirement or if earlier,
death. The Company has accrued $104,820, $66,818 and $77,708 as compensation
expense in 1996, 1995 and 1994, 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 and directors.
15. Employee Stock Ownership Plan:
Officers and other employees of Bancorp and its subsidiary are eligible
for participation in the "SierraWest Bancorp KSOP Plan" (the "KSOP") which
provides for a qualified cash or deferred arrangement and discretionary employer
matching and profit sharing contributions. The Company contributes to the plan
at the discretion of the Board of Directors. Contributions can take the form of
cash contributions or Bancorp common stock. $238,000, $198,000, and $167,000 was
contributed to the KSOP in 1996, 1995 and 1994, respectively.
-72-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
16. Preferred Stock
On December 21, 1995, the Company designated 200,000 shares of its
10,000,000 authorized preferred shares as Series A Junior Participating
Preferred Stock (Series A stock). One share of Series A stock has the same
voting and participation rights as one hundred shares of common stock. On this
same date, the Company's Board of Directors adopted a shareholder rights
protection plan (the Plan) and declared a dividend of one stock right for each
share of common stock outstanding on January 16, 1996. Upon the occurrence of
certain events, the right is convertible into one one-hundredth of a share of
Series A stock for an exercise price of $40. As the rights are not convertible
at the option of the holder and there is no assurance that they will become
convertible, the Company has not assigned a value to the rights. The Plan became
effective March 3, 1996.
-73-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
17. Other Expense:
Other expense for the years ended December 31, 1996, 1995 and 1994 include
the following (amounts in thousands):
<TABLE>
Year Ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Advertising................................. $ 600 $ 715 $ 298
Directors' fees and expenses................ 429 909 349
FDIC assessments............................ 4 284 575
Insurance(1)................................ 242 277 286
Legal fees.................................. 484 470 149
Postage..................................... 337 304 249
Stationery and supplies..................... 416 334 252
Telephone................................... 374 350 262
Sundry losses............................... 808 1,370 351
Other....................................... 2,431 1,903 1,674
---------- ---------- ----------
$ 6,125 $ 6,916 $ 4,445
========== ========== ==========
</TABLE>
(1) Excludes medical insurance and workers' compensation premiums which are
included in salaries and related benefits.
-74-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
18. Condensed Parent Company Only Financial Statements:
SIERRAWEST BANCORP STATEMENTS OF FINANCIAL CONDITION
December 31, (in thousands except for share amounts)
<TABLE>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents......................................................... $ 3,655 $ 5,166
Investment in subsidiaries........................................................ 37,106 33,568
Due from subsidiary............................................................... 29 13
Other .......................................................................... 2,705 2,133
----------- -----------
TOTAL ASSETS................................................................ $ 43,495 $ 40,880
=========== ===========
LIABILITIES
Accrued expenses.................................................................. $ 1,007 $ 1,047
Due to subsidiary................................................................. 51 0
Accounts payable.................................................................. 1 0
Convertible debentures............................................................ 8,520 10,000
----------- -----------
Total Liabilities........................................................... 9,579 11,047
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock, no par value; 9,800,000 shares
authorized; none issued..................................................... 0 0
Preferred stock series A, no par value; 200,000
shares authorized; none issued.............................................. 0 0
Common stock, no par value; 10,000,000 shares authorized;
2,771,139 and 2,592,419 shares issued and outstanding ..................... 12,291 10,709
Retained earnings................................................................. 21,654 19,131
Unrealized loss on investment securities available for sale, net of
tax of $21 and $6............................................................... (29) (7)
----------- -----------
Total Shareholders' Equity.................................................. 33,916 29,833
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.................................... $ 43,495 $ 40,880
=========== ===========
</TABLE>
-75-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
STATEMENTS OF INCOME
For the Years Ended December 31, (in thousands):
1996 1995 1994
---- ---- ----
Income
<S> <C> <C> <C>
Service fees................................................. $ 1,185 $ 1,389 $ 1,339
Dividends from subsidiary.................................... 1,000 300 0
Interest income.............................................. 166 464 355
Other income................................................. 283 430 382
----------- ----------- -----------
Total Income......................................... 2,634 2,583 2,076
----------- ----------- -----------
Expense
Salaries and related benefits................................ 1,553 1,820 1,693
Interest expense............................................. 728 861 792
Other expense................................................ 1,362 1,291 967
----------- ----------- -----------
Total Expense........................................ 3,643 3,972 3,452
----------- ----------- -----------
Loss Before Income Tax Benefit
and Equity in Undistributed Income
of Subsidiary.......................................... (1,009) (1,389) (1,376)
Applicable income tax benefit................................ 777 665 572
----------- ----------- -----------
Income (Loss) Before Equity in Undistributed
Income of Subsidiary................................... (232) (724) (804)
Equity in Undistributed Income of
Subsidiary............................................. 3,560 2,640 3,807
----------- ----------- -----------
NET INCOME........................................... $ 3,328 $ 1,916 $ 3,003
=========== =========== ===========
</TABLE>
-76-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (in thousands):
1996 1995 1994
---- ---- ----
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
<S> <C> <C> <C>
Cash flows from operating activities:
Service fees received.................................. $ 1,163 $ 1,389 $ 1,359
Interest received...................................... 172 477 329
Other income received.................................. 283 325 434
Interest paid.......................................... (780) (861) (443)
Cash paid to suppliers and employees................... (2,723) (2,767) (3,330)
Income tax refund...................................... 1,098 564 536
----------- ----------- -----------
Net cash used in operating activities........................ (787) (873) (1,115)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................................... (1,131) (164) (99)
Loans purchased........................................ 0 0 (1,750)
Loans sold............................................. 0 1,813 0
Principal payments collected on loans.................. 0 42 0
Dividend received...................................... 1,000 300 0
Increase in investment in subsidiary................... 0 (2,000) (300)
----------- ----------- ------------
Net cash used in investing activities........................ (131) (9) (2,149)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance of common stock............. 212 142 12
Dividend paid.......................................... (805) (624) 0
Proceeds from issuance of debentures................... 0 0 10,000
Cash paid to redeem debentures......................... 0 0 (73)
Repurchase of common stock............................. 0 (445) 0
----------- ----------- -----------
Net cash (used in) provided by financing activities.......... (593) (927) 9,939
----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents....................................... (1,511) (1,809) 6,675
Cash and cash equivalents beginning of year.................. 5,166 6,975 300
----------- ----------- -----------
Cash and cash equivalents end of year ....................... $ 3,655 $ 5,166 $ 6,975
=========== =========== ===========
</TABLE>
-77-
<PAGE>
<TABLE>
SIERRAWEST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
TO NET CASH USED IN
OPERATING ACTIVITIES
Net income................................................... $ 3,328 $ 1,916 $ 3,003
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization expense.................. 241 228 217
(Increase) decrease in due from subsidiary............. (22) 0 28
Increase (decrease) in due to subsidiary............... 51 0 (1)
(Increase) decrease in prepaid expenses................ 13 (16) (3)
Decrease (increase) in other assets.................... 111 108 (717)
(Decrease) increase in accrued expenses................ (270) 37 201
Increase (decrease) in taxes payable................... 321 (101) (36)
Gain on loan sales..................................... 0 (105) 0
Dividend from subsidiary............................... (1,000) (300) 0
Equity in undistributed income of
subsidiaries......................................... (3,560) (2,640) (3,807)
----------- ----------- -----------
Total Adjustments.................................... (4,115) (2,789) (4,118)
----------- ----------- -----------
Net cash used in operating
activities............................................. $ (787) $ (873) $ (1,115)
=========== =========== ===========
</TABLE>
19. Subsequent Event:
In January 1997, Bancorp signed a definitive agreement to acquire
Mercantile Bank, based in Sacramento, California. Mercantile shareholders
will receive total compensation of $6.6 million, subject to certain
adjustments primarily based upon the level of deposits and capital,
consisting of 50% cash and 50% stock. Mercantile has total assets of
approximately $46 million, and the transaction is expected to close in
June, 1997, subject to the approval of Mercantile's shareholders and
federal and state regulators.
-78-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements on accounting disclosures with
accountants.
-79-
<PAGE>
<TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<S> <C> <C> <C>
Year
First
Appointed Principal Occupation
Name and Title Age Director During the Past Five Years
Current Directors
David W. Clark 59 1990 Chairman/CEO of Clark and Sullivan
Constructors, Inc. since January 1977.
Ralph J. Coppola 62 1996 Self-employed physician and auto dealer.
William T. Fike 49 1992 President/CEO and Director of Bancorp since July
1992. President/CEO of SierraWest Bank since
October 1996. Executive Vice President and
Chief Operating Officer of the Company from May
1991 to July 1992.
Richard S. Gaston 63 1995 President and director of GAC Corporation and
Gaston & Wilkerson Management Group, real estate
management companies.
Jerrold T. Henley 58 1986 Chairman of the Company since July 1992. President/CEO
of the Company from its inception to June 1992.
Holds directorship in Community Assets Management,
a registered investment company.
John J. Johnson 63 1996 Retired. Owner, Johnson's Sporting World, Reno,
Nevada until April 1992.
Ronald A. Johnson 56 1996 Self-employed CPA and financial consultant.
A. Morgan Jones 64 1986 Attorney. President and director of Truckee River
Associates (commercial real estate management,
development and sales).
Jack V. Leonesio 53 1986 Owner of a restaurant/bar in Truckee, California
since 1973 and co-owner of a bar in Reno, Nevada
since April 1994.
William W. McClintock 51 1986 Self-employed CPA and financial consultant.
Thomas M. Watson 53 1986 Managing Officer, Truckee River Associates.
Executive Officers
William T. Fike 49 President/CEO and Director of Bancorp since July
1992. President/CEO of SierraWest Bank since
October 1996. Executive Vice President and
Chief Operating Officer of the Company from
May 1991 to July 1992.
</TABLE>
-80-
<PAGE>
<TABLE>
<S> <C> <C>
Principal Occupation
Name Age During the Past Five Years
David C. Broadley 53 Executive Vice President and Chief Financial
Officer of Bancorp since February 1994.
Executive Vice President and Chief Financial
Officer of SierraWest Bank since February 1995.
Senior Vice President and Chief Financial Officer
of Bancorp, from 1985 to 1994.
Martin R. Sorensen 53 Executive Vice President and Chief Banking
Officer of SierraWest Bank since October, 1996.
President, CEO and Chief Banking Officer of
SierraWest Bank from May 1994 to October 1996.
Executive Vice President of Bancorp from
November 1995 to October 1996. President and
CEO of Codding Bank from March 1992 through
April 1994.
Patrick S. Day 47 Executive Vice President and Chief Credit Officer
of the Company since July 1995. Executive Vice
President and Chief Operating Officer of Business
& Professional Bank from January through June
1995. Principal of PSD Associates, a bank
consulting company, from 1993 to 1995.
Executive Vice President and Chief Credit Officer
of Bank of San Francisco from 1991 to 1993.
Vice President of First Interstate Bank of
California from 1988 to 1991.
Mary Jane Posnien 53 Senior Vice President of Operations for
SierraWest Bank since November 1995. Senior
Vice President of Operations for Sierra Bank of
Nevada from March 1995 to November 1995.
Vice President of Operations for Sierra Bank of
Nevada from December 1993 to March 1995.
Manager of Gotcha Covered, a carpet/window
covering store from 1991 through 1993.
</TABLE>
None of the directors or executive officers were selected pursuant to any
arrangement or understanding other than with the directors and executive
officers of the Company acting within their capacities as such. There are no
family relationships between any of the directors and executive officers of
Bancorp. The directors have been elected to serve until the 1997 Annual Meeting
of Shareholders and until their successors have qualified. The executive
officers are appointed until the 1997 Annual Meeting of Shareholders and are
subject to at-will termination by the Company, except as provided in any
applicable employment contract. There are no legal proceedings involving
directors or executive officers.
Section 16(a) Beneficial Ownership and Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, certain officers and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and Nasdaq. Directors, certain officers and greater than ten-percent
shareholders ("Reporting Persons") are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file.
-81-
<PAGE>
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that from January 1, 1996, to
December 31, 1996, all filing requirements applicable to its Reporting Persons
were complied with, except that Mr. McClintock and Mr. Peter Raffetto were each
late in filing a Form 4 covering one transaction, Mr. A. Milton Seymour was late
in filing a Form 4 covering three transactions and Mr. Watson reported on Form 5
a sale that should have been reported earlier on Form 4.
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards Payouts
(# of
Shares) # of
Name and Other Restricted Shares LTIP All
Principal Annual Stock Options/ Pay- Other
Position Year Salary Bonus Comp. Awards SARS Outs Comp.
- -------- ---- ------ ----- ------ ---------- -------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William T. Fike 1996 $ 230,384(1) $ 0 $ 4,643 0 50,000 0 $ 17,371
President/CEO of 1995 $ 200,000 $ 0 $ 3,451 0 10,000 0 $ 16,444
the Company 1994 $ 197,083 $ 62,601 $ 3,360 0 10,000 0 $ 15,296
David C. Broadley 1996 $ 131,256 $ 0 $ 106 0 0 0 $ 19,787
Executive Vice 1995 $ 130,214 $ 0 $ 0 0 6,000 0 $ 18,634
President/CFO 1994 $ 122,170 $ 31,045 $ 0 0 0 0 $ 17,289
of the Company
Martin R. Sorensen 1996 $ 147,565 $ 0 $ 1,530 0 0 0 $ 22,233
Executive Vice 1995 $ 145,834 $ 0 $ 2,808 0 6,000 0 $ 32,032
President of the Bank 1994 $ 93,333 $ 30,047 $ 3,617 0 15,000 0 $ 5,552
Patrick S. Day(2) 1996 $ 126,519 $ 0 $ 3,858 0 0 0 $ 1,891
Executive Vice 1995 $ 57,293 $ 0 $ 1,005 0 14,000 0 $ 123
President of the
Company
</TABLE>
Notes:
(1) Includes payment of accrued vacation pay of $30,384.
(2) Hired in 1995.
Bonus - Bonuses are paid in the year after they are earned. For purposes of this
table, bonuses have been reflected in the year earned, not the year paid. No
bonuses were earned by the executives listed above in 1995 or 1996.
Other Annual Compensation - Includes value of personal use of Company provided
automobiles and reimbursements for the personal portion of club dues and spousal
travel expenses.
-82-
<PAGE>
All Other Compensation - Includes the following:
<TABLE>
1996 1995 1994
---- ---- ----
Company Contribution to 401(k) Plan For:
<S> <C> <C> <C>
Mr. Fike $ 4,652 $ 4,750 $ 4,264
Mr. Broadley $ 3,896 $ 3,742 $ 3,485
Mr. Sorensen $ 4,427 $ 4,375 $ 0
Mr. Day $ 938 $ 0 $ 0
Company Contributions to ESOP Plan For:
Mr. Fike $ 1,260(1) $ 1,169 $ 1,353
Mr. Broadley $ 718(1) $ 1,015 $ 1,102
Mr. Sorensen $ 807(1) $ 1,159 $ 0
Mr. Day $ 692(1) $ 0 $ 0
(1) Amount estimated for 1996, pending final plan accounting for the 1996 plan year.
Moving Expense Reimbursement Paid To:
Mr. Sorensen $ 0 $ 2,229 $ 4,846
Allocations to Salary Continuation Plan For:
Mr. Fike $ 9,858 $ 8,924 $ 8,078
Mr. Broadley $ 13,675 $ 12,379 $ 11,204
Mr. Sorensen $ 15,789 $ 23,059 $ 0
Cost of life insurance provided by Company of which the benefit exceeded $50,000
For:
Mr. Fike $ 1,601 $ 1,601 $ 1,601
Mr. Broadley $ 1,498 $ 1,498 $ 1,498
Mr. Sorensen $ 1,210 $ 1,210 $ 706
Mr. Day $ 261 $ 123 $ 0
</TABLE>
-83-
<PAGE>
The following table shows the options issued during 1996 for those individuals
listed in the summary table:
<TABLE>
Option/SAR Grants During 1996 Fiscal Year
Percent of
total
options/SARs Potential realizable value
granted to at assumed annual rates of
Options/SARs employees in Exercise or stock price appreciation for
granted fiscal year base price Expiration option term
Name (#) (%) (/Sh) date 5% 10%
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William T. Fike 50,000 66.7 $ 14.25 June 30, 2006 $448,087 $1,135,542
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table shows the number of unexercised options at year-end and the
value of the unexercised In- the-Money options at year-end for those individuals
listed in the summary table:
<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year and FY-End Option/SAR Value
Value of
Number of Unexercised
Unexercised In-The-Money
Shares Options/SARS at Options/SARS At
Acquired FY-End-#Shares FY End-$
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
- ---- -------- -------- ------------------ -------------
<S> <C> <C> <C> <C>
Mr. Fike 0 $0 70,850 / 23,900 $231,125 /160,750
Mr. Broadley 0 $0 16,050 / 14,700 $133,800 /106,200
Mr. Sorensen 0 $0 7,200 / 13,800 $ 50,100 / 87,900
Mr. Day 0 $0 2,800 / 11,200 $ 15,900 / 63,600
</TABLE>
The value of unexercised In-the-Money options is calculated by subtracting the
exercise price from the fair market value at December 31, 1996 of the securities
underlying the options.
Salary Continuation Plan
The Company has entered into agreements with certain directors of the Company,
the Bank and the Bank's former subsidiary, Sierra Tahoe Mortgage Company, and
certain executive officers of the Company, to provide for salary continuation
benefits upon the retirement or earlier death of the directors and executive
officers. The benefits pursuant to this plan are: $50,000 per year for Messrs.
Fike and Sorensen and $40,000 per year for Mr. Broadley payable for a period of
20 years following retirement at age 65 or earlier death. Benefits for the
participating directors are $4,000 per year for 15 years, beginning 15 years
after their respective plan commencement dates.
In the event of earlier death, the benefits are payable to the officer's or
director's designated beneficiary. The Company has secured life insurance
policies for the purpose of protecting it from loss in the event of earlier
death. In the event of earlier retirement or early termination of office or
employment of the officer or director, a reduced benefit is payable. At the
option of the officer or director the benefit may be received in a lump sum
based on a discounted formula. Accrued benefits for both officers and directors
vest 20% per year over a five-year period from the date of association with the
Company. Additionally, there are restrictions on the covered individual from
engaging in any competing occupation upon retirement and provisions requiring
the covered individual to perform advisory services, for compensation, for a
period of five (5) years following retirement or early termination of office or
employment.
-84-
<PAGE>
During 1996 the agreements of Messrs. Fike, Broadley and Sorensen and certain
directors of SWB were modified to provide for an acceleration of benefits such
that the full amount due under the agreement would become payable in the case of
a change of control of the Company. For the Directors' plans this would be in
the form of a lump sum payment based on a discounted formula. The plans for
Messrs. Fike, Broadley and Sorensen provide for this payment in the form of 240
equal monthly installments. The agreements were further modified to eliminate
the restrictions described above related to engaging in a competing occupation
and the performance of advisory services upon a change in control.
As of December 31, 1996, executive officers were credited with the following
accrued benefits under this Plan:
David C. Broadley $ 94,163
William T. Fike 44,851
Martin R. Sorensen 38,848
Employment Agreements
Effective October 1, 1994, the Company entered into an employment agreement with
Mr. Fike covering the terms of his employment, compensation, and conditions of
termination. Unless employment is terminated or the agreement is extended, Mr.
Fike's employment will continue until December 31, 1999. His base salary was set
initially at $200,000 per year and he is eligible for bonuses and participation
in all employee benefit programs. He will be considered for periodic increases
in base salary at the discretion of the Board of Directors. He will continue to
participate in the Salary Continuation Plan, be provided with a Company car and
a country club membership. In the event of termination without cause, Mr. Fike
will receive all amounts owing to him at the date of termination and a lump-sum
severance payment equal to eighteen months' base salary. During the month of
February 1997, Mr. Fike's base salary was increased to $250,000 per year.
In 1996, Messrs. Broadley, Sorensen, and Day entered into Senior Manager
Separation Benefits Agreements. Under the terms of these agreements, certain
benefits would become payable to the manager in the event of the termination of
employment for any reason, other than a material violation of the Company's
personnel policies and procedures. The benefit includes one year's base salary
(as to Messrs. Broadley and Sorensen) or nine months' base salary (as to Mr.
Day) paid as a lump sum or in 24 equal semi-monthly payments (as to Messrs.
Broadley and Sorensen) or 18 equal semi-monthly payments (as to Mr. Day), at the
election of the executive officer. If the semi-monthly payments are chosen,
health benefits continue to be provided on the same terms as during active
employment. For Messrs. Broadley and Sorensen, in the event of a change in
control or reorganization of the Company, the executive officer may, within a
nine month period, resign from the Company and receive the same benefits as
would be payable upon involuntary termination.
Compensation of Directors
Directors' fees for board and committee meetings are as follows:
<TABLE>
Board Meetings Committee Meetings
Retainer Attendance Retainer Attendance
<S> <C> <C> <C> <C>
Chairman of the Board $3,383/month $0 $0 $0
Director $1,500 - 1,600/month $0 (1) $0 $150/meeting(2)
Committee Chairman N/A N/A $100/month $150/meeting(2)
</TABLE>
(1) Compensation for attendance at special board meetings is $100 per director
per meeting.
(2) Attendance at Directors' Loan Committee is $250 per meeting.
In addition to the above fees, an educational allowance is determined annually
by the Board. The Chairman of the Board allocates funds for educational expenses
pursuant to requests submitted by each director until the allowance is
exhausted.
The Company's Deferred Compensation and Stock Award plan is provided to members
of the Board of Directors who are not employees of SWB ("Outside Directors") or
of its subsidiary. Under this plan Outside Directors are
-85-
<PAGE>
required to defer one-third of their fees for regular board meetings in the form
of a promise by SWB to deliver common stock and the remaining amount of director
fees may also be deferred and paid in common stock at the election of the
director. The purpose of this plan is to enable Outside Directors to defer
receipt of compensation for their services to later years and to provide part of
the compensation for their services in a promise to deliver shares of SWB common
stock in order to better align the interests of Outside Directors with those of
the Company's shareholders.
Expenses for the directors and their spouses related to attendance at the
Company's Annual weekend directors' retreat are paid for by the Company.
Directors are eligible for coverage under the Company's group health insurance
plan. Premiums for health insurance coverage are shared between the director and
the Company on the same basis as that for Company employees. Additionally, the
Company pays for premiums covering the first $25,000 of accidental death
benefits and the administration of KEOGH plans for directors, if they elect to
participate.
The Company maintains a salary continuation plan (see "Salary Continuation Plan"
herein) for its executive officers, certain senior officers and its directors.
As of December 31, 1996, the Company's non-employee directors were credited with
$72,184 in accrued benefits under the directors' salary continuation plan. The
Company allocated $14,691 to the Salary Continuation Plan in 1996 on behalf of
its non-employee directors.
Personnel/Compensation Committee Interlocks and Insider Participation
With the exception of Jerrold Henley and William Fike, no member of the
Personnel/Compensation Committee is a former or current officer or employee of
the Company. Mr. Henley retired as President and CEO of the Company in June
1992. Mr. Fike succeeded Mr. Henley as President and CEO of the Company. There
are no compensation committee interlocks between the Company and other entities
involving Company executive officers and Company directors.
-86-
<PAGE>
ITEM 12. SHARE HOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Management of Bancorp knows of no person who owns, beneficially or of record,
either individually or together with associates, five percent (5%) or more of
the outstanding shares of Bancorp's common stock, except as set forth in the
table below. This table also sets forth, as of March 1, 1997, the number and
percentage of shares of Bancorp's outstanding common stock beneficially owned,
directly or indirectly, by each of Bancorp's directors, named executive officers
and principal shareholders, and by the directors and executive officers of the
Company as a group. The shares "beneficially owned" are determined under
Securities and Exchange Commission Rules, and do not necessarily indicate
ownership for any other purpose. In general, beneficial ownership includes
shares over which a director, principal shareholder, or executive officer has
sole or shared voting or investment power and shares which such person has the
right to acquire within sixty (60) days of March 1, 1997. Management is not
aware of any arrangements which may, at a subsequent date, result in a change of
control of Bancorp.
<TABLE>
Shares Shares
Owned with Owned with
Sole Voting Shared Shares
and Voting and Acquirable Percent
Investment Investment within of
Beneficial Owner Power Power 60 days(1) Total Shares Class
- ---------------- ------------ ------------ ---------- ------------- -----
Directors and Named
Executive Officers
<S> <C> <C> <C> <C> <C>
David W. Clark 981 19,064 6,316 26,361 *
William T. Fike 4,594 726 72,500 77,820 2.6%
Ralph J. Coppola 2,941 1,148 1,124 5,213 *
Jerrold T. Henley 49,452 11,964 61,416 2.1%
John J. Johnson 1,217 2,157 1,829 5,203 *
Ronald A. Johnson 2,788 773 3,561 *
A. Morgan Jones 1,164 619 8,449 10,232 *
Jack V. Leonesio 14,181 199 14,380 *
William W. McClintock 12,650 10,449 23,099 *
Richard Gaston 110 3,429 1,784 5,323 *
Thomas M. Watson 7,202 344 8,893 16,439 *
David C. Broadley 9,067 1,431 16,050 26,548 *
Patrick S. Day 1,500 800 2,300 *
Martin R. Sorensen 38 38 *
Total for Directors
and Executive Officers
(numbering 15) 58,501 78,370 141,730 278,601 9.1%
Principal Shareholders
Investors of America, L.P.
39 Glen Eagles Drive
St. Louis, MO 63124 282,900 282,900 8.8%
- ------------
* less than one percent
</TABLE>
(1) Includes shares that can be purchased through Bancorp's stock option plan.
Also includes 3,500 and 2,000 shares acquirable through debenture conversion for
Mr. Henley and Mr. McClintock, respectively. For non-employee directors,
includes 199 shares earned under the Directors Deferred Compensation and Stock
Award Plan for all but Mr. Clark and Mr. Henley (214 shares), Mr. Watson (643
shares), and Mr. Coppola (596 shares).
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<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the directors of Bancorp and the companies with which they are
associated are customers of, or have had banking transactions with, SierraWest
Bank in the ordinary course of their business and SierraWest Bank expects to
have banking transactions with these persons in the future. In Management's
opinion, since January 1, 1996, all loans and commitments to lend included in
such transactions were made in the ordinary course of business on substantially
the same terms, including interest rates and collateral, as those prevailing for
comparable transactions with other persons of similar creditworthiness and, in
the opinion of Management, did not involve more than a normal risk of
collectibility or present other unfavorable features.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as a part of this report:
1. Financial Statements set forth on pages 44 through 78:
(i) Consolidated Statements of Financial Condi-
tion as of December 31, 1996, and 1995.
(ii) Consolidated Statements of Income for the
years ended December 31, 1996, 1995 and 1994.
(iii) Consolidated Statements of Changes in
Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.
(iv) Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994.
(v) Notes to Consolidated Financial Statements
for the years ended December 31, 1996, 1995
and 1994.
(vi) Report of Independent Auditor.
2. Financial Schedules:
None required.
Reports on Form 8-K:
The Bancorp filed one Form 8-K since the filing of the
last Form 10-Q. Dated January 24, 1997, it reported the
signing of a definitive agreement by Bancorp to acquire
Mercantile Bank.
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<PAGE>
Exhibits
Exhibit
Number Description
2.1 Plan of Acquisition and Merger by and between SierraWest Bancorp,
SierraWest Bank and Mercantile Bank, filed as Exhibit 2 to
Registrant's Form 8-K dated January 24, 1997, and by this
reference incorporated herein.
3.1 Articles of Incorporation and by-laws, filed as Exhibit 3.1 to
Registrant's 1993 Annual Report on Form 10-K, and by this
reference incorporated herein.
3.2 Amendment to Articles of Incorporation and by-laws, filed as
Exhibit 3.1 to Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, and by this reference incorporated
herein.
4.1 Form of Indenture between the Registrant and American Stock
Transfer & Trust Company, as Trustee, relating to the issuance of
the 8.5% Subordinated Convertible Debentures due 2004, filed as
Exhibit 4.1 to Registrant's Registration Statement on Form S-2,
dated February 5, 1994 (Registration NO. 33-72498), and by this
reference incorporated herein.
4.2 Form of Debenture (included in Exhibit 4.1).
4.3 Rights Agreement between Sierra Tahoe Bancorp and American Stock
Transfer & Trust Co., dated January 16, 1996, filed as Exhibit 4
to Registrant's Form 8-A dated January 3, 1996, and by this
reference incorporated herein.
10.1 Form of Financial Advisory and Sales Agency Agreement, filed as
Exhibit 10.1 to Registrant's Registration Statement on Form S-2,
dated February 5, 1994 (Registration NO. 33-72498), and by this
reference incorporated herein.
10.2 Sierra Tahoe Bancorp KSOP Plan, filed as Exhibit 10(m) to the
Registrant's 1992 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.3 Interest Rate Swap Agreement between Truckee River Bank and Sanwa
Bank California, dated March 1, 1996, filed as Exhibit 10.3 to
Registrant's 1995 Annual Report on Form 10-K and by this reference
incorporated herein.
10.4 Sublease Agreement between Truckee River Bank and Pacific
Pawnbrokers, effective February 1, 1996, filed as Exhibit 10.4 to
Registrant's 1995 Annual Report on Form 10-K and by this reference
incorporated herein.
10.5 License and Service Agreement between Registrant and Essieh &
Associates, Inc., dated October 6, 1992, filed as Exhibit 10(r) to
Registrant's 1992 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.6 Rental lease between Truckee River Bank and Haciett Management
Corporation (SBA Reno office), dated January 28, 1993, filed as
Exhibit 10(t) to Registrant's 1992 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.7 Senior Manager Separation Benefits Agreement between Sierra Tahoe
Bancorp and Mary Jane Posnien, dated January 10, 1996.
10.8 Purchase and Sale Agreement between Rubin-Sadd Development Company
and Sierra Bank of Nevada dated December 15, 1995, filed as
Exhibit 10.8 to Registrant's 1995 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.9 Agreement between Registrant and American Institute of
Banking/California, filed as Exhibit 10(v) to Registrant's 1992
Annual Report on Form 10-K, and by this reference incorporated
herein.
10.10 Amendments to Sierra Tahoe Bancorp KSOP Plan, dated June 24, 1993
and September 14, 1994, filed as Exhibit 10.10 to Registrant's
1994 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.11 Three Agreements re Deferred Compensation for Executives, filed as
Exhibit 10(d) to the Registrant's 1986 Annual Report on Form 10-K,
and by this reference incorporated herein.
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<PAGE>
10.12 Stock Plan Agreement, Incentive Stock Option Agreement and a Non-
Qualified Stock Option Agreement for the Registrant, filed as
Exhibit 10(b) to Registrant's 1988 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.13 Equipment Sale Agreement between Sierra Tahoe Service Company and
Information Technology Inc., dated November 22, 1991, filed as
Exhibit 10(g) to Registrant's 1991 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.14 Employment Agreement between Registrant and William T. Fike, dated
December 22, 1994, filed as Exhibit 10.14 to Registrant's 1994
Annual Report on Form 10-K, and by this reference incorporated
herein.
10.15 Stock Option Agreement between Sierra Tahoe Bancorp and Richard S.
Gaston dated August 17, 1995, filed as Exhibit 10.15 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.16 Contract between Registrant and Federal Home Loan Mortgage
Corporation, dated March 31, 1992, and Attachment to Master
Commitment Agreement, dated April 9, 1992, filed as Exhibit 28(5)
to Registrant's March 31, 1992 Quarterly Report on Form 10-Q, and
by this reference incorporated herein.
10.17 Stock Option Agreement between Sierra Tahoe Bancorp and David W.
Clark dated August 17, 1995, filed as Exhibit 10.17 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.18 Stock Option Agreement between Sierra Tahoe Bancorp and William W.
McClintock dated August 17, 1995, filed as Exhibit 10.18 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.19 Sierra Tahoe Bancorp 1996 Stock Appreciation Rights Plan, filed as
Exhibit C to Registrant's Proxy Statement for its July 23, 1996
annual meeting of shareholders, and by this reference incorporated
herein.
10.20 Employee Stock Ownership Plan, filed as Exhibit 9 to Registrant's
Registration Statement on Form S-4, (Registration No. 33-3915),
and by this reference incorporated herein.
10.21 Cafeteria Plan Agreement, filed as Exhibit 10(f) to Registrant's
1986 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.22 Form of Trust Indenture, filed as Exhibit 4 to Registrant's
Registration Statement on Form S-2, dated June 25, 1991
(Registration No. 33-41398), and by this reference incorporated
herein.
10.23 Directors' Agreement, filed as Exhibit 2.3 to Registrant's
Registration Statement on Form S-4, (Registration No. 33-34954),
and by this reference incorporated herein.
10.24 Sierra Tahoe Bancorp 1988 Stock Option Plan, filed as Exhibit 28
to Registrant's Registration Statement on Form S-8, dated April
10, 1989 (Registration No. 33-28004), and by this reference
incorporated herein.
10.25 Lease Agreement "Gateway at Donner Pass Limited" between Truckee
River Bank (Tenants) and Gateway at Donner Pass Limited
(Landlords), dated May 21, 1991, filed as Exhibit 28(G) to
Registrant's September 30, 1991 Quarterly Report on Form 10-Q, and
by this reference incorporated herein.
10.26 Grass Valley Lease Agreement between Ray Stone Incorporated and
Truckee River Bank, filed as Exhibit 28(G) to Registrant's
September 30, 1990 Quarterly Report on Form 10-Q, and by this
reference incorporated herein.
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<PAGE>
10.27 Lease and Memorandum of Lease between Walter Neal Olson and
Patricia Olson (Lessors) and Wells Fargo Bank, a California
banking corporation (Lessee), dated November 5, 1962, as amended
on March 8, 1973, filed as Exhibit 10.29 to Registrant's
Registration Statement on Form S-2, dated February 5, 1994
(Registration NO. 33-72498), and by this reference incorporated
herein.
10.28 Sublease between Wells Fargo Bank, N.A., a national banking
association (Sublessor), and Truckee River Bank, a California
Statement Bank (Sublessee), dated December 1, 1984, filed as
Exhibit 10.30 to Registrant's Registration Statement on Form S-2,
dated February 5, 1994 (Registration NO.
33-72498), and by this reference incorporated herein.
10.29 Lease between Jerome Bunch, for himself and his assigns (Lessor),
and Truckee River Bank (Lessee), dated July 10, 1984, filed as
Exhibit 10.31 to Registrant's Registration Statement on Form S-2,
dated February 5, 1994 (Registration NO. 33-72498), and by this
reference incorporated herein.
10.30 Lease between Charles E. Nagy and Martha Nagy (Lessor) and Truckee
River Bank (Lessee), dated June 10, 1989, filed as Exhibit 10.32
to Registrant's Registration Statement on Form S-2, dated February
5, 1994 (Registration NO. 33-72498), and by this reference
incorporated herein.
10.31 Lease between Truckee River Bank (Sublessor) and Tran-Sierra
Investment, Inc. (Sublessee), dated February 27, 1991, filed as
Exhibit 10.33 to Registrant's Registration Statement on Form S-2,
dated February 5, 1994 (Registration NO. 33-72498), and by this
reference incorporated herein.
10.32 Credit Agreement between Sanwa Bank California and Truckee River
Bank dated October 10, 1995, filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and by this reference incorporated herein.
10.33 Equipment Sale Agreement between Information Technology, Inc., and
Truckee River Bank, filed as Exhibit 10.3 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, and by this reference incorporated herein.
10.34 Lease between Midby-Rancho Partnership (Lessor) and Truckee River
Bank (Lessee), dated November 23, 1993, filed as Exhibit 10.34 to
Registrant's 1993 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.35 Stock Option Agreement between Sierra Tahoe Bancorp and Thomas M.
Watson dated August 17, 1995, filed as Exhibit 10.35 to
Registrant's 1995 Annual Report on Form 10-K , and by this
reference incorporated herein.
10.36 Stock Option Agreement between Sierra Tahoe Bancorp and Jerrold T.
Henley dated August 17, 1995, filed as Exhibit 10.36 to
Registrant's 1995 Annual Report on Form 10-K , and by this
reference incorporated herein.
10.37 Stock Option Agreement between Sierra Tahoe Bancorp and A. Morgan
Jones dated August 17, 1995, filed as Exhibit 10.37 to
Registrant's 1995 Annual Report on Form 10-K , and by this
reference incorporated herein.
10.38 Sierra Tahoe Bancorp 1996 Stock Option Plan, filed as Exhibit A to
Registrant's Proxy Statement for its July 23, 1996 annual meeting
of shareholders, and by this reference incorporated herein.
10.39 Director's remuneration continuation agreement between Sierra
Tahoe Bancorp and David Clark, dated October 1, 1993, filed as
Exhibit 10.39 to Registrant's 1993 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.40 Settlement Agreement and Mutual Release of All Claims re:
American River Bank, et al. v. Mutual Fund, Inc., et al. dated
March 22, 1996, filed as Exhibit 10.40 to Registrant's 1995 Annual
Report on Form 10-K , and by this reference incorporated herein.
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<PAGE>
10.41 Federal funds facility agreement between Union Bank of California
and Truckee River Bank dated April 8, 1996, filed as Exhibit 10.4
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, and by this reference incorporated herein.
10.42 First Amendment to Senior Management Benefits Agreement between
Sierra Tahoe Bancorp and David C. Broadley, dated April 2, 1996,
filed as Exhibit 10.6 to Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996, and by this reference
incorporated herein.
10.43 Incentive Stock Option Agreement between Registrant and Martin R.
Sorensen, dated May 18, 1994, filed as Exhibit 10.44 to
Registrant's 1994 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.44 Senior Manager Separation Benefits Agreement between Sierra Tahoe
Bancorp and Patrick S. Day, dated January 10, 1996, including
First Amendment dated April 2, 1996, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.45 Deferred Fee Agreement between Sierra Tahoe Bancorp and Thomas M.
Watson, dated June 19, 1996, filed as Exhibit 10.2 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
10.46 Federal Funds Agreement between Bank of California and Truckee
River Bank, dated March 31, 1994, filed as Exhibit 10.47 to
Registrant's 1995 Annual Report on Form 10-K , and by this
reference incorporated herein.
10.47 Agreement between American Financial Skylink and Sierra Tahoe
Bancorp, dated August 1, 1994, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, and by this reference incorporated herein.
10.48 Deferred Fee Agreement between Sierra Tahoe Bancorp and R.
Coppola, dated June 12, 1996, filed as Exhibit 10.3 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.49 Revolving Line of Credit Agreement between First Security Bank of
Idaho and Truckee River Bank, dated September 23, 1994, filed as
Exhibit 10.50 to Registrant's 1994 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.50 Credit Agreement between Sanwa Bank California and Truckee River
Bank, dated July 29, 1994, filed as Exhibit 10.51 to Registrant's
1994 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.51 Modification to sublease dated September 24, 1994 between First
Commercial Title, Inc. and Sierra Tahoe Mortgage Company, dated
January 31, 1995, filed as Exhibit 10.52 to Registrant's 1994
Annual Report on Form 10-K, and by this reference incorporated
herein.
10.52 Lease Agreement between Hulse-Kinsey Trust and Truckee River Bank,
dated February 10, 1995, filed as Exhibit 10.53 to Registrant's
1994 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.53 Assignment of License Agreements between Information Technology,
Inc., Sierra Tahoe Servicing Corporation and Truckee River Bank,
dated March 3, 1993, filed as Exhibit 10.54 to Registrant's 1994
Annual Report on Form 10-K, and by this reference incorporated
herein.
10.54 Deferred Fee Agreement between Sierra Tahoe Bancorp and Ronald A.
Johnson, dated May 23, 1996, filed as Exhibit 10.4 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
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<PAGE>
10.55 Fourth Addendum to Lease Agreement between Edwin Holt and Sierra
Bank of Nevada, dated February 17, 1995, filed as Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and by this reference incorporated herein.
10.56 Credit Agreement between Sierra Bank of Nevada and Bank of
California, dated March 21, 1995, filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and by this reference incorporated herein.
10.57 Lease Agreement between Truckee River Bank and Realty Advisors,
Inc., filed as Exhibit 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995, and by this
reference incorporated herein.
10.58 Lease Agreement Between Truckee River Bank and Western Investment
Real Estate Trust and Pinecreek Shopping Center Associates, filed
as Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, and by this reference
incorporated herein.
10.59 Construction agreement between Sierra Bank of Nevada and Shaver
Construction, Inc., filed as Exhibit 10.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995, and by this reference incorporated herein.
10.60 Senior Manager Separation Benefits Agreement between Sierra Tahoe
Bancorp and Martin R. Sorensen dated January 17, 1996, filed as
Exhibit 10.61 to Registrant's 1995 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.61 Executive Salary Continuation Agreement between Sierra Tahoe
Bancorp and Martin R. Sorensen, dated March 31, 1995, filed as
Exhibit 10.63 to Registrant's 1995 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.62 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
Martin R. Sorensen dated December 20, 1995, filed as Exhibit 10.64
to Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.63 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
William T. Fike dated December 20, 1995, filed as Exhibit 10.67 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.64 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
Pat Day dated December 20, 1995, filed as Exhibit 10.68 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.65 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
David Broadley dated December 20, 1995, filed as Exhibit 10.69 to
Registrant's 1995 Annual Report on Form 10-K, and by this
reference incorporated herein.
10.66 Incentive Stock Option Agreement between SierraWest Bancorp and
Mary Jane Posnien, dated December 23, 1996.
10.67 Senior Manager Separation Benefits Agreement between Sierra Tahoe
Bancorp and David C. Broadley dated January 17, 1996, filed as
Exhibit 10.71 to Registrant's 1995 Annual Report on Form 10-K, and
by this reference incorporated herein.
10.68 Deferred Fee Agreement between Sierra Tahoe Bancorp and David W.
Clark, dated May 28, 1996, filed as Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
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<PAGE>
10.69 Deferred Fee Agreement between Sierra Tahoe Bancorp and Richard S.
Gaston, dated June 19, 1996, filed as Exhibit 10.6 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
10.70 Deferred Fee Agreement between Sierra Tahoe Bancorp and A. Morgan
Jones, dated June 7, 1996, filed as Exhibit 10.7 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
10.71 Deferred Fee Agreement between Sierra Tahoe Bancorp and John J.
Johnson, dated June 20, 1996, filed as Exhibit 10.8 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.72 Deferred Fee Agreement between Sierra Tahoe Bancorp and Jack V.
Leonesio, dated June 19, 1996, filed as Exhibit 10.9 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.73 Deferred Fee Agreement between Sierra Tahoe Bancorp and William
McClintock, dated June 13, 1996, filed as Exhibit 10.10 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.74 Deferred Fee Agreement between Sierra Tahoe Bancorp and Jerrold T.
Henley, dated May 29, 1996, filed as Exhibit 10.11 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
and by this reference incorporated herein.
10.75 Incentive Stock Option Agreement between Sierra Tahoe Bancorp and
William T. Fike, dated July 1, 1996, filed as Exhibit 10.12 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.76 Nonqualified Stock Option Agreement between Sierra Tahoe Bancorp
and William T. Fike, dated July 1, 1996, filed as Exhibit 10.13 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, and by this reference incorporated herein.
10.77 Fixed Price Construction Agreement between SierraWest Bank and
Shaver Construction, dated June 12, 1996, filed as Exhibit 10.14
to Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, and by this reference incorporated herein.
10.78 Amendment No. 1 to Employment Agreement between SierraWest Bancorp
and William T. Fike, dated June 27, 1996, filed as Exhibit 10.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996 and by this reference incorporated herein.
10.79 Amendment No. 1 to Executive Salary Continuation Agreement between
SierraWest Bancorp and William T. Fike, dated June 27, 1996, filed
as Exhibit 10.3 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 and by this reference
incorporated herein.
10.80 Amendment No. 1 to Executive Salary Continuation Agreement between
SierraWest Bancorp and David C. Broadley, dated June 27, 1996,
filed as Exhibit 10.4 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996 and by this
reference incorporated herein.
10.81 Amendment No. 1 to Executive Salary Continuation Agreement between
SierraWest Bancorp and Martin R. Sorensen, dated June 27, 1996,
filed as Exhibit 10.5 to Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.82 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and William W. McClintock, dated June
27, 1996, filed as Exhibit 10.6 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
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<PAGE>
10.83 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Jerrold T. Henley, dated June 27,
1996, filed as Exhibit 10.7 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.84 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and A. Morgan Jones, dated June 27,
1996, filed as Exhibit 10.8 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.85 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Jack V. Leonesio, dated June 27,
1996, filed as Exhibit 10.9 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996 and by this
reference incorporated herein.
10.86 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Thomas M. Watson, dated June 27,
1996, filed as Exhibit 10.10 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.87 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and David W. Clark, dated June 27,
1996, filed as Exhibit 10.11 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.88 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Richard S. Gaston, dated June 27,
1996, filed as Exhibit 10.12 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.89 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and John J. Johnson, dated June 27,
1996, filed as Exhibit 10.13 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.90 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Ralph J. Coppola, dated June 27,
1996, filed as Exhibit 10.14 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.91 Director's Amended and Restated Payment Continuation Agreement
between SierraWest Bancorp and Ronald A. Johnson, dated June 27,
1996, filed as Exhibit 10.15 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1996, and by this
reference incorporated herein.
10.92 Sierra Tahoe Bancorp Board of Directors Deferred Compensation and
Stock Award Plan, filed as Exhibit B to Registrant's Proxy
Statement for its July 23, 1996 annual meeting of shareholders,
and by this reference incorporated herein.
11.1 Statement re Computation of Per Share Earnings.
12.1 Statement re Ratio of Earnings to Fixed Charges.
21.1 Significant Subsidiaries of the Registrant
SierraWest Bank - Incorporated in California
23.1 Consent of Deloitte & Touche LLP, independent auditors
27.1 Financial Data Schedule
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<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 10, 1997 By: /s/ William T. Fike
-----------------------
William T. Fike
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the date indicated.
<TABLE>
<S> <C> <C>
/s/ William T. Fike President and Chief Executive Officer March 10, 1997
- -------------------
William T. Fike Director
/s/ David C. Broadley Executive Vice President/ March 10, 1997
- ---------------------
David C. Broadley Principal Financial Officer
and Principal Accounting Officer
/s/ Jerrold T. Henley Chairman of the Board March 10, 1997
- ---------------------
Jerrold T. Henley
/s/ David W. Clark Director March 10, 1997
- ------------------
David W. Clark
/s/ A. Morgan Jones Director and Corporate Secretary March 10, 1997
- -------------------
A. Morgan Jones
/s/ Jack V. Leonesio Director March 10, 1997
- --------------------
Jack V. Leonesio
/s/ William W. McClintock Director March 10, 1997
- -------------------------
William W. McClintock
/s/ Richard Gaston Director March 10, 1997
- ------------------
Richard Gaston
/s/ Thomas M. Watson Director March 10, 1997
- --------------------
Thomas M. Watson
/s/ Ralph J. Coppola Director March 10, 1997
- --------------------
Ralph J. Coppola
/s/ John J. Johnson Director March 10, 1997
- -------------------
John J. Johnson
/s/ Ronald A. Johnson Director March 10, 1997
- ---------------------
Ronald A. Johnson
</TABLE>
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<PAGE>
Exhibit 10.7
SENIOR MANAGER SEPARATION BENEFITS AGREEMENT
THIS SENIOR MANAGER SEPARATION BENEFITS AGREEMENT (the "Agreement") is made
and entered into as of January 10, 1996, by and between SIERRA TAHOE BANCORP, a
California Corporation and its banking subsidiaries TRUCKEE RIVER BANK and
SIERRA BANK OF NEVADA (hereinafter "STB"), with its principal offices located at
10181 Truckee Tahoe Airport Road, P.O. Box 61000, Truckee, California 96161 and
MARY JANE POSNIEN, an individual ("MJP").
WITNESSETH
WHEREAS, MJP is currently designated a senior officer and 'at will' employee
of Truckee River Bank and Sierra Bank fo Nevada and expects to remain a senior
officer and employee subject to the policies and conditions contained within
the STB Personnel Policies and Procedures;
WHEREAS, both STB and MJP feel it is in their respective and mutual best
interests to preagree upon appropriate and reasonable separation compensation
that will be paid to MJP should STB ever determine that MJP should, for
whatever reason, be terminated from her position and leave the company;
WHEREAS, STB and MJP agree that the benefits described herein constitute full
payment of and shall completely supersede and constitute full satisfaction of
any and all other monetary or nonmonetary benefits paid as a result of the
termination of MJP for any reason by STB except as may be additionally
required beyond the sums and benefits paid hereunder by law.
WHEREAS, nothing in this Agreement is intended to change the current at will
employment of MJP or create a contract of employment. Further, this Agreement
shall only cover situations wherein STB requests the termination of MJP and
shall not apply if MJP elects to voluntarily leave STB.
NOW, THEREFORE, in consideration of the promises set forth below and for other
good and valuable consideration, including the mutual covenants and agreements
herein contained, the receipt and sufficiency of which is hereby acknowledged,
STB and MJP hereby agree as follows:
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<PAGE>
1. Applicability of Agreement; Definition of Termination: This Agreement
coveys additional benefits not otherwise due to employees generally and shall
become operative upon MJP's termination of employment for any reason by STB, its
affiliates and, their respective officers or directors, so long as that
termination did not result from a final determination of the Human Resources
Director and the Personnel Committee of the Board of Directors of STB that MJP's
termination resulted from a material violation of the STB Personnel policies and
procedures (i.e. termination for cause) (hereinafter referred to as the
"Termination"). This Agreement shall not apply as to any event not covered under
the definition of the term 'Termination'. Following the defined Termination, and
the payment of benefits under this Agreement, it is expressly agreed and
understood that STB shall not be precluded from rehiring MJP's position either
now or in the future and such rehiring shall not be deemed to nullify or change
this Agreement if it is otherwise applicable.
2. Conditions For Payment of Separation Benefits. STB shall pay the separa-
tion benefitsset forth in Paragraph 3 to MJP after each of the following
requirements have been satisfied in the reasonable discretion of STB:
A. A defined Termination as set forth in Paragraph 1 has occurred and
MJP has left (or will promptly thereafter leave) the employment of STB;
and
B. MJP consent to and does expressly waive, release, indemnify and
fully hold STB, its subsidiary companies and each of their employees,
officers and directors harmless with regard to his employment at STB;
the manner of his Termination; and any other matters reasonably related
to his employment. MJP agrees to initiate no action, of any type or
kind, regarding his employment or Termination and if such an action is
initiated he agrees that such action may be promptly closed, dismissed
or summarily disallowed, or, if it shall continue, that MJP will
indemnify STB for the legal fees, costs and expenses resulting from
their defense of that action; and
C. MJP agrees to and shall maintain the confidentiality of any and all
proprietary secrets, processes and plans of STB and its subsidiaries
made known to MJP during his employment.
STB may elect to advance the separation benefits set forth in Paragraph 2 prior
to the satisfaction of each of the above requirements in this Paragraph 3, or in
anticipation of full performance by MJP, and should any requirement not be
satisfied within a reasonable period thereafter or continuously performed, MJP,
upon request of STB and presentation of proof of nonperformance and a reasonable
period to cure the continuing nonperformance, shall promptly return the
separation benefit(s) paid or granted to him and this Agreement shall terminate.
3. Separation Benefits. STB shall, in addition to any final salary, vacation,
personal leave, retirement plan and other monetary or nonmonetary benefit(s)
covered under one or more separate agreement(s) and otherwise due or applicable
to MJP upon Termination (except benefits due under an agreement or policy
concerning office closure or reduction in force laws
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<PAGE>
so long as less than the sums being paid hereunder), pay to MJP upon Termination
one of the following benefits, at the election and option of MJP:
A. A lump sum payment equal to SIX (6) months of monthly salary, less
any and all applicable taxes, deductions arising from benefit elections
or any other sums required to be deducted by law, rule or regulation.
If this option is elected, and MJP elects continued health coverage
under COBRA, STB will require MJP to pay the full rate allowed by COBRA
for any continued health insurance coverage elected at the time of
Termination; or
B. Continuation of monthly salary for SIX (6) months, less any and all
applicable taxes, deductions arising from benefit elections or other
sums required to be deducted by law, rule or regulation. If this option
is elected, and if MJP elects to continue health insurance coverage
under COBRA, STB will continue to charge MJP's the applicable employee
coverage rate for Six (6) months if said applicable employee rate may
be properly granted to MJP without violating any existing policy or law
and if said rate is lower than the COBRA rate that may be assessed.
The payment option elected shall be deemed the "Separation Benefit". Said
Separation Benefit shall result in a waiver of any other separation benefits due
to MJP following the Termination as more fully set forth in Paragraph 4.
4. Express Waiver and Release of Other Separation Benefits. By executing this
Agreement, MJP agrees that the Separation Benefit paid pursuant to this
Agreement, provided the payments or benefits at least equal those payments or
benefits that must be paid to terminated employees by law, shall be deemed to be
the equivalent and substitute for any legally or customarily required separation
payments due to MJP and STB shall be given full credit for sums paid hereunder
as to any legal or customarily requirements to pay separation and payments
hereunder shall be deemed to have fully satisfied STB's obligations with regard
to any legally or customarily mandated separation payments due to MJP upon his
termination, including, but not limited to, any laws or customs regarding
reduction in force or job-site closing. If additional sums are legally required,
or are adjudicated as required, this Agreement shall be deemed to be
automatically amended to credit against the sums due the amount paid hereunder
and this Agreement shall be deemed to include any additionally required benefits
or payments.
5. Reserved.
6. Binding Effect of Agreement. This Agreement shall inure to the benefit of
and be binding upon the heirs, administrators, personal representatives,
successors and assigns of MJP and STB, as the case may be.
7. No Contest; Reimbursement of Benefits: The parties hereby mutually agree
that in the event that MJP contests this Agreement, or any of the provisions
hereunder, by the filing or commencement of any action or proceeding relating
to his employment or Termination of any kind or nature whatsoever against STB,
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its parent company or affiliate companies or is re-employed by STB involuntarily
by court order, or an enforceable judgment is obtained against STB, then STB
shall have the absolute right: (i) to enforce repayment in full on the date of
such re-employment of all sums paid to MJP hereunder, which sums shall include
the payment or value of any benefits received by MJP hereunder, as a credit
in offset, reduction and satisfaction of all or any portion of such judgment,
or, (ii) if there is no judgment, against wages due to MJP.
8. Captions: The captions set forth herein are included solely for ease and
convenience of reference and are not to be considered or construed in the
interpretation of this Agreement.
9. Entire Agreement: This Agreement constitutes and contains the entire
agreement between the parties and no statement or representation of either party
hereto, their agents, officers, directors or employees made outside of this
Agreement and not contained herein shall form a part of this Agreement or be
binding upon the other party. This Agreement shall not be changed, modified,
altered or amended, except by written instrument signed by the parties hereto.
10.Governing Law: This Agreement shall be construed and governed in
accordance with the laws of the State wherein MJP is predominantly employed,
with venue appropriate in the County wherein MJP is predominantly employed. Any
provision of this Agreement prohibited by law shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement. In the event of
any litigation or action being commenced with regard to this Agreement, the
prevailing party shall be awarded their reasonable attorneys fees, costs and
expenses.
11. Informed Consent and Waiver: MJP has executed this Agreement on a fully
informed, voluntary basis. MJP understands and agrees that the separation
benefit provided for herein will preclude MJP's right to seek other separation
benefits, except as allowed by law, and that MJP has been given the right and
opportunity to consult with an advisor or attorney prior to the execution of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have made, executed and delivered this
Agreement as of the day and year first above written.
/s/ Mary Jane Posnien
MARY JANE POSNIEN
SIERRA TAHOE BANCORP,
a California Corporation
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<PAGE>
By: /s/ W. T. Fike
William T. Fike
Its: President/CEO
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<PAGE>
STATE OF CALIFORNIA )
) SS.
COUNTY OF NEVADA )
On 30 day of January, 1996, personally appeared before me, a Notary Public, in
and for said County and State, MARY JANE POSNIEN, known to me to be the person
described in and who executed the foregoing instrument, who acknowledged to me
that she executed the same freely and voluntarily and for the uses and purposes
therein mentioned.
(Seal) /s/ Cynthia Perry
Notary Public
STATE OF CALIFORNIA )
) SS.
COUNTY OF NEVADA )
On this 13 day of February, 1996, personally appeared before me, a Notary
Public, in and for said County and State, WILLIAM T. FIKE, in his capacity as
President and CEO of SIERRA TAHOE BANCORP, known to me to be the person
described in and who executed the foregoing instrument, who acknowledge to me
that he executed the same freely and voluntarily and for the uses and purposes
therein mentioned.
(Seal) /s/ Julie Roberts
Notary Public
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<PAGE>
Exhibit 10.66
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF SIERRAWEST
BANCORP'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE SIERRAWEST
BANCORP 1996 STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE
SHAREHOLDERS OF SIERRAWEST BANCORP.
SIERRAWEST BANCORP
INCENTIVE STOCK OPTION AGREEMENT
This Incentive Stock Option Agreement (the "Agreement") is made and entered
into as of the 23rd day of December, 1996, by and between SierraWest Bancorp, a
California corporation (the "Bancorp"), and MaryJane Posnien ("Optionee");
WHEREAS, pursuant to the SierraWest Bancorp 1996 Stock Option Plan (the
"Plan"), a copy of which is attached hereto, the Stock Option Committee has
authorized granting to Optionee an incentive stock option to purchase all or any
part of seven thousand five hundred (7,500) authorized but unissued shares of
the Bancorp's common stock for cash at the price of fifteen dollars and thirteen
cents ($15.13) per share, such option to be for the term and upon the terms and
conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. Grant of Option. Pursuant to said action of the Stock Option Committee, the
Bancorp hereby grants to Optionee the option to purchase, upon and subject to
the terms and conditions of the Plan which is incorporated in full herein by
this reference, all or any part of seven thousand five hundred (7,500) shares of
the Bancorp's common stock (hereinafter called "stock") at the price of fifteen
dollars and thirteen cents ($15.13) per share, which price is not less than one
hundred percent (100%) of the fair market value of the stock (or not less than
110% of the fair market value of the stock for Optionee- shareholders who own
securities possessing more than ten percent (10%) of the total combined voting
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power of all classes of securities of the Bancorp) as of the date of action of
the Stock Option Committee granting this option.
2. Exercisability. This option shall be exercisable as to fifteen hundred
(1,500) shares on or after 12 months, an additional fifteen hundred (1,500)
shares on or after 24 months, an additional fifteen hundred (1,500) shares on or
after 36 months, an additional fifteen hundred (1,500) shares on or after 48
months, and an additional fifteen hundred (1,500) shares on or after 60 months.
This option shall remain exercisable as to all of such shares until December 23,
2006 (but not later than ten (10) years from the date this option is granted)
unless this option has expired or terminated earlier in accordance with the
provisions hereof. Shares as to which this option becomes exercisable pursuant
to the foregoing provision may be purchased at any time prior to expiration of
this option.
3. Exercise of Option. This option may be exercised by written notice
delivered to the Bancorp stating the number of shares with respect to which this
option is being exercised, together with cash or shares of the Bancorp's stock,
as applicable, in the amount of the purchase price of such shares. Not less than
ten (10) shares may be purchased at any one time unless the number purchased is
the total number which may be purchased under this option and in no event may
the option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of any federal and state taxes then due.
4. Cessation of Employment. Except as provided in Paragraphs 2 and 5 hereof,
if Optionee shall cease to be an employee of the Bancorp or a subsidiary
corporation for any reason other than Optionee's death or disability, [as
defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
from time to time (the "Code")], this option shall expire three (3) months
thereafter. During the three (3) month period this option shall be exercisable
only as to those installments, if any, which had accrued as of the date when
Optionee ceased to be an employee of the Bancorp or the subsidiary corporation.
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<PAGE>
5. Termination of Employment for Cause. If Optionee's employment with the
Bancorp or a subsidiary corporation is terminated for cause, this option shall
expire thirty (30) days from the date of such termination. Termination for cause
shall include, but not be limited to, termination for malfeasance or gross
misfeasance in the performance of duties or conviction of a crime involving
moral turpitude, and, in any event, the determination of the Board of Directors
with respect thereto shall be final and conclusive.
6. Nontransferability; Death or Disability of Optionee. This option shall not
be transferable except by will or by the laws of descent and distribution and
shall be exercisable during Optionee's lifetime only by Optionee. If Optionee
dies while an employee of the Bancorp or a subsidiary corporation, or during the
three (3) month period referred to in Paragraph 4 hereof, this option shall
expire one (1) year after the date of Optionee's death or on the day specified
in Paragraph 2 hereof, whichever is earlier. After Optionee's death but before
such expiration, the persons to whom Optionee's rights under this option shall
have passed by will or by the applicable laws of descent and distribution or the
executor or administrator of Optionee's estate shall have the right to exercise
this option as to those shares for which installments had accrued under
Paragraph 2 hereof as of the date on which Optionee ceased to be an employee of
the Bancorp or a subsidiary corporation.
If Optionee terminates his or her employment because of disability, (as
defined in Section 22(e)(3) of the Code), Optionee may exercise this option to
the extent he or she is entitled to do so at the date of termination, at any
time within one (1) year of the date of termination, or before the expiration
date specified in Paragraph 2 hereof, whichever is earlier.
7. Employment. This Agreement shall not obligate the Bancorp or a subsidiary
corporation to employ Optionee for any period, nor shall it interfere in any way
with the right of the Bancorp or a subsidiary corporation to reduce Optionee's
compensation.
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8. Privileges of Stock Ownership. Optionee shall have no rights as a
shareholder with respect to the Bancorp's stock subject to this option until the
date of issuance of stock certificates to Optionee. Except as provided in the
Plan, no adjustment will be made for dividends or other rights for which the
record date is prior to the date such stock certificates are issued.
9. Modification and Termination. The rights of Optionee are subject to modi-
fication and termination upon the occurrence of certain events as provided in
Sections 13 and 14 of the Plan.
10. Notification of Sale. Optionee agrees that Optionee, or any person
acquiring shares upon exercise of this option, will notify the Bancorp not more
than five (5) days after any sale or other disposition of such shares.
11. Representations of Optionee. No shares issuable upon the exercise of this
option shall be issued and delivered unless and until the Bancorp has complied
with all applicable requirements of California and federal law and of the
Securities and Exchange Commission and the California Department of Corporations
pertaining to the issuance and sale of such shares, and all applicable listing
requirements of the securities exchanges, if any, on which shares of the Bancorp
of the same class are then listed. Optionee agrees to ascertain that such
requirements shall have been complied with at the time of any exercise of this
option. In addition, if the Optionee is an "affiliate" for purposes of the
Securities Act of 1933, there may be additional restrictions on the resale of
stock, and Optionee therefore agrees to ascertain what those restrictions are
and to abide by the restrictions and other applicable federal and state
securities laws.
Furthermore, the Bancorp may, if it deems appropriate, issue stop transfer
instructions against any shares of stock purchased upon the exercise of this
option and affix to any certificate representing such shares the legends which
the Bancorp deems appropriate.
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Optionee represents that the Bancorp, its directors, officers, employees and
agents have not and will not provide tax advice with respect to the option, and
Optionee agrees to consult with his or her own tax advisor as to the specific
tax consequences of the option, including the application and effect of federal,
state, local and other tax laws.
12. Notices. Any notice to the Bancorp provided for in this Agreement shall be
addressed to it in care of its President or Chief Financial Officer at its main
office and any notice to Optionee shall be addressed to Optionee's address on
file with the Bancorp or a subsidiary corporation, or to such other address as
either may designate to the other in writing. Any notice shall be deemed to be
duly given if and when enclosed in a properly sealed envelope and addressed as
stated above and deposited, postage prepaid, with the United States Postal
Service. In lieu of giving notice by mail as aforesaid, any written notice under
this Agreement may be given to Optionee in person, and to the Bancorp by
personal delivery to its President or Chief Financial Officer.
13. Incentive Stock Option. This Agreement is intended to be an incentive
stock option agreement as defined in Section 422 of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement.
OPTIONEE
SIERRAWEST BANCORP
By /s/ Mary Jane Posnien By /s/ W. T. Fike
MaryJane Posnien William T. Fike
By /s/ Robert C. Silver
Robert C. Silver
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EXHIBIT 11.1
<TABLE>
SierraWest Bancorp and Subsidiary Computation of
Earnings Per Common Share (in thousands,
except per share amounts)
Year Ended December 31,
1996 1995 1994
------ ---- ----
Primary
<S> <C> <C> <C>
Net income............................................ $ 3,328 $ 1,916 $ 3,003
========= ========= =========
Shares
Weighted average number of common shares
outstanding......................................... 2,675 2,599 2,598
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
the proceeds from exercise of such options 127 79 80
----------- ---------- ---------
Weighted average number of common shares
outstanding as adjusted . . . . . . . . . . . . . . . . . 2,802 2,678 2,678
=========== ========== =========
Net income per share . . . . . . . . . . . . . . . . . . . $ 1.19 $ 0.72 $ 1.12
=========== ========== =========
Assuming full dilution
Earnings $ 3,328 $ 1,916 $ 3,003
Add after tax interest expense applicable to
convertible debentures . . . . . . . . . . . . . . . . . 449 499 460
---------- ---------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . .$ 3,777 $ 2,415 $ 3,463
=========== ========== ===========
Shares
Weighted average number of common shares
outstanding.......................... 2,675 2,599 2,592
Assuming conversion of convertible
debentures............................ 930 1,000 926
Assuming exercise of options reduced by the
number of shares which could have been
purchased with the proceeds from exercise of
such options......................... 142 88 88
------------ ---------- ---------
Weighted average number of common shares
outstanding as adjusted............... 3,747 3,687 3,606
=========== ========== =========
Net income per share assuming
full dilution......................... $ 1.01 $ 0.66 $ 0.96
=========== ========== =========
</TABLE>
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EXHIBIT 12.1
<TABLE>
SierraWest Bancorp and Subsidiary Ratio of Earnings to Fixed Charges
(in thousands)
Year Ended December 31,
1996 1995 1994 1993 1992
Fixed Charges
<S> <C> <C> <C> <C> <C>
Interest on debt $ 760 $ 858 $ 827 $ 79 $ 105
Amortization of debt expense 93 97 86 0 7
Interest element of rentals 369 404 307 283 247
Capitalized interest 104 41 0 0 0
----- ----- ----- ------ -----
Total fixed charges excluding interest on deposits 1,326 1,400 1,220 362 359
Interest on deposits 11,735 7,633 4,770 4,424 6,771
-------- ------ ------ ------- ------
Total fixed charges including interest on deposits $13,061 $9,033 $ 5,990 $ 4,786 $7,130
======== ======= ======== ======= ======
Earnings
Consolidated net income $ 3,328 1,916 3,003 $ 2,704 $1,833
Add back:
Provision for income taxes 2,077 1,179 1,863 1,670 763
Total fixed charges excluding interest on deposits 1,222 1,359 1,220 362 359
-------- ------- ------- -------- -----
Total earnings excluding interest on deposits 6,627 4,454 6,086 4,736 2,955
Add back:
Interest on deposits 11,735 7,633 4,770 4,424 6,771
-------- ------- ------- -------- -------
Total earnings including interest on deposits $18,362 12,087 10,856 $ 9,160 $9,726
======== ======= ======== ======== =======
Ratio of earnings to fixed charges
excluding interest on deposits 5.0 3.2 5.0 13.1 8.2
Ratio of earnings to fixed charges including
interest on deposits 1.4 1.3 1.8 1.9 1.4
</TABLE>
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Exhibit 23.1
INDEPENDENT AUDITOR'S 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 January 24, 1997, appearing in the Annual Report on Form 10-K of
SierraWest Bancorp for the year ended December 31, 1996.
/s/ Deloitte & Touche LLP
Sacramento, California
March 14, 1997
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
_____________________________
For the Quarter ended September 30, 1997 Commission File No. 0-15450
SIERRAWEST BANCORP
(Exact Name of Registrant as Specified in its Charter)
California 68-0091859
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Reorganization)
10181 Truckee-Tahoe Airport Rd., P.O. Box 61000, 96160-9010
Truckee, California
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (916) 582-3000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 31, 1997: Common Stock - Authorized 10,000,000 shares of no par;
issued and outstanding - 4,088,659.
Page -1-
<PAGE>
10-Q Filing
September 30, 1997
Part I. Financial Information
Item 1. Financial Statements
Following are condensed consolidated financial statements for SierraWest
Bancorp ("Bancorp", or together with its subsidiary, the "Company") for the
reportable period ending September 30, 1997. These condensed consolidated
financial statements are unaudited, however, in the opinion of management, all
adjustments have been made for a fair presentation of the financial condition
and results of operations of the Company in conformity with generally accepted
accounting principles. The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page -2-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
September 30, 1997 and December 31, 1996 (Amounts in thousands of dollars)
<S> <C> <C>
(Unaudited)
ASSETS 09/30/97 12/31/96
- ------ -------- --------
Cash and due from banks $ 35,907 $ 26,434
Federal funds sold 35,600 32,200
Investment securities 60,107 35,216
Loans held for sale 14,129 29,489
Loans and leases, net of allowance for
possible loan and lease losses of $6,634
in 1997 and $4,546 in 1996 387,969 289,331
Other assets 41,591 35,219
------ ------
TOTAL ASSETS $575,303 $447,889
======== ========
LIABILITIES
Deposits $513,029 $399,651
Convertible debentures 0 8,520
Other liabilities 10,788 5,802
------ -----
TOTAL LIABILITIES 523,817 413,973
------- -------
SHAREHOLDERS' EQUITY
Common stock 29,347 12,291
Retained earnings 21,111 21,654
Unrealized gain/(loss) on available for sale
investment securities and interest only strips
receivable, net of tax 1,028 (29)
----- ---
TOTAL SHAREHOLDERS' EQUITY 51,486 33,916
------ ------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $575,303 $447,889
======== ========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Condition.
Page -3-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three and Nine Months Ended September 30, 1997 and 1996
(Amounts in thousands except per share amounts)
<TABLE>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
09/30/97 09/30/96 09/30/97 09/30/96
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans
and leases $10,231 $ 8,018 $28,501 $22,001
Interest on federal funds
sold 773 236 1,436 652
Interest on investment
securities and other assets 872 460 2,194 1,290
--- --- ----- -----
Total Interest Income 11,876 8,714 32,131 23,943
------ ----- ------ ------
Less Interest Expense:
Interest on deposits 4,587 3,075 12,277 8,363
Interest on convertible
debentures 0 195 60 592
Other interest expense 47 5 133 (42)
-- - --- ---
Total Interest Expense 4,634 3,275 12,470 8,913
----- ----- ------ -----
Net Interest Income 7,242 5,439 19,661 15,030
Provision for Possible
Loan and Lease Losses 540 250 1,940 910
--- --- ----- ---
Net Interest Income After
Provision for Possible
Loan and Lease Losses 6,702 5,189 17,721 14,120
Non-interest Income 2,581 1,825 9,105 5,246
Non-interest Expense 6,042 5,472 18,139 16,302
----- ----- ------ ------
Income Before Provision
for Income Taxes 3,241 1,542 8,687 3,064
Provision for Income Taxes 1,245 602 3,348 1,168
----- --- ----- -----
NET INCOME $ 1,996 $ 940 $ 5,339 $ 1,896
======= ======= ======= =======
EARNINGS PER SHARE
Primary $ 0.47 $ 0.32 $ 1.47 $ 0.65
Weighted Average Shares
Outstanding 4,254 2,959 3,630 2,914
Fully diluted $ 0.47 $ 0.27 $ 1.34 $ 0.57
Weighted Average Shares
Outstanding 4,273 3,943 4,005 3,926
Cash Dividends Paid Per
Share of Common Stock $ 0.16 $ 0.15 $ 0.32 $ 0.30
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Income.
Page -4-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, 1997 and 1996
(Amounts in thousands of dollars)
<TABLE>
Nine Nine
Months Months
Ended Ended
09/30/97 09/30/96
-------------------- -----------------
<S> <C> <C>
Cash Flow from Operating Activities:
Interest and fees received $ 31,216 $ 23,475
Service charges received 1,703 1,272
Servicing income and interest only
strips receivable income received 4,541 4,220
Interest paid (12,517) (8,973)
Cash paid to suppliers and employees (16,542) (14,695)
Income taxes paid (2,460) (1,090)
Government loans originated or purchased for sale (35,008) (8,194)
Government loans sold 66,277 134
Other items 1,202 812
----- ---
Net Cash Provided by/(Used in) Operating Activities $ 38,412 $ (3,039)
--------- --------
Cash Flow From Investing Activities:
Proceeds from:
Maturities of investment securities-held to maturity 1,012 1,015
Maturities of investment securities-available for sale 6,457 10,230
Sales of investment securities-available for sale 609 8,239
Purchase of investment securities-available for sale (28,249) (24,483)
Loans and leases made net of principal collections (89,046) (56,887)
Change in fixed assets 1,051 (3,701)
Change in other assets (411) 458
Acquisition of Mercantile Bank-
Net Cash Received 7,777 0
----- -
Net Cash Used in Investing Activities $(100,800) $(65,129)
--------- --------
Cash Flow from Financing Activities:
Net increase in demand, interest bearing and
savings accounts 51,017 25,348
Net increase in time deposits 24,659 40,447
Dividend paid (1,189) (805)
Proceeds from issuance of common stock 774 157
--- ---
Net Cash Provided by Financing Activities $ 75,261 65,147
--------- ------
Net Increase/(Decrease) in Cash and Cash Equivalents 12,873 (3,021)
Cash and Cash Equivalents at Beginning of Year 58,634 39,189
------ ------
Cash and Cash Equivalents at September 30 $ 71,507 $ 36,168
========= ========
</TABLE>
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Cash Flows.
Page -5-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Nine Months Ended September 30, 1997 and 1996 (Continued)
(Amounts in thousands of dollars)
RECONCILIATION OF NET INCOME TO NET
CASH USED IN OPERATING ACTIVITIES
<TABLE>
Nine Nine
Months Months
Ended Ended
09/30/97 09/30/96
----------------- ----------------
<S> <C> <C>
Net Income: $ 5,339 $ 1,896
Adjustment to Reconcile Net income to Net
Cash Provided:
Depreciation and amortization 1,138 891
Provision for possible loan and lease losses 1,940 910
Provision for income taxes 3,348 1,168
Amortization of servicing asset and interest
only strips receivable 1,226 0
Amortization of excess servicing on SBA loans 0 979
Amortization of purchased mortgage servicing
rights 0 129
Gain on sale of loans (over)/under cash received (3,369) 0
Amortization of premiums/discounts on loans (339) (358)
Changes in assets and liabilities net of effects
from purchase of Mercantile Bank:
Decrease in interest payable (47) (60)
Increase in accrued expenses 925 928
Decrease in taxes payable (2,460) (1,090)
Decrease/(increase) in loans originated for sale 31,269 (8,060)
Increase in prepaid expenses (76) (212)
Other items (482) (160)
---- ----
Total Adjustments $ 33,073 (4,935)
-------- ------
Net Cash Provided by/(Used In) Operating Activities $ 38,412 $(3,039)
======== =======
</TABLE>
____________________________________________________________________
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
In 1997 and 1996, $21.0 million and $15.7 million of unguaranteed SBA loans and
$0.0 and $4.3 million of guaranteed SBA loans were transferred to held for sale
status.
For the nine months ended September 30, 1997 and 1996, $8.5 million and
$965 thousand of convertible debentures were converted to common stock, net of
$568 thousand and $73 thousand in offering costs.
On June 30, 1997, the Company issued $3.4 million of common stock in
connection with the acquisition of Mercantile Bank.
On August 20, 1997, the Company issued a 5% stock dividend resulting in a
transfer of approximately $4.7 million from retained earnings to common stock.
For the nine months ended September 30, 1997 and 1996, $967 thousand and
$66 thousand of loans were transferred to other real estate owned.
The accompanying notes are an integral part of these Condensed Consolidated
Statements of Cash Flows.
Page -6-
<PAGE>
SierraWest Bancorp
Notes to Condensed Consolidated Financial Statements
As of September 30, 1997 and December 31, 1996 and for the
Three and Nine Months Ended September 30, 1997 and
September 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in a condensed format and, therefore, do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation have been reflected in the financial statements. The results of
operations for the nine months ended September 30, 1997, are not necessarily
indicative of the results to be expected for the full year. Earnings per share
data has been restated for the effect of the 5% stock dividend issued in August,
1997.
2. COMMITMENTS & CONTINGENT LIABILITIES
In the normal course of business, there are outstanding various commitments and
contingent liabilities, such as commitments to extend credit and letters of
credit, which are not reflected in the financial statements. Management does not
anticipate any material loss as a result of these transactions.
3. SERVICING ASSETS
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. In accordance with the accounting
standards provided by this statement, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
On January 1, 1997, under provisions of SFAS 125, the Company recognized
servicing assets of $2.2 million. In addition, excess servicing assets of $12.2
million recognized on SBA loan sales made before January 1,1997 and mortgage
servicing rights of $601 thousand were reclassified to interest only strips
receivable. The fair value of the Company's interest only strips receivable at
September 30, 1997 was $17.4 million. Interest only strips receivable are
classified as other assets available for sale and are carried at fair value. The
servicing asset is carried at cost, less any required valuation allowance and is
classified as an other asset. The servicing asset is amortized over the expected
remaining life. The Company's amortization of the servicing asset during the
nine months ended September 30, 1997 was $153 thousand. The fair value of the
Company's servicing asset at September 30, 1997 based on the current quoted
market prices for similar instruments was estimated at $2.1 million. The
carrying value at this same date was also $2.1 million.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. The Company is required to adopt SFAS 128 in the fourth
quarter of 1997 and will restate at that time earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods, basic
EPS would have been $0.49 and $0.33 for the quarters ended September 30, 1997
and 1996, respectively. For the nine months ended September 30, 1997 and 1996,
basic EPS would have been $1.55 and $0.68, respectively. Diluted EPS under SFAS
128 would not have been significantly different than fully diluted EPS currently
reported for the periods.
Page -7-
<PAGE>
SierraWest Bancorp
Notes to Condensed Consolidated Financial Statements
As of September 30, 1997 and December 31, 1996 and for the
Three and Nine Months Ended September 30, 1997 and
September 30, 1996
5. 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.
6. RESTRUCTURING
During the first quarter of 1997, the Company engaged an outside consulting firm
to assist in identifying opportunities to reduce operating expenses and to
recommend more efficient methods of operating. Although this engagement is
ongoing, an accrual of $452 thousand was made during the nine months ended
September 30, 1997, representing Management's estimate of the cost of salaries
and benefits payable to terminated employees. This amount was charged to sundry
losses. The actual amount of these termination costs paid out through September
30, 1997 was $292 thousand. There were 28 positions eliminated in connection
with this reorganization, primarily in the areas of loan production and loan
operations, but not exclusively limited to a specific level or department.
7. ACQUISITION OF MERCANTILE BANK
On June 30, 1997, the Company acquired Mercantile Bank ("Mercantile") and merged
it with and into SierraWest Bank ("SWB"). Total value of the cash and stock
transaction was $6.7 million, equivalent to $20.0035 per Mercantile common
share. The acquisition was accounted for as a purchase. There are no contingent
payments, options or commitments in the acquisition agreement.
Mercantile, a business bank primarily servicing the commercial and real estate
industries, had total assets of $43 million and total equity of $5 million at
the date of the merger. The carrying value of Mercantile's assets and
liabilities at June 30, 1997 was not materially different than the fair market
value at that date. SWB recorded intangible assets of $1,072 thousand in
goodwill and a core deposit intangible ("CDI") of $737 thousand. The Company is
amortizing the goodwill over a period of fifteen years and the CDI over five
years, both on a straight-line basis.
Page -8-
<PAGE>
SIERRAWEST BANCORP AND SUBSIDIARY
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
FINANCIAL CONDITION
Total assets increased by $127.4 million from $447.9 million at December 31,
1996, to $575.3 million at September 30, 1997. This increase included increases
of $83.3 million in loans and loans held for sale, net of the allowance for
possible loan and lease losses, $24.9 million in investment securities, $9.5
million in cash and due from banks, $6.3 million in other assets and $3.4
million in federal funds sold. Of the Company's total investment securities,
$34.5 million were pledged at September 30, 1997.
The following table summarizes the Company's deposit and loan portfolios as of
September 30, 1997, and December 31, 1996 (in thousands).
<TABLE>
Deposits: 09/30/97 12/31/96 Change
<S> <C> <C> <C>
Non-interest bearing demand............ $112,538 $ 80,525 $ 32,013
Savings................................ 13,351 13,289 62
Interest bearing transaction accounts.. 162,465 120,417 42,048
Time................................... 224,675 185,420 39,255
------- ------- ------
TOTAL DEPOSITS....................... $513,029 $399,651 $113,378
======== ======== ========
Loans:
09/30/97 12/31/96 Change
SBA.................................... $147,162 $146,266 $ 896
Other Commercial....................... 80,632 57,668 22,964
Real Estate............................ 160,764 104,323 56,441
Individual and Other................... 6,616 6,824 (208)
Lease Receivables...................... 16,375 9,994 6,381
------ ----- -----
SUBTOTAL............................... 411,549 325,075 86,474
Net deferred loan fees/costs and
unearned income on leases............. (2,817) (1,709) (1,108)
------ ------ ------
TOTAL GROSS LOANS AND LEASES......... $408,732 $323,366 $85,366
======== ======== =======
</TABLE>
Page -9-
<PAGE>
Included at September 30, 1997 are SBA and Business and Industry ("B & I") loans
held for sale of $12.9 million and $1.2 million, respectively.
Loans held for sale decreased $15.4 million, primarily due to the Company's
completion of its first securitization of unguaranteed portions of SBA 7(a)
loans in June, 1997. Loans included in the sale were $51.4 million. Partially
offsetting the decrease in SBA loans through the securitization was growth in
the SBA loan portfolio of $25.0 million during the third quarter. New SBA loan
production offices were opened during the quarter in Portland, Oregon and
Knoxville and Chattanooga, Tennessee. The Company intends to continue expansion
of its SBA operations into other states.
Other loans increased as the result of the June acquisition of Mercantile Bank
and the efforts of existing branches. Total loans at the downtown Sacramento
Capitol Mall branch which was formerly Mercantile Bank were $24.8 million at
September 30, 1997, down from $26.9 million at acquisition. Total loans at the
Company's main Sacramento branch and its northern Nevada branches increased by
$27.9 million and $14.3 million, respectively, during the first nine months of
1997.
The Company is planning a securitization of SBA 504 and similar loans in
1998. These loans will be transferred to held for sale status once they are
identified.
The increase in deposits is also primarily attributable to the acquisition and
growth in our larger branches. Deposits at the Capitol Mall branch were $41.6
million at September 30, 1997, up from $37.7 million at June 30, 1997. Total
deposits at the Company's main Sacramento branch and its northern Nevada
branches increased by $29.8 million and $44.1 million, respectively, in the nine
months ended September 30, 1997. During the same period, out-of-area
certificates of deposit decreased by $24.8 million, as the proceeds of the
securitization were partially used to reduce the Company's reliance on these
funds.
The Company maintains an investment portfolio primarily for liquidity purposes.
Cash and due from banks, federal funds sold and unpledged investment securities
were 18.9% of total deposits at September 30, 1997 versus 21.0% at December 31,
1996. Both of these ratios are within management guidelines for liquidity.
Effective January 1, 1997, upon implementation of SFAS 125, the Company's excess
servicing receivable and purchased servicing rights were reclassified as a
servicing asset for that portion of the receivables that did not exceed
contractually specified servicing fees and interest only strips receivable for
the portion which exceeds contractually specified servicing fees. The amortized
book value of the servicing asset was $2.1 million at September 30, 1997. The
interest only strips receivable are measured like available-for-sale investments
in debt securities under SFAS 115. Included in other assets at September 30,
1997 are interest only strips receivable with an estimated market value of $17.4
million. This includes an unrealized gain of $1.2 million.
The Company sold its real property in Carson City, Nevada on July 30, 1997. The
property is being leased back for the Company's Carson City branch for an
initial term of thirteen years at an annual rate of $134 thousand for the first
five years and increasing thereafter. The gain on the sale was $164 thousand,
which has been deferred and is being amortized as a reduction of future rental
expense.
At September 30, 1997, the unrealized gain on interest only strips receivable
and investment securities available for sale, net of the related tax effect,
included $701 thousand related to the market value adjustment of the interest
only strips receivable. In addition, this balance included an unrealized loss of
$11 thousand related to mutual fund investments and an unrealized gain of $338
thousand related to other investment securities.
Bancorp paid cash dividends of sixteen cents per share in March and September
1997. A 5% stock dividend was paid in August 1997. During the nine months ended
September 30, 1997, $8.5 million of the Bancorp's 8 1/2% convertible debentures
were converted into 852 thousand shares of common stock and had the effect of
reducing the Company's interest expense. This represented the balance of
debentures outstanding.
Page -10-
<PAGE>
RESULTS OF OPERATIONS (Nine Months Ended September 30, 1997 and 1996)
Net income for the nine months ended September 30, 1997 increased by $3,443
thousand or 181.6% from $1,896 thousand for the nine months ended September 30,
1996 to $5,339 thousand during the current nine month period. Net interest
income increased by $4,631 thousand and non-interest income increased by $3,859
thousand. The positive effect of these items on net income was partially offset
by an increase of $1,030 thousand in the provision for possible loan and lease
losses, a $1,837 thousand increase in other operating expenses and a $2,180
thousand increase in the provision for income taxes.
Net Interest Income
The yield on average interest earning assets for the nine months ended September
30, 1997 was 5.82%. This compares to 6.25% for the first nine months of 1996.
The decrease reflects a reduction in the percentage of average loans to average
interest-earning assets from 85.1% in 1996 to 80.7% in 1997. In addition, the
Company has experienced a decline in its loan yields while the cost of its
deposits has increased.
Yields and interest earned on loans, including loan fees for the nine months
ended September 30, 1997 and 1996, were as follows (in thousands except percent
amounts):
<TABLE>
Nine Nine
Months Months
Ended Ended
09/30/97 09/30/96
--------------- ----------------
<S> <C> <C>
Average loans outstanding (1) $364,223 $272,826
Average yields 10.5% 10.8%
Amount of interest and origination fees earned $ 28,501 $ 22,001
</TABLE>
(1) Amounts outstanding are the average of daily balances for the periods.
Excluding loan fees of $849 thousand and $858 thousand for the nine months ended
September 30, 1997 and 1996, yields on average loans outstanding were 10.2% and
10.4%, respectively. The prime rate (upon which a large portion of the Company's
loan portfolio is based), averaged 8.4% for the 1997 period and 8.3% for the
1996 period. The Company has been aggressive in growing its loan portfolio and
has encountered price competition in its service areas, particularly the
Sacramento and Reno markets. There is strong competition in these markets for
larger, higher quality loans, and the decrease in loan yields reflects this.
Rates and amounts paid on average deposits including non-interest bearing
deposits for the nine months ended September 30, 1997 and 1996 were as follows
(in thousands except percent amount):
<TABLE>
Nine Nine
Months Months
Ended Ended
09/30/97 09/30/96
--------------- ---------------
<S> <C> <C>
Average deposits outstanding (1) $453,459 $321,348
Average rates paid 3.6% 3.5%
Amount of interest paid or accrued $12,277 $ 8,363
</TABLE>
(1) Amounts outstanding are the average of daily balances for the periods.
The Company has experienced an increase in its overall cost of deposits from
3.5% for the nine months ended September 30, 1996 to 3.6% in the current period.
Rates paid on interest- bearing transaction accounts and time deposits have all
increased as compared to the 1996 period. These increases are primarily related
to market conditions in the Company's service area and are consistent with the
increase in rates in general during the comparison periods. Average time
deposits were 46.0% and 46.1% of average total deposits for the nine months
ended September 30, 1997 and 1996, respectively.
Page -11-
<PAGE>
The effective interest rate paid on NOW accounts, Money Market accounts and Time
Certificates of Deposits during the first nine months of 1997 and 1996 were as
follows:
<TABLE>
1997 1996
----------------------------------------------------- -----------------------------------------------------
MONEY MONEY
NOW MARKET TIME NOW MARKET TIME
----------------- ---------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Average Balance
(in thousands)(1) $52,841 $ 87,412 $208,635 $ 42,413 $ 56,612 $148,263
Rate Paid 1.4% 3.8% 5.8% 1.2% 3.4% 5.7%
</TABLE>
(1) Amounts outstanding are the average of daily balances for the periods.
Provision for Possible Loan and Lease Losses
In evaluating the Company's allowance for possible loan and lease losses,
management considers the credit risk in the various loan categories in its
portfolio. Historically, most of the Company's loan losses have been in its
commercial lending portfolio which includes SBA loans and local commercial
loans. From inception of its SBA lending program in 1983, the Company has
sustained a relatively low level of losses from these loans, averaging less than
0.5% of loans outstanding per year. Net losses in 1995 for these loans were $575
thousand. During 1996, net losses in the SBA loan portfolio decreased to $27
thousand. For the first nine months of 1997, loan losses, net of recoveries,
totaled $508 thousand.
Most of the Company's other commercial loan losses have been for loans to
businesses within the Tahoe basin area and in its Nevada operations. The Company
believes that it has taken steps to minimize its commercial loan losses,
including centralization of lending approval and processing functions. It is
important for the Company to maintain good relations with local business
concerns and, to this end, it supports small local businesses with commercial
loans. The Company also attempts to mitigate the risk inherent in these loans
through the loan review and approval process.
The provision for possible loan and lease losses was $1,940 thousand and $910
thousand for the first nine months of 1997 and 1996, respectively. The provision
in both years includes the effect of growth in the loan portfolio. Unguaranteed
loans increased $72.0 million and $53.1 million in the first nine months of 1997
and 1996, respectively. The 1997 increase is after the securitization and sale
of $51.4 million of unguaranteed portions of SBA loans. The increase in
provision in 1997 includes additional amounts to compensate for net loan losses
of $716 thousand and reflects revised estimates of potential losses primarily
related to two large loans with a combined reserve of $345 thousand.
The allowance for possible loan and lease losses as a percentage of loans and
leases was 1.62% at September 30, 1997, 1.41% at December 31, 1996 and 1.50% at
September 30, 1996. Net charge-offs for the nine months ended September 30, 1997
and 1996 were $716 thousand and $178 thousand, respectively. The increase of
0.21% in the allowance for possible loan and lease losses as a percentage of
loans from December includes .12% related to the acquisition of Mercantile Bank.
Guaranteed portions of loans were $52.0 million and $42.1 million at September
30, 1997 and 1996, respectively. The Company continues to monitor its exposure
to loan losses each quarter and will adjust its level of provision in the future
to reflect changing circumstances. The Company expects that its existing
allowance for possible loan and lease losses will be adequate to provide for any
additional losses.
Of total gross loans and leases at September 30, 1997, $6.1 million were
considered to be impaired. The allowance for possible loan and lease losses
included $710 thousand related to these loans. The average recorded investment
in impaired loans during the nine months ended September 30, 1997 was $5.4
million.
Page -12-
<PAGE>
The following table sets forth the ratio of nonaccrual loans to total
loans, the allowance for possible loan and lease losses to nonaccrual loans and
the ratio of the allowance for possible loan and lease losses to total loans and
leases, as of the dates indicated.
<TABLE>
September 30 December 31
----------------------------- --------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans to total loans 1.5% 1.9% 1.7% 2.3% 1.4%
Allowance for possible loan and lease
losses to nonaccrual loans 108.0% 79.7% 84.8% 70.2% 142.9%
Allowance for possible loan and lease
losses to total loans 1.6% 1.5% 1.4% 1.6% 2.1%
</TABLE>
If the guaranteed portions of loans on nonaccrual status, which total $1.7
million, are excluded from the calculations, the ratio of nonaccrual loans to
total loans and leases at September 30, 1997 declines to 1.2% and the allowance
for possible loan and lease losses to nonaccrual loans increases to 133.7%.
At September 30, 1996, excluding the guaranteed portions of loans on
nonaccrual, these same percentages are 1.2% and 120.7%, respectively.
The following table sets forth the amount of the Company's nonperforming loans
as of the dates indicated (amounts in thousands).
<TABLE>
September 30 December 31
---------------------------- --------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
SBA............................. $4,968 $5,484 $4,985 $5,351 $2,423
Other........................... 1,176 261 378 125 59
Accruing loans past due 90
days or more:
SBA............................. 342 1,037 1,071 816 1,754
Other........................... 561 1,049 1,061 207 9
Restructured loans (in
compliance with modified terms) 801 140 275 78 194
</TABLE>
The performance of the Company's loan portfolio is evaluated regularly by
management. The Company places a loan on nonaccrual status when any installment
of principal or interest is 90 days or more past due, unless, in management's
opinion, the loan is well secured and the collection of principal and interest
is probable. A loan is placed on nonaccrual status even if principal or interest
is less than 90 days past due if management determines the ultimate collection
of principal or interest on the loan to be unlikely. When a loan is placed on
nonaccrual status, the Company's general policy is to reverse and charge against
current income previously accrued but unpaid interest. Interest income on such
loans is subsequently recognized only to the extent that cash is received and
future collection of principal is deemed by management to be probable.
Although the level of nonperforming assets will depend on the future economic
environment, as of October 31, 1997, in addition to the assets disclosed in the
above chart, management of the Company has identified approximately $123
thousand in potential problem loans about which it has serious doubts as to the
ability of the borrowers to comply with the present repayment terms and which
may become nonperforming assets, based on known information about possible
credit problems of the borrower.
Interest income on nonaccrual loans which would have been recognized if all such
loans had been current in accordance with their original terms totaled $566
thousand for the nine months ended September 30, 1997. Interest income actually
recognized on nonaccrual loans
Page -13-
<PAGE>
for the nine months ended September 30, 1997 was $286 thousand.
The following table shows the loans outstanding, actual charge-offs, recoveries
on loans previously charged off, the allowance for possible loan and lease
losses and net loans charged off to average loans outstanding during the periods
and as of the dates indicated (amounts in thousands except percentage amounts).
<TABLE>
September 30 December 31
----------------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994
---------------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Average loans.................. $364,223 $272,826 $284,487 $203,231 $166,366
Total gross loans at end of
period........................ 408,733 305,161 323,366 239,969 172,939
Allowance for possible loan and
lease losses: Balance
beginning of period........... $ 4,546 $ 3,845 $ 3,845 $ 3,546 $ 3,472
-------- -------- ------- ------- -------
Actual charge-offs:
SBA.......................... 561 84 114 595 447
Commercial and industrial.... 299 312 337 350 467
Leases....................... 14 0 84 0 0
Real estate.................. 0 0 0 40 60
Installment.................. 59 25 58 40 101
-- -- -- -- ---
Total...................... 933 421 593 1,025 1,075
--- --- --- ----- -----
Less recoveries:
SBA.......................... 53 68 87 20 74
Commercial and industrial.... 109 165 182 26 187
Leases....................... 6 0 0 0 0
Real estate.................. 0 0 0 0 0
Installment.................. 49 10 15 8 3
-- -- -- - -
Total...................... 217 243 284 54 264
--- --- --- -- ---
Net charge-offs................ 716 178 309 971 811
Provision for possible loan and
lease losses.................. 1,940 910 1,010 1,270 885
----- --- ----- ----- ---
Subtotal...................... 5,770 4,577 4,546 3,845 3,546
----- ----- ----- ----- -----
Acquisition of Mercantile Bank 864 0 0 0 0
--- - - - -
Balance-end of period.......... $ 6,634 $ 4,577 $ 4,546 $ 3,845 $ 3,546
======== ======== ======== ======== ========
Net loans charged off to
average loans outstanding (1). 0.26% 0.09% 0.11% 0.48% 0.49%
</TABLE>
(1) Percentages for the nine months are based on annualized net charge-offs.
Page -14-
<PAGE>
The following table sets forth management's historical allocation of the
allowance for possible loan and lease losses by loan category and percentage of
loans in each category. Percentage amounts are the percentage of loans in each
category to total loans at the dates indicated (in thousands except percentage
amounts).
<TABLE>
December 31,
------------------------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------- ---------------------------------- --------------------------------
Percent- Percent- Percent-
Amount age Amount age Amount age
--------------- --------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SBA loans............. $1,561 45% $ 1,468 49% $ 2,372 56%
Commercial and
industrial loans(2).. 1,720 21 1,592 24 627 18
Real estate loans..... 1,010 30 564 23 366 21
Consumer loans to
individuals(1)....... 255 4 221 4 181 5
--- - --- - --- -
Total............... $ 4,546 100% $ 3,845 100% $ 3,546 100%
======= === ======= === ======= ===
</TABLE>
<TABLE>
September 30,
------------------------------------------------------------------------
1997 1996
---------------------------------- ----------------------------------
Percent- Percent-
Amount age Amount age
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
SBA loans............. $ 1,963 36% $ 1,732 48%
Commercial and
industrial loans(2).. 2,756 23 1,992 31
Real estate loans..... 1,532 38 559 18
Consumer loans to
individuals(1)....... 383 3 294 3
--- - --- -
Total............... $ 6,634 100% $ 4,577 100%
======= === ======= ===
</TABLE>
___________________________________
(1) Includes equity lines of credit
(2) Includes commercial leases
In allocating the Company's allowance for possible loan and lease losses,
management has considered the credit risk in the various loan categories in its
portfolio. While every effort has been made to allocate the reserve to specific
categories of loans, management believes that any breakdown or allocation of the
loan loss reserve into loan categories lends an appearance of exactness which
does not exist, in that the reserve is utilized as a single unallocated reserve
available for losses on all types of loans.
Non-interest Income
Non-interest income increased $3,859 thousand during the first nine months of
1997 compared to the previous year's first nine months.
Included in 1997 is a gain of approximately $2.6 million generated from the sale
and securitization of unguaranteed portions of SBA loans.
The net gain on the sale of government guaranteed loans increased from a loss of
$22 thousand during the first nine months of 1996 to $342 thousand in 1997 for
the nine months ended September 30, 1997. Sales of government guaranteed loans
were $14,936 thousand in 1997
Page -15-
<PAGE>
compared to $134 thousand in 1996. Of these sales, $9,176 thousand were related
to the sale of "B & I" loans and $5,760 thousand were related to the sale of SBA
7(a) loans. Because B&I loans tend to have a lower yield than SBA loans, the
Company intends to sell the government guaranteed portion of the B&I loans it
originates. SBA loan sales were made in 1997 to reduce industry concentrations
and to facilitate the securitization.
Income related to the Company's servicing assets and interest only strips
receivable, net of the amortization of these assets, increased by $203 thousand
from $3,112 thousand during the first nine months of 1996 to $3,315 for the nine
months ended September 30, 1997. This increase results from the securitization
in June 1997, which contributed $499 thousand to the increase. Partially
offsetting the effect of the securitization were normal payments on existing
loans, including amortization and prepayments.
Service charge income increased by $431 thousand during the comparison periods.
This resulted from an increase in demand deposits and a change in the structure
of service charges effective February 1, 1997.
In the first nine months of 1997, the Company incurred a loss of $80 thousand on
the sale of securities, primarily mutual fund shares. This compares to an $8
thousand loss on the sale of securities in 1996.
Non-interest Expense
The following table compares the various elements of non-interest expense as an
annualized percentage of total assets for the first nine months of 1997 and 1996
(in thousands except percentage amounts):
Nine Months Salaries & Occupancy & Other
Ended Average Related Equipment Operating
September 30 Assets (1) Benefits (2) Expenses Expenses
______________________________________________________________________
1997 $ 508,358 2.5% 0.8% 1.3%
1996 $ 366,612 3.1% 0.9% 1.7%
(1) Based on average daily balances.
(2) Excludes provision for payment of bonuses and contribution to KSOP plan.
Including these items, percentages are 2.7% and 3.3% for 1997 and 1996,
respectively.
Page -16-
<PAGE>
The following table summarizes the principal elements of operating expenses and
discloses the changes and percent of changes for the nine months ended September
30, 1997 and 1996 (amounts in thousands except percentage amounts):
<TABLE>
Nine months ended Increase (decrease)
September 30 1997 over 1996
------------------------------ -------------------------------
Percent-
1997 1996 Amount age
--------------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Salaries and related benefits........... $10,077 $ 9,076 $1,001 11.0%
Occupancy and equipment................. 3,085 2,575 510 19.8
Insurance............................... 178 183 (5) (2.7)
Postage................................. 255 254 1 0.4
Stationery and supplies................. 284 278 6 2.2
Telephone............................... 318 272 46 16.9
Advertising............................. 503 345 158 45.8
Legal................................... 109 462 (353) (76.4)
Consulting.............................. 708 428 280 65.4
Audit and accounting fees............... 116 116 0 0.0
Directors' fees and expenses............ 335 331 4 1.2
Other real estate owned................. 54 56 (2) (3.6)
Sundry losses........................... 703 688 15 2.2
Other................................... 1,414 1,238 176 14.2
----- ----- ---
$18,139 $16,302 $1,837 11.3%
======= ======= ======
</TABLE>
The increase in salaries and benefits includes an increase of $719 thousand in
commission and incentive expense, resulting from several factors. SBA and B&I
loan volume increased in 1997, and commission expense related to these loans
increased by approximately $302 thousand. In 1997, the Company expanded its
commission program to increase the benefits available to loan officers and
business development officers, yielding an increase of $298 thousand through
September 30, 1997. Incentives of $74 thousand were incurred in 1997 as a result
of the securitization. Salaries and benefits include an accrual of $374 thousand
and $195 thousand for incentive payments to the Company's senior management for
the nine month periods in 1997 and 1996, respectively. Base wages plus overtime
increased by just $100 thousand during the comparison periods. The rise in
occupancy and equipment is primarily attributable to maintenance and repair
costs on an expanded computer hardware and data communications network, as well
as depreciation on an increased base of fixed assets. Specifically, $283
thousand relates to the acquisition of Mercantile Bank and expansion of our
branches in Reno and Carson City, Nevada. Included in advertising expense is the
cost of printing new product brochures totaling approximately $50 thousand. In
addition, the 1996 expense reflects a reversal of an overaccrual. Legal fees
incurred in 1996 related primarily to two litigation matters. One matter was
resolved in the Company's favor, and the other is ongoing and relates to a
property acquired by the Company through foreclosure.
During the first quarter of 1997 the Company engaged an outside consulting firm
to assist in identifying opportunities to reduce operating expenses and to
recommend more efficient methods of operating. The increase in consulting costs
is primarily related to this engagement. Total cost of this engagement is
expected to be approximately $600 thousand, of which $430 thousand is included
in consulting expense for the nine months ended September 30, 1997. As a result
of this ongoing engagement, sundry losses in 1997 reflect an accrual of $452
thousand for the estimated salaries and benefits payable related to a reduction
in staffing. Sundry losses in 1996 included a charge of $352 thousand related to
a reduction in staffing, $114 thousand related to a servicing error on an SBA
loan and $70 thousand associated with a litigation matter.
Provision for Income Taxes
Provision for income taxes has been made at the prevailing statutory rates and
includes the effect of items which are classified as permanent differences for
federal and state income tax. The provision for income taxes was $3,348 thousand
and $1,168 thousand for the nine months ended September 30, 1997 and 1996,
respectively, representing 38.5% and 38.1% of income before taxation for the
respective periods.
Page -17-
<PAGE>
Results of Operations (Three months ended September 30, 1997 and 1996)
Net income increased by $1,056 thousand from $940 thousand for the three months
ended September 30, 1996 to $1,996 thousand for the current quarter. The
increase included a $1,803 thousand increase in net interest income and a $756
thousand increase in non-interest income. These items were partially offset by
increases of $290 thousand in the provision for loan and lease losses, $570
thousand in non-interest expense and $643 thousand in the provision for income
taxes.
Net Interest Income
The yield on net interest-earning assets decreased from 6.21% during the third
quarter of 1996 to 5.69% during the three months ended September 30, 1997. This
decrease in yield was offset by an increase of 45.0% in average interest-earning
assets. Average interest-earning assets totaled $505 million during the 1997
quarter and $348 million during the third quarter of 1996. As in the nine month
comparison, yield was negatively affected by a decrease in loans as a percentage
of interest-earning assets, a decrease in loan yields and an increase in the
cost of deposits.
Yields and interest earned on loans, including loan fees for the three months
ended September 30, 1997 and 1996 were as follows (in thousands except percent
amounts):
Three Three
Months Months
Ended Ended
09/30/97 09/30/96
------------ ----------
Average loans outstanding (1) $389,858 $297,294
Average yields 10.4% 10.7%
Amount of interest and origination fees earned $ 10,231 $ 8,018
(1) Amounts outstanding are the average of daily balances for the periods.
Excluding loan fees of $336 thousand and $366 thousand for the three months
ended September 30, 1997 and 1996, respectively, yields on average loans
outstanding were 10.1% and 10.2%. The prime rate (upon which a large portion of
the Company's loan portfolio is based) was 8.5% for the 1997 quarter and 8.25%
for the 1996 quarter. This increase in the prime rate was offset by increased
competitive pressures in loan acquisition.
Rates and amounts paid on average deposits, including non-interest bearing
deposits for the three months ended September 30, 1997 and 1996, were as follows
(in thousands except percent amounts):
Three Three
Months Months
Ended Ended
09/30/97 09/30/96
-------------- -------------
Average deposits outstanding (1) $507,236 $350,698
Average rate paid 3.6% 3.5%
Amount of interest paid or accrued $ 4,587 $ 3,075
(1) Amounts outstanding are the average of daily balances for the periods.
The effective interest rates paid on NOW accounts, Money Market accounts and
Time Certificates of Deposits during the third quarter of 1997 and 1996 were as
follows (in thousands except percent amounts):
<TABLE>
1997 1996
-------------------------------------------------- --------------------------------------------------
MONEY MONEY
NOW MARKET TIME NOW MARKET TIME
-------------- ---------------- ---------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Average Balance (1) $57,038 $100,502 $227,206 $46,445 60,155 $163,004
Average Rate Paid 1.4% 3.9% 5.8% 1.2% 3.6% 5.7%
</TABLE>
(1) Amounts outstanding are the average of daily balances for the periods.
Page -18-
<PAGE>
The Company prices its deposits consistent with market conditions in its service
areas.
Time certificates of deposit represented 44.8% of average deposits during the
third quarter of 1997 and 46.5% during the 1996 quarter. This decrease resulted
from a decrease in average out-of-area time deposits from 13.5% of average total
deposits for the third quarter of 1996 to 6.4% for the current quarter.
Provision for Possible Loan and Lease Losses
A detailed comparison analysis of the Company's non-performing loans and
charge-off history is reported in the nine month discussion. The provision
recorded during the third quarter of 1997 reflects the $25.0 million in growth
in unguaranteed loans during the quarter.
Non-interest Income
Net servicing income increased from $1,001 thousand during the third quarter of
1996 to $1,401 thousand in the current quarter due to the securitization.
Service charges increased $137 thousand as compared to the 1996 quarter. Sundry
recoveries included an insurance settlement of $131 thousand in 1997.
Non-interest Expense
The following table compares the various elements of non-interest expense as an
annualized percentage of total assets for the third quarter of 1997 and 1996 (in
thousands except percentage amounts):
<TABLE>
Three Months Salaries & Occupancy & Other
Ended Average Related Equipment Operating
September 30 Assets (1) Benefits (2) Expenses Expenses
- ------------------------ ---------------------- ------------------------- ------------------ ---------------
<S> <C> <C> <C> <C>
1997 570,735 2.2% 0.7% 1.1%
1996 396,253 2.9% 0.9% 1.5%
</TABLE>
(1) Based on average daily balances.
(2) Excludes provision for payment of bonuses and contribution to KSOP plan.
Including these items, percentages are 2.3% and 3.2% for 1997 and 1996,
respectively.
The following table summarizes the principal elements of operating expenses and
discloses the changes and percent of changes for the three months ended
September 30, 1997 and 1996 (amounts in thousands except percentage amounts):
<TABLE>
Three Months Increase
Ended (decrease)
September 30 1997 over 1996
------------------------------ -------------------------------
Percent-
1997 1996 Amount age
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Salaries and related benefits........... $3,358 $3,145 $ 213 6.8%
Occupancy and equipment................. 1,062 864 198 22.9
Insurance............................... 69 65 4 6.2
Postage................................. 71 100 (29) (29.0)
Stationery and supplies................. 82 107 (25) (23.4)
Telephone............................... 103 93 10 10.8
Advertising............................. 157 53 104 196.2
Legal................................... 51 154 (103) (66.9)
Consulting.............................. 286 100 186 186.0
Directors' fees and expenses............ 154 103 51 49.5
Sundry losses........................... 98 177 (79) (44.6)
Other................................... 551 511 40 7.8
--- --- -- ---
$6,042 $5,472 $ 570 10.4%
====== ====== ===== ====
</TABLE>
Page -19-
<PAGE>
For a discussion of the changes in occupancy and equipment, see the nine month
review of non- interest expense. The change in salaries and benefits includes an
increase in commissions and incentives of $251 thousand and a decrease in base
salaries and overtime of $88 thousand. The changes in the commission structure
are discussed in the nine month review. Advertising expense in 1996 reflects a
reversal of an overaccrual. Consulting costs in the third quarter of 1997
included $173 thousand related to our ongoing engagement with an outside
consulting firm discussed in the nine month review.
Provision for Income Taxes
The provision for income taxes was $1,245 thousand and $602 thousand for the
three months ended September 30, 1997 and 1996, respectively, representing 38.4%
and 39.0% of income before taxation for the respective periods.
Page -20-
<PAGE>
SierraWest Bancorp
10-Q Filing
September 30, 1997
Part II.
Item 1. Legal Proceedings.
During 1987, SierraWest Bank, ("the Bank") took title, through foreclosure, of a
property located in Placer County which subsequent to the Bank's sale of the
property was determined to be contaminated with a form of hydrocarbons. At the
time it owned the property, the Bank became aware of and investigated the status
of certain underground tanks that had existed on the property. The Bank hired a
consultant to study the tanks and properly seal them. Several years later, and
after resale of the property, contamination was observed in the area of at least
one of the buried tanks and along an adjoining riverbank of the Yuba River. The
Bank, at the time of resale of the property, was not aware of this contamination
adjacent to the tanks but was aware of the existence of the tanks and disclosed
this to its purchaser.
A formal plan of remediation has not been approved by the County of Placer or
the State Regional Water Quality Board but is being drafted by a consultant. As
a result of the discovery of the contamination, two civil lawsuits were
instituted against the Bank and other prior owners by the current owner of the
property, Rainbow Holding Company, who is also the Bank's borrower. One of the
actions, the state court matter, was dismissed by agreement of the parties. The
other matter, filed in the summer of 1995 in the U. S. District Court, Eastern
District of California, is in mediation. Informal mediation has taken place
during the summer of 1997. Formal mediation is expected to begin in
mid-November, 1997 and to be concluded by the end of the year.
The Bank's external and internal counsel on this matter believe that the Bank's
share of the cost of remediation and the costs of defense will not be material
to the Bank's or the Company's performance and will be within existing reserves
established by the Bank for this matter. It is also expected that clean-up of
the property will be undertaken during the spring of 1998 following approval of
a work plan.
In addition, the Company is subject to some minor pending and threatened legal
actions which arise out of the normal course of business and, in the opinion of
Management and the Company's General Counsel, the disposition of these claims
currently pending will not have a material adverse affect on the Company's
financial position or results of operations.
Item 2. Change in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders.
Not applicable.
Item 5. Other Information. Not applicable.
Page -21-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11. Statement regarding computation of per share earnings.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed for the quarter ended
September 30, 1997.
Page -22-
<PAGE>
10-Q Filing
September 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 12, 1997 /s/William T. Fike
Date: _______________________ ____________________________________
William T. Fike
President, Chief Executive Officer
November 12, 1997 /s/Richard Belstock
Date: _______________________ ____________________________________
Richard Belstock
Senior Vice President/
Chief Accounting Officer
Page -23-
<PAGE>
EXHIBIT 11
SIERRAWEST BANCORP AND SUBSIDIARY
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
(Amounts in thousands except per share amounts)
<TABLE>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
09/30/97 09/30/96 09/30/97 09/30/96
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Primary
Net income $ 1,996 $ 940 $ 5,339 $ 1,896
======= ======== ======= =======
Shares(1)
Weighted average number of
common shares outstanding 4,068 2,825 3,456 2,786
Assuming exercise of options
reduced by the number of
shares which could have been
purchased with the proceeds
from exercise of such option 186 134 174 128
--- --- --- ---
Weighted average number of
common shares outstanding as
adjusted 4,254 2,959 3,630 2,914
===== ===== ===== =====
Net income per share $ 0.47 $ 0.32 $ 1.47 $ 0.65
======= ======== ======= =======
Assuming full dilution
Earnings $ 1,996 $ 940 $ 5,339 $ 1,896
Add after tax interest expense
applicable to convertible
debentures 0 114 35 348
- --- -- ---
Net income $ 1,996 $ 1,054 $ 5,374 $ 2,244
======= ======== ======= =======
Shares(1)
Weighted average number of
common shares outstanding 4,068 2,825 3,456 2,786
Assuming conversion of
convertible debentures 0 964 364 995
Assuming exercise of options
reduced by the number of
shares which could have been
purchased with the proceeds
from exercise of such options 205 154 185 145
--- --- --- ---
Weighted average number of
common shares outstanding as
adjusted 4,273 3,943 4,005 3,926
===== ===== ===== =====
Net income per share assuming
full dilution $ 0.47 $ 0.27 $ 1.34 $ 0.57
======= ======== ======= =======
</TABLE>
(1) Restated to give effect to 5% stock dividend issued in August, 1997.
Page -24-
<PAGE>
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
Commission File No. 0-27856
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
- ----------------------------------------------
(Name of small business issuer in it charter)
Delaware 68-0366324
- ---------------------------------------------- ---------------------
(State or other jurisdiction of incorporation) (IRS Employer
Identification No.)
555 Mason Street, Suite 280, Vacaville, CA 95688-4612
- ------------------------------------------ ----------------------
(Address of principal executive offices) (ZIP Code)
Issuer's telephone number: (707) 448-1200
Securities registered under Section 12(g) of the Exchange Act:
$.10 Par Value Common Stock
- ----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
Total revenue for year ended December 31, 1996, was $15,134,000.
The aggregate market value of the voting stock held by nonaffiliates based on
the average bid and asked prices $17.25 of such stock, was $ 14,007,656 as of
March 24, 1997.
The number of shares outstanding of Common Stock as of March 24, 1997:
1,000,150
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of Registrant's Definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders are incorporated by reference in Part III, Items 9,
10, 11, and 12 of this Form 10-KSB.
Transitional Small Business Disclosure Format (Check One) YES [ ] NO [ X ]
CONTAINS 0129 SEQUENTIALLY NUMBERED PAGES
EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 0048
******************************************************************************
TABLE OF CONTENTS
Page
PART I
ITEM 1 - Description of Business 1
ITEM 2 - Description of Property 17
ITEM 3 - Legal Proceedings 18
ITEM 4 - Submission of Matters to a Vote of Security Holders 19
PART II
ITEM 5 - Market for Common Equity and Related Stockholder Matters 19
ITEM 6 - Management's Discussion and Analysis or Plan of Operation 20
ITEM 7 - Financial Statements 44
ITEM 8 - Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 44
PART III
ITEM 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 45
ITEM 10 - Executive Compensation 45
ITEM 11 - Security Ownership of Certain Beneficial Owners and Mgmt 45
ITEM 12 - Certain Relationships and Related Transactions 45
ITEM 13 - Exhibits and Reports on Form 8-K 45
Financial Statements 0052
Signatures 0079
******************************************************************************
Certain statements in this Annual Report on Form 10-KSB include
forward-looking information within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and are subject to the "safe harbor" created by those
sections. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those
in the forward-looking statements. Such risks and uncertainties include, but
are not limited to, the following factors: competitive pressure in the banking
industry increases significantly; changes in the interest rate environment
reduce margins; general economic conditions, either nationally or regionally,
are less favorable than expected, resulting in, among other things, a
deterioration in credit quality and an increase in the provision for possible
loan losses; changes in the regulatory environment; changes in business
conditions, particularly in Solano and Contra Costa Counties; volatility of
rate sensitive deposits; operational risks including data processing system
failures or fraud; asset / liability matching risks and liquidity risks; and
changes in the securities markets. See also "Certain Additional Business
Risks", herein and other risk factors discussed elsewhere in this report.
Therefore, the information set forth therein should be carefully
considered when evaluating the business prospects of the corporation and the
bank.
******************************************************************************
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS OF THE CORPORATION
Continental Pacific Bank (the "Bank") was organized as a California state
banking Corporation on May 27, 1983, and commenced operations on November 14,
1983.
In 1995, the Bank's Board of Directors approved a Bank holding company
formation and corporate reorganization (the "Reorganization") whereby the Bank
would become a wholly-owned subsidiary of California Community Bancshares
Corporation (the "Company"). The Company was incorporated as a Delaware
Corporation on October 5, 1995. The Bank's shareholders approved the
Reorganization on December 20, 1995. The Reorganization was consummated as of
the close of business on February 29, 1996.
On January 18, 1984, the Bank formed Conpac Development Corporation
("Conpac") as a wholly-owned subsidiary to take advantage of the then recently
enacted California Financial Code provision authorizing banks or their
subsidiaries to engage in real property investment and development. The Bank
is presently staffing the activities of Conpac with two regular Bank
employees. As of December 31, 1996, in addition to the Pacific Plaza project
discussed below, Conpac projects and activities have included investment in a
limited partnership real estate development project; improvement of 44
undeveloped residential lots; development of an 8,000 square foot commercial
office building adjacent to the Bank's Benicia branch; and other incidental
activities. As of December 31, 1996, all of Conpac's projects have been sold
at a gross profit, except the current Pacific Plaza project, which is held as
Premises. Recent legislation limits the Bank's and Conpac's ability to engage
in most real estate development and investment activities and, accordingly,
the Bank has filed a divestiture plan with the FDIC, which has not been
objected to, for its real estate developments. See "Real Estate Development
Subsidiary," herein.
DEVELOPMENTS IN THE CORPORATION'S BUSINESS
The principal business of the Company is to act as a holding company for
the Bank. Accordingly, various factors relating to the Bank impact the
business of the Company. Several of these factors are discussed below. The
Bank engages in the general commercial banking business, in Solano and Contra
Costa counties in the State of California. In addition to its head banking
office located at 141 Parker Street, Vacaville, California the Bank has six
full service branch offices at 1011 Helen Power Drive, Vacaville, California;
1300 Oliver Road, Fairfield, California; 1001 First Street, Benicia,
California; 303 Sacramento Street, Vallejo, California; 3355 Sonoma Boulevard,
Suite 20, Vallejo, California and the Bank's newest branch at 2151 Salvio
Street, Suite H, Concord, California. In 1996 the 1100 Texas Street, branch
was converted to an express branch for deposit services. The Company's
business is not seasonal.
The Bank conducts a commercial banking business including accepting
demand, savings and time deposits, including certificates of deposit, money
market deposit accounts, NOW and Super NOW accounts. The Bank offers
commercial, real estate, personal, home improvement, automobile and other
installment term loans. It also offers installment note collection, issues
cashier's checks and money orders, sells travelers' checks and provides safe
deposit boxes and other customary banking services.
The vast majority of loans are direct loans made to individuals,
professionals, and small- to medium-sized businesses. On December 31, 1996,
the total loans outstanding were as follows: commercial loans: $8,926,000;
real estate construction loans: $6,408,000; real estate mortgage loans:
$82,246,000; consumer loans: $16,045,000; and total loans: $113,625,000.
Deposits are attracted primarily from individuals, professionals, and
small- to medium-sized businesses. The Bank also attracts some deposits from
municipalities and other governmental agencies or entities. The Bank is
generally required to pledge securities to secure such deposits (except the
first $100,000 of such deposits, which is insured by the FDIC).
Except as described above, material portions of the deposit have not been
obtained from a single person or a few persons (including federal, state and
local governments and agencies thereunder) the loss of anyone or more of which
would have a materially adverse effect on the business of the Company;
however, at December 31, 1996, approximately three percent of total deposits
were obtained from a title company. Such deposits have the potential to
increase or decrease rapidly. Approximately 78% of the loans are real estate
loans. The value of real estate collateral could be affected by adverse
changes in the real estate markets in which the Company operates and this
could significantly adversely impact the value of such collateral or the
Company's earnings.
As of December 31, 1996, the brokerage mortgage loan department consisted
of three loan originators who are paid on a commission basis and one salaried
full-time processor. The department's purpose is to originate and process
single family residential loan applications in Solano County and adjacent
areas. The loans are underwritten and funded by one of the twenty wholesale
loan sources the Bank has established. For the year ended December 31, 1996,
the Company earned fees of $184,000 on $12,900,000 in loan volume closed.
There were no loans held for sale at December 31, 1996.
The Company does not offer trust services or international banking
services and does not plan to do so in the near future, but has arranged with
its correspondent banks for such services to be offered to its customers. In
December 1993, the Bank began offering financial investment services (mutual
fund and annuity sales) through a broker relationship with Financial Network
Investment Corporation ("FNIC"). For the year ending December 31, 1996, the
Company earned fees of $53,000 on $1,600,000 in sales.
In 1995, the Bank began offering a new service called Business Manager.
With Business Manager the Bank purchases a business' accounts receivables and
sets up a credit line custom tailored to the business' needs. The program
includes the administration of the billing and collection function. For the
year ending December 31, 1996, the Company earned fees of $72,000 for this
service.
In 1994, the Small Business Administration established a Low Doc loan
program. This program is intended to reduce the paperwork requirements and
improve approval turnaround time on certain SBA qualifying commercial loan
requests of $100,000 or less. For the year ended September 30, 1996, the Bank
was among the Top 10 "Low Doc" lenders in Northern California
Other than as disclosed above, with respect to the Business Manager
Accounts Receivable program and the SBA loan Program, the Company has not
engaged in any material research activities relating to the development of new
services or the improvement of existing banking services during the last two
fiscal years. During that time, however, the Company's directors, officers
and employees have continually engaged in marketing activities, including the
evaluation and development of new services, in order to maintain and improve
the Company's competitive position in its primary service area. The cost of
these activities cannot be calculated with any degree of certainty.
The Company holds no patents, trademarks, licenses (other than licenses
required to be obtained from the appropriate Bank regulatory agencies),
franchises or concessions which are of material importance to its business.
The Company is exploring the merits and costs of offering home banking, a
bill paying service through the customer's computer, and telephone banking in
1997. It is estimated these services could require an investment of $75,000
to $100,000. The Company currently has no other plans to introduce a new
product or line of business which would require the investment of a
significant amount of the Company's total assets.
As of December 31, 1996, the Company employed a total of 90 employees
representing 75 full-time-equivalent employees.
ACQUISITION OF TRACY BRANCH
On May 14, 1996, the Bank, entered into a Purchase and Assumption
Agreement ("Agreement") with Tracy Federal Bank, a Federal Savings Bank
(Tracy).
On August 14, 1996, the Federal Deposit Insurance Corporation ("FDIC")
approved the Purchase and Assumption merger application. On August 28, 1996,
the State Banking Department ("SBD") approved the proposal of the Bank to
purchase the business of the Concord branch office of Tracy pursuant to the
Agreement, dated as of May 14, 1996.
On October 8, 1996, the Bank entered into an amendment to the Agreement
with Tracy. On Saturday, October 12, 1996 at 12:01 a.m. according to the
terms of the Agreement, the acquisition by the Bank of the Concord, California
branch office of Tracy was consummated.
The assets purchased totalled $210,000 and consisted of Cash on Hand,
Negative Balance Accounts, Savings Secured Loans and Corresponding Accrued
Interest and Leasehold Improvements and Equipment. The liabilities assumed
totalled approximately $15,500,000 and consisted of the branch deposits and
accrued interest. The acquisition was accounted for under the purchase method
of accounting. The consideration, which was 4% of adjusted deposits, amounted
to $610,000. Of this amount $550,000 is considered goodwill and will be
amortized over 15 years.
There is not a material relationship between Tracy and the Bank or any of
its affiliates, any director or officer of the Bank or any associate of any
such director or officer.
The source(s) of funds for the consideration given to Tracy from the Bank
was Cash on Hand.
The Leasehold Improvements and Equipment acquired from Tracy were used
for Banking purposes and will continue to be used for Banking purposes by the
Bank.
REAL ESTATE DEVELOPMENT SUBSIDIARY
The Bank's wholly-owned subsidiary, Conpac, engages in the real estate
development business as authorized under California law. In July 1988, Conpac
purchased and leased unimproved real property in the vicinity of Mason and
Davis streets in downtown Vacaville. This project is known as Pacific Plaza.
In mid-1990 Conpac began to build a two-story building of approximately 32,000
square feet (27,133 rentable square feet) and 140 parking spaces. This
building is located on the lot east of Davis Street which Conpac currently
owns and is referred to as Pacific Plaza East. In 1990, Conpac also exercised
its option to purchase the lot immediately west of Davis Street for $225,000.
This lot and the adjacent lots previously purchased by Conpac are the proposed
site of Pacific Plaza West.
Pacific Plaza East was 100% occupied in 1995 and 1996, including the
4,660 square feet occupied by the Bank's Corporate office. As of December 31,
1996, the average leases were $1.45 per square foot on a triple net basis.
Pacific Plaza East has ample parking, with 140 spaces, adjacent to the
building. Only 84 parking spaces are required by the City. Prior to 1995, it
was the intent of the Company to sell the additional 56 spaces to the City of
Vacaville. In 1995, the Bank decided the building's long term value would be
improved by retaining these extra spaces. Therefore, the carrying amount of
these spaces was added to the project and transferred to premises. As of
December 31, 1996, Conpac had a carrying amount of $3,730,000 for Pacific
Plaza East (net of $426,000 accumulated depreciation) and approximately
$753,000 for Pacific Plaza West. At December 31, 1996, with Pacific Plaza
East 100% leased, the estimated return on investment was approximately 11.6%,
before depreciation.
Beginning in December 1992, state banks and their subsidiaries were
prohibited from engaging, 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, detailing its
plans. 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. The Bank occupies 4,660 square feet in Pacific Plaza East (17% of the
leasable office space). Since ownership of banking premises is permissible
for a national Bank subsidiary, a divestiture plan was not required for
Pacific Plaza East. Conpac currently plans to retain Pacific Plaza East.
On August 1, 1994, at the request of the FDIC, the Bank filed a new
divestiture plan. The new plan indicated the Bank intended to build a
two-story 12,000 square foot commercial office building, upon 50% preleasing, on
the 38,725 square foot vacant parcel referred to as Pacific Plaza West. The
Bank also indicated its intent to occupy between 15% and 19% of the space in
Pacific Plaza West. The plan requested FDIC approval to transfer Pacific
Plaza West to premises, for regulatory reporting purposes, upon completion and
occupancy of Pacific Plaza West by the Bank. The plan also reaffirmed the
Bank's intent to retain Pacific Plaza East classifying the property as
premises for regulatory reporting purposes. On August 12, 1994, the Bank
received notification from the FDIC that they raised no objections to the
Bank's plan. However, the FDIC requested to be notified of the circumstances
if the project was not completed by year end 1995. The Bank is continuing its
effort to lease 50% of the 12,000 square feet available but has changed the
design from one two-story 12,000 square foot commercial office building to two
6,000 square foot single story office buildings which could be sold or leased
separately. As of the date hereof, it is the Bank's intent to construct one
building for use by its head banking office. The lease on the building
currently occupied by the head banking office expires in May 1998. The other
building would not be built until it was either leased or sold. At December
31, 1996, the Bank had not begun construction of Pacific Plaza West. At
December 31, 1996, Pacific Plaza West is carried on the books as premises.
On December 31, 1996, Conpac had total investments of $4,483,000. Except
for Pacific Plaza, Conpac has no other projects or investments. During 1996,
1995, and 1994, respectively, Conpac contributed $242,000, $213,000, and
$223,000 respectively, to revenue net of related expenses.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local regulations regarding the
discharge of materials into the environment may have a substantial effect on
the capital expenditure, earnings and competitive position of the Company in
the event of lender liability or environmental lawsuits. Under federal law,
liability for environmental damage and the cost of the cleanup may be imposed
upon any person or entity who is an "owner" or "operator" of contaminated
property. State law provisions, which were modeled after federal law, are
similar. Congress established an exemption under Federal law for lenders from
"owner" and/or "operator" liability, which provides that "owner" and/or
"operator" do not include "a person, who, without participating in the
management of a vessel or facility, holds indicia of ownership primarily to
protect his security interests in the vessel or facility." The wording of
this exemption is subject to conflicting interpretations between the Federal
Courts and has therefore generated uncertainty within the financial and
lending communities, particularly with regard to the extent to which a secured
creditor may undertake activities to oversee the affairs of the borrower
without "participating in the management" of a facility. Congress is
currently addressing lender liability under environmental laws, and it is
expected that the lender exemption will be clarified. There is no assurance,
however, that such clarification will be made, and, if made, that it will be
favorable to lenders. Thus, the scope of lender liability under federal and
state law remains an open question.
It is the policy of the Company to prohibit officers and employees from
becoming directly involved in the operation or management of borrowers'
businesses. To further minimize the risk of liability, the Company requires
that each borrower proposing to finance nonresidential property complete an
environmental questionnaire and, in those instances where it is warranted,
requires appropriate independent environmental assessment studies.
In the event the Bank or Conpac was held liable as owners or operators of
a toxic property, they could be responsible for the entire cost of
environmental damage and cleanup. Such an outcome could have a serious effect
on the Company's consolidated financial condition depending upon the amount of
liability assessed and the amount of the cleanup required. At March 24, 1997,
the Company has no knowledge that any real estate securing loans in its
portfolio are contaminated by hazardous substances.
THE EFFECT OF GOVERNMENT POLICY ON BANKING
The earnings and growth of the Company are affected not only by local
market area factors and general economic conditions, but also by government
monetary and fiscal policies. For example, the Board of Governors of the
Federal Reserve System ("FRB") influences the supply of money through its open
market operations in U.S. Government securities and adjustments to the
discount rates applicable to borrowings by depository institutions and others.
Such actions influence the growth of loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature and
impact of future changes in such policies on the business and earnings of the
Company cannot be predicted.
As a consequence of the extensive regulation of commercial banking
activities in the United States, the business of the Company is particularly
susceptible to being affected by the enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities or enhancing the competitive
position of other financial institutions. Any change in applicable laws or
regulations may have a material adverse effect on the business and prospects
of the Company. In response to various business failures in the savings and
loan industry and, more recently, in the banking industry, in December 1991,
Congress enacted, and the President signed into law, the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"). FDICIA
substantially revised the Bank regulatory framework and deposit insurance
funding provisions of the Federal Deposit Insurance Act and made revisions to
several other federal banking statutes.
Implementation of the various provisions of FDICIA is subject to the
adoption of regulations by the various regulatory agencies and to certain
phase-in periods. The effect of FDICIA on the Company and the Bank cannot be
determined until after all the implementing regulations are adopted by the
agencies.
SUPERVISION AND REGULATION
THE COMPANY
The Company, as a Bank holding company, is subject to regulation under
the Bank Holding Company Act of 1956, as amended (the "BHC Act") and is
registered with and subject to the supervision of the Board of Governors of
the Federal Reserve System ("Federal Reserve"). It is the policy of the
Federal Reserve that each Bank holding company serve as a source of financial
and managerial strength to its subsidiary banks. The Federal Reserve has the
authority to examine the Company and the Bank.
The BHC Act requires the Company to obtain the prior approval of the
Federal Reserve before acquisition of all or substantially all of the assets
of any Bank or ownership or control of the voting shares of any Bank if, after
giving effect to such acquisition, the Company would own or control, directly
or indirectly, more than 5% of the voting shares of such Bank. However,
amendments to the BHC Act effected by the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal"), which is discussed further
below, expand the circumstances under which a Bank holding company may acquire
control of or all or substantially all of the assets of a Bank located outside
the State of California.
The Company may not engage in any business other than managing or
controlling banks or furnishing services to its subsidiaries, with the
exception of certain activities which, in the opinion of the Federal Reserve,
are so closely related to banking or to managing or controlling banks as to be
incidental to banking. The Company is also generally prohibited from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company unless that company is engaged in such activities
and unless the Federal Reserve approves the acquisition.
The Company and its subsidiaries are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit, sale or lease
of property or provision of services. For example, with certain exceptions,
the Bank may not condition an extension of credit on a customer obtaining
other services provided by it, the Company or any other subsidiary, or on a
promise by the customer not to obtain other services from a competitor. In
addition, federal law imposes certain restrictions on transactions between the
Bank and its affiliates. As affiliates, the Bank and the Company are subject,
with certain exceptions, to the provisions of federal law imposing limitations
on and requiring collateral for loans by the Bank to any affiliate.
THE BANK
As a California state-licensed Bank, the Bank is subject to regulation,
supervision and periodic examination by the California State Banking
Department ("SBD") and the Federal Deposit Insurance Corporation ("FDIC").
The Bank is not a member of the Federal Reserve System, but is nevertheless
subject to certain regulations of the Federal Reserve. The Bank's deposits
are insured by the FDIC to the maximum amount permitted by law, which is
currently $100,000 per depositor in most cases.
The regulations of these state and federal Bank regulatory agencies
govern most aspects of the Bank's business and operations, including but not
limited to, the scope of its business, its investments, its reserves against
deposits, the nature and amount of any collateral for loans, the timing of
availability of deposited funds, the issuance of securities, the payment of
dividends, Bank expansion and Bank activities, including real estate
development and insurance activities, and the maximum rates of interest
allowed on certain deposits. The Bank is also subject to the requirements and
restrictions of various consumer laws and regulations.
The following description of statutory and regulatory provisions and
proposals is not intended to be a complete description of these provisions and
is qualified in its entirety by reference to the particular statutory or
regulatory provisions discussed.
CHANGE IN CONTROL
The BHC Act and the Change in Bank Control Act of 1978, as amended (the
"Change in Control Act"), together with regulations of the Federal Reserve,
require that, depending on the particular circumstances, either Federal
Reserve approval must be obtained or notice must be furnished to the Federal
Reserve and not disapproved prior to any person or company acquiring "control"
of a Bank holding company, such as the Company, subject to exemptions for
certain transactions. Control is conclusively presumed to exist if an
individual or company acquires 25% or more of any class of voting securities
of the Bank holding company. Control is rebuttably presumed to exist if a
person acquires 10% or more but less than 25% of any class of voting
securities and either the company has securities registered under Section 12
of the Exchange Act, or no other person will own a greater percentage of that
class of voting securities immediately after the transaction. The Financial
Code also contains approval requirements for the acquisition of 10% or more of
the securities of a person or entity which controls a California licensed
Bank. Finally, the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended, together with regulations of the Federal Trade Commission, may
require certain filings to be made with the Federal Trade Commission and the
United States Department of Justice, and certain waiting periods to expire,
prior to consummation of an acquisition of a company's voting securities.
CAPITAL ADEQUACY REQUIREMENTS
The Company is subject to the Federal Reserve's capital guidelines for
Bank holding companies and the Bank is subject to the FDIC's regulations
governing capital adequacy for nonmember banks. As noted below, the federal
banking agencies have adopted regulations which could impose additional
capital requirements on banks based on market risk and have added a component
to the uniform Bank rating system which addresses sensitivity to market risk,
including interest rate risk. In addition, the Bank is subject to specific
capital requirements imposed by the FDIC and the SBD.
THE FEDERAL RESERVE AND FDIC
The Federal Reserve has established risk-based and leverage capital
guidelines for Bank holding companies which are similar to the FDIC's capital
adequacy regulations for nonmember banks. The Federal Reserve guidelines
apply on a consolidated basis to Bank holding companies with consolidated
assets of $150 million or more.
The Federal Reserve capital guidelines for Bank holding companies and
the FDIC's regulations for nonmember banks set total capital requirements and
define capital in terms of "core capital elements," or Tier 1 capital(F1) and
"supplemental capital elements," or Tier 2 capital(F2). At least fifty
percent (50%) of the qualifying total capital base must consist of Tier 1
capital. The maximum amount of Tier 2 capital that may be recognized for
risk-based capital purposes is limited to one-hundred percent (100%) of Tier 1
capital, net of goodwill.
- -------------------
F1 Tier 1 capital is generally defined as the sum of the core
capital elements less goodwill and certain intangibles. The
following items are defined as core capital elements: (i)
common stockholders' equity; (ii) qualifying noncumulative
perpetual preferred stock and related surplus; and (iii)
minority interests in the equity accounts of consolidated
subsidiaries.
F2 Supplementary capital elements include: (i) allowance for
loan and lease losses (which cannot exceed 1.25% of an
institution's risk-weighted assets); (ii) perpetual preferred
stock, long term preferred stock, and related surplus not
qualifying as core capital; (iii) hybrid capital instruments,
including mandatory convertible debt securities; and (iv)
term subordinated debt and intermediate-term preferred stock
and related surplus.
- -------------------
Both Bank holding companies and nonmember banks are required to maintain
a minimum ratio of qualifying total capital to risk-weighted assets of eight
percent (8%), at least one-half of which must be in the form of Tier 1
capital. Risk-based capital ratios are calculated with reference to
risk-weighted assets, including both on and off-balance sheet exposures, which
are multiplied by certain risk weights assigned by the Federal Reserve and the
FDIC to those assets.
The Federal Reserve and the FDIC have established a minimum leverage
ratio of three percent (3%) Tier 1 capital to total assets for Bank holding
companies and nonmember banks that have received the highest composite
regulatory rating and are not anticipating or experiencing any significant
growth. All other institutions are required to maintain a leverage ratio of
at least 100 to 200 basis points above the 3% minimum for a minimum of four
percent (4%) or five percent (5%).
The following tables present the capital ratios for the Company and the
Bank and respective regulatory capital adequacy requirements.
<TABLE>
<CAPTION>
Company: For Capital
Actual Adequacy Purposes
--------------------- --------------------
Minimum Minimum
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
As of December 31, 1996:
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, 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%
As of December 31, 1995:
Total capital
(to risk weighted assets) $17,510,000 13.71% $10,214,000 8.0% $12,768,000 10.0%
Tier I capital
(to risk weighted assets) $12,327,000 9.65% $5,107,000 4.0% $7,661,000 6.0%
Tier I capital
(to average assets) $12,327,000 7.75% $6,362,000 4.0% $7,953,000 5.0%
</TABLE>
If at any time the Bank fails to meet its minimum regulatory capital
requirements it is required, within 60 days thereafter, to submit a capital
restoration plan to the FDIC for review and approval.
Management of the Company and the Bank believe that the Company and the
Bank will continue to meet its minimum capital requirements in the foreseeable
future.
The risk-based capital ratio discussed above focuses principally on broad
categories of credit risk, and may not take into account many other factors
that can affect a Bank's financial condition. These factors include overall
interest rate risk exposure; liquidity, funding and market risks; the quality
and level of earnings; concentrations of credit risk; certain risks arising
from nontraditional activities; the quality of loans and investments; the
effectiveness of loan and investment policies; and management's overall
ability to monitor and control financial and operating risks, including the
risk presented by concentrations of credit and nontraditional activities. The
FDIC has addressed many of these areas in related rule-making proposals and
under FDICIA (as defined below), some of which are discussed herein. In
addition to evaluating capital ratios, an overall assessment of capital
adequacy must take account of each of these other factors including, in
particular, the level and severity of problem and adversely classified assets.
For this reason, the final supervisory judgment on a Bank's capital adequacy
may differ significantly from the conclusions that might be drawn solely from
the absolute level of the Bank's risk-based capital ratio. In light of the
foregoing, the FDIC has stated that banks generally are expected to operate
above the minimum risk-based capital ratio. Banks contemplating significant
expansion plans, as well as those institutions with high or inordinate levels
of risk, should hold capital commensurate with the level and nature of the
risks to which they are exposed.
Recently adopted regulations by the federal banking agencies have revised
the risk-based capital standards to take adequate account of concentrations of
credit and the risks of non-traditional activities. Concentrations of credit
refers to situations where a lender has a relatively large proportion of loans
involving one borrower, industry, location, collateral or loan type.
Non-traditional activities are considered those that have not customarily been
part of the banking business but that start to be conducted as a result of
developments in, for example, technology or financial markets. The
regulations require institutions with high or inordinate levels of risk to
operate with higher minimum capital standards. The federal banking agencies
also are authorized to review an institution's management of concentrations of
credit risk for adequacy and consistency with safety and soundness standards
regarding internal controls, credit underwriting or other operational and
managerial areas. In addition, the agencies have promulgated guidelines for
institutions to develop and implement programs for interest rate risk
management, monitoring and oversight.
Further, the banking agencies recently have adopted modifications to the
risk-based capital regulations to include standards for interest rate risk
exposures. Interest rate risk is the exposure of a Bank's current and future
earnings and equity capital arising from movements in interest rates. While
interest rate risk is inherent in a Bank's role as financial intermediary, it
introduces volatility to Bank earnings and to the economic value of the Bank.
The banking agencies have addressed this problem by implementing changes to
the capital standards to include a Bank's exposure to declines in the economic
value of its capital due to changes in interest rates as a factor that the
banking agencies will consider in evaluating an institution's capital
adequacy. Bank examiners will consider a Bank's historical financial
performance and its earnings exposure to interest rate movements as well as
qualitative factors such as the adequacy of a Bank's internal interest rate
risk management.
Finally, institutions which are engaged in securities trading activities
and have significant exposure to market risk will be required as of January 1,
1998 to maintain additional capital to support that exposure, although
voluntary compliance with the new regulations is permissible after January 1,
1997. The additional capital requirements will apply to institutions with
trading assets and liabilities equal to 10% or more of total assets or trading
activity of $1 billion or more. Institutions subject to the rule will be
required to test internal models of market risk and the market risk capital
charge will be increased for institutions whose models are inaccurate. The
federal banking agencies may apply the market risk regulations on a case by
case basis to institutions not meeting the eligibility criteria if necessary
for safety and soundness reasons.
In connection with the recent regulatory attention to market risk and
interest rate risk, the federal banking agencies will evaluate an institution
in its periodic examination on the degree to which changes in interest rates,
foreign exchange rates, commodity prices or equity prices can affect a
financial institution's earnings or capital. In addition, the agencies will
focus in the examination on an institution's ability to monitor and manage its
market risk, and will provide management with a clearer and more focused
indication of supervisory concerns in this area.
In certain circumstances, the FDIC or the Federal Reserve may determine
that the capital ratios for an FDIC-insured Bank or a Bank holding company
must be maintained at levels which are higher than the minimum levels required
by the guidelines or the regulations. A Bank or Bank holding company which
does not achieve and maintain the required capital levels may be issued a
capital directive by the FDIC or the Federal Reserve to ensure the maintenance
of required capital levels.
PAYMENT OF DIVIDENDS
The shareholders of the Company are entitled to receive dividends when
and as declared by its Board of Directors, out of funds legally available,
subject to the dividends preference, if any, on preferred shares that may be
outstanding and also subject to the restrictions of the California
Corporations Code. At December 31, 1996, the Company had no outstanding
shares of preferred stock.
The principal sources of cash revenue to the Company have been dividends
received from the Bank. The Bank's ability to make dividend payments to the
Company is subject to state and federal regulatory restrictions.
Dividends payable by the Bank to the Company are restricted under
California law to the lesser of the Bank's retained earnings, or the Bank's
net income for the latest three fiscal years, less dividends previously
declared during that period, or, with the approval of the SBD, to the greater
of the retained earnings of the Bank, the net income of the Bank for its last
fiscal year or the net income of the Bank for its current fiscal year.
The FDIC has broad authority to prohibit a Bank from engaging in banking
practices which it considers to be unsafe or unsound. It is possible,
depending upon the financial condition of the Bank in question and other
factors, that the FDIC may assert that the payment of dividends or other
payments by the Bank is considered an unsafe or unsound banking practice and
therefore, implement corrective action to address such a practice.
In addition to the regulations concerning minimum uniform capital
adequacy requirements discussed above, the FDIC has established guidelines
regarding the maintenance of an adequate allowance for loan and lease losses.
Therefore, the future payment of cash dividends by the Bank to the Company
will generally depend, in addition to regulatory constraints, upon the Bank's
earnings during any fiscal period, the assessment of the respective Boards of
Directors of the capital requirements of such institutions and other factors,
including the maintenance of an adequate allowance for loan and lease losses.
IMPACT OF FEDERAL AND CALIFORNIA TAX LAWS
The following are the more significant federal and California income tax
provisions affecting commercial banks.
CORPORATE TAX RATES
The federal corporate tax rate is 34% for up to $10 million of taxable
income, and 35% for taxable income over $10 million. The 1% differential is
phased out between $15 million and approximately $18.3 million so that
corporations with over approximately $18.3 million of taxable income are taxed
at a flat rate of 35%.
CORPORATE ALTERNATIVE MINIMUM TAX
Generally, a Corporation will be subject to an alternative minimum tax
("AMT") to the extent the tentative minimum tax exceeds the Corporation's
regular tax liability. The tentative minimum tax is equal to (a) 20% of the
excess of a Corporation's "alternative minimum taxable income" ("AMTI") over
an exemption amount, less (b) the alternative minimum foreign tax credit.
AMTI is defined as taxable income computed with special adjustments and
increased by the amount of tax preference items for a tax year. An important
adjustment is made for "adjusted current earnings," which generally measures
the difference between corporate earnings and profits (as adjusted) and
taxable income. Finally, a Corporation's net operating loss (computed for AMT
purposes), if any, can be utilized only up to 90% of AMTI, with the result
that a Corporation with current year taxable income will pay some tax.
BAD DEBT DEDUCTION
A Bank with average adjusted bases of all assets exceeding $500 million
(a "large Bank") must compute its bad debt deduction using the specific
charge-off method. Under that method, a deduction is taken at the time the
debt becomes partially or wholly worthless. A Bank not meeting the definition
of a large Bank may use either the specific charge-off method or the
"experience" reserve method, under which the addition to bad debt reserve is
based on the Bank's actual loss experience for the current year and five
preceding years. The U.S. Treasury has promulgated regulations which permit a
Bank to elect to establish a conclusive presumption that a debt is worthless,
based on applying a single set of standards for both regulatory and tax
accounting purposes.
INTEREST INCURRED FOR TAX-EXEMPT OBLIGATIONS
Generally, taxpayers are not allowed to deduct interest on indebtedness
incurred to purchase or carry tax-exempt obligations. This rules applies to a
Bank, to the extent of its interest expense that is allocable to tax-exempt
obligations acquired after August 7, 1986. A special exception applies,
however, to a "qualified tax-exempt obligation," which includes any tax-exempt
obligation that (a) is not a private activity bond and (b) is issued after
August 7, 1986 by an issuer that reasonably anticipates it will issue not more
than $10 million of tax-exempt obligations (other than certain private
activity bonds) during the calendar year. Interest expense on qualified
tax-exempt obligations is deductible, although it is subject to a 20%
disallowance under special rules applicable to financial institutions.
NET OPERATING LOSSES
Generally, a Bank is permitted to carry a net operating loss ("NOL") back
to the prior three tax years and forward to the succeeding fifteen tax years.
If the NOL of a commercial Bank is attributable to a bad debt deduction taken
under the specific charge-off method after December 31, 1986, and before
January 1, 1994, however, such portion of the NOL may be carried back ten
years and carried forward five years. A commercial Bank's bad debt loss is
treated as a separate NOL to be taken into account after the remaining portion
of the NOL for the year.
AMORTIZATION OF INTANGIBLE ASSETS INCLUDING BANK DEPOSIT BASE
Certain intangible property acquired by a taxpayer must be amortized over
a 15 year period. For this purpose, acquired assets required to be amortized
include goodwill and the deposit base or any similar asset acquired by a
financial institution (such as checking and savings accounts, escrow accounts
and similar items). The 15 year amortization rule generally applies to
property acquired after August 10, 1993.
MARK-TO-MARKET RULES
The Revenue Reconciliation Act of 1993 introduced certain "mark-to-market"
tax accounting rules for "dealers in securities. " Under
these rules, certain "securities" held at the close of a taxable year must be
marked to fair market value, and the unrealized gain or loss inherent in the
security must be recognized in that year for federal income tax purposes.
Under the definition of a "dealer," a Bank or financial institution that
regularly purchases or sells loans may be subject to the new rules. The rules
generally are effective for tax years ending on or after December 31, 1993.
Certain securities are excepted from the mark-to-market rules provided
the taxpayer timely complies with specified identification rules. The
principal exceptions affecting banks are for (1) any security held for
investment and (2) any note, bond, or other evidence of indebtedness acquired
or originated in the ordinary course of business and which is not held for
sale. If a taxpayer timely and properly identifies loans and securities as
being excepted from the mark-to-market rules, these loans and securities will
not be subject to these rules. Generally, a financial institution may make
the identification of an excepted debt obligation in accordance with normal
accounting practices, but no later than 30 days after acquisition.
CALIFORNIA TAX LAWS
A commercial Bank is subject to the California franchise tax at a special
Bank tax rate based on the general corporate (non financial) rate plus 2%.
The rate for calendar income year 1996 is 11.3%. For calendar income year
1997, the Bank tax rate is 10.84% (which reflects a decrease in the general
corporate tax rate to 8.84%). The applicable tax rate is higher than that
applied to general corporations because it includes an amount "in lieu" of
many other state and local taxes and license fees payable by such corporations
but generally not payable by banks and financial corporations.
California has adopted substantially the federal AMT, subject to certain
modifications. Generally, a Bank is subject to California AMT in an amount
equal to the sum of (a) 7% of AMTI (computed for California purposes) over an
exemption amount and (b) the excess of the Bank tax rate over the general
Corporation tax rate applied against net income for the taxable year, unless
the Bank's regular tax liability is greater. The 7% rate is lowered to 6.65%
for any income year beginning after 1996.
California permits a Bank to compute its deduction for bad debt losses
under either the specific charge-off method or according to the amount of a
reasonable addition to a bad debt reserve.
California has incorporated the federal NOL provisions, subject to
significant modifications for most corporations. First, NOLs arising in
income years beginning before 1987 are disregarded. Second, no carry back is
permitted, and for most corporations NOLs may be carried forward only five
years. Third, in most cases, only 50% of the NOL for any income year may be
carried forward. Fourth, NOL carryover deductions are suspended for income
years beginning in calendar years 1991 and 1992, although the carryover period
is extended by one year for losses sustained in income years beginning in 1991
and by two years for losses sustained in income years beginning before 1991.
Finally, the special federal NOL rules regarding bad debt losses of commercial
banks do not apply for California purposes.
Finally, in 1994, California enacted legislation conforming to the
federal tax treatment of amortization of intangibles and goodwill, with
certain modifications. No deduction is allowed under this provision for any
income year beginning prior to 1994.
The various laws discussed herein contain other changes that could have a
significant impact on the banking industry. The effect of these changes is
uncertain and varied, and it is unclear to what extent any of these changes
may influence the Bank's operations or the banking industry generally.
In addition, there are several tax bills currently pending before
Congress which could have a significant impact on the banking industry. As of
March 24, 1997, it is uncertain whether these bills will be enacted and what
impact these bills will have on the Bank.
IMPACT OF MONETARY POLICIES
The earnings and growth of the Bank and the Company are subject to the
influence of domestic and foreign economic conditions, including inflation,
recession and unemployment. The earnings of the Bank and, therefore, the
Company, are affected not only by general economic conditions but also by the
monetary and fiscal policies of the United States and federal agencies,
particularly the Federal Reserve. The Federal Reserve can and does implement
national monetary policy, such as seeking to curb inflation and combat
recession, by its open market operations in United States Government
securities and by its control of the discount rates applicable to borrowings
by banks from the Federal Reserve System. The actions of the Federal Reserve
in these areas influence the growth of Bank loans, investments and deposits
and affect the interest rates charged on loans and paid on deposits. As
demonstrated recently by the Federal Reserve's actions regarding interest
rates, its policies have had a significant effect on the operating results of
commercial banks and are expected to continue to do so in the future. The
nature and timing of any future changes in monetary policies are not
predictable.
RECENT AND PROPOSED LEGISLATION
Federal and state laws applicable to financial institutions have
undergone significant changes in recent years. The most significant recent
federal legislative enactments are the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Riegle-Neal") and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA").
RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
In September 1994, President Clinton signed Riegle-Neal, which amends
the BHC Act and the Federal Deposit Insurance Act ("FDIA") to provide for
interstate banking, branching and mergers. Subject to the provisions of
certain state laws and other requirements, as September 29, 1995, Riegle-Neal
allows a Bank holding company that is adequately capitalized and adequately
managed to acquire a Bank located in a state other than the holding company's
home state regardless of whether or not the acquisition is expressly
authorized by state law. Similarly, beginning on June 1, 1997, the federal
banking agencies may approve interstate merger transactions, subject to
applicable restrictions and state laws. Further, a state may elect to allow
out of state banks to open de novo branches in that state. Riegle-Neal
includes several other provisions which may have an impact on the Company's
and the Bank's business. The provisions include, among other things, a
mandate for review of regulations to equalize competitive opportunities
between U.S. and foreign banks, evaluation on a Bank-wide, state-wide and, if
applicable, metropolitan area basis of the Community Reinvestment Act
compliance of banks with interstate branches, and, in the event the FDIC is
appointed as conservator or receiver of a financial institution, the revival
of otherwise expired causes of action for fraud and intentional misconduct
resulting in unjust enrichment or substantial loss to an institution.
California has adopted the Caldera, Weggeland, and Killea California
Interstate Banking and Branching Act of 1995 ("IBBA"), which became effective
on October 2, 1995. The IBBA addresses the supervision of state chartered
banks which operate across state lines, and covers such areas as branching,
applications for new facilities and mergers, consolidations and conversions,
among other things. The IBBA allows a California state Bank to have agency
relationships with affiliated and unaffiliated insured depository institutions
and allows a Bank subsidiary of a Bank holding company to act as an agent to
receive deposits, renew time deposits, service loans and receive payments for
a depository institution affiliate. In addition, pursuant to the IBBA,
California "opted in early" to the Riegle-Neal provisions regarding interstate
branching, allowing a state Bank chartered in a state other than California to
acquire by merger or purchase, at any time after effectiveness of the IBBA, a
California Bank or industrial loan company which is at least five (5) years
old and thereby establish one or more California branch offices. However, the
IBBA prohibits a state Bank chartered in a state other than California from
entering California by purchasing a California branch office of a California
Bank or industrial loan company without purchasing the entire entity or
establishing a de novo California branch office.
The changes effected by Riegle-Neal and the IBBA may increase the
competitive environment in which the Company and the Bank operate in the event
that out of state financial institutions directly or indirectly enter the
Bank's market area. It is expected that Riegle-Neal will accelerate the
consolidation of the banking industry as a number of the largest Bank holding
companies attempt to expand into different parts of the country that were
previously restricted. However, at this time, it is not possible to predict
what specific impact, if any, Riegle-Neal and the IBBA will have on the
Company and the Bank, the competitive environment in which the Bank operates,
or the impact on the Company or the Bank of any regulations adopted or
proposed under Riegle-Neal and the IBBA.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991 ("FDICIA")
GENERAL
FDICIA primarily addresses the safety and soundness of the deposit
insurance funds, supervision of and accounting by insured depository
institutions and prompt corrective action by the federal Bank regulatory
agencies with respect to troubled institutions. FDICIA gives the FDIC, in
its capacity as federal insurer of deposits, broad authority to promulgate
regulations to assure the viability of the deposit insurance funds, including
regulations concerning safety and soundness standards. FDICIA also places
restrictions on the activities of state-chartered institutions and on
institutions failing to meet minimum capital standards and provides enhanced
enforcement authority for the Federal banking agencies. FDICIA also
strengthened Federal Reserve Act regulations regarding insider transactions.
PROMPT CORRECTIVE ACTION
FDICIA amended the FDIA to establish a format for closer monitoring of
insured depository institutions and to enable prompt corrective action by
regulators when an institution begins to experience difficulty. The general
thrust of these provisions is to impose greater scrutiny and more restrictions
on institutions as they descend the capitalization ladder.
FDICIA establishes five capital categories for insured depository
institutions: (a) Well Capitalized(F3); (b) Adequately Capitalized(F4); (c)
Undercapitalized(F5); (d) Significantly Undercapitalized(F6) and (e)
Critically Undercapitalized(F7). All insured institutions (e.g., the Bank)
are barred from making capital distributions or paying management fees to a
controlling person (e.g., the Company) if to do so would cause the institution
to fall into any of the three undercapitalized categories.
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F3 Well Capitalized means a financial institution with a total
risk-based ratio of 10% or more, a Tier 1 risk-based ratio of
6% or more and a leverage ratio of 5% or more, so long as the
institution is not subject to any written agreement or order
issued by the FDIC.
F4 Adequately Capitalized means a total risk-based ratio of 8% or
more, a Tier 1 risk-based ratio of 4% or more and a leverage ratio
of 4% or more (3% or more if the institution has received the highest
composite rating in its most recent report of examination) and does
not meet the definition of a Well Capitalized institution.
F5 Undercapitalized means a total risk-based capital ratio of less than
8%, a Tier 1 risk-based capital ratio of less than 4% or a leverage
ratio of less than 4%.
F6 Significantly Undercapitalized means a financial institution with a
total risk-based ratio of less than 6%, a Tier 1 risk-based ratio of
less than 3% or a leverage ratio of less than 3%.
F7 Critically Undercapitalized means a financial institution with a
ratio of tangible equity to total assets that is equal to or less than 2%.
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An institution which is undercapitalized, significantly undercapitalized
or critically undercapitalized becomes subject to the following mandatory
supervisory actions immediately upon notification of its capital category: (1)
restrictions on payment of capital distributions, such as dividends; (2)
restrictions on payment of management fees to any person having control of the
institution; (3) close monitoring by the FDIC of the condition of the
institution, compliance with capital restoration plans, restrictions, and
requirements imposed under Section 38 of the FDIA, and periodic review of the
institution's efforts to restore its capital and comply with restrictions; (4)
requirement that the institution submit within the time allowed by the FDIC a
capital restoration plan, which must include (a) the steps the institution
will take to become adequately capitalized, (b) the levels of capital to be
attained during each year in which the plan will be in effect, (c) how the
institution will comply with restrictions or requirements imposed on its
activities, (d) the types and levels of activities in which the institution
will engage, and (e) such other information as the FDIC may require; (5)
requirement that any company which controls an undercapitalized institution
must guarantee, in an amount equal to the lesser of 5% of the institution's
total assets or the amount needed to bring the institution into full capital
compliance, that the institution will comply with the capital restoration plan
until the institution has been adequately capitalized, on the average, for
four consecutive quarters; (6) restrictions on growth of the institution's
total assets so that its average total assets during any calendar quarter do
not exceed its average total assets during the preceding calendar quarter
unless (a) the FDIC has accepted the institution's capital restoration plan,
(b) any increase in total assets is consistent with the capital restoration
plan, and (c) the institution's ratio of tangible equity to assets increases
during the calendar quarter at a rate sufficient to enable the institution to
become adequately capitalized within a reasonable time; and (7) limitations on
the institution's ability to make any acquisition, open any new branch offices
or engage in any new line of business unless the FDIC has accepted the
institution's capital plan and has granted prior approval.
In addition to the above, the FDIC may take any of the actions described
below for institutions which fail to submit and implement a capital
restoration plan.
Significantly undercapitalized and undercapitalized institutions that
fail to submit and implement adequate capital restoration plans are subject to
the mandatory provisions set forth above and, in addition, will be required to
do or comply with one or more of the following: (1) sell enough additional
capital, including voting shares, to bring the institution to an adequately
capitalized level or if one or more grounds exist for appointing a conservator
or receiver for the institution, be acquired by or combined with another
insured depository institution; (2) restrict transactions with affiliates; (3)
restrict interest rates paid on deposits to the prevailing rates in the region
where the institution is located, as determined by the FDIC; (4) restrict
asset growth or reduce total assets more stringently than described above; (5)
terminate, reduce or alter any activity (including any activity conducted by a
subsidiary of the institution) determined by the FDIC to pose an excessive
risk to the institution; (6) hold a new election for the institution's board
of directors; (7) dismiss directors or senior officers and/or employ new
officers, subject to agency approval; (8) cease accepting deposits from
correspondent depository institutions, including renewals and rollovers of
prior deposits; (9) divest or liquidate any subsidiary that is in danger of
becoming insolvent and poses a significant risk to the institution or that is
likely to cause significant dissipation of the institution's assets or
earnings; or (10) take any other action that the FDIC determines to be
appropriate.
In addition, significantly undercapitalized institutions are prohibited
from paying any bonus or raise to a senior executive officer without prior
FDIC approval. No such approval will be granted to an institution which is
required but has failed to submit an acceptable capital restoration plan.
Further, the FDIC may impose one or more of the restrictions applicable to
critically undercapitalized institutions set forth below.
In addition to all of the above restrictions, a critically
undercapitalized institution must be placed in conservatorship or receivership
within 90 days of becoming critically undercapitalized, unless the FDIC
determines that other action would better achieve the purposes of the FDIA. A
determination of alternate action by the FDIC is effective for only 90 days,
after which period the FDIC must reexamine whether to appoint a conservator or
receiver for the Bank. Critically undercapitalized institutions which are not
placed in conservatorship or receivership may be subject to additional
stringent operating restrictions.
OTHER PROVISIONS OF FDICIA
FDICIA required the federal banking agencies to adopt regulations or
guidelines with respect to safety and soundness standards. The agencies have
adopted uniform guidelines which are used, primarily in connection with
examinations, to identify and address problems at insured depository
institutions before capital becomes impaired. The federal Bank regulatory
agencies recently adopted asset quality and earnings standards which were
added to the safety and soundness guidelines. The asset quality standards
require a depository institution to establish and maintain a system
appropriate to the institution's size and operations to identify and prevent
deterioration in problem assets. With respect to earnings, the institution
should adopt and maintain a system to evaluate and monitor earnings and ensure
that earnings are sufficient to maintain adequate capital and reserves.
FDICIA restricts the acceptance of brokered deposits by insured
depository institutions that are not well capitalized. It also places
restrictions on the interest rate payable on brokered deposits and the
solicitation of such deposits by such institutions. An undercapitalized
institution will not be allowed to solicit brokered deposits by offering rates
of interest that are significantly higher than the prevailing rates of
interest on insured deposits in the particular institution's normal market
areas or in the market area in which such deposits would otherwise be
accepted. In addition to these restrictions on acceptance of brokered
deposits, FDICIA provides that no pass-through deposit insurance will be
provided to employee benefit plan deposits accepted by an institution which is
ineligible to accept brokered deposits under applicable law and regulations.
FDICIA also adds grounds to the previously existing list of reasons for
appointing a conservator or receiver for an insured depository institution.
Pursuant to FDICIA, the FDIC has established a risk-based assessment
system for depository institutions. This risk-based system is used to
calculate a depository institution's semiannual deposit insurance assessment
based on the probability that the deposit insurance fund will incur a loss
with respect to the institution. To arrive at a risk-based assessment for
each depository institution, the FDIC has constructed a matrix of nine risk
categories based on capital ratios and relevant supervisory information. Each
institution is assigned to one of three capital categories: "well
capitalized," "adequately capitalized" or "undercapitalized." Each institution
also is assigned to one of three supervisory groups based on levels of risk.
Risk assessment premiums are based on an institution's assignment within the
matrix and for 1996 ranged from $0.0 to $0.27 per $100 of deposits. For 1996,
the FDIC lowered assessment rates for all risk categories by four cents
($.04), with the lowest-rated institutions' assessment being reduced from
$0.31 per $100 of deposits.
FDICIA also places restrictions on insured state Bank activities and
equity investments, interbank liabilities and extensions of credit to insiders
and transactions with affiliates.
Because the foregoing and other proposed regulations are subject to
change before they are adopted in final form, their ultimate impact on the
Company and the Bank cannot yet be determined.
OTHER RECENT LEGISLATION
The Deposit Insurance Funds Act of 1996 requires the FDIC to impose a
one-time special assessment against deposits insured by the Savings
Association Insurance Fund ("SAIF") in order to recapitalize the SAIF to
its required reserve ratio. The special assessment was imposed at a rate of
65.7 cents ($0.657) per $100 of SAIF-assessable deposits on October 8, 1996.
The Bank held no SAIF-assessable deposits as of that date.
On September 23, 1994, President Clinton signed into law the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Regulatory
Improvement Act"). The Regulatory Improvement Act provides regulatory relief
for both large and small banks by, among other things, reducing the burden of
regulatory examinations, streamlining Bank holding company procedures and
establishing a formal regulatory appeals process. The Regulatory Improvement
Act also addresses a variety of other topics, including, but not limited to,
mortgage loan settlement procedures, call reports, insider lending, money
laundering, currency transaction reports, management interlocks, foreign
accounts, mortgage servicing and credit card receivables. Although the
Regulatory Improvement Act should reduce the regulatory burden currently
imposed on banks, it is not possible to ascertain the precise effect its
various provisions will have on the Company or the Bank.
CONSUMER PROTECTION LAWS AND REGULATIONS
The Bank regulatory agencies are focusing greater attention on compliance
with consumer protection laws and their implementing regulations. Examination
and enforcement have become more intense in nature, and insured institutions
have been advised to monitor carefully compliance with various consumer
protection laws and their implementing regulations. The Bank is subject to
many federal consumer protection statutes and regulations, including the
Community Reinvestment Act, the Equal Credit Opportunity Act, the Truth in
Lending Act, the Fair Housing Act, the Home Mortgage Disclosure Act and the
Real Estate Settlement Procedures Act. Penalties under these statutes may
include fines, reimbursements and other penalties. Due to heightened
regulatory concern related to compliance with these and other statutes
generally, the Bank may incur additional compliance costs.
OTHER
Other legislation which has been or may be proposed to the United States
Congress and the California Legislature and regulations which may be proposed
by the Federal Reserve, the FDIC and the SBD may affect the business of the
Company or the Bank. It cannot be predicted whether any pending or proposed
legislation or regulations will be adopted or the effect such legislation or
regulations may have upon the business of the Company or the Bank.
ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which must
be adopted by the Company for transactions occurring after December 31, 1996.
This Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
standard is based on consistent application of a financial-components approach
that focuses on control. Under this approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls
and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished.
The Company has determined that the adoption of this standard will not have a
material effect on the Company's financial position or results of operations.
COMPETITION
The Bank's primary market area presently consists of portions of the
Vacaville, Fairfield, Benicia and Vallejo areas of Solano County and the
Concord area of Contra Costa County. The banking business in California
generally, and specifically in the Bank's primary market area, is highly
competitive with respect to both loans and deposits. A relatively small
number of major banks dominate the business, most of which have many offices
operating over wide geographic areas. Many major commercial banks offer
certain services (such as international, trust and securities brokerage
services) which the Bank does not offer directly. By virtue of their greater
total capitalization, such banks have much higher lending limits than the Bank
and substantial advertising and promotional budgets.
However, regional and smaller independent financial institutions also
represent a competitive force. To illustrate the Bank's relative market
share, total deposits in banks in Solano County, California at June 30, 1996
(more recent data is not available) approximated $1,506,000,000. The Bank's
deposits at June 30, 1996 represented approximately 9.76% of such figure. As
of June 30, 1996, the Bank was the fourth largest Bank, behind Bank of
America, Wells Fargo Bank and Westamerica Bank, serving all the major cities
in Solano County. In October 1996 the Bank purchased a branch in Concord
California from Tracy Federal Savings Bank. The total deposits in banks in
Contra Costa County, where Concord is located, at June 30, 1996, were
approximately $5,507,000,000.
To compete with major financial institutions in its service area, the
Bank relies upon specialized services, responsive handling of customer needs,
local promotional activities, and personal contacts by its officers, directors
and staff. For customers whose loan demands exceed the Bank's lending limits,
the Bank seeks to arrange for such loans on a participation basis with its
correspondent banks or other independent commercial banks. The Bank also
assists customers requiring services not offered by the Bank to obtain such
services from its correspondent banks.
In the past, an independent Bank's principal competitors for deposits and
loans have been other banks (particularly major banks), savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, credit card
companies, and even retail establishments have offered new investment
vehicles, such as money-market funds, which also compete with banks for
deposit business. The direction of federal legislation in recent years seems
to favor competition between different types of financial institutions and to
foster new entrants into the financial services market, and it is anticipated
that this trend will continue.
The enactment of the Riegle-Neal Act as well as the California Interstate
Banking and Branching Act of 1995 will likely increase competition within
California. Regulatory reform, as well as other changes in federal and
California law will also affect competition. While the impact of these
changes, and of other proposed changes, cannot be predicted with certainty, it
is clear that the business of banking in California will remain highly
competitive.
CONCLUSION
It is impossible to predict with any degree of accuracy the competitive
impact these laws will have on commercial banking overall and the business of
the Bank in particular or whether any of the proposed legislation and
regulations will be adopted. If experience is any indication, there appears
to be a continued lessening of the historical distinction between the services
offered by financial institutions and other businesses offering financial
services. As a result of these trends, it is anticipated that banks will
experience increased competition for deposits and loans and, possibly, further
increases in their cost of doing business.
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ITEM 2 - DESCRIPTION OF PROPERTY
The Vacaville main office is located in a modern, one-story building of
7,700 square feet at 141 Parker Street, Vacaville, California. This office has
liberal off-street parking accommodations. The Branch's annual rental payment
for 1996 was $72,191. Its rent for 1997 will be the same as the prior year
plus an adjustment to be made to reflect changes in the cost of living as
measured by the Consumer Price Index for the San Francisco-Oakland
metropolitan area (the "CPI"), limited however, to no more than a 6% increase
in any year. The lease term expires in May 1998, with two successive five-year
renewal options. The Bank also has a right of first refusal to purchase the
premises.
The second Vacaville branch is located in the factory stores area of
Vacaville, California. This 3,600 square foot stand alone office has ample
parking on the site. The Bank signed a 20-year ground lease in May 1994 with
rent increases scheduled every five years. The annual rent is $31,250 plus
common area maintenance (cam) expenses. In 1996, rent and cam expenses totaled
$38,380.
The Fairfield branch office is located in freestanding building at 1100
Texas Street, Fairfield, California, and comprises 5,760 square feet. This
office has parking for approximately 42 cars. The lease term expired in 1993,
with a single five-year renewal option. The Bank exercised it's option to
renew the lease for five years and in January 1996 negotiated an extension of
the lease to December 2002 in exchange for a reduction in rent of
approximately $2,000 a month. The annual rental payments during 1996 totaled
$59,000. In November 1996 the Bank began interior reconstruction of the office
in an effort to provide larger office space for the Bank's Central/Data
Operations departments. At December 31, 1996, these departments were in the
rear of the Vacaville main office. In January 1997, with the reconstruction
completed, the departments were moved to the Fairfield Texas Street Office.
As a result the space occupied by the Branch was greatly reduced and the
Branch became an express branch for deposit services only.
A second Fairfield office, located at 1300 Oliver Road, Fairfield,
California has been in operation since 1993. The office occupies approximately
3,819 rental square feet in a 60,000 square foot commercial office building.
The office has ample parking. The lease began in August 1993 and has a term of
15 years. Rental and cam expenses in 1996 totalled $88,197. Rent is adjusted
annually in August to reflect changes in the CPI.
The Bank has occupied its facility at 1001 First Street, Benicia,
California, since June 1987. This two-story, 2,600 square foot building was
constructed to the Bank's specifications at a cost of approximately $435,000.
There is off-street parking for approximately 10 cars. The Bank purchased the
property in early 1986 from an unaffiliated party for approximately $125,000.
On May 28, 1988, the Bank sold this property to an unaffiliated party for
$625,000. After deducting $25,000 for real estate commissions, the sale and
lease back of the property resulted in a $40,000 profit which will be deferred
over the life of the lease. The lease, which was effective on May 1, 1988, has
a fifteen year term and has two successive five-year renewal options. The
annual rental in 1996 was $70,980.
The Bank maintains two offices in the city of Vallejo, California. The
first office opened in June 1987 and is located at 303 Sacramento Street.
The premises are leased for a monthly base rental of $5,900, adjusted to
reflect changes in the CPI (minimum of 4% to a maximum of 6%) on an annual
basis. Those terms are effective from January 1, 1988 to December 31, 1997.
From January 1, 1998 to December 31, 2007, there will be a new base rental of
$5,500 adjusted to reflect changes in the CPI on an annual basis. The
accumulated change in the CPI will be adjusted back for the period beginning
January 1, 1988 and ending January 1, 1998. The annual rental in 1996 was
$99,166.
The second Vallejo office, which opened in March 1992, is located in the
Park Place shopping center at 4300 Sonoma Boulevard, Suite 300. The rent for
the building, which is a modern 3,900 square foot, one-story stand alone
building, is $70,056 per year plus common area maintenance. The lease term
expires in January 1997 with three five-year renewal options. In December
1996, the Bank exercised the first five-year option and negotiated the base
rent downward to $63,180 per year plus cam expenses. This new rent is
effective beginning with the February 1, 1997 payment. Each subsequent year
the rent will increase by $2,340 per year. Total rental and cam payments
during 1996 totaled $88,706.
The Bank opened it's first office in Contra Costa County on October 12,
1996 in the City of Concord, California at 2151 Salvio Street, Suite H. The
office occupies approximately 2,866 square feet in an approximately 120,000
square foot commercial office building. The lease has a term of 3 years and
has a single five-year renewal option. The annual rent is $42,990 plus cam
expenses until October 1, 1997, at which time the rent increases to $44,710
per year through the remaining term of the lease. The prorated rental payments
in 1996 totaled $10,700.
Conpac owns two parcels of land, one of approximately 84,500 square feet
which is located eat of Davis Street in Vacaville, California, and one of
approximately 38,500 square feet located west of Davis Street in Vacaville,
California. Both lots are part of the Pacific Plaza project. The eastern lot,
known as Pacific Plaza East, was purchased in July 1988 at a cost of $612,500.
The western lot, Pacific Plaza West, consisted of three parcels and was
purchased in stages. Two of the parcels were purchased for approximately
$225,000 in July 1988. The third lot was leased at $1,100 per month from July
1988 to June 1990, at which time it was purchased by Conpac for $225,000. See,
"Description of Business - Real Estate Development Subsidiary", herein.
In September 1993, the Bank moved its corporate offices to Pacific Plaza
East, where it occupies 4,660 square feet. Rent of $106,000 was paid to Conpac
in 1996, which amount is eliminated upon consolidation with the Company. The
Company does not occupy any space other than that shared with the Corporate
offices on the Bank.
******************************************************************************
ITEM 3 - LEGAL PROCEEDINGS
None of the Company, the Bank or Conpac is a party to or the subject of,
or is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of the Company.
******************************************************************************
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year covered by this report.
******************************************************************************
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the Reorganization on February 29, 1996, the Bank's Common Stock
was traded over-the-counter and privately and the Bank was it's own transfer
agent, handling all stock related functions. As of the date of Reorganization,
each outstanding share of common stock was converted into one share of common
stock of the Company . As a result of the Reorganization, the Bank's stock
ceased trading on February 29, 1996. On March 14, 1996, the Company's stock
was added to the Nasdaq National Market under the symbol "CCBC". This listing
allows easy electronic access to trading prices and volume through brokers and
the Internet alike. On April 1, 1996, United States Trust Company of
California became the Company's transfer agent.
The following table indicates the historical range of high and low sales
prices for the Company's common stock, excluding brokers' commissions, for the
periods shown based upon information provided by Hoefer & Arnett, Inc., Van
Kasper & Company, A.G. Edwards and Nasdaq.
<TABLE>
<CAPTION>
Bid Price of Approximate Cash
Common Stock Trading Dividends
Quarter Ended: Low High Volume Declared / Paid
------------------- ---------- ------------------
<S> <C> <C> <C> <C>
December 31, 1996 $15.750 $16.500 32,266 0.150
September 30, 1996 $13.750 $15.750 45,616 0.150
June 30, 1996 $13.250 $14.500 48,311 0.150
March 31, 1996 $14.000 $16.000 31,381 0.125
December 31, 1995 $14.500 $15.375 23,522 0.125
September 30, 1995 $14.500 $15.500 37,000 0.125
June 30, 1995 $12.250 $14.750 57,600 0.125
March 31, 1995 $13.500 $16.500 40,700 0.125
</TABLE>
The last known trade in the Company's Common Stock occurred on March 21,
1997 for 600 shares at $17.25 per share. As of March 24, 1997, the
approximate number of holders of record of the Company's Common Stock was 649.
Management believes the Company's Common Stock is held by approximately 946
beneficial owners.
AUTOMATIC DIVIDEND REINVESTMENT AND COMMON STOCK PURCHASE PLAN
In July 1996, the Company adopted its Automatic Dividend Reinvestment and
Common Stock Purchase Plan (the "Dividend Reinvestment Plan"). The Dividend
Reinvestment Plan allows eligible shareholders of the Company (those holding
of record 100 or more shares of the Company's Common Stock) to automatically
acquire additional shares of the Company's Common Stock through the
reinvestment of cash dividends or through the purchase of additional shares of
Common Stock with supplemental cash investments without the payment of any
brokerage commission or service charge. The Dividend Reinvestment Plan
includes certain dollar limitations on additional cash payments and is
administered by U.S. Trust Company, N.A. pursuant to an agency agreement with
the Company. Shares acquired through the Dividend Reinvestment Plan are
purchased in the open market or in negotiated transactions. The Company will
not issue new shares of Common Stock to participants under the Dividend
Reinvestment Plan.
For information related to stockholder and dividend matters, including
limitations on dividends, see Item 1, Description of Business-Regulation and
Supervision of Bank Holding Company and-Restrictions on Dividends and Other
Distributions.
******************************************************************************
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Certain matters discussed or incorporated by reference in this Annual
Report on Form 10-KSB are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected in the forward-looking statements. Such risks and
uncertainties include, but are not limited to, those described in ITEM 6. -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. Therefore, the
information set forth therein should be carefully considered when evaluating
the business prospects of the Company and the Bank.
FINANCIAL REVIEW
California Community Bancshares Corporation and subsidiary (the
"Company") became the holding company for Continental Pacific Bank (the
"Bank"), a California state-chartered non-member Bank, as of February 29,
1996. The following discussion of the Company's financial condition and
results of operations is designed to provide a better understanding of the
changes and trends related to the Company's financial condition, liquidity and
capital resources. The discussion should be read in conjunction with all
other information herein, including the Consolidated Financial Statements of
the Company and the Notes thereto. The Company has not commenced any business
operations independent of the Bank, therefore the following discussion
pertains primarily to the Bank. Average balances are generally comprised of
daily balances.
OVERVIEW
The Company's net income in 1996 was $1,559,000, a 11% increase over the
$1,405,000 reported in 1995. Fully diluted earnings per share were $1.31 in
1996 as compared to $1.22 in 1995 and $1.09 in 1994. Assets ended the year at
$191.8 million, an increase of $31.8 million over the $160.0 million at
December 31, 1995. Assets averaged $169.0 million during 1996 versus $158.1
million in 1995, for a $10.9 million (6.9%) increase. The 11% increase in
earnings and the 6.9% increase in average assets resulted in a Return on
Average Assets (ROA) of .92% for 1996. This was 3.4% higher than 1995's ROA
of .89%. Return on Average Equity in 1996 was 12.25% compared to 12.31% in
1995. The factors influencing income, as discussed more fully below, were an
improving interest margin, a slight decrease in noninterest income and a
slight increase in noninterest expense.
On May 14, 1996, the Bank entered into a Purchase and Assumption
Agreement ( the "Agreement") with Tracy Federal Bank, F.S.B., a Federal
Savings Bank ("Tracy") to acquire the Concord, California branch office of
Tracy. This acquisition, which was consummated on October 12, 1996 is
consistent with the Company's strategic plan to expand the Company's deposit
and lending activities into contiguous markets. The assets purchased consisted
of cash on hand, negative balance transaction accounts, savings secured loans
and corresponding accrued interest, leasehold improvements and personal
property. These assets totalled $210,000. The liabilities assumed consisted of
branch deposits and accrued interest of approximately $15,500,000. The
consideration, which was 4% of adjusted deposits, amounted to $610,000. Of
this amount $550,000 is considered goodwill and will be amortized over 15
years. At December 31, 1996, unamortized goodwill totalled $540,000 after
amortizing $10,000 in 1996. Due to the low overall cost structure of this
branch the immediate negative impact on earnings should be minimal. As this
branch generates loans, the purchase should increase overall income. See
"Description of Business - Acquisition of Tracy Branch"
Capital, a key measure of a Company's safety and soundness, increased in
1996 as Tier 1 capital increased from $12,327,000 at December 31, 1995 to
$13,104,000 at December 31, 1996.
The detailed changes in the nature and sources of income and expense for
the years shown are highlighted in the following table of consolidated
statements of operations.
<TABLE>
<CAPTION>
--------------------------------------------------------
Year Ended December 31
--------------------------------------------------------
1996 VS. 1995 1995 VS.1994 1994 VS.1993
Amount Percent Amount Percent Amount Percent
Incr. / (Decr) Incr. / (Decr) Incr. / (Decr)
--------------------------------------------------------
(Dollars in thousands)
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income $ 792 6% $1,357 12% $371 4%
Interest Expense ( 16) ( 0) 1,385 0 354 9
Net Interest Income 808 12 ( 28) 0 17 0
Provision for Loan Losses 87 27 68 27 ( 13) ( 5)
Net Interest Income
After Provision for Loan Losses 721 11 ( 96) ( 1) 30 0
Noninterest Income Excluding
Securities Transactions 252 15 44 3 144 10
Noninterest Expense 151 2 152 2 ( 48) ( 1)
Earnings Before Income Taxes and
Securities Transactions 822 52 ( 204) ( 11) 222 14
Securities Transactions ( 398) (83) 472 5,244 (196) (96)
Provisions for Income Taxes 270 42 84 15 ( 13) ( 2)
----- --- ------ ----- ---- ---
Net Income 154 11 184 15 39 3
===== === ====== ===== ==== ===
</TABLE>
NET INTEREST INCOME
Average interest earning assets increased $10.1 million to $151.4 million
in 1996, from $141.3 million in 1995, while the yield earned on these assets,
declined from 8.71% to 8.65%, respectively. In 1996 average equity increased
by $1.3 million while average noninterest bearing deposits increase $4.0
million and average interest bearing liabilities increased by $5.4 million. A
significant portion of the increase in average deposits resulted from the
Concord Branch purchase mentioned above. The remaining increase was derived
from internal deposit growth and borrowed funds. The distribution of this
funding growth within the various earning assets categories resulted in an
overall decline in yield earned on average earning assets. Average loans, the
highest yielding category contributed only $1.7 million of this growth, while
significantly lower yielding average investments increased by $8.4 million.
The cumulative effect of these changes improved interest income by $792,000
from $12,310,000 in 1995 to $13,102,000 in 1996.
Average interest-bearing liabilities increased $5.4 million in the same
period from $125.7 million in 1995 to $131.1 million in 1996. The Board of
Governors of the Federal Reserve System (the "Federal Reserve") raised short
term interest on February 1, 1995. Rates remained unchanged until July 7,
1995, when the Federal Reserve reduced the Federal Funds rate by .25%. This
rate was further reduced by .25% on December 20, 1995. In 1996, the Federal
Reserve again lowered rates by .25% on February 1, 1996. The timing and the
degree of the rate increase in 1995 and the decreases in rates in 1995 and
1996 resulted in lower average interest rates in 1996 versus 1995. While the
average yield earned on interest earning assets decreased by 6 basis points
(.06%), the average rate paid on interest bearing liabilities decreased by 19
basis points (.19%) from 4.36% in 1995 to 4.17% in 1996. The net result of
lower average rates paid and the increased volume was a $16,000 decrease in
interest expense. The Company's interest bearing liabilities reprice faster
than its assets, due to the significant amount of assets tied to lagging
indexes. Consequently, the lower average rates paid which offset the
increase in interest expense as a result of higher volume was only very
slightly offset by lower yields on earning assets. The result was net interest
income in 1996 of $7,637,000, $808,000 higher than the $6,829,000 reported in
1995. Net interest income in 1995 was, in turn, $28,000 lower than the
$6,857,000 reported in 1994.
DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST
RATES AND DIFFERENTIALS
The following table presents, for the periods indicated, condensed
average balance sheet information for the Company, together with average
interest rates earned and paid on the various sources and uses of its funds,
the amount of interest income or interest expense, the net interest margin,
and net interest spread. The table is arranged to group the elements of
interest-earning assets and interest-bearing liabilities, these items being
the major sources of income and expense. Nonaccruing loans are included in
the table for computational purposes, but the nonaccrued interest thereon is
excluded. Tax exempt income is not shown on a tax equivalent basis.
<TABLE>
<CAPTION>
Year Ending December 31,
1996 1995 1994
---------------------------------------------------------------------------------------------
Interest Average Interest Average Interest Average
Average Earned/ Yield/ Average Earned/ Yield/ Average Earned/ Yield/
Balance<F1> Paid Rate Balance<F1> Paid Rate Balance<F1> Paid Rate
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
INTEREST EARNING ASSETS
Federal Funds Sold $ 3,469 $ 183 5.28% $ 2,040 $ 116 5.69% $ 1,379 $ 54 3.92%
Investment Securities:
Taxable <F2> 30,457 1,869 6.14 17,773 1,126 6.34 14,438 691 4.79
Exempt From Federal
Taxes<F3> 6,477 346 5.34 12,121 698 5.76 12,234 708 5.79
Loans, Net <F4>, <F5> 111,052 10,704 9.64 109,372 10,370 9.48 106,408 9,500 8.93
-------- ------- -------- ------- -------- -------
Total Interest Earning Assets $151,455 $13,102 8.65 $141,306 $12,310 8.71 $134,459 $10,953 8.15
Cash and Due From Banks 8,692 7,522 8,502
Premises and Equipment, NET 2,185 2,242 2,457
Invest. in Development Ventures 4,545 4,661 4,745
Accrued Interest Receivable
and Other Assets 2,101 2,368 2,644
-------- -------- --------
TOTAL AVERAGE ASSETS $168,978 $158,099 $152,807
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW accounts $ 18,470 $ 257 1.39% $ 18,111 $ 229 1.26% $ 18,871 $ 228 1.21%
Savings Deposits and MMDA 55,679 2,105 3.78 56,193 2,333 4.15 46,983 1,596 3.40
Time Deposits 30,499 1,546 5.07 30,292 1,628 5.37 34,937 1,266 3.62
Time Deposits over $100,000 19,647 1,049 5.34 15,853 873 5.51 15,371 621 4.04
Federal Funds Purchased 80 4 5.00 439 28 6.38 98 5 5.10
Security Repurchase Agreements 1,000 50 5.00 816 44 5.39 1,435 52 3.62
Other Borrower Money 1,885 146 7.75
Subordinated Debentures 3,910 308 7.88 4,025 346 8.60 4,025 328 8.15
-------- ------- -------- ------- -------- -------
Total Average Interest -
Bearing Liabilities $131,170 $ 5,465 4.17% $125,729 $ 5,481 4.36% $121,720 $ 4,096 3.37%
------- ---- ------- ---- ------- ----
Noninterest-Bearing DDA's 24,817 20,794 20,194
Accrued Interest Payable
and Other Liabilities 261 162 357
-------- -------- --------
Total Average Liabilities $156,248 $146,685 $142,271
Total Equity 12,730 11,414 10,536
-------- -------- --------
Total Average Liabilities
and Shareholders' Equity $168,978 $158,099 $152,807
======== ======== ========
Net Interest Spread <F6> 4.48% 4.35% 4.78%
==== ==== ====
Net Interest Income $ 7,637 $ 6,829 $ 6,857
======= ======= =======
Net Interest Margin <F7> 5.04% 4.83% 5.10%
======= ======= =======
- -------------------------------------------------
<FN>
<F1> Average balances are computed principally on the basis of daily balances.
<F2> The taxable securities yield is computed by dividing interest income
(annualized on an actual day basis) by average historical cost.
<F3> The tax equivalent yield on exempt from federal taxes investment
securities (tax exemptinvestments) was 7.78%, 8.39% and 8.51% in 1996,
1995 and 1994. The tax equivalent yield is calculatedby dividing the
adjusted yield by one minus the Federal Tax rate. The adjusted yield is
determined bysubtracting the Tefra penalty from the unadjusted tax exempt
investment yield. The unadjusted taxexempt investment yield is computed
by dividing tax exempt interest income by their average historicalcost.
The Tefra penalty is computed by dividing total interest expense
(annualized) by average assets andmultiplying the result by 20% (Tefra
disallowance) and 34% (Federal Tax rate).
<F4> Allowance for loan losses and deferred loans are netted from loans
receivable which includes nonaccrual loan balances.
<F5> Interest income on loans includes fees on loans of $441,000, $486,000
and $620,000 in 1996, 1995 and 1994.
<F6> Net interest spread represents the average yield earned on interest-
earning assets less the average rate paid on interest-bearing
liabilities.
<F7> Net interest margin is computed by dividing net interest income by total
average interest earning assets.
</FN>
</TABLE>
RATE AND VOLUME VARIANCES
The following tables set forth, for the periods indicated, a summary of
the changes in interest income and interest expense resulting from changes in
average asset and liability balances (volume) and changes in average yield /
interest rate (rate). The change in interest due to both rate and volume has
been allocated to change due to rate and volume in proportion to the
relationship of absolute dollar amounts in each. Nonaccrual loans are
included in total loans outstanding, while nonaccrued interest thereon is
excluded from the computation of rates earned. Tax exempt income is not shown
on a tax equivalent basis.
The following tables below illustrate the effect that declining interest
rates and volume increases had on net interest income.
<TABLE>
<CAPTION>
1996 Compared to 1995
-------------------------------
Net
Volume Rate Change
-------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Interest Income:
Federal Funds Sold $ 75 ($ 8) $ 67
Taxable Investment Securities 778 ( 35) 743
Exempt from Federal Taxes
Investment Securities ( 302) ( 50) ( 352)
Loans, Net <F1> 162 172 334
---- ---- ----
Total Interest Income $713 $ 79 $792
==== ==== ====
Increase (Decrease) in Interest Expense:
Interest-bearing Now Accounts $ 5 $ 23 $ 28
Savings Deposits and MMDA ( 19) ( 209) ( 228)
Time Deposits 10 ( 92) ( 82)
Time Deposits over $100,000 203 ( 27) 176
---- ---- ----
Total Interest Expense on Deposits 199 ( 305) ( 106)
Federal Funds Purchased ( 18) ( 6) ( 24)
Security Repurchase Agreements 9 ( 3) 6
Other Borrowings 146 0 146
Subordinated Debentures ( 9) ( 29) ( 38)
---- ---- ----
Total Interest Expense 327 ( 343) ( 16)
---- ---- ----
Net Interest Income $386 $422 $808
==== ==== ====
- --------------------------------------
<FN>
<F1> Loan fees have been included in the interest income computation. Loan
fees for 1996 and 1995 were $441,000 and $486,000, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
1995 Compared to 1994
-------------------------------
Net
Volume Rate Change
-------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
Increase (Decrease) in Interest Income:
Taxable Investment Securities $211 $ 224 $ 435
Nontaxable Investment Securities- ( 6) ( 4) ( 10)
Federal Funds Sold 38 24 62
Loans, Net <F1> 285 585 870
---- ------ ------
Total Interest Income $528 $ 829 $1,357
==== ====== ======
Increase (Decrease) in Interest Expense:
Interest-bearing Transaction Accounts ($ 8) $ 9 $ 1
Savings Deposits 384 353 737
Time Deposits ( 226) 840 614
---- ------ ------
Total Deposits 150 1,202 1,352
Federal Funds Purchased 22 1 23
Security Repurchase Agreements ( 33) 25 ( 8)
Subordinated Debentures 0 18 18
---- ------ ------
Total Interest Expense 139 1,246 1,385
---- ------ ------
Increase (Decr.) in Interest Margin $389 ($ 417) ($ 28)
==== ====== ======
- --------------------------------------
<FN>
<F1> Loan fees have been included in the interest income computation. Loan
fees for 1995 and 1994 were $486,000 and $620,000, respectively.
</FN>
</TABLE>
INTEREST INCOME ON EARNING ASSETS
Assets and liabilities grew modestly in 1996. As mentioned above,
average interest earning assets grew by $10.1 million in 1996 or 7.2%,
compared to a $6.8 million increase in 1995. Average interest-bearing
liabilities increased by $5.4 or 4.3% million in 1996 versus growth of $4.0
million in 1995.
Although average net loans increased by $1.7 million in 1996, the ratio
of average net loans to average interest earning assets declined from 77.4% in
1995 to 73.3% in 1996. The other $8.4 million growth in interest earning
assets consisted primarily of taxable investment securities, which increased
by $12.7 million in 1996. Average Federal Funds accounted for $1.4 million of
this increase. Average nontaxable investments decreased by $5.7 million.
These changes were a function of additional funds invested as well as a change
in the portfolio mix from long term fixed investment to short term fixed
securities as well as variable rate securities.
As mentioned earlier, in 1995 and 1996 the Federal Reserve lowered the
key short term rate known as Federal Funds. Other interest rates follow this
rate with varying degrees of magnitude (multiplier) and timing (lag). For
example, the Prime rate usually changes immediately and by the same degree
(multiple of 1.0) as the Federal Funds rate, while the Cost of Funds Index
(COFI) may change by a smaller amount, and this change may occur over a period
of six to twelve months. This delay in rate change is known as lag.
The Federal Funds rate and the Prime rate began 1995 at 5.50% and 8.50%,
respectively. In 1995, the Federal Reserve raised the Federal Funds rate by
.50% to 6.0% on February 1, 1995. Prime immediately increased to 9.0% and
remained at that level until early July, when the Federal Reserve began to
lower rates. This was the first rate reduction by the Federal Reserve since
July 1992 and it was only a .25% reduction. The next and final rate reduction
of 1995 occurred on December 20, 1995. At this time, the Federal Funds rate
was reduced by another .25% to 5.5%. Prime rate also fell by .25% to 8.5% at
this time. The result of the rate changes in 1995 and the subsequent minor
rate reduction in February, 1996 was lower average rates in 1996. For
example, Prime rate averaged 8.83% in 1995 and 8.27% in 1996. The degree and
timing of these changes for each interest rate index utilized by the Company
and the Bank and the amount and timing of volume changes for each type of
interest earning asset and interest-bearing liability determined the change in
interest income and expense in 1996.
At December 31, 1996, approximately 23.0% of the loans were tied to non-
lagging, high multiplier indexes such as Prime rate ($15.7 million) and 1 year
treasury indexes ($10.4 million), while 28.2% ($32.0 million) were tied to the
lagging certificate of deposit (CD) index and 27.7% ($31.5 million) were tied
to the longer lagging COFI index. The remaining 21.1% ($24.0 million) of the
loans had fixed rates and therefore were not subject to rate changes.
In 1996, Prime rate averaged .56% lower than it did in 1995, while the CD
index averaged .34% lower, the COFI index averaged .20% lower and the one year
treasury index averaged .44% lower. In 1996, although the average for each
index was lower in 1996 verses 1995, due to the repricing timing on COFI and
CD indexed loans, which adjust every six months based on the index available
two months before the adjustment date, the actual yield on loans tied to
these indexes increased. In 1996 loans tied to these indexes averaged
approximately $63.5 million or 79% of the average $80.7 million in real estate
mortgage loans. In 1996 the yield on this loan category increased by .34%
Another reason the yield on the loan portfolio is higher than expected, given
the lower rates in 1996, is the fact that in 1995 the Bank's nonaccrual loans
averaged $1.57 million, lowering the overall loan yield, while in 1996 this
figure dropped to $.58 million, still lowering the yield but not to the same
degree as occurred in 1995. In 1996, if unrecognized interest on nonaccrual
loans had been accrued, such income would have been approximately $7,000
verses $203,000 in 1995. Loan fees, which are included in loan interest income
and effect the loan yield, totalled $441,000 in 1996, compared to $486,000 in
1995.
The aggregate effect of these influences was a 16 basis point increase in
net loan yield from 9.48% in 1995 to 9.64% in 1996. The result of the $1.7
million increase in average loan volume and the 16 basis point increase in
yield resulted in the $334,000 increase in interest and fee income from loans.
As mentioned earlier, total average investments increased by $8.4 million
in 1996 while the yield on these investments decreased by 14 basis points from
6.08% in 1995 to 5.94% in 1996. Consequently, in 1996 the increase in
interest income from investments of $458,000 was a function of increased
volume offset slightly by the decreased yield. The increased volume accounted
for $551,000, while decreased yield reduced income by $93,000. The $334,000
increase in interest and fee income from loans and the $458,000 increase in
interest from investments resulted in the $792,000 increase in total interest
income from 1995 to 1996.
INTEREST EXPENSE ON INTEREST-BEARING LIABILITIES
Interest expense also declined in 1996 as lower rates paid offset the
increased average volume. As mentioned above, average interest-bearing
liabilities increased $5.4 million in 1996 over the average balance in 1995.
In 1996, average time deposits over $100,000 showed the most growth, increasing
by $3.8 million from $15.9 in 1995 to $19.7 in 1996. The rate paid
of these deposits declined from 5.51% in 1995 to 5.34% in 1996. The increased
volume increased interest expense by $203,000 while the lower rate paid
reduced expense by $27,000 for a net increase of $176,000. Other borrowed
money also experienced growth in 1996. For the first time the Bank borrowed
money from the Federal Home Loan Bank to match fund fixed rate loans. In 1996
these funds averaged $1.9 million and resulted in $146,000 in additional
interest expense. Interest expense in 1996 on savings and money market demand
accounts declined by $228, 000 from the previous year. In 1996 the average
balance in this category decreased by $.5 million and the average rate paid
decreased by 37 basis points (.37%) from 4.15% in 1995 to 3.78% in 1996.
Within this category is a money management account which is tied to the 91 Day
T-Bill rate. In 1996 this account averaged $38.0 million and accounted for
$233,000 of the $228,000 net decrease in interest expense within this group.
This decline was a result of the 50 basis point drop in the average 91 Day
Bill index from 1995 to 1996. All other average volume changes from 1995 to
1996 were less that $.5 million. The only other significant change in 1996
influencing interest expense was a 30 basis point decrease in the average rate
paid on time deposit less than $100,000. This lower rate off-set by a slight
increase in volume accounted for a $82,000 reduction in interest expense.
Within the remaining interest bearing liabilities categories, interest expense
decreased by $28,000 from the prior year mainly due to slightly lower rates.
The net effect of the above mentioned volume changes and average rates
paid was a $16,000 reduction in interest expense, from $5,481,000 in 1995 to
$5,465,000 in 1996. The combined effect of this $16,000 reduction in interest
expense and the $5.4 million increased in volume was a 19 basis points (.19%)
decline in the average rate paid on average interest bearing liabilities from
4.36% in 1995 to 4.17% in 1996.
In summary, from 1995 to 1996, interest income increased by $79,000 as a
result of increases in interest rates while interest expense decreased by
$343,000, resulting in a $422,000 increase in net interest income due to
changes in interest rates. Interest income attributed to an increase in volume
improved by $713,000, while interest expense attributed to increased volume
rose by $327,000, for a increase in net interest income attributed to volume
of $386,000. This increase and the $422,000 increase in net interest income
due to interest rate changes resulted in a $808,000 increase in net interest
income. Net interest income was $7,637,000 in 1996 versus $6,829,000 in 1995
and $6,857,000 in 1994.
NONINTEREST INCOME AND EXPENSE
Noninterest income was $2,032,000 (1.20% of average assets) in 1996
compared to $2,178,000 in 1995, a $146,000 (6.7%) decrease. Service charges
on deposit accounts increased by $24,000 in 1996 over 1995 and $26,000 in 1995
over 1994. Other fees and charges increased by $167,000 in 1996 after
increasing by $22,000 in 1995. In 1996 the Company recognized $157,000 in fee
income from the sale of $1.8 million in SBA guaranteed loans. This accounted
for 94% of the increase in other fees and charges. In 1995 the Bank did not
recognize any fee income from the sale of SBA guaranteed loans.
Income from real estate development ventures increased by $61,000 to
$542,000 in 1996 from $481,000 in 1995 and $485,000 in 1994. The sole real
estate development venture in 1995 and 1996 was Pacific Plaza East, a 100%
occupied 32,000 square foot commercial office building in Vacaville,
California. The increase in 1996 is attributed to rent increases in a
majority of the suites. A substantial reduction in gains from the sale of
securities offset all of the increases discussed above and accounts for the
$146,000 decline in noninterest income. In 1996 gains on sale of securities
totalled $83,000 a decline of $398,000 from the $481,000 earned in 1995.
The table below depicts the changes in noninterest income from period to
period.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1995 Incr. / 1995 1994 Incr. /
(Decr.) (Decr.)
---------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest Income:
Service Charges on Deposit $ 843 $ 819 $ 24 $ 819 $ 793 $ 26
Other Fees and Charges 564 397 167 397 375 22
------ ------ ---- ------ ------ ----
Subtotal 1,407 1,216 191 1,216 1,168 48
Income From Real Estate
Development Ventures 542 481 61 481 485 ( 4)
------ ------ ---- ------ ------ ----
Subtotal 1,949 1,697 252 1,697 1,653 44
Gain on the
Sale of Securities 83 481 ( 398) 481 9 472
------ ------ ---- ------ ------ ----
Total $2,032 $2,178 ($146) $2,178 $1,662 $516
====== ====== ==== ====== ====== ====
- ----------------------------------
</TABLE>
In 1996, noninterest expense totalled $6,781,000, an increase of $151,000
over 1995's total of $6,630,000, which was $152,000 more than the $6,478,000
reported in 1994. One measure of efficiency is the ratio of noninterest
expense to average assets. This ratio has improved the last three years, from
4.24% in 1994 to 4.19% in 1995 and finally to 4.01% in 1996.
In 1996, salaries and benefits increased by $205,000 from $3,137,000 in
1995 to $3,342,000 in 1996. In 1995 salaries and benefits decreased by
$11,000 from 1994's figure. Salary expense in the new branch along with
increased bonuses accounted for about half of the increase. Normal salary
increases and a nominal increase in the number of employees accounted for the
remaining difference.
Occupancy expense decreased by $8,000 (1%) in 1996 from 1995's total,
which was $41,000 higher than the 1994 figure. In January 1996, the Bank
renegotiated an annual reduction in rent of $25,000 for its Fairfield Branch
in exchange for an extended term of 41/2 years.
Other noninterest expense declined by 4.2% or $78,000 in 1996 from the
figure reported in 1995, after increasing by $116,000 (6.7%) in 1995 over the
1994 figure. In 1996, marketing expenses and outside services such as
investment banker fees associated with the branch purchase increased by
$45,000 and $59,000 respectively. All other expenses as a group increased by
$56,000.These increases we more than offset by a significant decrease in FDIC
Insurance from $187,000 in 1995 to $2,000 in 1996. In January 1996, the FDIC
premium was reduced for the Bank to a $2,000 minimum annual fee. Also in 1996,
net gains or losses from the sale of other real estate owned (OREO) and OREO
operating expenses declined by $53,000. In total, other noninterest expenses
declined in 1996 to $1,773,000 from $1,851,000 in 1995.
The major components of noninterest expense are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
Net Income Net Income
1996 1995 Incr. / 1995 1994 Incr. /
(Decr.) (Decr.)
--------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest Expense:
Salary and Benefits $3,342 $3,137 $205 $3,137 $3,148 ($ 11)
Occupancy, Furniture,
Fixtures and Equipment 1,366 1,374 ( 8) 1,374 1,333 41
Other Noninterest Exp. 1,773 1,851 ( 78) 1,851 1,735 116
Expenses from
Real Estate Development 300 268 32 268 262 6
------ ------ ---- ------ ------ ----
Total
Noninterest Expenses $6,781 $6,630 $151 $6,630 $6,478 $152
====== ====== ==== ====== ====== ====
- -------------------------------------------
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $411,000 in 1996 compared to $324,000
in 1995 and $256,000 in 1994. The Bank experienced net charge-offs of $468,000
in 1996, or .42% of average loans, compared to $274,000, or .25% of average
loans, in 1995 and $238,000, or .22% of average loans, in 1994.
The $411,000 provision, when deducted from the net interest income figure
of $7,637,000, resulted in net interest income after provision for loan losses
of $7,226,000 for 1996. This amount, which is $721,000 higher than the
$6,505,000 reported in 1995, represents a return on average assets of 4.27% in
1996. In 1995 and 1994, this ratio was 4.11% and 4.32%, respectively.
INCOME BEFORE PROVISION FOR INCOME TAXES
The result of a 4.27% ratio of adjusted net interest income to average
assets, a 1.20% noninterest income ratio and a 4.01% noninterest expense
ratio, resulted in a ratio of Income before Provision for Income Taxes to
average assets of 1.46%. This is an improvement of .16% from 1.30% in 1995
which in turn was a .13% improvement over the 1.17% reported in 1994.
The $721,000 increase in net interest income after provision for loan
losses, the $146,000 decrease in noninterest income and the $151,000 increase
in noninterest expenses improved income before provision for income taxes by
$424,000 to $2,477,000 in 1996 from $2,053,000 in 1995. This 1995 figure was
$268,000 higher than the $1,785,000 reported in 1994.
NET INCOME
The Company recorded $918,000 in provision for income taxes in 1996
versus $648,000 in 1995 and $564,000 in 1994. The tax provisions reduced
income to $1,559,000, $1,405,000 and $1,221,000 for 1996, 1995 and 1994,
respectively.
The before tax ROA was 1.46% in 1996. After deducting the provision for
income taxes, .54% of average assets, ROA in 1996 was .92%.
Management is not aware of any trends, events or uncertainties that have
had or that are reasonably expected to have a material impact on liquidity,
capital resources, or revenues or income from continuing operations. The
company is also not aware of any current recommendations by any regulatory\
authority which, if they were implemented, would have such an effect.
LOAN PORTFOLIO
The Association of Bay Area Governments (ABAG) projects Solano County to
have the largest percentage increase in population growth between 1995 and
2015 of all the Bay Area counties. They further estimate that Solano's
population will be 531,700 by the year 2015, which is an increase of 40%. Job
growth in Solano County is projected to increase by 68% during this same time
period.
Contra Costa County is also slated for substantial growth over the next
15 years. Contra Costa's population is projected to grow from 882,700 in 1995
to 1,169,400 by 2015, representing a 32% increase. A 50% increase in jobs and
a 3% increase in the mean household income, bringing it to $95,800, is
projected by the year 2015.
The economic climate of Solano and Contra Costa counties remains strong
due to its prime locale between San Francisco and Sacramento, a plentiful
supply of natural resources, an extensive transportation network, and the
enviable quality of life which exist due to the availability of affordable
homes, clean and safe communities, a comfortable climate all within easy reach
of many recreational and cultural activities.
The following table shows the composition of the loan portfolio by major
category of loan as of the dates indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------
Loan Categories: (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real Estate Mortgage:
Commercial $ 64,634 $ 61,942 $ 60,206 $ 56,401 $ 52,977
Residential 17,612 15,456 19,272 18,063 18,064
-------- -------- -------- -------- --------
Total Real Estate Mortgage 82,246 77,398 79,478 74,464 71,041
Commercial 8,926 9,908 9,348 10,269 11,363
Real Estate Construction 6,408 9,553 9,433 9,723 9,878
Consumer 16,045 14,265 12,937 13,252 12,640
-------- -------- -------- -------- --------
Total Loans 113,625 111,124 111,196 107,708 104,922
Less
Allowance for Loan Losses 1,101 1,158 1,108 1,090 933
Deferred Loan Fees 599 732 940 892 967
-------- -------- -------- -------- --------
Net Loans $111,925 $109,234 $109,148 $105,726 $103,022
======== ======== ======== ======== ========
- ---------------------------------------
</TABLE>
The loan portfolio consists of: (1) commercial loans; (2) real estate
construction loans; (3) consumer loans (loans to individuals for household,
family and other personal expenditures, including revolving equity loans); and
(4) real estate mortgage loans. These categories accounted for approximately
8%, 6%, 14% and 72%, respectively, of the total loan portfolio at December 31,
1996. Loans are generally made to persons or businesses with whom it has an
existing relationship or anticipates developing such a relationship.
Because loans are the highest yielding assets, maximizing the
loan-to-deposit ratio increases interest income, however, in order to prudently
manage its liquidity, the loan policy calls for it to maintain a loan-to-deposit
ratio between 70% and 85%. The loan-to-deposit ratio was 67% and 78% at
December 31, 1996 and December 31, 1995, respectively. The ratio declined
significantly at year end 1996 due to the addition of approximately $15.5
million in deposits purchased from Tracy Federal Savings Bank without
corresponding loan balances.
With certain exceptions, the Bank is permitted under applicable law to
make loans which are unsecured to single borrowers in aggregate amounts of up
to 15% of the sum of the Bank's total capital, including subordinated debt,
and allowance for possible loan losses for unsecured loans (as defined for
regulatory purposes), and up to 25% of such sum in the aggregate for unsecured
and secured loans (as defined for regulatory purposes). As of December 31,
1996, these lending limits were approximately $2,652,000 for unsecured loans
and $4,420,000 for unsecured and secured loans. The Bank sells participations
in its loans where necessary to stay within its lending limits. However, the
unsecured limit is used as a guideline for the maximum amount it will lend to
any one borrower on a secured basis.
REAL ESTATE MORTGAGE LOANS
Real estate mortgage loans consist primarily of loans secured by
commercial real property and by first liens on single-family residential
properties.
As of December 31, 1996, outstanding commercial mortgage loans totalled
$64,634,000, or 57% of total loans. This represents an increase in
outstanding balances of $2,692,000 since year end 1995. Of these loans $55.0
million were adjustable rate loans while $9.6 million had fixed rates. These
loans are secured by first or second deeds of trust on both owner occupied and
nonowner occupied commercial properties, and generally have 5 to 15 year
maturities with 15 to 25 year amortizations. The Bank generally conducts
market rent surveys and requires all borrowers to meet minimum debt service
ratios. The Bank also makes loans in conjunction with Small Business
Administration ("SBA") sponsored programs. With the SBA 504 program, the Bank
takes a first deed of trust on the property generally at a loan to value ratio
of 50%. The SBA then makes an additional loan in second position of up to 40%
of value. With the SBA 7A program, the Bank makes commercial loans for the
purchase of inventory, equipment, or real estate or to fund working capital,
and the SBA provides a guaranty up to 90% of the loan amount.
As of December 31, 1996, residential mortgage loans totalled $17,612,000,
or 15% of total loans. This loan category increased $2,156,000 over the
$15,456,000 outstanding at December 31, 1995. These loans were secured by
first or second deeds of trust predominately by property in Solano County. Of
these loans, $2.3 million or 13% were fixed rate mortgage loans having
original terms ranging from one to 30 years, with the majority having
remaining terms of less than 5 years. The other $15.3 million or 87% were
held as adjustable rate mortgages which are adjusted either semiannually or
annually based on either the COFI Index or the CD Index (the secondary market
monthly average interest rate or yield for large negotiable certificates of
deposit ($100,000 or more with maturity of one month)). The above loans
consist of 1-4 family residential loans, multi-family loans, second mortgage
loans, and loans on improved single family lots. The majority of the
residential mortgage loans have been underwritten for the portfolio, and such
loans do not necessarily meet standard underwriting criteria for sale in the
secondary market. The Bank uses certain of the credit underwriting criteria
applicable to loans for sale in the secondary market, but chooses not to use
certain other underwriting criteria which in the opinion of management do not
materially affect credit quality. The loan to appraised value ratio is
generally 80% or less when originated. The Bank does not generally make
residential real estate loans on a negative amortization basis.
COMMERCIAL LOANS
Commercial loans consist primarily of financing for businesses and
professionals in Solano County. At December 31, 1996, these loans totalled
$8,926,000, or 8% of total loans. This figure is $982,000 less than the figure
reported December 31, 1995. The commercial loans are diversified as to
industries and type of businesses with no material industry concentration.
Commercial borrowers generally have deposit relationships with the Bank.
Commercial loans are made for the purposes of providing working capital,
financing the purchase of equipment or inventory and for other business
purposes. Such loans include loans with maturities ranging from thirty days
to twelve months and "term loans" which are loans with maturities normally
ranging from one to seven years. Short-term business loans are generally used
to finance current transactions and typically provide for periodic interest
payments, with principal being payable monthly, quarterly or at maturity.
Term loans normally provide for floating interest rates, with monthly payments
of both principal and interest. In 1996, the Bank began offering an additional
service to its commercial customers called Business Manager. Under this
program account receivables are purchased from its customer for a discount
fee. At December 31, 1996, Business Manager loans totalled $555,000.
In commercial lending, the amount of losses as a percentage of
outstanding loans can vary widely from period to period and is particularly
sensitive to the fluctuations caused by changing economic conditions. Charged
off commercial loans totalled $104,000 and $217,000 in 1995 and 1996,
respectively.
REAL ESTATE CONSTRUCTION LOANS
Real estate construction loans are made to finance the construction of
commercial and single-family residential property and, typically, have short
maturities. Construction lending involves certain risks not inherent in other
forms of real estate financing. The Bank does not require construction loan
borrowers to obtain commitments for permanent takeout financing from other
lenders. As a result, the Bank may be required to grant permanent financing
or extend its construction loans beyond anticipated maturity periods in times
of rising interest rates or reduced availability of permanent financing from
other lenders. At December 31, 1996 there were eight such permanent financing
loans totaling approximately $2,100,000.
Currently there are 51 construction loans with an average balance of
approximately $126,000. As of December 31, 1996, these loans totalled
$6,408,000, or 6% of the loan portfolio. This is $3,145,000 lower than the
figure reported as of December 31, 1995.
Construction loans are funded on a line-item, percentage of completion
basis. As the builder completes various line items (foundation, framing,
electrical, etc.) of the project, or portions of those line items, the work is
reviewed by an officer of the Bank. Upon approval from the officer, the Bank
funds the draw request according to the percentage completion of the line
items that have been approved. Actual funding checks must be signed by an
officer of the Bank. Charged off real estate construction loans totalled
$72,000 and $181,000 in 1995 and 1996, respectively.
CONSUMER LOANS
Consumer loans are made for the purpose of financing the purchase of
various types of consumer goods, home improvement loans, and other personal
loans. Consumer installment loans generally provide for the monthly payment
of principal and interest. Most of the consumer installment loans are secured
by the personal property being purchased or a second deed of trust on the
borrower's residence. As of December 31, 1996, consumer loans totalled
$16,045,000, or 14% of the portfolio, an increase of $1,780,000 over the
figure reported December 31, 1995.
LOAN COMMITMENTS
In the normal course of business, there are various commitments
outstanding to extend credit that are not reflected in the financial
statements. As of December 31, 1996, outstanding undisbursed loan commitments
totalled approximately $14.4 million. In the opinion of management, annual
review of the commercial credit lines and ongoing monitoring of outstanding
balances reduces the risk of loss associated with these commitments. The
undisbursed loan commitments include $3.0 million, or 34% of the outstanding, of
commercial loans, $1.8 million, or 27% of the outstanding, of real estate
construction loans, and $9.6 million, or 60% of outstanding, of consumer
loans. Undisbursed commercial loan commitments represent primarily business
lines of credit. Undisbursed construction commitments represent undisbursed
funding on construction projects in process. The consumer loan commitments
represent approved, secured (equity) lines of credit, and unsecured personal
lines of credit.
Standby letters of credit outstanding aggregating $649,000 and $407,000
at December 31, 1996 and 1995, respectively.
ASSET QUALITY
The risk of nonpayment of loans is inherent in commercial banking. To
some extent, the degree of perceived risk is taken into account in
establishing the loan structure, the interest rate and security for specific
loans and various types of loans. The Bank also attempts to minimize its
credit risk exposure by use of thorough loan application, approval and review
procedures.
The primary risk elements considered by management with respect to each
installment and conventional real estate loan are the lack of timely payment
and the value of the collateral. Management has a reporting system that
monitors past due loans and has adopted policies to pursue its creditor's
rights in order to preserve the Bank's position. As the majority of the loan
portfolio is held in real estate related loans and in light of the continuing
economic downturn, particular attention is given to factors affecting the real
estate markets. The primary risk elements considered by management with
respect to real estate construction loans are fluctuations in real estate
values in the Company's market areas, fluctuations in interest rates, the
availability of conventional financing, the demand for housing in the
Company's market areas, and general economic conditions. The primary risk
elements with respect to commercial loans are the financial condition of the
borrower, general economic conditions in the Company's market area, the
sufficiency of collateral, the timeliness of payment, and, with respect to
adjustable rate loans, interest rate fluctuations.
Because the Bank lends primarily within its market area, the real
property collateral for its loans is similarly concentrated, rather than
diversified over a broader geographic area. The Company could, therefore, be
adversely affected by a decline in real estate values in Solano County, even
if real estate values elsewhere in Northern California or California generally
remained stable or increased. Management has a policy of requesting and
reviewing annual financial statements from its commercial loan customers and
periodically reviews the existence of collateral and its value.
The Bank places an asset on nonaccrual status when one of the following
events occur: any installment of principal or interest is 90 days or more
past due (unless in management's opinion the loan is well secured and in the
process of collection), management determines the ultimate collection of
principal or interest on a loan to be unlikely, it takes possession of the
collateral (in the case of real estate collateral, referred to as "OREO"), or
the terms of a loan have been renegotiated to less than market rates due to a
serious weakening of the borrower's financial condition.
With respect to the policy of placing loans 90 days or more past due on
nonaccrual status, unless the loan is well secured and in the process of
collection, a loan is considered to be in the process of collection if, based
on a probable specific event, it is expected that the loan will be repaid or
brought current. Generally, this collection period would not exceed 30 days.
When a loan is placed on nonaccrual status, the general policy is to reverse
and charge against current income previously accrued but unpaid interest.
Interest income on such loans is subsequently recognized only to the extent
that cash is received and future collection of principal is deemed by
management to be probable. Where the collectibility of the principal or
interest on a loan is considered to be doubtful by management, it is placed
on nonaccrual status prior to becoming 90 days delinquent. For loans where
the collateral has been repossessed, the property is classified as OREO or, if
the collateral is personal property, the loan is classified as other assets on
the Company's financial statements.
The following table sets forth the amount of the nonperforming assets as
of the dates indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonperforming Assets:
Nonaccrual Loans $ 70 $1,049 $1,258 $179 $ 490
Accruing Loans Past
Due 90 Days or More 67 78 496 127 285
---- ------ ------ ---- ------
Total Nonperforming Loans 137 1,127 1,754 306 775
In-Substance Foreclosures 0 0 0 0 219
Other Real Estate Owned 150 182 374 389 304
---- ------ ------ ---- ------
Total Nonperforming Assets $287 $1,309 $2,128 $695 $1,298
---- ------ ------ ---- ------
Performing Restructured Loans $974 $ 470 $ 0 $946 $ 943
Allowance for Loan Losses
to Nonperforming Loans 804% 103% 63% 356% 120%
Allowance for Loan Losses
to Nonperforming Assets 384% 88% 52% 157% 72%
Allowance for Loan Losses
to Nonperforming Assets
and Performing
Restructured Loans 87% 65% 52% 66% 42%
Nonperforming Loans
to Total Assets .07% .70% 1.12% .21% .56%
Nonperforming Assets
to Total Assets .15% .82% 1.36% .47% .94%
Nonperforming Assets and
Performing Restructured
Loans to Total Assets .66% 1.11% 1.36% 1.10% 1.63%
- -----------------------------
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans for which
impairment has been recognized in accordance with SFAS No. 114 was
approximately $2,648,000 and $1,602,000. The total allowance for loan losses
related to these loans was $278,000 and $309,000 at December 31, 1996 and
1995. For the years ended December 31, 1996 and 1995, the average recorded
investment in loans for which impairment has been recognized was approximately
$1,218,000 and $1,641,000. During the portion of the year that the loans were
impaired, the Company recognized interest income of approximately $28,000 and
$12,000 for cash payments received in 1996 and 1995.
Interest income on nonaccrual loans which would have been recognized if
all such loans had been current in accordance with their terms totalled
$7,000, $203,000 and $19,000 in 1996, 1995 and 1994, respectively.
Nonperforming assets declined to $287,000 or .15% of total assets, at December
31, 1996, from $1,309,000 or .82% of total assets, at December 31, 1995.
Included in the impaired loans above were seven nonaccrual loans to four
borrowers totalling $1,049,000 at December 31, 1995. In 1996 the Bank received
payments totalling $837,000 from these borrowers, generated from the sale of
the underlying collateral. The difference of $212,000 was charged off. At
December 31, 1996 there were three nonaccrual loans to two borrowers totalling
$70,000. The Company expects the loss, if any, on these loans to be minimal.
At December 31, 1995, OREO consisted of two foreclosed real estate
properties with a carrying value of $182,000. This consisted of a commercial
property in Vallejo, California and five (5) unimproved residential lots in
Vallejo, California. The residential lots had carrying value of $32,000 at
December 31, 1995. These lots were sold in 1996 for $18,000 causing the
Company to realize a $14,000 loss. At December 31, 1996, OREO consisted of the
commercial property in Vallejo with a carrying value of $150,000.
At December 31, 1995, there was one performing restructured loan for
$470,000. This loan is secured by a shopping center and was appraised "as is"
for $434,000 in September 1996. The center is currently 69% occupied. The
loan was restructured in December 1995 to receive principle based upon the
original amortization schedule while the interest rate was reduced to
approximately 3%. At the time of restructuring, approximately $10,500 in past
due interest was forgiven. The new terms were extended to the borrower for
two terms of six months each, at which time management will reevaluated the
project's cash flow and the borrower's situation. The most recent six month
restructuring occurring in December 1996, increased the interest rate to
7.72%. At December 31, 1996 the outstanding balance was $412,000 as a result
of a $46,000 write down and a $12,000 principal reduction received from the
borrower. Currently, the borrower is in compliance with the terms of the
restructure and was actively marketing this shopping center to increase
occupancy and cash flow.
In December, 1996 another commercial real estate loan was added to the
performing restructured loan category. At December 31, 1996 the outstanding
balance on this loan was $562,000 bringing the total of performing restructured
loans to $974,000. This additional restructured loan is secured
by a 7,500 square foot commercial office building. The borrowers recently lost
a tenant who had occupied approximately 36 percent of the building increasing
the vacancy to approximately 63 percent. This loan has been restructured on a
month to month basis to receive principal based on the original amortization
schedule while the interest rate was reduced to approximately 6.79%. The
borrower has informed management there are a number of prospective tenants
considering leasing space in the building. The borrow has indicated based on
their financial strength and a 62% occupancy level they will be able to
service the original terms of the loan. Currently, the borrower is in
compliance with the terms of the restructure and was actively marketing this
office building to increase occupancy and cash flow.
Although any potential increase in the volume of nonperforming assets
will depend, upon other events, upon the economic environment, in addition to
the assets described above, the Bank has identified loans, totalling
$2,027,000, where known information about the possible credit problems of the
borrowers cause management to have serious doubts as to the ability of such
borrowers to comply with the present loan repayment terms and which may become
nonperforming in the future. This total consists of ten loans to five
borrowers. Four loans totalling $178,000 to two borrowers are secured by
Second Deed of Trust on single family residences. Notices of default were
filed on these properties in December 1996 and February 1997. Due to loan to
value and marketability of these properties minimal loss is expected. One loan
for $93,000 is secured by a First Deed of Trust on a single family residence.
Notice of Default was filed January 1997. The Bank believes the loss exposure
is minimal. The Bank has an unsecured loan for $15,000 and a real estate
secured loan for $78,000 to one borrower. Based on the borrower's financial
condition the unsecured loan may result in a loss and the secured loan may
result in a minimal loss. The other four loans to two borrowers are secured by
commercial real estate properties. The outstanding balance at December 31,
1996 for these two borrowers was $1,663,000 one for $444,000 and one for
$1,219,000.
The two loans totalling $444,000 are secured by the two remaining suites
in an eight unit medical condominium office building in Vacaville, California.
The borrower has leased one of the units and the Bank has financed the tenant
improvement costs. Cash flow from this lease will only debt service these
loans with interest at approximately 2%. Therefore in February 1997 these
loans were restructured for six months at approximately 2% to allow the
borrower time to lease or sell the final unit. Once leased or sold the
borrower is expected to be able to fully debt service the loan under the
original terms.
The two loans totalling $1,219,000 are secured by a commercial
office/warehouse building in Suisun, California. This building is
approximately 29,000 square feet. Management became aware the building was
approximately 44% vacant in a meeting with the borrower in January 1997. At
that time the loans were restructured, on a month to month basis, at
approximately 2.0% to allow the borrower to secure new tenants. The reduction
in interest is being deferred and remains an obligation of the borrower. The
borrower is currently negotiating with a prospective tenant to lease 6,500
square feet. When the above mentioned lease is signed the building will be
approximately 79 percent occupied. The Bank believes the borrower will be able
to fully debt service the loan under the original terms at the time the
building becomes approximately 90% occupied.
Changes in general or local economic conditions or specific industry
segments, rising interest rates, declines in real estate values and acts of
nature could have an adverse effect on the ability of borrowers to repay
outstanding loans and the value of real estate and other collateral securing
such loans.
Other than the loans discussed above, management is not aware of any
loans that represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources; or represent material credits about which management is
aware of information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
LOAN CONCENTRATIONS
As of December 31, 1996, the only concentration of loans to any
individual, business, or industry exceeding 10% of total loans was Real Estate
loans secured by commercial office properties, which represented 24.7% of
total loans.
SUMMARY OF THE ALLOWANCE FOR LOAN LOSSES
The Bank maintains an allowance for loan losses. Additions to the
allowance are made by charges to operating expense in the form of a provision
for possible loan losses. Where a loss is considered probable, loans are
charged against the allowance while any recoveries are credited to the
allowance. The allowance for loan losses is maintained at a level determined
by management to be adequate, based on the performance of loans in the
portfolio, with particular attention to credit risks associated with any loans
past due thirty days or more, evaluation of collateral for such loans,
historical loan loss experience, examination reports prepared by regulatory
agencies, the prospects or net worth of the borrowers or guarantors,
anticipated growth in the portfolio, prevailing economic conditions and such
other factors which, in the Bank's judgment, deserve consideration in the
estimation of possible loan losses.
The following table provides certain information with respect to the
allowance for loan losses as well as charge-offs, recoveries and certain
related ratios:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan Losses:
Balance at Beginning of Period $ 1,158 $ 1,108 $ 1,090 $ 933 $ 781
Charge Offs:
Commercial 217 104 44 142 214
Real Estate Construction 181 72 146 0 0
Real Estate Mortgage 83 31 0 41 26
Consumer Loans 15 75 49 4 7
----------------------------------------------------
Total Charge Offs 496 282 239 187 247
Recoveries:
Commercial 1 2 1 75 0
Real Estate Construction 25 0 0 0 0
Real Estate Mortgage 1 0 0 0 0
Consumer Loans 1 6 0 0 2
----------------------------------------------------
Total Recoveries 28 8 1 75 2
Net Charge Offs 468 274 238 112 245
Provision for Loan Losses 411 324 256 269 397
----------------------------------------------------
Balance at End of Period $ 1,101 $ 1,158 $ 1,108 $ 1,090 $ 933
====================================================
Loans:
Average Loans Outstanding
During Period (Net) $111,052 $109,372 $106,408 $105,868 $ 97,244
Total Loans at End of Period $113,625 $111,124 $111,196 $107,708 $104,922
Ratios:
Net Loans Charged Off to
Average Loans .42% .25% .22% .11% .25%
Net Loans Charged Off to
Total Loans at End of Period .41% .25% .21% .10% .23%
Net Loans Charged Off to
Allowance for Loan Losses 42.5% 23.7% 21.5% 10.3% 26.3%
Net Loans Charged Off to
Provision for Loan Losses 113.8% 84.6% 93.0% 41.6% 61.7%
Allowance for Loan Losses to
Average Loans .99% 1.06% 1.04% 1.03% .96%
Allowance for Loan Losses to
Total Loans at End of Period .97% 1.04% 1.00% 1.01% .89%
Allowance for Loan Losses to
Nonperforming Loans 804% 103% 63% 356% 120%
Allowance for Loan Losses to
Nonperforming Assets 384% 88% 52% 157% 72%
Allowance for Loan Losses to
Nonperforming Assets and
Performing Restructured Loans 87% 65% 52% 66% 42%
- ------------------------------------
</TABLE>
The provision for loan losses represents management's determination of
the amount necessary to be added to the allowance for loan losses to bring it
to a level which is considered adequate in relation to the risk of future
losses inherent in the loan portfolio. While it is the policy to charge off
in the current period those loans where a loss is considered probable, there
also exists the risk of future losses which cannot be precisely quantified or
attributed to particular loans or classes of loans. Because this risk is
continually changing in response to factors beyond the control of the Company,
such as the state of the economy, management's judgment as to the adequacy of
the allowance for loan losses is necessarily an approximate one. Management
believes that the allowance for loan losses of $1,101,000 at December 31,
1996, which constituted .97% of total loans, was adequate as an allowance
against foreseeable loan losses at that time.
The following table shows the allocation of the allowance for loan losses
and the percent of loans in each category to total loans as of the periods
indicated.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-----------------------------------------------------------------
Allowance for % of Loans Allowance for % of Loans
Loan Losses in each Loan Losses in each
Category Category
to Total Loans to Total Loans
-----------------------------------------------------------------
Loan Categories: (Dollars in thousands)
<S> <C> <C> <C> <C>
Real Estate Mortgage:
Residential $ 192 15% $ 11 14%
Commercial 469 57 200 56
-----------------------------------------------------------------
Total Real Estate Mortgage 661 72 211 70
Commercial 214 8 216 9
Real Estate Construction 91 6 434 8
Consumer (Inc. ELOC) 52 14 67 13
Unallocated 83 --- 230 ---
-----------------------------------------------------------------
Total $ 1,101 100% $ 1,158 100%
=================================================================
- -------------------------------------
</TABLE>
The adequacy of the allowance for loan losses is based upon the potential
for loss related to specific loans and formula allocations based upon the
potential for loss in various categories. Specific allocations are increased
or decreased through management's reevaluation of the status of particular
problem loans. Provisions for losses which have not been made on a specific
basis are based on a formula. Management applies a percentage factor based on
loss ratios of the Bank's peers, history of loss, underlying collateral, type
of loan and general economic conditions, to the loan categories.
INVESTMENT SECURITIES
In order to provide investment income and collateral to secure borrowings
to meet liquidity and loan requirements, from time to time the Bank purchases
United States Treasury securities and obligations of federal agencies as well
as obligations of states and their political subdivisions and other
securities. Purchases of such securities, as well as sales of Federal funds
(short-term loans to other banks) and placement of funds in certificates of
deposit with other financial institutions, are also made as alternative
investments pending utilization of funds for loans or other purposes.
Under the investment policy, investment securities may be placed in two
categories: "available for sale" and "held to maturity." Securities
available for sale provide flexibility to the asset/liability management
strategy and may be sold in response to changes in interest rates and to meet
liquidity needs.
The Company accounts for securities investment in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. In November 1995, as
permitted by additional implementation guidance regarding the previously
issued SFAS No. 115, the entire held to maturity portfolio was transferred to
available for sale.
At December 31, 1996 the total reduction in the carrying value of
investment securities available for sale was $475,000, along with a reduction
to stockholders' equity of $276,000 and a $199,000 increase in deferred tax
assets. At December 31, 1996, the amortized cost of available for sale
securities totalled $53,044,000, consisting of $9,145,000 variable rate (COFI)
U. S. Government Agency Bonds, $17,963,000 fixed rate short term (less than 5
years) U.S. Treasury and U.S. Government Agency Securities, $19,273,000 in
variable rate (Prime rate and 1 year CMT) U. S. Government Agency Bonds,
$4,667,000 in fixed rate municipal bonds, $1,506,000 fixed rate long term
(greater than 5 years) U.S. Government Agency Bonds and $490,000 in Federal
Home Loan Bank (FHLB) stock. As detailed above, holding in both fixed rate
short term U.S. agency bonds and variable rate U.S. agency bonds tied to prime
and the 1-year CMT index were significantly increased. It also reduced
holdings in U.S. Government Agency bonds tied to the lagging COFI index and
long term fixed rate municipal bonds.
At December 31, 1995, the total reduction in the carrying value of
investment securities available for sale was $111,000, along with a reduction
to stockholders' equity of $65,000 and a $46,000 increase in deferred tax
assets. At December 31, 1995, amortized cost of available for sale securities
totalled $29,891,000 consisting of $10,361,000 variable rate (COFI) U.S.
Government Agency Bonds and $3,999,000 short term fixed rate U.S. Government
Agency Bonds, $8,452,000 in variable rate (Prime rate and 1 year CMT) U.S.
Government Agency Bonds, $6,961,000 in fixed rate Municipal Bonds and $118,000
in Federal Home Loan Bank (FHLB) stock.
At December 31, 1996 and 1995, the Company did not have any investment
securities designated as held to maturity or considered to be held for trading
under the provisions of SFAS No. 115.
In 1996, $6,719,000 available for sale securities were sold for liquidity
purposes, to reduce interest rate risk or in response to changes in interest
rates. The Bank also had pay downs on its U.S. Agency bonds (mortgage backed
securities) of $2,790,000. The above-mentioned transactions resulted in a
pretax profit of $83,000. In addition, $1,626,000 in municipal and U. S.
Agency bonds either matured or were called.
During 1996, the Bank entered into an interest-rate swap agreement with
the Federal Home Loan Bank (FHLB). Interest-rate swap agreements involve not
only the risk of dealing with counter parties and their ability to meet the
terms of the contracts but also the interest-rate risk associated with
unmatched positions. Notional principal amounts are often used to express the
volume of these transactions, but the amounts potentially subject to credit
risk are much smaller. The notional principal amount of the interest-rate
swap outstanding was $10,000,000 at December 31, 1996 and has an original term
of five years. Under the agreement, the Bank receives a floating-rate
interest payment based on the three-month treasury bill in exchange for
payment of a floating-rate interest payment based on the 11th District Cost of
Funds Index (COFI) plus .65%. The effect of this agreement was to shorten the
lag time in interest rate fluctuations from the COFI index to the treasury
bill to enable the Bank to better match the timing of the repricing of certain
liabilities. The net interest expense recognized in 1996 was approximately
$19,000.
At December 31,1996, the Company did not have any investment securities
issued by a single issuer, which the aggregate book value of such securities
exceeded ten percent of stockholders' equity other than those issued by the
U.S. Government and U. S. Government agencies and corporations.
The following table shows the carrying amounts and approximate market
values of investment securities available for sale at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------
Amortized Carrying Amortized Carrying
Cost Amount Cost Amount
(approx. (approx.
Fair Value) Fair Value)
-----------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury Securities and
Securities of other U.S.
Government Agencies
and Corporations $47,887 $47,395 $22,812 $22,591
Obligations of States of the
U.S. and Political Subdivisions 4,667 4,684 6,961 7,071
Other Securities 490 490 118 118
-----------------------------------------------------
Total $53,044 $52,569 $29,891 $29,780
=====================================================
- -------------------------------------------
</TABLE>
At December 31, 1996 and 1995, investment securities having carrying
amounts of approximately $10,171,000 and $5,170,000, respectively, were
pledged to secure public deposits and short-term borrowings and for other
purposes required or permitted by law.
The following table sets forth the maturity distribution and weighted
average yield of available for sale securities (other than FHLB stock with a
carrying value of approximately $490,000), categorized by type of security,
including securities issued by U.S. Government agencies, states and political
subdivisions as of December 31, 1996:
<TABLE>
<CAPTION>
Available for Sale
- ---------------------------------------------------------------------------------------
Market Weighted
December 31, 1996 Value Average Yield<F1>
- ---------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C>
U.S. Treasury Securities and
Securities of Government Agencies and Corporations
Due within one year $ 6,016 6.00%
Due after one year but within five years 12,273 6.40
Due after five years but within ten years 1,336 7.41
Due after ten years 27,770 6.64
------- ----
$47,395 6.52%
======= ====
Obligations of States of the
U.S. and Political Subdivisions(F1)
Due within one year $ 60 6.60%
Due after one year but within five years 867 5.35
Due after five years but within ten years 2,569 5.05
Due after ten years 1,188 5.47
------- ----
$ 4,684 5.24%
------- ----
$52,079 6.41%
======= ====
- ------------------------------
<FN>
<F1> The yields shown above for Obligations of States of the U.S. and
Political Subdivisions are not shown on a tax equivalent basis.
</FN>
</TABLE>
DEPOSITS
Deposits are the primary source of funds. The Bank presently prices its
deposit rates to be slightly higher than those offered by the major banks in
its market area but competitive with those rates offered by other independent
financial institutions with offices in the Company's service areas, based upon
a weekly survey of such rates.
The deposit distribution, in terms of maturity and applicable interest
rates, is a primary determinant of the Company's cost of funds and the
relative stability of its supply of funds. Deposits are, for the most part,
no longer subject to interest rate limitations, and interest rates on such
deposits tend to reflect current market rates of interest available to
depositors on alternative investments at the time of deposit. At December 31,
1996, the aggregate amount of time, savings and interest-bearing demand
deposits was 84% of total deposits. As of December 31, 1996, the Company did
not have any foreign deposits, nor, except as noted below, did it have any
material concentrations of deposits in any one industry or business. However,
the Bank's escrow deposits from a local title company, which are demand
deposits, are volatile and occasionally exceeded 5% of total deposits. Such
escrow deposits averaged $2,876,000 and $2,280,000 in 1996 and 1995,
respectively, and accounted for about 12% and 11% of average demand deposits
and 2% of average total deposits during 1996 and 1995. The loss of these
escrow deposits would likely require the Bank to replace some or all of such
funds with more costly interest-bearing deposits which would likely increase
the Company's cost of funds and decrease earnings. At year end 1996, the Bank
has had an ongoing deposit relationship with the title company for almost
seven years. The Bank does not experience substantial seasonal fluctuations
in deposit levels.
The average rate paid on total deposits for 1996, 1995 and 1994, was
3.32%, 3.58% and 2.72%, respectively.
The following table, sets forth by time remaining to maturity, domestic
time deposits in amounts of $100,000 or more at December 31, 1996:
<TABLE>
<CAPTION>
(Dollars
Remaining Maturity: in thousands)
--------------------------- --------------
<S> <C>
Three Months or Less $ 12,313
Over Three Months through Six Months 3,023
Over Six Months through Twelve Months 4,466
Over One Year 1,079
--------
Total $ 20,881
========
- -------------------------
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
Management regularly reviews general economic and financial conditions,
both external and internal, and determines its position with respect to
liquidity and interest rate sensitivity.
Liquidity is defined as the ability to provide funds on an ongoing basis
to meet fluctuations in deposit levels as well as the credit needs of its
customers without affecting net income. Both assets and liabilities
contribute to the liquidity ratio. Assets such as unpledged investment
securities, cash and due from banks, time deposits in other banks, Federal
Funds sold, loan sales, and loan repayments contribute to liquidity. Cash
flows generated are mainly used to fund loans, while investment securities are
both a use and a source of funds.
Of equal significance are the diverse sources comprising the funding
base. These include demand deposits, interest-bearing transaction accounts,
savings and time deposits, Federal Funds purchased and security repurchase
agreements, and borrowings from the Federal Home Loan Bank (FHLB).
Additionally, equity and debt provide sources of funds. Capital markets can
be utilized by management as a potential funding source.
Liquidity is measured by various ratios, the most common being the
liquidity ratio of cash, time deposits in other banks, Federal Funds sold, and
investment securities as compared to total assets. At December 31, 1994 this
ratio was 24%. In 1995 and 1996, as loan growth was nominal and securities
increased, this ratio increased to 26% and 36%, respectively. Another
relevant measure of liquidity is the ratio of total loans to total deposits.
This ratio also changed in 1995 and 1996, due to the slow loan growth,
dropping from 79% at year end 1994 to 78% and 67% at December 31, 1995 and
1996, respectively. This large drop in the loan to deposit ratio in 1996 was
also a function of the Concord branch purchase which added about $15.0 million
in deposits and only $.14 million in loans at year end 1996. As of December
31, 1996, the Company through the Bank could borrow up to $8,500,000 from its
correspondent banks under informal arrangements should its liquidity needs so
mandate. The Bank has made arrangements with the Federal Reserve to borrow
funds at the discount window. In addition, the Bank is a member of FHLB where
it can borrow approximately $4,500,000. Outstanding borrowings from the FHLB
were $2,650,000 at December 31, 1996.
In the area of interest rate sensitivity management focuses on reducing
the impact movements in interest rates would have on interest income and the
economic value of the Company. The Company believes that keeping overall risks
at a low level achieves optimal performance. The objective is to control risks
and produce consistent, high quality earnings independent of fluctuating
interest rates. The Board of Directors and the Board Asset / Liability
Committee ("ALCO") oversees the establishment of appropriate internal controls
which are designed to ensure that implementation of the Asset / Liability
strategies remain consistent with Asset / Liability Management Policy
objectives. The ALCO consists of all Senior Management and is charged with
implementing these strategies.
A major tool used by this Committee and the Board ALCO is the ALX Asset /
Liability computer model. This model, which is run quarterly, measures a
number of risks, including liquidity risk, capital adequacy risk, interest
rate risk and market risk. The model analyzes the mix and repricing
characteristics of interest rate sensitive assets and liabilities using
multipliers (the degree interest rates change when federal funds change) and
lags (the time it takes rates to change after federal funds rate change). The
model simulates the effects of net interest income and market risk when
federal funds change. The ALCO committee then uses this information, in
conjunction with, current and projected economic conditions and the outlook
for interest rates to set loan strategies, investment strategies and funding
strategies, which include loan and deposit pricing, volume and mix of each
asset and liability category and proposed changes to the maturity distribution
of assets and liabilities. The Asset / Liability policy states that the Bank
will monitor and limit interest rate risk as follows:
For a 1% change in the federal funds rate, net interest income (NII)
should not change by more than 5% and for a 2% change in the federal funds
rate, NII should not change by more that 10%. The policy further states that
the Bank will monitor and limit market risk (in a market where interest rates
have risen 3%) to 25% of equity capital while maintaining "well capitalized"
leverage and risk based capital ratios.
At December 31, 1996, the "ALX" model showed the Bank was moderately
liability sensitive with a NII exposure of $85,000 or 1.1% for a 1% increase
in the federal funds rate and a $481,000 or 6.3% exposure in NII for 2%
increase. Both of these figures are within policy.
At December 31, 1996 market risk, as measured by the model, for a 3%
increase in market rates, was 17.6 % of equity capital, well within policy,
and the market risk adjusted leverage and risk based capital ratios were 5.6%
and 11.5%, respectively, also well within policy.
When the Bank is liability sensitive, as it was at December 31, 1996,
management will discontinue or limit the use of longer lagging indexes such as
the 11th District Cost of Funds (COFI) for loan pricing and switch to more
market sensitive indexes. In the security portfolio, the Bank will switch from
fixed rate investments, as well as investment tied to lagging indexes, to
short term securities and/or to securities tied to more market sensitive
indexes. The Bank will also use interest rate swaps, when appropriate, to
reposition the Bank's interest rate risk.
The following table shows the interest sensitive assets and liabilities
gap, which is the measure of interest sensitive assets over interest bearing
liabilities, for each individual repricing period on a cumulative basis:
INTEREST RATE SENSITIVITY GAP
<TABLE>
<CAPTION>
1996
----------------------------------------------------------------
After
Three After
Next Day Months One
Assets and Liabilities Through But Through After
Which Mature or Reprice: Three Within Five Five
Immediately<F1> Months One Year Years Years Total
----------------------------------------------------------------
Dollars in Thousands
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold $ 6,115 $ -- $ -- $ -- $ -- $ 6,115
Investment Securities -- 28,477 6,081 12,766 5,245 52,569
Total Loans 21,648 40,358 35,878 8,219 7,522 113,625
Total Interest
Earning Assets 27,763 68,835 41,959 20,985 12,767 172,309
======= ======== ======== ======== ======== ========
Cumulative Interest
Earning Assets 27,763 96,598 138,557 159,542 172,309 172,309
Interest Bearing
Transaction Accounts 21,467 -- -- -- -- 21,467
Savings Accounts 61,298 -- -- -- -- 61,298
Time Deposits 0 26,813 28,899 4,974 10 60,696
Repurchase Agreements -- 992 0 -- -- 992
Other Borrowed Funds 2,650 2,650
Subordinated Debentures -- -- 3,690 -- -- 3,690
Total Interest
Bearing Liabilities 82,765 27,805 32,589 4,974 2,660 150,793
======= ======== ======== ======== ======== ========
Cumulative Interest
Bearing Liabilities 82,765 110,570 143,159 148,133 150,793 150,793
Interest Rate
Sensitivity Gap (55,002) 41,030 9,370 16,011 10,107 21,516
Cumulative Interest
Rate Sensitivity Gap (55,002) (13,972) (4,602) 11,409 21,516 21,516
Interest Rate
Sensitivity Gap Ratio <F2> 34% 248% 129% 422% 100% 114%
Cumulative Interest Rate
Sensitivity Gap Ratio <F3> 34% 87% 97% 108% 114% 114%
- -----------------------------------------
<FN>
<F1> Includes $9,931,000 in regular savings accounts which are subject to
interest rate changes.
<F2> The interest rate sensitivity Gap Ratio for each time period presented is
calculated by dividing the respective total interest earning assets by
total interest bearing liabilities.
<F3> The cumulative interest rate sensitivity Gap ratio, for each time period
presented, is calculated by dividing the respective cumulative interest
earning assets by cumulative interest bearing liabilities.
</FN>
</TABLE>
Both the traditional GAP analysis and the asset liability simulation
model showed, in the twelve-month period ending December 31, 1996, the Company
and the Bank were moderately liability sensitive. In 1996 average interest
rates were lower than they were in 1995. The liability sensitive posture had a
positive impact on net interest margins as predicted by the asset liability
simulation model. Interest rate sensitivity measured by the gap method does
not consider the impact of different multipliers and lags. Neither method of
measuring interest rate sensitivity takes into account actions that management
could take to modify the effect to net interest income if interest rates were
to rise or fall, or the behavior of consumers in response to changes in
interest rates.
At year end 1996, the Company had $138,557,000 in assets and $143,159,000
in liabilities repricing within one year, resulting in a cumulative gap ratio
of 97%. Stated differently, 3% of interest-rate sensitive liabilities are
unmatched through one year. The Company could experience a decrease in its
net interest margin if the general level of interest rates were to rise. At
year end 1996, the Company had $21,516,000 more in interest rate sensitive
assets than it did in interest rate sensitive liabilities. The principal
funding source of these assets is $26,882,000 in noninterest bearing deposits
which are by definition not sensitive to interest rate changes since they do
not earn interest.
MATURITY DISTRIBUTION AND INTEREST RATE SENSITIVITY OF LOANS
The following table shows the maturity of commercial loan and real estate
construction loans outstanding as of December 31, 1996. Also provided are the
amounts due after one year classified according to the sensitivity to changes
in interest rates. Nonperforming loans are included in this table based on
nominal maturities, even though the Company may be unable to collect such
loans or compel repricing of such loans at the maturity date. Included in the
totals are unearned income on such loans, such as deferred loan fees.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------
After One
Within through After
One Year Five Years Five Years Total
-----------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial, $ 3,172 $ 4,181 $ 1,573 $ 8,926
Real Estate - Construction 4,904 1,375 129 6,408
------- ------- ------- -------
$ 8,076 $ 5,556 $ 1,702 $15,334
======= ======= ======= =======
Loans maturing after one year with:
Fixed interest rates $ 1,829 $ 264
Variable interest rates 3,727 1,438
------- -------
$ 5,556 $ 1,702
======= =======
- ---------------------------------------------------------
</TABLE>
CAPITAL RESOURCES
Capital planning by the Company and the Bank considers current capital
needs as well as anticipated future growth and dividend payouts. A
determination of whether a Bank is "well capitalized," "adequately
capitalized" or "under capitalized" is used by Bank regulators to determine
which aspects of federal regulations are applicable to the Bank. For example,
FDIC premium rates are now based upon capital levels as well as the Bank's
safety and soundness rating.
The Company raised capital of $321,000 and $114,000 in 1996 and 1995,
respectively, through an issuance of common stock pursuant to the exercise of
employee stock options and the conversion of debentures.
The Company and the Bank are subject to minimum capital guidelines issued
by the Federal Reserve and the FDIC, respectively, which require a minimum
leverage ratio of Tier 1 capital to quarterly average total assets less
goodwill of 3% to 5% (the "leverage ratio"). The Company and the Bank are
also required to meet a minimum risk based capital ratio of qualifying total
capital to risk weighted assets of 8%, of which at least 4% must be in the
form of core (Tier 1) capital-common stock less goodwill. The unrealized loss
in Available for Sale Securities is excluded when calculating capital ratios.
For the Company and the Bank, supplementary (Tier 2) capital consists only of
the allowance for loan losses and the debentures (Company) and subordinated
notes (Bank). As of December 31, 1996, the Company's and the Bank's leverage
ratio were 7.04% and 6.81%. Despite the higher capital, the nearly 20% growth
in assets and the addition of $540,000 in goodwill, remaining from the
purchase of the Concord Branch in 1996, reduced the leverage ratio from 7.75%
at December 31, 1995. The Company's and the Bank's total risk-based capital
ratio also declined from 13.71% at December 31, 1995 to 13.55% for the Company
and 13.22% for the Bank at December 31, 1996.
The Company and the Bank must also maintain a 4% ratio of Tier 1 capital
to risk weighted assets. As of December 31, 1996, this ratio was 9.92% and
9.60%, respectively, compared to 9.65% in the prior year, both well above the
minimum. In October 1992, the FDIC adopted the final rules for implementing
the risk-related premium system, where a Bank's safety and soundness rating by
a Bank supervisory body and the Bank's capitalization determines which of nine
risk classifications is appropriate for an institution. Although the Bank
meets all the minimum requirements of each capital ratio, these standards are
now the minimum ratios to be considered "adequately capitalized."
The following tables present the capital ratios for the Company and the
Bank and respective regulatory capital adequacy requirements, at December
31, 1996:
<TABLE>
<CAPTION>
Company: For Capital
Actual Adequacy Purposes
--------------------- --------------------
Minimum Minimum
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
As of December 31, 1996:
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, 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>
SELECTED FINANCIAL RATIOS
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using daily figures):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Net earnings to:
Average interest earning assets 1.03 % .99 %
Average total assets .92 .89
Average stockholders' equity 12.25 12.31
Cash dividend payment to:
Net earnings 36.00 34.20
Average stockholders' equity 4.40 4.20
Tier 1 capital to:
Quarterly average total assets (less goodwill) 7.04 7.80
Average earning assets to:
Average total assets 89.60 89.40
Average total deposits 101.60 100.00
Percent of total deposits:
Net loans 65.70 78.80
Noninterest-bearing deposits 15.80 15.40
Interest-bearing deposits 84.20 84.60
Total interest expense to:
Total gross interest income 41.70 44.50
Total risk-based capital to:
Risk-based assets 13.55 13.71
Tier 1 capital to:
Risk based assets 9.92 9.65
Average stockholders' equity to:
Average total assets 7.53 7.22
- ------------------------------------------------
</TABLE>
SHORT-TERM BORROWINGS
The Company had no short term borrowings at December 31, 1996.
IMPACT OF INFLATION
Impact of inflation on a financial institution differs significantly from
that exerted on an industrial concern, primarily because a financial
institution's assets and liabilities consist largely of monetary items. The
relatively low proportion of the Company's net fixed assets (less than 4% at
December 31, 1996) reduces both the potential of inflated earnings resulting
from understated depreciation and the potential understatement of absolute
asset values.
******************************************************************************
ITEM 7 - FINANCIAL STATEMENTS
The Financial Statements Required by this Item are set forth following
Item 13 hereof, and are incorporated herein by reference.
******************************************************************************
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
******************************************************************************
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information concerning directors and executive officers required by
this item is incorporated by reference from the section of the Company's
Definitive Proxy Statement for the 1997 Annual Meeting of Stockholders of the
Company (the "Proxy Statement") to be filed with the Securities and Exchange
Commission (the "Commission") entitled "Election of Directors" (not including
the share information included in the beneficial ownership table nor the
footnotes thereto or the subsection entitled "Committees of the Board of
Directors").
******************************************************************************
ITEM 10 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section of the Proxy Statement entitled "Executive Compensation."
******************************************************************************
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
sections of the Proxy Statement, entitled "Principal Stockholders" and
"Election of Directors," as to share information in the table of beneficial
ownership and footnotes thereto.
******************************************************************************
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the section of the Proxy Statement, entitled "Certain Relationships and
Related Transactions."
******************************************************************************
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits
See Index to Exhibits at page 45 of this Annual Report on
Form 10-KSB, which is incorporated herein by reference.
B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the last
quarter of 1996.
C) The following is a list of all exhibits filed as part of the
Annual Report on Form 10-KSB.
Sequentially
Numbered
Exhibit Exhibit Page
No.
2.1 Plan of Reorganization and Merger Agreement,
dated February 22, 1996 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
3.1 Certificate of Incorporation of Registrant, dated
October 5, 1995 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
3.2 By-laws of Registrant is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
4.1 Indenture, dated as of April 16, 1993, between Continental
Pacific Bank and U.S. Trust Company of California,
N.A. is incorporated by reference from the Company's
1995 Annual Report on Form 10-KSB filed on March 29, 1996. *
4.2 First Supplemental Indenture, dated as of October 20, 1995,
Amending Indenture dated as of April 16, 1993, between
Continental Pacific Bank and U.S. Trust Company
of California, N.A. is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
4.3 Second Supplemental Indenture, dated as of February 29, 1996,
Amending Indenture dated as of April 16, 1993, between
Continental Pacific Bank, California Community Bancshares
Corporation and U.S. Trust Company of California, N.A. is
incorporated by reference from the Company's 1995 Annual
Report on Form 10-KSB filed on March 29, 1996. *
10.1 Deferred Compensation Arrangement, as amended is
incorporated by reference from the Company's 1995 Annual
Report on Form 10-KSB filed on March 29, 1996. *
10.2 Amended and Restated Employment Agreement between
Walter O. Sunderman and Continental Pacific Bank, dated
August 1, 1993 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.3 Amended and Restated Employment Agreement between
Andrew S. Popovich and Continental Pacific Bank, dated
August 1, 1993 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.4 Amended and Restated Agreement Employment Agreement
between Ronald A. Alfstad and Continental Pacific Bank,
dated August 1, 1994 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.5 Employment Agreement between Larry Q. Fletcher and
Continental Pacific Bank, dated August 1, 1993 is
incorporated by reference from the Company's 1995
Annual Report on Form 10-KSB filed on March 29, 1996. *
10.6 Continental Pacific Bank Supplemental Retirement Plan,
effective August 1, 1993 is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.7 1990 Amended Stock Option Plan is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.8 1993 Stock Option Plan is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.9 Lease Agreement, dated July 15, 1993, between
Conpac Development Corporation and Continental Pacific
Bank for the Administrative Offices is incorporated by
reference from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.10 Lease Agreement and Addendum, dated May 31, 1983,
between Ibrahim Dib and Continental Pacific Bank for the
Vacaville Branch is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.11 Lease Agreement and Amendment, dated August 11, 1983,
between Leon Schiller, Joseph Friend, Ida Friend, Beulah
Schiller and Bruch J. Friend and Continental Pacific Bank
for the Fairfield Branch is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.12 Modification of Lease Agreement, dated December 31, 1987,
between Dante A. Madnani, Ernest N. Kettenhofen and Maxine
M. Campbell and Continental Pacific Bank for the Vallejo
Branch is incorporated by reference from the Company's 1995
Annual Report on Form 10-KSB filed on March 29, 1996. *
10.13 Lease Agreement, dated May 3, 1988, between Albert Morgan
Family Trust and Continental Pacific Bank for the Benicia
Branch is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.14 Ground Lease Agreement and Amendment, dated April 4, 1993,
between Jepson Parkway Associates L.P. and Continental
Pacific Bank for the Power Plaza Branch is incorporated
by reference from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.15 Lease Agreement and First Amendment to Lease, dated January
15, 1993, between BTV Crown Equities, Inc. and Continental
Pacific Bank for the Oliver Road Branch is incorporated by
reference from the Company's 1995 Annual Report on
Form 10-KSB filed on March 29, 1996. *
10.16 Lease Agreement, dated July 8, 1991, between Vallejo C & R
Associates and Continental Pacific Bank for the Park Place
Branch is incorporated by reference
from the Company's 1995 Annual Report on Form
10-KSB filed on March 29, 1996. *
10.17 Purchase and Assumption Agreement between Tracy
Federal Bank, F.S.B., and Continental Pacific Bank,
dated as of May 14, 1996 is incorporated by reference
from the Company's Current Report on Form
8-K filed on May 24, 1996. *
10.18 Terms and Conditions of Authorization for Automatic
Dividend Reinvestment and Common Stock Purchase
Plan for Shareholders of California Community
Bancshares Corporation is incorporated by reference
from the Company's Current Report on Form
8-K filed on July 15, 1996. *
10.19 Form of Automatic Dividend Reinvestment and
Common Stock Purchase Plan Agency Agreement
is incorporated by reference from the Company's
Current Report on Form 8-K filed on July 15, 1996. *
10.20 Amendment to Purchase and Assumption Agreement
between Tracy Federal Bank, F.S.B., and Continental
Pacific Bank, dated as of October 8, 1996
is incorporated by reference from the Company's
Current Report on Form 8-K filed on May 24, 1996. *
10.21 Lease Agreement, dated August 22, 1996, between
Salvio Pacheco Square Investors / IRM
Corporation and Continental Pacific Bank for the
Concord Branch ---0082---
21.1 The Company's only subsidiary is Continental Pacific Bank,
a California banking Corporation
21.2 The Bank's only subsidiary is Conpac Development Corporation,
a real estate development business as authorized under
California law.
- --------------
* Asterisk denotes documents which have been incorporated by reference.
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
Consolidated Financial Statements as of December 31, 1996
and 1995 and for each of the Three Years in the Period Ended
December 31, 1996 and Independent Auditors' Report
*************************************************************************
[LOGO]
Deloitte & Touche LLP
Suite 2000
400 Capitol Mall
Sacramento, CA 95814-4424
Telephone: (916) 498-7100
Facisimile: (916) 444-7963
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, 1996 and 1995, and
the related consolidated statements of income, shareholders'
equity, and cash flows for each of the three years in the
period ended December 31, 1996. 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, 1996 and 1995, and
the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/S/ DELOITTE & TOUCHE LLP
- --------------------------
February 21, 1996
Sacramento, California
DELOITTE TOUCHE TOHMATSU INTERNATIONAL
************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
<S> <C> <C>
Cash and due from banks $ 10,825,000 $ 9,346,000
Federal funds sold 6,115,000 1,915,000
------------ ------------
Total cash and cash equivalents 16,940,000 11,261,000
Available for sale securities,
at fair value 52,569,000 29,780,000
Loans receivable 113,625,000 111,124,000
Less: Allowance for loan losses 1,101,000 1,158,000
Deferred loan fees 599,000 732,000
------------ ------------
Net loans receivable 111,925,000 109,234,000
Premises and equipment,
net of accumulated depreciation 2,284,000 2,137,000
Investment in
real estate development 4,483,000 4,607,000
Other real estate owned 150,000 182,000
Goodwill 540,000
Accrued interest receivable
and other assets 2,938,000 2,882,000
------------ ------------
TOTAL ASSETS $191,829,000 $160,083,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing $ 26,882,000 $ 21,900,000
Interest-bearing 143,461,000 120,334,000
------------ ------------
Total deposits 170,343,000 142,234,000
Repurchase agreements 992,000 665,000
Accrued interest payable
and other liabilities 785,000 897,000
Other borrowed funds 2,650,000
Convertible
subordinated debentures 3,690,000 4,025,000
------------ ------------
Total liabilities 178,460,000 147,821,000
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, 994,519 and
966,153 in 1996 and 1995 11,135,000 10,814,000
Retained earnings 2,510,000 1,513,000
Unrealized loss on available
for sale securities
(net of tax effect) (276,000) (65,000)
------------ ------------
Total shareholders' equity 13,369,000 12,262,000
------------ ------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $191,829,000 $160,083,000
============ ============
</TABLE>
See notes to consolidated financial statements
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INTEREST INCOME:
Loans and loan fees $10,704,000 $10,370,000 $ 9,500,000
Securities:
Taxable 1,869,000 1,126,000 691,000
Exempt from federal taxes 346,000 698,000 708,000
Federal funds and
repurchase agreements sold 183,000 116,000 54,000
----------- ----------- -----------
Total interest income 13,102,000 12,310,000 10,953,000
INTEREST EXPENSE:
Deposits 4,957,000 5,063,000 3,711,000
Federal funds and
repurchase agreements purchased 54,000 72,000 57,000
Convertible subordinated debentures 308,000 346,000 328,000
Other borrowed funds 146,000
----------- ----------- -----------
Total interest expense 5,465,000 5,481,000 4,096,000
----------- ----------- -----------
NET INTEREST INCOME 7,637,000 6,829,000 6,857,000
PROVISION FOR LOAN LOSSES 411,000 324,000 256,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 7,226,000 6,505,000 6,601,000
----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 843,000 819,000 793,000
Net gain on sale of
available for sale securities 83,000 481,000 9,000
Other fees and charges 564,000 397,000 375,000
Income from real estate development 542,000 481,000 485,000
----------- ----------- -----------
Total noninterest income 2,032,000 2,178,000 1,662,000
----------- ----------- -----------
NONINTEREST EXPENSES:
Salaries and employee benefits 3,342,000 3,137,000 3,148,000
Occupancy 1,366,000 1,374,000 1,333,000
Business development 176,000 137,000 101,000
Data processing 118,000 106,000 110,000
Expenses from
real estate development 300,000 268,000 262,000
Other 1,479,000 1,608,000 1,524,000
----------- ----------- -----------
Total noninterest expenses 6,781,000 6,630,000 6,478,000
----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,477,000 2,053,000 1,785,000
PROVISION FOR INCOME TAXES 918,000 648,000 564,000
----------- ----------- -----------
NET INCOME $ 1,559,000 $ 1,405,000 $ 1,221,000
=========== =========== ===========
INCOME PER COMMON
AND EQUIVALENT SHARE:
Primary $1.53 $1.41 $1.24
=========== =========== ===========
Fully diluted $1.31 $1.22 $1.09
=========== =========== ===========
Weighted average shares used
to compute income
per common and equivalent shares:
Primary 1,020,814 999,704 983,107
Fully diluted 1,323,068 1,315,390 1,298,793
</TABLE>
See notes to consolidated financial statements.
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------
<TABLE>
<CAPTION>
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, 1994 950,964 $10,659,000 $( 156,000) $ (85,000) $10,418,000
Stock options exercised 4,503 41,000 41,000
Cash dividend on common stock (477,000) (477,000)
Net change in unrealized
gain (loss) on available
for sale securities (477,000) (477,000)
Net income 1,221,000 1,221,000
------- ----------- ---------- ---------- -----------
Balance at December 31, 1994 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 unrealized
gain (loss) on available
for sale securities 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 unrealized
gain (loss) on available
for sale securities (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
======= =========== ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,559,000 $1,405,000 $1,221,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 523,000 516,000 548,000
Provision for loan losses 411,000 324,000 256,000
Proceeds from sales of loans 1,438,000
Originations of loans held for sale (1,181,000)
Provision for deferred income taxes 132,000 (268,000) 193,000
Net gain on sale of
available for sale securities (83,000) (481,000) (9,000)
Loss (gain) on sale of
other real estate owned 17,000 (8,000) (1,000)
Loss on sale of premises
and equipment (8,000)
Effect of changes in:
Interest receivable
and other assets (541,000) (294,000) (413,000)
Interest payable
and other liabilities (112,000) 390,000 93,000
----------- ----------- ----------
Net cash provided by
operating activities 1,906,000 1,584,000 2,137,000
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of
available for sale securities (34,275,000) (23,721,000) (8,887,000)
Proceeds from sales of
available for sale securities 6,635,000 18,468,000 2,401,000
Proceeds from maturities, calls or
repayments of available
for sale securities 4,416,000 6,558,000 2,483,000
Purchases of held to
maturity securities (1,493,000) (502,000)
Proceeds from maturities or calls
of held to maturity securities 1,735,000 365,000
Net change in loans receivable (3,192,000) (710,000) (3,815,000)
Proceeds from sales of
other real estate owned 105,000 500,000 153,000
Purchases of premises and equipment (592,000) (194,000) (607,000)
Proceeds from sales of
premises and equipment 14,000 17,000 12,000
Change in investment in
real estate development 124,000 111,000 48,000
----------- ----------- ----------
Net cash provided by (used in)
investing activities (26,765,000) 1,271,000 (8,349,000)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits:
Noninterest bearing 4,982,000 475,000 (2,502,000)
Interest bearing 23,127,000 1,032,000 12,108,000
Net change in repurchase agreements 327,000 (82,000) (1,822,000)
Net change in other borrowed funds 2,650,000
Cash dividends paid (562,000) (480,000) (477,000)
Cash proceeds from
stock options exercised 14,000 114,000 41,000
----------- ----------- ----------
Net cash provided by
financing activities 30,538,000 1,059,000 7,348,000
----------- ----------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 5,679,000 3,914,000 1,136,000
CASH AND CASH EQUIVALENTS:
Beginning of year 11,261,000 7,347,000 6,211,000
----------- ----------- ----------
End of year $16,940,000 $11,261,000 $7,347,000
=========== =========== ==========
</TABLE>
See notes to consolidated financial statements.(Continued)
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Concluded)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
ADDITIONAL INFORMATION:
Common stock issued on conversion of debentures
net of debenture offering costs of $28,000 in 1996 $ 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 $ 100,000 $ 341,000 $ 157,000
============ =========== ==========
Cash Payments:
Income tax payments $ 738,000 $ 896,000 $ 557,000
============ =========== ==========
Interest payments $ 5,443,000 $5,465,000 $4,046,000
============ =========== ==========
</TABLE>
See notes to consolidated financial statements.
*************************************************************************
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- ----------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations - California Community Bancshares
Corporation 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 the 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 Company's
wholly-owned subsidiary, Continental Pacific Bank (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
Company purchased from a 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.
The Company follows the accrual method of accounting.
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 Investments - The Company accounts for
securities investments 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:
Available for Sale Securities 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.
Financial Instruments - All derivative financial
instruments held or issued by the Company are held or issued
for purposes other than trading. Interest rate exchange
agreements (swaps) are used by the Company as part of their
asset/liability management activities to reduce its exposure
to certain lags and fluctuations in interest rates and are
accounted for using the accrual method. Net interest income
or expense resulting from the differential between
exchanging floating interest payments based on different
indices is recorded on a current basis.
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 impaired 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 Company accounts for
impaired loans in accordance with SFAS No. 114, Accounting
by Creditors for Impairment of a Loan and SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure. Under these standards, 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.
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.
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).
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 purchase of a branch located in Concord
California. Goodwill is being amortized on a straight-line
basis over 15 years.
Income Taxes - The Company accounts for income taxes
in accordance with SFAS No. 109, Accounting for Income Taxes.
SFAS No. 109 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.
Net Income per Common and Equivalent Share - Primary
earnings per common and equivalent share is calculated by
dividing net income by the weighted average number of common
and common equivalent (stock options) shares outstanding.
Fully diluted earnings per common and common equivalent
share is determined by adjusting net income for the after
tax effect of the interest paid on the convertible
debentures and dividing this amount by the weighted average
common and common equivalent shares outstanding as adjusted
for the conversion of the convertible debentures.
Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities - In June 1996,
the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 125,
Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, which must be adopted by
the Company for transactions occurring after December 31,
1996. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets
and extinguishments of liabilities. This standard is based
on consistent application of a financial-components approach
that focuses on control. Under this approach, after a
transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets
when control has been surrendered, and derecognizes
liabilities when extinguished. The Company has determined
that the adoption of this standard will not have a material
effect on the Company's financial position or results of
operations.
Reclassifications - Certain amounts in 1995 and 1994
have been reclassified to conform with the 1996 financial
statement presentation.
2. RESTRICTED CASH BALANCES
Aggregate reserves of $750,000 and $150,000 in the form
of deposits with the Federal Reserve Bank were maintained to
satisfy Federal Reserve requirements at December 31, 1996
and 1995.
3. SECURITIES
At December 31, the amortized cost of securities and
their approximate fair value were as follows:
<TABLE>
<CAPTION>
Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Cost Gains Losses Fair Value)
<S> <C> <C> <C> <C>
Available for Sale Securities:
December 31, 1996:
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>
<TABLE>
<CAPTION>
Carrying
Gross Gross Amount
Amortized Unrealized Unrealized (Approximate
Cost Gains Losses FairValue)
<S> <C> <C> <C> <C>
December 31, 1995:
Securities of U.S. government
agencies and corporations $22,812,000 $ 23,000 $ 244,000 $22,591,000
FHLB stock 118,000 118,000
Obligations of states and
political subdivisions 6,961,000 166,000 56,000 7,071,000
----------- -------- --------- -----------
$29,891,000 $189,000 $ 300,000 $29,780,000
=========== ======== ========= ===========
</TABLE>
Gross realized gains on sales of available for sale
securities were approximately $88,000 in 1996 and $499,000
in 1995. Gross realized losses on sales of available for
sale securities were approximately $5,000 in 1996 and
$18,000 in 1995.
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 available for sale securities
(other than FHLB stock with a carrying value of
approximately $490,000) at December 31, 1996, 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 $ 6,064,000 $ 6,076,000
Due after one year through five years 13,192,000 13,140,000
Due after five years through 10 years 3,940,000 3,905,000
Due after 10 years 29,358,000 28,958,000
----------- ------------
$52,554,000 $ 52,079,000
=========== ============
</TABLE>
At December 31, 1996 and 1995, securities having
carrying amounts of approximately $10,171,000 and
$5,170,000 were pledged to secure public deposits
and short-term borrowings and for other purposes
required by law or contract.
Derivative financial instruments - Entering into
interest-rate swap agreements involves not only the risk of
dealing with counterparties and their ability to meet the
terms of the contracts but also the interest-rate risk
associated with unmatched positions. Notional principal
amounts are often used to express the volume of these
transactions, but the amounts potentially subject to credit
risk are much smaller.
During 1996, the Company entered into an interest rate
swap agreement with the Federal Home Loan Bank (FHLB). The
notional principal amount of the interest-rate swap
outstanding was $10,000,000 at December 31, 1996 and has an
original term of five years. Under the agreement the
Company receives a floating-rate interest payment based on
the three-month treasury bill in exchange for payment of a
floating-rate interest payment based on the 11th District
Cost of Funds Index (COFI) plus .65%. The effect of this
agreement was to shorten the lag time in interest rate
fluctuations from the COFI index to the treasury bill to
enable the Company to better match the timing of the
repricing of certain liabilities. The net interest expense
recognized in 1996 was approximately $19,000.
4. 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,
1996, 72% of the Company's loan portfolio was for real
estate, of which 79% was for commercial projects and 21% was
for residential properties. Real estate construction loans
comprise 6% of the loan portfolio with consumer and other,
and commercial loans accounting for the remaining 14% and
8%, 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.
The major classifications of loans at December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial $ 8,926,000 $ 9,908,000
Real estate construction 6,408,000 9,553,000
Real estate 82,246,000 77,398,000
Consumer and other 16,045,000 14,265,000
------------ ------------
113,625,000 111,124,000
Less:
Allowance for loan losses 1,101,000 1,158,000
Deferred loan fees 599,000 732,000
------------ ------------
Net loans receivable $111,925,000 $109,234,000
============ ============
</TABLE>
Changes in the allowance for loan losses for the years
ended December 31 are summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance at beginning of year $1,158,000 $1,108,000 $1,090,000
Provision for loan losses 411,000 324,000 256,000
Loans charged off (496,000) (282,000) (239,000)
Recoveries 28,000 8,000 1,000
---------- ---------- ----------
Balance at end of year $1,101,000 $1,158,000 $1,108,000
========== ========== ==========
</TABLE>
At December 31, 1996 and 1995, the recorded investment
in loans for which impairment has been recognized in
accordance with SFAS No. 114 was approximately $2,648,000
and $1,602,000. The total allowance for loan losses related
to these loans was $278,000 and $309,000 at December 31,
1996 and 1995. For the years ended December 31, 1996 and
1995, the average recorded investment in loans for which
impairment has been recognized was approximately $1,218,000
and $1,641,000. During the portion of the year that the
loans were impaired, the Company recognized interest income
of approximately $28,000 and $12,000 for cash payments
received in 1996 and 1995.
Included in the impaired loans are nonperforming loans
at December 31 as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Nonaccrual loans $ 70,000 $1,049,000
Loans 90 days past due but still accruing interest 67,000 78,000
--------- ----------
Total nonaccrual and 90 days past due loans $ 137,000 $1,127,000
========= ==========
</TABLE>
If interest on nonaccrual loans had been accrued, such
income would have been approximately $7,000, $203,000, and
$19,000, in 1996, 1995 and 1994. At December 31, 1996,
there were no commitments to lend additional funds to
borrowers whose loans were classified as nonaccrual or whose
loans have been modified.
5. PREMISES AND EQUIPMENT
The major classifications of premises and equipment
at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Bank premises $ 132,000 $ 132,000
Furniture, fixtures and equipment 2,222,000 1,895,000
Leasehold improvements 2,752,000 2,530,000
---------- ----------
5,106,000 4,557,000
Less accumulated depreciation and amortization 2,822,000 2,420,000
---------- ----------
$2,284,000 $2,137,000
========== ==========
</TABLE>
6. 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, 1996, the Company occupied approximately 17% 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>
1996 1995 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Investment in
Pacific Plaza:
Land $1,366,000 $1,366,000 Rental income - net $542,000 $481,000 $485,000
Building and -------- -------- --------
improvements 3,459,000 3,459,000 Operating expenses 185,000 168,000 164,000
Less accumulated
depreciation (426,000) (311,000) Depreciation
Total investment ---------- ---------- expense 115,000 100,000 98,000
in Pacific Plaza 4,399,000 4,514,000 -------- -------- --------
Other 84,000 93,000 Total expenses 300,000 268,000 262,000
Total investment in ---------- ---------- -------- -------- --------
real estate Income from real
development $4,483,000 $4,607,000 estate development $242,000 $213,000 $223,000
========== ========== ======== ======== ========
</TABLE>
The future minimum rental income under long-term
noncancelable leases for the Pacific Plaza East project are
as follows:
1997 $ 302,000
1998 49,000
------------
Total $ 351,000
============
No interest costs were capitalized in 1996 or 1995 in
connection with the Bank's development activities.
Certain provisions of the Federal Deposit Insurance
Corporation Improvement Act restrict the Bank's ability to
continue to engage in real estate development activities
(see Note 18).
7. OTHER REAL ESTATE OWNED
Other real estate owned at December 31, consisted of the
following:
<TABLE>
<CAPTION>
1996
1995
<S> <C> <C>
Real estate acquired through foreclosure and held for sale $ 219,000 $ 343,000
Less - allowance for other real estate owned losses (69,000) (161,000)
------------ ------------
Other real estate owned - net $ 150,000 $ 182,000
============ ============
</TABLE>
A summary of the activity in the allowance for other
real estate owned losses is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of year $ 161,000 $ 148,000
Provision charged to expense 13,000
Charge-offs (92,000)
--------- ---------
Balance at end of year $ 69,000 $ 161,000
========= =========
</TABLE>
8. ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Major classes of accrued interest receivable and other
assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accrued interest receivable $1,589,000 $1,200,000
Prepaid expenses 260,000 403,000
Deferred debt issuance costs 290,000 365,000
Deferred tax assets 555,000 535,000
Other 244,000 379,000
---------- ----------
Balance at end of year $2,938,000 $2,882,000
========== ==========
</TABLE>
Other expenses in the consolidated statements of income
include amortization of the deferred debt issuance costs of
$47,000 in 1996 and $46,000 in 1995 related to the
convertible subordinated debentures. Deferred debt issuance
costs are being amortized on a straight-line basis over the
term of the debentures.
9. DEPOSITS
The aggregate amount of time certificates of deposit in
denominations of $100,000 or more was $20,881,000 and
$18,422,000 at December 31, 1996 and 1995. Interest expense
incurred on certificates of deposit of $100,000 or more
was approximately $1,049,000, $873,000, and $621,000, for the
years ended December 31, 1996, 1995 and 1994.
10. OTHER BORROWED FUNDS
Other borrowed funds at December 31, 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 31, 2000, interest at 6.44% $ 750,000
Borrowing from the FHLB, matures April 30, 2002, 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 1996, $307,000 (net of $28,000 in
debt issuance costs) of the debt was converted to 26,272
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 rates of 108% and 104% of
principal value for the 12-month periods beginning April 1,
1996 and 1997 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.
12. INCOME TAXES
The provision for income taxes for the years ended
December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $ 529,000 $ 667,000 $ 158,000
State 257,000 249,000 213,000
--------- --------- ---------
Total 786,000 916,000 371,000
--------- --------- ---------
Deferred:
Federal 98,000 (259,000) 223,000
State 34,000 (9,000) (30,000)
--------- --------- ---------
Total 132,000 (268,000) 193,000
--------- --------- ---------
Provision for income taxes $ 918,000 $ 648,000 $ 564,000
========= ========= =========
</TABLE>
A reconciliation of the federal statutory tax rate to
the effective tax rate on income is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 7.7 7.4 7.6
Effect of tax exempt income (4.2) (10.5) (11.9)
Other (1.4) (0.3) 0.9
----- ----- -----
37.1% 31.6% 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>
1996 1995
1994
<S> <C> <C> <C>
Unrealized loss on available for sale securities $199,000 $ 47,000 $407,000
Provision for loan losses 349,000 429,000 409,000
Alternative minimum tax credit 79,000
State taxes 59,000 41,000 36,000
Depreciation 70,000 34,000 13,000
Deferred compensation 42,000 24,000 9,000
Mark to market adjustment (179,000) (78,000) (335,000)
Other 15,000 38,000 9,000
-------- --------- ---------
$555,000 $ 535,000 $627,000
======== ========= =========
</TABLE>
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 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 55,271 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, 1994 126,608 $ 9.55
Granted 19,000 11.49
Exercised (4,503) 9.16
Expired or cancelled (738) 8.89
-------
Outstanding, December 31, 1994 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
=======
</TABLE>
Information about stock options outstanding at December 31,
1996 is summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Average Exercise Exercise
Range of Remaining Price of Price of
Exercises Options Contractual Options Options Options
Prices Outstanding Life (Years) Outstanding Exercisable Exercisable
<S> <C> <C> <C> <C> <C>
$8.88-$9.50 29,270 3.25 $ 8.99 29,270 $ 8.99
$10.45-$11.50 95,984 5.67 $10.82 95,984 $10.82
$13.75-$16.00 9,000 7.00 $14.47 4,500 $14.58
</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 fair values
of the grants and disclosures of pro-forma net income and
earnings per share had the Company adopted the fair value
method for grants made in 1995 and 1996 are not presented as
the differences are not material.
Dividends subsequent to year-end - On January 21, 1997,
the Board of Directors declared a $.15 per share cash
dividend payable February 18, 1997 to shareholders of
record on February 4, 1997.
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 1996, 1995 and 1994 was
approximately $132,000, $117,000, and $113,000.
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 $41,000, $32,000 and $20,000 as compensation
expense in 1996, 1995 and 1994, 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. 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>
1997 $ 557,000
1998 517,000
1999 490,000
2000 467,000
2001 476,000
Thereafter 2,279,000
------------
$ 4,786,000
============
</TABLE>
Renewal privileges exist on certain leases. Total rent
expense amounted to $536,000, $534,000, and $481,000, for
the years ended December 31, 1996, 1995, and 1994.
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.
The Company was contingently liable under letters of credit
issued on behalf of its customers in the amount of $649,000
and $407,000 at December 31, 1996 and 1995. Commercial and
consumer lines of credit, and real estate loans of
approximately $14,370,000 and $15,044,000 were undisbursed
at December 31, 1996 and 1995. These instruments involve,
to varying degrees, elements of credit and market risk in
excess of the amounts recognized in the balance sheet. The
contractual or notional amounts of these transactions
express the extent of the Company's involvement in these
instruments and do not necessarily represent the actual
amount subject to credit loss. However, at December 31,
1996 and 1995, no losses were anticipated as a result of
these commitments.
Loan commitments are typically contingent upon the
borrower meeting certain financial and other covenants.
Such commitments typically have fixed expiration dates and
require payment of a fee. As many of these commitments are
expected to expire without being drawn upon, the total
commitments do not necessarily represent future cash
requirements. The Company evaluates each potential borrower
and the necessary collateral on an individual basis.
Collateral varies, but may include real property, bank
deposits, debt securities, equity securities, or business
assets.
Standby letters of credit are conditional commitments
written by the Company to guarantee the performance of a
customer to a third party. These guarantees are issued
primarily relating to inventory purchases by the Company's
commercial and technology division customers, and such
guarantees are typically short-term. Credit risk is similar
to that involved in extending loan commitments to customers,
and the Company accordingly uses evaluation and collateral
requirements similar to those for loan commitments.
17. 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 at December 31 is as
follows (renewals are not reflected as either new loans or
repayments):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of year $ 3,376,000 $ 2,967,000
Borrowings 433,000 739,000
Principal repayments (399,000) (330,000)
----------- ------------
Balance at end of year $ 3,410,000 $ 3,376,000
=========== ============
</TABLE>
18. REGULATORY MATTERS
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 correction
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, 1996, that the
Company and the Bank meet all capital adequacy requirements
to which they are subject.
The most recent notifications from the Federal Deposit
Insurance Corporation for the Bank as of December 31, 1996
and 1995, categorized the Bank as well capitalized under the
regulatory framework for prompt correction 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
<S> <C> <C> <C> <C>
As of December 31, 1996:
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, 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%
As of December 31, 1995:
Total capital
(to risk weighted assets) $17,510,000 13.71% $10,214,000 8.0% $12,768,000 10.0%
Tier I capital
(to risk weighted assets) $12,327,000 9.65% $5,107,000 4.0% $7,661,000 6.0%
Tier I capital
(to average assets) $12,327,000 7.75% $6,362,000 4.0% $7,953,000 5.0%
</TABLE>
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, 1996, the amount available for such
dividends without prior written approval was approximately
$2,510,000. Similar restrictions apply to the amounts and
terms of loans, advances and other transfers of funds from
the Bank to the Company.
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 17% 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.
19. 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, 1996, 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, 1996 and 1995 to estimate the fair value of
each class of financial instruments for which it is
practicable to estimate that value.
(a) Cash and Cash Equivalents - The carrying amount
represents a reasonable estimate of fair value.
(b) 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.
(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 swaps - The fair value of the
interest rate swap 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>
1996 1995
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $ 16,940,000 $ 16,940,000 $ 11,261,000 $ 11,261,000
Available for sale securities 52,569,000 52,569,000 29,780,000 29,780,000
Loans receivable 113,625,000 112,499,000 111,124,000 110,291,000
FINANCIAL LIABILITIES:
Deposits 170,343,000 170,271,000 142,234,000 142,129,000
Other borrowed funds 2,650,000 2,606,000
Convertible subordinated debentures 3,690,000 3,690,000 4,025,000 4,025,000
OFF BALANCE SHEET ITEMS:
Interest rate swap in a net payable
position with a notional amount
of $10,000,000 (68,000)
</TABLE>
19. CONDENSED FINANCIAL INFORMATION OF CALIFORNIA
COMMUNITY BANCSHARES CORPORATION
The condensed financial statements of California
Community Bancshares Corporation are presented below:
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1996
<S> <C>
Assets:
Cash and cash equivalents $ 94,000
Investments in subsidiaries 12,913,000
Note receivable from Bank 3,669,000
Other assets 478,000
-----------
Total $17,154,000
===========
Liabilities and shareholders' equity:
Other liabilities $ 95,000
Convertible subordinated debentures 3,690,000
Shareholders' equity:
Common stock, no par value: authorized,
2,000,000 shares; outstanding, 994,519
as of December 31, 1996 11,135,000
Retained earnings 2,510,000
Unrealized loss on available for sale securities
(net of tax effect) (276,000)
-----------
Total $17,154,000
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
PERIOD FROM FEBRUARY 29, 1996 (DATE OF MERGER WITH BANK)
TO DECEMBER 31, 1996
<S> <C>
INCOME:
Dividends from subsidiary $ 710,000
Interest income on note receivable from Bank 251,000
-----------
Total income 961,000
EXPENSE:
Convertible subordinated debenture interest expense 254,000
Other 120,000
-----------
Total expense 374,000
Income before equity in undistributed income
of subsidiaries 587,000
Equity in undistributed income of subsidiaries 972,000
-----------
Net income $ 1,559,000
===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
PERIOD FROM FEBRUARY 29, 1996 (DATE OF MERGER WITH BANK)
TO DECEMBER 31, 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,559,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed income of subsidiaries (972,000)
Effect of changes in:
Other assets (478,000)
Other liabilities 95,000
----------
Net cash provided by operating activities 204,000
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (442,000)
Increase in note receivable from Bank (3,669,000)
Assumption of convertible subordinated debentures 4,025,000
Other (24,000)
----------
Net cash used in financing activities (110,000)
----------
INCREASE IN CASH AND CASH EQUIVALENTS 94,000
CASH AND CASH EQUIVALENTS:
Beginning of year ----
----------
End of year $ 94,000
==========
ADDITIONAL INFORMATION:
Common stock issued on conversion of debentures net
of debenture offering costs of $28,000 in 1996 $ 307,000
==========
</TABLE>
******************************************************************************
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
- --------------------------------------------
Registrant
By:/s/ Walter O. Sunderman
- ----------------------------------------
Walter O. Sunderman
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Andrew S. Popovich
- ----------------------------------------
Andrew S. Popovich
Executive Vice President and Chief Administrative Officer
(Principal Financial and Accounting Officer)
Dated: March 18, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
NAME AND SIGNATURE: TITLE DATE
- ------------------------- -------- --------------
/s/ Dorce Daniel Director March 18, 1997
- -------------------------
DORCE DANIEL
/s/ William J. Hennig Director March 18, 1997
- -------------------------
WILLIAM J. HENNIG
/s/ Bernard E. Moore Director March 18, 1997
- -------------------------
BERNARD E. MOORE
/s/ Melvin M. Norman Director March 18, 1997
- -------------------------
MELVIN M. NORMAN
/s/ Stephen R. Schwimer Director March 18, 1997
- -------------------------
STEPHEN R. SCHWIMER
/s/ Donald E. Sheahan Director March 18, 1997
- -------------------------
DONALD E. SHEAHAN
/s/ Gary E. Stein Director March 18, 1997
- -------------------------
GARY E. STEIN
/s/ Walter O. Sunderman Director March 18, 1997
- -------------------------
WALTER O. SUNDERMAN
/s/ John C. Usnick Director March 18, 1997
- -------------------------
JOHN C. USNICK
*************************************************************************
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- -----------------------------------
Exhibits
to
FORM 10 - KSB
ANNUAL REPORT
UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
- -----------------------------------
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
*************************************************************************
EXHIBIT 10.21
TENANT: CONTINENTAL PACIFIC BANK LOAN NO.
-------------------------------- ---------------------
TENANT ESTOPPEL CERTIFICATE
---------------------------
November 14, 1996
- -----------------
L.J. Melody & Co., its successors and assigns
5847 San Felipe
Houston, TX 77057
Re: Suite H (the "PREMISES") in the property located at 2151 Salvio Street,
Concord, CA (the "PROPERTY")
Gentleman:
The undersigned, as tenant ("TENANT") under that certain lease of the
Premises with Salvio Pacheco Square Investors or its predecessor in title
("LANDLORD"), dated AUGUST 22, 1996 (the "LEASE"), understands that you are
about to make a loan to Landlord and receive as part of the security for such
loan a Mortgage or Deed of Trust encumbering Landlord's interest in the
Property and the rents and profits of the Lease (the "MORTGAGE") and that you
(and persons or entities to whom the Mortgage may subsequently be assigned)
are relying upon the representations and warranties contained herein in making
such loan. Accordingly, Tenant does hereby represent and warrant to you and
your successors and assigns as follows:
1. The copy of the Lease attached hereto as EXHIBIT A is a true, correct and
complete copy of the Lease including all amendments, supplements and
modifications thereto. The Lease is in full force and effect.
2. As of the date hereof, Tenant is occupying and paying rent on a current
basis for all of the Premises. The minimum monthly or base rent currently
being paid by Tenant is $3,582.50 per month. No rentals are accrued and unpaid
under the Lease. If applicable, percentage rent due under the Lease has been
paid through N/A, and the amount of percentage rent for the last period paid
was $N/A. Taxes, insurance, common area maintenance, and any other applicable
charges due under the Lease have been paid through AUGUST 22, 1996. No
prepayments of rental due under the Lease have been made. Further, no security
or deposits as security has been made under the Lease, except for the sum of
$3,582.50, in cash, which has been deposited by Tenant with landlord pursuant
to the terms of the Lease.
3. Tenant has accepted possession of the Premises, and all of Landlord's
obligations with respect thereto have been completed, including, but not
limited to, completion of construction thereof (and all other improvements
required under the Lease) in accordance with the Lease, and the payment by
Landlord of any contribution towards work to be performed by Tenant under the
Lease.
4. Tenant acknowledges that the initial term of the Lease commenced on
OCTOBER 11, 1996 and is scheduled to expire on OCTOBER 10, 1999. Tenant has no
option to renew or extend the lease term, except as set forth in the Lease.
Tenant has no option or right to purchase the Property or any part thereof.
5. No default or event that with the passage of time or notice would
constitute a default (a "DEFAULT") on the part of Tenant exists under the
Lease in the performance of the terms covenants and conditions of the Lease
required to be performed on the part of Tenant. No Default on the part of
Landlord exists under the Lease in the performance of the terms, covenants and
conditions of the Lease required to be performed on the part of Landlord.
6. Tenant has not assigned, sublet, transferred, hypothecated or otherwise
disposed of its interest in the Lease and/or the Premises, or any part
thereof.
7. There have been no promises or representations made to Tenant by Landlord
concerning the Lease or the Premises not contained in the Lease.
8. Neither the Lease nor any obligations of Tenant thereunder have been
guaranteed by any person or entity, except as follows (if none, so state):
- --------------------------------------------------------------------------.
9. Tenant has no defense as to its obligations under the Lease and asserts no
set off, claim or counterclaim against Landlord.
10. Tenant agrees to notify you by certified mail, return receipt requested,
with postage prepaid, of any Default on the part of Landlord under the lease,
and Tenant further agrees, that, notwithstanding any provisions of the Lease,
no cancellation or termination of the Lease and no abatement or reduction of
the rent payable thereunder shall be effective unless you have received notice
of the same and have failed within thirty (30) days after the time when you
shall have become entitled under the Mortgage to remedy the same, to commence
to cure such Default and thereafter diligently prosecute such cure to
completion, provided that such period may be extended, if you need to obtain
possession of the Property to cure such default, to allow you to obtain
possession of the Property provided you commence judicial or non-judicial
proceedings to obtain possession within such period and thereafter diligently
prosecute such efforts and cure to completion. It is understood that you shall
have the right, but not the obligation, to cure any Default on the part of
Landlord.
11. Tenant has received notice that the Lease and the rent and all other sums
due thereunder have been assigned or are to be assigned to you as security for
the aforesaid loan secured by the Mortgage. In the event that you (or any
person or entity to who the Mortgage may subsequently be assigned) notify
Tenant of a default under the Mortgage and demand that Tenant pay its rent and
all other sums due under the Lease to you (or such future lender), Tenant
shall honor such demand without inquiry and pay its rent and all other sums
due under the Lease directly to you (or such future lender) or as otherwise
required pursuant to such notice and shall not thereby incur any obligation or
liability to Landlord. Landlord has executed this Tenant Estoppel Certificate
to evidence its agreement with the foregoing.
12. (a) Tenant agrees and acknowledges that the Lease is subordinate to the
lien of your Mortgage, but that, at your election, the Lease may be made prior
to the lien of your Mortgage. In the event you succeed to the interests of
Landlord under the Lease, then, at your election (i) the undersigned shall be
bound to you under all of the terms, covenants and conditions of the Lease for
the remaining balance of the term of the Lease, with the same force and effect
as if you were the lessor under such Lease, and Tenant does hereby agree to
attorn to you as its lessor without requiring the execution of any further
instruments immediately upon you succeeding to the interest of Landlord under
the Lease; provided, however, that the undersigned agrees to execute and
deliver to you any instrument reasonably requested by you to evidence such
attornment; and (ii) subject to the observance and performances by Tenant of
all the terms, covenants and conditions of the Lease on the part of Tenant to
be observed and performed and subparagraph (b) below, you shall recognize the
leasehold estate of Tenant under all the terms and conditions of the Lease for
the remaining balance of the term with the same force and effect as if you
were the lessor under the Lease.
(b) Furthermore, Tenant agrees that if you shall succeed to the interest
of Landlord under the Lease, you, your successors and assigns shall not be:
liable for any prior act or omission of Landlord; subject to any claims,
offsets, credits or defenses which Tenant might have against any prior
landlord (including Landlord); or bound by any assignment (except as permitted
by the Lease), surrender, release, waiver, amendment or modification of the
Lease made without your prior written consent; or obligated to make any
payment to Tenant or liable for refund of all or any part of any security
deposit or other prepaid charge to Tenant held by Landlord for any purpose
unless you shall have come into exclusive possession of such deposit or
charge. In addition, if you shall succeed to the interest of Landlord under
the Lease, you shall have no obligation, nor incur any liability, beyond your
then equity interest, if any, in the Premises.
13. The agreements contained herein shall be binding upon and inure to the
benefit of the respective heirs, administrators, executors, legal
representatives, successors and assigns of you, Landlord and Tenant.
14. The undersigned is authorized to execute this Tenant Estoppel Certificate
on behalf of Tenant.
15. This Tenant Estoppel Certificate may be executed in any number of
separate counterparts, each of which shall be deemed an original, but all of
which, collectively and separately, shall constitute one and the same
instrument.
Very truly yours,
TENANT:
CONTINENTAL PACIFIC BANK
By: /s/ ANDREW S. POPOVICH
----------------------
Name: Andrew S. Popovich
Title: Executive Vice President
LANDLORD:
SALVIO PACHECO SQUARE INVESTORS
By: /s/ Lawrence Van Duyn
----------------------
Name: Lawrence Van Duyn
Title: President
******************************************************************************
EXHIBIT A
TO
TENANT ESTOPPEL CERTIFICATE
- ---------------------------
LEASE
- -----
******************************************************************************
TABLE OF CONTENTS
1. SALIENT LEASE TERMS 1
2. PARTIES 2
3. DESCRIPTION 2
4. USES PROHIBITED 3
5. TERM 3
6. PRE-TERM POSSESSION 4
7. POSSESSION 4
8. MINIMUM RENTAL AND FINANCIAL ADJUSTMENT 4
9. PERCENTAGE RENTAL 6
10. PROMOTIONAL PROGRAM 7
11. OPERATING COVENANT 8
12. ACCORD AND SATISFACTION 8
13. LEASE DEPOSIT 8
14. TAXES ASSESSMENT 9
15. MAINTENANCE OF PREMISES 11
16. COMMON AREAS 11
17. ALTERATIONS 13
18. WASTE 14
19. COMPLIANCE WITH GOVERNMENTAL 14
20. LIABILITY AND PLATE GLASS INSURANCE 14
21. INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION 15
22. FIRE INSURANCE 16
23. LESSEE PROPERTY DAMAGE INSURANCE 16
24. INSURANCE POLICY REQUIREMENTS 16
25. ADVERTISEMENTS AND SIGNS 17
26. UTILITIES 17
27. ENTRY BY LESSOR 18
28. DESTRUCTION 18
29. CONDEMNATION 19
30. ASSIGNMENT AND SUBLETTING 20
31. COVENANT NOT TO COMPETE 23
32. ABANDONMENT 23
33. DEFAULT 23
34. REMEDIES UPON DEFAULT 24
35. FORFEITURE OF PROPERTY 26
36. SURRENDER OF LEASE 26
37. SUBORDINATION 26
38. EMPLOYEE PARKING 27
39. NOTICES 27
40. TRANSFER OF SECURITY 27
41. WAIVER 27
42. HOLDING OVER 27
43. LIMITATION ON LESSOR'S LIABILITY 27
44. LATE CHARGES 28
45. SUCCESSORS AND ASSIGNS 28
46. TIME 28
47. MARGINAL CAPTIONS 28
48. EFFECT OF LANDLORD'S CONVEYANCE 28
49. DEFAULT OF LESSOR 28
50. OFFSET STATEMENTS 28
51. ATTORNEY'S FEES 29
52. WAIVER OF CALIFORNIA CODE SECTIONS 29
53. LESSEE'S COVENANTS 29
54. NO PARTNERSHIP 31
55. BANKRUPTCY 31
56. MISCELLANEOUS 32
******************************************************************************
This lease is dated for reference purposes only the 22nd day of August, 1996.
------------------------
SALIENT LEASE TERMS
General Location: Salvio St. bounded by Grant and Mt. Diablo Streets,
----------------------------------------------------
Concord, California
----------------------------------------------------
(Section 3.1)
1.2 Lessor: SALVIO PACHECO SQUARE INVESTORS
----------------------------------------------------
c/o IRM Corporation
----------------------------------------------------
P.O. Box 3000, Concord, CA 94522-3000
----------------------------------------------------
Lessee: CONTINENTAL PACIFIC BANK
----------------------------------------------------
2151 Salvio St., Corp.: 555 Mason St.,
Suite H Suite 280
----------------------------------------------------
Concord, CA 94520 Vacaville, CA 95688
----------------------------------------------------
(If more than one, then the obligations hereunder
shall be joint and several).(Sections 2, 39.1 & 39.3)
1.3 Approximately 2,866 square feet.(Section 3.2)
-------
1.4 Uses: Solely for Bank branch office
----------------------------------------------------
(Section 4.1)
1.5 Term: (a) Thirty-six (36) months
----------------------------------------------------
(b) Days After Delivery For Term Commencement: 10/11/96
----------------------------------------------------
(Section 8.1)
1.6 Term: (a) Minimum rent: $3,582.50
----------------------------------------------------
(b) Adjustment: $1.30/s.f.
----------------------------------------------------
(Section 8.1)
(c) Adjustment dates: October 1, 1997
----------------------------------------------------
(Section 8.2(a)
(d) Percentage rent: None
----------------------------------------------------
(Section 9.1)
(e) Advance rent: $3,582.50
----------------------------------------------------
(Section 13.1)
(f) Base Interest Cost: N/A
----------------------------------------------------
(Section 8.4)
1.7 Security Deposit: $3,582.50 (See Addendum)
----------------------------------------------
(Section 13.1)
1.8 Promotional Program Expense: N/A
----------------------------------------------------
(Section 10.1)
1.9 Initial Pro-rata Share 2.39 %
----------------
1.10 Contents of this lease:
Pages 1 through 32
----
Sections 1.1 through 56.5
Addenda (if any) Addendum A
------------
Exhibits: A - Legal description of shopping center
B - Site plant (subject to alteration) with
demised premises outlined
C - Construction exhibit - if any
D - Acknowledgment of Commencement
E - Rules and Regulations
F - Sign Criteria
G - Guaranty
******************************************************************************
WITNESSETH
PARTIES
2. This lease is made between the Lessor and the Lessee described in Section
1.2 hereof.
DESCRIPTION
3.1 Lessor hereby leases to Lessee, and Lessee hires from Lessor, a portion
of those certain premises with appurtenances, situated as describe in Section
1.1 hereof and more particularly describe in Exhibit "A," attached hereto and
made a part hereof.
3.2 The portion leased herein is delineated on the plat attached hereto
marked Exhibit "B," which is made a part hereof by reference, consisting of
the approximate number of square feet as specified in Section 1.3 hereof. The
Exhibit "B" property is hereinafter referred to as the "Shopping Center" or
the "Shopping Complex." The portion leased to Lessee is hereinafter referred
to as the "demised premises," the "leased premises" or "the premises." The
exterior walls and exterior portions of the leased premises, the area beneath
said premises, and the area above said premises are not demised hereunder, and
the use thereof together with the right to install, maintain, use repair, and
replace pipes, ducts, conduits, wires, and structural elements leading through
the leased premises serving other parts of the Shopping Complex are hereby
reserved unto Lessor. Such reservation in no way affects maintenance
obligations imposed herein.
3.3 [SECTION DELETED]
3.4 (a) The parties agree that this Lease is subject to the effect of any
covenants, conditions, restriction, easements, mortgages or deeds of trust,
ground leases, rights of way, and any other matters or documents of record;
(b) The effect of any zoning laws of the city, county and state where
the complex is situated; and
(c) General and special taxes not delinquent.
Lessee agrees that:
(1) As to its leasehold estate it, and all persons in possession or
holding under it, will conform to and will not violate the terms of any
covenants, conditions or restrictions which may encumber the property now or
in the future (hereinafter the "restriction") or said matters of record; and
(2) This Lease is subordinate to the restrictions and any amendments or
modifications thereto; provided, however, that if the restrictions are not on
record as of the date hereof, then this lease shall automatically become
subordinate to the restrictions upon recordation thereof; and Lessee further
agrees to execute and return to Lessor within ten (10) days after written
demand therefor by Lessor, an agreement in recordable form subordinating this
Lease to said restrictions.
USES PROHIBITED
4.1 As an express and material consideration to the Lessor for entering into
this lease, the premises shall be used solely for the purposes specified in
Section 1.4 hereof and for no other purpose. Lessee shall not use, or permit
said premises, or any part thereof to be used, for any purpose or purposes
other than the purpose or purposes stated hereinabove.
4.2 Should any of the above uses of the premises, or any acts done in
conjunction therewith, increase the rate of insurance above that for the least
hazardous retail use in the Shopping Center in which said premises may be
located, said increased premium costs shall be borne exclusively by the
Lessee. The Lessee shall not engage in any activities or permit to be kept,
used or sold in or about the premises, any article which may be prohibited by
the standard form of fire insurance policies. Lessee shall, at its sole cost
and expense, comply with any and all requirements, pertaining to said
premises, of any insurance organization or company, necessary for the
maintenance of reasonable fire and public liability insurance covering said
building and appurtenances.
4.3 [SECTION DELETED]
TERM
5.1 The term of this lease shall commence the number of days specified in
Section 1.5(b) hereof after delivery of the premises to Lessee or when Lessee
opens for business, whichever is the first to occur, and, unless sooner
terminated as hereinafter provided, shall continue for the number of months
specified in Section 1.5(a) hereof, plus any partial month at the commencement
of the term. Lessor agrees to deliver possession of the premises to Lessee,
and Lessee agrees to accept the same from Lessor upon notice from Lessor to
Lessee that the portion of Lessor's work relating to the premises which is
scheduled for completion prior to the commencement of Lessee's work has been
substantially completed as specified in Exhibit "C" attached hereto and
incorporated herein by reference. If despite Lessor's best efforts, said
premises so improved shall not be delivered by the date specified in Section
1.5 (c) hereof, any remaining work shall be completed by the Lessor with
reasonable dispatch, but not later than ninety (90) days thereafter, provided
that said date shall be extended for a period equal to the time construction
has been delayed due to causes beyond the reasonable control of the Lessor,
including, without limitation, strikes, lockouts, or other labor disturbances,
governmental orders, regulations, or embargoes, shortages of materials,
inclement weather, fire, flood or other casualty. Lessor's liability hereunder
shall be restricted to abatement of rent for the period of any such delay. The
term shall also include the portion of a calendar month, if any, immediately
following commencement.
5.2 If the term of this lease has not commenced within eighteen (18) months
from the date of execution hereof, either party may cancel this lease at any
time thereafter, by written notice to the other prior to the commencement
date.
5.3 [SECTION DELETED]
5.4 After delivery of the premises to Lessee, Lessor shall executed a written
acknowledgment of the date of commencement in the form attached hereto as
Exhibit "D" and by this reference it shall be incorporated herein.
PRE-TERM POSSESSION
6.1 [SECTION DELETED]
6.2 [SECTION DELETED]
POSSESSION
7. If Lessor, for any reason whatsoever, cannot deliver possession of the said
premises to Lessee at the commencement of the said term, as hereinbefore
specified, this lease shall not be void or voidable, nor shall Lessor be
liable to Lessee for any loss or damage resulting therefrom; but in that event
there shall be an abatement of rent for the period between the commencement of
the said term and the time when Lessor can deliver possession.
MINIMUM RENTAL AND FINANCING ADJUSTMENT
8.1 The minimum rental during the term of said lease, all of which shall be
payable to Lessor at the address specified for notices herein (see Section1.2
hereof), or such other place as the Lessor shall designate in writing, shall
be as specified in Section 1.6(a) hereof as adjusted, if applicable, in
accordance with the terms of Section1.6(b) hereof.
8.2 (a) The minimum rental provided for herein shall be subject to increase
after each number of months following commencement hereof as specified in
Section 1.6(c) ("the adjustment date") as follows: The following paragraphs
thru 8.3 apply to option period only.
The base for computing the increase is the Consumer Price Index, all urban
consumers, all items, San Francisco/Oakland Bay Area, published by the United
States Department of Labor, Bureau of Labor Statistics, in which 1967 equals
one hundred (100) ("Index"), which is published for the last month prior to
the commencement of the term hereof (beginning index). If the Index published
nearest the adjustment date ("Extension Index"), has increased over the
beginning index, the minimum rental until the next rent adjustment date shall
be established by multiplying the minimum rent as specified in the first
Section of this article, by a fraction, of the numerator of which is the
extension index and the denominator of which is the beginning index. In no
event, however, shall the minimum rental established at the adjustment date be
less than the minimum rental established at the previous adjustment date or as
established in the first paragraph of this article, whichever last occurred.
On adjustment of the minimum rent as provided herein, the parties shall
immediately execute an amendment to the lease on request of either party
stating the new minimum rent.
(b) If the Index is changed so that the base year differs from that used
as of the month immediately preceding the month in which the term commences,
the Index shall be converted in accordance with the conversion factor
published by the United States Department of Labor, Bureau of Labor
Statistics. If the Index is discontinued or revised during the term, such
other government index or computation with which it is replaced shall be used
in order to obtain substantially the same result as would be obtained if the
Index has not been discontinued or revised.
8.3 All rentals shall be paid without deduction or offset, each month in
advance, on the first day of each calendar month during said term. If the
lease term commences on other than on the first day of a calendar month, the
rent for the first partial month shall be prorated accordingly.
8.4 (a-d) [SECTIONS DELETED]
8.5 [SECTION DELETED]
PERCENTAGE RENTAL
9.1 - 9.5 [SECTIONS DELETED]
PROMOTIONAL PROGRAM
10.1 - 10.2 [SECTIONS DELETED]
OPERATING COVENANT
11. [SECTION DELETED]
ACCORD AND SATISFACTION
12. No payment by Lessor or receipt by Lessor of a lesser amount of monthly
rent or any other sum due hereunder, shall be deemed to be other than on
account of the earliest due rent or payment, nor shall any endorsement or
statement on any check or any letter accompanying any such check or payment be
deemed an accord and satisfaction, and Lessor may accept such check or payment
without prejudice to Lessor's right to recover the balance of such rent or
payment or pursue any other remedy available in this lease, at law or in
equity. Lessor may accept any partial payment from Lessee without invalidation
of any contractual notice required to be given herein (to the extent such
contractual notice is required) and without invalidation of any notice given
or required to be given pursuant to applicable law.
LEASE DEPOSIT
13.1 Simultaneous with the execution of this lease, Lessee has deposited with
Lessor the sum specified in Section 1.6(e) hereof, which sum shall be
applicable to the first rent accruing under the terms of this lease.
13.2 Simultaneous with the execution of this Lease, lessee has deposited with
Lessor the sum specified in Section 1.7. This sum is designated as a "security
deposit" and shall remain the sole and separate property of the Lessor until
actual repaid to Lessee (or at Lessor's option the last assignee, if any, of
Lessee's interest hereunder), said sum not being earned by Lessee until all
conditions precedent for its payment to Lessee have been fulfilled. As this
sum both in equity and at law is Lessor's separate property, Lessor shall not
be required to (1) keep said deposit separate from his general accounts, or
(2) pay interest, or other increment for its use. If Lessee fails to pay rent
or other charges when due hereunder, or otherwise defaults with respect to any
provision of this lease, including and not limited to Lessee's obligation to
restore or clean the premises following vacation thereof, Lessee, at Lessor's
election, shall be deemed not to have earned the right to repayment of the
"security deposit" or those portions thereof, used or applied by Lessor for
the payment of any rent or other charges in default, or for the payment of any
other sum to which Lessor may become obligated by reason of Lessee's default,
or to compensate Lessor for any loss or damage which lessor may suffer
thereby. This security deposit is not to be characterized as rent until and
unless so applied in respect of a default.
13.3 If Lessor elects to use or apply all or any portion of the "security
deposit" as provided in Section 13.1, Lessee shall within ten (10) days after
written demand therefor pay Lessor cash, in an amount equal to that portion
of the "security deposit" used or applied by lessor, and Lessee's failure to
so do shall be a material breach of this lease. The ten (10) day notice
specified in the preceding sentence shall insofar as not prohibited by law,
constitute full satisfaction of notice of default provisions required by law
or ordinance.
13.4 If, on termination of this lease, the Lessee is not in default of any of
its obligations hereunder, the remaining security deposit held by the Lessor
shall be returned forthwith to the Lessee.
TAXES AND ASSESSMENTS
14.1 Lessee shall be liable for all taxes levied against personal property,
trade fixtures and other property, trade fixtures and other property placed by
Lessee in or on or about the demised premises including without prejudice to
the generality of the foregoing, shelves, counters, vaults, vault doors, wall
safes, partitions, fixtures, machinery, plant equipment and other articles and
if any such taxes on Lessee's personal property, trade fixtures or property
placed in the demised premises by Lessee are levied against Lessor or Lessor's
property and if Lessor pays the same (which Lessor shall have the right to do
regardless of the validity of such levy), or if the assessed value of Lessor's
property is increased by the inclusion of the value placed in such property or
trade fixtures of Lessee or placed in the demised premises by lessee and if
lessor pays the taxes based on such increased assessment (which Lessor shall
have the right to do, regardless of the validity thereof), Lessee, upon demand
shall, as the case may be, pay to the Lessor the taxes so levied against
Lessor or the proportion of such taxes resulting from such increase in the
assessments.
14.2 Lessee shall pay, as additional rent, all taxes and assessments levied
or assessed against the land and buildings of which the demised premises form
a part, including the common areas, as well as the improvements and the
buildings and improvements on said land, prorated on the basis that the number
of square feet occupied by Lessee in the said building or Shopping Center
bears to the gross leaseable area in the entire building or Shopping Center
which is included in the tax bill.
14.3 If any general or special assessment is levied and assessed against the
premises, Lessor may elect to either pay the assessment in full or allow the
assessment to go to bond. If Lessor pays the assessment in full, Lessee shall
pay to Lessor each time a payment of real property taxes is made, a sum equal
to that which would have been payable (as both principal and interest), had
Lessor allowed the assessment to go to bond.
14.4 The term "taxes" and "assessments" as used herein shall include all real
property taxes on the building, the land on which the building is situated,
and the various estates in the building the land, as well as all personal
property taxes levied on the property used in the operation of the building,
land, or personal property, whether or not now customary or within the
contemplation of the parties to this lease. "Taxes" also shall include the
cost to Lessor of contesting the amount, validity, or applicability of any
taxes mentioned in this section. Further included in the definition of taxes
herein shall be general and special assessments, license fees, commercial
rental tax, levy, penalty or tax (other that inheritance or estate taxes)
imposed by any authority having the direct or indirect power to tax, as
against any legal or equitable interest of the Lessor in the leased premises
or in the real property of which the leased premises are a part, as against
the Lessor's right to rent or other income therefrom, or as against the
Lessor's business of leasing the leased premises, any tax, fee, or charge with
respect to the possession, leasing, transfer of interest, operation,
management, maintenance, alteration, repair, use, or occupancy by Lessee, of
the premises or any portion thereof or the complex, or any tax imposed in
substitution, partially or totally, for any tax previously included within
the definition of taxes herein, or any additional tax, the nature of which may
or may not have been previously included within the definition of taxes. The
term "real property taxes" or "taxes" shall not include any tax which may be
levied upon or against the general income or profits of the Lessor or its
successors or assigns.
14.5 If Lessee shall in good faith desire to contest the validity or amount
of any tax, assessments, levy or other governmental charge herein agreed to be
paid by Lessee, Lessee shall be permitted to do so, upon giving twenty (20)
days' written notice thereof prior to the commencement of any such contest and
indemnifying the Lessor against any governmental charge, penalty, costs,
liability or damage arising out of any such contest. At all events, the Lessee
must make prompt payment prior to delinquency of any such tax or charge,
irrespective of the contest, and seek a rebate thereof in event such contest
is successful.
14.6 Any and all rebates on account of any such taxes, rates, levies,
charges or assessments required to be paid and paid by Lessee under the
provisions of this lease shall belong to Lessee, and Lessor will, upon request
of Lessee, execute any receipts, assignments or other acquaintances that may
be necessary in the premises in order to secure the recovery of any such
rebates, and will pay over to Lessee, its proportionate share of any such
rebates that may be received by Lessor.
14.7 It is the intention that the rental received by the Lessor be net of any
taxes of any sort to be paid by the Lessor, subject to the exclusion stated in
Section 14.4. In the event it shall not be lawful for the Lessee to reimburse
lessor for any of the taxes covered by this Article, the minimum rent payable
to Lessor under the terms of this Lease shall be increased by the amount of
the portion allocable to Lessee so as to net to Lessor the amount which would
have been receivable by Lessor if such tax had not been imposed.
MAINTENANCE OF PREMISES
15. Lessee shall, at its sole cost, keep and maintain each and every portion
of the premises and appurtenances (excepting structural aspects of the
exterior walls and structural aspects of roof which Lessor agrees to repair),
including glazing, repair and replacement of the heating, ventilation and air
conditioning system installed to serve the premises, any store front and the
interior of the premises, in clean, good and sanitary order, condition and
repair, hereby waiving all right to make repairs or replacements at the
expense of Lessor. Lessee shall also keep the walkways in front of the
premises free from any debris, papers or dirt. As of commencement of the term
hereof, Lessee accepts the premises as being in good and sanitary order,
condition and repair, and agrees on the last day of said term, or sooner
termination of this lease, to surrender unto Lessor said premises and
appurtenances in good condition and repair, reasonable use and wear thereof
and damage by fire excepted, and to remove all of the Lessee's signs from said
premises, and to repair any damage caused by such removal. In the case of
equipment installed by the Lesso4 for the Lessee, or installed by the Lessee
and being the property of the Lessor, such as heating, ventilating and air
conditioning equipment, Lessee shall maintain a service contract for the
regular maintenance with a service company acceptable to the Lessor, at
Lessee's expense. [LAST LINE DELETED]
COMMON AREAS
16.1 Common areas herein referred to means all areas and facilities outside
the demised premises and within the exterior boundaries of the Shopping Center
of which the demised premises form a part, that are provided and designated by
the Lessor from time to time for the general use and convenience of the Lessee
and of other lessees of the Lessor having the common use of such areas, and
their respective authorized representatives and invitees. Common areas
include, without limitation, upper levels, walkways, restrooms, elevators,
pedestrian entrances, landscaping, sidewalks, landscaped areas, courtyards,
hallways, parking areas and facilities, all as shown on Exhibit "B" attached
hereto. Exhibit "B" is tentative and Lessor reserves the right to make
alterations thereto from time to time as described in the following sections.
16.2 Lessor shall, in Lessor's sole discretion, maintain the common areas,
establish and enforce reasonable rules and regulations concerning such areas,
close any of the common areas to whatever extent required in the opinion of
Lessor's counsel to prevent a dedication of any of the common areas or the
accrual of any rights of any person or of the public to the common areas,
close temporarily any of the common areas for maintenance purposes, and make
changes to the common areas including, without limitation, changes in the
location of driveways, entrances, exits, vehicular parking spaces, parking
area, the designation of areas for the exclusive use of others, the direction
of the flow of traffic or construction of additional buildings thereupon,
without any restriction whatsoever. The initial Rules and Regulations
concerning the Shopping Complex are attached hereto as Exhibit "E." Lessor
reserves the right to make additional reasonable rules affecting the Shopping
Complex throughout the term hereof.
16.3 Lessee shall pay to Lessor, as additional rent, its proportionate share
of common area costs within ten (10) days of receiving a bill therefor from
the Lessor, which shall be no more frequently than monthly. Except as
otherwise provided herein, Lessee's proportionate share of common area costs
shall be that fraction of the total common area costs that the total number of
square feet in the premises bears to the gross leasable area in the buildings
having the use of the common areas. Lessor may bill the Lessee estimated
charges for common area costs provided that such costs are adjusted annually
to reflect the actual costs incurred in the previous year. Upon completion of
the actual costs, the party owing the sum of money needed to adjust the
Lessee's contribution to actual figures shall remit to the other the balancing
sum within ten (10) days of receiving a statement therefor from the Lessor, if
the Lessee's estimated payments have been insufficient, or within sixty (60)
days following the close of the calendar year, if Lessee has paid in excess of
its share.
16.4 "Common area costs," means all sums expended by the Lessor for the
supervision, maintenance, repair, replacement and operation (including
security services) of the common areas, and insurance, plus an allowance of
fifteen percent (15%) of such costs to the Lessor for administrative fee.
Costs for maintenance and operation of the common area shall include without
limitation, costs of resurfacing, repainting and restriping, painting
(including exterior building painting), sweeping and other janitorial and
security services, maintenance of restrooms, elevators, walkways, pedestrian
entrances, repairs and replacements (including repairs and replacement of
structural aspects of the Shopping Complex), policing, purchase, construction
and maintenance of refuse receptacles, planting and landscaping, directories,
signs and other markers, lighting and other utilities, the cost of Christmas
decorations [REMAINDER OF SENTENCE DELETED]. Without in any way limiting the
generality of the foregoing, in which the parties intend to express their
agreement that all common area costs shall be borne by the tenants in pro rata
amounts, specific reference is made to the inclusion in such costs of any
capital improvements made by the Lessor to the Shopping Complex for the
purpose of reducing other operating expenses or utility costs, or that are
required by governmental law, ordinance, regulation or mandate, not applicable
to the complex at the time of the original construction. The portion to be
included each year in common area costs shall be that fraction allocable to
the year in question calculated by amortizing over the reasonable useful life
of such improvement, as determined by the Lessor, with interest on the
unamortized balance at ten percent (10%) per annum or such higher rate as may
have been paid by Lessor for funds borrowed for the purpose of constructing
such improvements, but in no event to exceed the highest rate permissible by
law.
Notwithstanding the above, (1) the following costs shall be excluded from the
above definition of common area costs, to wit: costs directly related to (a)
the maintenance and repair of the elevators and (b) the maintenance and repair
of hallways and bathrooms located on the second and third floor of the
shopping complex; (2) Lessee's responsibility for the following costs shall be
based upon use, as estimated by Lessor, to wit: (a) scavenger, (b) domestic
water; and (3) Lessee's responsibility for costs relating to the repair and
maintenance of the heating, ventilating and air conditioning system serving
that portion of the complex being used for retail purposes shall be determined
by multiplying the repair and maintenance costs by a fraction the numerator of
which is the gross square feet of the leased premises, and the denominator of
which is the gross leasable square footage of that portion of the premises
being used for retail purposes.
ALTERATIONS
17.1 Lessee shall not make, or suffer to be made, any alterations to the
demised premises, or any part thereof, without the written consent of the
Lessor first had and obtained. Any additions to, or alterations of, the leased
premises, except trade fixtures, shall become at once a part of the realty and
belong to Lessor. Except as otherwise provided in this lease, Lessee shall
have the right to remove its trade fixtures placed upon the leased premises
provided that Lessee restores the leased premises as indicated below.
17.2 Any alterations, additions or installations performed by the Lessee
(hereinafter collectively "alterations") shall be subject to strict conformity
with the following requirements:
(a) All alterations shall be at the sole cost and expense of the Lessee;
(b) Prior to commencement of work of alteration, Lessee shall submit
detailed plans and specifications, including working drawings (hereinafter
referred to as "Plans"), of the proposed alterations, which shall be subject
to the consent of the Lessor in accordance with the terms of paragraph 17.1
above;
(c) Following approval of the plans by the Lessor, Lessee shall give
Lessor at least ten (10) days prior written notice of commencement of work in
the leased premises so that Lessor may post notices of nonresponsibility in or
upon the leased premises as provided by law;
(d) No alterations shall be commenced without the Lessee having
previously obtained all appropriate permits and approvals required by and of
governmental agencies;
(e) All alterations shall be performed in a skillful and workmanlike
manner, consistent with the best practices and standards of the construction
industry, and pursued with diligence in accordance with the plans previously
approved by the Lessor and in full accord with all applicable laws and
ordinances. All material, equipment, and articles incorporated in the
alterations is to be new, and of recent manufacture, and of the most suitable
grade for the purpose intended;
(f) Lessee must obtain the prior written approval from Lessor for
Lessee's contract prior to commencement of the work. Lessee's contractor shall
maintain all of the insurance reasonable required by Lessor, including
comprehensive general liability, workers' compensation, as well as builder's
risk insurance and course of construction insurance;
(g) As a condition of approval of the alterations, Lessor may require a
Certificate of Deposit drawn on Continental Pacific Bank, payable to Lessor,
in a sum equal to the cost of the alterations guarantying the completion of
the alterations free and clear of all liens and other charges in accordance
with the plans. Such a bond shall name the Lessor as beneficiary;
(h) The alterations must be performed in a manner such that it will not
interfere with the quiet enjoyment of the other lessees in the Shopping
Complex.
17.3 The Lessee shall keep the demised premises and the Shopping Complex in
which the demised premises are situated, free from any liens arising out of
any work performed, materials furnished or obligations incurred by the Lessee.
In the event a mechanic's or other lien is filed against the leased premises
or the Shopping Complex of which the leased premises forms a part as a result
of a claim arising through the Lessee, the Lessor may demand that the Lessee
furnish to the Lessor a surety bond satisfactory to the Lessor in an amount
equal to at least one hundred fifty percent (150%) of the amount of the
contested lien claim or demand, indemnifying Lessor against liability for the
same and holding the leased premises free from the effect of such line or
claim. Such bond must be posted within ten (10) days following notice from
lessor. In addition, Lessor may require Lessee to pay Lessor's attorney's fees
and costs in participating in such action if Lessor shall decide it is to its
best interest to do so. The Lessor may pay the claim prior to the enforcement
thereof, in which event the Lessee shall reimburse the Lessor in full,
including attorney's fees, for any such expense, as additional rent, with the
next due rental.
17.4 Lessee shall ascertain from Lessor at least thirty (30) days prior to
the termination of this lease, whether Lessor desires the leased premises, or
any part thereof, restored to its condition prior to the making of permitted
alterations, installations and improvements, and if Lessor shall so desire,
then Lessee shall forthwith restore said lease premises or the designated part
of it as the case may be to its original condition, entirely at its own
expense, excepting normal wear and tear.
WASTE
18. Lessee shall not commit, or suffer to be committed, any waste upon the
leased premises, or any nuisance, or other act or thing which may disturb the
quiet enjoyment of any other tenant or occupant of the complex in which the
leased premises are located.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
19. Lessee, shall, at its sole cost and expense, comply with all of the
requirements of all municipal, state and federal authorities now in force, or
which may hereafter be in force, pertaining to the premises, and shall
faithfully observe in the use of the premises all municipal ordinances and
state and federal statutes now in force or which may hereafter be in force.
The judgment of any Court of competent jurisdiction, or the admission of
Lessee in any action of proceeding against Lessee, whether Lessor be a party
thereto or not, that any such ordinance or statute pertaining to the premises
has been violated, shall be conclusive of that fact as between Lessor and
Lessee.
LIABILITY AND PLATE GLASS INSURANCE
20. Lessee agrees to provide and keep in force for the benefit of the Lessor
and Lessee, at Lessee's own cost and expense at all times during the term
hereof, a liability insurance policy or endorsement on a blanket liability
insurance policy insuring Lessor and Lessee against any and all damages and
liability on account of or arising out of injuries to or the death of any
person in or about the demised premises in a minimum amount of ONE MILLION
DOLLARS ($1,000,000.00), for bodily and personal injuries and for damage to
property [NEXT SENTENCE DELETED]. Said policies or endorsements shall be
effected with insurance companies approved by Lessor, authorized to write
liability insurance in the State in which the shopping center is located, and
shall include coverage related to occupancy of premises, as well as
contractual liability, liquor liability, and products liability. Said policies
shall designate specifically that Lessor is an additional named insured
thereunder; such policies or certified copies thereof shall be delivered in
Lessor. Said policies shall require that notice be afforded to Lessor of any
cancellation, lapse, failure to renew or any material change in coverage at
least thirty (30) days prior to the effective date of any such events. In no
event shall any deductible for any of the policies described above exceed
$500.00.
INDEMNIFICATION, WAIVER OF CLAIMS AND SUBROGATION
21.1 This Article 21 is written and agreed to in respect of the intent of the
parties to assign the risk of loss whether resulting from negligence of the
parties or otherwise, to the party who is obligated hereunder to cover the
risk of such loss with insurance. Thus, the indemnity and waiver of claims
provisions of this Lease have as their object, so long as such object is not
in violation of public policy, the assignment of risk for a particular
casualty to the party carrying the insurance for such risk, without respect to
the causation thereof.
21.2 Lessor and Lessee release each other, and their respective authorized
representatives, from any claims for damage to any person or to the premises
and the building and other improvements in which the premises are located, and
to the fixtures, personal property, Lessee's improvements and alterations of
either Lessor or Lessee, in or on the premises and the building and other
improvements in which the premises are located, including loss of income, that
are caused by or result from risks insured against under any property
insurance policies carried by the parties and in force at the time of any such
damage.
21.3 Each party shall cause each insurance policy obtained by it to provide
that the insurance company waives all rights of recovery by way of subrogation
against either party in connection with any damage covered by any policy.
Neither party shall be liable to the other for any damage caused by fire or
any other risks insured against under any property insurance policy required
by this lease. If any such insurance policy cannot be obtained with a Waiver
of Subrogation clause or rider without payment of an additional premium charge
above that charged by the insurance companies issuing such policies without
Waiver of Subrogation, the Lessee shall pay such additional premium to the
insurance carrier requiring such additional premium.
21.4 Lessee, as a material part of the consideration to be rendered to
Lessor, shall indemnify and hold harmless the Lessor from any loss by reason
of injury to person or property, from whatever cause, all or in any way
connected with the condition or use of the leased premises, or the
improvements or personal property therein or thereon, including without
limitation any liability or injury to the person or property of the Lessee,
its agents, officers, employees or invitees. Lessee agrees to indemnify Lessor
and hold it harmless from any and all liability, loss, cost or obligation on
account of, or arising out of, any such injury or loss however occurring,
including breach of the provisions of this lease and the negligence of the
parties hereto.
21.5 In the event any action, suit or proceeding is brought against Lessor by
reason of any such occurrence, Lessee, upon Lessor's request will be at
Lessee's expense resist and defend such action, suit or proceeding, or cause
the same to be resisted and defended by counsel designated by the insurer
whose policy covers the occurrence or by counsel designated by Lessee and
approved by Lessor. The obligations of Lessee under this Section arising by
reason of any of occurrence taking place during the lease term shall survive
any termination of this lease.
21.6 Lessee, as a material part of the consideration to be rendered to
Lessor, hereby waives all claims against Lessor for damages to goods, wares,
merchandise and loss of business in, upon or about the leased premises and for
injury to Lessee, its agents, employees, invitees or third persons in or about
the leased premises from any cause arising at any time, including breach of
the provisions of this lease and the negligence of the parties hereto.
FIRE INSURANCE
21.1 Lessee, upon demand, shall pay to Lessor, as additional rent, its
proportionate share of the premium for fire, extended coverage and other
property insurance obtained by the Lessor on the premises and on the Shopping
Center or building of which the premises form a part, including the common
areas. Lessee's proportionate share shall be that fraction, the numerator of
which is the number of square feet in the Lessee's premises, and the
denominator of which is the total number of leaseable square feet in the
building of buildings covered by such policies of insurance.
22.2 Additionally, the Lessee shall, upon demand, pay to the Lessor any
increase in such insurance premium resulting to the overall cost on the
building or buildings covered by such policies because of any special
conditions relating to the Lessee's operations which require a higher premium.
Lessors insurance carrier or Lessor's insurance agent shall make the judgment
as to the sum of money so involved, which judgment shall be conclusive.
22.3 No such insurance above-described may have a deductible in excess of
$5,000.00.
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22.4 No use shall be made or permitted to be made on the leased premises, nor
acts done, which will increase the existing rate of insurance upon the
building in which the premises are located or upon any other building in the
complex or cause the cancellation of any insurance policy covering the
building, or any part thereof, nor shall Lessee sell, or permit to be kept,
used or sold, in or about the leased premises, of any insurance organization
or company, necessary for the maintenance of reasonable property damage and
public liability insurance, covering the leased premises, building and
appurtenances.
LESSEE PROPERTY DAMAGE INSURANCE
23. Lessee agrees at all times during the term of this lease, and at Lessee's
sole expense, to keep all trade fixtures, equipment and merchandise of Lessee,
or any subtenant of Lessee that may be in the premises from time to time,
insured against loss or damage by fire or the hazards commonly referred to
under the extended coverage endorsement, for an amount of ninety percent (90%
of full replacement value. The proceeds from any such insurance must be used
by the Lessee to restore or replace any such trade fixtures, equipment and
merchandise in the premises. No such insurance above described may have a
deductible in excess of $5,000.00.
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INSURANCE POLICY REQUIREMENTS
24.1 All insurance policies required to be carried by the Lessee hereunder
shall conform to the following requirements:
(a) The insuror in each case shall carry a designation in "Best's
Insurance Reports" as issued from time to time throughout the term as follows:
Policy holder's rating of A; financial rating of not less that X;
(b) The insuror shall be qualified to do business in the state in which
the premises are located;
(c) Each policy shall name the Lessor as an insured and, at Lessor's
request, shall carry a lender's loss payee endorsement in favor of Lessor's
lender;
(d) An executed copy of each insurance policy, or a certificate thereof,
shall be delivered to the Lessor at commencement of the term and shall remain
in effect throughout the term, including copies of any renewals or
certificates thereof, at lease thirty (30) days prior to the expiration of
such policies;
(e) These policies shall require that the Lessor be notified in writing
by the insuror at least thirty (30) days prior to any cancellation or
expiration of such policy, or any reduction in the amounts of insurance
carried;
(f) Each policy shall be primary, not contributing with, and not in
excess of coverage which the Lessor may carry;
(g) All liability insurance required to be carried by the Lessee
hereunder shall state that the Lessor is entitled to recovery for the
negligence of the Lessee even though Lessor is a named insured.
ADVERTISEMENTS AND SIGNS
25. Lessee shall not conduct or permit to be conducted any sale by auction on
said premises. Lessee shall not place or permit to be placed on the premises
any interior or exterior sign, advertisement, decoration, marquee or awning
that is visible from the exterior of the premises without the prior written
consent of Lessor which Lessor reserves the right to withhold in its sole
judgment. Lessee, upon request of Lessor, shall immediately remove any such
sign, advertisement, decoration, marquee or awning which, in the opinion of
Lessor, is objectionable or offensive, and if Lessee fails so to do, Lessor
may enter upon said premises and remove the same. Lessor has reserved the
exclusive right to the exterior sidewalls, rear wall and roof of said
premises, and Lessee shall not place or permit to be placed upon the said
sidewalls, rear wall or roof, any sign advertisement or notice without the
written consent of Lessor. At the termination of this lease, or any extension,
Lessee shall remove all his signs provided that any damage caused by removal
shall be repaired at lessee's expense All signs shall be maintained by lessee
at his own expense. Except for approved signs, Lessee shall not use any
advertising or promotional medium which may be heard or experienced outside of
the premises (such as searchlights, barkers or loudspeakers). Lessee shall not
distribute handbills or circulars to patrons of the Shopping Center or to cars
in the parking lots, nor engage in any similar form of direct advertising in
the Shopping Center. The initial sign criteria for the Shopping Complex (which
Lessor may change from time to time, in Lessor's sole discretion) are attached
hereto as Exhibit "F", and are incorporated herein by reference.
UTILITIES
26. Lessee, from the time it first enters the premises for the purpose of
setting fixtures, or from the commencement of this lease, whichever date shall
first occur, and throughout the term of this lease shall pay for all charges
(including, without limitation, connection fees) for water, gas, heat, sewer,
power, telephone services and any other utility supplied to or consumed in or
on the leased premises. Lessee shall not allow refuse, garbage, or trash to
accumulate outside of the demised premises. Lessor shall not be responsible or
liable for any interruption in utility services, nor shall such interruption
affect the continuation or validity of this lease. Lessor's allocation of any
utility charges emanating from a common meter shall be performed in good
faith, and shall be conclusive upon the Lessee. All payments to Lessor in
respect thereof shall be due within ten (10) days of billing.
ENTRY BY LESSOR
27. Lessee shall permit Lessor and Lessor's agents to enter into and upon
said premises at all reasonable times for the purpose of inspecting the same
or for the purpose of maintaining the building in which said premises are
situated, or for the purpose of making repairs, alterations or additions to
any other portion of said building, including the erection and maintenance of
such scaffolding, canopies, fences and props as may be required, or for the
purpose of posting notices of non-responsibility for alterations, additions or
repairs, or for the purpose of placing upon the property in which the said
premises are located any usual or ordinary "for sale" signs, without any
rebate of rent and without any liability to Lessee for any loss of occupation
or quiet enjoyment of the premises thereby occasioned and shall permit Lessor
and his agents, at any time within ninety (90) days prior to the expiration of
this lease, to place upon said premises any usual or ordinary "to let" or "to
lease" signs and exhibit the premises to prospective tenants at reasonable
hours. Lessee will give Lessor notice in writing five (5) days prior to
employing any laborer or contractor to perform work resulting in an alteration
of the leased premises so that Lessor may post a notice of non-responsibility.
This section in no way affects the maintenance obligations of the parties
hereto.
DESTRUCTION
28.1 In the event the premises suffers (a) an uninsured casualty or a (b)
casualty which cannot be repaired within one hundred twenty (120) days from
the date of destruction under the laws and regulations of state, federal,
county, municipal authorities or other authorities with jurisdiction, the
Lessor may terminate this lease as at the date of the damage upon written
notice to the Lessee following the casualty.
28.2 In the event of a casualty which may be repaired within one hundred
twenty (120) days from the date of the damage, or, in the alternative, in the
event the Lessor does not elect to terminate this lease under the terms of
Section 28.1 above, then this lease shall continue in full force and effect
and the Lessor shall forthwith undertake to make such repairs to reconstitute
the leased premises to as near the condition as existed prior to the casualty
as practicable. Such partial destruction shall in no way annul or void this
lease except that Lessee shall be entitled to a proportionate reduction of
rent following the casualty and until the time the leased premises are
restored (except if such casualty was caused by the negligence of the Lessee,
in which case there shall be no abatement of rent). Such reduction shall be in
the amount of that fraction of the minimum rent in which the numerator is the
portion of the premises unoccupied during any such reconstruction and the
denominator or which is the amount of square footage in the leased premises.
Lessor's repair obligations shall in no way include any construction
obligations originally hereunder imposed on the Lessee or subsequently
undertaken by Lessee, but shall include solely that property constructed by
Lessor prior to commencement of the term hereof.
28.3 Lessee hereby waives all statutory or common law rights of termination
in respect to any partial destruction or casualty which Lessor is obligated to
repair to may elect to repair under the terms of this Article. Further, in
event of a casualty occurring during the last two (2) years of the original
term hereof or of any extension, Lessor need not undertake any repairs and may
cancel this lease unless the Lessee has the right under the terms of this
lease to extend the term for an additional period and does so within thirty
(30) days of the date of the casualty.
28.4 In the event that the building in which the demised premises is situated
by destroyed to the extent of not less than thirty three and one-third percent
(33-1/3%) of the replacement cost thereof, Lessor may elect to terminate this
lease, whether the demised premises by injured or not, in the same manner as
in Section 28.1 above. At all events, a total destruction of the complex of
which the leased premises form a part, or the leased premises itself, shall
terminate this lease.
CONDEMNATION
29.1 (a) "Condemnation" means (i) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a condemnor and/or (ii) a
voluntary sale or transfer by Lessor to any condemnor, either under threat of
condemnation or while legal proceedings for condemnation are pending.
(b) "Date of taking" means the date the condemnor has the right to
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value awarded,
paid, or received on a total or partial condemnation.
(d) "Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation
29.2 If the premises are totally taken by condemnation, this lease shall
terminate on the date of taking.
29.3 (a) If any portion of the leased premises is taken by condemnation, this
lease shall remain in effect, except that Lessee can elect to terminate this
lease if fifty percent (50%) or more of the total number of square feet in the
leased premises is taken.
(b) If the common areas of the complex of which the leased premises form
a part is taken by condemnation, this lease shall remain in full force and
effect, except that if thirty percent (30%) or more of the common area is
taken by condemnation, either party shall have the election to terminate this
lease pursuant to this section.
(c) If fifty percent (50%) or more of the building in which the leased
premises are located is taken, the Lessor shall have the election to terminate
this lease in the manner prescribed herein.
29.4 (a) If either party elects to terminate this lease under the provisions
of Section 29.3, it must terminate by giving notice to the other party within
thirty (30) days after the nature and extent of the taking have been finally
determined. The party terminating this lease also shall notify the other party
of the date of termination, which date shall not be earlier than sixty (60)
days or later than ninety (90) days after the terminating party has notified
the other party of its election to terminate; except that this lease shall
terminate on the date of taking if the date of taking falls on a date before
the date of termination designated in the notice from the terminating party.
If this lease is not terminated within the thirty (30) day period, it shall
continue in full force and effect except that minimum rent shall be reduced by
subtracting therefrom an amount calculated by multiplying the minimum rent by
a fraction the numerator of which is the number of square feet taken from the
leased premises and the denominator of which is the number of square feet in
the leased premises prior to the taking.
(b) If there is a partial taking of the leased premises and this lease
remains in full force and effect pursuant to his Article, Lessor, at its cost,
shall accomplish all necessary restoration so that the leased premises is
returned as near as practical to its condition immediately prior to the date
of the taking, but in no event shall Lessor be obligated to expend more for
such restoration than the extent of funds actually paid to Lessor by the
condemnor.
29.5 Any award arising from the condemnation or the settlement thereof shall
belong to and be paid to the Lessor except that the Lessee shall receive from
the award the following, if specified in the award by the condemning
authority, so long as it does not reduce the Lessor's award in respect of the
real property: Lessee's trade fixtures, personal property, goodwill, loss of
business and relocation expenses. At all events the Lessor shall be solely
entitled to all award in respect of the real property including the bonus
value of the leasehold. The Lessee shall not be entitled to any award until
the Lessor has received the above sum in full.
ASSIGNMENT AND SUBLETTING
30.1 Lessee shall not assign this lease, or any interest therein, and shall
not sublet the said premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person (the agents and servants of
Lessee excepted) to occupy or use the said premises, or any portion thereof,
without the written consent of Lessor first had and obtained, and a consent to
one assignment, subletting, occupation or use by any other person, shall not
be deemed to be a consent to any subsequent assignment, subletting occupation
or use by another person. Any such assignment or subletting without such
consent shall be void at the option of the Lessor, and shall, at the option of
Lessor, terminate this lease. This lease shall not, nor shall any interest
therein, be assignable, as to the interest of Lessee, by operation of law,
without the written consent of Lessor. This Lease is assumable by the FDIC
without consent.
30.2 The consent of the Lessor required under Section 30.1 above, may not be
unreasonably withheld, provided, should Lessor withhold its consent for any of
the following reasons, which list is not exclusive, such withholding shall be
deemed to be reasonable:
(a) A conflict with other uses in the Shopping Center of which the
premises form a part;
(b) Incompatibility of the proposed use with others within the Shopping
Center of which the premises form a part;
(c) Financial inadequacy of the proposed sublessee or assignee;
(d) A proposed use or user which would cause a diminution in the
reputation of the Shopping Center or the other businesses located therein;
(e) Wherein the percentage rent clause herein is not suitable for the
proposed new assignee or sublessee in that their volume could reasonably be
expected to be less than that of the Lessee hereunder;
(f) A proposed user whose impact on the common facilities or the other
tenants in the Shopping Center would be disadvantageous.
In any event, should the Lessor decline to give its consent, and does so
without stating a reasonable cause, this lease shall terminate thirty (30)
days following written notice from Lessor to Lessee of its election to
withhold consent without justifiable reason therefor. At that time, all
obligations of both parties hereunder thereafter accruing shall terminate. The
purpose of this paragraph is to permit Lessor, at its option, to terminate
this lease, and relieve Lessee of continuing liability, in event of a proposed
assignment or subletting.
30.3 Notwithstanding the foregoing, the following conditions shall apply to
any proposed assignment or sublease hereunder:
(a) Each and every covenant, condition, or obligation imposed upon
Lessee by this lease and each and every right, remedy, or benefit afforded
Lessor by this lease shall not be impaired or diminished as a result of such
assignment or sublease;
(b) Any sums of money, or other economic consideration received by
Lessee as a result of such subletting, including bonuses, key money, or the
like (except rental or other payments received which are attributable to the
amortization for the cost of leasehold improvements performed at the expense
of the Lessee herein) which exceed, in the aggregate, the total sums which
Lessee is obligated to pay lessor under this lease, or the prorated portion
thereof if the premises subleased is less than the entire premises, shall be
payable to Lessor as additional rental under this lease without affecting or
reducing any other obligation of the Lessee hereunder.
(c) If Lessee is a corporation which is not deemed a public corporation,
or is an unincorporated association or partnership, the transfer, assignment
or hypothecation of any stock or interest in such corporation, associate or
partnership in the aggregate in excess of twenty-five percent (25%) shall be
deemed an assignment within this Article 30;
(d) Lessee shall reimburse Lessor as additional rents for Lessor's
reasonable costs and attorney's fees incurred in conjunction with the
processing and documentation of any such requested assignment, subletting,
transfer, change of ownership or hypothecation of this lease or Lessee's
interest in and to the premises;
(e) Lessor may condition the approval of any assignment or subletting as
specified herein upon an increase in the minimum guaranteed rental payable by
Lessee or Lessee's successor in interest;
(f) No subletting or assignment, even with the consent of Lessor, shall
relieve Lessee of its obligation to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any person shall not be deemed to be a waiver by Lessor of any
provision of this lease or to be a consent to any assignment or subletting.
30.4 Notwithstanding anything to the contrary contained herein, at Lessor's
election:
(a) In the event that at any time or from time to tome during the term
of this lease, Lessee desires to assign or sublet all or part of the demised
premises, Lessee shall notify the Lessor in writing (hereinafter referred to
as "Transfer Notice") of the terms of the proposed assignment or subletting,
the proposed transferee and the area so proposed to be assigned or sublet and
shall give the Lessor the right to accept an assignment or to sublet from
Lessee such space (hereinafter referred to as "Transferred Space") on the same
terms as those contained in this lease, including the rent which Lessee is
then paying for such space, calculated on the basis of the total minimum rent
hereunder divided by the total square footage in the entire premises
multiplied by the number of square feet to be assigned or sublet. Such option
shall be exercisable by Lessor in writing for a period of thirty (30) days
after receipt of the Transfer Notice.
(b) If Lessor fails to exercise such option, and Lessee fails to
complete negotiations for a valid and bona fide assignment to or sublease with
a third party within sixty (60) days thereafter in accordance with the terms
of the Transfer Notice, Lessee shall again comply with all the conditions of
this Article 30, as if the notice and option hereinabove referred to had not
been given and received.
(c) In the event Lessor does not exercise its option and Lessee
completes negotiations for an assignment or sublease with a third party within
the sixty (60) day period, Lessee shall deliver an executed copy of such
assignment or sublease to Lessor to obtain its consent as required in this
Article 30. If the Lessor consents to a sublease, then such sublease shall be
subject to and made upon the following terms:
1. Any such sublease shall be subject to the terms of this lease
and the term thereof may not extend beyond the expiration of the term of this
lease;
2. The use be made of the Transferred Space shall be a legal use in
keeping with the character of the complex and the terms of this lease;
3. Such assignment or sublease shall not violate any negative
covenant as to use contained in any deed of trust affecting the complex; and
4. No sublessee shall have a right to further sublet.
(d) Lessee shall have the right without the consent of Lessor but upon
prior written notice to Lessor, to assign this lease to a company incorporated
or to be incorporated by Lessee provided that lessee owns or beneficially
controls all the issued and outstanding shares in the capital stock of the
company. Such assignment shall not, however, relieve Lessee from its
obligations for the payment of rent and for the full and faithful observance
and performance of the covenants, terms and conditions contained herein.
(e) No permitted assignment or sublessee shall be valid and no assignee
or sublease shall take possession of the premises assigned or sublet unless,
within ten (10) days after the execution thereof, Lessee shall deliver to
Lessor a duly executed duplicate original of such assignment or sublease in
form satisfactory to Lessor which provides (1) the assignee or sublessee
assumes Lessee's obligations for the payment of rent and for the full and
faithful observance and performance of the covenants, terms and conditions
contained herein, and (2) that such assignee or sublessee will, at Lessor's
election, attorn directly to Lessor in the event Lessee's lease is terminated
for any reason, and (3) such assignment or sublease contains such other
assurances as Lessor reasonably deems necessary.
COVENANT NOT TO COMPETE
31. [DELETED]
ABANDONMENT
32. Lessee shall not vacate or abandon the premises at any time during the
term; and if Lessee shall abandon, vacate or surrender the premises, or be
dispossesed by process of law, or otherwise, any personal property belonging
to Lessee and left on the premises shall be deemed to be abandoned, at the
option of Lessor, except such property as may be mortgaged to Lessor.
DEFAULT
33.1 The occurrence of any of the following shall constitute a material
default and breach of this lease by Lessee:
(a) Any failure by Lessee to pay the rental or to make any other payment
required to be made by Lessee hereunder when due.
(b) The abandonment or vacation of the premises by Lessee in violation
of Article 32 hereof.
(c) A failure by Lessee to observe and perform any other provision of
this lease to be observed or performed by Lessee, where such failure continues
for ten (10) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of such default is such that the same cannot
reasonable be cured within such ten (10) day period, Lessee shall not be
deemed to be in default if Lessee shall within such period commence such cure
and thereafter diligently prosecute the same to completion.
(d) Either (1) the appointment of a receiver (except a receiver
appointed at the instance or request of Lessor) to take possession of all or
substantially all of the assets of Lessee, or (2) a general assignment by
lessee for the benefit of creditors, or (3) any action taken or suffered by
Lessee under any insolvency or bankruptcy act shall constitute a breach of
this lease by Lessee. In such event, Lessor may, at his option, declare this
lease terminated and forfeited by Lessee, and Lessor shall be entitled to
immediate possession of such premises. Upon such notice of termination, this
lease shall terminate immediately and automatically by its own limitation.
(e) Any two (2) failures by Lessee to observe and perform any provision
of this lease during any twelve (12) month period of the term, as such may be
extended, shall constitute, at the option of the Lessor, a separate
non-curable default.
(f) [SECTION DELETED]
(g) [SECTION DELETED]
33.2 Under the terms of this Lease numerous charges are and may be due from
Lessee to Lessor including, without limitation, common area charges, real
estate taxes, insurance reimbursement and other items of a similar nature
including advances made by Lessor in respect of Lessee's default at Lessor's
option. In event that at any time during the term there is a dispute between
the parties as to the amount due for any of such charges claimed by Lessor to
be due, the amount demanded by the Lessor shall be paid by the Lessee until
the resolution of the dispute between the parties or by litigation. Failure by
Lessee to pay the disputed sums until resolution shall constitue a material
default and a breach of this lease by Lessee.
REMEDIES UPON DEFAULT
34.1 Lessor and Lessee agree as follows upon Lessor's remedies for any
default by Lessee as set forth in Section 33.1 above:
(a) In the event of any such default by Lessee, then in addition to any
other remedies available to Lessor at law or in equity, Lessor shall have the
immediate option to terminate this lease and all rights of Lessee hereunder by
giving written notice of such intention to terminate. In the event that Lessor
shall elect to so terminate this lease, then Lessor may recover from Lessee:
(i) the worth at the time of award of any unpaid rent which had
been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Lessee proves could have been
reasonable avoided; plus
(iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Lessee proves could have been reasonably
avoided; plus
(iv) any other amount necessary to compensate Lessor for all the
detriment proximately caused by Lessee's failure to perform his obligations
under this lease or which in the ordinary course of things would be likely to
result therefrom; and
(v) at Lessor's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by the law
applicable in the State in which the Shopping Center is located.
(b) The term "rent", as used herein, shall be deemed to be and to mean
set minimum rental and all other sums required to be paid by Lessee pursuant
to the terms of this lease.
(c) As used in subparagraphs (a)(i) and (ii) above, the "worth at the
time of award" is computed by allowing interest at the rate of ten percent
(10%) per annum. As used in subparagraph (a) (iii) above, the "worth at the
time of award" is computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(d) In the event of any such default by Lessee, (i) Lessor shall also
have the right, with or without terminating this lease, to re-enter the
premises and remove all persons and property from the premises; such property
may be removed and stored in a public warehouse or elsewhere at the cost of
and for the account of Lessee, and/or at Lessor's option (ii) all of Lessee's
fixtures, furniture, equipment, improvements, additions, alterations and other
personal property, shall remain upon the premises and in that event, and
continuing during the length of such default, Lessor shall have the sole right
to take exclusive possession of such property and to use it, rent or charge
free, until all defaults are cured or, at Lessor's option, at any time during
the term of this lease, to require Lessee to forthwith remove such property.
The rights stated herein are in addition to the Landlord's rights described in
Section 35.2.
(e) In the event of the vacation or abandonment of the premises by
lessee or in the event that Lessor shall elect to re-enter as provided in
subparagraph
(d) above, or shall take possession of the premises pursuant to legal
proceeding as pursuant to any notice provided by law, then if Lessor does not
elect to terminate this lease as provided in subparagraph (a) above, Lessor
may from time to time, without terminating this lease, either recover all
rental as it becomes due or relet the premises or any part thereof for such
term or terms and at such rental or rentals and upon such other terms and
conditions as Lessor in its sole discretion, may deem advisable with the right
to make alterations and repairs to the premises.
(f) In the event that Lessor shall elect to so relet, then rentals
received by Lessor from such reletting shall be applied: first, to the payment
of any indebtedness other than rent due hereunder from Lessee to Lessor;
second, to the payment of any cost of such reletting; third, to the payment of
the cost of any alterations and repairs to the premises; fourth, to the
payment of rent due and unpaid hereunder; and the residue, if any, shall be
held by Lessor and applied in payment of future rent as the same may become
due and payable hereunder. Should that portion of such rentals received from
such reletting during any month, which is applied by the payment of rent
hereunder, be less than the rent payable during that month by Lessee
hereunder, then Lessee shall pay such deficiency to Lessor immediately upon
demand therefor by Lessor. Such deficiency shall be calculated and paid
monthly. Lessee shall also pay to Lessor as soon as ascertained, any costs and
expenses incurred by Lessor in such reletting or in making such alterations
and repairs not covered by the rentals received from such reletting.
(g) No re-entry or taking possession of the premises or any other action
under this paragraph shall be construed as an election to terminate this lease
unless a written notice of such intention be given to Lessee or unless the
termination thereof be decreed by a Court of competent jurisdiction.
Notwithstanding any reletting without termination by Lessor because of any
default by Lessee, Lessor may at any time after such reletting elect to
terminate this lease for any such default.
FORFEITURE OF PROPERTY
35.1 Lessee agrees that as of the date of termination of this lease or
repossession of the premises by Lessor, by way of default or otherwise, it
shall remove all personal property to which it has the right to ownership
pursuant to the terms of this lease. Any and all such property of Lessee not
removed by such date shall, at the option of Lessor, irrevocably become the
sole property of Lessor. Lessee waives all rights to notice and all common law
and statutory claims and causes of action which it may have against Lessor
subsequent to such date as regards the storage, destruction, damage, loss of
use and ownership of the personal property affected by the terms of this
Article. Lessee acknowledges Lessor's need to relet the premises upon
termination of this lease or repossession of the premises and understands that
the forfeitures and waivers provided herein are necessary to aid said
reletting.
35.2 Lessee hereby grants to Lessor a lien upon and security interest in all
fixtures, chattels and personal property of every kind now or hereafter to be
placed or installed in or on the premises and agrees that in the event of any
default on the part of the Lessee the Lessor shall have all the rights and
remedies afforded the secured party by the chapter on "Default" of Division 9
of the Uniform Commercial Code of California on the date of this lease and
may, in connection therewith, also (a) enter on the premises to assemble and
take possession of the collateral, (b) require Lessee to assemble the
collateral and make its possession available to the Lessor at the premises
(c) enter the premises, render the collateral, if equipment, unusable and
dispose of it in a manner provided by the Uniform Commercial code of
California on borrower's premises. Lessee designates Lessor his
attorney-in-fact for purposes of executing such documents as may be necessary
to perfect the lien and security interest granted hereunder.
SURRENDER OF LEASE
36. The voluntary or other surrender of this lease by Lessee, or a mutual
cancellation thereof, shall not work as a merger, and shall, at the option of
Lessor, terminate all or any existing subleases or subtenancies, or may, at
the option of Lessor, operate as an assignment to him of any or all such
subleases or subtenancies.
SUBORDINATION
37. This lease shall, at the option of the mortgagee, or beneficiary be
subordinate to any mortgage or Deed of Trust which shall at any time be placed
upon the demised premises or any part thereof or the building of which the
demised premises are a portion, and Lessee agrees to execute and deliver any
instrument without cost, which may be deemed necessary to further effect the
subordination of this lease to any such mortgage or Deed of Trust, provided,
however, that the mortgagee agrees that in the event of transfer of title to
the demised premises by Lessor to a mortgagee, trustee or beneficiary under
said Deed of Trust or to any purchaser therefrom or successor thereto, this
lease shall not terminate if Lessee is not in default. Lessee shall attorn to
said new owner as if a party hereto regardless of any rule of law to the
contrary or absence of privity of contract.
EMPLOYEE PARKING
38. Automobiles of Lessee, its employees and agents shall not park within the
parking area except in areas, if any, delineated by Lessor as "employee
parking" - the adjacent City public parking garage.
NOTICES
39.1 All notices to be given to either party hereunder may be given in
writing, personally or by depositing the same in the United States mail,
postage prepaid, certified mail, return receipt requested, at the addresses
for the parties as specified in Section 1.2 hereof.
39.2 Either party may change the address to which notices are required to be
given by written notice to the other party. All notices shall be deemed
effective upon receipt if personally delivered, or upon execution of the
return receipt if by United States mail.
39.3 Should Lessee consist of more than one person or entity, they shall be
jointly and severally liable on this lease. Each person and/or entity whose
signature is affixed to the end of this lease as Lessee, designates each other
such person and/or entity their agent for service of process, or notice, in
the event of all litigation or dispute arising from Lessee's breach of any
obligation imposed by this lease, or otherwise, due from lessee to Lessor.
TRANSFER OF SECURITY
40. If any security be given by Lessee to secure the faithful performance of
all or any of the covenants of this lease on the part of Lessee, Lessor may
transfer and/or deliver the security, as such, to the purchaser of the
reversion, in the event that the reversion be sold, and thereupon Lessor shall
be discharged from any further liability in reference thereto.
WAIVER
41. The waiver by Lessor of any breach of any lease provision shall not be
deemed to be a waiver of such lease provision or any subsequent breach of the
same or any other term, covenant or condition therein contained. The
subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a
waiver of any preceding breach by Lessee of any provision of this lease, other
than the failure of Lessee to pay the particular rental so accepted regardless
of Lessor's knowledge of such preceding breach at the time of acceptance of
such rent.
HOLDING OVER
42. Any holding over after the expiration of the term hereof, with the
consent of the Lessor, shall be construed to be a tenancy from month to month
upon the same terms and conditions as existed during the last month of the
term hereof, so far as applicable, except that the minimum rental shall be
twice the minimum rental in effect immediately prior to the expiration or
sooner termination of the lease.
LIMITATION ON LESSOR'S LIABILITY
43. In the event of default, breach, or violation by Lessor (which term
includes Lessor's partners, co-venturers, co-tenants, officers, directors,
employees, agents, or representatives) of any Lessor's obligations under this
lease, Lessor's liability to Lessee shall be limited to its ownership interest
in the premises (or its interest in the Shopping Complex, if applicable) or
the proceeds of a public sale of such interest pursuant to foreclosure of a
judgment against the Lessor. Lessor may, at its option, and among its other
alternatives, relieve itself of all liability under this lease by conveying
the premises to the Lessee. Notwithstanding any such conveyance, Lessee's
leasehold and ownership interest shall not merge.
LATE CHARGES
44. Lessee acknowledges that late payment by Lessee to Lessor of rent or any
other payment due hereunder will cause Lessor to incur costs not contemplated
by this lease, the exact amount of such costs being extremely difficult and
impractical to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Lessor by the
terms of any encumbrance and note secured by any encumbrance covering the
premises. Therefore, if any installment of rent, or any other payment due
hereunder, due from Lessee is not received by Lessor when due, Lessee shall
pay to Lessor an additional sum of ten percent (10%) of such rent or other
charge as a late charge. The parties agree that this late charge represents a
fair and reasonable estimate of the cost that Lessor will incur by reason of
late payment by Lessee. Acceptance of any late charge shall not constitute a
waiver of Lessee default with respect to the overdue amount, or prevent Lessor
from exercising any other rights or remedies available to Lessor. Rent is due
the first of each month with late charge imposed on the 10th if rent is not
paid.
SUCCESSORS AND ASSIGNS
45. The covenants and conditions herein contained shall, subject to the
provisions as to assignment, apply to and bind the heirs, successors,
executors, administrators and assigns of all of the parties hereto; and all of
the parties hereto shall be jointly and severally liable hereunder.
TIME
46. Time is of the essence of this lease with respect to each and every
article, section and subsection hereof.
MARGINAL CAPTIONS
47. The captions in the margins of this lease are for convenience only and
are not a part of this lease and do not in any way, limit or amplify the terms
and provisions of this lease
EFFECT OF LANDLORD'S CONVEYANCE
48. If during the term of this lease, Lessor shall sell his interest in the
Shopping Center, or the premises, then from and after the effective date of
sale, Lessor shall be released and discharged from any and all obligations
and responsibilities under this lease except those already accrued.
DEFAULT OF LESSOR
49. If Lessor is in default of this lease, and as a consequence Lessee
recovers a money judgment against Lessor, the judgment shall be satisfied only
out of the proceeds of sale received on execution of the judgment and levy
against the right, title, and interest of the landlord in the Shopping Center,
and out of the rent or other income from such real property receivable by the
Lessor or out of the consideration received by Lessor from the sale or other
disposition of all or any part of Lessor's right, title and interest in the
Shopping Center. Neither the Lessor nor any of the partners comprising the
partnership designated as Lessor (if applicable) shall be personally liable
for any deficiency.
OFFSET STATEMENTS
50. Within ten (10) days of request therefor by Lessor, Lessee shall provide
a written statement acknowledging the commencement and termination dates of
this lease, that it is in full force and effect, has not been modified (or if
it has, stating such modifications), and providing any other pertinent
information as Lessor or its agent might reasonably request. Failure to comply
with this paragraph shall be a material breach of this lease by Lessee giving
Lessor all rights and remedies of Article 34. hereof, as well as a right to
damages caused by the loss of a loan or sale which may result from such
failure by Lessee.
ATTORNEY'S FEES
51. If either party becomes a party to any litigation concerning this lease,
the premises, or the building or other improvements of which the premises form
a part, by reason of any act or omission of the other party or its authorized
representatives, and not by any act or omission of the party that becomes a
party to that litigation or any act or omission of its authorized
representatives, the party that causes the other party to become involved in
the litigation shall be liable to that party for reasonable attorney's fees,
court costs, investigation expenses, discovery costs and costs of appeal
incurred by it in the litigation.
If either party commences an action against the other party arising out of or
in connection with this lease, the prevailing party shall be entitled to have
and recover from the losing party reasonable attorney's fees, costs of suit,
investigation costs and discovery costs, including costs of appeal.
WAIVER OF CALIFORNIA CODE SECTIONS
52. Lessee waives the provisions of Civil Code Sections 1932(2) and 1933(4)
with respect to the destruction of the premises, Civil Code Sections 1941 and
1942 with respect to Lessor's repair duties and Lessee's right to repair, and
Code of Civil Procedures Section 1265.130, allowing either party to petition
the Superior Court to terminate this lease in the event of a partial taking of
the by condemnation as herein defined.
LESSEE'S COVENANTS
53. As additional consideration, which additional consideration induces
Lessor to execute this lease, Lessee covenants as follows:
(a) Illumination of Display Windows. The Lessee shall keep the display
window of the leased premises suitably illuminated on each and every day from
8:00 a.m. to midnight unless prohibited by law. Lessor reserves the right to
change such hours of illumination form time to time.
(b) [SECTION DELETED]
(c) Floor Load. Lessee shall not place a load upon any floor of the
leased premises which exceeds one hundred (100) pounds per square foot. Lessor
reserves the right to prescribe the weight, movement and position of all safes
and heavy installations which the Lessee wishes to place in the leased
premises so as to properly distribute the weight thereof.
(d) Garbage, Debris, and Refuse. The Lessee shall not place or leave or
permit to be placed or left in or upon any part of the common areas any
garbage, debris or refuse. Lessee shall deposit all refuse and debris in an
area to be designated by Lessor for such purpose. The Lessee shall pay the
cost of any garbage and refuse removal on the basis of the volume of such
refuse as reasonable determined by Lessor.
(e) Storage - Delivery of Merchandise. All delivery and dispatch of
merchandise, supplies, fixtures, equipment and furniture shall be made and
shall be conveyed to or from the leased premises by means and during hours
established by the Lessor under the Rules and Regulations. The Lessor shall
have no responsibility regarding such delivery or dispatch of merchandise,
supplies, fixtures, equipment and furniture. The Lessee shall not at any time
park its trucks or other delivery vehicles in common areas except in such
parts thereof as may be specifically allocated for such purpose.
(f) Modifications Required by Lender. It is understood by Lessee that
during the term of this lease, Lessor may place new or additional financing
upon the Shopping Complex and in that event this lease must be approved by the
financing institution making such loans. Accordingly, if any such financial
institution requires, as a condition to the making of its loan, any
non-substantive modification of this lease, Lessee agrees to enter into an
agreement so modifying this lease. In the event Lessee refuses on the grounds
that the modification is substantive, that issue only shall be arbitrated as
follows. If the parties are unable to agree on the terms of the amendment,
then each party, at its own cost and expense, and by giving notice to the
other party in writing, shall appoint an arbitrator with at least five (5)
years experience with industrial real property leases as an appraiser or Real
Estate Broker in the County in which the premises are located (hereinafter
"qualified arbitrator"), to arbitrate and set the terms of the amendment. If a
party does not appoint a qualified arbitrator within ten (10) days after the
other party has given notice of the name of its arbitrator, the singe
arbitrator appointed shall be the sole arbitrator and shall set the terms of
the amendment. If the two (2) arbitrators are appointed by the parties as
stated in this section, they shall meet promptly to select a third qualified
arbitrator within ten (10) days after the appointment of the last of the two
arbitrators. If they are unable to timely agree on the third arbitrator,
either of the parties to this lease, by giving five (5) days notice to the
other party, may apply to the then president of the County Real Estate Bard
for the county in which the property is located, or to the presiding judge of
the highest trial court in the county in which the property is located, for
the selection of a third arbitrator. Each of the parties shall bear one-half
of the cost of appointing the third arbitrator and of paying the third
arbitrator's fee. The third arbitrator, however selected, shall be a person
who has not previously acted in any capacity for either party. Within thirty
(30) days after the selection of the third arbitrator, each of the arbitrators
shall notify each of the parties hereto, in writing, of its opinion as to the
terms of the amendment. If it is determined by such arbitration that Lessee is
required to enter into such amendment and if Lessee refuses to execute such
amendment within ten (10) days after such determination, then Lessor shall
have the right, in addition to any other remedies it may have at law or in
equity, by giving written notice to Lessee, to terminate this lease; and upon
giving such notice this lease shall terminate and both Lessor and Lessee shall
pay any sums owing to the other at the time of such termination.
(g) Lessor's Right to Cure Default. All covenants and agreements to be
performed by the Lessee under any of the terms of this lease shall be at its
sole cost and expense and without any abatement of rent. If the Lessee shall
fail to pay any sum of money other than rent, required to be paid by it
hereunder or shall fail to perform any other act on its part to be performed
hereunder and such failure shall have become an event of default as provided
herein, the Lessor may, but shall not be obligated to do so, and without
waiving or releasing the Lessee from any such obligation, make such payment or
perform any such other act on the Lessee's part to be made or performed as
provided herein. All sums so paid by the Lessor and all necessary incidental
costs shall be deemed additional rent hereunder and shall be payable to the
Lessor immediately.
NO PARTNERSHIP
54. It is understood and agreed that nothing contained in this lease nor in
any act of the parties hereto shall be deemed to create any relationship
between the parties hereto other than the relationship of Lessor and Lessee.
BANKRUPTCY
55. If at any time during the term of this lease there shall be filed by or
against Lessee in any court pursuant to any statute either of the United
States or of any State a petition in bankruptcy or insolvency or for
reorganization or the appointment of a receiver or trustee of all or a portion
of Lessee's property, or if a receive or trustee takes possession of any of
the assets of Lessee, or if the leasehold interest herein pass to a receiver
or trustee, or if Lessee makes an assignment for the benefit of creditors or
petitions for, or enters into, an arrangement (and of which are referred to
herein as "a bankruptcy event'), then the following provisions shall apply:
(a) At all events any receiver or trustee in bankruptcy shall either
expressly assume or reject this lease within forty-five (45) days following
the entry of an "Order for Relief."
(b) In the event of an assumption of the lease by a debtor or by a
trustee, such debtor or trustee shall within fifteen (15) days after such
assumption (1) cure any default or provide adequate assurances that defaults
will be promptly cured; and (2) compensate Lessor for actual pecuniary loss or
provide adequate assurances that compensation will be made for actual
pecuniary loss; and (3) provide adequate assurance of future performance.
(c) Where a default exists in the lease, the trustee or debtor assuming
the lease may not require Lessor to provide services or supplies incidental to
the lease before its assumption by such trustee or debtor, unless Lessor is
compensated under the terms of the lease for such services and supplies
provided before the assumption of such lease.
(d) The debtor or trustee may only assign this lease if: (1) it is
assumed; and (2) adequate assurance of future performance by the assignee is
provided, whether or not there has been a default under the lease. Any
consideration paid by any assignee in excess of the rental reserved in the
lease shall be the sole property of, and paid to, Lessor.
(e) The Lessor shall be entitled to the fair market value for the
premises and the services provided by lessor (but in no event less than the
rental reserved in the lease) subsequent to the commencement of a bankruptcy
event.
(f) Lessor specifically reserves any and all remedies available to
Lessor in Article 34 hereof or and law or in equity in respect of a bankruptcy
event by Lessee to the extent such remedies are permitted by law.
MISCELLANEOUS PROVISIONS
56.1 Whenever the singular number is used in this lease and when required by
the context, the same shall include the plural, the plural shall include the
singular, and the masculine gender shall include the feminine and neuter
genders, and the word "person" shall include corporation, firm or association.
If there be more than one lessee, the obligations imposed under this lease
upon Lessee shall be joint and several.
56.2 This instrument contains all of the agreements, conditions and
representations made between the parties to this lease and may not be modified
orally in any other manner than by an agreement in writing signed by all of
the parties to this lease.
56.3 Except as otherwise expressly stated, each payment required to be made
by lessee shall be in addition to and not in substitution for other payments
to be made by Lessee.
56.4 The validity of any provision of this lease, as determined by a Court of
competent jurisdiction, shall in no way affect the validity of any other
provision hereof.
56.5 The preparation and submission of a draft of this lease by either party
to the other shall not constitute an offer nor shall either party be bound to
any terms of this lease or the entirety of the lease itself until both parties
have fully executed a final document and an original signature document has
been received by both parties. Until such time as describe in the previous
sentence, either party is free to terminate negotiations with no obligation to
the other.
IN WITNESS WHEREOF, Lessor and Lessee have executed this lease
this 12th day of September 1996.
--------------------------------
LESSOR
SALVIO PACHECO SQUARE INVESTORS
By: IRM Corporation, General Partner
--------------------------------
By: /s/ LAWRENCE VAN DUYN
--------------------------------
Lawrence Van Duyn,
President
LESSEE
By: CONTINENTAL PACIFIC BANK
--------------------------------
By: /s/ ANDREW S. POPOVICH
--------------------------------
Andrew S. Popovich,
EVP/CFO
9/10/96
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SALVIO PACHECO SQUARE
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EXHIBIT A
- ---------------------
LEGAL DESCRIPTION
- ---------------------
The land is situated in the City of Concord, County of Contra Costa, State of
California, and is described as follows:
Parcel A, as shown on that certain map of Subdivision M.S. C. 14-82, filed
September 15, 1982 in Book 102 of Parcel Maps, at page 45, Contra Costa County
records.
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SALVIO PACHECO SQUARE
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EXHIBIT B
- ---------------------
SITE PLAN
- ---------------------
[THIS PAGE IS A MAP OF SALVIO PACHECO SQUARE]
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SALVIO PACHECO SQUARE
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EXHIBIT C
- ---------------------
CONSTRUCTION
- ---------------------
[THIS PAGE IS A MAP OF THE PREMISES TO BE LEASED]
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SALVIO PACHECO SQUARE
- ---------------------
EXHIBIT D
- ---------------------
ACKNOWLEDGMENT OF COMMENCEMENT
- ------------------------------
This Acknowledgment is made as of ___________, with reference to that certain
Lease Agreement (hereinafter referred to as the "lease") dated __________, by
and between _____________, as "Lessor" therein, and ____________, as
"Lessee".
The undersigned hereby confirms the following:
1. That the Lessee accepted possession of the Demised Premises (as described
in said lease) on _________, and acknowledges that the premises are as
represented by Lessor and in good order, condition and repair; and that the
improvements, if any, required to be constructed for Lessee by Lessor under
this lease have been so constructed and are satisfactorily completed in all
material respects.
2. That all conditions of said lease to be performed by Lessor prerequisite
to the full effectiveness of said lease have been satisfied and that Lessor
has fulfilled all of its duties of an inducement nature.
3. That in accordance with the provisions of Article 4 of said lease the
commencement date of the term is ______, and that, unless sooner terminated,
the original term thereof expires on ______.
4. That said lease is in full force and effect and that the same represents
the entire agreement between Lessor and Lessee concerning said lease.
5. That there are no existing defenses which Lessee has against the
enforcement of said lease by Lessor, and no offsets or credits against
rentals.
6. That the minimum rental obligation of said lease is presently in effect
and that all rental, charges and other obligations on the part of Lessee under
said lease commenced to accrue on ________________.
7. That the undersigned Lessee has not made any prior assignment,
hypothecation or pledge of said lease or of the rents thereunder.
LESSEE:
BY: _____________________
BY: _____________________
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SALVIO PACHECO SQUARE
- ---------------------
EXHIBIT E
- ---------------------
RULES AND REGULATIONS
- ---------------------
1. The sidewalks, halls, passages, exits, entrances, elevators and stairways
of the Building shall not be obstructed by any of the Lessees or used by them
for any purpose other than for ingress to and egress from their respective
premises. The halls, passages, exits, entrances, elevators and stairways are
not for the general public, and Lessor shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
judgment of Lessor would be prejudicial to the safety, character, reputation
and interests of the Building and its Lessees, provided that nothing herein
contained shall be construed to prevent such access to persons with whom any
Lessee normally deals in the ordinary course of its business, unless such
persons are engaged in illegal activities. No Lessee and no employee or
invitee of any Lessee shall go upon the roof of the Building.
2. No sign, placard, picture, name, advertisement or notice visible from the
exterior of any Lessee's premises shall be inscribed, painted, affixed or
otherwise displayed by any Lessee on any part of the Building without the
prior written consent of Lessor. Lessor will adopt and furnish to Lessee
general guidelines relating to signs inside the Building on the office floors.
Lessee agrees to conform to such guidelines, but may request approval of
Lessor for modifications, which approval will not be unreasonably withheld.
All approved signs or lettering on doors shall be printed, painted, affixed or
inscribed at the expense of the Lessee by a person approved by Lessor which
approval will not be unreasonably withheld. Material visible from outside the
Building will not be permitted.
3. The premises shall not used for the storage of merchandise held for sale
to the general public or for lodging. No cooking shall be done or permitted by
any Lessee on the premises, except that use by the Lessee of Underwriters'
Laboratory approved equipment for brewing coffee, tea, hot chocolate and
similar beverages and the use of microwave ovens shall be permitted, provided
that such use is in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations.
4. [SECTION DELETED]
5. [SECTION DELETED]
6. The elevator shall be available for movement of freight or equipment to
the upper floors by all Lessees in the Building, subject to such reasonable
scheduling as Lessor in its discretion shall deem appropriate. Scheduling by
Lessor is necessary so that appropriate protection can be installed to prevent
damage to the elevator interior. The Lessee should acknowledge that elevator
scheduling for vertical freight movement may be scheduled for "off-peak" hours
since the elevator's primary purpose is for passenger transportation. The
persons employed to move such freight or equipment in or out of the Building
must be acceptable to Lessor. Lessor shall have the right to prescribe the
weight, size and position of all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall, if considered
necessary by Lessor, stand on wood strips of such thickness as to necessary to
properly distribute the weight. Lessor will not be responsible for loss of or
damage to any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired at the
expense of Lessee.
7. No Lessee shall use or keep in the premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material other than limited
quantities thereof reasonably necessary for the operation or maintenance of
office equipment, or, without Lessor's prior written approval, use any method
of heating or air conditioning other than that supplied by Lessor. No Lessee
shall use or keep or permit to be used or kept any foul or noxious gas or
substance in the premises, or permit or suffer the premises to be occupied or
used in a manner offensive or objectionable to Lessor or other occupants of
the Building by reason of noise, odors or vibrations, or interfere in any way
with other Lessees or those having business therein.
8. Lessor shall have the right, exercisable without notice and liability to
any Lessee, to change the name and street address of the Building.
9. Lessor reserves the right to exclude from the Building between the hours
of 6 p.m. and 7 a.m. and at all hours on Sundays, legal holidays and after 1
p.m. on Saturdays all persons who do not present a pass to the Building signed
by Lessor. Lessor will furnish passes to persons for whom any Lessee requests
the same in writing. Each Lessee shall be responsible for all persons for whom
it requests passes and shall be liable to Lessor for all acts of such persons.
Lessor shall in no case be liable for damages for any error with regard to the
admission to or exclusion from the Building of any person. In the case of
invasion, mob, riot, public excitement or other circumstance rendering such
action advisable in Lessor's opinion, Lessor reserves the right to prevent
access to the Building during the continuance of the same by such action as
Lessor may deem appropriate, including closing doors.
10. The directory of the Building will be provided for the display of the
name and location of Lessee and a reasonable number of the principal officers
and employees of Lessees, and Lessor reserves the right to exclude any other
names therefrom. Any additional name which Lessee shall desire to place upon
said bulletin board must first be approved by Lessor, and, if so approved, a
charge will be made therefor.
11. No curtains, draperies, blinds, shutters, shades, screens, or other
coverings, hangings or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without the prior written
consent of Lessor. In any event, with the prior written consent of Lessor,
such items shall be installed on the office side of Lessor's standard window
covering and shall in no way be visible from the exterior of the building.
12. No Lessee shall obtain for use in the premises, ice, drinking water, food
beverage, towel or other similar services, except at such reasonable hours and
under such reasonable regulations as may be fixed by Lessor.
13. Each Lessee shall see that the doors of its premises are closed and
locked and that all water faucets, water apparatus and utilities are shut off
before Lessee or Lessee's employees leave the premises, so as to prevent waste
or damage, and for any default or carelessness in this regard Lessee shall
make good all injuries sustained by other tenants or occupants of the Building
or Lessor. On multiple-tenancy floors, all Lessees shall keep the doors to the
Building corridors closed at all times except for ingress and egress.
14. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed,
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Lessee who, or whose employees or invitees,
shall have caused it.
15. Except with the prior written consent of Lessor, no Lessee shall sell, or
permit the sale at retail, or newspapers, magazines, periodicals, theatre
tickets or any other goods or merchandise to the general public in or on the
premises, nor shall any Lessee carry on, or permit or allow any employee or
other person to carry on, the business of stenography, typewriting or any
similar business in or from the premises for the service or accomodation of
occupants of any other portion of the Building, nor shall the premises of any
Lessee be used for manufacturing of any kind, or any business or activity
other that that specifically provided for in such Lessee's lease.
16. No Lessee shall install any radio or television antenna, loudspeaker, or
other device on the roof, overheads, planters, or exterior walls of the
Building.
17. There shall not be used in any space, or in the public halls of the
Building, either by any Lessee or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Lessor may approve. No other vehicles of any kind shall be
brought by any Lessee into the Building or kept in or about its premises.
18. Each Lessee shall store all its trash and garbage within its premises. No
material shall be placed in the trash boxes or receptacles if such material is
of such nature that it may not be disposed of in the ordinary and customary
manner of removing and disposing of trash and garbage in the City of Concord
without being in violation of any law or ordinance governing such disposal.
All garbage and refuse disposal shall be made only through entryways and
elevators provided for such purposes and at such times as Lessor shall
designate.
19. No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of
Lessor.
20. Landlord shall have the right to control and operate the public portions
of the Building, and the public facilities, and heating and air conditioning,
as well as facilities furnished for the common use of the tenants, in such
manner as it deems best for the benefit of the tenants generally.
21. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in the Building are prohibited, and each Lessee shall
cooperate to prevent the same.
22. The requirements of the Lessees will be attended to only upon application
by telephone or in person at the office of the Building. Employees of Lessor
shall not perform any work or do anything outside of their regular duties
unless specifically instructed by Lessor.
23. Lessor may waive any one or more of these Rules and Regulations for the
benefit of any particular Lessee or Lessees, but no such waiver by Lessor
shall be construed as a waiver of such Rules and Regulations in favor or any
other Lessee or Lessees, nor prevent Lessor from thereafter enforcing any such
Rules and Regulations against any or all of the Lessees of the Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25. Lessor reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care and cleanliness of the Building, and for the preservation of good order
therein.
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SALVIO PACHECO SQUARE
- ---------------------
EXHIBIT "F"
- ---------------------
SIGNAGE
- ---------------------
Lessee may utilize the existing sign above the entry by having the sign face
changed as approved by Lessor and City of Concord.
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ADDENDUM A
1. RENT ADJUSTMENTS: After commencement of Lease, rents to be adjusted as
follows:
10/1/97 to 9/30/99 $1.30/sq. ft. = $3,725.80
2. SECURITY DEPOSIT: Continental Pacific Bank will post a security deposit in
the form of a Certificate of Deposit in a major California bank, payable to
Lessor in the amount of three (3) times the monthly base rent with interest
thereon accruing to the account to Continental Pacific Bank. Lessor shall have
the right to draw upon the Certificate of Deposit in the event of default by
Lessee in the payment of rent or additional charges under the Lease for a
period of 30 days after notice is given by Lessor.
3. OPTION TO RENEW: Tenant shall have the option to extend the Term on all
the provisions herein for an additional five years (the Extended Term),
commencing immediately on the day following the expiration of the initial term
and expiring five years after the Extended Term Commencement Date. Tenant may
exercise its option hereunder by giving written notice of the exercise of the
Option to Landlord at least 30 days before the expiration of the initial term.
The monthly rend payable under paragraph 1.5 of attached Lease will not be
more that $1.30/sq. ft. adjusted for any increase in the Consumer Price Index
of the Bureau of Labor Statistics of the U.S. Department of Labor for CPIU
(All Urban Consumers) for San Francisco, Oakland, San Jose, California. The
minimum annual increase shall be three percent (3%) and the maximum annual
increase shall be five percent (5%). The base CPI will be September, 1999.
LESSOR:
SALVIO PACHECO SQUARE INVESTORS
By: IRM Corporation, General Partner
--------------------------------
By: /s/ Lawrence Van Duyn
--------------------------------
Lawrence Van Duyn, President
LESSEE:
CONTINENTAL PACIFIC BANK
--------------------------------
By: /s/ ANDREW S. POPOVICH
--------------------------------
Andrew S. Popovich
EVP/CFO
9/10/96
<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ending SEPTEMBER 30, 1997
------------------
Commission file number 0-27856
------------------
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 68-0366324
- ------------------------------------------ -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
555 Mason Street, Suite 280, Vacaville, CA 95688-4612
- ------------------------------------------ -------------------
(Address of principal executive offices) (ZIP Code)
(707) 448-1200
- ------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. YES [ X ] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
1,096,164
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [ X ]
INDEX
CALIFORNIA COMMUNITY BANCSHARES CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION 3
Item 1 - Financial Statements 3
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Statements of Cash Flows 5
Condensed Consolidated Statement of Changes in Shareholders' Equity 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
And Results of Operations 8
Overview 9
Condensed Comparative Income Statement 10
Net Interest Income / Net Interest Margin 11
Analysis of Changes in Net Interest Margin on Average
Earning Assets 14
Analysis of Volume and Rate Changes on Net Interest Income
and Expense 18
Provision for Loan Losses 19
Non Interest Income 20
Non Interest Expense 20
Provision for Income Taxes and Net Income 21
Loans 21
Securities 22
Nonperforming Assets 22
Allowance for Loan Losses 24
Liquidity 24
Equity 26
PART II - OTHER INFORMATION 27
Item 1 - Legal Proceedings 27
Item 2 - Changes in Securities 27
Item 3 - Defaults Upon Senior Securities 27
Item 4 - Submission of Matters to a Vote of Security Holders 27
Item 5 - Other Information 27
Item 6 - Exhibits and Reports of Form 8-K 27
SIGNATURES 28
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
-------- --------
ASSETS 09/30/97 12/31/96
-------- --------
Cash and due from banks $ 11,519 $ 10,825
Federal funds sold 0 6,115
-------- --------
Total cash and cash equivalents 11,519 16,940
Available for sale securities, at fair value 51,161 52,569
Loans receivable: 121,141 113,625
Less: Allowance for loan losses 1,220 1,101
Deferred loan fees 511 599
-------- --------
Net loans receivable 119,410 111,925
Premises and equipment, net of accumulated depr. 2,154 2,284
Investments in real estate development 4,401 4,483
Other real estate owned 196 150
Goodwill 513 540
Accrued interest receivable and other assets 2,889 2,938
-------- --------
TOTAL ASSETS $192,243 $191,829
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non interest bearing $ 29,646 $ 26,882
Interest bearing:
Transaction 23,268 21,467
Savings 58,652 61,298
Time:
$100,000 or more 21,536 20,881
Other time 37,322 39,815
-------- --------
Total deposits 170,424 170,343
Repurchase agreements 324 992
Other borrowed funds 2,650 2,650
Accrued interest payable and other liabilities 896 785
Convertible subordinated debentures 2,503 3,690
-------- --------
TOTAL LIABILITIES $176,797 $178,460
SHAREHOLDERS' EQUITY
Preferred Stock, no par value, Series A,
authorized 1,000,000 shares; none outstanding 0 0
Common stock, $.10 par value, authorized
4,000,000 shares; Outstanding, 1,096,164 at
Sept 30, 1997 and 994,519 at December 31, 1996 12,339 11,135
Retained earnings 3,296 2,510
Unrealized loss on available for sale
securities (net of tax) ( 189) ( 276)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 15,446 13,369
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $192,243 $191,829
======== ========
- -----------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
California Community Bancshares Corporation
(In Thousands, except share information)(Unaudited)
---------------------
- ---------------------
For the Three Months For the Nine
months
Ended Sept 30, Ended Sept
30,
---------------------
- ---------------------
1997 1996 1997
1996
--------- --------- ---------
- ---------
INTEREST INCOME:
Loans and Loan Fees $ 2,836 $ 2,702 $ 8,181
$ 8,044
Securities:
Taxable 714 462
2,148 1,205
Exempt from Federal Tax 59 87
179 273
Federal Funds Sold 23 19
92 73
--------- --------- ---------
- ---------
Total Interest Income $ 3,632 $ 3,270 $ 10,600
$ 9,595
INTEREST EXPENSE:
Time Deposits $100,000 or More $ 288 $ 263 $ 858
$ 759
Other Deposits 1,124 948
3,360 2,783
Federal Funds and Repurchase
Agreements Purchased 10 13
25 41
Other Borrowed Funds 59 55
167 92
Convertible Subordinated Debentures 45 78
173 234
--------- --------- ---------
- ---------
Total Interest Expense 1,526 1,357
4,583 3,909
--------- --------- ---------
- ---------
NET INTEREST INCOME 2,106 1,913
6,017 5,686
PROVISION FOR LOAN LOSSES 75 69
244 276
--------- --------- ---------
- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,031 1,844
5,773 5,410
--------- --------- ---------
- ---------
NON INTEREST INCOME:
Service Charges on Deposit Accounts 227 222
663 623
Net Gain on Sale of AFS Securities 0 5
42 8
Other Fees and Charges 134 90
324 407
Income from Real Estate Development 131 130
395 390
--------- --------- ---------
- ---------
Total Non Interest Income 492 447
1,424 1,428
--------- --------- ---------
- ---------
NON INTEREST EXPENSES:
Salaries and Employee Benefits 883 787
2,528 2,436
Occupancy 368 333
1,093 1,010
Other Expense 481 452
1,367 1,330
Real Estate Development Expenses 78 76
226 215
--------- --------- ---------
- ---------
Total Non Interest Expenses 1,810 1,648
5,214 4,991
--------- --------- ---------
- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 713 643
1,983 1,847
PROVISION FOR INCOME TAXES 264 254
729 711
--------- --------- ---------
- ---------
NET INCOME $ 449 $ 389 $ 1,254
$ 1,136
========= ========= =========
=========
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
Primary $ 0.38 $ 0.38 $ 1.12
$ 1.12
========= ========= =========
=========
Fully Diluted $ 0.35 $ 0.33 $ 1.00
$ 0.96
========= ========= =========
=========
Weighted Average Shares Used to
Compute Income Per Common and
Equivalent Shares:
Primary 1,169,240 1,025,539 1,116,276
1,013,305
Fully Diluted 1,365,554 1,326,715 1,349,767
1,319,841
- --------------------------------------------------------------------------------
- -
See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED STATEMENTS OF CASH FLOWS
California Community Bancshares Corporation (In Thousands)(Unaudited)
-----------------------
Nine Months Ended
September 30,
-----------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,254 $ 1,136
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 598 476
Provision for Loan Losses 244 276
Net Gain on the Sale of Available
for Sale Securities ( 42) ( 8)
Gain on the Sale of Premises and Equipment ( 6) ( 7)
Effect of Changes in:
Interest Receivable and Other Assets and Goodwill( 11) ( 79)
Interest Payable and Other Liabilities 111 ( 79)
-------- --------
Net Cash Provided by Operating Activities 2,148 1,715
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Available for Sale Securities ( 12,380) ( 8,621)
Proceeds from Sales of Available for Sale Securities 6,015 0
Proceeds from Maturities, Calls or Repayments of
Available for Sale Securities 7,734 2,598
Net Change in Loans Receivable ( 7,729) ( 3,260)
Change in Other Real Estate Owned ( 46) 32
Purchases of Premises and Equipment ( 222) ( 338)
Proceeds from Sales of Premises and Equipment 14 14
Change in Investments in Real Estate Development ( 4) 7
-------- --------
Net Cash Used in Investing Activities ( 6,618) ( 9,568)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Change in Deposits:
Non-interest Bearing 2,764 2,998
Interest-bearing ( 2,683) 4,278
Net Change in Repurchase Agreements ( 668) 425
Net Change in Other Borrowed Funds 0 2,650
Cash Dividends Paid ( 468) ( 414)
Cash Proceeds from Stock Options Exercised 104 14
-------- --------
Net Cash Provided (Used) by Financing Activities ( 951) 9,951
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ( 5,421) 2,098
CASH AND CASH EQUIVALENTS:
Beginning of Period 16,940 11,261
-------- --------
End of Period $ 11,519 $ 13,359
======== ========
ADDITIONAL INFORMATION:
Common stock issued on conversion of debentures
net of debenture offering costs of $70,000 and
$13,000 in 1997 and 1996. $ 1,100 $ 160
======== ========
Transfer of foreclosed loans from loans receivable
to other real estate owned $ 263 $ 0
======== ========
Cash Payments
Income Tax Payments $ 793 $ 513
======== ========
Interest Payments $ 4,596 $ 4,010
======== ========
- -----------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF IN CHANGES IN SHAREHOLDERS' EQUITY
California Community Bancshares Corporation
(In Thousands, Except Number of Shares)(Unaudited)
------------------------------------------------------
Common Stock Unrealized
-------------------- Loss on
Investment
Number of Available Share -
Shares Retained For Sale holders'
Outstanding Amount Earnings Securities Equity
----------- ------- -------- ---------- -------
Balance at
December 31, 1996 994,519 $11,135 $ 2,510 ($ 276) $13,369
Stock Options Exercised 4,622 50 50
Common Stock issued on
Conversion of Debentures 1,176 14 14
Cash Dividend
on Common Stock ( 150) ( 150)
Net Change in Unrealized
Loss - On available
for sale securities ( 134) ( 134)
Net Income,
364 364
----------- ------- ------- ---------- -------
Balance at
March 31, 1997 1,000,317 $11,199 $ 2,724 ($ 410) $13,513
=========== ======= ======= ========== =======
Stock Options Exercised 2,928 26 26
Common Stock issued on
Conversion of Debentures 72,312 853 853
Cash Dividend
on Common Stock ( 156) ( 156)
Net Change in Unrealized
Loss - On available
for sale securities 98 98
Net Income, 441 441
----------- ------- ------- ---------- -------
Balance at
June 30, 1997 1,075,557 $12,078 $ 3,009 ($ 312) $14,775
=========== ======= ======= ========== =======
Stock Options Exercised 1,000 28 28
Common Stock issued on
Conversion of Debentures 19,607 233 233
Cash Dividend
on Common Stock ( 162) ( 162)
Net Change in Unrealized
Loss - On available
for sale securities 123 123
Net Income, 449 449
----------- ------- ------- ---------- -------
Balance at
Sept 30, 1997 1,096,164 $12,339 $ 3,296 ($ 189) $15,446
=========== ======= ======= ========== =======
- ------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
California Community Bancshares Corporation (the "Company") include the
accounts of the Company and its subsidiary Bank, Continental Pacific Bank.
Significant inter company items and transactions have been eliminated. Such
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) and, in
Management's opinion, include all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of results for such
interim periods. Certain information and note disclosures normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to SEC rules or regulations;
however, the Company believes that the disclosures made are adequate to make
the information presented not misleading. For further information, refer to
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1996. Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ended December 31,
1997.
NOTE B - ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standard No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. This standard is based on consistent
application of a financial - components approach that focuses on control.
Under this approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. The Company has
determined that the adoption of this standard did not have a material effect
on the Company's financial position or results of operations.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The Company is required to adopt SFAS 128 in the fourth quarter
of fiscal 1997 and at that time will restate earnings per share (EPS) data for
prior periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income available to common shareholders by the
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $.41 and $.38 for the quarters ended September 30,
1997 and 1996 and $1.19 and $1.16 for the nine months ended September 30, 1997
and 1996. Diluted EPS under SFAS 128 would not have been significantly
different from fully diluted EPS currently reported for the periods.
In June 1997, the FASB adopted SFAS 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 SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting standards
for an enterprise's operating segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows, and any effect will be limited to the form and
content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB INCLUDE
FORWARD-LOOKING INFORMATION WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, AND ARE SUBJECT TO THE "SAFE HARBOR" CREATED BY THOSE
SECTIONS. THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN THE FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT
ARE NOT LIMITED TO, THE FOLLOWING FACTORS: COMPETITIVE PRESSURE IN THE BANKING
INDUSTRY INCREASES SIGNIFICANTLY; CHANGES IN THE INTEREST RATE ENVIRONMENT
REDUCE MARGINS; GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY,
ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A
DETERIORATION IN CREDIT QUALITY AND AN INCREASE IN THE PROVISION FOR POSSIBLE
LOAN LOSSES; CHANGES IN THE REGULATORY ENVIRONMENT; CHANGES IN BUSINESS
CONDITIONS, PARTICULARLY IN SOLANO AND CONTRA COSTA COUNTIES; VOLATILITY OF
RATE SENSITIVE DEPOSITS; OPERATIONAL RISKS INCLUDING DATA PROCESSING SYSTEM
FAILURES OR FRAUD; ASSET / LIABILITY MATCHING RISKS AND LIQUIDITY RISKS; AND
CHANGES IN THE SECURITIES MARKETS.
THEREFORE, THE INFORMATION SET FORTH THEREIN SHOULD BE CAREFULLY
CONSIDERED WHEN EVALUATING THE BUSINESS PROSPECTS OF THE COMPANY AND THE BANK.
MOREOVER, WHENEVER PHRASES SUCH AS, OR SIMILAR TO, "IN MANAGEMENT'S
OPINION", "MANAGEMENT BELIEVES", OR "MANAGEMENT CONSIDERS" ARE USED, SUCH
STATEMENTS ARE AS OF, AND BASED UPON THE KNOWLEDGE OF MANAGEMENT, AT THE TIME
MADE AND ARE SUBJECT TO CHANGE BY THE PASSAGE OF TIME AND/OR SUBSEQUENT
EVENTS, AND ACCORDINGLY SUCH STATEMENTS ARE SUBJECT TO THE SAME RISKS AND
UNCERTAINTIES NOTED ABOVE WITH RESPECT TO FORWARD-LOOKING STATEMENTS.
California Community Bancshares Corporation and subsidiary (the
"Company") is a single bank holding company for Continental Pacific Bank (the
"Bank"), a California state-chartered nonmember Bank, which has one
subsidiary, Conpac Development Corporation. The following discussion of the
Company's financial condition and results of operations is designed to provide
a better understanding of the changes and trends related to the Company's
financial condition, liquidity and capital resources. The discussion should
be read in conjunction with the Consolidated Financial Statements of the
Company. The Company has not commenced any business operations independent of
the Bank; therefore, the following discussion pertains primarily to the Bank.
Average balances are generally comprised of daily balances.
OVERVIEW
The Company posted record earnings for the three and nine month periods
ended September 30, 1997. Net income for the three months ended September 30,
1997 was $449,000, up 15.4% from the $389,000 posted in the third quarter of
1996. Fully diluted quarterly earnings per share increased to $.35 from $.33
recorded in the same period last year. Net income for the nine months ended
September 30, 1997, was $1,254,000, up 10.4% from the $1,136,000 reported for
the same period in the prior year. Year to date fully diluted earnings per
share increased to $1.00 from $.96 for the prior period.
In the third quarter of 1997, both net interest income and non interest
income increased 10.1%, improving by $193,000 and $45,000, respectively.
These improvements were offset by a $162,000 or a 9.8% increase in non
interest expense.
In the first nine months of 1997, net income was improved by a $331,000
or a 5.8% increase in net interest income offset by a $4,000 (less than a
1.0%) decline in non interest income and a $223,000 or a 4.5% increase in non
interest expense.
Assets of the Company totalled $192.2 million at September 30, 1997, a
$.4 million increase over the 1996 end of year figure. Loans increased $7.5
million, while investments declined $1.4 million and cash and cash equivalents
declined $5.4 million. On the liabilities side of the ledger, total
borrowings declined by $1.9 million, while shareholders equity increased by
$2.1 million. During this period $1.2 million of convertible subordinated
debentures were converted to common stock.
Return on Average Assets (ROA) was .93% and Return on Average Equity
(ROE) was 11.98% in the third quarter of 1997. For the same quarter in 1996,
these ratios were .93% and 12.22%, respectively. At September 30, 1997, the
Company had a leverage capital ratio of 7.90%, a Tier 1 risk based capital
ratio of 10.98% and a total risk-based capital ratio of 13.68%. These compare
to 7.04%, 9.92% and 13.55%, respectively at December 31, 1996.
ROA was .88% and ROE was 11.79% in the first nine months of 1997. For
the same period in 1996, these ratios were .93% and 12.03%, respectively.
The following tables provide a summary of the major elements of income
and expense for the third quarter of 1997 compared with the third quarter of
1996 as well as 1997 year to date income components compared to 1996 year to
date figures.
CONDENSED COMPARATIVE INCOME STATEMENT
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common and Equivalent Share)
------------------ -------------------
Three Months Percentage Change
Ended Sept 30, Increase (Decrease)
------------------ -------------------
1997 1996
------ ------
Interest Income $3,632 $3,270 11.1%
Interest Expense 1,526 1,357 12.5
------ ------
Net Interest Income 2,106 1,913 10.1
Provision for Loan Losses 75 69 8.7
------ ------
Net Interest Income after
Provision for Loan Losses 2,031 1,844 10.1
Non Interest Income 492 447 10.1
Non Interest Expenses 1,810 1,648 9.8
------ ------
Income Before Income Taxes 713 643 10.9
Provision for Income Taxes 264 254 3.9
------ ------
Net Income $ 449 $ 389 15.4%
====== ======
Primary Earnings per Common
and Equivalent Share $ 0.38 $ 0.38 0.0%
Fully Diluted Earnings per
Common and Equivalent Share $ 0.35 $ 0.33 6.1%
- -----------------------------------------------------------------------------
CONDENSED COMPARATIVE INCOME STATEMENT
California Community Bancshares Corporation
(In Thousands, Except Earnings per Common and Equivalent Share)
------------------ -------------------
Nine Months Percentage Change
Ended Sept 30, Increase (Decrease)
------------------ -------------------
1997 1996
------- ------
Interest Income $10,600 $9,595 10.5%
Interest Expense 4,583 3,909 17.2
------- ------
Net Interest Income 6,017 5,686 5.8
Provision for Loan Losses 244 276 (11.6)
------- ------
Net Interest Income after
Provision for Loan Losses 5,773 5,410 6.7
Non Interest Income 1,424 1,428 ( 0.3)
Non Interest Expenses 5,214 4,991 4.5
------- ------
Income Before Income Taxes 1,983 1,847 7.4
Provision for Income Taxes 729 711 2.5
------- ------
Net Income $ 1,254 $1,136 10.4%
======= ======
Primary Earnings per Common
and Equivalent Share $ 1.12 $ 1.12 0.0%
Fully Diluted Earnings per
Common and Equivalent Share $ 1.00 $ 0.96 4.2%
- -----------------------------------------------------------------------------
NET INTEREST INCOME / NET INTEREST MARGIN
Net interest income represents the excess of interest and fees earned on
interest-earning assets over interest paid on deposits and borrowed funds.
Net interest margin is net interest income expressed as a percentage of
average interest earning assets. Net interest income comprises the major
portions of the Company's revenues and expenses.
In the quarter ended September 30, 1997, interest income increased
$362,000 or 11.1% to $3,632,000 from the $3,270,000 reported in the same
period last year. Increased average total securities balances and average
loan balances were the main factors contributing to this increase as average
rates earned on total securities and loans each declined by approximately 9
basis points. Average total securities were $15.8 million or 42% higher than
the average in the same period a year ago resulting in a $242,000 increase in
interest income. Slight changes in rates earned on securities reduced
interest income by $14,000. In the most recent quarter total securities
(taxable securities, securities exempt from federal tax and federal funds
sold) averaged $54.0 million compared to $38.1 million in the year ago
period. Net loan balances averaged $118.6 million in the third quarter of
1997, $6.4 million higher than average loan balances of $112.2 in the third
quarter of 1996. Increased loan volume contributed an additional $160,000 in
interest income. This increase in interest income was offset by a 9 basis
point reduction in the rate earned on loans, declining from 9.58% in the third
quarter of 1996 to 9.49% in the current quarter. This lower rate reduced
interest income by $26,000.
In the third quarter of 1997, interest expense increased by $169,000 or
12.5% to $1,526,000 from the $1,357,000 recorded in same period last year, as
average interest-bearing liabilities increased by $17.9 million. Interest
paid on time deposits increased by $162,000 or 26% as average time deposit
balances increased by $11.0 million and average interest rates paid increased
from 5.09% in the third quarter of 1996 to 5.22% in the current quarter.
While higher rates paid on time deposits increased interest expense by
$17,000, the higher volume accounted for an increase of $145,000. Average
savings deposits and money market account balances increased by $4.0 million
in the third quarter of 1997 compared to the figures in the same period last
year while the rate paid declined by 6 basis points to 3.76%. This increase
in average balances offset partially by lower rates paid on these accounts
accounted for a net increase of $29,000 in interest expense. A $1.2 million
reduction in average convertible subordinated debentures reduced interest
expense by $33,000. Changes in volume and rates paid in all other categories
accounted for $11,000 net increase in interest expense. Changes in average
balances within these categories were mixed, lower cost NOW accounts and Federal
Funds purchased increased by $4.4 million and $.3 million respectively while
security repurchase agreements declined by $.7 million.
The combined effect of the increase in interest income and the increase
in interest expense in the third quarter of 1997 versus the third quarter of
1996 was a $193,000 increase in net interest income which totalled $2,106,000
for the current quarter. Increased volume, which improved net interest income
by $230,000, was offset by a $37,000 reduction due to rate changes. The net
interest margin decreased 22 basis points from 5.06% to 4.84%.
In the nine months ended September 30, 1997, interest income increased
$1,005,000 or 10.5% to $10,600,000 from the $9,595,000 for the same period
last year. Increased average total securities balances and average loan
balances were the major factors contributing to this increase somewhat offset
by lower rates earned on loans, while average rates earned on total securities
remained consistent. Average total securities were $19.7 million or 56%
higher than the average for the same period in the prior year resulting in a
$880,000 increase in interest income. Slight changes in rates earned on these
securities reduced interest income by $12,000. Year to date, 1997, total
securities (taxable securities, securities exempt from federal tax and federal
funds sold) averaged $54.7 million compared to $35.0 million in the year ago
period. Average net loan balances were $115.8 million in the first nine
months of 1997, $5.0 million higher than average loan balances of $110.8
million in the first nine months of 1996. This increased loan volume
contributed $229,000 in additional interest income but was offset by a 25
basis point reduction in the average rate earned on loans. Average loan
yields declined from 9.70% in the first nine months of 1996 to 9.45% in the
first nine months of 1997 reducing interest income by $92,000.
In the first nine months of 1997, interest expense increased by $674,000
or 17.2% to $4,583,000 from the $3,909,000 obtained in the same period last
year as average interest-bearing liabilities increased by $21.5 million.
Interest paid on time deposits increased by $537,000 or 30% as average time
deposit balances increased by $13.3 million and average interest rates paid
increased from 5.14% to 5.21%. The increased volume in time deposits
contributed $526,000 in additional interest expense, while the increased rates
contributed $11,000. Average savings and monthly market account balances also
increased in the first nine months of 1997 compared to the same period last
year rising by $4.5 million, while the rate paid fell by 3 basis points to
3.76%. The increase in average savings balances resulted in a $110,000
increase in interest expense. Average NOW accounts and total average
borrowings increased $4.0 million and $0.6 million, respectively over the
prior period's average. These increased volumes increased interest expense
$33,000 and $54,000, respectively, while changes in the average rates paid
resulted in another $1,000. Due to the timing of the $1,187,000 in
convertible subordinated debentures that converted to common stock in the
first nine months of 1997, interest expense on debentures declined by $61,000.
The combined effect of the increase in interest income and the increase
in interest expense in the first nine months of 1997 versus the first nine
months of 1996 resulted in an increase of $331,000 in net interest income
totalling $6,017,000. Overall increased volume improved net interest income
by $440,000 while net rate changes reduced net interest income by $109,000.
The net interest margin decreased 49 basis points from 5.21% to 4.72%.
The following tables provide summaries of the components of interest
income, interest expense and net interest margins on earning assets for the
three months and nine months ended September 30, 1997 versus the same periods
in 1996.
ANALYSIS OF CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Three Months Ended September 30,
- -----------------------------------------------------
1997 1996
------------------------
- -------------------------
Int. Avg. Int.
Avg.
Average Earned Yield Average Earned
Yield
Balance<F1>/Paid /Rate Balance<F1>/Paid
/Rate
-------- ------ ----- -------- ------
- -----
ASSETS:
INTEREST EARNING ASSETS
Federal Funds Sold $ 1,679 $ 23 5.43% $ 1,511 $ 19
5.00%
Investment Securities:
Taxable <F2> 47,688 714 5.94 30,169 462
6.09
Exempt From Federal Taxes<F3> 4,597 59 5.09 6,427 87
5.39
Loans, Net <F4><F5> 118,595 2,836 9.49 112,210 2,702
9.58
-------- ------ ----- -------- ------
- -----
Total Interest Earning Assets 172,559 3,632 8.35 150,317 3,270
8.65
Cash and Due from Banks 9,567 8,576
Premises and Equipment, net 2,218 2,106
Investment in Real Estate
Development 4,415 4,526
Accrued Interest Receivable
and Other Assets 3,171 1,778
-------- --------
TOTAL AVERAGE ASSETS $191,930 $167,303
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 24,097 74 1.22 19,667 64
1.29
Savings Deposits and MMDA 19,895 121 2.41 17,768 101
2.26
Money Management 39,031 436 4.44 37,176 427
4.57
Time Deposits 38,064 493 5.14 28,458 356
4.98
Time Deposits over $100,000 21,296 288 5.37 19,899 263
5.26
Federal Funds Purchased 344 6 6.91 22 0
0.00
Security Repurchase Agreements 330 4 4.80 1,027 13
5.04
Other Borrowed Funds 2,650 59 8.83 2,650 55
8.26
Convertible Subordinated
Debentures 2,690 45 6.64 3,858 78
8.04
-------- ------ ----- -------- ------
- -----
Total Average Interest-
Bearing Liabilities 148,397 1,526 4.08 130,525 1,357
4.14
Non interest-Bearing DDA's 27,675 23,722
Accrued Interest Payable and
Other Liabilities 886 334
-------- ------ ----- -------- ------
- -----
Total Average Liabilities $176,958 $1,526 3.42% $154,581 $1,357
3.49%
======== ========
Total Equity 14,972 12,722
Total Average Liabilities and
Shareholders' Equity 191,930 167,303
Net Interest Spread <F6> 4.27%
4.51%
Net Interest Income $2,106 $1,913
Net Interest Margin <F7> 4.84%
5.06%
- -----------------------------------------------------------------------------
<F1>Average balances are computed principally on the basis of daily balances.
<F2> The taxable securities yield is computed by dividing interest income
(annualized on an actual day basis) by average historical cost.
<F3>The tax equivalent yield on investment securities exempt from federal
taxes was 7.39% and 7.83% in 1997 and 1996. The tax equivalent yield is
calculated by dividing the adjusted yield by one minus the Federal Tax rate.
The adjusted yield is determined by subtracting the Tefra penalty from the
unadjusted tax exempt investment yield. The unadjusted tax exempt investment
yield is computed by dividing tax exempt interest income by their average
historical cost. The Tefra penalty is computed by dividing total interest
expense (annualized) by average assets and multiplying the result by 20%
(Tefra disallowance) and 34% (Federal Tax rate).
<F4>Allowance for loan losses and deferred loan fees are netted from loans
receivable which includes nonaccrual loan balances.
<F5>Interest income on loans includes fees on loans of $126,000 in 1997 and
$89,000 in 1996.
<F6>Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
<F7>Net interest margin is computed by dividing net interest income by total
average interest earning assets.
<PAGE>ANALYSIS OF CHANGES IN NET INTEREST MARGIN ON AVERAGE EARNINGS ASSETS
California Community Bancshares Corporation
(In Thousands)
Nine Months Ended September 30,
- -----------------------------------------------------
1997 1996
------------------------
- -------------------------
Int. Avg. Int.
Avg.
Average Earned Yield Average Earned
Yield
Balance<F1>/Paid /Rate Balance<F1>/Paid
/Rate
-------- ------ ----- -------- ------
- -----
ASSETS:
INTEREST EARNING ASSETS
Federal Funds Sold $ 2,465 $ 92 4.99% $ 1,935 $ 73
5.04%
Investment Securities:
Taxable <F2> 47,641 2,148 6.03 26,344 1,205
6.11
Exempt From Federal Taxes<F3> 4,621 179 5.18 6,745 273
5.41
Loans, Net <F4><F5> 115,775 8,181 9.45 110,805 8,044
9.70
-------- ------ ----- -------- ------
- -----
Total Interest Earning Assets 170,502 10,600 8.31 145,829 9,595
8.79
Cash and Due from Banks 9,731 8,561
Premises and Equipment, net 2,272 2,158
Investment in Real Estate
Development 4,441 4,562
Accrued Interest Receivable
and Other Assets 2,864 1,933
-------- --------
TOTAL AVERAGE ASSETS $189,810 $163,043
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Interest-Bearing NOW Accounts 23,214 215 1.24 19,180 186
1.30
Savings Deposits and MMDA 19,641 354 2.41 17,185 299
2.32
Money Management 39,432 1,307 4.43 37,450 1,252
4.47
Time Deposits 38,560 1,484 5.15 27,872 1,046
5.01
Time Deposits over $100,000 21,590 858 5.31 19,024 759
5.33
Federal Funds Purchased 243 11 6.06 106 4
5.04
Security Repurchase Agreements 373 14 5.01 980 37
5.04
Other Borrowed Funds 2,650 167 8.43 1,628 92
7.55
Convertible Subordinated
Debentures 3,176 173 7.28 3,950 234
7.91
-------- ------ ----- -------- ------
- -----
Total Average Interest-
Bearing Liabilities 148,879 4,583 4.12 127,375 3,909
4.10
Non Interest-Bearing DDA's 26,029 22,889
Accrued Interest Payable and
Other Liabilities 743 188
-------- ------ ----- -------- ------
- -----
Total Average Liabilities $175,651 $4,583 3.49% $150,452 $3,909
3.47%
======== ========
Total Equity 14,159 12,591
Total Average Liabilities and
Shareholders' Equity 189,810 163,043
Net Interest Spread <F6> 4.20%
4.69%
Net Interest Income $6,017 $5,686
Net Interest Margin <F7> 4.72%
5.21%
- -----------------------------------------------------------------------------
<F1>Average balances are computed principally on the basis of daily balances.
<F2> The taxable securities yield is computed by dividing interest income
(annualized on an actual day basis) by average historical cost.
<F3>The tax equivalent yield on investment securities exempt from federal
taxes was 7.51% and 7.86% in 1997 and 1996. The tax equivalent yield is
calculated by dividing the adjusted yield by one minus the Federal Tax rate.
The adjusted yield is determined by subtracting the Tefra penalty from the
unadjusted tax exempt investment yield. The unadjusted tax exempt investment
yield is computed by dividing tax exempt interest income by their average
historical cost. The Tefra penalty is computed by dividing total interest
expense (annualized) by average assets and multiplying the result by 20%
(Tefra disallowance) and 34% (Federal Tax rate).
<F4>Allowance for loan losses and deferred loan fees are netted from loans
receivable which includes nonaccrual loan balances.
<F5>Interest income on loans includes fees on loans of $302,000 in 1997 and
$344,000 in 1996.
<F6>Net interest spread represents the average yield earned on
interest-earning assets less the average rate paid on interest-bearing
liabilities.
<F7>Net interest margin is computed by dividing net interest income by total
average interest earning assets.
ANALYSIS OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME AND EXPENSE
California Community Bancshares Corporation
(In Thousands)
-------------------------------------
Three Months Ended
September 30, 1997 over 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 2 $ 2 $ 4
Taxable Investment Securities 263 ( 11) 252
Investment Securities Exempt from
Federal Taxes ( 23) ( 5) ( 28)
Loans, Net <F1><F2> 160 ( 26) 134
------ ---------- -----
Total Interest Income 402 ( 40) 362
Interest-bearing Now Accounts 14 ( 4) 10
Savings Deposits and MMDA 13 7 20
Money Management 21 ( 12) 9
Time Deposits 125 12 137
Time Deposits over $100,000 20 5 25
------ ---------- -----
Total Interest Expense on Deposits 193 8 201
Federal Funds Purchased 6 0 6
Security Repurchase Agreements ( 8) ( 1) ( 9)
Other Borrowed Funds 0 4 4
Convertible Subordinated Debentures ( 19) ( 14) ( 33)
------ ---------- -----
Total Interest Expense 172 ( 3) 169
------ ---------- -----
Net Interest Income $ 230 ($ 37) $ 193
====== ========== =====
- -----------------------------------------------------------------------------
<F1>Nonaccrual loans are included.
<F2>Interest income on loans includes fee income on loans of $126,000 in 1997
and $89,000 in 1996.
<F3>Changes not due solely to rate change have been allocated to volume.
<PAGE> -------------------------------------
Nine Months Ended
September 30, 1997 over 1996
-------------------------------------
Increase(decrease) Due to Change in:
-------------------------------------
Volume<F3> Yield/Rate Total
------ ---------- -----
Federal Funds Sold $ 19 ($ 0) $ 19
Taxable Investment Securities 950 ( 7) 943
Investment Securities Exempt from
Federal Taxes ( 89) ( 5) ( 94)
Loans, Net <F1><F2> 229 ( 92) 137
------ ---------- -----
Total Interest Income 1,109 ( 104) 1,005
Interest-bearing Now Accounts 33 ( 4) 29
Savings Deposits and MMDA 50 5 55
Money Management 59 ( 4) 55
Time Deposits 426 12 438
Time Deposits over $100,000 100 ( 1) 99
------ ---------- -----
Total Interest Expense on Deposits 668 8 676
Federal Funds Purchased 7 0 7
Security Repurchase Agreements ( 23) 0 ( 23)
Other Borrowed Funds 70 5 75
Convertible Subordinated Debentures ( 53) ( 8) ( 61)
------ ---------- -----
Total Interest Expense 669 5 674
------ ---------- -----
Net Interest Income $ 440 ($ 109) $ 331
====== ========== =====
- -----------------------------------------------------------------------------
<F1>Nonaccrual loans are included.
<F2>Interest income on loans includes fee income on loans of $302,000 in 1997
and $344,000 in 1996.
<F3>Changes not due solely to rate change have been allocated to volume.
PROVISION FOR LOAN LOSSES
In the third quarter of 1997, the Company provided $75,000 for loan
losses versus $69,000 in the same period last year. This provision increased
the 1997 year to date provision to $244,000 versus $276,000 for the first nine
months of 1996. The year to date provision offset the net loans charged off
during the period against the allowance and added $119,000 for growth in
outstanding loans balances as well as general economic factors. The allowance
for loan losses to loans receivable at September 30, 1997 was 1.01% up from
.98% at September 30, 1996. Management's ongoing analysis of the loan
portfolio determined that the balance of $1,220,000 in the allowance for loan
losses is expected to be adequate to absorb losses inherent in the loan
portfolio. The current quarter's $75,000 provision for loan losses deducted
from the $2,106,000 net interest income results in net interest income after
provision of $2,031,000. This figure divided by average assets is a ratio of
4.23%, slightly above the Company's short term goal of 4.00%.
NON INTEREST INCOME
Total non interest income in the third quarter of 1997 increased $45,000
or 10.1% from the same period last year and decreased $4,000 or 0.3% for the
first nine months of 1997 from the amount reported for the first nine months
of 1996.
Income from service charges on deposit accounts improved by 2.3% from
$222,000 obtained in the third quarter of 1996 to $227,000 in the third
quarter of 1997. Gain on sale of available for sale securities declined from
$5,000 in the third quarter of 1996 to zero in the third quarter of 1997.
Income from real estate development was basically unchanged at $131,000 and
$130,000 in the third quarter of 1997 and 1996. Other fees and charges
resulted in the majority of the increase in non interest income, increasing by
$44,000 from the amount reported in the third quarter 1996. Fee income on the
sale of 1-4 family mortgages increased by $10,000 from $18,000 in the third
quarter of 1996 to $28,000 in the current quarter. Income from the sale of
mutual funds and annuities increased by $18,000 from $16,000 in the third
quarter of 1996 to $34,000 in the current period. Numerous other fees, such
as fees from the sale of credit card equipment and sale of assets increased by
$16,000 resulting in the net increase of $44,000 in other fees and charges.
The current quarters non interest income of $492,000 expressed as a ratio of
average assets is 1.03%, slightly above the Company's current short term goal
of 1.00%.
Income from services charges on deposit accounts improved from $623,000
in the first nine months of 1996 to $663,000 in the first nine months of
1997. Gain on sale of available securities increased from $8,000 in the first
nine months of 1996 to $42,000 in the first nine months of 1997. Income from
real estate development was basically unchanged with income of $395,000 and
$390,000 in the first nine months of 1997 and 1996, respectively. Significant
decreases occurred in other fees and charges. The sale and servicing of SBA
loans generated fee income of $105,000 in the first nine months of 1996 versus
$22,000 in the current year as the Bank reduced the volume of SBA loan sales,
preferring to retain the loans in its portfolio. Fee income on the sale of
1-4 family mortgages decreased by $52,000 from $120,000 in the first nine
months of 1996 to $68,000 in the current year to date period. Income
increased by $52,000 in various other fees and services categories resulting
in an overall decline in other fees and charges of $83,000 for the first nine
months of 1997 compared to the first nine months of 1996.
NON INTEREST EXPENSE
Non interest expense for the third quarter of 1997 was $1,810,000,
$162,000 higher than the $1,648,000 reported in the third quarter of 1996.
Salaries and benefits increased $96,000 or 12.2%. Increased bonuses and
commissions contributed $63,000 of this increase while normal salary increases
and the addition of a new branch contributed $33,000. The new branch and the
remodeling of the Company's data processing department increased occupancy
cost by $35,000 or 10.5% over the amount reported in the same quarter of
1996. Other expenses in the current quarter were $29,000 higher than the same
quarter last year. This increase was mainly due to increase accounting and
consulting expenses. Expenses from real estate development were relatively
consistent, increasing from $76,000 in the third quarter of 1996 to $78,000 in
the current quarter. The current quarters non interest expenses expressed as
a ratio to average assets is 3.77%.
Non interest expense for the first nine months of 1997 was $5,214,000,
$223,000 or 4.5% higher than the $4,991,000 expensed in the first nine months
of 1996. Salaries and benefits increased by $92,000 while occupancy expense
was up $83,000 due to the new Concord branch and the data processing office
remodeling. Both other expenses and expenses from real estate development
were up slightly, increasing by $37,000 and $11,000 respectively over the
figures reported in the prior year period.
PROVISION FOR INCOME TAXES AND NET INCOME
The Company recorded a $264,000 provision for income taxes in the third
quarter of 1997, $10,000 higher than the provision recorded in the same
quarter last year. For the first nine months of 1997, the company provided
for $729,000 in income taxes versus $711,000 in the first nine months of
1996. Taxes were higher in both periods due to higher earnings as well as
lower income from securities exempt from federal tax. The current quarter and
year to date effective tax rate was 37.0% and 36.8% versus 39.5% and 38.5% in
the same periods last year.
The $2,031,000 net interest income after provision for loan losses plus
non interest income of $492,000 and non interest expense of $1,810,000
resulted in income before provision for income taxes of $713,000 or 1.49% of
average assets. This is $70,000 higher than the figure reported in the same
period last year. After deducting the provision for income taxes, net income
was $449,000 or .93% return on average assets. It is the Company's goal to
increase this ratio to 1% as soon as possible.
Management is not aware of any trends, events or uncertainties that have
had or that are reasonably expected to have a material impact on liquidity,
capital resources, or revenues or income from continuing operations. The
company is also not aware of any current recommendations by any regulatory
authority which, if they were implemented, would have such an effect.
LOANS
At September 30, 1997, total outstanding loan balances were $7.5 million
higher than year end 1996 totals. The composition of loans also changed
significantly in the first nine months of 1997. Construction and land
development loans, equity loans and consumer loans declined by $1.0 million,
$0.4 million and $0.4 million, respectively, while loans secured by 1-4
residential properties, loans secured by multi family residential property
loans, loans secured by commercial real estate and commercial and industrial
loans increased by $1.8 million, $0.5 million, $5.4 million and $1.6 million,
respectively. The Bank's largest loan category, real estate mortgage loans
constituted 72.4% of total loans outstanding at December 31, 1996 and 74.4% at
September 30, 1997. Loan growth is an integral component of improved
earnings. A key to increasing net interest income is to increase the loan to
deposit ratio and the ratio of loans to total earning assets. At December 31,
1996, these ratios were 66.7% and 65.9%. At the end of the third quarter of
1997, outstanding loans had increased 6.6%, which in turn increased these
ratios to 71.1% and 70.3%.
SECURITIES
At September 30, 1997, available for sale securities had a fair market
value of $51,161,000 with an amortized cost basis of $51,488,000. This
represents a $1.4 million net decrease in the fair value from the year end
1996 figure. The portfolio now consists of approximately $11.0 million U.S.
Treasuries, $14.3 million U.S. Agency bonds, $4.7 million in securities issued
by states and political subdivisions in the U.S., $20.6 million in mortgage
backed securities and $.6 million in Federal Home Loan Bank stock.
Approximately 53% of the debt security portfolio is floating rate, tied to
either the 11th District Cost of Funds Index, the one-year constant maturity
treasury index or prime rate. The fixed rate portfolio has an average
maturity of 3 1/2 years. As a result of an approximate .25% decrease in
interest rates, the unrealized loss on securities available for sale decreased
from $276,000 at December 31, 1996 to $189,000 at September 30, 1997.
Although the tax affected unrealized loss is a component of shareholders'
equity, this figure is excluded from the calculation of regulatory capital
ratios. The security portfolio is a good source of both liquidity and income.
At September 30, 1997, the Company did not have any investment securities
issued by a single issuer, with an aggregate book value exceeding ten percent
of shareholder's equity, other than those issued by the U.S. Government and U.
S. Government agencies and corporations.
NONPERFORMING ASSETS
Total nonperforming assets have increased $1,185,000 since year end and
$1,689,000 from a year ago but they have decreased by $555,000 from the
quarter ending June 30, 1997. Since year end 1996 nonaccrual loans increased
by $881,000, accruing loans past due 90 days or more decreased by $39,000
while restructured loans increased by $297,000. One loan for $922,000 secured
by commercial offices property was placed on nonaccrual in the first quarter
of 1997, due to the increased vacancy which reduced cash flow. The Bank
believes the borrower will be able to fully debt service the loan under the
original terms at the time the property becomes approximately 90% occupied.
The increase in restructured loans, which also occurred in the first quarter
of 1997, consists of three loans to two borrowers each of which is secured by
commercial office properties. Once these properties are fully leased, the
borrower is expected to be able to fully debt service the loans under the
original terms. Also in the third quarter of 1997, the Bank sold two other
real estate owned (OREO) properties with carrying value of $217,000 at a loss
of $18,000. The Bank also paid off the first lien on one of the remaining two
OREO properties increasing the Bank's carrying value by $77,000 to a total of
$196,000. Based on the value of these remaining properties the Bank believes
it will experience little to no loss when these properties are sold. Non
performing assets represent 1.27% of total assets while the ratio of allowance
for loan losses to nonperforming loans is 54.22%. Management is working
closely with the above-mentioned borrowers to reduce the Bank's risk of loss
as well as continuing to make a concerted effort to reduce problem and
potential problem loans.
At September 30, 1997 and December 31, 1996, the recorded investment in
loans for which impairment has been recognized in accordance with SFAS No. 114
was approximately $2,491,000 and $2,648,000. The total allowance for loan
losses related to these loans was $475,000 and $278,000, respectively. For
the quarter ended September 30, 1997 and December 31, 1996, the average
recorded investment in loans for which impairment has been recognized was
approximately $2,544,000 and $2,652,000. During the portion of the quarter
that the loans were impaired, the Company recognized interest income of
approximately $24,000 and $52,000 from cash payments received in 1997 and
1996.
Additional interest income on impaired loans which would have been
recognized if all such loans had been current in accordance with their
original terms totalled approximately $35,000 in the third quarter of 1997 and
$107,000 for the first nine months of 1997.
Changes in general or local economic conditions or specific industry
segments, rising interest rates, declines in real estate values and acts of
nature could have an adverse effect on the ability of borrowers to repay
outstanding loans and the value of real estate and other collateral securing
such loans.
Other than the loans discussed above, management is not aware of any
loans that represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity
or capital resources; or represent material credits about which management is
aware of information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
The following table presents information concerning the allowance and
provision for loan losses:
------------- ------------
September 30 December
31,
1997 1996
------------- ------------
Nonaccrual Loans $ 951 $ 70
Accruing Loans past Due 90 Days or More 28 67
Restructured Loans
(In Compliance with Modified Terms) 1,271 974
------------- ------------
Total Nonperforming Loans 2,250 1,111
Other Real Estate Owned 196 150
------------- ------------
Total Nonperforming Assets 2,446 1,261
============= ============
Total Loans, End of Period 121,141 113,625
Total Assets, End of Period 192,243 191,829
Allowance for Loan Losses $ 1,220 $ 1,101
Nonperforming Loans to Total Loans 1.86% 0.98%
Allowance for Loan Losses to Nonperforming Loans 54.22% 99.10%
Nonperforming Assets to Total Assets 1.27% 0.66%
Allowance for Loan Losses to Nonperforming Assets 49.88% 87.31%
- -----------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The Bank maintains its allowance for loan losses at a level considered by
management to be adequate to cover the risk of loss in the loan portfolio at a
particular point in time. This determination includes an evaluation and
analysis of historical experience, current loan mix and volume, as well as
current and projected economic conditions.
The following table presents information concerning the allowance and
provision for loan losses.
------------- -------------
September 30, September 30,
1997 1996
------------- -------------
Balance, Beginning of Period $ 1,101 $ 1,158
Provision Charged to Operations 244 276
Loans Charged off 162 345
Recoveries of Loans Previously Charged off 37 27
------------- -------------
Balance, End of Period 1,220 1,116
Total Loans, End of Period $121,141 $113,909
Allowance for Loans Losses to
Loans, End of Period 1.01% 0.98%
- -----------------------------------------------------------------------------
LIQUIDITY
Liquidity is measured by various ratios, the most common being the
liquidity ratio of cash, time deposits in other banks, federal funds sold, and
unpledged investment securities as a percentage of total deposits. At
September 30, 1997, this ratio was 30.1%.
In the area of interest rate sensitivity management focuses on reducing
the impact movements in interest rates would have on interest income and the
economic value of the Company. The Company believes that keeping overall risk
at a low level achieves optimal performance. The objective is to control risks
and produce consistent, high quality earnings independent of fluctuating
interest rates. The Board of Directors and the Board Asset / Liability
Committee ("ALCO") oversees the establishment of appropriate internal controls
which are designed to ensure that implementation of the Asset / Liability
strategies remain consistent with Asset / Liability Management Policy
objectives. The ALCO consists of all Senior Management and is charged with
implementing these strategies.
A major tool used by this Committee and the Board ALCO is the ALX Asset /
Liability computer model. This model, which is run quarterly, measures a
number of risks, including liquidity risk, capital adequacy risk, interest
rate risk and market risk. The model analyzes the mix and repricing
characteristics of interest rate sensitive assets and liabilities using
multipliers (the degree interest rates change when the federal funds rate
changes) and lags (the time it takes rates to change after the federal funds
rate changes). The model simulates the effects on net interest income and
market risk when the federal funds rate changes. The ALCO committee then uses
this information, in conjunction with, current and projected economic
conditions and the outlook for interest rates to set loan strategies,
investment strategies and funding strategies, which include loan and deposit
pricing, volume and mix of each asset and liability category and proposed
changes to the maturity distribution of assets and liabilities. The Asset /
Liability policy states that the Bank will monitor and limit interest rate
risk as follows:
For a 1% change in the federal funds rate, net interest income (NII)
should not change by more than 5%, and for a 2% change in the federal funds
rate, NII should not change by more that 10%. The policy further states that
the Bank will monitor and limit market risk (in a market where interest rates
have risen 3%) to 25% of equity capital while maintaining "well capitalized"
leverage and risk based capital ratios.
At September 30, 1997, the "ALX" model showed the Bank was moderately
liability sensitive with a NII exposure of -$103,000 or -1.2% for a 1%
increase in the federal funds rate and a -$521,000 or -6.8% exposure in NII
for a 2% increase. Both of these figures are within policy.
At September 30, 1997, market risk for a 3% increase in market rates, as
measured by the model, was -11.63% of equity capital, which is within policy.
The market risk adjusted leverage and risk based capital ratios were 6.22% and
12.25%, respectively, which are also within policy.
When the Company is liability sensitive, as it was at September 30, 1997,
management discontinues or limits the use of longer lagging indexes such as
the 11th District Cost of Funds (COFI) for loan pricing and switchs to more
market sensitive indexes. In the securities portfolio, the Company switchs
from fixed rate investments, as well as investments tied to lagging indexes,
to short term securities and/or to securities tied to more market sensitive
indexes. The Bank will also use interest rate swaps, when appropriate, to
reposition the Bank's interest rate risk.
EQUITY
The Company and the Bank are each subject to various regulatory Capital
requirements administered by federal banking agencies.
Company:
As a result of the $1,254,000 earned in first nine months of 1997,
combined with the $1,204,000 increase in capital raised through the issuance
of common stock pursuant to the exercise of employee stock options and the
conversion of debentures, and the payment of $468,000 in dividends, the
Company had the following capital levels and ratios. The following table also
includes the regulatory minimums for capital adequacy purposes:
For Capital
Actual Adequacy
Purposes
------------------- ---------------------
Minimum Minimum
Amount Ratio Amount Ratio
(000) (000)
-------------------
- ---------------------
Total Capital
(to risk weighted assets) $ 18,845 13.68% $11,019 8.0%
Tier One Capital
(to risk weighted assets) $ 15,122 10.98% $ 5,509 4.0%
Tier One Capital
(to average assets) $ 15,122 7.90% $ 7,657 4.0%
Risk Weighted Assets $137,735
Quarterly Average
Assets (Adjusted) $191,417
- -----------------------------------------------------------------------------
Bank:
As a result of the $1,294,000 earned in first nine months of 1997 and the
payment of $450,000 in dividends, the Bank had the following capital levels
and ratios. The following table also includes the regulatory minimums for
capital adequacy purposes and regulatory minimums to be categorized as "Well
Capitalized" under prompt corrective action
provisions:
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
(000) (000) (000)
---------------- -----------------
- ----------------------
Total Capital
(to risk weighted assets) $ 18,407 13.39% $10,997 8.0% $13,746
10.0%
Tier One Capital
(to risk weighted assets) $ 13,519 9.83% $ 5,498 4.0% $
8,248 6.0%
Tier One Capital
(to average assets) $ 13,519 7.08% $ 7,643 4.0% $
9,554 5.0%
Risk Weighted Assets $137,460
Quarterly Average
Assets (Adjusted) $191,075
- --------------------------------------------------------------------------------
- -------
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None of the Company, the Bank or Conpac is a party to or the subject of, or
is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of the Corporation.
ITEM 2 - CHANGES IN SECURITIES
The rights of the holders of registered securities have not been materially
modified.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There has not been any material default in (1) payment of principal,
interest, a sinking or purchase fund installment, or (2) any other material
default not cured within 30 days, regarding any indebtedness exceeding 5% of
the total assets of the registrant or any of its significant subsidiaries.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS OF FORM 8-K
A) Exhibits
11 Statement regarding computation of per share
earning.
27 Financial Data Schedule under Article 9
B) Reports on Form 8-K
No Form 8-K's were filed by the Company during the quarter ending September
30, 1997.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
CALIFORNIA COMMUNITY
BANCSHARES CORPORATION
----------------------------
Date /s/ Walter O. Sunderman
------------------ ----------------------------
Walter O. Sunderman
President and
Chief Executive Officer
----------------------------
Date /s/ ANDREW S. POPOVICH
------------------ ----------------------------
Andrew S. Popovich
Executive Vice President and
Chief Administrative Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
Exhibits
to
FORM 10 - QSB
QUARTERLY REPORT
UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
__________
CALIFORNIA COMMUNITY BANCSHARES CORPORATION
EXHIBIT 11 - STATEMENT RE COMPUTATIONS OF PER SHARE EARNINGS
(Unaudited)(In Thousands, Except Earnings per Share)
--------------------- ---------------------
For the Three Months For the Nine Months
Ended Sept 30, Ended Sept 30,
--------------------- ---------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Weighted Average Shares
Used to Compute Common
and Equivalent Shares:
Primary 1,169,240 1,025,539 1,116,276 1,013,305
Fully Diluted 1,365,554 1,326,715 1,349,767 1,319,841
========= ========= ========= =========
Net Income Used in the
Computation of Income
per Common Share:
Net Income, as Reported
Used to Compute Primary
Income per Share $ 449 $ 389 $ 1,254 $ 1,136
========= ========= ========= =========
Adjustment for after Tax
Effect of Interest Paid
on Convertible Debentures 26 44 100 136
--------- --------- --------- ---------
Net Income, as Adjusted Used
to Compute Fully Diluted
Income per Share $ 475 $ 433 $ 1,354 $ 1,272
========= ========= ========= =========
Income per Common and
Equivalent Share:
Primary $ 0.38 $ 0.38 $ 1.12 $ 1.12
Fully Diluted $ 0.35 $ 0.33 $ 1.00 $ 0.96
========= ========= ========= =========
