<PAGE>
[LOGO]
November 10, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting (the "CIB Meeting") of
Shareholders of Channel Islands Bank, a California banking corporation ("CIB"),
to be held on Tuesday, December 8, 1998, at 6:00 p.m., at which you will be
asked to consider and vote on a proposal to approve the principal terms of a
proposed merger (the "Merger") pursuant to an amended Agreement to Merge and
Plan of Reorganization, dated as of July 7, 1998 and amended on September 17,
1998 (the "Agreement"), by and between CIB, Americorp, a California corporation
(the "Americorp") and American Commercial Bank, a California state-chartered
bank ("ACB") and a wholly owned subsidiary of Americorp, pursuant to which (i)
CIB will merge with and into ACB and ACB will continue as the surviving bank,
and (ii) the shareholders of CIB will become shareholders of Americorp in
accordance with the exchange ratio in the Agreement (the "Merger"). A copy of
the Agreement is included with this Joint Proxy Statement/ Prospectus as
Appendix A.
Based on the number of shares of CIB Common Stock outstanding as of the
record date for the CIB Meeting, the shares of Americorp Common Stock to be
issued to CIB shareholders pursuant to the Agreement will represent
approximately 38% of the shares of Americorp Common Stock outstanding following
the Merger. The enclosed Joint Proxy Statement/prospectus more fully describes
the proposed merger and related transactions, including information about CIB,
Americorp and ACB.
The Board of Directors of CIB has unanimously approved the Agreement and has
determined that the Merger is fair to, and in the best interests of, holders of
CIB Common Stock (the "CIB Shareholders"). In addition, the Findley Group, as
financial advisor to CIB, has delivered its opinion, dated July 7, 1998, to the
Board of Directors of CIB that the Exchange Ratio is fair, from a financial
point of view, to the CIB Shareholders. Therefore, the Board of Directors of CIB
unanimously recommends that CIB Shareholders vote "FOR" the approval of the
principal terms of the Merger.
I urge you to consider carefully these important matters which are described
in the accompanying Joint Proxy Statement/Prospectus. The affirmative vote of
the holders of a majority of the CIB Common Stock entitled to vote at the CIB
Meeting is required for approval of the principal terms of the Merger. Your
failure to vote for approval of the principal terms of the Merger has the same
effect as a vote against the Merger. In order to ensure that your vote is
represented at the CIB Meeting, please indicate your choice on the enclosed
proxy form, date, sign and return it in the enclosed envelope. A prompt response
will be appreciated. If you attend the CIB Meeting you may revoke your proxy and
vote in person if you wish.
We hope that the Joint Proxy Statement/Prospectus will answer any questions
you may have concerning the Merger and the other items. If you have any
questions concerning the Joint Proxy Statement/ Prospectus or the accompanying
proxy or if you need any help in voting your shares, please telephone Mr. Thomas
E. Anthony or Mr. Allen Partridge of CIB at (805) 487-6581.
YOU SHOULD NOT SEND IN YOUR CERTIFICATES OF CIB COMMON STOCK AT THIS TIME.
YOU WILL RECEIVE INSTRUCTIONS AT A LATER DATE REGARDING THE EXCHANGE OF YOUR
STOCK CERTIFICATES.
Your interest and participation are appreciated.
Sincerely,
/s/ Joseph L. Priske
Joseph L. Priske
Chairman of the Board
<PAGE>
[LOGO]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the Shareholders of
Americorp to be held on December 15, 1998, at 4:15 p.m. at American Commercial
Bank's office at 300 South Mills Street, Ventura, California.
At this meeting you will be asked to consider and vote upon a proposal to
approve the principal terms of the amended Agreement to Merge and Plan of
Reorganization dated July 7, 1998 and amended on September 17, 1998 ("the
Agreement") by and among Americorp, American Commercial Bank, and Channel
Islands Bank pursuant to which (i) Channel Islands Bank will merge with and into
American Commercial Bank, with American Commercial Bank continuing as the
surviving bank, and (ii) the shareholders of Channel Islands Bank will become
shareholders of Americorp in accordance with the exchange ratio set forth in the
Agreement.
The enclosed Joint Proxy Statement/Prospectus more fully describes the
proposed merger and related transactions, including information about the
involved entities.
The Board of Directors of Americorp has carefully considered the terms and
conditions of the Agreement and the proposed merger with Channel Islands Bank.
THE BOARD OF DIRECTORS OF AMERICORP HAS CONCLUDED THAT THE MERGER IS IN THE BEST
INTEREST OF AMERICORP, AMERICAN COMMERCIAL BANK AND HOLDERS OF AMERICORP COMMON
STOCK, AND UNANIMOUSLY RECOMMENDS THAT AMERICORP SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER. California Research, the Bank's
financial advisor, has delivered to the Board of Directors of Americorp its
opinion that the terms of the exchange ratio are fair, from a financial point of
view, to Americorp's shareholders. A copy of this opinion is attached as
Appendix C to the Joint Proxy Statement/ Prospectus.
You will also be asked to vote upon a new stock option plan for Americorp as
provided for in the Agreement.
It is important that your shares be represented and voted at the Special
Meeting, regardless of the number of shares you own and whether or not you plan
to attend the Special Meeting. The affirmative vote of the holders of a majority
of Americorp's common stock entitled to vote at the Special Meeting is required
for approval of the principal terms of the Merger. Your failure to vote for
approval of the principal terms of the Merger has the same effect as a vote
against the Merger. Therefore, we urge you to sign, date and mail the enclosed
proxy. If you decide to attend the Special Meeting and wish to vote in person,
you may withdraw your proxy at that time.
We hope that the Joint Proxy Statement/ Prospectus will answer any questions
you may have concerning the Merger and the other items. If you have any further
questions please telephone Americorp at (805) 658-6633.
Sincerely,
Allen W. Jue
Chairman of the Board
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
CHANNEL ISLANDS BANK
TO BE HELD DECEMBER 8, 1998
------------------------
To The Shareholders of
CHANNEL ISLANDS BANK:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the call of its
Board of Directors, a Special Meeting of Shareholders of Channel Islands Bank
("CIB") will be held on Tuesday, December 8, 1998, at 6:00 p.m. California Time
in the Financial Plaza Branch of Channel Islands Bank, 300 Esplanade Drive,
Oxnard, California, (the "CIB Meeting") for the following purposes, as set forth
in the attached Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve the principal terms
of the amended Agreement to Merge and Plan of Reorganization dated as of
July 7, 1998, and amended on September 17, 1998, (the "Agreement") by and
among Channel Islands Bank ("CIB"), American Commercial Bank ("ACB") and its
parent holding company, Americorp, and the transactions contemplated thereby
pursuant to which (i) CIB will merge with and into ACB and ACB will continue
as the surviving bank, and (ii) the shareholders of CIB will become
shareholders of Americorp in accordance with the exchange ratio set forth in
the Agreement (the "Merger"). A copy of the Agreement is included in the
Joint Proxy Statement/Prospectus as Appendix A.
2. To transact any other business which may properly come before the
CIB Meeting or any adjournments or postponements thereof.
Only those shareholders of record at the close of business on October 31,
1998 are entitled to notice of and to vote at the CIB Meeting or any
adjournments or postponements thereof (the "CIB Record Date"). The affirmative
vote of a majority of the outstanding shares of CIB's no par value common stock
("CIB Stock") is required to approve the principal terms of the Merger and the
transactions contemplated thereby.
THE BOARD OF DIRECTORS OF CIB HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY THE AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY AT THE CIB MEETING.
By order of the Board of Directors
/s/ Joseph L. Priske
Allen R. Partridge
SECRETARY
November 10, 1998
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE CIB MEETING IN PERSON. IF YOU DO ATTEND THE CIB MEETING, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON AT THAT TIME. YOU MAY REVOKE YOUR PROXY
AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE INDICATE ON THE PROXY CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING SO WE CAN PROVIDE ADEQUATE ACCOMMODATIONS.
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
AMERICORP
TO BE HELD DECEMBER 15, 1998
------------------------
To The Shareholders of
AMERICORP:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the call of its
Board of Directors, a Special Meeting of Shareholders of Americorp will be held
on Tuesday, December 15, 1998, at 4:15 p.m. California Time in American
Commercial Bank's office at 300 South Mills Road, Ventura, California, (the
"Americorp Meeting") for the following purposes, as set forth in the attached
Joint Proxy Statement/ Prospectus:
1. To consider and vote upon a proposal to approve the principal terms
of the amended Agreement to Merge and Plan of Reorganization dated as of
July 7, 1998, and amended on September 17, 1998, (the "Agreement") by and
among Channel Islands Bank ("CIB"), American Commercial Bank ("ACB") and its
parent holding company, Americorp and the transactions contemplated thereby
pursuant to which (i) CIB will merge with and into ACB and ACB will continue
as the surviving bank, and (ii) the shareholders of CIB will become
shareholders of Americorp in accordance with the exchange ratio set forth in
the Agreement (the "Merger"). A copy of the Agreement is included in the
Joint Proxy Statement/Prospectus as Appendix A.
2. To consider and vote upon a proposal to adopt a new Stock Option
Plan in accordance with the Agreement. A copy of the stock option plan is
included in the Joint Proxy Statement/Prospectus as Appendix E.
3. To transact any other business which may properly come before the
Americorp Meeting or any adjournments or postponements thereof.
Only those shareholders of record at the close of business on November 5,
1998 are entitled to notice of and to vote at the Americorp Meeting or any
adjournments or postponements thereof (the "Americorp Record Date"). The
affirmative vote of a majority of the outstanding shares of Americorp's $1.00
par value common stock ("Americorp Stock") is required to approve the principal
terms of the Merger and the transactions contemplated thereby and to approve the
new stock option plan.
THE BOARD OF DIRECTORS OF AMERICORP HAS UNANIMOUSLY APPROVED THE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AT THE AMERICORP MEETING.
By order of the Board of Directors
Lincoln E. Cryne
SECRETARY
November 10, 1998
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE AMERICORP MEETING IN PERSON. IF YOU DO ATTEND THE AMERICORP
MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON AT THAT TIME. YOU MAY
REVOKE YOUR PROXY AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE INDICATE ON THE PROXY CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING SO WE CAN PROVIDE ADEQUATE ACCOMMODATIONS.
<PAGE>
CHANNEL ISLANDS BANK
AND
AMERICORP
JOINT PROXY STATEMENT
SPECIAL MEETINGS OF SHAREHOLDERS
AMERICORP
PROSPECTUS
This Joint Proxy Statement/Prospectus ("Joint Proxy Statement/Prospectus")
is being furnished to shareholders of CIB and Americorp, in connection with the
solicitation of proxies by the respective Boards of Directors of such
corporations for use at the CIB Meeting (including any adjournments thereof) and
the Americorp Meeting (including any adjournments thereof) to be held on
December 8, 1998 and December 15, 1998, respectively.
This Joint Proxy Statement/Prospectus relates to the proposed Merger of CIB
with and into ACB and the other transactions contemplated by the Agreement. At
each Meeting, shareholders will consider and vote on a proposal to approve the
principal terms of the Agreement and the transactions contemplated thereby.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Americorp with respect to the shares of Americorp Stock issuable to holders of
CIB Stock pursuant to the Merger.
The Merger is intended to be a so-called "Merger of Equals" whereby
comparatively similar sized financial institutions and their respective
managements, boards of directors, shareholder groups and businesses are combined
to create an institution which may provide for, among other things, increased
synergies, expended products and markets, higher lending limits and a reduction
of overall overhead costs, including a reduction in duplicate positions and
employee benefits. Such mergers may also enhance the liquidity of a
shareholder's investment and may provide the combined entity with easier access
to the capital markets. "Mergers of Equals" provide the same types of risk
associated with combining any two entities, including (i) the disadvantages of
being part of a larger entity, including reduced voting power and the potential
for decreased customer service; (ii) the integration of the different corporate
cultures of the entities will divert the combined entities' management time from
other activities and (iii) the proposed changes to policies and procedures of
the combined entity may not prove to be successful to the customers of the
combined entity. "Mergers of Equals" also generally provide, among other less
favorable aspects, a smaller premium on their investment to the non-surviving
institutions' shareholders than would be anticipated in an actual sale of
control, less liquidity to such shareholders for their investment than if the
non-surviving institution had been acquired by a larger acquiror as well as the
difficulties associated with combining the human resources and cultural
differences of two similar sized institutions.
The Exchange Ratio for the Merger (i.e. the number of shares of Americorp
Stock into which a share of CIB Stock will be converted) will be computed by
dividing the CIB Book Value Per Share by the Americorp Book Value Per Share.
Book Value Per Share for the respective Parties will be determined as of the
month end preceding the effective time by dividing such Party's aggregate book
value by its number of shares outstanding on such date. "Aggregate Book Value"
is a Party's stockholders' equity on such date determined in accordance with
generally accepted accounting principles except (A) as otherwise provided in the
Agreement, (B) such amount will not be reduced by Merger related expenses, and
(C) the allowance for loan and lease losses shall be increased by any impairment
in the allowance.
The exact amount of the Exchange Ratio is dependent, in part, upon future
results and therefore, presently cannot be determined. By way of illustration
only, if the respective Book Values Per Share had been determined on June 30,
1998 and without any adjustment as permitted in the Agreement, Americorp's Book
Value Per Share would have been $20.02, CIB's Book Value Per Share would have
been $13.96 and the Exchange Ratio would have been 0.6973 shares of Americorp
Stock for each share of CIB Stock. THE ACTUAL EXCHANGE RATIO MAY BE HIGHER OR
LOWER THAN THE PRECEDING PRO FORMA ILLUSTRATION.
This Joint Proxy Statement/Prospectus is dated November 10, 1998 and is
first being mailed to shareholders of CIB and Americorp on or about November 13,
1998.
THE SECURITIES OFFERED HEREBY ARE SUBJECT TO INVESTMENT RISKS, INCLUDING
POSSIBLE LOSS OF THE PRINCIPAL INVESTED. SEE "RISK FACTORS" BEGINNING ON PAGE 23
FOR A DISCUSSION OF RISKS THAT SHOULD BE CONSIDERED.
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION ("SEC"), THE CALIFORNIA COMMISSIONER OF FINANCIAL
INSTITUTIONS ("COMMISSIONER"), THE FEDERAL DEPOSIT INSURANCE CORPORATION
("FDIC") OR ANY STATE SECURITIES COMMISSIONER NOR HAS THE SEC, THE
COMMISSIONER, THE FDIC OR ANY STATE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................................... 3
SUMMARY.................................................................................. 4
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION........................................ 14
COMPARATIVE PER SHARE DATA............................................................... 15
RISK FACTORS............................................................................. 23
THE CIB MEETING.......................................................................... 28
THE AMERICORP MEETING.................................................................... 29
THE MERGER............................................................................... 31
Background and Reasons for the Merger And Management's Recommendation--Americorp....... 31
Background and Reasons for the Merger And Management's Recommendation--CIB............. 33
Americorp Fairness Opinion............................................................. 37
CIB Fairness Opinion................................................................... 41
Exchange Ratio......................................................................... 44
Fractional Shares...................................................................... 44
Effective Time of Merger............................................................... 45
Management and Operations of Americorp and ACB after the Merger........................ 45
Amendment to the Bylaws of Americorp................................................... 46
Regulatory Approvals................................................................... 46
Interests of Certain Persons in the Merger............................................. 47
Additional Agreements.................................................................. 48
Federal Income Tax Consequences........................................................ 48
Exchange Procedures.................................................................... 49
Sales of Americorp Stock............................................................... 49
Nasdaq Listing......................................................................... 50
Accounting Treatment................................................................... 50
Conditions to the Merger............................................................... 50
Nonsolicitation........................................................................ 51
Expenses............................................................................... 51
Treatment of Stock Options............................................................. 52
Termination............................................................................ 52
Covenants; Conduct of Business Prior to Effective Time................................. 52
Amendment and Waiver................................................................... 53
Dissenting Shareholders' Rights........................................................ 54
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........................................ 56
DESCRIPTION OF CIB AND AMERICORP STOCK................................................... 65
BUSINESS OF AMERICORP.................................................................... 69
BUSINESS OF CIB.......................................................................... 93
SUPERVISION AND REGULATION............................................................... 115
INFORMATION CONCERNING AMERICORP MEETING ONLY............................................ 122
LEGAL MATTERS............................................................................ 126
EXPERTS.................................................................................. 126
OTHER MATTERS............................................................................ 127
INDEX TO FINANCIAL STATEMENTS............................................................ F-1
AGREEMENT TO MERGE AND PLAN OF REORGANIZATION, AS AMENDED................................ Appendix A
CIB FAIRNESS OPINION..................................................................... Appendix B
AMERICORP FAIRNESS OPINION............................................................... Appendix C
CHAPTER 13............................................................................... Appendix D
1998 STOCK OPTION PLAN................................................................... Appendix E
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY CIB OR AMERICORP. THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CIB OR AMERICORP SINCE THE DATE
HEREOF OR THAT THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
CORRECT AT ANY TIME SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE>
AVAILABLE INFORMATION
Americorp was subject to the informational requirements of Section 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, filed reports and other information with the SEC. Such
filing obligations were suspended since the number of record holders of
Americorp Stock was below 300. As results of the filing of this Registration
Statement (as hereinafter defined), Americorp will again become subject to the
informational requirements of Section 15(d) of the Exchange Act, and, in
accordance therewith, will file reports and other information with the SEC.
Additionally, Americorp may be required to register under Section 12 of the
Exchange Act as a result of the Merger, since the number of its holders of
record may exceed 500. All of reports, proxy statements and other information
when filed with the SEC can be inspected and copied at the public facilities
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549; 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W. Washington D.C. 20549, at prescribed rates. The SEC maintains
a website at http://ww.sec.gov that will also contain such reports and other
information concerning Americorp which will have to file information
electronically with the SEC. Americorp's Registration Statement (as hereinafter
defined), including the exhibits thereto, is available on the SEC website.
This Joint Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits, the
"Registration Statement") filed by Americorp with the SEC under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the shares of
Americorp Stock to be issued in the Merger. This Joint Proxy
Statement/Prospectus does not contain all of the information included in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Statements contained herein concerning the
provisions of any document do not purport to be complete and, in each instance,
are qualified in all respects by reference to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC;
provided, however, all material aspects of any such document have been disclosed
in this Joint Proxy Statement/Prospectus. Each such statement is subject to and
qualified in its entiretyby such reference. Reference is made to such
Registration Statement and to the exhibits relating thereto for further
information with respect to Americorp and the securities offered hereby. Copies
of all or any part of the Registration Statement, including exhibits thereto,
may be obtained, upon payment of the prescribed fees, or inspected at the
offices of the SEC as set forth above or obtained on the SEC's above referenced
website.
3
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ALL
RESPECTS BY THE MORE DETAILED INFORMATION INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. ALL INFORMATION CONCERNING CIB
INCLUDED HEREIN HAS BEEN FURNISHED BY CIB AND ALL INFORMATION CONCERNING
AMERICORP AND ACB INCLUDED HEREIN HAS BEEN FURNISHED BY THEM. NEITHER CIB NOR
AMERICORP WARRANTS THE ACCURACY OR COMPLETENESS OF INFORMATION RELATING TO THE
OTHER PARTY.
CIB, AMERICORP AND ACB ARE REFERRED TO HEREIN JOINTLY AS THE "PARTIES" AND
EACH OF THEM A "PARTY." UNLESS THE CONTEXT REQUIRES OTHERWISE, THE TERM
"AMERICORP" ALSO INCLUDES "ACB."
THE PARTIES
CIB. CIB is a California state-chartered bank headquartered in Oxnard,
California, which commenced operations in September, 1985. At June 30, 1998, CIB
had total assets of $86.9 million, deposits of $79.3 million, and shareholders'
equity of $7.4 million. CIB, which currently operates three banking offices, has
its headquarters located at 300 Esplanade Drive, Oxnard, California. Its
telephone number is (805) 487-6581. See "BUSINESS OF CIB."
AMERICORP. Americorp is a California corporation and is registered as a
bank holding company under the Bank Holding Company Act of 1956, as amended.
Americorp operates ACB which is its wholly-owned subsidiary. At June 30, 1998,
Americorp had total consolidated assets of $139.8 million, consolidated deposits
of $125 million, and consolidated shareholders' equity of $11.9 million.
Americorp is headquartered at 304 E. Main Street, Ventura, California 93001. Its
telephone number is (805) 658-6633. See "BUSINESS OF AMERICORP."
ACB. ACB is a California state-chartered bank headquartered in Ventura,
California, which commenced operations in September 1973. ACB, which currently
operates four banking offices, has its headquarters at 304 E. Main Street,
Ventura, California 93001. Its telephone number is (805) 658-6633. See "BUSINESS
OF AMERICORP."
THE MEETINGS
CIB. The CIB Meeting will be held on Tuesday, December 8, 1998 at 6:00 p.m.
California time, at the Financial Plaza Branch of Channel Islands Bank, 300
Esplanade Drive in Oxnard, California. CIB shareholders will consider and vote
on a proposal to approve the principal terms of the Agreement and the
transactions contemplated thereby. Only holders of record of CIB Stock at the
close of business on the CIB Record Date, October 31, 1998, will be entitled to
vote at the CIB Meeting. At such date, there were outstanding and entitled to
vote 556,980 shares of CIB Stock. Each share of CIB Stock is entitled to one
vote. See "THE CIB MEETING."
AMERICORP. The Americorp Meeting will be held on December 15, 1998 at
4:15p.m. California time, at 300 S. Mills Road in Ventura, California. Americorp
shareholders will consider and vote on (i) a proposal to approve the principal
terms of the Agreement and the transactions contemplated thereby, and (ii) a
proposal to adopt a new Stock Option Plan in accordance with the Agreement. Only
holders of record of Americorp Stock at the close of business on the Americorp
Record Date, November 5, 1998, will be entitled to vote at the Americorp
Meeting. At such date, there were outstanding and entitled to vote 609,987
shares of Americorp Stock. Each share of Americorp Stock is entitled to one
vote. See "THE AMERICORP MEETING."
THE MERGER
GENERAL Pursuant to the terms of the Agreement, (i) CIB will merge with and
into ACB and ACB will continue as the surviving bank, and (ii) the shareholders
of CIB will become shareholders of
4
<PAGE>
Americorp in accordance with the exchange ratio set forth in the Agreement, all
subject to the terms and conditions specified in the Agreement. See "THE
MERGER."
EXCHANGE RATIO The issued and outstanding shares of Americorp Stock at the
effective time of the Merger (the "Effective Time") will remain outstanding
(other than shares as to which statutory dissenters' rights are perfected).
Other than shares as to which statutory dissenters' rights are perfected,
each share of CIB Stock issued and outstanding immediately prior to the
Effective Time will automatically, without any action on the part of the holder
thereof, be canceled and converted, at the Effective Time, into the right to
receive a number of shares of Americorp Stock as determined by the exchange
ratio established in the Agreement (the "Exchange Ratio").
The Exchange Ratio (i.e. the number of shares of Americorp Stock into which
a share of CIB Stock will be converted) will be computed by dividing the CIB
Book Value Per Share by the Americorp Book Value Per Share. Book Value Per Share
for the respective Parties will be determined as of the month end preceding the
Effective Time by dividing such Party's aggregate book value by its number of
shares outstanding on such date. "Aggregate Book Value" is a Party's
stockholders' equity on such date determined in accordance with generally
accepted accounting principles except (A) as otherwise provided in the
Agreement, (B) such amount will not be reduced by Merger related expenses, and
(C) the allowance for loan and lease losses shall be increased by any impairment
in the allowance.
The exact amount of the Exchange Ratio is dependent, in part, upon future
results and therefore, presently cannot be determined. By way of illustration
only, if the respective Book Values Per Share had been determined on June 30,
1998 and without any adjustment as permitted in the Agreement, Americorp's Book
Value Per Share would have been $20.02, CIB's Book Value Per Share would have
been $13.96 and the Exchange Ratio would have been 0.6973 shares of Americorp
Stock for each share of CIB Stock. THE ACTUAL EXCHANGE RATIO MAY BE HIGHER OR
LOWER THAN THE PRECEDING PRO FORMA ILLUSTRATION. See "THE MERGER--Exchange
Ratio."
FRACTIONAL SHARES No fractional shares of Americorp Stock will be issued in
the Merger. In lieu thereof, each holder of CIB Stock who would otherwise be
entitled to receive a fractional share will receive an amount in cash equal to
the product (calculated to the nearest ten thousandth) obtained by multiplying
(a) the Americorp Book Value Per Share times (b) the fraction of the shares of
Americorp Stock to which such holder would otherwise be entitled.
VOTE REQUIRED FOR THE MERGER
Approval of the principal terms of Agreement and the transactions
contemplated thereby requires the affirmative vote of not less than a majority
of the votes entitled to be cast by the holders of both CIB Stock and Americorp
Stock at their respective Meetings.
As of the CIB Record Date, CIB's directors and executive officers and their
affiliates held approximately 23.0% of the outstanding CIB Stock entitled to
vote at the CIB Meeting. Each of the directors of CIB has agreed to vote his or
her respective shares of CIB Stock in favor of approval of the principal terms
of the Agreement and the transactions contemplated thereby.
As of the Americorp Record Date, Americorp's directors and executive
officers and their affiliates held approximately 27.0% of the outstanding
Americorp Stock entitled to vote at the Americorp Meeting. Each of the directors
of Americorp has agreed to vote his or her respective shares of Americorp Stock
in favor of approval of the principal terms of the Agreement and the
transactions contemplated thereby.
5
<PAGE>
RECOMMENDATION OF CIB'S AND AMERICORP'S BOARDS OF DIRECTORS
The Boards of Directors of both CIB and Americorp (each by a unanimous vote)
approved the Agreement and the related transactions. The respective Boards
believe the Merger is fair to, and in the best interest of, their respective
institutions and shareholders. Each Board of Directors recommends to their
respective shareholders a vote FOR approval of the principal terms of the
Agreement and the matters contemplated thereby.
The conclusions of the Parties are based on a number of factors, including
the respective fairness opinions of their investment banking firms, the expected
increase in the market liquidity of a shareholder's investment and the tax-free
nature of the Merger. It is also anticipated that the Merger will provide the
potential for the combined companies to benefit from revenue enhancement
opportunities, including increased ability to serve the marketplace and
cross-sell products and services; increased loan and fee income by providing
higher lending limits; increased opportunities to expand the loan portfolio; and
increased opportunities to create more efficiencies, thereby reducing overall
operating costs to the combined companies. See "THE MERGER--Background and
Reasons for the Merger and Management's Recommendation--CIB, --Background and
Reasons for the Merger and Management's Recommendation--Americorp."
Based on the combined bank's assets of approximately $226 million, the
projected pro forma amount of annual net income has been estimated to be
$2,235,000 after expenses for the Merger and integration costs have been
absorbed. This net income amount takes into account expected initial cost
savings of an estimated $637,000 and enhanced revenues of an estimated $139,000.
The cost savings are derived from a reduced level of personnel, decreased costs
of employee benefits per employee and other reduced operational expenses on a
combined basis. Revenue enhancements are derived from increased lending activity
due to the increased lending limits. Net of taxes, the net improvement of net
income would be approximately $458,000. The projected proforma earnings per
share is estimated to be $2.31 using the number of shares outstanding as of June
30, 1998, with CIB's shares outstanding exchanged on a .7000 to 1.000 Exchange
Ratio. This compares to an annualized proforma basic earnings per share
calculated as of June 30, 1998 of $1.88.
This information should be read in conjunction with the historical
consolidated financial statements of CIB and Americorp, including their
respective notes thereto, which are included in this Joint Proxy
Statement/Prospectus, and in conjunction with the combined condensed historical
selected financial data and other pro forma combined financial information
appearing elsewhere in this Joint Proxy Statement/ Prospectus. The cost savings
and revenue enhancements reflected above and in this Joint Proxy Statement/
Prospectus may not be indicative of the results that may be achieved in the
future. Assuming consummation of the Merger, the actual cost savings and revenue
enhancement that may be realized in the Merger may differ, perhaps
significantly, from the amounts reflected above and in this Joint Proxy
Statement/ Prospectus due to a variety of factors, including expected growth of
the combined bank. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT."
CIB FAIRNESS OPINION
CIB has received a written fairness opinion dated as of July 7, 1998 from
the Findley Group ("Findley") that the consideration to be received in the
Merger is fair, from a financial point of view, to the shareholders of CIB. The
Findley opinion is attached to this Joint Proxy Statement/Prospectus as Appendix
B. CIB has paid Findley a fee of $15,000 in connection with its services plus
expenses. See "THE MERGER--CIB Fairness Opinion."
AMERICORP FAIRNESS OPINION
Americorp has received a written fairness opinion dated as of August 12,
1998 from the firm of California Research ("Cal.Research") that the
consideration to be received in the Merger is fair, from a
6
<PAGE>
financial point of view, to the shareholders of Americorp. The Cal.Research
opinion is attached to this Joint Proxy Statement/Prospectus as Appendix C.
Americorp has paid Cal. Research a fee of $12,500 in connection with its
services plus expenses. See "THE MERGER--Americorp Fairness Opinion."
MANAGEMENT AND OPERATIONS OF AMERICORP AND ACB AFTER THE MERGER
At the Effective Time, CIB will be merged with and into ACB and its separate
corporate existence will terminate.
The number of directors of Americorp at the Effective Time will be increased
to nine and Allen W. Jue, Robert J. Lagomarsino, Gerald J. Lukiewski, E. Thomas
Martin, Harry L. Maynard (all of whom are from Americorp and ACB), Michael T.
Hribar, Edward F. Paul, Joseph L. Priske and Jacqueline S. Pruner (all of whom
are from CIB) will serve as the Board of Directors of Americorp and ACB after
the Merger until their successors have been chosen and qualified in accordance
with applicable law. Messrs. Jue, Lagomarsino, Paul and Priske will serve as the
executive committee of Americorp and ACB after the Merger. After the Merger, the
principal officers of Americorp and ACB will be Allen W. Jue (the current
chairman of Americorp/ACB), who will serve as chairman of the board, Joseph L.
Priske (the current chairman of CIB), who will serve as Vice Chairman, and
Gerald J. Lukiewski (the current president and chief executive officer of
Americorp/ACB) who will serve as president and chief executive officer. Thomas
E. Anthony (the current Senior Vice President/Chief Lending Officer of CIB),
Allen R. Partridge (the current Senior Vice President/Chief Financial Officer of
CIB) and Mary Martha Stewart (the current Senior Vice President/Chief Operating
Officer of ACB) will serve as the Chief Lending Officer, Chief Financial Officer
and Chief Operating Officer, respectively, of ACB after the Merger. Joseph L.
Priske will also serve as chairman of ACB's loan committee.
The Articles of Incorporation and Bylaws of Americorp (except as otherwise
noted above) will continue to govern the business and affairs of Americorp after
the Merger until amended or repealed in accordance with applicable law. The
Articles of Incorporation and Bylaws of ACB will continue to govern the business
and affairs of ACB after the Merger until amended or repealed in accordance with
applicable law except the head office of ACB will be relocated to the current
head office location of CIB. See "THE MERGER--Management and Operations of
Americorp and ACB After the Merger."
EFFECTIVE TIME OF THE MERGER
The Effective Time shall occur on the day that the Agreement of Merger
(which is Exhibit A to the Agreement) is filed with the California Department of
Financial Institutions ("DFI") after having been previously filed with the
California Secretary of State ("Secretary") with the DFI's approval endorsed
thereon in accordance with the provisions of the California Financial Code. The
Effective Time shall occur following the last to occur of (i) receipt of all
necessary regulatory approvals with the expiration of any applicable regulatory
waiting periods and (ii) satisfaction of the other conditions precedent set
forth in the Agreement. See "THE MERGER--Conditions to the Merger."
It is anticipated that the Effective Time will occur sometime during the
fourth quarter of 1998 or early in 1999. In no event shall the Effective Time be
later than March 31, 1999 unless a later date is agreed to by the Parties.
CONDITIONS TO THE MERGER
The respective obligations of CIB and Americorp to consummate the Merger are
subject to a number of conditions precedent, including, among others, (i) the
receipt of required regulatory approvals, (ii) the approval by the shareholders
of all Parties of the principal terms of the Agreement and the transaction
contemplated thereby by the vote required under applicable law at the respective
Meetings, (iii) the receipt of fairness opinions by the Parties that the terms
of the Merger are fair from a financial point of view, (iv) the receipt of an
opinion that the Merger and the other transactions contemplated by the Agreement
7
<PAGE>
will qualify for pooling of interest accounting treatment, (v) the receipt of an
opinion in connection with certain tax aspects of the Merger, and (vi) certain
other conditions customary in transactions of this nature. See "THE
MERGER--Conditions to the Merger."
REGULATORY APPROVALS
The consummation of the Merger is subject to various conditions, including,
among others, receipt of the prior approvals of the DFI and the Federal Deposit
Insurance Corporation (the "FDIC").
The Agreement provides that the obligations of the Parties to consummate the
Merger are conditioned upon all regulatory approvals having been granted by
March 31, 1999 without the imposition of conditions which, in the opinion of
Americorp would materially adversely effect the financial condition or
operations of any Party or otherwise would be burdensome.
Applications for regulatory review and approval of the Merger and the
related transactions have been filed and the DFI has granted its approval. There
can be no assurance that the FDIC will approve or take other required action
with respect to the Merger and the related transactions or as to the date of
such approvals or action. See "THE MERGER--Regulatory Approvals."
WAIVER AND AMENDMENT
Prior to the Effective Time, any condition to the Agreement may be waived by
the Party entitled to the benefit of such provision. In addition, the Agreement
may be amended at any time upon the written agreement of the Parties' respective
Boards of Directors without action by their respective shareholders to the
extent permitted by law. See "THE MERGER--Amendment and Waiver."
TERMINATION
The Agreement may be terminated at any time prior to the Effective Time (i)
by mutual consent of CIB and Americorp in writing; (ii) by CIB or Americorp if
any material breach or default by the other Party is not cured within 20
business days after notice thereof; (iii) by CIB or Americorp if any
governmental or regulatory consent is not obtained by March 31, 1999 or if any
governmental or regulatory authority denies or refuses to grant any approval,
consent or authorization required to be obtained to consummate the transactions
contemplated by the Agreement unless, within 20 business days after such denial
or refusal, all parties agree to resubmit the application to the regulatory
authority that has denied or refused to grant the approval, consent or
qualification requested; (iv) by Americorp if any of the conditions to its
performance of the Agreement shall not have been met, or by CIB if any of the
conditions to its performance of the Agreement shall not have been met, by March
31, 1999, or such earlier time as it becomes apparent that such conditions shall
not be met; or (v) if a Party shall have failed to act or refrained from doing
any act, in certain circumstances, relating to a Competing Transaction (as
hereinafter defined). See "THE MERGER--Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As a condition to the Merger, each of the directors of the respective
Parties has entered into an agreement whereby each has agreed to (i) vote his or
her shares of Stock in favor of approving the principal terms of the Agreement
and the transactions contemplated thereby, (ii) recommend, subject to his or her
fiduciary duty, to the Party's shareholders to vote in favor of the Agreement,
(iii) not dispose, subject to certain exceptions, of his or her shares of Stock,
and (iv) cooperate fully with the other Parties in connection with the Merger.
See "THE MERGER--Interests of Certain Persons in the Merger."
Messrs. Hribar, Paul and Priske and Ms. Pruner will be added as directors of
Americorp and ACB at the Effective Time. Messrs. Paul and Priske will also serve
on the executive committee of Americorp and
8
<PAGE>
ACB. Mr. Priske, the current Chairman of CIB, will be elected as Vice Chairman
of Americorp and ACB and will be chairman of ACB's loan committee.
The officers and employees of CIB at the Effective Time will become officers
and employees of ACB subject to the policies of ACB, will be entitled to
participate in all employee benefits and benefit programs of ACB on the same
basis as similarly situated employees of ACB and will be credited for
eligibility, participation and vesting purposes with their respective years of
past service with CIB.
Pursuant to the Agreement, a committee has been established to determine,
among other things, a personnel, salary and benefits structure for ACB after the
Merger and to fix the amount of severance to be paid to officers and employees
of the parties displaced by the Merger. The committee is composed of Gerald J.
Lukiewski (on behalf of Americorp) and Joseph L. Priske and Jacqueline Pruner
(on behalf of CIB). The amount of severance benefits has not yet been determined
by the committee.
ACB has also agreed to honor certain employment agreements for CIB's Senior
Lending Officer and Chief Financial Officer. For a description of such
agreements, see "BUSINESS OF CIB--Executive Compensation." Messrs. Anthony and
Partridge will become the Chief Lending Officer and the Chief Financial Officer
of ACB after the Merger.
In connection with the three current directors of CIB and the two current
directors of Americorp who will resign at the time of the Merger, it is
anticipated that ACB will enter into consulting agreements with such persons in
order for them to continue to provide services and guidance to Americorp and ACB
after the Merger. It is anticipated that Catherine S. Wood and Lincoln E. Cryne,
(directors of Americorp and ACB) will receive aggregate payments of $33,000 and
$62,400 respectively, pursuant to their consulting agreements and that Fred G.
Buenger, William Burke and Glenn C. Farr (directors of CIB) will receive
$33,000, $33,000 and $4,500, respectively, pursuant to their consulting
agreements. See "THE MERGER--Interests of Certain Persons in the Merger."
Subject to the receipt of any required consents, a new stock option plan
will be adopted by Americorp in order for each person who is an officer or
employee of CIB and who will continue with ACB after the Merger, and for each
director of CIB, who does not exercise his stock option to have the right to
receive a substitute stock option from Americorp on a fully vested basis.
CIB's directors' and officers' liability insurance will have its discovery
period extended for 36 months with respect to all matters arising from facts or
events which occurred before the Effective Time for which CIB would have had an
obligation to indemnify its directors and officers.
ADDITIONAL AGREEMENTS
In addition to the directors agreements described in "Interests of Certain
Persons in the Merger," the directors and certain other affiliates of each of
the Parties have entered into agreements restricting such persons' ability to
sell shares of Stock which such person has acquired or may acquire in connection
with the Merger except in accordance with such agreements.
FEDERAL INCOME TAX CONSEQUENCES
The Parties have received an opinion from Vavrinek Trine Day & Co.
("Vavrinek") that the Merger will qualify for non-recognition of gain or loss so
that none of CIB, Americorp or ACB will recognize gain or loss for federal
income tax purposes as a result of the Merger. Such opinion also concludes that
the shareholders of CIB and Americorp will not recognize gain or loss in the
Merger except to the extent of any cash received in lieu of fractional shares by
CIB shareholders, or, in the case of shareholders of CIB and Americorp, to the
extent of any cash received pursuant to the exercise of statutory dissenters'
rights. For a more complete description of the federal income tax consequences
of the Merger, see "THE MERGER--Federal Income Tax Consequences." DUE TO THE
INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF
9
<PAGE>
THE MERGER, IT IS RECOMMENDED THAT CIB AND AMERICORP SHAREHOLDERS CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THE MERGER.
ACCOUNTING TREATMENT
The Parties anticipate that the Merger will be treated as a pooling of
interests for accounting purposes. Prior to the Effective Time and as a
condition precedent to the closing, the respective accounting firms of the
Parties will confirm in writing the accounting treatment of the Merger as a
pooling of interest. See "THE MERGER--Accounting Treatment."
DISSENTERS' RIGHTS
Pursuant to the provisions of the California Financial Code, shareholders of
CIB and Americorp will be entitled to exercise dissenters' rights in connection
with the Merger.
A holder of stock who, not later than 30 days after the date on which the
Party of which he or she is a shareholder delivers the notice of approval of the
Merger by the Party's shareholders, delivers to such Party a written demand for
dissenters' rights, who does not vote in favor of the approval of the principal
terms of the Agreement and who complies with all other applicable requirements
of Chapter 13 of the California General Corporation Law, will have the right to
receive payment in cash of the "fair market value" of such holder's shares of
Stock. The Americorp Board of Directors has determined that the "fair market
value" of one share of Americorp Stock for this purpose is $32.00, which was the
closing bid price for Americorp Stock on July 6, 1998, the day before the public
announcement of the Merger. Based upon the opinion of the Findley Group, the CIB
Board of Directors has determined that the "fair market value" of one share of
CIB Stock for this purpose is $19.50. See "THE MERGER--Dissenting Shareholders'
Rights" for a further discussion of dissenters' rights. The Chapter 13 of the
California General Corporation Law is included in Appendix D to his Joint Proxy
Statement/Prospectus.
EXCHANGE OF STOCK CERTIFICATES
As soon as practicable after the Effective Time, shareholders of record of
outstanding shares of CIB Stock will receive by mail a letter of transmittal
which is to be used to exchange their CIB Stock for a new certificate
representing the appropriate number of shares of Americorp Stock, together with
checks for payment of cash in lieu of fractional shares. No dividends or other
distributions that are declared on Americorp Stock will be paid to persons
otherwise entitled to receive the same until the old certificates have been
surrendered in exchange for new certificates, but upon such surrender, such
dividends or other distributions, from and after the Effective Time, will be
paid to such persons in accordance with the terms of Americorp Stock. No
interest will be paid to the CIB shareholders on the cash or the value of the
Americorp Stock into which their shares of CIB Stock will be exchanged. See "THE
MERGER-- Exchange Procedures."
CIB SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
MARKETS AND MARKET PRICES
AMERICORP
The Americorp Stock is not listed on any stock exchange or with Nasdaq.
Trading in the Stock has not been extensive and such trades which have occurred
would not constitute an active trading market. As of June 30, 1998, there were
approximately 250 shareholders of Americorp.
The management of Americorp is aware of one securities dealer who maintains
an inventory and makes a market in Americorp Stock--Maguire Investments, Santa
Maria, California. The following quarterly summary of market activity is
furnished by Maguire Investments. These quotes do not necessarily
10
<PAGE>
include retail markups, markdowns or commissions and may not necessarily
represent actual transactions. Additionally, there may have been transactions at
prices other than those shown below:
<TABLE>
<CAPTION>
QUARTER BID ASKED
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First '96.................................................................... 27.00 28.00
Second '96................................................................... 27.00 28.00
Third '96.................................................................... 28.00 29.00
Fourth '96................................................................... 28.00 29.00
First '97.................................................................... 28.00 29.00
Second '97................................................................... 28.00 29.00
Third '97.................................................................... 28.50 29.50
Fourth '97................................................................... 31.00 32.00
First '98.................................................................... 31.00 32.00
Second '98................................................................... 31.00 32.00
</TABLE>
On July 6, 1998, the last trading day before the announcement of the Merger,
the closing bid price for a share of Americorp Stock was $32.00.
Americorp has paid 59 consecutive quarterly cash dividends to its
shareholders. Americorp is currently paying quarterly cash dividends of $0.21
per share and has paid at such rate since July 1995. For a discussion of the
dividend policy of Americorp after the Merger, see "Risk Factors--Dividend
Policy".
CIB
The CIB Stock is not listed on any national stock exchange or with Nasdaq.
Trading in the stock has not been extensive and such trades which have occurred
would not constitute an active trading market. As of June 30, 1998, there were
approximately 185 shareholders. The management of CIB is aware of one securities
dealer who maintains an inventory and makes a market in CIB Stock--Maguire
Investments, Santa Maria, California.
The following quarterly summary of market activity is furnished by Maguire
Investments, Inc. These quotes do not necessarily include retail markups,
markdowns, or commissions and may not necessarily represent actual transactions.
Additionally, there may have been transactions at prices other than those shown
below:
<TABLE>
<CAPTION>
LOW HIGH
--------- ---------
<S> <C> <C>
1st Quarter 1996......................................................... $ 10.375 $ 11.75
2nd Quarter 1996......................................................... $ 11.50 $ 12.00
3rd Quarter 1996......................................................... $ 12.00 $ 13.00
4th Quarter 1996......................................................... $ 12.875 $ 13.00
1st Quarter 1997......................................................... $ 13.00 $ 13.50
2nd Quarter 1997......................................................... $ 13.50 $ 13.50
3rd Quarter 1997......................................................... $ 14.725 $ 15.50
4th Quarter 1997......................................................... $ 15.50 $ 17.00
1st Quarter 1998......................................................... $ 17.00 $ 18.50
2nd Quarter 1998......................................................... $ 18.50 $ 19.50
</TABLE>
Since May 1995, CIB has consistently declared and paid a semi-annual cash
dividend equal to $.10 per share to the shareholders of CIB. In 1998, CIB has
paid two cash dividends each equal to $.10 per share. As part of the Agreement
with Americorp and ACB, CIB is limited to paying semi-annual cash dividends
payable in accordance with past practice not to exceed $.10 per share per
semi-annual period.
11
<PAGE>
SELECTED FINANCIAL DATA
CIB
The following summarizes historical financial data for CIB for the five
years ended December 31, 1997 and for the periods ended June 30, 1998 and 1997.
The data should be read in conjunction with the consolidated financial
statements, related notes, and other financial information included elsewhere in
this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income............................ $ 3,604 $ 3,285 $ 6,826 $ 6,328 $ 5,218 $ 4,713 $ 4,780
Interest Expense........................... (1,006) (883) (1,879) (1,853) (1,332) (1,049) (1,122)
Net Interest Income........................ 2,598 2,402 4,947 4,475 3,886 3,664 3,658
(Provision)/Credit for Loan and Lease
Losses................................... (58) (105) (370) (697) 58 125 (1,321)
Other Income............................... 452 354 1,149 707 637 540 612
Other Expenses............................. (2,418) (2,061) (4,350) (3,924) (3,548) (3,626) (3,839)
--------- --------- --------- --------- --------- --------- ---------
Income/(Loss) Before Taxes................. 574 590 1,376 561 1,033 703 (890)
Income Taxes............................... (236) (248) (576) (235) (433) (295) 302
--------- --------- --------- --------- --------- --------- ---------
Net Income/(Loss).......................... 338 342 800 326 600 408 (588)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings/(Loss) Per Share of Common Stock
Basic.................................... $ 0.64 $ 0.74 $ 1.74 $ 0.71 $ 1.31 $ 0.89 $ (1.29)
Diluted.................................. $ 0.60 $ 0.68 $ 1.60 $ 0.66 $ 1.21 $ 0.86 $ (1.22)
Weighted Average Number of Shares
Basic.................................... 530 461 461 457 457 457 457
Diluted.................................. 564 507 500 492 497 475 483
Book Value................................. $ 13.96 $ 12.87 $ 13.69 $ 12.25 $ 11.75 $ 10.27 $ 9.81
BALANCE SHEET SUMMARY:
Total Assets............................... 86,926 80,743 89,040 74,600 66,023 56,217 58,460
Total Deposits............................. 79,286 74,611 81,827 68,763 60,422 51,444 53,944
Loans Held for Sale........................ 1,580 1,535 1,726 1,557 1,959 965 689
Total Loans................................ 58,291 50,722 51,547 50,578 42,443 31,927 31,722
Allowance for Loan Losses.................. (930) (778) (918) (723) (732) (981) (1,154)
Total Shareholders' Equity................. 7,441 5,934 6,556 5,596 5,368 4,692 4,484
SELECTED RATIOS:
Return on average assets................... 0.8% 0.9% 1.0% 0.4% 1.0% 0.7% (1.0)%
Return on average equity................... 9.5% 11.7% 13.3% 5.9% 11.7% 8.9% (13.4)%
Average shareholders' equity to average
assets................................... 8.2% 7.6% 7.5% 7.2% 8.4% 7.7% 7.5%
Average net loans to average deposits...... 68.8% 70.1% 67.6% 64.8% 65.3% 57.5% 59.7%
Net Interest Margin........................ 6.8% 7.1% 6.9% 6.7% 7.2% 7.0% 7.2%
Allowance for Loan Losses to Total Loans... 1.6% 1.5% 1.8% 1.4% 1.7% 3.1% 3.6%
Tier 1 Capital to Risk-Weighted Assets..... 10.4% 10.3% 10.3% 9.9% 11.2% 12.8% 11.8%
Total Capital to Risk-Weighted Assets...... 11.6% 11.5% 11.6% 11.8% 12.4% 14.1% 13.1%
</TABLE>
12
<PAGE>
AMERICORP
The following selected consolidated financial data with respect to
Americorp's consolidated statement of financial position for the years ended
December 31, 1997 and 1996 and its consolidated statements of income for the
years ended December 31, 1997, 1996 and 1995 have been derived from the audited
consolidated financial statements of Amercorp appearing elsewhere in this Joint
Proxy Statement. This information should be read in conjunction with such
consolidated financial statements and the notes thereto. The summary
consolidated financial data with respect to Americorp's consolidated statement
of financial position as of December 31, 1995, 1994 and 1993 and its
consolidated statements of income for the years ended December 31, 1994 and 1993
have been derived from the audited consolidated financial statements of
Americorp, which are not presented herein. The summary consolidated financial
data with respect to Americorp's consolidated statement of financial position as
of June 30, 1998 and 1997 and its consolidated statements of income for the
periods ended June 30, 1998 and 1997 have been derived from unaudited
consolidated financial statements of Americorp, which appear elsewhere in this
Joint Proxy Statement/Prospectus. This information should be read in conjunction
with such consolidated financial statements and the notes thereto.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income.......................... $ 5,238 $ 4,701 $ 9,749 $ 8,792 $ 8,539 $ 7,537 $ 7,008
Interest Expense......................... 1,427 1,338 2,747 2,740 2,520 2,016 2,372
--------- --------- --------- --------- --------- --------- ---------
Net Interest Income...................... 3,811 3,363 7,002 6,052 6,019 5,521 4,636
Provision for Loan and Lease Losses...... 265 260 410 1,046 554 294 493
--------- --------- --------- --------- --------- --------- ---------
Net Interest Income after Provision for
Loan and Lease Losses.................. 3,546 3,103 6,592 5,006 5,465 5,227 4,143
Non-interest Income...................... 672 607 1,571 1,248 1,384 1,850 1,349
Non-interest Expense..................... 3,450 2,988 6,664 6,014 5,678 5,770 4,741
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............... 768 722 1,499 240 1,171 1,307 751
Provision for income taxes............... 207 211 396 37 226 279 38
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net Income............................... $ 561 $ 511 $ 1,103 $ 203 $ 945 $ 1,028 $ 713
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Per share:
Earnings per Common Share................ $ 0.95 $ 0.89 $ 1.91 $ 0.35 $ 1.67 $ 1.82 $ 1.28
Earnings per Common Share--diluted....... $ 0.84 $ 0.77 $ 1.66 $ 0.31 $ 1.41 $ 1.63 $ 1.26
Average number of common shares used in
E.P.S. calculation..................... 590 576 578 572 567 566 558
Average number of common equivalent
shares used in E.P.S. calculation...... 667 664 666 660 669 630 567
Cash Dividends........................... $ 0.42 $ 0.42 $ 0.84 $ 0.84 $ 0.82 $ 0.80 $ 0.70
Shares outstanding at end of each
period................................. 594,518 575,665 585,518 575,665 567,490 567,211 562,808
Cash and due from Banks.................. $ 19,417 $ 13,523 $ 11,462 $ 10,542 $ 9,824 $ 7,511 $ 5,600
Securites and Fed Funds Sold............. 31,517 31,767 31,013 43,659 40,265 37,432 45,391
Loans, net............................... 83,074 73,114 83,397 64,943 59,222 55,580 54,192
Other assets............................. 5,815 8,240 8,340 7,936 8,985 8,456 6,378
--------- --------- --------- --------- --------- --------- ---------
Total Assets $ 139,824 $ 126,643 $ 134,212 $ 127,080 $ 118,296 $ 108,979 $ 111,561
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Noninterest-bearing deposits............. $ 37,741 $ 31,528 $ 36,521 $ 30,626 $ 26,565 $ 21,998 $ 16,979
Interest-bearing deposits................ 87,234 82,154 83,447 83,658 78,977 75,682 84,214
Other Liabilities........................ 2,949 2,243 2,893 2,324 2,155 1,853 924
Shareholders' Equity..................... 11,901 10,718 11,351 10,472 10,599 9,446 9,444
--------- --------- --------- --------- --------- --------- ---------
Total Liabilities and Shareholders'
Equity............................... $ 139,824 $ 126,643 $ 134,212 $ 127,080 $ 118,296 $ 108,979 $ 111,561
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Asset Quality:
Non-accrual loans........................ 1,836 1,591 1,891 150 190 178 199
Loans past due 90 days or more........... 47 1 497 982 8 296
Other real estate owned.................. 91 123 91 479 812 603
--------- --------- --------- --------- --------- --------- ---------
Total nonperforming assets............... 1,836 1,729 2,015 738 1,651 998 1,098
Financial Ratios (annualized)
Return on assets....................... 0.84% 0.76% 0.87% 0.17% 0.87% 0.92% 0.65%
Return on equity....................... 9.89% 9.00% 10.53% 1.92% 10.00% 10.89% 7.88%
Net interest margin.................... 6.68% 6.36% 6.44% 5.96% 6.23% 5.73% 4.86%
Net loan losses (recoveries) to avg.
loans................................ 0.22% 0.19% 0.23% 1.38% 0.61% 0.32% 0.21%
</TABLE>
13
<PAGE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information
for the six month period ended June 30, 1998 and for the years ended December
31, 1997, 1996 and 1995 have been prepared to reflect the effects of the Merger
on the historical results of Americorp. The unaudited pro forma combined
statements of financial position have been prepared as if the Merger occured on
December 31, 1997. The unaudited pro forma combined statements of income have
been prepared as if the Merger occurred on January 1, 1995. The pro forma
financial information set forth below is unaudited and not necessarily
indicative of the results that will occur in the future. Weighted average shares
outstanding of the pro forma combined institution are based on a .7000 to 1.0000
Exchange Ratio which approximates the Exchange Ratio if it was computed based
upon the Americorp and CIB Book Values Per Share at June 30, 1998 and without
taking into account any adjustments as permitted by the Agreement.
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31,
JUNE 30, 1998 1997 1996 1995
----------------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Results of Operations:
Interest Income........................................... $ 8,842 $ 16,575 $ 15,120 $ 13,757
Interest Expense.......................................... $ 2,433 $ 4,626 $ 4,593 $ 3,852
Net Interest Income....................................... $ 6,409 $ 11,949 $ 10,527 $ 9,905
Provision for Loan Losses................................. $ 323 $ 780 $ 1,743 $ 496
Net Interest Income after Provision for Loan Losses....... $ 6,086 $ 11,169 $ 8,784 $ 9,409
Non-interest Income....................................... $ 1,124 $ 2,719 $ 1,955 $ 2,107
Non-interest Expense...................................... $ 5,868 $ 11,013 $ 9,938 $ 9,313
Net Income................................................ $ 900 $ 1,903 $ 529 $ 1,545
Net Income Per Share--Basic............................... $ 0.94 $ 2.11 $ 0.59 $ 1.74
Net Income Per Share--Diluted............................. $ 0.85 $ 1.87 $ 0.53 $ 1.52
Weighted Average Share Outstanding--Basic................. 961 901 892 887
Weighted Average Share Outstanding--Diluted............. 1,062 1,016 1,004 1017
Balance at Period End:
Total Assets.............................................. $ 226,750 $ 223,252
Total Loans, net.......................................... $ 138,855 $ 132,300
Total Deposits............................................ $ 204,260 $ 201,795
Total Shareholders' Equity................................ $ 18,966 $ 17,531
Selected Statistics:
Return on Average Total Assets............................ 0.41% 0.92%
Return on Average Common Shareholders' Equity............. 4.80% 11.33%
Average Equity to Average Total Assets.................... 8.46% 8.09%
Regulatory Capital Ratios:
Leverage Ratio............................................ 8.70% 8.52%
Tier 1 Risk Based Capital Ratio........................... 10.67% 10.19%
Total Risk Based Capital Ratio............................ 11.79% 11.24%
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical and pro forma combined per
share financial information for Americorp and CIB Stocks. The pro forma data do
not purport to be indicative of the results of future operations or the results
that would have occurred had the transaction been consummated at the beginning
of the period presented. The information presented herein should be read in
conjunction with the historical financial information of Americorp and CIB
included elsewhere in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AMERICORP CHANNEL ISLANDS PRO FORMA
PER COMMON SHARE HISTORICAL HISTORICAL COMBINED(2)
- ----------------------------------------------------------------------- ----------- --------------- -------------
<S> <C> <C> <C>
NET INCOME
For the six month period ended June 30, 1998
Basic.................................................................. $ 0.95 $ 0.64 $ 0.94
Primary................................................................ $ 0.84 $ 0.60 $ 0.85
For the year ended December 31,
1997--Basic............................................................ $ 1.91 $ 1.74 $ 2.11
--Primary.......................................................... $ 1.66 $ 1.60 $ 1.87
1996--Basic............................................................ $ 0.35 $ 0.71 $ 0.59
--Primary.......................................................... $ 0.31 $ 0.66 $ 0.53
1995--Basic............................................................ $ 1.67 $ 1.31 $ 1.74
--Primary.......................................................... $ 1.41 $ 1.21 $ 1.52
CASH DIVIDENDS(1)
For the six month period ended June 30, 1998........................... $ 0.42 $ 0.11 $ 0.31
For the year ended December 31,
1997................................................................... $ 0.84 $ 0.19 $ 0.64
1996................................................................... $ 0.84 $ 0.20 $ 0.64
1995................................................................... $ 0.82 $ 0.20 $ 0.63
BOOK VALUE
As of June 30, 1998.................................................... $ 20.02 $ 13.96 $ 19.66
As of December 31, 1997................................................ $ 19.39 $ 13.69 $ 19.11
As of December 31, 1996................................................ $ 18.19 $ 12.25 $ 17.59
</TABLE>
- ------------------------
(1) The pro forma combined cash dividend represents aggregated historical
Americorp and CIB cash dividends divided by the basic pro forma combined
weighted average shares outstanding for each year presented. The pro forma
combined cash dividends presented are not necessarily indicative of the
dividends that may have been declared and paid had the transaction been
effective for all periods presented.
(2) Pro forma amounts represent the equivalent net income and book value per
share for the periods indicated based on historical performance of Americorp
and CIB, assuming that the transaction had been effective for all periods
presented. For purposes of calculating the pro forma combined per share
data, the Merger Exchange Ratio of .7000 shares of Americorp Stock for each
share of CIB Stock was used. The Exchange Ratio could be higher or lower
than .7000 to 1.0000.
RECENT DEVELOPMENTS
AMERICORP
The following table provides certain selected financial data at September
30, 1998 and September 30, 1997 (both unaudited) and the unaudited results of
operations for the nine months ended on those dates. Also included is the
unaudited results of operations for the quarter ended September 30 1998 and
1997.
15
<PAGE>
This data should be read in conjunction with the audited financial statements of
Americorp, the related notes and other financial information presented elsewhere
in this Joint Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS QUARTER
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest Income.................................................. $ 7,855 $ 7,186 $ 2,617 $ 2,485
Interest Expense................................................. 2,176 2,032 749 694
---------- ---------- ---------- ----------
Net Interest Income.............................................. 5,679 5,154 1,868 1,791
Provision for Loan and Lease Losses.............................. 265 260 0 0
---------- ---------- ---------- ----------
Net Interest Income after........................................ 5,414 4,894 1,868 1,791
Provision for Loan and Lease Losses
Non-interest Income.............................................. 1,059 964 387 357
Non-interest Expense............................................. 5,535 4,741 2,085 1,753
---------- ---------- ---------- ----------
Income before income taxes....................................... 938 1,117 170 395
Provision for income taxes....................................... 289 344 82 133
---------- ---------- ---------- ----------
Net Income....................................................... $ 649 $ 773 $ 88 $ 262
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per share:
Earnings per Common Share........................................ $ 1.09 $ 1.34 $ 0.15 $ 0.45
Earnings per Common Share--diluted............................... $ 0.97 $ 1.16 $ 0.13 $ 0.39
Average number of common shares used in E.P.S. calculation....... 593 576 599 577
Average number of common equivalent shares used in E.P.S.
calculation.................................................... 670 665 672 667
Cash Dividends................................................... $ 0.63 $ 0.63 $ 0.21 $ 0.21
Shares outstanding at end of each period......................... 605,225 580,065 605,225 580,065
Cash and due from Banks.......................................... $ 13,954 $ 14,137
Securities and Fed Funds Sold.................................... 41,773 32,127
Loans, net....................................................... 81,509 76,963
Other assets..................................................... 5,620 8,327
---------- ----------
Total Assets................................................... $ 142,857 $ 131,554
---------- ----------
---------- ----------
Noninterest-bearing deposits..................................... $ 36,977 $ 32,350
Interest-bearing deposits........................................ 90,864 85,601
Other Liabilities................................................ 2,901 2,599
Shareholders' Equity............................................. 12,115 11,003
---------- ----------
Total Liabilities and Shareholders' Equity....................... $ 142,857 $ 131,554
---------- ----------
---------- ----------
Asset Quality:
Non-accrual loans................................................ 2,665 983
Loans past due 90 days or more................................... 244 1
Other real estate owned.......................................... 262
---------- ----------
Total nonperforming assets....................................... 2,909 1,246
Financial Ratios (annualized)
Return on assets............................................... 0.64% 0.81% 0.25% 0.83%
Return on equity............................................... 7.62% 9.84% 2.96% 9.78%
Net interest margin............................................ 6.49% 6.41% 6.16% 6.56%
Net loan losses (recoveries) to avg. loans..................... 0.30% 0.20% 0.08% 0.01%
</TABLE>
16
<PAGE>
INCOME SUMMARY
Americorp reported net earnings of $649,000 or $1.09 basic income per share
for the first nine months of 1998. This represents a 16.0% decrease in earnings
over the same period during 1997 when net earnings were $773,000 or $1.34 basic
income per share.
Americorp also reported net earnings of $88,000 or $0.15 basic income per
share for the quarter ended September 30, 1998. This represents a 66.4% decrease
in earnings over the same period during 1997 when net earnings were $262,000 or
$0.45 basic income per share.
Annualized return on assets for the nine months ended September 30, 1998 was
0.64% compared with 0.81% for the same period during 1997. Annualized return on
equity for the nine months ended 1998 was 7.62% compared with 9.84% for the same
period during 1997.
Annualized return on assets for the quarter ended September 30, 1998 was
0.25% compared with 0.83% for the same period during 1997. Annualized return on
equity for the quarter ended September 30, 1998 was 2.96% compared with 9.78%
for the same period during 1997.
Quarterly cash dividends of $0.21 per share were paid in January, April, and
July, 1998 and 1997.
In July of 1998, the Directors of ACB approved the termination of the
Directors Deferred Compensation Plan. On the date of the termination, all
participating Directors became 100% vested in their retirement benefits. The
termination of the plan resulted in the incurring of additional liabilities of
$175,600. $95,260 is required to vest the participating Directors 100% in their
benefits and $80,400 was approved for additional benefits to cover the estimated
taxes the Directors will pay on the early termination of the Plan. The
termination of the Plan requires the additional liabilities to be recorded and
expensed over the final six months of the calendar year 1998. $87,600 was
recognized during the quarter ended September 30, 1998.
In conjunction with the Agreement, Americorp has incurred and posted legal
and professional fee expenses specifically related to the merger. As of
September 30, 1998, a total of $106,000 have been recorded as a reduction to
income.
NET INTEREST INCOME
Net interest income is the amount by which the interest and amortization of
fees generated from loans and other earning assets exceeds the cost of funding
those assets, usually deposit account interest expense. Net interest income
depends on the difference (the "interest rate spread") between gross interest
and fees earned on the loans and investment portfolios and the interest rates
paid on deposits and borrowings. Net interest income was $5,679,000 for the nine
months ended September 30, 1998, compared to $5,154,000 for the nine months
ended September 30, 1997. Net interest income was $1,868,000 for the quarter
ended September 30, 1998, compared to $1,791,000 for the quarter ended September
30, 1997.
Interest income grew $669,000 or 9.3% for nine months ended September 30,
1998 compared to the nine months ended September 30, 1997. The increased
interest income between these two periods is comprised of two key elements,
interest on loans and investments. Average outstanding loans for the nine months
ended September 30, 1998 and 1997, were $83,002,000 and $72,996,000,
respectively. This represents a $10,006,000 average increase. The yield on loans
for this period decreased from 10.07% to 9.94% or (0.13%). The increase in
average outstanding balances and decrease in yield resulted in an overall
increase in loan interest income totaling $672,000. Average outstanding
investments for the nine months ended September 30, 1998 and 1997, were
$33,582,000 and $34,236,000, respectively. This represents a $(654,000) average
decrease. The yield on investments for this period decreased from 5.70% to 5.52%
or (0.18%). The decrease in average outstanding balance and decrease in yield
resulted in an overall decrease in investment interest income totaling
$(74,000). Total fees on loans increased during interim 1998 by $71,000.
17
<PAGE>
Interest income grew $132,000 or 5.3% for the quarter ended September 30,
1998 compared to the quarter ended September 30, 1997. The increased interest
income between these two periods is comprised of two key elements, interest on
loans and investments. Average outstanding loans for quarter ended September 30,
1998 and 1997, were $83,436,000 and $77,389,000, respectively. This represents a
$6,047,000 average increase. The yield on loans for this period decreased from
10.28% to 9.73% or (0.55%). The increase in average outstanding balances and
decrease in yield resulted in an overall increase in loan interest income
totaling $41,000. Average outstanding investments for the quarter ended
September 30, 1998 and 1997, were $37,802,000 and $31,744,000, respectively.
This represents a $6,058,000 average increase. The yield on investments for this
period increased from 5.39% to 5.45% or 0.06%. The increase in average
outstanding balance and increase in yield resulted in an overall increase in
investment interest income totaling $88,000. Total fees on loans increased by
$3,000 comparing the 3rd quarter of 1998 to 1997.
Interest expense increased $144,000 or 7.1% for nine months ended September
30, 1998 compared to the nine months ended September 30, 1997. Average
outstanding interest bearing deposits for the nine months ended September 30,
1998 and 1997 were $87,213,000 and $82,994,000, respectively. This represents a
$4,219,000 average increase. The cost on these deposits for this period
increased from 3.26% to 3.32% or 0.06%. The increase in average outstanding
balances and increase in cost resulted in an overall increase to interest
expense for this period.
Interest expense increased $55,000 or 7.9% for the quarter ended September
30, 1998 compared to the quarter ended September 30, 1997. Average outstanding
interest bearing deposits for the quarter ended September 30, 1998 and 1997 were
$90,269,000 and $83,868,000, respectively. This represents a $6,401,000 average
increase. The cost on these deposits for both periods was approximately 3.31%.
The increase in average outstanding balances therefore resulted in an overall
increase to interest expense for this period.
On March 26, 1997 the prime rate changed from 8.25% to 8.50% and remained
steady through September 30, 1998.
For the nine months ended September 30, 1998 and 1997 the average
loan-to-deposit ratio increased to 68.4% compared to 64.8%. As of September 30,
1998, the loan-to-deposit ratio was 64.9%.
For the quarter ended September 30, 1998 and 1997 the average
loan-to-deposit ratio decreased to 66.3% compared to 67.2%.
PROVISION FOR LOAN LOSSES
Americorp did not make a contribution to the allowance for loan losses in
the third quarter of 1998. Management continues to believe that the allowance,
which stands at 1.29% of total loans at September 30, 1998, is adequate to cover
future losses. In September 1998, there were a number of distinct and
controllable factors that precluded the need to increase the allowance for loan
losses. Included in non-accrual loans at September 30, 1998, are loans totaling
$956,000 that are in the process of being renewed or paid off from other lenders
and are secured by real property assets that provide adequate collateralization.
18
<PAGE>
Changes in the allowance for loan losses for the quarters ended September
30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
------------------------
1998 1997
------------ ----------
<S> <C> <C>
Allowance, beginning of the quarter................................. $ 1,131,000 $ 938,000
Provision for loan losses........................................... 0 0
Recoveries of loans previously charged-off.......................... 23,000 11,000
Loans charged off................................................... (91,000) (21,000)
------------ ----------
Allowance, end of quarter........................................... $ 1,063,000 $ 928,000
------------ ----------
------------ ----------
</TABLE>
NON INTEREST INCOME
Non Interest Income represents deposit account services charges and other
types of non-loan related fee income. Non-interest income for the quarter ended
September 30, 1998 totaled $387,000 compared to $357,000 for the same period
during 1997. This represents an increase of $30,000. The major contributing
factor to this difference is an overall increase continues to be Real Estate
brokering fees.
NON INTEREST EXPENSE
Non Interest Expenses represent salaries, occupancy expenses, professional
expenses, outside services and other miscellaneous expenses necessary to conduct
business. Non-interest expense for the quarter ended September 30, 1998 totaled
$2,085,000 compared to $1,753,000 for the same period during 1997. This
represents an increase of $332,000. The major contributing factors to this
difference are an overall increase in salaries of $94,000 due to the changes
that have taken place in upper management and full operations of the Camarillo
branch. The additional accrual for the aforementioned termination of the
Director Deferred Compensation Plan totaled $87,800. Merger related expenses
total $106,000. Occupancy expenses are up $20,000 due to the opening of the new
branch and a significant increase in the Common Area Maintenance charges for one
branch and COL increases for another. Other smaller items make up the balance of
the remaining differences.
BALANCE SHEET ANALYSIS
Total assets at September 30, 1998 totaled $142,857,000, up 8.6% from the
same period during 1997. Deposits have increased during this time period by
$9,890,000 or 8.4%. Other Assets decreased by $2,707,000. This decrease is
primarily due to the dissolution of the bank's investments in certain
partnerships. These monies along with regular earnings have been used to fund
the increase in loans of $4,546,000 and securities and Fed Funds of $9,646,000.
During the third quarter of 1998, total assets increased by $3,033,000 or
2.2%. Deposits have increased by $2,866,000 or 2.3%. Loans have decreased by
($1,565,000) or (1.9%). Cash and due from Banks has decreased by $5,463,000.
These monies have been used to fund Securities and Fed Funds which have
increased by $10,256,000 or 32.5%.
CAPITAL
Total shareholders equity at September 30, 1998 totaled $12,115,000, which
represented an 10.1% increase from $11,003,000 at September 30, 1997
19
<PAGE>
For all periods reviewed, the Company maintains capital ratios above the
Federal regulatory guidelines for a "well capitalized" bank. The ratios are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
REQUIRED ------------------------
RATIO 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Tier 1 Capital (to Average Assets)............................ 4.00% 8.48% 8.38%
Tier 1 Capital (to Risk Weighted Assets)...................... 4.00% 11.02% 10.29%
Total Capital (to Risk Weighted Assets)....................... 8.00% 11.99% 11.16%
</TABLE>
LIQUIDITY
Management is not aware of any future capital expenditures or other
significant demands or commitments which would severely impair liquidity.
CHANNEL ISLANDS BANK
The following table provides certain selected financial data at September
30, 1998 and September 30, 1997 (both unaudited) and the unaudited results of
operations for the nine months ended on those dates. This data should be read in
conjunction with the financial statements of CIB, the related notes and other
financial information commencing on Page F-1 of this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 31, SEPTEMBER 31,
1998 1997
------------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
YEAR-TO-DATE ENDED:
Interest Income............................................................... $ 5,497 $ 4,959
Interest Expense.............................................................. 1,528 1,354
Net Interest Income........................................................... 3,969 3,605
Provision for Loan Losses..................................................... 58 180
Non-interest income........................................................... 725 562
Non-interest expense.......................................................... 3,718 3,128
Income before income taxes.................................................... 918 859
Provision for income taxes.................................................... 378 360
Net Income.................................................................... 540 499
PER SHARE:
Net Income--basic............................................................. $ .7 $ 1.08
Book Value.................................................................... $ 14.52 $ 13.24
Cash Dividends paid during period............................................. $ .10 $ .10
Shares outstanding at period end (actual)..................................... 551,980 460,924
SELECTED BALANCE SHEET DATA:
Loans, Net.................................................................... $ 58,315 $ 49,650
Securities Available for Sale................................................. 12,741 7,568
Securities Held to Maturity................................................... 40 577
Total Assets.................................................................. 93,762 81,546
Total Deposits................................................................ 85,392 75,193
Shareholders' Equity.......................................................... 8,013 6,101
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 31, SEPTEMBER 31,
1998 1997
------------- -------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
ASSET QUALITY:
Loans on Non-Accrual.......................................................... 0 341
Accruing Loans Past Due 90 days or more....................................... 47 77
Other Real Estate Owned....................................................... 0 117
Total Non-performing Assets................................................... 47 535
Non-performing Assets to Ending Assets........................................ .05% .14%
FINANCIAL RATIOS FOR THE PERIOD:
Return on Average Assets(1)................................................... .82% .85%
Return on Average Equity(1)................................................... 9.81% 11.26%
Net interest margin(1)........................................................ 6.25% 6.31%
Net loan charge-offs (recoveries) to Avg. Loans(1)............................ .14% .26%
FINANCIAL RATIOS AT PERIOD-END:
Equity to Average Assets (Leverage Ratio)..................................... 9.1% 7.8%
Tier One Capital to Risk-Adjusted Assets...................................... 10.8% 10.2%
Total Capital to Risk-adjusted Assets......................................... 12.0% 11.5%
Loan Loss Reserve to Loans, Gross............................................. 1.51% 1.53%
Ending Loans (Net) to Ending Deposits......................................... 68.29% 66.03%
</TABLE>
- ------------------------
(1) Ratios reflect nine month's averages and nine month's annualized net income
NINE MONTHS ENDED SEPTEMBER 31, 1998.
PERFORMANCE SUMMARY. CIB's net income for the first nine months of 1998 was
$540,000, an increase of 8.3% over the like period in 1997. These earnings
represented an annualized return on average assets of .82% for the nine month
period ending September 30, 1998, down from the .85% return for the like period
in 1997. Capital increased from $6,101,000 as of September 30, 1997 to
$8,013,000 as of September 30, 1998 yielding a 31.3% increase. This increase is
due to both the retention of earnings and exercise of stock options. This rate
of capital growth exceeded the growth rate of earnings. As a result, the decline
in the annualized return on average equity is greater than the decline in the
return on average assets. The return on average equity declined from 11.3% to
9.8% for September 30, 1997 as compared to September 30, 1998. Net income per
share was $1.08 (basic) for the nine month period ending September 30, 1997
compared to $0.97 (basic) for the like period in 1998.
Net income increased by $41,000 or 8.2% for the nine month period ending
September 30, 1998 compared to the like period for 1997. Increases in CIB's net
interest income (up $364,000) and non-interest income sources (up $163,000) were
more than offset by increases in non-interest expenses of $590,000. This leaves
a reduced amount of provision for loan losses to account for the over all
increase in net income. The amount of provision for loan losses for the nine
month period ending September 30, 1998 was $58,000 as compared to the $180,000
for the like period for 1997.
NET INTEREST INCOME. CIB's annualized yield on interest earning assets was
8.88% for the first nine months of 1998 compared to 8.90% for the like period of
1997. Annualized interest expense as a percent of earning assets was 2.60% and
2.63% for 1997 and 1998 respectively for the first nine months. As a result of
these two factors net interest income expressed as a percent of earning assets
declined slightly from 6.31% to 6.25%.
PROVISION AND ALLOWANCE FOR LOAN LOSSES. The contribution or provision to
the allowance for loan losses for the first nine months of 1998 was $58,000
compared to $180,000 for the like period in 1997. The balance in the allowance
for loan losses stood at $895,000 and $774,000 for September 30, 1998 and
21
<PAGE>
September 30, 1997, respectively. The allowance as a percent of loans was 1.51%
and 1.53% for those same periods. Non-performing assets, made up of nonaccruing
loans, accruing loans 90 days or more past due and Other Real Estate Owned
("OREO"), totaled $535,000 as of September 30, 1997. This total declined to
$47,000 as of September 30, 1998, with zero balances in the nonaccrual and OREO
categories Management continues to believe that the allowance is adequate to
cover future losses.
NONINTEREST INCOME. Noninterest income for the first nine months of 1998
was $725,000, up $163,000 from the like period for 1997, or 29.0%. The primary
reasons for the increase were increased deposit service charge collections (an
$80,000 increase) and gain on sale of OREO (an $88,000 increase).
NONINTEREST EXPENSE. Noninterest expense for the first nine months of 1998
was $3,718,000, up $590,000 from the like period for 1997, or 18.9%. The primary
reasons for this increase were increased salary and benefit expenses (a $269,000
increase), increased occupancy , furniture and equipment expenses (a $116,000
increase) and increased legal and professional services expenses (a $169,000
increase). As of September 30, 1998, a total of $91,000 expenses in the legal
and professional services category have been incurred related to the proposed
merger.
BALANCE SHEET. Total assets at September 30, 1998 totaled $93,761,000, up
15% from September 30, 1997 assets of $81,546,000. There were corresponding
increases in net loans and investments. Net loans increased 18.6% when comparing
the nine month periods ending September 30, 1997 and 1998 and Investments
including Federal Funds Sold grew 20% for the same periods.
Total asset growth was funded through a $10,199,000 increase in deposits and
a $1,912,000 increase in equity when comparing the first nine month periods for
1998 and 1997.
CIB's loan to deposit ratio of 68.3% for September 30, 1998 is up from the
66.0% ratio for September 30, 1997.
CAPITAL RESOURCES. Total stockholders' equity increased from $6,101,000 at
September 31, 1997 to $8,013,000 at September 30, 1998. Net income over this 12
month time period of $842,000 less cash dividends of $99,000 accounted for
$743,000 of the increase. The remainder is primarily made up of the $1,104,000
value of optioned shares exercised along with their related tax benefits.
The leverage ratio of equity to average assets increased from 7.8% as of
September 30, 1997 to 9.1% as of September 30, 1998. Similarly, CIB's ratios of
Tier One Capital and Total Capital to risk-adjusted assets also increased. The
Tier One ratio increased from 10.2% one year earlier to 10.8% at September 30,
1998. The Total Risked Based Capital ratio increased from 11.5% to 12.0% for the
same periods.
LIQUIDITY. Management is not aware of any future capital expenditures or
other significant demands or commitments that would significantly impact
liquidity.
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RISK FACTORS
In deciding how to vote their shares at the Meetings, holders of shares of
CIB Stock and holders of shares of Americorp Stock should carefully consider the
following factors, in addition to the information and other matters set forth in
this Joint Proxy Statement/Prospectus.
FORWARD LOOKING STATEMENTS MAY NOT PROVE ACCURATE
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." Such forward looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of CIB or Americorp 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
CIB or Americorp 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 CIB's or Americorp's business; and other factors referenced in this
Joint Proxy Statement/ Prospectus, including, without limitation, under the
captions "SUMMARY," "RISK FACTORS" "BUSINESS OF CIB," and "BUSINESS OF
AMERICORP." Given these uncertainties, shareholders are cautioned not to place
undue reliance on such forward-looking statements. CIB and Americorp 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
INABILITY TO INTEGRATE OPERATIONS OR TO ACHIEVE REVENUE ENHANCEMENT AND COST
SAVINGS. The earnings, financial condition and prospects of ACB and Americorp
after the Merger will depend in part on ACB's ability to successfully integrate
the operations and management of CIB and to continue to implement its own
business plan. There can be no assurance that ACB will be able to effectively
and profitably integrate the operations and management of CIB, or that ACB will
be able to continue to profitably implement its own business plan. In addition,
there can be no assurance that ACB will be able to fully realize the potential
revenue enhancement expected as a result of the Merger. Further, although the
CIB Board and the Americorp Board do anticipate cost savings as a result of the
Merger to be significant (as compared to potential revenue enhancement as a
result of the Merger), there can be no assurance that ACB will be able to fully
realize any of the potential cost savings expected. Finally, 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.
ADVERSE DIFFERENCE IN ANTICIPATED PERFORMANCE OF COMBINED LOAN
PORTFOLIOS. ACB's performance and prospects after the Merger also will be
dependent to a significant extent on the performance of the combined loan
portfolios of ACB and CIB and ultimately on the financial condition of ACB's and
CIB's borrowers and other customers. The existing loan portfolios of ACB and CIB
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,
ACB's overall loan portfolio after the Merger will have a different risk profile
than the loan portfolio of either ACB or CIB before the Merger. The performance
of the combined loan portfolio will be adversely affected if any of such factors
is worse than currently anticipated. In addition, to the extent that present
customers are not retained by the surviving bank or additional expenses are
incurred in retaining them, there could be adverse effects on future results of
operations of ACB following the Merger. Realization of improvement in
profitability is dependent, in part, on the extent to which the revenues of
Americorp and ACB are maintained and enhanced.
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UNCERTAINTY OF MARKET PRICE OF AMERICORP STOCK AFTER THE MERGER. The number
of shares of Americorp Stock which will be issued to CIB shareholders in the
Merger is determined by the respective book values per share of Americorp Stock
and CIB Stock. No assurance can be given how the market price of Americorp Stock
on or after consummation of the Merger will react to the Exchange Ratio.
LIMITED MARKET FOR AMERICORP STOCK AND FAILURE OF AN ACTIVE MARKET TO
DEVELOP. There is currently only a limited trading market for the CIB and
Americorp Stocks. While an application for listing Americorp Stock on Nasdaq
will be considered during the first year of combined operations, there can be no
assurance that such an application will be filed or the Americorp Stock actually
listed on Nasdaq. Additionally, there can be no assurance that an active trading
market for Americorp Stock will develop as a result of the Merger or otherwise,
or if developed, will continue, or that shareholders of Americorp will be able
to resell their securities or otherwise liquidate their investment without
considerable delay, if at all, or considerable impact on the sale's price.
RISK OF DIVIDEND POLICY CHANGE AND DEPENDENCY ON VARIOUS FACTORS. Americorp
has paid 59 consecutive quarterly cash dividends to its shareholders. Americorp
is currently paying quarterly cash dividends of $0.21 per share. The dividend
policy of Americorp is not expected to be changed as a result of the Merger;
however, no assurances can be given that such policy may not change. Moreover,
declarations or payments of dividends by the Board of Directors of Americorp
after the Merger will depend upon a number of factors, including capital
requirements, regulatory limitations, Americorp's and ACB's financial condition
and results of operations, tax considerations and general economic conditions.
No assurance can be given that any dividends will be declared or, if declared,
what the amount of dividends or their type (cash, stock or both) will be or
whether such dividends, once declared, will continue.
YEAR 2000 RISKS AND PREPAREDNESS. Many existing computer programs use only
two digits to identify a year in a data field. These programs were designed and
developed without considering the impact of the upcoming change in the century.
If not corrected, many computer applications could fail or create erroneous
results by or at the Year 2000 or possibly earlier. The Year 2000 issue affects
Americorp in that the financial services business is highly dependent on
computer applications in a variety of ways, including the following (i)
Americorp relies on computer systems in almost all aspects of its business,
including the processing of deposits, loans and other services and products
offered to customers, the failure of which in connection with the Year 2000
could cause systemic disruptions and failures in the products and services
offered by Americorp, (ii) other banks, clearing houses and vendors whose
products and services Americorp uses are at risk of systemic disruptions and
potential failures in the event that such entities have not adequately addressed
their Year 2000 issues prior to the Year 2000, (iii) the creditworthiness of
borrowers of Americorp might be diminished by significant disruptions of their
business as a result of their own or others' failure to address adequately the
Year 2000 issues prior to the Year 2000, and (iv) federal banking agencies have
issued interagency guidance on the business-wide risk posed to financial
institutions by the year 2000 problem pursuant to which the federal banking
agencies may take supervisory action against financial institutions that fail to
address appropriately Year 2000 issues prior to the Year 2000, including formal
and informal enforcement actions, denial of applications to the federal banking
agencies, civil money penalties and a reduction in the management component
rating of the institution's composite rating.
In order to address the Year 2000 issues facing Americorp, Americorp
Management has initiated a program to prepare Americorp's computer systems and
applications for the Year 2000 (the "Year 2000 Plan"). The primary focus of the
Year 2000 Plan is to convert to the target systems identified and believed to be
Year 2000 compliant. Americorp expects to incur internal staff costs as well as
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare for conversion and Year 2000 system
preparations, testing and conversion of primary system applications and hardware
is expected to cost approximately $100,000, to be expended during fiscal years
1998 and 1999.
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As a part of the Year 2000 Plan, Americorp is not only undertaking the
infrastructure and facilities enhancement and testing necessary to ensure that
Americorp is adequately prepared for the Year 2000, but Americorp is also
communicating with its vendors upon whose services Americorp relies to ensure
Year 2000 compliance. Pursuant to the Year 2000 Plan, Americorp expects to
substantially complete testing of its mission-critical systems and the
computer-related interactive vendor systems by December 31, 1998 and to complete
all testing by June 1999. In addition, as part of the credit review process,
Americorp is communicating with its major borrowers in an effort to ensure that
such borrowers have taken appropriate steps to address their Year 2000 issues
and will not be materially affected by any Year 2000 problems. Americorp is
communicating with its deposit customers as well. Americorp is also preparing
contingency plans to protect Americorp in the event that Americorp is unable to
attain Year 2000 compliance in certain applications according to the Year 2000
Plan.
Americorp has established a working committee comprised of Senior and Middle
Management to plan for and monitor Americorp's compliance with Year 2000 ("Y2K")
issues. This committee has developed a comprehensive policy setting forth
priorities and a timetable for ACB to follow in this process.
Americorp has developed a contingency plan that identifies the mission
critical processes and service providers. An alternative provider or process has
been identified for each mission critical vendor. In addition, on the assumption
that the original or alternative process fails at the point of processing in the
Year 2000, contingency plans are being designed that will provide minimum levels
of service or outputs until the failed system can be repaired or replaced. Most
of these contingency plans are manual effort systems. Test results to-date
indicate that the original system for each mission critical system should meet
the demands of processing in the Year 2000. As a reasonable worst case, the
manual systems designed should provide the minimum levels of service for the
time required to repair or replace failed systems. However, in the case of
failure, the ultimate impact on financial operations is not known, nor is it
known what impact a regional or nationwide power failure or communications
breakdown would have on the financial performance of Americorp. In the first
three weeks of November, two full-time dedicated employee/consultant resources
have been jointly devoted (one from ACB and one from CIB) to develop a
comprehensive disaster recovery plan for the combined entity, with a focus on
further development of Americorps' Y2K contingency plans.
Americorp has created a budget specific to Y2K readiness. The budget is
comprised of the following components: (1) Consulting assistance for testing,
(2) Auditing, and (3) Operating system and network upgrades. This component is
budgeted at $97,269.00. As of October 29, 1998, $26,510.00, or 27.3% has been
spent. Senior Management reviews the budget from time to time as the Year 2000
Plan is implemented. There is no assurance that additional amounts will not be
added to the amounts already budgeted for Y2K expenditures. With respect to
components number (1) and (2), it should be noted that Americorp has engaged the
services of three consulting firms that have or are currently providing audit
review of the effectiveness of the Year 2000 Plan and technological assistance
in preparing for and conducting ACB's testing plan. Their fees, estimated to be
approximately $20,000.00 combined, have yet to be expensed.
In addition, Americorp has dedicated significant human resources to the Year
2000 Plan. This includes the salaries and benefits of personnel devoting
significant time to the plan. As of October 1, 1998, Americorp had expended over
$40,000.00 in "man-hours" to the project, equivalent to twenty-eight work weeks.
In addition, expenditures have been made in the areas of advertising and public
relations, customer and employee awareness programs and more.
In April of 1998, Americorp initiated a credit risk assessment program, with
loan officers completing a Y2K questionnaire for all new and renewed credits in
amounts over $100,000.00. These questionnaires were designed to provide
Americorp's management with information by which it could evaluate the
borrower's awareness of and sensitivity to Y2K risk. Questionnaires are reviewed
and discussed at weekly Officer Loan Committee meetings and are further reviewed
by Credit Administration and a Senior Lender
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to ascertain Y2K risk associated with the credit. As a result of this review,
$85,000.00 has been allocated to Americorp's loan loss provision. In addition,
legal language addressing Y2K issues is included in significant commitment
letters and loan documentation for certain borrowers. Finally, on loan
participations purchased, Americorp requires assurances from the lead lender
that it has obtained a Y2K questionnaire from the borrower and also that the
lead lender is satisfactorily progressing toward Y2K compliance.
Although Americorp believes that its Year 2000 Plan and other steps being
taken are adequate to ensure that it will not be materially affected by the Year
2000 problem, there can be no assurance that the Year 2000 Plan and Americorp's
other year 2000 remedial and contingency plans will fully protect Americorp from
the risks associated with the Year 2000. The analysis of, and preparation for,
the Year 2000 and related problems necessarily rely on a variety of assumptions
about future events and there can be no assurance that Americorp Management has
accurately predicted such future events or that the remedial and contingency
plans of Americorp will adequately address such future events. In the event that
the business of Americorp, of vendors of Americorp or of customers of Americorp
is disrupted as a result of the Year 2000 problem, such disruption could have a
material adverse effect on Americorp.
CIB has established a working committee of senior management, a director and
other employees to plan and monitor CIB's compliance with Year 2000 ("Y2K")
issues. This committee has developed a policy setting forth priorities and a
timetable for CIB to follow in this process. The Federal Reserve Bank in their
most recent examination has indicated that CIB was in compliance with the
progress standards established by the Federal Reserve Bank with Y2K issues. See
"BUSINESS OF CIB--Year 2000 Issues" for additional information concerning CIB's
compliance with Y2K issues.
CIB and ACB intend that the CIB computer systems will be converted to the
ACB computer systems shortly after consummation of the Merger. However, there is
no assurance that conversion to ACB's computer systems will occur at the planned
level of expense, successfully avoid degradation in customer service or avoid
other negative impacts to the combined entity's financial performance.
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION OF VOTING AND VALUE; POSSIBLE
ANTI-TAKEOVER EFFECT. Shares of Americorp Stock eligible for future sale could
have a dilutive effect on the market for Americorp Stock and could adversely
affect market prices. As of the Americorp Record Date, the Articles of
Incorporation of Americorp authorize 2,500,000 shares of Americorp Stock, of
which 609,987 shares were outstanding, and 389,886 additional shares of
Americorp Stock are anticipated to be issued in the Merger to CIB Shareholders,
assuming (i) no shares of CIB Stock reserved for issuance on the Americorp
Record Date are issued on or prior to the Effective Time, (ii) the estimated
Exchange Ratio is .7000, (iii) the CIB Book Value Per Share is $13.96, (iv)
Americorp Book Value Per Share is $20.02, (v) no Dissenters' Rights are
perfected by CIB or Americorp Shareholders, and (vi) no cash is paid in lieu of
fractional shares. Pursuant to its stock option plans, Americorp had outstanding
options to purchase an additional 87,282 shares of Americorp Stock on the
Americorp Record Date.
Americorp may pursue acquisitions of other financial institutions from time
to time where such acquisitions are believed by Americorp to enhance shareholder
value or satisfy other strategic objectives, although there are no specific
pending or contemplated acquisitions at present. Such acquisitions, if any,
could be accomplished by the issuance of additional shares of Americorp Stock or
other securities convertible into or exercisable for Americorp Stock.
The Americorp Articles authorize the issuance of 2,500,000 shares of
Americorp Stock. The shares of Americorp Stock were authorized in an amount
greater than that to be issued to provide Americorp's Board of Directors with as
much flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and the exercise of employee stock
options. However, these additional authorized shares may also be used by the
Board of Directors consistent with its fiduciary duty to deter future attempts
to gain control of Americorp.
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There can be no assurance as to the market value of Americorp Stock after
the Merger, which market value may be affected by the dilutive effects of the
matters described above, if any, and other factors.
RISK FACTORS RELATING TO THE INDUSTRY
CHANGING INTEREST RATES. Banking companies' 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 CIB's and
ACB's products and services. CIB and ACB 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 CIB's and ACB's current volume and mix of interest-bearing liabilities and
interest-earning assets, CIB's and ACB's 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 fluctuations in
interest rates may have an adverse effect on ACB's results of operations.
CHANGING ECONOMIC CONDITIONS AND GEOGRAPHIC CONCENTRATION IN ONE
MARKET. The operations of CIB and Americorp are located in Ventura County. As a
result of this geographic concentration, CIB's and Americorp's results depend
largely upon economic conditions in this area. A deterioration in economic
conditions in this market area could have a material adverse impact on the
quality of CIB's and Americorp's loan portfolio and the demand for their
products and services and, accordingly, their respective results of operations.
IMPACT OF CHANGES IN 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 CIB, ACB and Americorp 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 to benefit holders of CIB's or
Americorp's Stocks. 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 CIB or
Americorp. Significant new laws or changes in, or repeal of, existing laws may
cause CIB's or Americorp'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 CIB's
and Americorp's respective results of operations.
ABILITY TO COMPETE. The banking and financial services business in
California generally, and in CIB's and Americorp's market area 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. ACB and CIB 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 ACB or CIB. There can be no assurance that ACB will
be able to compete effectively in its markets, and the results of operations of
ACB and Americorp could be adversely affected if circumstances affecting the
nature or level of competition change.
LOSSES AND IMPAIRED CREDIT QUALITY. A significant source of risk for
financial institutions such as ACB and CIB 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. CIB and ACB have
adopted
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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 results of operations.
THE CIB MEETING
DATE, TIME AND PLACE
The CIB Meeting will be held on Tuesday, December 8, 1998 at the Financial
Plaza Branch of Channel Islands Bank, located at 300 Esplanade Drive, Oxnard,
California, at 6:00 p.m., California time, and any adjournment or adjournments
thereof.
PURPOSE
The only specific purpose of the CIB Meeting is to consider and vote upon a
proposal to approve the principal terms of the Agreement and the transactions
contemplated thereby. The shareholders of CIB will also consider and vote upon
such other matters as may be properly brought before the CIB Meeting.
RECORD DATE
The CIB Board has fixed the close of business on October 31, 1998, as the
CIB Record Date for the determination of shareholders entitled to notice of, and
to vote at, the CIB Meeting. Accordingly, only holders of record of shares of
CIB Stock at the close of business on the CIB Record Date will be entitled to
vote at the CIB Meeting and any adjournment thereof. As of CIB Record Date,
there were 556,980 shares of CIB Stock outstanding, held by approximately 188
shareholders of record.
PROXIES AND REVOCABILITY OF PROXIES
A proxy card for voting at the CIB Meeting is enclosed with the copy of this
Joint Proxy Statement/ Prospectus being mailed to CIB shareholders. (A separate
proxy card for Americorp shareholders voting at the Americorp Meeting is being
provided to Americorp shareholders. See "THE AMERICORP MEETING-Proxies and
Revocability of Proxies."). When a proxy card is returned, properly signed and
dated, the shares represented thereby will be voted in accordance with the
instructions on the proxy card. If a shareholder does not attend the CIB Meeting
and does not return the signed proxy card, such holder's shares will not be
voted and this will have the effect of a vote "AGAINST" the matter to be voted
on at the CIB Meeting. Shareholders are urged to mark the box on the proxy card
to indicate how the shares represented by the proxy card are to be voted. If a
shareholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted "FOR" the proposal. The proxy
card also confers discretionary authority on the individual appointed by the CIB
Board named on the proxy card to vote the shares represented thereby on any
other matter that is properly presented for action at the CIB Meeting. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise at the CIB Meeting by delivering an instrument of revocation to the
secretary of CIB, by duly executing and submitting a proxy card bearing a later
date, or by appearing at the CIB Meeting and voting in person. The mere presence
at the CIB Meeting of the person who has given a proxy will not revoke such
proxy. In addition, brokers who hold shares of CIB Stock as nominees will not
have discretionary authorization to vote such shares on any of the matters to be
voted thereon in the absence of instructions from the beneficial owners.
COSTS OF SOLICITATIONS OF PROXIES
CIB will bear its own costs in connection with this solicitation. It is
contemplated that proxies will be solicited principally through the mails, but
directors, officers and regular employees of CIB may solicit
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proxies (for no additional compensation) by personal interview, telephone,
telex, telegram, facsimile or similar means of communication. Although there is
no formal agreement to do so, CIB may reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to their principals.
OUTSTANDING SECURITIES; QUORUM
As of the CIB Record Date, there were issued and outstanding 556,980 shares
of CIB Stock. The presence, either in person or by properly executed proxies, of
the holders of a majority of the outstanding shares of CIB Stock is necessary to
constitute a quorum at the CIB Meeting. Abstentions will be counted for purposes
of establishing a quorum.
VOTE REQUIRED
CIB shareholders are entitled to one vote at the CIB Meeting for each share
of CIB Stock held of record by them on the CIB Record Date. The proposal
concerning approval of the Agreement and the transactions contemplated thereby
requires the affirmative vote of a majority of the outstanding shares entitled
to vote.
As of the CIB Record Date, directors and executive officers of CIB
beneficially owned an aggregate of 128,144 shares of CIB Stock (not including
shares issuable upon exercise of stock options), or approximately 23.0% of those
outstanding as of the CIB Record Date. Abstentions and broker non-votes with
respect to the proposal concerning approval of the Agreement and the transaction
contemplated thereby will have the same effect as a vote "AGAINST" the proposal.
THE AMERICORP MEETING
DATE, TIME AND PLACE
The Americorp Meeting will be held on Tuesday, December 15, 1998 at American
Commercial Bank's office, located at 300 South Mills Road, Ventura, California,
at 4:15 p.m., California time, and any adjournment or adjournments thereof.
PURPOSE
One purpose of the Americorp Meeting is to consider and vote upon a proposal
to approve the principal terms of the Agreement and the transactions
contemplated thereby. The shareholders of Americorp will also consider and vote
upon a proposal to approve a new stock option plan in connection with the Merger
and such other matters as may be properly brought before the Americorp Meeting.
RECORD DATE
The Americorp Board has fixed the close of business on November 5, 1998, as
the Americorp Record Date for the determination of shareholders entitled to
notice of, and to vote at, the Americorp Meeting. Accordingly, only holders of
record of shares of Americorp Stock at the close of business on the Americorp
Record Date will be entitled to vote at the Americorp Meeting and any
adjournment thereof. As of Americorp Record Date, there were 609,987 shares of
Americorp Stock outstanding, held by approximately 250 shareholders of record.
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PROXIES AND REVOCABILITY OF PROXIES
A proxy card for voting at the Americorp Meeting is enclosed with the copy
of this Joint Proxy Statement/Prospectus being mailed to Americorp shareholders.
(A separate proxy card for CIB shareholders voting at the CIB Meeting is being
provided to CIB shareholders. See THE CIB MEETING--Proxies and Revocability of
Proxies."). When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not attend the Americorp Meeting and does not
return the signed proxy card, such holder's shares will not be voted and this
will have the effect of a vote "AGAINST" the matters to be voted on at the
Americorp Meeting. Shareholders are urged to mark the box on the proxy card to
indicate how the shares represented by the proxy card are to be voted. If a
shareholder returns a signed proxy card but does not indicate how his or her
shares are to be voted, such shares will be voted "FOR" the proposals. The proxy
card also confers discretionary authority on the individual appointed by the
Americorp Board named on the proxy card to vote the shares represented thereby
on any other matter that is properly presented for action at the Americorp
Meeting. A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Americorp Meeting by delivering an instrument of revocation
to the secretary of Americorp, by duly executing and submitting a proxy card
bearing a later date, or by appearing at the Americorp Meeting and voting in
person. The mere presence at the Americorp Meeting of the person who has given a
proxy will not revoke such proxy. In addition, brokers who hold shares of
Americorp Stock as nominees will not have discretionary authorization to vote
such shares on any of the matters to be voted thereon in the absence of
instructions from the beneficial owners.
COSTS OF SOLICITATIONS OF PROXIES
Americorp will bear its own costs in connection with this solicitation. It
is contemplated that proxies will be solicited principally through the mails,
but directors, officers and regular employees of Americorp may solicit proxies
(for no additional compensation) by personal interview, telephone, telex,
telegram, facsimile or similar means of communication. Although there is no
formal agreement to do so, Americorp may reimburse banks, brokerage houses and
other custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to their principals.
OUTSTANDING SECURITIES; QUORUM
As of the Americorp Record Date, there were issued and outstanding 609,987
shares of Americorp Stock. The presence, either in person or by properly
executed proxies, of the holders of a majority of the outstanding shares of
Americorp Stock is necessary to constitute a quorum at the Americorp Meeting.
Abstentions will be counted for purposes of establishing a quorum.
VOTE REQUIRED
Americorp shareholders are entitled to one vote at the Americorp Meeting for
each share of Americorp Stock held of record by them on the Americorp Record
Date. The proposal concerning approval of the Agreement and the transactions
contemplated thereby requires the affirmative vote of a majority of the
outstanding shares entitled to vote. The proposal relating to a new stock option
plan requires the affirmative vote of a majority of the outstanding shares
entitled to vote.
As of the Americorp Record Date, directors and executive officers of
Americorp beneficially owned an aggregate of 164,660 shares of Americorp Stock
(not including shares issuable upon exercise of stock options), or approximately
27.0% of those outstanding as of the Americorp Record Date. Abstentions and
broker non-votes with respect to the proposals concerning approval of the
Agreement and the transaction contemplated thereby and the new stock option plan
will have the same effect as a vote "AGAINST" the proposals.
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THE MERGER
The Agreement provides for, among other things, (i) the merger of CIB with
and into ACB with ACB as the surviving bank, and (ii) the shareholders of CIB
becoming shareholders of Americorp in accordance with the Exchange Ratio, all
subject to the terms and conditions specified in the Agreement.
The Merger is intended to be a so-called "Merger of Equals" whereby
comparatively similar sized financial institutions and their respective
managements, boards of directors, shareholder groups and businesses are combined
to create an institution which may provide for, among other things, increased
synergies, expended products and markets, higher lending limits and a reduction
of overall overhead costs, including a reduction in duplicate positions and
employee benefits. Such mergers may also enhance the liquidity of a
shareholder's investment and may provide the combined entity with easier access
to the capital markets. "Mergers of Equals" provide the same types of risk
associated with combining any two entities, including (i) the disadvantages of
being part of a larger entity, including reduced voting power and the potential
for decreased customer service; (ii) the integration of the different corporate
cultures of the entities will divert the combined entities' management time from
other activities and (iii) the proposed changes to policies and procedures of
the combined entity may not prove to be successful to the customers of the
combined entity. "Mergers of Equals" also generally provide, among other less
favorable aspects, a smaller premium on their investment to the non-surviving
institutions' shareholders than would be anticipated in an actual sale of
control, less liquidity to such shareholders for their investment than if the
non-surviving institution had been acquired by a larger acquiror as well as the
difficulties associated with combining the human resources and cultural
differences of two similar sized institutions.
Certain provisions of the Agreement are summarized below. This summary does
not purport to be complete and is qualified in its entirety by reference to the
complete text of the Agreement, which is reprinted as Appendix A to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. Shareholders
of CIB and Americorp are urged to read the Agreement in its entirety.
BACKGROUND AND REASONS FOR THE MERGER AND MANAGEMENT'S RECOMMENDATION--AMERICORP
The Board of Directors of Americorp began to consider the possibility of a
"merger of equals" with or acquisition of another financial institution during
March, 1998. In the current financial services environment, a merger or
acquisition would support Americorp's strategic objective of remaining a
preeminent independent financial services provider in Ventura County, while
strengthening management, growth opportunities and profitability. Furthermore,
it is believed that ACB, as a larger independent bank, will be able to compete
with major banks in the communities served, providing superior products and
services to the marketplace.
In its considerations, Americorp determined that a "Merger of Equals"
transaction with CIB should first be explored (as opposed to mergers with or
acquisitions of other institutions) because of its complimentary markets and
similar operating philosophy. Discussions concerning the possibility of a
business combination among the Parties began during late March and early April
of 1998 with a series of meetings between various directors of the institutions.
These meetings resulted in the chairmen of Americorp and CIB meeting on April 9,
1998 to discuss various issues relating to the combination. The discussions
between the two chairmen continued on through April and May. On May 14, 1998, a
confidentiality agreement was signed to facilitate mutual due diligence and
transfers of information. Both Parties conducted due diligence during various
periods in May and June.
In late May and early June, Americorp held discussions with Cal. Research
relating to their engagement to render a fairness opinion in connection with the
transaction. Counsel was also authorized to commence drafting of the Agreement
and a first draft of the Agreement was delivered to CIB on or about June 6.
Negotiation of the transaction continued through various drafts of the Agreement
and were principally conducted through a series of meetings between the chairmen
of the Parties during mid and
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late June. On July 2, both chairmen met along with President Lukiewski and Ms.
Pruner to resolve remaining issues.
In the course of negotiations, Americorp proposed that the respective book
values of the Parties, subject to certain adjustments, was a proper methodology
to determine the Exchange Ratio in the Merger. While some "Merger of Equals" are
structured on the basis of an Exchange Ratio formulated from the market
capitalization of the respective institutions, Americorp concluded that the
thinly traded nature of the markets for its and CIB Stocks made book value a
better basis for determining the Exchange Ratio. Additionally, the use of a book
value based Exchange Ratio provided the CIB shareholders a premium on their CIB
Stock in the Merger based upon the then trading value of shares of Americorp
Stock.
At a meeting on the morning of July 7, 1998, the Boards of Directors of
Americorp and ACB met to discuss further the Agreement and the Merger. At such
meeting, the Board received the oral opinion of Cal. Research which was later
confirmed in writing that the combination was fair from a financial point of
view to the Americorp shareholders and counsel reviewed the terms of the
Agreement and the transactions contemplated thereby. The Board unanimously
approved the Agreement and the transaction contemplated thereby at such meeting.
The Agreement was signed during the afternoon of July 7, 1998.
It is important to Americorp's Board of Directors to continue to offer local
management and ongoing support to the communities ACB has served since its
founding. That same philosophy is shared by CIB and, as a result of that
conviction provides a great opportunity to combine the two institutions. CIB
possesses an excellent customer and deposit base in Oxnard which compliments
ACB's existing customer and deposit base and provides the combined organization
a more competitive share of the market in Ventura County.
The Board and management of Americorp also anticipate that the Merger will
provide the potential to benefit from revenue enhancement opportunities. These
opportunities result from, among other factors: (1) the enhanced ability to
better serve the marketplace; (2) the ability to cross-sell a wider variety of
banking products and services; (3) the ability to generate increased loan and
fee income by providing higher lending limits; (4) the potential to increase
overall market share in the communities served; (5) the opportunity to increase
the loan portfolio; and (6) the ability to create more efficiencies, thereby
reducing overall operating costs to both institutions. Additionally, the Board
of Directors also considered that the larger size of the surviving bank, along
with Americorp's intention to explore listing the Americorp Stock on Nasdaq
would increase shareholder liquidity.
Based on the combined bank's assets of approximately $226 million, the
projected pro forma amount of annual net income has been estimated to be
$2,235,000 after expenses for the Merger and integration costs have been
absorbed. This net income amount takes into account expected initial cost
savings of an estimated $637,000 and enhanced revenues of an estimated $139,000.
The cost savings are derived from a reduced level of personnel, decreased costs
of employee benefits per employee and other reduced operational expenses on a
combined basis. Revenue enhancements are derived from increased lending activity
due to the increased lending limits. Net of taxes, the net improvement of net
income would be approximately $458,000. The projected proforma earnings per
share is estimated to be $2.31 using the number of shares outstanding as of June
30, 1998, with CIB's shares outstanding exchanged on a .7000 to 1.000 Exchange
Ratio. This compares to an annualized proforma basic earnings per share
calculated as of June 30, 1998 of $1.88.
This information should be read in conjunction with the historical
consolidated financial statements of CIB and Americorp, including their
respective notes thereto, which are included in this Joint Proxy
Statement/Prospectus, and in conjunction with the combined condensed historical
selected financial data and other pro forma combined financial information
appearing elsewhere in this Joint Proxy Statement/ Prospectus. The cost savings
and revenue enhancements reflected above and in this Joint Proxy Statement/
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Prospectus may not be indicative of the results that may be achieved in the
future. Assuming consummation of the Merger, the actual cost savings and revenue
enhancement that may be realized in the Merger may differ, perhaps
significantly, from the amounts reflected above and in this Joint Proxy
Statement/ Prospectus due to a variety of factors, including expected growth of
the combined bank. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT."
In reaching its conclusion, Americorp's Board of Directors considered
information and advice from several specialists including Cal. Research and
legal advisors. After consideration of the financial performance, business
operations, capital levels, and asset quality of the institutions, it was
decided to pursue a combination of the Parties.
The Board of Directors of Americorp believes that the terms of the Merger
are fair to and in the best interests of Americorp and its shareholders. In
addition to the considerations already described, in unanimously approving the
Agreement, the Board of Directors considered the following factors (constituting
all the other material factors considered by the Board), without assigning any
specific or relative weights to the factors:
(i) The Board of Directors believes that the Exchange Ratio provided for
in the Agreement represents fair consideration. In addition, Cal. Research
concluded that the terms of the Merger are fair to the stockholders of
Americorp from a financial point of view.
(ii) It is anticipated that the Merger will increase the liquidity of
the stock by expanding the size of the shareholder base.
(iii) It is expected that the Merger will result in better opportunities
to lend to a more diverse customer base.
(iv) The Merger is expected to result in a strong, deep management team
that will allow Americorp to address more effectively changes in technology,
regulation, competition, products and services.
(v) The capital of the combined institutions will provide an excellent
opportunity to expand and leverage the overall expense structure of the
combined institutions.
Accordingly, Americorp's Board of Directors has approved the Agreement and
the transactions contemplated thereby and recommends approval of the same by the
shareholders of Americorp.
BACKGROUND AND REASONS FOR THE MERGER AND MANAGEMENT'S RECOMMENDATION--CIB
Channel Islands Bank is proud of its community bank roots, and its banking
philosophy is deeply steeped in the independent bank tradition of customer
service and community involvement. CIB conducts general banking operations in
Camarillo and Oxnard, Ventura County, California. In serving individuals, small
businesses and mid-market corporations, CIB historically has focused on a
community-based approach to banking.
From time to time in 1997 and 1998, CIB had meetings and discussions with a
number of institutions with respect to potential acquisitions and business
combinations. The institutions that discussed certain business combinations with
CIB were only those institutions that focused on the community-based approach to
banking and were located in markets that would provide CIB with both strategic
and synergistic benefits. One of the institutions that CIB had such discussions
with was Americorp and ACB.
After several informal discussions, both CIB and Americorp began to realize
that in order to compete more effectively with the larger financial institutions
resulting from the various consolidations and mergers in the industry locally,
both institutions needed to increase in size, and both CIB and Americorp saw the
advantages of a potential business combination. At the same time, each
recognized the opportunity to build a larger regional, independent financial
institution in the Ventura County market.
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In the second quarter of 1998, the principals of CIB and Americorp met
several times to preliminarily discuss the possible synergies between the
companies. CIB and Americorp thereafter continued to discuss a possible
combination of the companies. In June, 1998, Americorp presented a proposal to
CIB that provided for a financial structure of a tax-free exchange of stock to
be accounted for on a pooling-of-interest basis, and such proposal was described
to the CIB Board on June 1, 1998. At meetings over the following several weeks,
the principals of CIB and Americorp further discussed a proposed merger of CIB
and Americorp. At the June 18, 1998 meeting of the CIB Board, Mr. Priske
described the operations of Americorp and ACB, the proposed merger terms and
plans for CIB's offices and staff following the proposed merger. The CIB Board
considered this information and then authorized Mr. Priske to proceed to
negotiate a tentative merger agreement between CIB and Americorp. The CIB Board
also authorized management to select appropriate legal counsel and financial
advisor to advise it on the strategic alternatives available to CIB. Thereafter,
CIB retained Knecht & Hansen as its legal advisor and the Findley Companies
("Findley") as its financial advisor to issue a fairness opinion in connection
with CIB's consideration of the merger proposal from Americorp.
Following continued negotiations between the representatives of CIB and
Americorp, on July 7, 1998, the CIB Board deliberated at length concerning the
transaction and to review the Agreement and related documents, its strategic
alternatives, the competitive banking environment in California, the prospects
for CIB if it remained independent and the results of the due diligence review
of Americorp and ACB performed by CIB management, legal counsel and accountants
conducted in June and early July, 1998. At this meeting, Findley discussed with
the CIB Board its analysis of the Merger and delivered to the CIB Board its
opinion that the consideration to be received in the Merger was fair to the CIB
shareholders from a financial point of view (see "CIB Fairness Opinion").
Thereafter, the CIB Board approved, and authorized the execution of, the
Agreement.
The CIB Board unanimously approved the Merger at its Board of Directors
meeting on July 7, 1998. The CIB Board believes that the terms of the Merger are
fair to, and in the best interests of, CIB and its shareholders and recommends
that the shareholders of CIB vote FOR approval of the Merger.
In reaching its conclusion, the CIB Board considered information provided at
meetings of its Board of Directors in June 1998 and July 1998, including, among
other things, (i) information concerning the financial performance and
condition, business operations, capital levels, asset quality, loan portfolio
breakdown, due diligence review of the loan portfolio, material contracts,
contingent liabilities of Americorp and ACB, and prospects of Americorp and ACB;
(ii) the structure of the transaction, including the fact that the CIB
shareholders would receive approximately 40% of the common equity of Americorp
on a fully diluted basis; (iii) the fact that Mr. Priske would serve as Vice
Chairman of the Board of Directors of Americorp and ACB, that the Board of
Directors of Americorp and ACB would be comprised of four directors from CIB,
the total number of directors of Americorp and ACB would total nine; (iv) the
terms of the Merger Agreement and other documents to be executed in connection
with the Merger, including the covenant of Americorp in the Agreement allowing
CIB to pay semi-annual dividends to the shareholders of CIB; (v) the
presentation of Findley and the opinion of Findley that the Merger is fair to
the shareholders of CIB from a financial point of view; (vi) the results of its
due diligence examination of Americorp and ACB; (vii) the terms of other recent
comparable combinations of banks and bank holding companies; (viii) the CIB
Board's review with its legal and financial advisors of alternatives to the
Merger, the range of possible values to CIB shareholders obtainable through
implementation of alternatives and the timing and likelihood of the same; (ix)
the current and prospective economic environment and regulatory and competitive
burdens and constraints facing community banks; (x) the pro forma financial
statements of the combined companies and the capitalization of the combined
companies; (xi) the CIB Board's review with its legal and financial advisors of
potential merger targets; (xii) the compatibility of CIB with Americorp and ACB
and the complementary lines of business; (xiii) the geographic distribution of
Americorp and ACB offices vis-a-vis CIB's strategic plan; (xiv) the advantages
of being part of a larger entity, including the potential for operating
efficiencies, the effect of a higher lending limit on CIB's
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customers and prospective customers, and the generally higher trading multiples
of larger financial institutions; (xv) the business strategies, the strength and
depth of management of the combined entity and the extent of their interest in
continuing CIB's significant business relationships in Ventura county; (xvi) the
ability of a larger institution to compete in the banking environment and to
leverage overhead costs; (xvii) the effect of the Merger on existing
shareholders, employees, officers and customers of CIB; (xviii) the current and
prospective economic environment and regulatory and competitive burdens and
constraints facing commercial banks; (xix) information concerning the ability of
CIB and ACB to achieve operating efficiencies; (xx) the impact on the
communities served by CIB and ACB in the Merger, and the increased ability to
serve the communities through the larger branch network; (xxi) the unprecedented
consolidation currently underway in the banking industry and increased
competition from larger independent banks in California; (xxii) the value of the
consideration offered by Americorp compared to the value of the consideration
offered in other acquisitions of financial institutions in California in 1996,
1997 and 1998 and the prospects for enhanced value of the combined entity in the
future; (xxiii) the tax-free nature of Americorp offer; (xxiv) the intention of
the parties that Americorp Stock may be listed on Nasdaq in one year of the
consummation of the Agreement and the future liquidity of Americorp Stock; and
(xxv) the prospects and valuation of CIB on a stand alone basis and on the basis
of alternative stand alone strategies, such as dividends, share repurchases,
restructurings and growth through acquisitions.
In addition to the advantages of a "Merger of Equals" whereby comparatively
similar sized financial institutions and their respective managements, boards of
directors, shareholder groups and businesses are combined to create an
institution which may provide for the advantages discussed in the previous
paragraph, the management of CIB also discussed the various risks of combining
with Americorp in a "Merger of Equals," including (i) the disadvantages of being
part of a larger entity, including reduced voting power on the Americorp and ACB
Board of Directors and the potential for decreased customer service; (ii) the
integration of CIB and ACB will divert the combined entities' management from
other activities; (iii) since CIB's market area is located geographically south
of ACB's market area, with generally little geographical overlap in the market
areas of CIB and ACB, and because CIB and ACB have two different cultural
orientations, as CIB is more commercially oriented and ACB is more consumer
oriented, the Merger will introduce the combined entity to new markets and
cultures, and no assurance can be given that the combined entities' policies,
procedures and products will prove successful in the combined market areas and
in a combined commercial and consumer culture; (iv) a smaller premium on CIB
shareholder investment than would be anticipated in an actual sale or
acquisition of CIB; and (v) less liquidity to the CIB shareholders for their
investment than if CIB had been acquired by a larger financial institution.
However, after weighing the advantages and disadvantages of a "Merger of
Equals" with Americorp and ACB, the CIB Board of Directors determined that the
advantages clearly outweighed the disadvantages of the Merger with Americorp and
ACB. For example, (a) many of the CIB policies and procedures are or will be
adopted on a going forward basis by ACB; (b) CIB obtained greater representation
on the proposed Board of Americorp and ACB than would be expected in a normal
acquisition or sale transaction or in a "Merger of Equals" based solely on asset
size; (c) both entities have formed joint personnel and other committees while
the transaction is pending in order to integrate the two entities as completely
as possible before the Merger is completed, thereby resulting in less diversion
of management to integration activities; (d) the smaller premium in this
transaction is expected to be more than offset by a relatively larger value for
all shareholders of the combined entity in the future; and (e) the combined
entity expects to have its stock listed on Nasdaq in the near future, thereby
increasing the liquidity of the combined entities' outstanding stock.
The CIB Board of Directors also considered several methods of converting the
CIB shares to Americorp shares, including an exchange based upon book value as
of a date just prior to consummation and an exchange of stock based upon market
valuation of the two entities. The CIB Board of Directors concluded that the
market for CIB and Americorp stock was so thinly traded that the market did not
necessarily reflect the value of each organization, and that an exchange based
upon the book values of each
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organization, as adjusted as provided in the Agreement, would be a better
measure of each entities' value in the Merger. In addition, the use of a book
value based Exchange Ratio provided the CIB Shareholders a premium on their CIB
Stock in the Merger based upon the then trading value of shares of Americorp
Stock.
The managements of CIB and Americorp saw opportunities for increased
operating efficiencies. In particular, the managements believe that cost savings
can be achieved as a result of economies of scale, the combination of executive
management and elimination of certain central staff, the consolidation of data
processing and operations activities and the elimination of duplicative
administrative functions. There can be no assurance that Americorp and ACB will
be able to realize fully the increased operating efficiencies or that such
operating efficiencies will be realized in a timely manner.
Based on the combined bank's assets of approximately $226 million, the
projected pro forma amount of annual net income has been estimated to be
$2,235,000 after expenses for the Merger and integration costs have been
absorbed. This net income amount takes into account expected initial cost
savings of an estimated $637,000 and enhanced revenues of an estimated $139,000.
The cost savings are derived from a reduced level of personnel, decreased costs
of employee benefits per employee and other reduced operational expenses on a
combined basis. Revenue enhancements are derived from increased lending activity
due to the increased lending limits. Net of taxes, the net improvement of net
income would be approximately $458,000. The projected proforma earnings per
share is estimated to be $2.31 using the number of shares outstanding as of June
30, 1998, with CIB's shares outstanding exchanged on a .7000 to 1.000 Exchange
Ratio. This compares to an annualized proforma basic earnings per share
calculated as of June 30, 1998 of $1.88.
This information should be read in conjunction with the historical
consolidated financial statements of CIB and Americorp, including their
respective notes thereto, which are included in this Joint Proxy
Statement/Prospectus, and in conjunction with the combined condensed historical
selected financial data and other pro forma combined financial information
appearing elsewhere in this Joint Proxy Statement/ Prospectus. The cost savings
and revenue enhancements reflected above and in this Joint Proxy Statement/
Prospectus may not be indicative of the results that may be achieved in the
future. Assuming consummation of the Merger, the actual cost savings and revenue
enhancement that may be realized in the Merger may differ, perhaps
significantly, from the amounts reflected above and in this Joint Proxy
Statement/ Prospectus due to a variety of factors, including expected growth of
the combined bank. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT."
Managements of CIB and Americorp believe that each complements each other
both in their community-based approach to banking and in terms of geographic
service areas. Consequently, CIB and Americorp believe that by combining forces,
CIB and Americorp will be able to more effectively compete and successfully to
take advantage of banking opportunities in the Southern California market.
The foregoing discussion of the information and factors considered by the
CIB Board is not intended to be exhaustive, but constitutes the material factors
considered by the CIB Board. In reaching its determination to approve and
recommend the principal terms of the Merger, the CIB Board did not assign
relative or specific weights to the foregoing factors and individual directors
may have weighed such factors differently.
FOR THE REASONS SET FORTH ABOVE, THE CIB BOARD HAS UNANIMOUSLY APPROVED THE
AGREEMENT AS IN THE BEST INTEREST OF CIB AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT THE CIB SHAREHOLDERS APPROVE THE PRINCIPAL TERMS OF THE MERGER.
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AMERICORP FAIRNESS OPINION
Americorp retained Cal. Research to render a fairness opinion in connection
with the proposed merger among CIB, ACB and Americorp. Cal. Research has
rendered a written opinion (the "Opinion") to Americorp's Board of Directors to
the effect that the Exchange Ratio as defined in section 1.1 of the Agreement,
which definition includes certain possible adjustments, is fair to the holders
of Americorp Stock from a financial point of view. No limitations were imposed
by the Americorp Board of Directors upon Cal. Research with respect to the
investigations made or procedures followed in rendering the Opinion.
THE TEXT OF THE OPINION OF CAL. RESEARCH, DATED AS OF AUGUST 12, 1998 WHICH
SETS FORTH CERTAIN ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW
UNDERTAKEN BY CAL. RESEARCH, IS ATTACHED HERETO AS APPENDIX C. AMERICORP
SHAREHOLDERS ARE URGED TO READ THE OPINION IN ITS ENTIRETY. IN FURNISHING SUCH
OPINION, CAL. RESEARCH DOES NOT ADMIT THAT IT IS AN EXPERT WITH RESPECT TO THE
REGISTRATION STATEMENT OF WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS IS A 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. THE SUMMARY OF THE PROCEDURES AND ANALYSIS PERFORMED, AND
ASSUMPTIONS USED BY CAL. RESEARCH SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF
SUCH OPINION. CAL. RESEARCH'S OPINION THAT THE MERGER IS FAIR FROM A FINANCIAL
POINT OF VIEW TO SHAREHOLDERS OF AMERICORP IS DIRECTED TO THE AMERICORP BOARD OF
DIRECTORS AND IS DIRECTED ONLY TO THE CONSIDERATION TO BE PAID BY AMERICORP IN
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY AMERICORP SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE AMERICORP MEETING.
In rendering our opinion, Cal. Research has relied upon and assumed the
accuracy, completeness and fairness of all of the financial and other
information that was available to us from public sources and that was provided
to us by Americorp and CIB. Cal. Research has not assumed any responsibility for
independently verifying such information nor undertaken an independent
evaluation or appraisal of any of the assets or liabilities of Americorp or been
furnished with any such evaluation or appraisal.
Cal. Research has, among other things:
(1) Reviewed the Agreement by and among ACB, Americorp and CIB;
(2) Reviewed certain publicly available business and financial
information on the banks of Ventura County;
(3) Reviewed certain other companies that Cal. Research considered
relevant and compared them to ACB and CIB from a financial point of view.
(4) Reviewed call reports to the banking regulators for Americorp and
CIB for the periods ending December 31, 1995, December 3l, 1996, December
31, 1997, and March 31, 1998. Cal. Research has also reviewed the Annual
Reports to shareholders for the years 1995, 1996, and 1997 for each company;
(5) For each company Cal. Research has also reviewed information
pertaining to classified or criticized loans, premises, lease terms of
office facilities, internal financial reports, litigation reports, summaries
of stock options, stock prices for the last four quarters, and other data
provided us by the senior management personnel of each institution. Cal.
Research also reviewed a pro-forma analysis of both banks as provided by
ACB's President/CEO.
(6) Considered the financial terms of companies involved in comparable
business consolidations.
Set forth below is a brief summary of the analysis performed by Cal. Research in
reaching its opinion. Cal. Research assumed for purposes of its opinion that the
Merger will be accounted for as a pooling of
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interests transaction under generally accepted accounting principles. An
exchange ratio of 0.6338 shares of Americorp's stock for each share of CIB stock
at time of closing, the level at which CIB shares would be exchanged if the
Effective Time (as defined in the Agreement) were the same as the date of the
opinion was assumed. The Exchange Ratio was developed pursuant to extensive
negotiations between Americorp and CIB.
1. PRO-FORMA MERGER AND CONTRIBUTION ANALYSIS
Cal. Research analyzed the changes in the earnings, book value and dividends
attributable to one share of Americorp stock before the Merger to those
attributable to a share of stock resulting from the merger.
The analysis assumed a dividend pay-out ratio of 40% to 45% of earnings as
is consistent with Americorp's recent historical experience. The analysis
assumes that merger-related operating cost savings to be fully realized during
1998 and each year thereafter and assumes the merger is completed by the end of
1998. Merger-related costs were assumed to be charged off during 1998.
The impact on ACB of volatility in CIB's earnings was shown by calculating
pro-forma results assuming CIB's earnings were as projected as well as 125% of
projections. Also, pro-forma results assuming 125% of projected cost savings
were realized and projections assuming 75% of projected cost savings were
realized were made for the post-merger bank.
The projected merger cost savings approximate 6.4% of the combined
institutions' projected non-interest expense. This ratio is in line with other
mergers reviewed by Cal. Research.
Pro-forma merger analyses assuming stated earnings projections and the
Merger-related cost savings projected by ACB were made. CIB's earnings
volatility was considered by calculating projected earnings as well as 125% of
projections. Also, 75% of projected earnings were taken into account.
Cal. Research analyzed the changes in earnings, book value and dividends for
the years 1999, 2000 and 2001 and included various combinations of stand-alone
and pro-forma projected earnings and cost savings volatility assumptions as
described previously.
Results showed that for 1999, on a stand-alone basis, earnings for ACB were
$1.82 per share and for the Surviving Bank would be $2.33 per share. Assuming
75% merger cost savings, the Surviving Bank would earn $2.14 per share for 1999.
Assuming 125% merger cost savings, the Surviving Bank would earn $2.53 per share
for 1999.
At July 6, 1998, the last trading day before the announcement of the Merger,
the closing bid price for Americorp's stock was $32.00 per share. On a
stand-alone basis earnings for Americorp would be $1.82 for 1999 and at 17.0
times earnings, the market value would be $30.94. For the combined institution
1999 earnings would be $2.33 per share, and at 17.0 times earnings the indicated
market value would be $39.61.
Assuming 75% of cost savings can be achieved, the combined institution would
earn $2.14 for 1999, and at 17.0 times earnings the market value would be
$36.38.
Results for 2000 range from $2.02 per share to $2.92 to $3.31 per share.
For the year 2000 market values would range from $49.64 if 75% of Merger
cost savings are achieved and $52.87 if %100 of Merger cost savings are
achieved.
Results for 2001 range from $2.22 per share to $3.55 per share.
2. ANALYSIS OF OTHER MERGER TRANSACTIONS
Cal. Research reviewed the results of 18 merger and acquisition transactions
made throughout California during 1996 and 1997. Assets for acquired
institutions were over $100 million but less than $500
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million. The median price/tangible book ratio for these transactions was 1.90
times book while the median price/earnings ratio was 17.55 times.
The book value of Americorp on a stand-alone basis as of June 30, 1998 was
$20.00 per share. At a multiple of 1.90 times book, the market price would be
$38.00. For the combined institution on the same date the book value was $19.66
with the market value being $37.35 given a multiple of 1.90 times book.
A review of 71 independent banks in the Hoefer & Arnett Banking Universe
revealed the median price/earnings ratio to be 16.98 times and the median
price/tangible book value ratio to be 2.16 times. These ratios were used in the
following cash flow analysis.
3. DISCOUNTED CASH FLOW ANALYSIS
Cal. Research undertook a cash flow analysis in order to compare the present
value if Americorp remained independent through 2001 or was acquired in 2001 by
another institution. The results produced in the analysis did not purport to be
indicative of actual values or expected values of Americorp. Rather, the values
obtained through the discounted cash flow analysis analyzed the effect of
possible earnings volatility and potential Merger-related operating cost savings
volatility. Various levels of earnings for ACB and CIB were examined.
Cases examined were: ACB on a Stand-Alone basis, CIB on a Stand-Alone basis,
ACB and CIB on a Combined Basis, a Combined Bank Assuming 75% of Projected
Operating Cost Savings Were Realized, Combined Bank Assuming 125% of Projected
Cost Savings Were Realized and Combined Bank Assuming ACB had made only 75% of
Projections but CIB made 125% of Projections.
The Discount Rates ranged from 8.0% to 12.0% over a three-year period. A
Terminal Price multiple, applied to Year 2000 estimated earnings per share was
the California median in the Fourth Quarter of 1997, or 16.98 times earnings.
Lower levels of price-to-earnings per share multiples would reflect an estimated
future trading range of Americorp, while higher levels of price-to-earnings
multiples are more indicative of a future sale of the stock of Americorp to a
larger financial institution.
For the ACB Stand-Alone Analysis, the cash flows were comprised of dividends
projected for the years 1999, 2000 and 2001 plus the Terminal Value of Americorp
stock at year-end 2001 (calculated by applying the assumed terminal price to
earnings ratio (16.98 times) to projected ACB earnings per share.
For the combined bank analysis the cash flows were projected pro-forma
dividends in years 1999, 2000 and 2001 plus the Terminal Value of the pro-forma
combined entity's stock at year-end 2001.
Cal. Research also calculated the present values that would be realized if
75% of the Projected Savings due to the merger were realized. Also, the analysis
was done to review results if 125% of projected operating savings were obtained
as well.
Stand-Alone present values per share for Americorp ranged from $39.66 to
$39.88 per share while pro-forma combined present values ranged from $59.48 to
$59.77 per share and from $62.95 to $63.26 per share if 125% of projected cost
savings were realized.
In comparison to these values the actual price per share traded over the
counter for Americorp was approximately $32.00 at December 31, 1997.
It was previously noted that the market price was $32.00 per share on July
6, 1998 for Americorp Stock. By 2001 the market price could by $59.77 (earnings
of $3.36 times P/E ratio of 16.98 plus present value of dividends at a 12%
disount or $2.79).
The results of these analyses do not purport to be indicative of actual or
expected values per share of Americorp stock. Rather, these analyses are
intended as a valuation technique, which relies on numerous assumptions,
including asset and earnings growth rates, dividend pay-out rates, terminal
values and a
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discount rate. A higher level of projected ACB earnings raised the resulting
present value for a given level of Channel Islands' earnings on a pro-forma
combined basis.
COMPARABLE COMPANY ANALYSES
Cal. Research examined recent historical data on Americorp and CIB based
upon data from their 1995, 1996 and 1997 Annual Reports to Shareholders and
subsequent quarterly data. Certain statistics were compared to data for a peer
group of California banks using publicly available data contained in the Hoefer
& Arnett Banking universe, 1997 Fourth Quarter. The Universe includes 71
California banking institutions (neither CIB nor ACB are included in this
group). Comparisons were made for the period ending December 31, 1997. Also, a
data base of 66 California independent banks compiled by Sutro & Co. was
reviewed for comparative purposes.
DECEMBER 31, 1997
(X000)
<TABLE>
<CAPTION>
INDEX
ACB CIB MEDIAN
---------- --------- ----------
<S> <C> <C> <C>
TOTAL ASSETS................................................................... $ 133,769 $ 88,890 $ 233,622
MARKET CAPITALIZATION(1)....................................................... 22,174 11,298 44,853
PRICE TO EQUITY PER SHARE...................................................... 1.68x 1.52x 2.16x
PRICE TO LATEST 12 MOS. EARNINGS............................................... 17.0x 11.8x 16.98x
TANGIBLE EQUITY TO ASSETS...................................................... 8.24% 7.58% 9.10%
NONPERFORMING ASSETS TO TOTAL ASSETS(2)........................................ 1.51% 0.26% 0.68%
LOAN LOSS RESERVE TO NON-PERFORMING LOANS...................................... 54% 1,146% 211.0%
RETURN ON ASSETS............................................................... 0.81% 0.99% 1.37%
RETURN ON EQUITY............................................................... 9.76% 13.36% 15.47%
EFFICIENCY RATIO(3)............................................................ 75.65% 71.33% 65.04%
</TABLE>
- ------------------------
(1) Based on December 31, 1997 market price.
(2) Non-performing assets are loans 90 days past due and still accruing and
non-accrual and other real estate owned.
(3) Efficiency ratio is non-interest expense as a percent of total revenues.
The following table is a summary of various valuation results:
SUMMARY OF VALUATION RESULTS
<TABLE>
<CAPTION>
COMPLETED
CIB-ACB MERGERS IN
CIB ACB COMBINED CALIFORNIA(1)
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Price to Book.................................... 1.68x 1.60x 1.68x 1.63x
Price to Tangible Book........................... 1.68x 1.60x 1.68x NA
Price to Earnings................................ 15.23x 16.84x 17.02x 17.10x
METHODOLOGY USED:
Contribution Analysis............................ $ 29.54 $ 30.94 $ 39.61
Discounted Cash Flows
(3 years at 12%)............................... $ 34.53 $ 39.42 $ 59.48
</TABLE>
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Cal. Research is a banking consulting firm engaged in the valuation of
businesses and securities, including financial institutions, in connection with
mergers and acquisitions. It also provides other consulting services to the
financial services industries. Cal. Research has not previously provided
investment banking or consulting services to ACB or CIB.
The fee or any portion of it to be earned by Cal. Research is not contingent
upon the conclusions reached in this opinion.
CIB FAIRNESS OPINION
CIB has retained The Findley Group ("Findley") to act as its financial
advisor in connection with the Merger pursuant to an engagement letter dated May
26, 1998 (the "Engagement Letter"). Findley has rendered to the Board of
Directors of CIB its written opinion dated July 7, 1998, as affirmed on November
5, 1998, pursuant to the terms of the Agreement that, subject to the assumptions
and limitations set forth therein, the Exchange Ratio is fair, from a financial
perspective, to CIB shareholders. A copy of the opinion dated July 7, 1998 of
Findley is attached as Appendix B to this Joint Proxy Statement/ Prospectus and
should be read in its entirety. The following summary is qualified in its
entirety by reference to the full text of the opinion. This opinion is addressed
to the Board of Directors of CIB and does not constitute a recommendation to any
shareholder of CIB as to how such shareholder should vote at the CIB Meeting.
In connection with its Fairness Opinion, Findley, among other things: (a)
reviewed certain publicly available financial and other data with respect to CIB
and Americorp, including the consolidated financial statements for recent years
and interim periods to March 31, 1998, the March 31, 1998 Call Reports for CIB
and ACB and certain other relevant financial and operating data relating to CIB
and Americorp made available to Findley from published sources and from the
internal records of CIB and Americorp; (b) reviewed the Agreement; (c) reviewed
certain historical market prices and trading volumes of CIB and Americorp Stock;
(d) compared CIB and Americorp from a financial point of view with certain other
companies that Findley deemed to be relevant; (e) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies that Findley deemed to be comparable, in whole or in
part, to the Merger; (f) reviewed and discussed with representatives of the
management of CIB certain information of a business and financial nature
regarding CIB and Americorp furnished to Findley by CIB and Americorp, including
financial forecasts and related assumptions of CIB and Americorp; (g) made
inquiries regarding and discussed the Merger and the Agreement and other matters
related thereto with CIB's counsel; (h) reviewed litigation reports for both CIB
and Americorp; and (i) performed such other analyses and examinations as Findley
deemed appropriate.
CONTRIBUTION ANALYSIS. Findley analyzed the contribution of each CIB and
Americorp to, among other things, common equity and net income of the pro forma
combined companies for the period ending December 31, 1997, adjusted through
March 30, 1998. This analysis showed, among other things, that based on pro
forma combined balance sheets and income statements for CIB and Americorp as of
December 31, 1997, adjusted through March 30, 1998, CIB would have contributed
39.9% of the deposits, 38.7 percent of the shareholder equity of the combined
companies (before costs savings and revenue enhancements), 40.4 percent of gross
income, 42.7 percent of net income for 1997 and 37.4 percent of 1998 estimated
net income. Based upon the stock consideration to be paid in the merger as
provided in the Agreement, the CIB shareholders would own approximately 38.7% of
the combined companies on March 30, 1998 and are estimated to own in excess of
such percentage at Closing based upon the Exchange Ratio.
DISCOUNTED CASH FLOW ANALYSIS. Findley examined the results of a discounted
cash flow analysis designed to compare the Exchange Ratio with the present
value, under certain assumptions, that would be attained if CIB remained
independent through 2001, at which time CIB was acquired by a larger financial
institution. The cash flows for the combined companies assumed that the Exchange
Ratio equals 0.69282
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<PAGE>
shares of Americorp for each share of CIB. The results produced in the analyses
did not purport to be indicative of actual values or expected values of CIB or
the combined companies at such future date. All cases were analyzed assuming
realization of operating cost savings, estimated by the parties, in the amounts
and time periods forecasted by the parties.
The discount rates used ranged from 10% to 14%. For the CIB stand alone
analysis, the terminal price multiples applied to the 2001 estimated earnings
per share ranged from 12.0 to 20.0. The lower levels of the price to earnings
values multiples range reflected an estimated future trading range of CIB or the
combined companies, while the higher levels of the price to earnings value
multiples range were more indicative of a future sale of CIB or the combined
companies to a larger financial institution.
For the CIB stand alone analysis, the cash flows were comprised of the
projected stand alone dividends of $0.20 per share in years 1998 through 2001
plus the terminal value of CIB Stock at the year-end 2001 (calculated by
applying each one of the assumed terminal price to earnings value multiples as
stated above to the 2001 projected CIB earnings per share). A similar analysis
was done for Americorp using a cash dividend rate of $0.84 per share and for the
combined companies. The discount rates described above were then applied to
these cash flows to obtain the present values per share of CIB Stock.
Under a most likely scenario, the Findley analysis assumed that projected
earnings, among other things, would be achieved; that projected operating cost
savings are a minimum of $400,000 realized (for the combined companies case) a
present value discount rate of 12% and a terminal price to earnings value
multiple of 20.0. Assuming CIB remains independent through 2001 and is then
acquired by a larger financial institution, a holder of one share of CIB Stock
today would receive cash flows with a present value of $26.19. Assuming the
Merger is consummated and that combined companies remain independent through
2001 and is then acquired by a larger financial institution, a holder of one
share of CIB Stock today would receive cash flows with a present value of at
least $32.60.
ANALYSIS OF SELECTED BANK MERGER TRANSACTIONS. Findley reviewed the
consideration paid in recently completed transactions whereby certain banks were
acquired. Specifically, Findley reviewed 71 transactions involving acquisitions
of selected banks in California completed since January 1, 1996 (the "California
Acquisitions"). For each bank acquired in such transactions, Findley compiled
figures illustrating, among other things, the ratio of the premium (I.E.,
purchase price in excess of book value) to deposits, purchase price to book
value, and purchase price to previous year's earnings.
The figures for all banks acquired in the California Acquisitions produced:
(a) a median percentage of premium to deposits of 6.50%; (b) a median ratio of
purchase price to book value of 1.63; and (c) a median ratio of purchase price
to previous year's earnings of 17.10. The figures for 10 banks acquired in
California since 1996 that were approached on a merger of equals basis produced:
(a) a median percentage of premium to deposits of 6.57%; (b) a median ratio of
purchase price to book value of 1.49; and (c) a median ratio of purchase price
to previous year's earnings of 16.37.
In comparison, assuming that the Exchange Ratio to be paid in the Merger
equals $22.86 per share (using a value for Americorp of $33.00 per share) recent
trades for Americorp stock have been $34.00 per share, Findley determined that
the Exchange Ratio in the Merger represented a percentage of premium to deposits
of 6.17%, a ratio of purchase price to book value of 1.68 and a ratio of
purchase price to 1997 earnings of 15.23.
No other company or transaction used in the above analysis as a comparison
is identical to CIB, Americorp 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 Americorp, CIB and the Merger are being
compared.
COMPARABLE COMPANY ANALYSIS. Using public and other available information,
Findley compared certain financial ratios of CIB and Americorp (including the
ratio of net income to average total assets
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<PAGE>
["return on average assets"], the ratio of net income to average total equity
["return on average equity"], the ratio of average equity to average assets and
certain credit ratios for the year ended December 31, 1997 and the interim
period ending March 30, 1998) to a peer group consisting of 20 selected banks
located in California. No company used in the analysis is identical to CIB or
Americorp/ACB. The analysis necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies. The results of this analysis indicated that CIB performed
slightly ahead of peer group level on the basis of profitability in 1997 and
Americorp/ACB performed slightly below peer group levels on the basis of
profitability in 1997. CIB's return on average assets and return on average
equity for 1997 were above peer group levels, inclusive of its interest spread
factors (interest earned on assets minus interest paid on liabilities). CIB's
performance in 1997, continuing through March 31, 1998, showed better than peer
group levels concerning non-performing assets. CIB's non-interest expense,
inclusive of payroll expense, quarters expense and other related non-interest
expenses were higher than peer group level. Americorp/ACB return on average
assets, return on average equity for 1997 was slightly below peer group levels.
In addition, delinquent loans and non-performing loans were higher than peer
group levels. Under the terms of the Merger, which requires a proportionate
representation on the Board of Directors of outside Directors of Americorp/ACB
after consummation of the transaction, the combined entity will be on an average
with peer group performance with regard to return on average assets, return on
average equity and other non-performing asset figures. Under the transaction,
the Exchange Ratio is based upon the book value per share of CIB and Americorp
on the Determination Date, taking into consideration fully funded loan loss
reserves and other appropriate reserves and expenses that are required for this
transaction.
The foregoing summarizes the material portions of Findley's report, but does
not purport to be a complete description of the presentation by Findley to CIB's
Board of Directors or of the analyses performed by Findley. The preparation of a
fairness opinion is not necessarily susceptible to partial analysis or summary
description. Findley 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
of the factors considered, without considering all analyses and factors would
create an incomplete view of the process underlying the analyses set forth in
its presentation to the CIB Board of Directors.
In performing its analyses, Findley made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Americorp or CIB. The analyses
performed by Findley 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 Findley's
analysis of the fairness, from a financial standpoint, of the Merger to CIB's
shareholders and were provided to the CIB Board of Directors in connection with
the delivery of Findley's 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. Findley used in its analyses various projections
of future performance prepared by the management of CIB. 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.
In rendering its Fairness Opinion, Findley relied upon and assumed without
independent verification the accuracy and completeness of all of the financial
and other information reviewed by Findley for purposes of its opinion. Findley
did not make an independent evaluation or appraisal of the assets and
liabilities of Americorp, CIB or any of their respective subsidiaries. CIB did
not impose any limitations or restrictions with respect to the scope of
Findley's investigation or the procedures or methods it followed, or with regard
to any other matters relating to Findley's rendering of the opinion regarding
the fairness of the Merger. The Findley Group did not participate in
negotiations regarding the Agreement.
CIB's Board of Directors selected and instructed Findley to render an
opinion with respect to the fairness of the Merger to CIB's shareholders from a
financial perspective based on its belief that Findley is
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<PAGE>
experienced and qualified in such matters. Findley has extensive experience in
the evaluation of banks in connection with mergers and acquisitions, and
valuations for corporate and other purposes. In over 40 years of bank
consulting, Findley has been involved in the creating, developing, merging and
acquisition of hundreds of financial institutions.
Pursuant to the Engagement Letter, CIB agreed to pay Findley a fee of
$15,000 for Findley's services rendered to CIB in connection with the fairness
opinion plus expenses. CIB has agreed to indemnify Findley against certain
liabilities and expenses in connection with its services as financial advisor to
CIB. ACB has also agreed to pay Findley a fee of up to $2,000 plus expenses for
Findley's services to ACB in connection with the FDIC Application.
EXCHANGE RATIO
The issued and outstanding shares of Americorp Stock at the Effective Time
will remain outstanding (other than shares as to which statutory dissenters'
rights are perfected).
Other than shares as to which statutory dissenters' rights are perfected,
each share of CIB Stock issued and outstanding immediately prior to the
Effective Time will automatically, without any action on the part of the holder
thereof, be canceled and converted into the right to receive a number of shares
of Americorp Stock as determined by the Exchange Ratio established in the
Agreement.
The Exchange Ratio (i.e. the number of shares of Americorp Stock into which
a share of CIB Stock will be converted) will be computed by dividing the CIB
Book Value Per Share by the Americorp Book Value Per Share. Book Value Per Share
for the respective Parties will be determined as of the month end preceding the
Effective Time by dividing such Party's aggregate book value by its number of
shares outstanding on such date. "Aggregate Book Value" is a Party's
stockholders' equity on such date determined in accordance with generally
accepted accounting principles except (A) as otherwise provided in the
Agreement, (B) such amount will not be reduced by Merger related expenses, and
(C) the allowance for loan and lease losses shall be increased by any impairment
in the allowance. Any impairment in the allowance will be determined in
accordance with generally accepted accounting principles and applicable bank
regulatory requirements.
The exact amount of the Exchange Ratio is dependent, in part, upon future
results and, therefore, presently can not be determined. By way of illustration
only, if the respective Book Values Per Share had been determined on June 30,
1998 and without any adjustment as permitted in the Agreement, Americorp's Book
Value Per Share would have been $20.02, CIB's Book Value Per Share would have
been $13.96 and the Exchange Ratio would have been 0.6973 shares of Americorp
Stock for each share of CIB Stock. THE ACTUAL EXCHANGE RATIO MAY BE HIGHER OR
LOWER THAN THE PRECEDING PRO FORMA ILLUSTRATION.
If the Parties can not agree on the respective amounts of Book Value Per
Share, the Exchange Ratio or any adjustments to the foregoing (including the
amount of impairment to any Party's allowance for loan losses), the Parties
shall attempt to agree upon the amount in dispute within seven days. If no
mutual agreement is reached within said period, the Parties shall immediately
hire an independent expert qualified to render an opinion regarding the amount
of the particular matter in dispute. The Parties shall cooperate fully with any
such independent expert and will equally split the cost of such expert. The
opinion of such expert shall be binding on the Parties for purposes of the
Agreement.
The amount of adjustment, if any, to the respective Book Values Per Share
cannot currently be predicted.
FRACTIONAL SHARES
No fractional shares of Americorp Stock will be issued in the Merger. In
lieu thereof, each holder of CIB Stock who would otherwise be entitled to
receive a fractional share will receive an amount in cash equal to the product
(calculated to the nearest ten thousandth) obtained by multiplying (a) the
Americorp
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<PAGE>
Book Value Per Share times (b) the fraction of the shares of Americorp Stock to
which such holder would otherwise be entitled. No such holder shall be entitled
to dividends or other rights in respect of any such fraction.
EFFECTIVE TIME OF MERGER
The Effective Time shall occur on the day that the Agreement of Merger
(which is Exhibit A to the Agreement) is filed with the DFI after having been
previously filed with the Secretary with the DFI's approval endorsed thereon in
accordance with the provisions of the California Financial Code. The Effective
Time shall occur following the last to occur of (i) receipt of all necessary
regulatory approvals with the expiration of any applicable regulatory waiting
periods and (ii) satisfaction of the other conditions precedent set forth in the
Agreement. See "Conditions to the Merger." It is anticipated that the Effective
Time will occur sometime during the fourth quarter of 1998 or in early 1999. In
no event shall the Effective Time be later than March 31, 1999 unless a later
date is agreed to by the Parties.
MANAGEMENT AND OPERATIONS OF AMERICORP AND ACB AFTER THE MERGER
At the Effective Time, CIB will be merged with and into ACB and its separate
corporate existence will terminate.
The number of directors of Americorp at the Effective Time will be increased
to nine and Allen W. Jue, Robert J. Lagomarsino, Gerald J. Lukiewski, E. Thomas
Martin, Harry L. Maynard (all of whom are from Americorp and ACB), Michael T.
Hribar, Edward F. Paul, Joseph L. Priske and Jacqueline S. Pruner (all of whom
are from CIB) will serve as the Board of Directors of Americorp and ACB after
the Merger until their successors have been chosen and qualified in accordance
with applicable law. Messrs Jue, Lagomarsino, Paul and Priske will serve as the
executive committee of Americorp and ACB after the Merger. After the Merger, the
principal officers of Americorp and ACB will be Allen W. Jue (the current
chairman of Americorp/ACB), who will serve as chairman of the board, Joseph L.
Priske (the current chairman of CIB), who will serve as Vice Chairman, and
Gerald J. Lukiewski (the current president and chief executive officer of
Americorp/ACB), who will serve as president and chief executive officer. Thomas
E. Anthony (the current Senior Vice President/Chief Lending Officer of CIB),
Allen R. Partridge (the current Senior Vice President/Chief Financial Officer of
CIB) and Mary Martha Stewart (the current Senior Vice President/Chief Operating
Officer of ACB) will serve as the Chief Lending Officer, Chief Financial Officer
and Chief Operating Officer, respectively, of ACB after the Merger. Joseph L.
Priske will also serve as chairman of ACB's loan committee.
The Articles of Incorporation and Bylaws of Americorp (except as otherwise
noted above) will continue to govern the business and affairs of Americorp after
the Merger until amended or repealed in accordance with applicable law. The
Articles of Incorporation and Bylaws of ACB will continue to govern the business
and affairs of ACB after the Merger until amended or repealed in accordance with
applicable law except the head office of ACB will be relocated to the current
head office location of CIB.
Based on the combined bank's assets of approximately $226 million, the
projected pro forma amount of annual net income has been estimated to be
$2,235,000 after expenses for the Merger and integration costs have been
absorbed. This net income amount takes into account expected initial cost
savings of an estimated $637,000 and enhanced revenues of an estimated $139,000.
The cost savings are derived from a reduced level of personnel, decreased costs
of employee benefits per employee and other reduced operational expenses on a
combined basis. Revenue enhancements are derived from increased lending activity
due to the increased lending limits. Net of taxes, the net improvement of net
income would be approximately $458,000. The projected proforma earnings per
share is estimated to be $2.31 using the number of shares outstanding as of June
30, 1998, with CIB's shares outstanding exchanged on a .7000 to 1.000 Exchange
Ratio. This compares to an annualized proforma basic earnings per share
calculated as of June 30, 1998 of $1.88.
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This information should be read in conjunction with the historical
consolidated financial statements of CIB and Americorp, including their
respective notes thereto, which are included in this Joint Proxy
Statement/Prospectus, and in conjunction with the combined condensed historical
selected financial data and other pro forma combined financial information
appearing elsewhere in this Joint Proxy Statement/ Prospectus. The cost savings
and revenue enhancements reflected above and in this Joint Proxy Statement/
Prospectus may not be indicative of the results that may be achieved in the
future. Assuming consummation of the Merger, the actual cost savings and revenue
enhancement that may be realized in the Merger may differ, perhaps
significantly, from the amounts reflected above and in this Joint Proxy
Statement/ Prospectus due to a variety of factors, including expected growth of
the combined bank. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENT."
AMENDMENT TO BYLAWS OF AMERICORP
Shareholder approval of the principal terms of the Agreement and the
transaction contemplated thereby includes the approval of an amendment to the
Americorp bylaws to expand the number of its authorized directors at the
Effective Time and the election of Messrs. Lukiewski, Hribar, Paul and Priske
and Ms. Pruner as directors of Americorp. See "Management and Operations of
Americorp and ACB After the Merger". In order to effect such expansion,
shareholder approval of the principal terms of the Agreement and the transaction
contemplated thereby will also include approval of an amendment to the first two
sentences of Section 4.2(a) of the Americorp bylaws to read as follows:
"4.2 Number, Election, Qualification and Term of Office of Directors
(a) Number. The number of Directors of this Corporation shall be
not fewer than seven (7) nor more than thirteen (13), the exact
numnber within such range to be fixed by the Board of Directors
or the Shareholders of the Corporation from time to time. Until
changed, the exact number of Directors shall be nine (9)."
If for any reason the Merger is not carried out, the amendment to the bylaws
will not become effective.
REGULATORY APPROVALS
The consummation of the Merger is subject to various conditions, including,
among others, receipt of the prior approvals of the DFI and the FDIC.
The Agreement provides that the obligations of the Parties to consummate the
Merger are conditioned upon all regulatory approvals having been granted by
March 31, 1999 without the imposition of conditions which, in the opinion of
Americorp would materially adversely effect the financial condition or
operations of any Party or otherwise would be burdensome.
Applications for regulatory review and approval of the Merger and the
related transactions have been filed and the DFI has granted its approval. There
can be no assurance that the FDIC will approve or take other required action
with respect to the Merger and the related transactions or as to the date of
such approvals or action.
In determining to approve the Merger, the DFI considered factors such as (i)
the effects of the Merger on competition; (ii) the effects of the Merger on the
convenience and needs of the communities to be served; (iii) the financial
condition of ACB; (iv) whether the Merger is fair and reasonable to the
depositors, creditors and shareholders of Americorp, ACB and CIB; (v) the
competence, experience and integrity of ACB's management; and (vi) whether the
Merger is fair, just and equitable to Americorp, ACB and CIB.
In determining whether to approve the Merger, the FDIC will consider factors
such as (i) the financial condition, competence, experience and integrity of
ACB's management; and (ii) the effect of the Merger on competition.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
As a condition to the Merger, each of the directors of the respective
Parties has entered into an agreement whereby each has agreed to (i) vote his or
her shares of Stock in favor of approving the principal terms of the Agreement
and the transactions contemplated thereby, (ii) recommend, subject to his or her
fiduciary duty, to the Party's shareholders to vote in favor of the Agreement,
(iii) not dispose, subject to certain exceptions, of his or her shares of Stock,
and (iv) cooperate fully with the other Parties in connection with the Merger.
Under these agreements the respective directors of CIB and Americorp have
agreed to vote their respective shares (approximately 22.1% of the outstanding
shares in the case of CIB Stock and approximately 27.0% of the outstanding
shares in the case of Americorp Stock) to approve the principal terms of the
Agreement, increasing the likelihood that the Merger will be approved. The
affirmative vote of the holders of an additional 27.9% (in the case of CIB) and
23.0% (in the case of Americorp) of the respective outstanding shares voting at
the respective Meetings will be required in order to approve the Agreement.
Messrs. Hribar, Paul and Priske and Ms. Pruner will be added as directors of
Americorp and ACB at the Effective Time. Messrs. Paul and Priske will also serve
on the executive committee of Americorp and ACB. Mr. Priske, the current
Chairman of CIB, will be elected as Vice Chairman of Americorp and ACB and will
be chairman of ACB's loan committee.
The officers and employees of CIB at the Effective Time will become officers
and employees of ACB subject to the policies of ACB, will be entitled to
participate in all employee benefits and benefit programs of ACB on the same
basis as similarly situated employees of ACB and will be credited for
eligibility, participation and vesting purposes with their respective years of
past service with CIB.
Pursuant to the Agreement, a committee has been established to determine,
among other things, a personnel, salary and benefits structure for ACB after the
Merger and to fix the amount of severance to be paid to officers and employees
of the Parties displaced by the Merger. The committee is composed of Gerald J.
Lukiewski (on behalf of Americorp) and Joseph L. Priske and Jacqueline Pruner
(on behalf of CIB). The amount of severance benefits has not yet been determined
by the committee.
ACB has also agreed to honor certain employment agreements for CIB's Senior
Lending Officer and Chief Financial Officer. For a description of such
agreements, see "BUSINESS OF CIB--Executive Compensation." Messrs. Anthony and
Partridge will become the Chief Lending Officer and the Chief Financial Officer
of ACB after the Merger.
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Subject to the receipt of any required consents, a new stock option plan
will be adopted by Americorp in order for each person who is an officer or
employee of CIB and who will continue with ACB after the Merger, and for each
director of CIB, who does not exercise his stock option to have the right to
receive a substitute stock option from Americorp on a fully vested basis.
CIB's directors' and officers' liability insurance will have its discovery
period extended for 36 months with respect to all matters arising from facts or
events which occurred before the Effective Time for which CIB would have had an
obligation to indemnify its directors and officers.
In connection with the three current directors of CIB and the two current
directors of Americorp who will resign at the time of the Merger, it is
anticipated that ACB will enter into consulting agreements with such persons in
order for them to continue to provide services and guidance to Americorp and ACB
after the Merger. It is anticipated that Catherine S. Wood and Lincoln E. Cryne,
(directors of Americorp and ACB) will receive aggregate payments of $33,000 and
$62,400, respectively, pursuant to their consulting agreements and that Fred G.
Buenger, William Burke and Glenn Farr (directors of CIB) will receive $33,000,
$33,000 and $4,500, respectively, pursuant to their consulting agreements.
ADDITIONAL AGREEMENTS
In addition to the directors agreements described in "Interests of Certain
Persons in the Merger," the directors and certain other affiliates of each of
the Parties have entered into agreements restricting such persons' ability to
sell shares of Stock which such person has acquired or may acquire in connection
with the Merger except in accordance with such agreements.
FEDERAL INCOME TAX CONSEQUENCES
The Parties have not requested a ruling from the Internal Revenue Service in
connection with the Merger. The following is a summary of the opinion of
Vavrinek, CIB's independent auditors, that CIB and Americorp received concerning
the material federal income tax consequences resulting from the Merger.
Consummation of the Merger is conditioned upon receipt by CIB and Americorp of
such opinion prior to the date of this Joint Proxy Statement/Prospectus. The
following is based upon applicable federal law and judicial and administrative
interpretations on the date hereof, any of which is subject to change at any
time and representations from the management of CIB, Americorp and ACB.
(i) The Merger will qualify as a reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"), and CIB, Americorp
and ACB each will be a "party to a reorganization" within the meaning of
Section 368(b) of the Code.
(ii) No gain or loss will be recognized by any of the Parties as a
result of the Merger.
(iii) No gain or loss will be recognized by a shareholder of CIB on the
receipt solely of Americorp Stock in exchange for his shares of CIB Stock.
(iv) The tax basis of the assets in ACB after the merger will be the
same as the tax basis of the assets held by CIB and ACB immediately before
the Merger.
(v) The holding period of Americorp Stock to be received in the Merger
by a CIB shareholder will include the holding period of shares of CIB Stock
exchanged therefor, provided that the shares of CIB Stock are held as
capital assets at the Effective Time.
(vi) The tax basis of Americorp Stock to be received in the Merger by
CIB shareholders will be the same as the basis of the sharers of CIB Stock
surrendered in exchange therefor, decreased by the amount of basis allocated
to any cash received in lieu of fractional shares that are hypothetically
received by the CIB shareholders and redeemed for cash.
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(vii) The payment of cash to shareholders of CIB in lieu of fractional
share interest of Americorp Stock will be treated as if the fractional
shares were distributed as part of the exchange and them redeemed by
Americorp. These cash payments will be treated as having been received as a
distribution in redemption of that fractional share interest subject to the
conditions and limitations of Section 302 of the Code. If a fractional share
of Americorp Stock would constitute a capital asset in the hands of a
redeeming shareholder, any resulting gain or loss will be characterized as a
capital gain or loss in accordance with the provisions and limitations of
Subchapter P of Chapter 1 of the Code.
(viii) No gain or loss will be recognized for federal income tax purposes
by the holders of outstanding stock options granted under CIB's stock option
plan as a result of the granting of substitute options pursuant to
Americorp's stock option plan.
(ix) The granting of any substitute stock option to a holder of a CIB
stock option will not be deemed a modification of an incentive stock option.
The opinion of Vavrinek summarized above is not binding on the Internal
Revenue Service, which could take positions contrary to the conclusions in such
opinion.
The exchange of Americorp Stock or CIB Stock for cash pursuant to the
exercise of dissenters' rights will be a taxable transaction. Holders of
Americorp Stock or CIB Stock electing to exercise dissenters' rights should
consult their own tax advisers as to the tax treatment in their particular
circumstances. See "Dissenting Shareholders' Rights."
DUE TO THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE MERGER, IT IS
RECOMMENDED THAT CIB AND AMERICORP SHAREHOLDERS CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE TAX CONSEQUENCES OF THE MERGER (INCLUDING THE APPLICATION AND
EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS).
EXCHANGE PROCEDURES
As soon as practicable after the Effective Time, the exchange agent to be
designated by the Parties (the "Exchange Agent") will mail to each holder of
record of outstanding shares of CIB Stock a letter of transmittal which is to be
used by each CIB shareholder to return to the Exchange Agent the stock
certificates representing the CIB Stock owned by him (the "Old Certificates"),
which certificates should be duly endorsed in blank by such CIB shareholder. As
soon as practicable after receiving such Old Certificates from a CIB shareholder
together with the duly executed letter of transmittal and any other items
specified by the letter of transmittal, the Exchange Agent will deliver to such
CIB shareholder new certificates ("New Certificates") representing the
appropriate number of shares of Americorp Stock, together with checks for
payment of cash in lieu of fractional shares. No dividends or other
distributions that are declared on Americorp Stock will be paid to persons
otherwise entitled to receive the same until the Old Certificates have been
surrendered in exchange for New Certificates, but upon such surrender, such
dividends or other distributions, from and after the Effective Time, will be
paid to such persons in accordance with the terms of Americorp Stock. No
interest will be paid to the CIB shareholders on the cash or the value of the
Americorp Stock into which their shares of CIB Stock will be exchanged.
CIB SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
SALES OF AMERICORP STOCK
The shares of Americorp Stock to be issued to shareholders of CIB in the
Merger have been registered under the Securities Act. Such shares will be freely
transferable under the Securities Act, except for shares issued to any person
who may be deemed to be an "affiliate" of CIB within the meaning of Rule 145
under the Securities Act.
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NASDAQ LISTING
The Parties have agreed that following the Effective Time, consideration
will be given to listing the shares of Americorp Stock on Nasdaq with the intent
to so list such shares during the first full year of operations. However, no
assurance can be given that such application will be filed or that the shares of
Americorp Stock will become so listed.
ACCOUNTING TREATMENT
The Parties anticipate that the Merger will be treated as a pooling of
interests for accounting purposes. Prior to the Effective Time and as a
condition precedent to the closing, the respective accounting firms of the
Parties will confirm in writing the accounting treatment of the Merger as a
pooling of interest. The unaudited pro forma financial information contained in
this Joint Proxy Statement/Prospectus has been prepared using the pooling of
interest accounting method to account for the Merger. See "UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS."
CONDITIONS TO THE MERGER
The obligation of each of the parties to consummate the Merger is subject to
the satisfaction or waiver on or before the Effective Time of, among other
things, the following conditions: (i) the Agreement and the transactions
contemplated thereby will have received all requisite approvals of the
shareholders and Boards of Directors of CIB, ACB and Americorp; (ii) no
judgment, decree, injunction, order or proceeding will be outstanding or
threatened by any governmental entity which prohibits or restricts the
effectuation of, or threatens to invalidate or set aside the Merger
substantially in the form contemplated by the Agreement unless counsel to the
Party against whom such action or proceeding was instituted or threatened
renders to the other Parties a favorable opinion that such judgment, decree,
injunction, order or proceeding is without merit; (iii) by March 31, 1999, all
approvals or consents of any applicable governmental agency will have been
obtained or granted for the Merger and the transactions contemplated by the
Agreement (in each case either unconditionally or without the imposition of
conditions or limitations that are applicable to any Party or would become
applicable to Americorp or ACB after the Merger that Americorp reasonably and in
good faith concludes would materially adversely affect the financial condition
or operations of any Party or otherwise would be materially burdensome to any
Party) and the applicable waiting period under all laws will have expired; (iv)
the Registration Statement shall have been declared effective by the SEC and
shall not be the subject of any stop order or proceedings seeking or threatening
a stop order; (v) Americorp shall have received all state securities permits and
other authorizations necessary to issue the Americorp Stock to consummate the
Merger; (vi) CIB and Americorp will have received an opinion reasonably
satisfactory to CIB and Americorp from Vavrinek to the effect that the Merger
will not result in the recognition of gain or loss for federal income tax
purposes, nor will the issuance of Americorp Stock result in the recognition of
gain or loss to holders of CIB Stock who receive Americorp Stock in the Merger
(see "-- Federal Income Tax Consequences"); (vii) the Parties' respective
accounting firms will have confirmed in writing to CIB and Americorp that the
Merger will quality for pooling of interests accounting treatment (see
"--Accounting Treatment"); and (viii) all third party consent necessary to
permit the parties to consummate the Merger will have been obtained except under
certain circumstances.
The obligations of CIB to consummate the Merger are also subject to
fulfillment of certain other conditions, including the following: (i) there will
not have occurred, between July 7, 1998 and the Effective Time, any materially
adverse change in the business, financial condition, results of operations or
properties of Americorp or ACB; (ii) receipt of the Findley Opinion; and (iii)
all corporate steps necessary to effect the corporate and management changes
described in "Management and Operations of Americorp and ACB After the Merger"
will have been completed.
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The obligations of Americorp and ACB to consummate the Merger are also
subject to the fulfillment of certain other conditions. including the following:
(i) there will not have occurred, between July 7, 1998 and the Effective Time,
any material adverse change in the business, financial condition, results of
operations or properties of CIB; (ii) receipt of the Cal.Research Opinion; and
(iii) all corporate steps necessary to effect the corporate and management
changes described in "Management and Operations of Americorp and ACB After the
Merger" will have been completed
Additionally, the consummation of the Merger is subject to the performance
of covenants, the execution and delivery of certain ancillary documents, the
accuracy of representations and warranties and the receipt of various legal
opinions, third-party consents, officers' certificates and other documents.
If these and other conditions are not satisfied or waived, the Agreement may
be terminated. The Agreement may also be terminated upon the occurrence of
certain other events. See "--Termination."
NONSOLICITATION
Under the terms of the Agreement, Americorp and CIB have each agreed not to
solicit, initiate or encourage any "Competing Transaction" (as hereinafter
defined). In addition, each has agreed (unless it determines, with advice of
counsel, that its fiduciary duty requires otherwise) not to participate in any
negotiations or discussions regarding, or furnish any information with respect
to, or otherwise cooperate in any way in connection with, any effort or attempt
to effect any Competing Transaction with or involving any person other than a
Party unless it receives a bona fide offer from a person other than the Parties
to the Agreement and subject to fiduciary obligations. Each Party has agreed to
promptly notify the other party of the terms of any proposal which it may
receive in respect of any Competing Transaction. The term "Competing
Transaction" means any of the following: a merger, consolidation, share exchange
or other business combination; a sale, lease, exchange, mortgage, pledge,
transfer or other disposition of assets representing 10% or more of Americorp's
or of CIB's assets; a sale of shares of capital stock (or securities convertible
or exchangeable into or otherwise evidencing, or any agreement or instrument
evidencing, the right to acquire capital stock), representing 10% or more of the
voting power; a tender offer or exchange offer for at least 10% of the
outstanding shares; a solicitation of proxies in opposition to approval of the
Merger by shareholders; or a public announcement of an unsolicited bona fide
proposal, plan or intention to do any of the foregoing.
Failure to act or refraining from doing any act in certain circumstances by
a Party in connection with a Competing Transaction will result in the other
Party having the right to terminate the Agreement. If the Agreement were to be
so terminated and the Party involved in the Competing Transaction enters into an
agreement for a Competing Transaction prior to the termination of the Agreement
or during the 12 month period immediately following the termination, such Party
will be obligated to pay the other Party $750,000 which amount represents (i)
direct costs and expenses (including, but not limited to, fees and expenses of
financial or other consultants, printing costs, accountants and counsel)
incurred in negotiating and undertaking to carry out the transactions
contemplated by the Agreement, including management time devoted to negotiation
and preparation for the transactions contemplated by the Agreement; (ii)
indirect costs and expenses incurred in connection with the transactions
contemplated by the Agreement; and (iii) loss as a result of the transactions
contemplated by the Agreement not being consummated
EXPENSES
If the Agreement is terminated by Americorp or ACB because CIB's
shareholders fail to approve the Merger, or because CIB fails to satisfy certain
of its obligations under the Agreement, CIB will be obligated to pay all of
Americorp's expenses incurred in connection with the Merger transaction, not to
exceed $150,000.
If the Agreement is terminated by CIB because Americorp's shareholders fail
to approve the Merger, or because Americorp fails to satisfy certain of its
obligations under the Agreement, Americorp will be
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obligated to pay all of CIB's expenses incurred in connection with the Merger
transaction, not to exceed $150,000.
TREATMENT OF STOCK OPTIONS
At the Effective Time, the CIB stock option plan will terminate, the current
Americorp stock option plan will also be terminated (but not the options granted
thereunder) and a new stock option plan will be adopted by Americorp in
connection with the Merger (the "1998 Plan"). See "INFORMATION CONCERNING
AMERICORP MEETING ONLY."
At and as of the Effective Time, Americorp shall grant substitute stock
options pursuant to the 1998 Plan to each and every officer, employee and
director of CIB who has at the Effective Time an outstanding option to purchase
shares of CIB Stock ("CIB Stock Options"). Each and every substitute stock
option so granted by Americorp pursuant to the Americorp stock option plan to
replace an CIB Stock Option shall retain the "vesting" schedule reflected in
each of the respective stock option agreements and shall be exercisable for that
number of whole shares of Americorp Stock equal to the product of (A) the number
of shares of CIB Stock that were purchasable under such CIB Stock Option
immediately prior to the Effective Time multiplied by (B) the Exchange Ratio,
rounded down to the nearest whole number of shares of Americorp Stock. Further,
each and every substitute stock option so granted shall provide for a per share
exercise price which shall be equal to the quotient determined by dividing (A)
the exercise price per share of CIB Stock at which such CIB Stock Option was
exercisable immediately prior to the Effective Time by (B) the Exchange Ratio.
TERMINATION
The Agreement may be terminated at any time prior to the Effective Time (i)
by mutual consent of CIB and Americorp in writing; (ii) by CIB or Americorp if
any material breach or default by the other Party is not cured within 20
business days after notice thereof; (iii) by CIB or Americorp if any
governmental or regulatory consent is not obtained by March 31, 1999 or if any
governmental or regulatory authority denies or refuses to grant any approval,
consent or authorization required to be obtained to consummate the transactions
contemplated by the Agreement unless, within 20 business days after such denial
or refusal, all parties agree to resubmit the application to the regulatory
authority that has denied or refused to grant the approval, consent or
qualification requested; (iv) by Americorp if any of the conditions to its
performance of the Agreement shall not have been met, or by CIB if any of the
conditions to its performance of the Agreement shall not have been met, by March
31, 1999, or such earlier time as it becomes apparent that such conditions shall
not be met; or (v) if a Party shall have failed to act or refrained from doing
any act relating to a Competing Transaction.
COVENANTS; CONDUCT OF BUSINESS PRIOR TO EFFECTIVE TIME
The Agreement provides that, during the period from July 7, 1998 to the
Effective Time, the Parties will conduct their businesses only in the normal and
customary manner and in accordance with sound banking practices and will not,
without the prior written consent of the other Party, which will not be
unreasonably withheld, take any of the following actions, among others: (i)
issue any security except pursuant to the exercise of options outstanding as of
the date of the Agreement; (ii) declare, set aside or pay any dividend (other
than cash dividends payable in accordance with past practice) or make any other
distribution upon, or purchase or redeem any shares of its stock; (iii) except
as may be required to effect the transactions contemplated by the Agreement,
amend its articles of incorporation or its bylaws; (iv) grant any general or
uniform increase in the rate of pay of employees except in the ordinary course
of business and consistent with past practice; (v) grant any material increase
in salary, incentive compensation or employee benefits or pay any bonus to any
person except in the ordinary course of business and consistent with past
practice; (vi) make any capital expenditure in excess of specified amounts,
except for ordinary repairs, renewals and replacements. (vii) compromise, settle
or adjust any assertion or claim of a
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deficiency in taxes (or interest thereon or penalties in connection therewith),
extend the statute of limitations with any tax authority or file any pleading in
court on any tax litigation or any appeal from an asserted deficiency, or file
or amend any federal, foreign, state or local tax return, or make any tax
election: (viii) grant, renew or commit to grant or renew any extension of
credit or amend the terms of any such credit outstanding on the date hereof to
any executive officer, director or principal shareholder; (ix) make their credit
underwriting policies, standards or practices less stringent than those in
effect on December 31, 1997; (x) enter into or consent to any new employment
agreement or other benefit arrangement, or amend or modify any employment
agreement or other benefit arrangement in effect on the date of the Agreement to
which it is a party or bound; (xi) grant any person a power of attorney or
similar authority; (xii) make any material investment by purchase of stock or
securities, contributions to capital, property transfers or otherwise in any
other person, except for investments made in the ordinary course of business
consistent with past practice: (xiii) amend, modify or terminate, except in
accordance with its terms, any material contract or enter into any material
agreement or contract; (xiv) create or incur or suffer to exist any mortgage,
lien, pledge, security interest, charge, encumbrance or restraint of any kind
against or in any property or right of the respective party; (xv) sell, lease or
otherwise dispose of any assets or release any claims, except in the ordinary
course of business consistent with past practice; (xvi) except as required by
law, knowingly take or cause to be taken any action which would prevent the
transactions contemplated hereby from qualifying as tax free reorganizations
under Section 368 of the Internal Revenue Code or prevent the Parties from
accounting for the business combination to be effected by the Merger as a
pooling of interests; (xvii) sell any investment security prior to maturity,
except in the ordinary course of business; or (xviii) grant, renew or commit to
grant or renew any extension of credit if such extension of credit, together
with all other credit then outstanding to the same person and all affiliated
persons, would exceed certain specified amounts subject to certain exceptions;
(xix) purchase, redeem or otherwise acquire any of its securities or any rights,
options or securities to acquire its equity securities; (xx) change any of its
basic policies and practices relating to certain specified matters; or (xi)
settle any claim, action or proceeding involving any material liability for
monetary damages or enter into any settlement agreement containing material
obligations.
The Agreement also provides that each Party will (i) use its best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by the Agreement as promptly as
practical; (ii) obtain the consent of the other Party before it issues any press
release or makes any public statement with respect to the Agreement or the
transactions contemplated hereby; and (iii) cause to be prepared one or more
environmental investigations with respect to real property owned or leased.
The Agreement also provides that each Party will: (i) duly and timely file
all required governmental reports; (ii) periodically furnish to the other Party
certain information, loan reports and updates of information previously
provided; (iii) promptly notify the other Party of certain communications from
tax authorities, material litigation and any event which has had or may
reasonably be expected to have a materially adverse effect on the financial
condition, operations, business or properties; (iv) provide access to the other
Party of certain information: and (v) use its reasonable efforts between the
date of the Agreement and the Effective Time to take all actions necessary or
desirable, including the filing of any regulatory applications.
AMENDMENT AND WAIVER
Subject to applicable law: (i) the Agreement may be amended at any time by
the action of the Boards of Directors of CIB, ACB and Americorp without action
by their shareholders pursuant to a writing signed by all parties to the
Agreement; and (ii) the Parties, by action of their respective Boards of
Directors, may, at any time prior to the Effective Time, extend the performance
of any obligation or action required by the Agreement, waive inaccuracies in
representations and warranties and waive compliance with any agreements or
conditions for their respective benefit contained in the Agreement.
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DISSENTING SHAREHOLDERS' RIGHTS
CIB
Shareholders of CIB will be entitled to exercise dissenters' rights in
connection with the Merger.
AMERICORP
Shareholders of Americorp will also be entitled to exercise dissenters'
rights in connection with the Merger.
PROCEDURES
Each holder of shares of Americorp Stock or CIB Stock that were outstanding
as of the respective Record Dates and remain outstanding at the Effective Time
who does not vote such shares in favor of the proposal to approve the Merger by
complying with the procedures set forth in Chapter 13 of the California General
Corporation Law ("Chapter 13 of the California Law") will be entitled to receive
an amount equal to the fair market value of his or her shares as of July 7,
1998, the day before the public announcement of the Merger. The final bid price
for Americorp Stock on July 6, 1998 was $32.00. The Findley Opinion dated July
9, 1998 concluded that the fair market value of CIB Stock on July 6, 1998 was
$19.50. A copy of Chapter 13 of the California Law is attached hereto as
Appendix D 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 Americorp and CIB shareholders and is qualified in its entirety by
reference to Appendix D.
In order to be entitled to exercise dissenters' rights, a shareholder must
not vote "FOR" 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 either voted "AGAINST" or "ABSTAIN" on the proposal to
approve the principal terms of the Agreement. If the shareholder returns a proxy
without voting instructions or with instructions to vote "FOR" the proposal to
approve the principal terms of the Agreement, his or her shares will
automatically be voted in favor of the Merger and the shareholder will lose his
or her dissenters' rights.
If the Merger is approved by the shareholders, Americorp and CIB will each
have 10 days after the respective approvals to send to those shareholders who
did not vote in favor 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 to represent the fair market value of the dissenting shares as of
July 6, 1998 and a brief description of the procedure to be followed if a
shareholder desires to exercise dissenters' rights. Within 30 days after the
date on which the notice of the approval of the Merger is mailed, the dissenting
shareholder must make written demand upon Americorp or CIB, as the case may be,
for the purchase of dissenting shares and payment to such shareholder of their
fair market value, 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 July 6, 1998, and must surrender, at the office
designated in the notice of approval, the certificates 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 so stamped or endorsed. Any shares of Stock that are transferred
prior to their submission for endorsement lose their status as dissenting
shares.
If the Party 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. Subject
to the restrictions imposed under California law on the ability of a Party to
purchase its outstanding shares, payment of the
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fair 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 the Party denies that the shares surrendered are dissenting shares or the
Party and the dissenting shareholder fail to agree upon a fair market value of
such shares, then the dissenting shareholder must, within six months after the
notice of approval is mailed, file a complaint in 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 dissenter's 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 the effected Party consents to such withdrawal.
The Merger is not directly conditioned upon only a limited number of
shareholders of Americorp or CIB Stock having voted against the Merger or
otherwise having perfected dissenters' rights. Nevertheless, the payment of a
significant amount of cash pursuant to the exercise of dissenters' rights would
effect the ability of the Merger to be accounted for as a "pooling of interest."
The Merger is conditioned upon the respective accountants confirming in writing
that the accounting treatment for the Merger is a pooling of interest (see
"--Accounting Treatment").
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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of financial position
are based on the historical consolidated statements of financial position of
Americorp and the historical statements of financial position of CIB, using the
pooling method of accounting for business combinations, as of June 30, 1998 and
December 31, 1997 after giving effect to Merger-related adjustments described in
the Note herein. It should be read in conjunction with the historical financial
statements of Americorp and CIB, which are included elsewhere in this Joint
Proxy Statement/Prospectus.
These pro forma financial statements are presented for illustrative purposes
only and are not indicative of the operating results that would have been
achieved or the financial position that would have existed had the Merger been
consummated on the respective dates nor are they indicative of the future
operating results or financial position of the combined companies. The pro forma
adjustments made in connection with the development of the pro forma information
are preliminary and have been made solely for purposes of developing such pro
forma information as necessary to comply with the disclosure requirements of the
SEC.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
AS OF JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and Due From Banks.......................................... $ 19,417 $ 8,223 $ 27,640
Federal Funds Sold............................................... 8,200 5,950 14,150
Time Deposits in Other Financial Institutions.................... 1,092 1,092
Investment Securities--Available for Sale........................ 12,369 11,941 24,310
Investment Securities--Held to Maturity.......................... 10,948 76 11,024
---------- --------- ----------
Total Investment Securities...................................... 23,317 12,017 35,334
---------- --------- ----------
Total Loans...................................................... 84,205 56,711 140,916
Loan Loss Allowance.............................................. (1,131) (930) (2,061)
---------- --------- ----------
Net Loans........................................................ 83,074 55,781 138,855
---------- --------- ----------
Loans Held for Sale.............................................. 1,580 1,580
Accrued Interest Receivable...................................... 746 499 1,245
Premises and Equipment........................................... 1,343 1,043 2,386
Other Real Estate Owned.......................................... --
Other Assets..................................................... 3,011 529 3,540
Investment in Partnership........................................ --
Federal Reserve Bank Stock, at cost.............................. 167 167
Deferred Taxes................................................... 716 45 761
---------- --------- ----------
TOTAL ASSETS..................................................... $ 139,824 $ 86,926 $ 226,750
---------- --------- ----------
---------- --------- ----------
DEPOSITS:
Non Interest Bearing Demand...................................... $ 37,741 $ 24,629 $ 62,370
Interest Bearing Demand.......................................... 40,522 22,333 62,855
Savings.......................................................... 11,855 6,327 18,182
Time, under $100,000............................................. 20,831 15,210 36,041
Time, $100,000 and over.......................................... 14,026 10,786 24,812
---------- --------- ----------
Total Deposits................................................... 124,975 79,285 204,260
---------- --------- ----------
Accrued Interest Payable......................................... 449 75 524
Other Liabilities................................................ 2,499 125 $ 376 3,000
---------- --------- ----------- ----------
Total Liabilities................................................ 127,923 79,485 $ 376 207,784
---------- --------- ----------- ----------
STOCKHOLDERS' EQUITY:
Common Stock..................................................... 595 2,666 (2,293) 968
Surplus.......................................................... 2,396 3,063 2,293 7,752
Retained Earnings................................................ 8,812 1,770 (376) 10,206
Net Unrealized Gain on Securities Available for Sale, net of
Deferred Income Taxes.......................................... 98 (58) 40
---------- --------- ----------- ----------
Total Stockholders' Equity....................................... 11,901 7,441 (376) 18,966
---------- --------- ----------- ----------
TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY........................ $ 139,824 $ 86,926 $ -- $ 226,750
---------- --------- ----------- ----------
---------- --------- ----------- ----------
</TABLE>
57
<PAGE>
The following table reflects all nonrecurring Americorp and CIB estimated
Merger-related costs as of December 31, 1997 and June 30, 1998. These costs are
not included on the unaudited pro forma combined income statements but are
included on the unaudited pro forma combined balance sheet as a reduction to
equity capital. These costs will be charged to expense immediately following the
consummation of the Merger. Such estimated Merger-related costs are summarized
below (in thousands):
<TABLE>
<CAPTION>
AMERICORP CIB COMBINED
------------- --------- -----------
<S> <C> <C> <C>
Professional Fees.............................................. $ 185 $ 111 $ 296
Printing and Other............................................. 80 80
----- --------- -----
Total.......................................................... $ 265 $ 111 $ 376
----- --------- -----
----- --------- -----
</TABLE>
58
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Cash and Due From Banks.......................................... $ 11,462 $ 7,859 $ 19,321
Federal Funds Sold............................................... 5,900 12,750 18,650
Time Deposits in Other Financial Institutions.................... -- 1,491 1,491
Investment Securities--Available for Sale........................ 12,623 13,925 26,548
Investment Securities--Held to Maturity.......................... 12,490 76 12,566
---------- --------- ----------
Total Investment Securities...................................... 25,113 14,001 39,114
---------- --------- ----------
Total Loans...................................................... 84,445 49,821 134,266
Loan Loss Allowance.............................................. (1,048) (918) (1,966)
---------- --------- ----------
Net Loans........................................................ 83,397 48,903 132,300
---------- --------- ----------
Loans Held for Sale.............................................. -- 1,726 1,726
Accrued Interest Receivable...................................... 856 456 1,312
Premises and Equipment........................................... 1,465 943 2,408
Other Real Estate Owned.......................................... 123 152 275
Other Assets..................................................... 2,676 456 3,132
Investment in Partnership........................................ 2,550 2,550
Federal Reserve Bank Stock, at cost.............................. -- 147 147
Deferred Taxes................................................... 670 156 826
---------- --------- ----------
TOTAL ASSETS..................................................... $ 134,212 $ 89,040 $ 223,252
---------- --------- ----------
---------- --------- ----------
DEPOSITS:
Non Interest Bearing Demand...................................... $ 36,510 $ 24,558 $ 61,068
Interest Bearing Demand.......................................... 40,352 26,346 66,698
Savings.......................................................... 10,998 7,056 18,054
Time, under $100,000............................................. 18,663 13,038 31,701
Time, $100,000 and over.......................................... 13,445 10,829 24,274
---------- --------- ----------
Total Deposits................................................... 119,968 81,827 201,795
---------- --------- ----------
Accrued Interest Payable......................................... 394 86 480
Other Liabilities................................................ 2,499 571 $ 376 3,446
---------- --------- ----------- ----------
Total Liabilities................................................ 122,861 82,484 $ 376 205,721
---------- --------- ----------- ----------
STOCKHOLDERS' EQUITY:
Common Stock..................................................... 586 2,395 (2,060) 921
Surplus.......................................................... 2,184 2,715 2,060 6,959
Retained Earnings................................................ 8,500 1,485 (376) 9,609
Net Unrealized Gain on Securities Available for Sale, net of
Deferred Income Taxes.......................................... 81 (39) 42
---------- --------- ----------
Total Stockholders' Equity....................................... 11,351 6,556 (376) 17,531
---------- --------- ----------- ----------
TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY........................ $ 134,212 $ 89,040 $ -- $ 223,252
---------- --------- ----------- ----------
---------- --------- ----------- ----------
</TABLE>
59
<PAGE>
The following table reflects all nonrecurring Americorp and CIB estimated
Merger-related costs as of December 31, 1997 and June 30, 1998. These costs are
not included on the unaudited pro forma combined income statements but are
included on the unaudited pro forma combined balance sheet as a reduction to
equity capital. These costs will be charged to expense immediately following the
consummation of the Merger. Such estimated Merger-related costs are summarized
below (in thousands):
<TABLE>
<CAPTION>
AMERICORP CIB COMBINED
------------- --------- -----------
<S> <C> <C> <C>
Professional Fees.............................................. $ 185 $ 111 $ 296
Printing and Other............................................. 80 80
----- --------- -----
Total.......................................................... $ 265 $ 111 $ 376
----- --------- -----
----- --------- -----
</TABLE>
The following unaudited pro forma combined statements of income are based on
the historical consolidated financial statements of Americorp and the historical
financial statements of CIB, using the pooling method of accounting for business
combinations, for the six month period ended June 30, 1998 and the years ended
December 31, 1997, 1996 and 1995. It should be read in conjunction with the
historical consolidated financial statements and notes thereto of Americorp and
the historical financial statements and notes thereto of CIB, which are included
elsewhere in this Joint Proxy Statement/Prospectus. Weighted average shares
outstanding of the pro forma combined institution are based on a .7000 to 1.000
Exchange Ratio which approximates the Exchange Ratio if it was computed based
upon the Americorp and CIB Book Values Per Share at June 30, 1998 and without
taking into account any adjustments as permitted by the Agreement. THE EXCHANGE
RATIO COULD BE HIGHER OR LOWER THAN .7000 TO 1.000.
These pro forma financial statements are presented for illustrative purposes
only and are not indicative of the operating results that would have been
achieved or the financial position that would have existed had the Merger been
consumated on the dates indicated in the preceding paragraph, nor are they
indicative of the future operating results or financial position of the combined
companies.
60
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans......................................... $ 4,363 $ 2,972 $ 7,335
Interest on Federal Funds Sold..................................... 184 200 384
Interest on Securities............................................. 691 395 1,086
Interest on Time Deposits in Other Financial Institutions.......... 37 37
----------- --------- -----------
TOTAL INTEREST INCOME.............................................. 5,238 3,604 8,842
----------- --------- -----------
INTEREST EXPENSE ON DEPOSITS....................................... 1,427 1,006 2,433
----------- --------- -----------
NET INTEREST INCOME................................................ 3,811 2,598 6,409
Provision for Loan and Lease Losses................................ 265 58 323
----------- --------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... 3,546 2,540 6,086
----------- --------- -----------
Other Income:
Service Charges on Deposit Accounts................................ 341 264 605
Gain (loss) on Sale of Securities.................................. 1 2 3
Gain on Sale of Assets............................................. 100 100
Equity in Net Income of Partnership................................
Other Income and Fees.............................................. 330 86 416
----------- --------- -----------
TOTAL OTHER INCOME................................................. 672 452 1,124
----------- --------- -----------
Other Expenses:
Salaries and Employee Benefits..................................... 1,726 1,281 3,007
Occupancy Expenses................................................. 364 237 601
Furniture and Equipment Expense.................................... 177 173 350
Other Operating Expenses........................................... 1,183 727 1,910
----------- --------- -----------
TOTAL OTHER EXPENSES............................................... 3,450 2,418 5,868
----------- --------- -----------
Income Before Income Taxes......................................... 768 574 1,342
Provision for Income Taxes......................................... 206 236 442
----------- --------- -----------
NET INCOME......................................................... $ 562 $ 338 $ 900
----------- --------- -----------
----------- --------- -----------
Earnings Per Share.................................................
--Basic.......................................................... $ 0.95 $ 0.64 $ 0.94
--Diluted........................................................ $ 0.84 $ 0.60 $ 0.85
Shares used in Earnings Per Share Calculation
--Basic.......................................................... 590 530 (159) 961
--Diluted........................................................ 667 564 (169) 1,062
</TABLE>
61
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
----------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans....................................... $ 7,804 $ 5,571 $ 13,375
Interest on Federal Funds Sold................................... 236 612 848
Interest on Securities........................................... 1,709 554 2,263
Interest on Time Deposits in Other
Financial Institutions........................................... 89 89
----------- --------- -----------
TOTAL INTEREST INCOME.............................................. 9,749 6,826 16,575
----------- --------- -----------
INTEREST EXPENSE ON DEPOSITS....................................... 2,747 1,879 4,626
----------- --------- -----------
NET INTEREST INCOME................................................ 7,002 4,947 11,949
Provision for Loan and Lease Losses................................ 410 370 780
----------- --------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... 6,592 4,577 11,169
----------- --------- -----------
Other Income:
Service Charges on Deposit Accounts.............................. 697 495 1,192
Gain (Loss) on Sale of Securities................................ 54 54
Gain on Sale of Assets........................................... 28 28
Equity in Net Income of Partnership.............................. 51 51
Other Income and Fees............................................ 768 626 1,394
----------- --------- -----------
TOTAL OTHER INCOME................................................. 1,570 1,149 2,719
----------- --------- -----------
Other Expenses:
Salaries and Employee Benefits................................... 3,392 2,345 5,737
Occupancy Expenses............................................... 624 405 1,029
Furniture and Equipment Expense.................................. 306 293 599
Other Operating Expenses......................................... 2,341 1,307 3,648
----------- --------- -----------
TOTAL OTHER EXPENSES............................................... 6,663 4,350 11,013
----------- --------- -----------
Income Before Income Taxes......................................... 1,499 1,376 2,875
Provision for Income Taxes......................................... 396 576 972
----------- --------- -----------
NET INCOME......................................................... $ 1,103 $ 800 $ 1,903
----------- --------- -----------
----------- --------- -----------
Earnings Per Share
--Basic.......................................................... $ 1.91 $ 1.74 $ 2.11
--Diluted........................................................ $ 1.66 $ 1.60 $ 1.87
Shares used in Earnings Per Share Calculation
--Basic.......................................................... 578 461 (138) 901
--Diluted........................................................ 666 500 (150) 1,016
</TABLE>
62
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
----------- --------- --------------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans....................................... $ 6,491 $ 5,176 $ 11,667
Interest on Federal Funds Sold................................... 404 561 965
Interest on Securities........................................... 1,894 475 2,369
Interest on Time Deposits in Other Financial Institutions........ 3 116 119
----------- --------- -----------
TOTAL INTEREST INCOME.............................................. 8,792 6,328 15,120
----------- --------- -----------
INTEREST EXPENSE ON DEPOSITS....................................... 2,740 1,853 4,593
----------- --------- -----------
NET INTEREST INCOME................................................ 6,052 4,475 10,527
Provision for Loan and Lease Losses................................ 1,046 697 1,743
----------- --------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... 5,006 3,778 8,784
----------- --------- -----------
Other Income:
Service Charges on Deposit Accounts.............................. 620 467 1,087
Gain (loss) on Sale of Securities................................ (207) (207)
Gain on Sale of Assets........................................... 1 1
Equity in Net Income of Partnership.............................. 215 215
Other Income and Fees............................................ 620 239 859
----------- --------- -----------
TOTAL OTHER INCOME................................................. 1,248 707 1,955
----------- --------- -----------
Other Expenses:
Salaries and Employee Benefits................................... 2,954 2,152 5,106
Occupancy Expenses............................................... 521 392 913
Furniture and Equipment Expense.................................. 220 233 453
Other Operating Expenses......................................... 2,319 1,147 3,466
----------- --------- -----------
TOTAL OTHER EXPENSES............................................... 6,014 3,924 9,938
----------- --------- -----------
Income Before Income Taxes......................................... 240 561 801
Provision for Income Taxes......................................... 37 235 272
----------- --------- -----------
NET INCOME......................................................... $ 203 $ 326 $ 529
----------- --------- -----------
----------- --------- -----------
Earnings Per Share
--Basic.......................................................... $ 0.35 $ 0.71 $ 0.59
--Diluted........................................................ $ 0.31 $ 0.66 $ 0.53
Shares used in Earnings Per Share Calculation
--Basic.......................................................... 572 457 (137) 892
--Diluted........................................................ 660 492 (148) 1,004
</TABLE>
63
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMERICORP CIB ADJUSTMENTS COMBINED
----------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on Loans......................................... $ 6,398 $ 4,149 $ 10,547
Interest on Federal Funds Sold..................................... 126 463 589
Interest on Securities............................................. 2,015 440 2,455
Interest on Time Deposits in Other Financial Institutions.......... 166 166
----------- --------- -----------
TOTAL INTEREST INCOME.............................................. 8,539 5,218 13,757
----------- --------- -----------
INTEREST EXPENSE ON DEPOSITS....................................... 2,520 1,332 3,852
----------- --------- -----------
NET INTEREST INCOME................................................ 6,019 3,886 9,905
Provision for Loan and Lease Losses................................ 554 (58) 496
----------- --------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES...... 5,465 3,944 9,409
----------- --------- -----------
Other Income:
Service Charges on Deposit Accounts................................ 564 474 1,038
Gain (loss) on Sale of Securities.................................. 3 20 23
Gain on Sale of Assets............................................. 28 28
Equity in Net Income of Partnership................................ 353 353
Other Income and Fees.............................................. 550 115 665
----------- --------- -----------
TOTAL OTHER INCOME................................................. 1,470 637 2,107
----------- --------- -----------
Other Expenses:
Salaries and Employee Benefits..................................... 2,816 1,851 4,667
Occupancy Expenses................................................. 483 408 891
Furniture and Equipment Expense.................................... 113 235 348
Other Operating Expenses........................................... 2,353 1,054 3,407
----------- --------- -----------
TOTAL OTHER EXPENSES............................................... 5,765 3,548 9,313
----------- --------- -----------
Income Before Income Taxes......................................... 1,170 1,033 2,203
Provision for Income Taxes......................................... 225 433 658
----------- --------- -----------
NET INCOME......................................................... $ 945 $ 600 $ 1,545
----------- --------- -----------
----------- --------- -----------
Earnings Per Share
--Basic.......................................................... $ 1.67 $ 1.31 $ 1.74
--Diluted........................................................ $ 1.41 $ 1.21 $ 1.52
Shares used in Earnings Per Share Calculation
--Basic.......................................................... 567 457 (137) 887
--Diluted........................................................ 669 497 (149) 1,017
</TABLE>
64
<PAGE>
DESCRIPTION OF CIB AND AMERICORP STOCK
CIB is a California banking corporation organized under the laws of the
State of California, and the rights of CIB Shareholders are governed by the
California Financial Code, the California Corporations Code (the "Corporations
Code"), the Articles of Incorporation of CIB (the "CIB Articles"), and the
bylaws of CIB, as amended (the "CIB Bylaws"). Upon consummation of the
Agreement, the CIB Shareholders will become shareholders of Americorp
("Americorp Shareholders"). As Americorp Shareholders, the rights of the then
former CIB Shareholders will be governed by Division 1, Chapters 1-23 of the
Corporations Code, other applicable California statutes, the Articles of
Incorporation of Americorp (the "Americorp Articles"), and the bylaws of
Americorp (the "Americorp Bylaws").
CIB STOCK
CIB is authorized by the CIB Articles, as amended, to issue 5,000,000 shares
of CIB Stock, without par value. At the CIB Record Date, 556,980 shares of CIB
Stock were issued and outstanding. Holders of CIB Stock are entitled to one
vote, in person or by proxy, for each share of CIB Stock held of record in the
shareholder's name on the books of CIB as of the record date on any matter
submitted to the vote of the shareholders, except that in connection with the
election of directors, the shares may be voted cumulatively. Each share of CIB
Stock has the same rights, privileges and preferences as every other share and
will share equally in CIB's net assets upon liquidation or dissolution. CIB
Stock has no conversion, preemptive or redemption rights or sinking fund
provisions.
California law prohibits a California state-chartered bank from lending on
the security of its own stock.
Shareholders are entitled to dividends when, as and if declared by CIB's
Board of Directors out of funds legally available therefor (and after
satisfaction of the prior rights of holders of outstanding preferred stock, if
any) subject to certain restrictions on payment of dividends imposed by the
California Financial Code and other applicable regulatory limitations. See
"Dividend Restrictions."
CIB acts as its own transfer agent and registrar for CIB Stock.
AMERICORP STOCK
Americorp is authorized by the Americorp Articles to issue 2,500,000 shares
of Americorp Stock, $1.00 par value. As of the Americorp Record Date, 609,987
shares of Americorp Stock were issued and outstanding. Holders of Americorp
Stock are entitled to one vote, in person or by proxy, for each share of
Americorp Stock held of record in the shareholder's name on the books of
Americorp as of the record date on any matter submitted to the vote of the
shareholders, except that in connection with the election of directors, the
shares may be voted cumulatively.
Each share of Americorp Stock has the same rights, privileges and
preferences as every other share and will share equally in Americorp's net
assets upon liquidation of dissolution. Americorp Stock has no preemptive,
conversion or redemption rights or sinking fund provisions and all of the issued
and outstanding shares of Americorp Stock, when issued, will be fully paid and
nonassessable.
Americorp shareholders are entitled to dividends when, as and if declared by
Americorp's Board of Directors out of funds legally available therefor and after
satisfaction of the prior rights of holders of outstanding preferred stock, if
any (subject to certain restrictions on payment of dividends imposed by the
General Corporation Law of California). See "Dividend Restrictions."
The transfer agent and registrar for Americorp Stock is Chase Mellon
Financial Services.
65
<PAGE>
DIFFERENCES BETWEEN RIGHTS OF HOLDERS OF AMERICORP STOCK AND CIB STOCK
The following subsections discuss in detail the differences between rights
of holders of Americorp Stock and CIB Stock.
CLASSIFICATION OF BOARD OF DIRECTORS
CIB's Articles do not permit the CIB Board of Directors to be divided into
classes with any class having a term of office of longer than one year. Each
director of CIB must be elected annually. Americorp's Articles and Bylaws also
do not provide for a classified Board of Directors.
VOTING RIGHTS
See the description of voting rights contained in "CIB Stock" and "Americorp
Stock".
NUMBER OF DIRECTORS
Although the Corporations Code does not require Americorp or CIB to maintain
any specific range of number of directors, the number of directors of Americorp
and CIB may not be less than a stated minimum nor more than a stated maximum
(which in no case shall be greater than two times the stated minimum minus one)
with the exact number of directors to be fixed, within the limits specified. The
CIB Bylaws currently provide that the number of directors on the CIB Board of
Directors may not be fewer than 5 nor more than 9, and the current number of
members on CIB's Board of Directors has been fixed at 7. Americorp Bylaws
currently provide that the number of directors on Americorp Board of Directors
may not be fewer than four nor more than seven, and the current number of
members on Americorp's Board of Directors has been fixed at six at the present
time.
At the Effective Time of the Merger, (i) the number of directors for
Americorp will be increased to nine (9) and (ii) the Board will be reconstituted
to include the directors indicated in "THE MERGER-- Management and Operation of
Americorp and ACB After the Merger.
DIVIDEND RESTRICTIONS
Since CIB is a state-chartered bank, its ability to pay dividends or make
distributions to its shareholders is subject to restrictions set forth in the
California Financial Code. The California Financial Code provides that neither a
bank nor any majority-owned subsidiary of a bank may make a distribution to its
shareholders in an amount which exceeds the lesser of (i) the bank's retained
earnings; or (ii) the bank's net income for its last three fiscal years, less
the amount of any distributions made by the bank or by any majority-owned
subsidiary of the bank to the shareholders of the bank during such period.
Notwithstanding the previous provision, a bank may, with the prior approval of
the Commissioner of Financial Institutions, make a distribution to the
shareholders of the bank in an amount not exceeding the greatest of (a) its
retained earnings; (b) its net income for its last fiscal year; or (c) the net
income of the bank for its current fiscal year. If the Commissioner finds that
the stockholders' equity of a bank is inadequate or that the making of a
distribution by a bank would be unsafe or unsound, the Commissioner may order
the bank to refrain from making a proposed distribution.
The ability of Americorp to pay cash dividends is limited by the provisions
of Section 500 of the California Corporations Code, which prohibits the payment
of dividends unless (i) the retained earnings of the corporation immediately
prior to the distribution exceeds the amount of the distribution; (ii) the
assets of the corporation exceed 1 1/4 times its liabilities; or (iii) the
current assets of the corporation exceed its current liabilities, but if the
average pre-tax earnings of the corporation before interest expense for the two
years preceding the distribution was less than the average interest expense of
the corporation for those years, the current assets of the corporation must
exceed 1 1/4 times its current liabilities.
66
<PAGE>
The ability of Americorp to pay cash dividends is largely dependent on cash
dividends being paid to it by ACB. ACB has the same restrictions on its ability
to pay cash dividends as does CIB.
DISSENTERS' RIGHTS
Pursuant to the General Corporation Law of California, holders of Americorp
Stock would be entitled, subject to the provisions of Chapter 13, to dissenters'
rights in connection with any transaction which constitutes a reorganization (as
defined in Section 181 of the California Corporations Code). See "THE
MERGER--Dissenting Shareholders' Rights." However, pursuant to the California
Financial Code, shareholders of CIB Stock are not entitled to dissenters' rights
in connection with any transactions between two banking institutions which
constitutes a reorganization (as defined in Section 181 of the California
Corporations Code) where CIB is the corporation surviving such transaction, even
if dissenters' rights were otherwise available pursuant to Chapter 13.
Dissenters' rights are available to shareholders of CIB in the Merger since CIB
is not the surviving corporation in such merger.
RESTRICTIONS ON ACQUISITION OF AMERICORP
The following discussion is a summary of certain provisions of California
and Federal law and regulations and California corporate law, as well as the
Articles of Incorporation and Bylaws of Americorp, which may be deemed to have
"anti-takeover" effects. The description of these provisions is necessarily
general and reference should be made to the actual law and regulations and to
the Articles of Incorporation and Bylaws of Americorp.
CALIFORNIA AND FEDERAL BANKING LAW
The Federal Change in Bank Control Act of 1978 prohibits a person or group
of persons "acting in concert" from acquiring "control" of a bank holding
company unless the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") has been given 60 days' prior written notice of such
proposed acquisition and within that time period the Federal Reserve Board has
not issued a notice disapproving the proposed acquisition or extending for up to
another 30 days the period during which such a disapproval may be issued. An
acquisition may be made prior to the expiration of the disapproval period if the
Federal Reserve Board issues written notice of its intent not to disapprove the
action. Under a rebuttable presumption established by the Federal Reserve Board
the acquisition of more than 10% of a class of voting stock of a bank with a
class of securities registered under Section 12 of the Exchange Act, would,
under the circumstances set forth in the presumption, constitute the acquisition
of control.
Under the California Financial Code, no person shall, directly or
indirectly, acquire control of a California licensed bank or a bank holding
company unless the Commissioner has approved such acquisition of control. A
person would be deemed to have acquired control of Americorp under this state
law if such person, directly or indirectly, has the power (i) to vote 25% or
more of the voting power of Americorp or (ii) to direct or cause the direction
of the management and policies of Americorp. For purposes of this law, a person
who directly or indirectly owns or controls 10% or more of the Americorp Stock
would be presumed to control Americorp.
In addition, any "company" would be required to obtain the approval of the
Federal Reserve Board under the Bank Holding Company Act of 1956, as amended
(the "BHC Act"), before acquiring 25% (5% in the case of an acquiror that is, or
is deemed to be, a bank holding company) or more of the outstanding Americorp
Stock of, or such lesser number of shares as constitute control over, Americorp.
67
<PAGE>
ANTI-TAKEOVER PROVISIONS IN AMERICORP'S ARTICLES AND BYLAWS
Americorp's Articles and Bylaws contain identical provisions that deal with
matters of corporate governance and certain rights of shareholders relating to
offers to acquire Americorp.
These provisions authorize the Board of Directors to oppose a tender or
other offer for Americorp. When considering whether to oppose an offer, the
Board may consider any pertinent issue, including any or all of the following:
(A) whether the offer price is acceptable based upon the historical and present
operating results or financial condition of Americorp, (B) whether a more
favorable price could be obtained for Americorp's securities in the future, (C)
the impact which an acquisition of Americorp would have on the employees,
depositors and customers of Americorp and its subsidiaries and the communities
which they serve, (D) the reputation and business practices of the offeror and
its management and affiliates as they would affect the employees, depositors,
and customers of Americorp and its subsidiaries and the communities which they
serve and the future value of Americorp stock, (E) the value of the securities
(if any) which the offeror is offering in exchange for Americorp's securities,
based on an analysis of the worth of Americorp as compared to the corporation or
other entity whose securities are being offered, and (F) any antitrust or other
legal and regulatory issues that raised by the offer.
If the Board of Directors determines that an offer should be rejected, it
may take any lawful action to accomplish its purpose, including, but not limited
to, any or all of the following: advising shareholders not to accept the offer;
litigation against the offeror; filing complaints with all governmental and
regulatory authorities; acquiring Americorp's securities; selling or otherwise
issuing authorized but unissued securities or granting options with respect
thereto; acquiring a company to create an antitrust or other regulatory problem
for the offeror; and soliciting a more favorable offer from another individual
or entity.
These provisions may have the effect of discouraging a future takeover
attempt which is not approved by the Board of Directors but which individual
Americorp stockholders may deem to be in their best interest or in which
stockholders may receive a substantial premium for their shares over then
current market prices. As a result, Americorp Shareholders who might desire to
participate in such a transaction may not have an opportunity to do so.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF AMERICORP'S ARTICLES AND BYLAWS
The Board of Directors of Americorp believes that the provisions described
above are prudent and will reduce Americorp's vulnerability to takeover attempts
and certain other transactions which have not been negotiated with and approved
by its Board of Directors. The Board of Directors believes these provisions are
in the best interest of Americorp and its stockholders. In the judgment of the
Board of Directors, Americorp's Board will be in the best position to determine
the true value of Americorp and to negotiate more effectively for what may be in
the best interest of its stockholders. Accordingly, the Board of Directors
believes that it is in the best interest of Americorp and its stockholders to
encourage potential acquirors to negotiate directly with the Board of Directors
of Americorp and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at a price reflective of the true value of Americorp
and which is in the best interest of all stockholders.
Attempts to acquire control of financial institutions have recently become
increasingly common. Takeover attempts which have not been negotiated with and
approved by the Board of Directors present to stockholders the risks of a
takeover on terms which may be less favorable than might otherwise be available.
A transaction which is negotiated and approved by the Board of Directors, on the
other hand, can be carefully planned and undertaken at an opportune time in
order to obtain maximum value of Americorp and its stockholders, with due
consideration given to matters such as the management and business of the
acquiring corporation and maximum strategic development of Americorp's assets.
68
<PAGE>
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it to incur great expense. Although a
tender offer or other takeover attempt may be made at a price substantially
above the current market prices, such offers are sometimes made for less than
all of the outstanding shares of a target company. As a result, stockholders may
be presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders.
Despite the belief of Americorp as to the benefits to stockholders of these
provisions, these provisions may also have the effect of discouraging a future
takeover attempt which would not be approved by Americorp's Board, but pursuant
to which stockholders may receive a substantial premium for their shares over
then current market prices. As a result, stockholders who might desire to
participate in such a transaction may not have any opportunity to do so. The
Board of Directors of Americorp, however, has concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders, Americorp may adopt additional charter provisions regarding the
acquisition of its equity securities that would be permitted for a California
business corporation. Americorp does not presently intend to propose the
adoption of further restrictions on the acquisition of Americorp's equity
securities.
The cumulative effect of the restriction on acquisition of Americorp
contained in Americorp Articles and Bylaws, federal law and California law may
be to discourage potential takeover attempts and perpetuate incumbent
management, even though certain stockholders of Americorp may deem a potential
acquisition to be in their best interest, or deem existing management not to be
acting in their best interests.
BUSINESS OF AMERICORP
GENERAL
Americorp is a California corporation organized to act as the bank holding
company for ACB. In 1987, Americorp acquired all of the outstanding common stock
of the ACB in a holding company formation transaction. Other than holding the
shares of the ACB, Americorp conducts no significant activities, although it is
authorized, with the prior approval of the Federal Reserve Board, Americorp's
principal regulator, to engage in a variety of activities which are deemed
closely related to the business of banking. At June 30, 1998, Americorp had
approximately $140 million in consolidated assets, $83 million in consolidated
net loans, $125 million in consolidated deposits, and $11.9 million in
consolidated stockholders' equity.
ACB was licensed by the DFI and commenced operation in September 1973 as a
California state bank. As a California state bank, ACB is subject to primary
supervision, examination and regulation by the DFI and the FDIC. ACB is also
subject to certain other federal laws and regulations. The deposits of ACB are
insured by the FDIC up to the applicable limits thereof. ACB is not a member of
the Federal Reserve System.
BANKING SERVICES
ACB is engaged in substantially all of the business operations customarily
conducted by independent California state bank. ACB maintains three full
service-banking offices in the city of Ventura and a full service office in the
city of Camarillo. ACB's banking services include the acceptance of checking and
savings deposits, and the making of commercial, SBA, real estate, personal,
automobile and other installment loans. ACB also offers traveler's checks,
notary public and other customary bank services to its customers. While ACB does
offer credit cards to its customers, other financial institutions issue the
cards. Trust services are not offered by ACB.
69
<PAGE>
ACB's deposits are attracted primarily from individuals and small and
medium-sized business-related sources. ACB also attracts deposits from several
local agencies. In connection with municipal deposits, ACB is generally required
to pledge securities to secure such deposits, except for the first $100,000 of
such deposits which are insured by the FDIC.
As of June 30, 1998, ACB had approximately 11,800 deposit accounts,
representing approximately 4,800 non-interest bearing (demand) accounts with
balances totaling approximately $37,642,000 for an average balance per account
of approximately $7,800; 5,400 savings, interest-bearing demand and money market
accounts with balances totaling approximately $52,375,000 for an average balance
per account of approximately $9,700 and 1,600 time certificate of deposit
accounts with balances totaling approximately $35,516,000 for an average balance
per account of approximately $21,700.
Americorp is engaged in lending activities to businesses and consumers
throughout the geographic area of Ventura County, CA. ACB has concentrations in
commercial loans, real estate loans and installment loans. The risks associated
with these types of loans vary with the borrower, associated type of industry
and prevailing economic conditions.
Business loans are extended to a variety of commercial borrowers. These
loans include revolving lines of credit, both secured and unsecured; equipment
financing and term loans on real estate. In general, business loans have a
higher degree of risk associated with changing economic cycles, product
obsolescence and management experience. ACB utilizes a loan policy manual which
sets standards for the accepted level of risk in the particular area under
consideration. Business loans are reviewed by experienced loan personnel
utilizing a secondary review and approval process which ultimately is overseen
by the Board of Directors. ACB typically obtains the guarantees of the borrowing
company's principal owners. Business lending risk is also mitigated by the
contracted services of an independent loan review company. Commercial loans
outstanding, as of June 30, 1998, totaled $30,287,761, representing 39.16% of
the portfolio.
ACB also structures commercial loans secured by the real estate. These loans
also vary in risk depending primarily on business cycles. Commercial real estate
loans generally are amortized over a 20 year period with maturity dates of 5
years. ACB accepts properties whose appraised values provides a loan-to-value
ratio of 75% or less. Commercial loans outstanding, at June 30, 1998, totaled
$25,540,589, representing 24.92% of the portfolio. ACB is not involved with any
residential tract housing construction and limits construction loans to either
pre-sold or contract homes with permanent financing arranged. Construction loans
total less than 3% of the total loan portfolio.
ACB is also engaged in the brokering of single family first trust deeds to
other lenders. There is no credit risk associated with this activity as ACB does
not directly fund any loans.
ACB also extends loans to consumers which include automobiles, installment,
recreational vehicles, equity lines of credit, bankcard and overdraft
protection. As of June 30, 1998, ACB had $6,706,952 in installment loans
outstanding, representing 6.00% of the portfolio. Home equity loans, primarily
secured by second deeds of trusts, totaled $9,145,132, representing 14.05% of
the portfolio. Bankcard loans outstanding totaled $176,972 and overdraft
protection totaled $891,360, representing .71% and 4.02% respectively of the
total portfolio. ACB is currently negotiating the sale of the bankcard
portfolio. Management does not anticipate any loss associated with this sale and
under current conditions, expects a premium for the balance outstanding.
Consumer loans are underwritten according to standards set in ACB's loan policy
manual. ACB utilizes Experian and Trans Union credit reporting agencies to
obtain current information on a consumer's payment history, monitors delinquency
trends regularly and sets reserves to mitigate risk in this area.
The principal sources of ACB's revenues are (i) interest and fees on loans,
(ii) interest on investments, (iii) service charges on deposit accounts and
other charges and fees, and (iv) interest on federal funds sold (funds loaned on
short-term basis to other banks). For the period ended June 30, 1998, these
sources
70
<PAGE>
comprised 73.8%, 11.7%, 11.4% and 3.1%, respectively, of ACB's total operating
income. Virtually all of the consolidated net income of Americorp is generated
by ACB.
ACB has not engaged in any material research activities relating to the
development of new services or the improvement of existing ACB services.
There has been no significant change in the types of services offered by ACB
since its inception, except in connection with new types of accounts allowed by
statute or regulation in recent years. ACB has no present plans regarding "a new
line of business" requiring the investment of a material amount of total assets.
Most of ACB's business originates from Ventura County and there is no
emphasis on foreign sources and application of funds. ACB's business, based upon
performance to date, does not appear to be seasonal. Except as described above,
a material portion of ACB's loans is not concentrated within a single industry
or group of related industries, nor is ACB dependent upon a single customer or
group of related customers for a material portion of its deposits. Management of
ACB is unaware of any material effect upon ACB's capital expenditures, earnings
or competitive position as a result of federal, state or local environmental
regulation.
ACB holds no patents, licenses (other than licenses obtained from ACB
regulatory authorities), franchises or concessions.
EMPLOYEES
As of June 30, 1998, ACB had a total of 66 full-time employees and 12
part-time employees. The management of ACB believes that its employee relations
are satisfactory.
COMPETITION
Banking and financial services business in California generally, and in
ACB'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. ACB competes for loans and
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 ACB. In
order to compete with the other financial services providers, ACB principally
relies upon local promotional activities, personal relationships established by
officers, directors and employees with its customers, and specialized services
tailored to meet its customers' needs. ACB maintains four full service-banking
offices in Ventura County.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by ACB on its deposits and its other
borrowings and the interest rate received by ACB on loans extended to its
customers and securities held in ACB's portfolio comprise the major portion of
ACB's earnings. These rates are highly sensitive to many factors that are beyond
the control of ACB. Accordingly, the earnings and growth of ACB are subject to
the influence of domestic and foreign economic conditions, including inflation,
recession and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession) by
its open-market
71
<PAGE>
operations in United States Government securities, by adjusting the required
level of reserves for financial institutions subject to its reserve requirements
and by varying the discount rates applicable to borrowings by depository
institutions. The actions of the Federal Reserve Board in these areas influence
the growth of ACB loans, investments and deposits and also affect interest rates
charged on loans and paid on deposits. The nature and impact of any future
changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. For example,
legislation has been introduced in Congress that would repeal the current
statutory restrictions on affiliations between commercial banks and securities
firms. See "SUPERVISION AND REGULATION--Financial Modernization Legislation."
PROPERTIES
All ACB's offices are leased. See Note 13 to the Americorp Financial
Statements for certain additional information concerning the amount of ACB's
lease commitments.
LEGAL PROCEEDINGS
ACB is, from time to time, subject to various pending and threatened legal
actions which arise out of the normal course of its business. ACB is not a party
to any pending legal or administrative proceedings (other than ordinary routine
litigation incidental to ACB's business) and no such proceedings are known to be
contemplated.
There are no material proceedings adverse to ACB to which any director,
officer, affiliate of ACB or 5% shareholder of ACB, or any associate of any such
director, officer, affiliate or 5% shareholder of ACB is a party, and none of
the above persons has a material interest adverse to ACB.
72
<PAGE>
Table 1, "Distribution of Average Assets, Liabilities, and Shareholders'
Equity and Related Interest Income, Expense and Rates," sets forth the daily
average balances for the major asset and liability categories, the related
income or expense where applicable, and the resultant yield or cost to the
average earning assets and average interest-bearing liabilities.
TABLE 1--DISTRIBUTION OF AVERAGE ASSETS, LIABILITIES AND
SHAREHOLDERS' EQUITY AND RELATED INTEREST INCOME, EXPENSE AND RATES
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
JUNE 30, 1998(1) DECEMBER 31, 1997
-------------------------------- --------------------------------
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans......................................... $ 81,169 $ 4,146 10.22% $ 73,557 $ 7,511 10.21%
Loan Fees..................................... $ 217 $ 293
---------- --------- ---------- ---------
Total Loans................................. 81,169 $ 4,363 10.75% 73,557 $ 7,804 10.61%
---------- --------- ---------
Investment Securities:
Taxable Securities.......................... 14,248 $ 394 5.53% 18,379 $ 1,076 5.85%
Non-Taxable Securities...................... 10,141 $ 290 5.72% 11,298 $ 620 5.49%
---------- --------- ---------
Total Securities.......................... 24,389 $ 684 5.61% 29,677 $ 1,696 5.71%
---------- --------- ---------- ---------
Time Deposits in Other Financial
Institutions................................ 199 $ 7 7.04% 199 $ 13 6.53%
Federal Funds Sold............................ 6,971 $ 184 5.28% 4,507 $ 236 5.24%
---------- --------- ---------- ---------
Total Money Market Investments.............. 7,170 $ 191 5.33% 4,706 $ 249 5.29%
---------- --------- ---------- ---------
Total Earnings Assets......................... 112,728 $ 5,238 9.29% 107,940 $ 9,749 9.03%
--------- ---------
Total Non-Earnings Assets..................... 20,726 19,458
---------- ----------
TOTAL ASSETS.................................... $ 133,454 $ 127,398
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity:
Borrowed Funds:
Federal Funds Purchased..................... $ -- $ -- 0.00% $ -- $ -- 0.00%
Other....................................... -- $ -- 0.00% -- $ -- 0.00%
---------- --------- ---------- ---------
Total Borrowed Funds...................... -- $ -- 0.00% -- $ -- 0.00%
---------- --------- ---------- ---------
Interest-Bearing Deposits:
Savings and Interest-Bearing Transaction
Accounts.................................. 51,994 $ 541 2.08% 51,778 $ 1,095 2.11%
Time Deposits............................... 33,666 $ 886 5.26% 31,731 $ 1,652 5.21%
---------- --------- ---------- ---------
Total Interest-Bearing Accounts........... 85,660 $ 1,427 3.33% 83,509 $ 2,747 3.29%
---------- --------- ---------- ---------
Total Interest-Bearing Liabilities...... 85,660 $ 1,427 3.33% 83,509 $ 2,747 3.29%
--------- ---------
Demand Deposits............................... 33,516 30,840
Other Liabilities............................. 2,789 2,271
Shareholders' Equity.......................... 11,489 10,778
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 133,454 $ 127,398
---------- ----------
---------- ----------
Interest Income/Earning Assets.................. 9.29% 9.03%
Interest Expense/Earning Assets................. 2.53% 2.54%
--------- ---------
Net Interest Margin............................. $ 3,811 6.76% $ 7,002 6.49%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------- --------------------------------
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans......................................... $ 60,482 $ 6,281 10.38% $ 58,032 $ 6,188 10.66%
Loan Fees..................................... $ 210 $ 210
---------- --------- ---------- ---------
Total Loans................................. 60,482 $ 6,491 10.73% 58,032 $ 6,398 11.02%
---------- --------- ---------- ---------
Investment Securities:
Taxable Securities.......................... 19,928 $ 1,171 5.88% 21,368 $ 1,232 5.77%
Non-Taxable Securities...................... 12,577 $ 723 5.75% 13,746 $ 783 5.70%
---------- --------- ---------- ---------
Total Securities.......................... 32,505 $ 1,894 5.83% 35,114 $ 2,015 5.74%
---------- --------- ---------- ---------
Time Deposits in Other Financial
Institutions................................ 53 $ 3 5.66% -- $ --
Federal Funds Sold............................ 7,952 $ 404 5.08% 2,235 $ 126 5.64%
---------- --------- ---------- ---------
Total Money Market Investments.............. 8,005 $ 407 5.08% 2,235 $ 126 5.64%
---------- --------- ---------- ---------
Total Earnings Assets......................... 100,992 $ 8,792 8.71% 95,381 $ 8,539 8.95%
--------- ---------
Total Non-Earnings Assets..................... 19,961 16,665
---------- ----------
TOTAL ASSETS.................................... $ 120,953 $ 112,046
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity:
Borrowed Funds:
Federal Funds Purchased..................... $ -- $ -- 0.00% $ 156 $ 9 5.77%
Other -- $ -- 0.00% 1,407 $ 101 7.18%
---------- --------- ---------- ---------
Total Borrowed Funds........................ 0.00% 1,563 $ 110 7.04%
---------- --------- ---------- ---------
Interest-Bearing Deposits:
Savings and Interest-Bearing Transaction
Accounts.................................. 51,131 $ 1,115 2.18% 51,899 $ 1,173 2.26%
Time Deposits............................... 30,448 $ 1,625 5.34% 23,868 $ 1,237 5.18%
---------- --------- ---------- ---------
Total Interest-Bearing Accounts........... 81,579 $ 2,740 3.36% 75,767 $ 2,410 3.18%
---------- --------- ---------- ---------
Total Interest-Bearing Liabilities...... 81,579 $ 2,740 3.36% 77,330 $ 2,520 3.26%
---------- --------- ---------- ---------
Demand Deposits............................... 26,557 23,063
Other Liabilities............................. 2,084 1,621
Shareholders' Equity.......................... 10,733 10,032
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY...... $ 120,953 $ 112,046
---------- ----------
---------- ----------
Interest Income/Earning Assets.................. 8.71% 8.95%
Interest Expense/Earning Assets................. 2.71% 2.64%
--------- ---------
Net Interest Margin............................. $ 6,052 5.99% $ 6,019 6.31%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Rates for the six month period ended June 30, 1998 are based upon annualized
interest income/ expense.
74
<PAGE>
Changes in the dollar amount of interest earned or paid will vary from one
year to the next because of changes in the average balance ("volume") of the
various earning assets and interest-bearing liability accounts and changes in
the interest rates ("rate") applicable to each category. Table 2, "Volume and
Rate Variance Analysis of Net Interest Margin," analyzes the difference in
interest earned and paid on the major categories of assets and liabilities in
terms of the effects of volume and rate changes for the periods indicated.
TABLE 2--VOLUME AND RATE ANALYSIS OF NET INTEREST MARGIN
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
1997 OVER 1996 1996 OVER 1995
------------------------------- ---------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) In:
Interest Income:
Loans.................................................... $ 1,387 $ (74) $ 1,313 $ 264 $ (171) $ 93
--------- --------- --------- ----- --------- ---------
Investment Securities.................................... $ (160) $ (38) $ (198) $ (153) $ 32 $ (121)
--------- --------- --------- ----- --------- ---------
Money Market Investments:
Time deposits in Other Financial Institutions............ $ 10 $ -- $ 10 $ 3 $ -- $ 3
Federal Funds Sold....................................... $ (181) $ 13 $ (168) $ 292 $ (14) $ 278
--------- --------- --------- ----- --------- ---------
Total Money Market Investments......................... $ (171) $ 13 $ (158) $ 295 $ (14) $ 281
--------- --------- --------- ----- --------- ---------
Total Earning Assets................................. $ 1,056 $ (99) $ 957 $ 406 $ (153) $ 253
--------- --------- --------- ----- --------- ---------
Interest Expense
Borrowed Funds:
Federal Funds Purchased................................ $ -- $ -- $ -- $ (9) $ -- $ (9)
Other.................................................. $ -- $ -- $ -- $ (101) $ -- $ (101)
--------- --------- --------- ----- --------- ---------
Total Borrowed Funds................................. $ -- $ -- $ -- $ (110) $ -- $ (110)
--------- --------- --------- ----- --------- ---------
Interest-Bearing Deposits:
Savings and Interest-Bearing Transaction Accounts...... $ 15 $ (35) $ (20) $ (18) $ (40) $ (58)
Time Deposits.......................................... $ 67 $ (40) $ 27 $ 349 $ 39 $ 388
--------- --------- --------- ----- --------- ---------
Total Interest-Bearing Deposits...................... $ 82 $ (75) $ 7 $ 331 $ (1) $ 330
--------- --------- --------- ----- --------- ---------
Total Interest-Bearing Liabilities................... $ 82 $ (75) $ 7 $ 221 $ (1) $ 220
--------- --------- --------- ----- --------- ---------
Increase (Decrease) in Net Interest Margin................. $ 974 $ (24) $ 950 $ 185 $ (152) $ 33
--------- --------- --------- ----- --------- ---------
--------- --------- --------- ----- --------- ---------
</TABLE>
Changes in rate/volume (change in rate times the change in volume) was
allocated to the rate and volume variances in proportion to those variances.
75
<PAGE>
Table 3, "Investment Portfolio Maturity Distribution and Yield Analysis",
sets forth the amounts and maturity ranges of securities at December 31, 1997
and June 30, 1998. The weighted average yields of the securities are also shown.
TABLE 3--INVESTMENT PORTFOLIO MATURITY DISTRIBUTION AND YIELD ANALYSIS
(DOLLARS IN 000'S)
As of December 31, 1997:
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
ONE YEAR YEAR TO YEARS TO AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Maturity Distribution:
Mutual Funds............................................. $ 2,803 $ 2,803
Other U.S. Government Agencies and Corporations.......... $ 1,500 $ 3,245 4,745
Mortgage Backed Securities............................... 280 3,576 $ 416 2,283 6,555
State and Municipal Securities(1)........................ 738 3,257 4,809 2,087 10,891
----------- ----------- ----------- ----------- ---------
Total.................................................. $ 2,518 $ 10,078 $ 5,225 $ 7,173 $ 24,994
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
ONE YEAR YEAR TO YEARS TO AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted Average Yield:
Mutual Funds............................................. 5.490%
Other U.S. Government Agencies and Corporations.......... 5.341% 6.010%
Mortgage Backed Securities............................... 5.065% 6.095% 5.798% 6.308%
State and Municipal Securities(1)........................ 7.310% 6.982% 7.013% 7.351%
</TABLE>
- ------------------------
(1) The following yields have been computed on a tax equivalent basis. The
incremental rate used for Federal basis is 20%.
76
<PAGE>
As of June 30, 1998:
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
ONE YEAR YEAR TO YEARS TO AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS TOTAL
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Maturity Distribution:
Mutual Funds............................................. $ 2,770 $ 2,770
Other U.S. Government Agencies and Corporations.......... $ 2,250 $ 1,495 3,745
Mortgage Backed Securities............................... 194 2,973 $ 369 2,863 6,399
State and Municipal Securities(1)........................ 1,233 3,171 4,334 1,522 10,260
----------- ----------- ----------- ----------- ---------
Total.................................................. $ 3,677 $ 7,639 $ 4,703 $ 7,155 $ 23,174
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
ONE YEAR YEAR TO YEARS TO AFTER
OR LESS FIVE YEARS TEN YEARS TEN YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted Average Yield:
Mutual Funds............................................. 4.138%
Other U.S. Government Agencies and Corporations.......... 5.660% 5.835%
Mortgage Backed Securities............................... 5.092% 6.237% 5.955% 5.698%
State and Municipal Securities(1)........................ 7.122% 6.887% 7.083% 7.153%
</TABLE>
- ------------------------
(1) The following yields have been computed on a tax equivalent basis. The
incremental rate used for Federal basis is 20%.
Table 4, "Loan Portfolio Analysis by Category," sets forth the distribution
of ACB's loans at the end of the period ended June 30, 1998 and for each of the
last two years.
TABLE 4--LOAN PORTFOLIO ANALYSIS BY CATEGORY
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Commercial Loans................................................................. $ 29,558 $ 30,040 $ 29,370
Construction & Development Loans................................................. 3,467 2,494 202
Real Estate Loans................................................................ 33,607 29,631 11,026
Equity Lines of Credit........................................................... 9,204 10,217 12,134
Installment Loans................................................................ 7,597 10,669 10,260
Leases Receivable................................................................ 855 1,495 2,860
Credit Card Loans................................................................ 177 145 76
Overdrafts....................................................................... 20 10 11
--------- --------- ---------
Total Loans, Gross............................................................. $ 84,485 $ 84,701 $ 65,939
--------- --------- ---------
--------- --------- ---------
</TABLE>
77
<PAGE>
Table 5, "Maturities and Sensitivities of Selected Loan Types to Changes in
Interest Rates", shows the maturity distribution of the loan portfolio at
December 31, 1997 and June 30, 1998, and shows the proportion of fixed and
floating rate loans for each
TABLE 5--MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES
(DOLLARS IN 000'S)
As of December 31, 1998:
<TABLE>
<CAPTION>
OVER DUE AFTER
3 MONTHS DUE AFTER THREE YEARS
3 MONTHS THROUGH ONE YEAR TO TO FIVE DUE AFTER
OR LESS 12 MONTHS THREE YEARS YEARS FIVE YEARS TOTAL
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate................................ $ 2,277 $ 2,885 $ 9,226 $ 13,107 $ 8,971 $ 36,466
Floating Rate............................. 46,344 46,344
----------- ----------- ----------- ----------- ----------- ---------
Total................................... $ 48,621 $ 2,885 $ 9,226 $ 13,107 $ 8,971 82,810
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-Accruals.............................. 1,891
---------
TOTAL LOANS, GROSS........................ $ 84,701
---------
---------
</TABLE>
As of June 30, 1998:
<TABLE>
<CAPTION>
OVER DUE AFTER
3 MONTHS DUE AFTER THREE YEARS
3 MONTHS THROUGH ONE YEAR TO TO FIVE DUE AFTER
OR LESS 12 MONTHS THREE YEARS YEARS FIVE YEARS TOTAL
----------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate................................ $ 2,832 $ 4,055 $ 8,963 $ 10,351 $ 7,444 $ 33,645
Floating Rate............................. 49,004 49,004
----------- ----------- ----------- ----------- ----------- ---------
Total................................... $ 51,836 $ 4,055 $ 8,963 $ 10,351 $ 7,444 82,649
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Non-Accruals.............................. 1,836
---------
TOTAL LOANS, GROSS........................ $ 84,485
---------
---------
</TABLE>
Table 6, "Non-Accrual and Non-Performing Loans", summarizes ACB's
non-performing loans for the period ended June 30, 1998 and for the last five
years. Non-performing loans consist of loans that have been placed on
non-accrual status and loans that are delinquent 90 days or more. Non-accrual
loans are loans where there is reasonable doubt as to the collectibility of
principal or interest on a loan. All non-accrual loans carry a classified loan
grade of either "substandard", "doubtful", or "loss". ACB stops recognizing
income from the interest on the loan and reverses any uncollected interest that
had been accrued but not received. These loans may or may not be adequately
collateralized, and collection efforts are being pursued.
TABLE 6--NON-ACCRUAL AND NON-PERFORMING LOANS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Non-Accrual................................................. $ 1,836 $ 1,891 $ 150 $ 190 $ 178 $ 199
90 Days or More Past Due.................................... 1 497 982 8 296
----------- --------- --------- --------- --------- ---------
Total..................................................... $ 1,836 $ 1,892 $ 647 $ 1,172 $ 186 $ 495
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
78
<PAGE>
Proper loan grading and the early detection of potentially problematic
credits help management and the Board of Directors accurately assess ACB's level
of portfolio risk, focus resources, and provide for adequate provision for loan
loss. All loans and leases are graded using the pre-classified and classified
loan grades of "special mention", "substandard", "doubtful", or "loss" and
include non-performing loans. Each classified credit is monitored on an on-going
basis by Credit Administration. The Board's Loan Committee receives reports on
the status of these loans on a monthly basis.
All loans and leases are defaulted on the computer system to be placed on
non-accrual status when interest and/or principal payments are past due 90 days
or more. Loans and leases are reviewed periodically to determine if it should be
placed on non-accrual status even though, in some cases, the loans are current
at the time. If placed on non-accrual, removal from non-accrual is directed by
the Board.
As of December 31, 1996, classified loans totaled $1,642,000 or 2.53% of the
outstanding loan portfolio. At December 31, 1997, the representation was
$5,217,955 or 6.2% of the outstanding portfolio. As of June 30, 1998, classified
loan totals equaled $4,055,364 or 4.8% of the outstanding portfolio.
FOREIGN LOANS: ACB does not have and does not plan to have foreign loans in
its portfolio.
PARTICIPATIONS: From time to time ACB will sell or purchase a portion of a
loan to another bank. ACB will usually sell a portion of a loan as a method of
accommodating a large borrowing customer that would otherwise exceed ACB's
maximum credit limit for loans of this nature to any single borrower or
borrowing entity. On occasion ACB will purchase a portion of a loan, under
specifically designated terms, from other banks after these loans have been
presented and approved within the guidelines of ACB's general lending policies.
LOAN CONCENTRATIONS: There is no knowledge of concentrations at or
exceeding 10% of equity capital by industry, individual borrower, geographic
location or repayment source in the portfolio. Portfolio Mix is as follows at
June 30, 1998:
<TABLE>
<CAPTION>
CURRENT
LOAN CLASSIFICATIONS % OUTSTANDINGS
- ------------------------------------------------------------------ --------- --------------
<S> <C> <C>
COMMERCIAL........................................................ 39.18% $ 30,287,762
Commercial Unfunded............................................... $ 13,812,313
FACTORING LINES................................................... 1.44% $ 1,033,995
Factoring Lines Unfunded.......................................... $ 591,005
INSTALLMENT....................................................... 6.00% $ 6,706,952
Installment Unfunded.............................................. $ 45,000
REAL ESTATE....................................................... 8.95% $ 9,986,931
Real Estate Unfunded.............................................. $ 86,226
COMMERCIAL REAL ESTATE............................................ 24.93% $ 25,540,590
Com'l Real Estate Unfunded........................................ $ 2,521,050
HOMELINE.......................................................... 14.06% $ 9,145,132
Homeline Unfunded................................................. $ 6,682,977
AMERICAN RESERVE.................................................. 4.03% $ 891,361
American Reserve Unfunded......................................... $ 3,638,107
MASTERCARD........................................................ 0.71% $ 176,973
Mastercard Unfunded............................................... $ 623,128
CAPITAL LEASES.................................................... 0.70% $ 790,520
TOTAL GROSS LOANS................................................. 100.00% $ 112,560,022
TOTAL OUTSTANDING................................................. $ 84,560,216
</TABLE>
79
<PAGE>
Table 7, "Summary of Loan Loss Experience", shows the additions to,
charge-offs against, and recoveries for ACB's reserve for possible loan losses
for the six month period ended June 30, 1998 and the years ended December 31,
1997 and 1996. Also shown is the ratio of charge-offs to average loans for each
year.
TABLE 7--SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE OF ALLOWANCE FOR LOAN AND LEASE LOSSES--BEGINNING OF PERIOD..... $ 1,047,545 $ 811,552 $ 632,271
CHARGE-OFFS:
Construction and Development............................................ -- -- --
Real Estate Loans....................................................... -- (4,244) --
Home Equity Lines of Credit............................................. (4,932) (27,388) (77,217)
Installment Loans....................................................... (11,259) (16,496) (15,641)
Commercial Loans........................................................ (145,328) (82,681) (702,031)
Credit Card and Related Loans........................................... (28,103) (60,367) (54,258)
Leases.................................................................. -- (4,345) (21,295)
------------ ------------ ------------
TOTAL CHARGE-OFFS....................................................... (189,622) (195,521) (870,442)
------------ ------------ ------------
RECOVERIES:
Construction and Development............................................ -- -- --
Real Estate Loans....................................................... -- -- --
Home Equity Lines of Credit............................................. -- -- --
Installment Loans....................................................... 133 1,176 118
Commercial Loans........................................................ 8,025 20,338 3,962
Credit Card and Related Loans........................................... -- -- 43
Leases.................................................................. -- -- --
------------ ------------ ------------
TOTAL RECOVERIES........................................................ 8,158 21,514 4,123
------------ ------------ ------------
NET RECOVERIES AND CHARGE-OFFS.......................................... (181,464) (174,007) (866,319)
Provision for Possible Loan Losses...................................... 265,000 410,000 1,045,600
BALANCE OF ALLOWANCE FOR LOAN AND LEASE LOSSES--END OF PERIOD........... $ 1,131,081 $ 1,047,545 $ 811,552
------------ ------------ ------------
Ratio of Net Recoveries/Charge-offs During the Period to Average Loans
Outstanding During the Period......................................... 0.22% 0.23% 1.38%
</TABLE>
80
<PAGE>
Table 8, "Average Deposits and Interest Rates", shows the average amount of
deposits for the period ended June 30, 1998 and for the last three years, the
interest paid and the rates.
TABLE 8--AVERAGE DEPOSITS AND INTEREST RATES
(DOLLARS IN 000'S)
<TABLE>
<CAPTION>
JUNE 30, 1998(1) DECEMBER 31, 1997
--------------------------------- --------------------------------
BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits:
Interest-Bearing Demand....................... $ 21,567 $ 168 1.56% $ 20,574 $ 321 1.56%
Money Market.................................. 19,132 249 2.60% 20,041 524 2.61%
Savings....................................... 11,295 124 2.20% 11,163 250 2.24%
Time Deposits................................. 33,666 886 5.26% 31,731 1,652 5.21%
---------- ---------- ---------- ---------
Total Interest-Bearing Deposits............... 85,660 $ 1,427 3.33% 83,509 $ 2,747 3.29%
---------- ---------
Non-Interest Bearing Deposits................... 33,516 30,840
---------- ----------
Total Deposits.................................. $ 119,176 $ 114,349
---------- ----------
Interest-Bearing Deposits:
Interest-Bearing Demand....................... $ 19,742 $ 317 1.61% $ 19,195 $ 336 1.75%
Money Market.................................... 19,956 535 2.68% 18,631 484 2.60%
Savings......................................... 11,433 263 2.30% 14,073 353 2.51%
Time Deposits................................... 30,448 1,625 5.34% 23,868 1,237 5.18%
---------- ---------- ---------- ---------
Total Interest-Bearing Deposits............... 81,579 $ 2,740 3.36% 75,767 $ 2,410 3.18%
---------- ---------
Non-Interest Bearing Deposits................... 26,557 23,063
---------- ----------
Total Deposits.................................. $ 108,136 $ 98,830
---------- ----------
</TABLE>
- ------------------------
(1) Rates for the six month period ended June 30, 1998 are based upon annualized
interest expense.
81
<PAGE>
Table 9, "Maturity Distribution of Time Certificates of Deposit of
$100,000", shows the maturity distribution of time deposits of $100,000 or more
and those under $100,000 at June 30, 1998 and December 31, 1997.
TABLE 9--MATURITY DISTRIBUTION OF TIME CERTIFICATES OF DEPOSIT
(DOLLARS IN 000'S)
At December 31, 1997:
<TABLE>
<CAPTION>
THREE AFTER THREE AFTER SIX AFTER ONE
MONTHS OR MONTHS TO MONTHS TO YEAR TO AFTER
LESS SIX MONTHS ONE YEAR THREE YEARS THREE YEARS TOTAL
----------- ----------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$100,000 or more.......................... $ 4,842 $ 5,031 $ 2,857 $ 715 $ 13,445
Under $100,000............................ 5,369 5,640 5,564 2,090 18,663
----------- ----------- ----------- ----------- ----- ---------
Total................................... $ 10,211 $ 10,671 $ 8,421 $ 2,805 $ -- $ 32,108
----------- ----------- ----------- ----------- ----- ---------
----------- ----------- ----------- ----------- ----- ---------
</TABLE>
At June 30, 1998:
<TABLE>
<CAPTION>
THREE AFTER THREE AFTER SIX AFTER ONE
MONTHS OR MONTHS TO MONTHS TO YEAR TO AFTER
LESS SIX MONTHS ONE YEAR THREE YEARS THREE YEARS TOTAL
----------- ----------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$100,000 or more..................... $ 4,378 $ 3,188 $ 5,727 $ 733 $ 14,026
Under $100,000....................... 6,770 4,705 7,419 1,907 $ 30 20,831
----------- ----------- ----------- ------ --- ---------
Total.............................. $ 11,148 $ 7,893 $ 13,146 $ 2,640 $ 30 $ 34,857
----------- ----------- ----------- ------ --- ---------
----------- ----------- ----------- ------ --- ---------
</TABLE>
Table 10, "Financial Ratios", shows certain financial ratios for the period
ended June 30, 1998 and for the last three years.
TABLE 10--FINANCIAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------------
1998 1997 1996 1995
--------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Return on Average Assets(1)........................................ 0.84% 0.87% 0.17% 0.84%
Return on Average Shareholders' Equity(1).......................... 9.78% 10.22% 1.89% 9.42%
Dividend Payout Ratio.............................................. 44.21% 43.98% 240.00% 49.10%
Average Shareholders' Equity to Average Assets Ratio............... 8.61% 8.47% 8.87% 8.95%
</TABLE>
- ------------------------
(1) Ratios for the six month period ended June 30, 1998 is computed based on
annualized net income.
82
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION AND BUSINESS OF AMERICORP. Americorp is a California bank
holding company incorporated in 1988 that is headquartered in the city of
Ventura. The holding company currently has one subsidiary, ACB. ACB was
chartered as a California state chartered bank, and has been operating since
September 1973. ACB offers a wide range of banking services to households,
professionals, and small to medium size businesses. ACB operates four banking
offices in Ventura County: three in Ventura and one in Camarillo.
During 1997 and 1998 ACB continued its growth strategy, reflecting the
improvement in the Ventura County economy. During 1997, management continued its
effort to prepare ACB for continued growth by improving data processing systems,
automating tasks, and opening a new full service branch in Camarillo in
September.
1998 has been a year of change and challenge. In March, ACB's President/CEO
resigned. ACB's Senior Credit Officer was then promoted to President/CEO. The
Bank then hired a new Chief Operating Officer. ACB has a 50% limited partner
interest in two separate limited partnerships (Ventura Affordable Homes, Ltd.
("VAH") and Santa Paula Affordable Homes, Ltd.). Affordable Communities, Inc.
("ACI"), an unrelated entity, is the general partner. Both partnerships were
formed for the purpose of constructing low-to-moderate income housing. Due to
various factors, the Santa Paula development will not commence. The Ventura
development was to construct 151 homes, all of which have been completed. In
January of 1997, a dispute arose between ACB as limited partner and ACI, the
general partner, over the amount of management fees claimed to be owed to the
general partner by VAH. In February 1997, ACB initiated a lawsuit against the
general partner because of the dispute. On May 1, 1998, ACB and ACI negotiated a
complete settlement of the dispute. In connection with the settlement agreement,
both partnerships are being dissolved and ACB has received a cash distribution
in full satisfaction of its 50% interest in the VAH partnership. As a result of
the settlement, ACB will record no gains or losses for either partnership during
1998.
ECONOMIC CONDITIONS. The most comprehensive review of local economic
conditions known to Management comes from the UCSB Economic Forecast Project
which provides both annual forecast information and periodic updates of economic
conditions in ACB's trade area. During 1997, the Ventura County economy
continued down an expansion path that was steady and orderly. With the exception
of the booming housing market, economic growth was generally modest but firm.
Existing businesses have strengthened and are expanding. Absorption of
office and industrial space accelerated in 1997. Home sales soared 18% during
the year, and selling prices generally firmed. The unemployment rate averaged
6.5% during 1997, the lowest rate since 1990. Taxable retail sales increased
4.6% during 1997. A strengthening California economy, the continuous expansion
of the U.S. economy, the unprecedented returns from the financial and equity
markets, and the steady and efficient growth of the farm sector are the
principal reasons for the current prosperity of the Ventura County economy.
STATEMENT OF INCOME ANALYSIS
INCOME SUMMARY. Net income was $1,103,000 in 1997 compared to $203,000 in
1996 and $945,000 in 1995. Basic income per share was $1.91 in 1997, $0.35 in
1996 and $1.67 in 1995, and diluted income per share was $1.66 in 1997, $0.31 in
1996 and $1.41 in 1995. Income for all three years was from normal operations.
However, income from 1996 decreased significantly due to a large loan charge-off
totaling $700,000, a write-down of bank owned mutual funds totaling $148,000 and
a onetime write-down of property owned in connection with the Santa Paula
Affordable Homes, Ltd. partnership totaling $200,000. Income for 1997 increased
due to growth in real estate lending totaling $20,900,000.
ACB reported net earnings of $561,000 or $0.95 basic income per share for
the first six months of 1998. This represents a 9.8% increase over the same
period during 1997 when net earnings were $511,000 or $0.89 basic income per
share.
83
<PAGE>
Return on average assets for 1997 was 0.87% compared with 0.17% for 1996 and
0.84% for 1995. The return on average equity was 10.22% for 1997 compared with
1.89% for 1996 and 9.42% for 1995.
Annualized return on average assets for the six months ended 1998 was 0.84%
compared with 0.82% for the same period during 1997. Annualized return on
average equity for the six months ended 1998 were 9.78% compared with 9.68% for
the same period during 1997.
Quarterly cash dividends of $0.20 per share were paid in January, April of
1995. This amount was increased to $0.21 per share and paid in July and October
1995. Quarterly cash dividends of $0.21 per share were paid in January, April,
July and October in 1997 and 1996. Quarterly cash dividends of $0.21 per share
were paid in January and April of 1998.
NET INTEREST INCOME. Net interest income is the amount by which the
interest and amortization of fees generated from loans and other earning assets
exceeds the cost of funding those assets, usually deposit account interest
expense. Net interest income depends on the difference (the "interest rate
spread") between gross interest and fees earned on the loans and investment
portfolios and the interest rates paid on deposits and borrowings. Net interest
income was $7,002,000 in 1997 compared to $6,052,000 in 1996 and $6,019,000 in
1995. Net interest income was $3,811,000 for the six months ended June 30, 1998,
compared to $3,363,000 for the six months ended June 30, 1997.
Interest income grew $957,000 or 10.9% in 1997 compared with an increase of
$253,000 or 3.0% in 1996 and an increase of $1,002,000 or 13.3% in 1995. The
increased interest income between 1997 and 1996 is comprised of two key
elements, interest on loans and investments. Average outstanding loans for 1997
and 1996 were $74,507,000 and $61,277,000, respectively. This represents a
$13,230,000 average increase. The yield on loans for this period decreased from
10.25% to 10.06% or (0.17%). The increase in average outstanding balance and
decrease in yield resulted in an overall increase in loan interest income
totaling $1,230,000. Average outstanding investments for 1997 and 1996 were
$34,345,000 and $40,620,000, respectively. This represents a $(6,275,000)
average decrease. The yield on investments for this period remained consistent
at 5.66%. The decrease in average outstanding balance and consistent yield
resulted in an overall decrease in investment interest income totaling
$(355,000). Total fees on loans increased during 1997 by $82,000.
Interest income grew $537,000 or 11.4% for six months ended June 30, 1998
compared to the six months ended June 30, 1997. The increased interest income
between these two periods is comprised of two key elements, interest on loans
and investments. Average outstanding loans for interim 1998 and 1997 were
$82,684,000 and $70,627,000, respectively. This represents a $12,057,000 average
increase. The yield on loans for this period increased from 9.96% to 10.03% or
0.07%. The increase in average outstanding balances and increase in yield
resulted in an overall increase in loan interest income totaling $627,000.
Average outstanding investments for interim 1998 and 1997 were $31,238,000 and
$35,303,000, respectively. This represents a $(4,065,000) average decrease. The
yield on investments for this period decreased from 5.87% to 5.60% or (0.27%).
The decrease in average outstanding balance and decrease in yield resulted in an
overall decrease in investment interest income totaling $(162,000). Total fees
on loans increased during interim 1998 by $72,000.
Interest expense on deposits increased $7,000 or 0.3% in 1997 compared to
$220,000 or 8.7% in 1996 and $504,000 or 25.0% in 1995.
Interest expense increased $89,000 or 6.7% for six months ended June 30,
1998 compared to the six months ended June 30, 1997. Average outstanding
interest bearing deposits for interim 1998 and 1997 were $85,659,000 and
$82,549,000, respectively. This represents a $3,111,000 average increase. The
cost on these deposits for this period increased from 3.24% to 3.33% or 0.09%.
The increase in average outstanding balances and increase in cost resulted in an
overall increase to interest expense for this period.
84
<PAGE>
On March 26, 1997 the prime rate changed from 8.25% to 8.50% and remained
steady through June 30, 1998. In 1996 the prime rate decreased to 8.25% from
8.5% on February 1, and remained steady throughout the year. The prime rate
ranged from 9.00% to 8.50% and averaged 8.8% in 1995.
The average loan-to-deposit ratio increased to 65.2% in 1997 compared to
56.7% in 1996 and 59.48% in 1995. At year end the 1997 loan-to-deposit ratio was
70.6%.
For the six months ended June 30, 1998 and 1997 the average loan-to-deposit
ratio increased to 69.0% compared to 63.3%. As of June 30, 1998, the
loan-to-deposit ratio was 67.6%.
PROVISION FOR LOAN LOSSES. During 1997, net loans charged off were $174,000
compared with $866,000 in 1996 and $583,000 in 1995. Net loans charged off for
the six months ended June 30, 1998 was $181,000 compared to $134,000 for the
same period during 1997. Due to growth in the loan portfolio and an increase in
classified assets, the provision for loan losses charged against income in 1997
was $410,000 compared to $346,000 (excluding the one time charge off of $700,000
which brought the total provision for the year to $1,046,000) in 1996. The
provision for 1995 was $554,000. The provision for the six months ended June 30,
1998 was $265,000 compared to $260,000 for the six months ended June 30, 1997
Again, due to the growth in the loan portfolio, management increased the
allowance for loan losses to $1,048,000 as of December 31, 1997 compared to
$812,000 as of December 31, 1996 and $632,000 as of December 31, 1995. As of
June 30, 1998 the allowance was $1,131,000 compared to $938,000 for the same
period during 1997. The provision for loan losses charged against income is
added to the allowance for loan losses. As of December 31, 1997, the allowance
was 1.24% of total loans compared to 1.23% at year end 1996. As of June 30,
1998, the allowance was 1.34% of total loans compared to 1.23% as of June 30,
1997.
NON INTEREST INCOME. Non Interest Income represents deposit account
services charges and other types of non-loan related fee income. Non-interest
income was $1,571,000 in 1997 compared to $1,248,000 in 1996 and $1,384,000 in
1995. This represents an increase of $323,000 or 25.9% between 1997 and 1996.
During 1996 ACB had a write-down on mutual funds of $148,000. During 1997 the
following significant changes were noted: equity in net income in partnerships
decreased by $(164,000); the Bank opened a Real Estate department whose
brokering fees represented $57,000 in income; customer service charges increased
due to growth in overall deposit balances and improved efforts to collect
related fees totaling $106,000; and net investment security sales gains totaled
$54,000.
Non-interest income for the six months ended June 30, 1998 totaled $672,000
compared to $607,000 for the same period during 1997. This represents an
increase of $65,000. The major contributing factor to this difference is an
overall increase of $58,000 in Real Estate brokering fees.
NON INTEREST EXPENSE. Non Interest Expenses represent salaries, occupancy
expenses, professional expenses, outside services and other miscellaneous
expenses necessary to conduct business. Non-interest expense was $6,664,000 in
1997 compared to $6,014,000 in 1996 and $5,678,000 in 1995. This represents an
increase of $650,000 or 10.8% between 1997 and 1996. During 1996 ACB had a
onetime write-down on real estate totaling $200,000. During 1997 the following
significant changes were noted: ACB opened a new branch in Camarillo, CA.,
occupancy expense for the year increased by $103,000 due to increases in rent,
utilities and amortization for leasehold improvements; salary and related
expense increased by $438,000 due to the paying of a bonus during 1997 and an
increased number of employees; legal expense increased by $144,000 due to the
lawsuit with ACI; furniture and equipment expense rose due to the full
implementation of a new bankwide computer network totaling $87,000
Non-interest expense for the six months ended June 30, 1998 totaled
$3,450,000 compared to $2,988,000 for the same period during 1997. This
represents an increase of $462,000. The major contributing factors to this
difference are an overall increase in salaries of $218,000 due to the changes
that have taken place in upper management and the opening of a new branch.
Occupancy expenses are up $87,000 due to the opening of the new branch and a
significant increase in the Common Area Maintenance charges
85
<PAGE>
for one branch and COL increases for another. Other smaller items make up the
balance of the remaining differences.
PROVISION FOR INCOME TAXES. The effective income tax rate was 26% in 1997,
15% in 1996 and 19% in 1995. For the interim period June 30, 1998 and 1997, the
effective tax rate was 27% and 29%, respectively. The accrual method of
accounting is used to compute income taxes for financial accounting purposes and
for income tax return preparation. For further information about the provision
for income taxes during the June 30, 1998 and 1997 interim periods, please refer
to the footnotes to the financial statements included elsewhere in this report.
BALANCE SHEET ANALYSIS
The improvement in the Southern California economy in 1997 and 1998 and
specifically, the improving economy in Ventura County and the community banks
sales opportunities created by large banks' continued industry consolidation are
reflected in the growth of ACB's balance sheets in 1997 and interim 1998. In
1997 ACB attracted quality customers from the larger banks because of the higher
level of personalized service offered. As of December 31, 1997, total assets
increased by 5.6% to $134,212,000 compared to $127,080,000 at year end 1996.
Gross loans grew to $84,702,000 as of December 31, 1997 or 28.5% compared to
$65,939,000 at December 31, 1996.
As of June 30, 1998, total assets increased by 10.4% to $139,824,000
compared to $126,643,000 at June 30, 1997. Gross loans grew to $84,485,000 as of
June 30, 1998, or 13.7% compared to $74,280,000 at June 30, 1997.
Securities and fed funds sold decreased to $31,013,000 as of December 31,
1997 or 29% compared to $43,659,000 as of December 31, 1996. Deposits grew to
$119,968,000 or 5.0% as of December 31, 1997 compared to $114,284,000 as of
December 31, 1996.
Deposits grew to $124,975,000 or 9.9% as of June 30, 1998 compared to
$113,682,000 as of June 30, 1997.
INVESTMENTS. The securities portfolio of ACB serves several purposes: 1) it
provides liquidity to even out cash flows from the loan and deposit activities
of customers; 2) the deposits of public agencies must be secured by certain
assets of ACB as required by law, and portions of any of the portfolio may be
used for this function; 3) it is a large base of assets, the maturity and
interest rate characteristics of which can be changed more readily than the loan
portfolio to better match changes in the deposit base and other funding sources
of ACB; 4) it is an alternative interest-earning use of funds when loan demand
is light; and, 5) it may provide partially tax-exempt income.
ACB's investment portfolio primarily consists of Federal Agency Securities,
Mortgage-backed Securities, Municipal Securities, Mutual Funds and overnight
investments in the Federal Funds market. During 1997 the investment portfolio
decreased by $12,647,000. The yield curve during 1997 shifted downward. This
resulted in several Agency and Municipal securities being called placing a
significant amount of principal dollars back into ACB's hands. Due to high loan
demand, these funds and fed funds dollars were reinvested into loans. See loans
section for a further explanation of loan growth.
During 1998 this trend has continued. However, ACB has increased its fed
funds balance as of June 30, 1998 by $5,800,000 to $8,200,000 compared with
$2,400,000 as of June 30, 1997. This increase is due to ACB's management of
liquidity risk.
LOANS. Loans outstanding, net of loan loss allowance increased to
$83,397,000 as of December 31, 1997, representing growth of 28.4% over the
December 31, 1996 balance of $64,943,000. A strong local economy contributed to
an increase in loan demand, primarily in the real estate sector.
86
<PAGE>
Real Estate loans increased from $11,026,000 at December 31, 1996 to
$31,920,000 at December 31, 1997. This represents an increase of $20,894,000 or
189.5%. Although a significant portion of this increase was attributed to a
reclassification of existing loans due to a data conversion in May 1997, another
contributing factor to the loan growth was the opening of a Loan Production
office in the City of Camarillo in October 1996. Total loans outstanding at this
location grew to $7,545,000 as of December 31, 1997.
For the interim period ending June 30, 1998, outstanding loans totaled
$83,074,000 compared to $73,114,000 as of June 30, 1997. This represents an
increase of $9,960,000 or 13.6%. Real estate loans are up $13,568,000 during
this period for reasons previously discussed. Commercial loans have increased
$3,579,000 due to reclassifying existing loans and the strong local economy.
Consumer loans are down $(2,918,000) or (27.8%) due to loan payoffs and
reclassifications due to the data conversion. Equity lines are down $(2,680,000)
or (22.6%) due primarily to the refinancing of first mortgages and home sales
which have increased significantly in Ventura County during the past twelve
months.
ALLOWANCE FOR LOAN LOSSES. Lending is a risk based business that recognizes
losses despite prudent efforts to minimize risk.
The business of extending loans entails the possibility of risk despite
prudent efforts to minimize exposure. Economic downturns, unexpected changes in
a borrowers cash flow, and competitive pressures are among a myriad of
conditions that affect the timely repayment of loans.
The allowance for loan losses is a valuation reserve against the banks total
loan portfolio representing an amount thought to be adequate to cover future
loan losses. Included in this amount are all loans that have been identified by
management, outside auditors and regulatory agencies as requiring additional
monitoring and collective attention. Also included are loans that management
considers to be potential collection problems.
As of December 31, 1997, the allowance for loan losses was $1,048,000
compared to $812,000 at year end 1996 and $632,000 at year end 1995. As a
percentage of outstanding loans, the allowance was 1.24% as of December 31,
1997, and 1.23% in 1996 and 1.05% in 1995. For the six months ended June 30,
1998, the allowance for loan losses was $1,131,000 compared to $938,000 as of
June 30, 1997. As a percentage of outstanding loans, the allowance was 1.34% as
of June 30, 1998 and 1.27% for the same period during 1997.
Actual charges to the provision for losses charged to expense are as
follows:
<TABLE>
<CAPTION>
YEAR-TO-DATE
PERIOD CHARGES
- -------------------------------------------------------------------------------- ------------
<S> <C>
June 30, 1998................................................................... $ 265,000
June 30, 1997................................................................... $ 260,000
December 31, 1997............................................................... $ 410,000
December 31, 1996............................................................... $ 1,045,600
December 31, 1995............................................................... $ 554,002
</TABLE>
In management's opinion, the allowance for loan losses as of June 30, 1998,
is adequate based upon its ongoing analysis of the loan portfolio. Management
also utilizes an independent loan review company to conduct a quarterly analysis
of the allowance. The most recent external examination conducted as of March 31,
1998, supported the adequacy of the current level of the reserve.
OTHER ASSETS. Bank premises and equipment, other real estate owned,
investment in partnerships and other assets are the four components of other
assets. Other assets as of December 31, 1997, totaled $8,340,000, compared to
$7,936,000 as of December 31, 1996, and $8,985,000 as of December 31, 1995.
Other assets as of June 30, 1998, totaled $5,815,000 compared to $8,240,000 as
of June 30, 1997. The decrease between these two interim periods is $2,425,000.
As previously discussed, ACB is a limited
87
<PAGE>
partner in VAH. During May 1998, ACB was paid back its full investment in the
partnership totaling $2,550,000.
DEPOSITS. In order to meet the demand for loans and to accommodate the
day-to-day activities of it's depositors, the bank maintains an adequate
liquidity position through the use of overnight investments in federal funds and
other short term investments.
CAPITAL. Total shareholders equity at December 31, 1997 totaled
$11,351,000, which represented an 8.4% increase from $10,472,000 at December 31,
1996. At June 30, 1998, shareholder equity was $11,901,000 compared to
$10,718,000 for the same period during 1997.
For all periods reviewed, the Company maintains capital ratios above the
Federal regulatory guidelines for a "well capitalized" bank. The ratios are as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, DECEMBER 31,
REQUIRED -------------------- -------------------------------
RATIO 1998 1997 1997 1996 1995
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets)........................ 4.00% 8.77% 8.42% 8.27% 8.04% 9.21%
Tier 1 Capital (to Risk Weighted Assets).................. 4.00% 10.87% 10.75% 10.05% 11.53% 11.11%
Total Capital (to Risk Weighted Assets)................... 8.00% 11.90% 11.69% 10.98% 12.42% 11.78%
</TABLE>
YEAR 2000. ACB is working to resolve the potential impact of the year 2000
on the ability of ACB's computerized information systems to accurately process
information that may be date-sensitive. Any of ACB's programs that recognize a
date using "00" as the year 1900 rather than the year 2000 could result in
errors or system failures. ACB utilizes a number of computer programs across its
entire operation. ACB has not completed its assessment, but currently believes
that costs of addressing this issue will not have a material adverse impact on
ACB's financial position. However, if ACB and third parties upon which its
relies are unable to address this issue in a timely manner, it could result in a
material financial risk to ACB. In order to assure this does not occur, ACB
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner. See "RISK FACTORS--Year 2000 Risks and Preparedness."
LIQUIDITY. Liquidity is ACB's ability to meet fluctuations in deposit
levels and to provide for the credit needs of its customers. The objective in
liquidity management is to maintain a balance between the sources and uses of
funds. Principal sources of liquidity include interest and principal payments on
loans and investments, proceeds from the maturity of investments and growth in
deposits. ACB holds overnight Federal funds as a cushion from temporary
liquidity needs. During the first six months of 1998, Federal funds averaged
$6,971,000 or 5.22% of total average assets. During the first six month of 1997,
Federal funds averaged $3,428,000 or 2.77% of total average assets. In addition,
ACB maintains Federal funds credit lines with major correspondents totaling
$4,700,000, subject to the customary terms for such arrangements. ACB also
maintains repurchase agreements totaling $10,000,000.
NET INTEREST MARGIN. As previously discussed, net interest income is the
difference between the interest income and fees earned on loans and investments
and the interest expense paid on deposits and other liabilities. The amount by
which interest income exceeds interest expense depends on two factors: the
volume of earnings assets compared to the volume of interest-bearing deposits
and liabilities, and the interest rate earned on those interest earning assets
compared with the interest rate paid on those interest-bearing deposits and
liabilities.
Net interest margin is the net interest income expressed as a percentage of
earning assets. To maintain its net interest margin, the ACB must manage the
relationship between interest earned and paid, and that relationship is subject
to the following types of risks that are related to changes in interest rates.
MARKET RISK. The market values of assets or liabilities on which the
interest rate is fixed will increase or decrease with changes in market interest
rates. If the Bank invests funds in a fixed rate long-term security
88
<PAGE>
and then interest rates rise, the security is worth less than a comparable
security just issued because the older security pays less interest than the
newly issued security. If the older security had to be sold, ACB would have to
recognize a loss. Correspondingly, if interest rates decline after a fixed rate
security is purchased, its value increases. Therefore, while the value changes
regardless of which direction interest rates move, the adverse exposure to
"market risk" is primarily due to rising interest rates. This exposure is
lessened by managing the amount of fixed rate assets and by keeping maturities
relatively short. However, this strategy must be balanced against the need for
adequate interest income because variable rate and shorter fixed rate securities
generally earn less interest than longer term fixed rate securities.
There is market risk relating to ACB's fixed rate or term liabilities as
well as its assets. For liabilities, the adverse exposure to market risk is to
lower rates because ACB must continue to pay the higher rate until the end of
the term. However, because the amount of fixed rate liabilities is significantly
less than the fixed rate assets, and because the average maturity is
substantially less than for the assets, the market risk is not as great.
Net interest margin was 6.49% in 1997 compared to 5.99% in 1996 and 6.31% in
1995. Net interest margin was 6.76% for the six months ended June 30, 1998,
compared to 6.36% for the six months ended June 30, 1997.
The following is a summary of the carrying amounts and estimated fair values
of selected Bank financial assets and liabilities at December 31, 1997:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------------- --------------
<S> <C> <C>
Financial assets:
Securities................................................. $ 25,113,000 $ 25,256,000
Loans, net of allowance for loan losses...................... $ 83,398,000 $ 83,279,000
Financial Liabilities:
Deposits................................................... $ 119,968,000 $ 120,014,000
</TABLE>
Other than a relatively small difference due to credit quality issues
pertaining to loans, the difference between the carrying amount and the fair
value is a measure of how much more or less valuable ACB's financial instruments
are to it than when acquired. The net difference for interest-bearing financial
assets is $24,000. The amount is not deemed to be significant compared to the
outstanding balances taken as a whole.
The net difference for interest-bearing financial liabilities is $46,000.
The amount is not deemed to be significant compared to the outstanding balances
taken as a whole.
MISMATCH RISK. Another interest-related risk arises from the fact that when
interest rates change, the changes do not occur equally in the rates of interest
earned and paid because of difference in the contractual terms of the assets and
liabilities held. ACB has a large portion of its loan portfolio tied to the
prime interest rate. If the prime rate is lowered because of general market
conditions, e.g., other banks are lowering their lending rates; these loans will
be repriced. If ACB were at the same time to have a large proportion of its
deposits in long-term fixed rate certificates, net interest income would
decrease immediately. Interest earned on loans would decline while interest
expense would remain at higher levels for a period of time because of the higher
rate still being paid on the deposits.
A decrease in net interest income could also occur with rising interest
rates if ACB had a large portfolio of fixed rate loans and securities funded by
deposit accounts on which the rate is steadily rising. This exposure to
"mismatch risk" is managed by matching the maturities and repricing
opportunities of assets and liabilities. This is done by varying the terms and
conditions of the products that are offered to depositors and borrowers. For
example, if many depositors want longer-term certificates while most borrowers
are requesting loans with floating interest rates, ACB will adjust the interest
rates on the
89
<PAGE>
certificates and loans to try to match up demand. ACB can then partially fill in
mismatches by purchasing securities with the appropriate maturity or repricing
characteristics.
One of the means of monitoring this matching process is the use of a "gap"
report table. This table shows the extent to which the maturities or repricing
opportunities of the major categories of assets and liabilities are matched
based upon specific interest rate change scenarios and assumptions. ACB utilizes
gap reports assuming simultaneous interest rate shifts of up to +/- 200 basis
points.
The following table shows the estimated impact to net interest income for an
instantaneous shift in various interest rates as of June 30, 1998 (the dollar
change in net interest income represents the estimated change for the next 12
months):
<TABLE>
<CAPTION>
CHANGE IN NET
INTEREST
CHANGE IN INTEREST RATES INCOME
- ------------------------------------------------------------------------------ --------------
<S> <C>
+200 basis points............................................................. $ 226,000
+100 basis points............................................................. $ 113,000
+ 50 basis points............................................................. $ 169,000
- -50 basis points.............................................................. No change
- -100 basis points............................................................. $(244,000 )
- -200 basis points............................................................. $(412,000 )
</TABLE>
ACB has adequate capital to absorb any potential losses as a result of a
decrease in interest rates. Periods of more than one year are not estimated
because steps can be taken to mitigate the adverse effects of any interest rate
changes.
BASIS RISK. A third interest-related risk arises from the fact that
interest rates rarely change in a parallel or equal manner. The interest rates
associated with the various assets and liabilities differ in how often they
change, the extent to which they change, and whether they change sooner or later
than other interest rates. For example, while the repricing of a specific asset
and a specific liability may fall in the same period of a gap report the
interest rate on the asset my rise 100 basis points, while market conditions
dictate that the liability increases only 50 basis points. While evenly matched
in the gap report, ACB would experience an increase in net interest income. This
exposure to "basis risk" is the type of interest risk least able to be managed,
but is also the least dramatic. Avoiding concentration in only a few types of
assets or liabilities is the best insurance that the average interest received
and paid will move in tandem, because the wider diversification means that many
different rates, each with their own volatility characteristics, will come into
play. ACB has made an effort to minimize concentrations in certain types of
assets and liabilities.
90
<PAGE>
MANAGEMENT
The following table sets forth information on those members of the Boards of
Directors of Americorp and ACB who will continue in such positions after the
Merger.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
APPOINTED AS
NAME AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS DIRECTOR AT ACB
- ---------------------------- --- ------------------------------------------------------------ -----------------
<S> <C> <C> <C>
Allen W. Jue................ 62 Owner, Jue's Market 1973
Robert J. Lagomarsino....... 71 VP Lagomarsino's (family business) U.S. Congress, 1974-93 1993
Gerald J. Lukiewski......... 44 Banker, President--ACB 3/98 to Present; S.V.P. Chief Credit 1998
Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97;
prior thereto various positions with Santa Barbara Bank &
Trust Co. and Bank of A Levy
E. Thomas Martin............ 55 MW Sign Corp, President 1996
Harry L. Mayhard............ 70 Retired, former President of American Commercial Bank 1976
</TABLE>
The following table sets forth information on those executive officers of
Americorp and ACB who will continue in such positions after the Merger.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
APPOINTED AS
DIRECTOR OR
NAME AND POSITION AGE BUSINESS EXPERIENCE DURING PAST FIVE YEARS OFFICER AT ACB
- --------------------------- --- --------------------------------------------------------------- -----------------
<S> <C> <C> <C>
Allen W. Jue............... 62 Owner, Jue's Market 1973
Chairman of the Board
Gerald J. Lukiewski ....... 44 Banker, President--ACB 3/98 to present; S.V.P. Chief Credit 1996
President Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97;
Loan Center Manager--Santa Barbara Bank and Trust Company,
3/95 to 9/96; various positions with Bank of A. Levy,
6/90-2/95.
Mary Martha Stewart . 38 Banker, Senior Vice President and Chief Operating Officer--ACB, 1998
Senior Vice President, 3/98 to Present; Senior Vice President Operations--Colonial
Chief Operating Officer Western Agency, Inc., 10/97 to 1/98; Group Vice President and
Area Manger--City National Bank, 1/97 to 9/97; Senior Vice
President Branch Administration--Ventura County National Bank
(acquired by City National), 5/90 to 1/97
</TABLE>
COMPENSATION
None of the persons named in the preceding table relating to executive
officers received compensation from Americorp and/or ACB of $100,000 or more in
1997.
In 1997, each director received $1,000 per month in director's fees except
as indicated in the following sentences. The Secretary to the Board (Mr. Cryne)
received $2,000 per month in fees and the Vice-Chairman of the Board,(Mr.
Lagomarsino) also received $2,000 per month in fees. Mr. Jue (the Chairman of
the Board) received $3,500 per month in fees.
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<PAGE>
During 1998, ACB's Directors' Retirement Plan was terminated and the
benefits payable thereunder frozen. Benefits will only be payable upon
retirement and then either on a lump sum basis or pursuant to a 10 year pay-out.
Directors Cryne, Jue, Lagomarsino and Wood were the only participants in the
plan. It is currently anticipated that the amount of such additional accrual
will be approximately $175,600.
EMPLOYMENT AGREEMENT
In connection with his appointment as President and Chief Executive Officer
of Americorp and ACB, ACB entered into an employment agreement with Gerald J.
Lukiewski as of March 2, 1998. The agreement, as amended and extended, currently
provides for a three year term with an annual salary of $135,000. The agreement
also provides for participation in ACB's bonus plan and certain other benefits,
including vacation, automobile allowance, insurance, retirement benefits and
expense reimbursements. In the event of termination without cause, the agreement
provides for the lesser of (i) three months of additional salary and benefits or
(ii) the remaining salary and benefits due under the term of the agreement.
CERTAIN TRANSACTIONS
Some of the current directors and officers of Americorp and ACB and the
companies with which they are associated have been customers of, and have had
banking transactions with ACB, in the ordinary course of ACB's business, and ACB
expects to continue to have such banking transactions in the future. All loans
and commitments to lend included in such transactions have been made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with persons of similar
creditworthiness, and in the opinion of management of ACB, have not involved
more than the normal risk of repayment or presented any other unfavorable
features.
STOCK OWNERSHIP
Except as set forth in the following table, management of Americorp does not
know of any person who owns beneficially more than 5% of Americorp Stock. The
following table sets forth certain information as of June 30, 1998, concerning
the beneficial ownership of Americorp Stock by each of the current directors of
Americorp and ACB and by all current directors and executive officers of
Americorp and ACB as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
- ---------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
Lincoln E. Cryne.......................................... 18,209(3) 3.03%
Allen W. Jue.............................................. 17,681(4) 2.95%
Robert J. Lagomarsino(5).................................. 41,312(6) 6.94%
Gerald J. Lukiewski....................................... 2,300(7) 0.38%
E. Thomas Martin.......................................... 41,320(8) 6.94%
Harry L. Maynard.......................................... 15,000(9) 2.52%
Catherine S. Wood(5)...................................... 40,408(10) 6.77%
Directors and Executive Officers As a Group (10
persons)................................................ 185,460(11) 30.14%
</TABLE>
- ------------------------
(1) Beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares; (a) voting power, which includes the power to
vote, or to direct the voting of such security; and/or; (b) investment
power which includes the power to dispose, or to direct the disposition of
such security. Beneficial owner also includes any person who has the right
to acquire beneficial ownership of such security as defined above within 60
days of the date specified.
92
<PAGE>
(2) Shares subject to options held by directors and executive officers that
were exercisable within 60 days after the Americorp Record Date ("vested"),
are treated as issued and outstanding for the purpose of computing the
percentage of class owned by such person (or group) but not for the purpose
of computing the percentage of class owned by any other individual person.
(3) Includes 5,000 shares exercisable pursuant to the Americorp stock option
plan.
(4) Includes 5,000 shares exercisable pursuant to the Americorp stock option
Plan.
(5) Directors Lagomarsino and Wood are brother and sister.
(6) Includes 1,000 shares exercisable pursuant to the Americorp stock option
plan.
(7) Includes 1,800 shares exercisable pursuant to the Americorp stock option
plan.
(8) Includes 1,000 shares exercisable pursuant to the Americorp stock option
plan.
(9) Includes 5,000 shares exercisable pursuant to the Americorp stock option
plan.
(10) Includes 2,000 shares exercisable pursuant to the Americorp stock option
plan.
(11) Includes 20,800 shares exercisable pursuant to the Americorp stock option
plan.
BUSINESS OF CIB
GENERAL
CIB commenced operations as a national banking association on September 16,
1985. Effective February 20, 1998, CIB converted to a state-chartered member
bank. CIB is regulated by the DFI and the Federal Reserve Bank ("FRB"). CIB's
deposits are insured up to the maximum legal limits by the FDIC. CIB is also
subject to certain other federal laws and regulations. As of June 30, 1998, CIB
had total assets of approximately $86.9 million, total deposits of $79.3
million, and total stockholders' equity of $7.4 million.
CIB is a community bank conducting a general commercial banking business
that serves individuals, professionals and small to medium-sized businesses. CIB
offers a full range of commercial banking services, including commercial loans,
various types of consumer and real estate loans, the acceptance of check and
savings deposits, money market and Super NOW accounts, and other non-deposit
banking services. CIB's main office and administrative headquarters office are
both located at 300 Esplanade Drive, Oxnard, California 93030 and its telephone
number is (805) 487-6581. CIB maintains two additional branch offices, located
at 155 South A Street, Oxnard, California, and 2510 East Las Posas Road, Suite
M, Camarillo, California.
CIB has not engaged in any material research activities relating to the
development of new services or the improvement of existing CIB services. or the
improvement of existing CIB services.
There as been no significant change in the types of services offered by CIB
since its inception, except in connection with new types of accounts allowed by
statute or regulation in recent years. CIB has no present plans regarding "a new
line of business" requiring the investment of a material amount of total assets.
Most of CIB's business originates from Ventura County and there is no
emphasis on foreign sources and application of funds. CIB's business, based upon
performance to date, does not appear to be seasonal. Except as described above,
a material portion of CIB's loans is not concentrated within a single industry
or group of related industries, nor is CIB dependent upon a single customer or
group of related customers for a material portion of its deposits. Management of
CIB is unaware of any material effect upon CIB's capital expenditures, earnings
or competitive position as a result of federal, state or local environmental
regulation.
93
<PAGE>
CIB holds no patents, licenses (other than licenses obtained from CIB
regulatory authorities), franchises or concessions.
EMPLOYEES
As of June 30, 1998, CIB had a total of 55 full-time employees and 12
part-time employees. The management of CIB believes that its employee's
relations are satisfactory.
COMPETITION
Banking and financial services business in California generally, and in
CIB'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. CIB competes for loans and
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 CIB. In
order to compete with the other financial services providers, CIB principally
relies upon local promotional activities, personal relationships established by
officers, directors and employees with its customers, and specialized services
tailored to meet its customers' needs. CIB maintains three full service-banking
offices in Ventura County.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by CIB on its deposits and its other
borrowings and the interest rate received by CIB on loans extended to its
customer and securities held in CIB's portfolio comprise the major portion of
CIB's earnings. These rates are highly sensitive to many factors that are beyond
the control of CIB. Accordingly, the earnings and growth of CIB are subject to
the influence of domestic and foreign economic conditions, including inflation,
recession and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession) by
its open-market operations in United States Government securities, by adjusting
the required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowings by
depository institutions. The actions of the Federal Reserve Board in these areas
influence the growth of CIB loans, investment and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact of
any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies For example,
legislation has been introduced in Congress that would repeal the current
statutory restrictions on affiliations between commercial banks and securities
firms.
PROPERTIES
All CIB's offices are leased. See Note 5 to the CIB Financial Statements for
certain additional information concerning the amount of CIB's lease commitments.
94
<PAGE>
LEGAL PROCEEDING
CIB is, from time to time, subject to various pending and threatened legal
actions which arise out of the normal course of its business. CIB is not a party
to any pending legal or administrative proceedings (other than ordinary routine
litigation incidental to CIB's business) and no such proceedings are known to be
contemplated.
MANAGEMENT'S DISCUSSION AND ANALYSIS
BUSINESS ORGANIZATION
Channel Islands Bank (CIB) is a California chartered bank headquartered in
Oxnard, California. As of June 30, 1998 CIB operated three full-service branches
in Ventura County, California. Other than investing excess funds, CIB currently
conducts no other significant business activities.
CIB offers a full range of traditional commercial banking products and
services to individuals, merchants, small and medium-sized businesses and
professionals in Ventura County, its primary service area. The commercial
banking services that CIB offers includes the acceptance of checking and savings
deposits, and the making of various types of installment, commercial and real
estate loans. In addition, CIB provides safe deposit, collection, travelers'
checks, and other customary non-deposit banking services. The Bank emphasizes
personalized service and convenience of banking and attracts banking customers
by offering morning through early evening banking hours. CIB has 24-hour
Automated Teller Machines ("ATM's") at all three of its banking offices.
The following sections set forth a discussion of the significant operating
changes, business trends, financial condition, earnings, capital position and
liquidity that have occurred in the two-year period ended December 31, 1997, and
the six month periods ending June 30, together with an assessment, when
considered appropriate, of external factors that may affect CIB in the future.
This discussion should be read in conjunction with CIB's consolidated financial
statements and notes attached hereto as Appendix B.
OVERVIEW
CIB earned net income of $800,000 for the year ended December 31, 1997,
representing an increase of $474,000, or 168% over 1996 income of $326,000. On a
diluted per common share basis, net income for 1997 was $1.60 compared to $.66
per share for the preceding year. The improvement in net income in 1997 was
primarily due to growth in net interest income and noninterest income that
outpaced increases in operating expenses. Net income in 1997 benefited from the
sale of mortgage servicing rights which resulted in a gain of $492,000 reflected
in the Statements of Income as other income. These and other factors are
discussed in more detail later in this analysis.
Net income for the six month period ending June 30, 1998 was $338,000, a
decrease of $4,000, or 1% over income of $342,000 for the six month period
ending June 30, 1997. This decrease was primarily due to an increase in salaries
and benefits related to increases in staff, and to costs related to the
application for the state banking charter.
Common shareholder's equity increased by $960,000 or 17.2% during 1997 from
$5,596,000 at December 31, 1996 to $6,556,000 at December 31, 1997, through the
retention of earnings and the exercise of stock options. It is the objective of
management to maintain adequate capital for future growth through retention of
earnings. In both 1997 and 1996 CIB paid two semiannual cash dividends of $0.10.
Common Shareholders' Equity was $7,440,000 on June 30, 1998, a $884,000, or
13.5%, increase over the December 31, 1997 balance of $6,556,000 through the
retention of earnings and the exercise of stock options. CIB paid a $0.10 cash
dividend during the six month period ending June 30, 1998.
95
<PAGE>
The following table sets forth several key operating ratios for 1997 and
1996, and for the six month periods ending June 30 1998 and 1997 (dollars in
thousands).
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
-------------------- --------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Return on average assets.......................................................... 0.77% 0.88% 0.99% 0.42%
Return on average equity.......................................................... 9.45% 11.73% 13.28% 5.86%
Average shareholders' equity to average Assets.................................... 8.24% 7.57% 7.50% 7.21%
</TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY
The following table presents, for the years indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, and the dollar amounts of interest expense and average
interest-bearing liabilities, expressed both in dollars and in rates. Nonaccrual
loans are included in the calculation of the average balances of loans, and
interest not accrued is excluded (dollar amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
EARNING ASSETS BALANCE INTEREST YIELD BALANCE INTEREST YIELD
- --------------------------------------- ------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
U.S. treasuries(2)..................... 680 17 5.00% 993 62 6.24%
U.S. government agencies(2)............ 5,292 151 5.71% 5,250 334 6.36%
Municipal agencies..................... 76 2 5.26% 77 4 5.19%
Mutual funds(2)........................ 2,765 82 5.93% 2,001 119 5.95%
Corporate bonds(2)..................... 4,693 140 5.97% 412 26 6.31%
Other securities....................... 119 3 5.04% 173 9 5.20%
Total Investment Securities.......... 13,625 395 5.80% 8,906 554 6.22%
Federal funds sold..................... 7,325 200 5.46% 11,057 612 5.53%
Due from banks- time deposits.......... 1,246 37 5.94% 1,491 89 5.97%
Loans(1)............................... 55,585 2,795 10.06% 50,788 5,571 10.97%
Total Interest Earning Assets........ 77,781 3,427 8.81% 72,242 6,826 9.45%
Interest Bearing Liabilities
Domestic Deposits and Borrowed Funds
Savings deposits(3).................. 30,971 341 2.20% 30,904 754 2.44%
Time Deposits.......................... 25,056 665 5.31% 21,330 1,125 5.27%
Short-term borrowings
Total Interest Bearing Liabilities... 56,027 1,006 3.59% 52,234 1,879 3.60%
<CAPTION>
DECEMBER 31, 1996
----------------------------
AVERAGE AVERAGE
EARNING ASSETS BALANCE INTEREST YIELD
- --------------------------------------- ------- -------- -------
<S> <C> <C> <C>
Investment Securities
U.S. treasuries(2)..................... 475 30 6.32%
U.S. government agencies(2)............ 4,474 290 6.48%
Municipal agencies..................... 77 4 5.19%
Mutual funds(2)........................ 1,958 115 5.87%
Corporate bonds(2)..................... 405 26 6.42%
Other securities....................... 349 10 2.87%
Total Investment Securities.......... 7,738 475 6.14%
Federal funds sold..................... 14,259 561 3.93%
Due from banks- time deposits.......... 2,012 116 5.77%
Loans(1)............................... 47,090 5,175 10.99%
Total Interest Earning Assets........ 71,099 6,327 8.90%
Interest Bearing Liabilities
Domestic Deposits and Borrowed Funds
Savings deposits(3).................. 29,180 732 2.51%
Time Deposits.......................... 21,131 1,121 5.31%
Short-term borrowings
Total Interest Bearing Liabilities... 50,311 1,853 3.68%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total interest income(1).................................... 3,604 6,826 6,327
Total interest expense(4)................................... 1,006 1,879 1,853
Total interest earnings(1).................................. 2,598 4,947 4,474
Total average earning assets................................ 77,781 72,242 71,099
Net yield on average earning assets(1)...................... 6.7% 6.8% 6.3%
Net yield on average earning assets (excluding loan
fees)(1).................................................. 5.5% 6.1% 5.5%
</TABLE>
- ------------------------
(1) Loans, net of unearned income, include non-accrual loans but do not reflect
average reserves for probable loan losses of $919,000 in June, 1998,
$769,000 in 1997 and $391,000 in 1996. Loan fees of $278,000 in June, 1998,
$506,000 in 1997 and $581,000 in 1996 are included in loan interest income.
There were no loans on non-accrual for the periods ending June 30, 1998 and
December 31, 1997 and two non-accruing loans totaling approximately $202,000
at December 31, 1996.
(2) The yield for securities that are classified as available-for-sale is based
on historical amortized cost balances.
(3) Savings deposits includes Savings, NOW, and Money Market deposit accounts.
(4) Includes Savings, NOW, and Money Market Deposit Accounts, and Time Deposits.
96
<PAGE>
EARNINGS ANALYSIS
NET INTEREST INCOME. Net interest income refers to the difference between
the interest paid on deposits and borrowings, and the interest earned on loans
and investments. It is the primary component of the earnings of a financial
institution. The primary factors that impact net interest income are the
composition and volume of interest-earning assets and interest-bearing
liabilities, the amount of noninterest-bearing liabilities and nonaccrual loans,
and changes in market interest rates.
Net interest income for 1997 was $4.9 million or 6.8% of interest-earning
assets compared to $4.5 million and 6.3% of interest-earning assets in 1996. The
increase in 1997 compared to 1996 is primarily attributable to increases in the
amounts of interest-earning assets.
Net interest income for the six month period ending June 30, 1998 is $2.6
million, an increase of $200,000 from the $2.4 million for the six month period
ending June 30, 1997. The increase is primarily attributable to increases in the
amount of interest-earning assets.
Interest income for 1997 was $6.8 million compared to $6.3 million for 1996.
The increase in 1997 is primarily due to overall growth in interest-earning
assets.
Interest income for the period ending June 30, 1998 was $3.6 million
compared to $3.3 million for the period ending June 30, 1997, a $300,000
increase. This increase is primarily attributable to overall growth in
interest-bearing assets.
Interest expense has remained fairly stable in both amount and rate over the
past two years. Total interest expense was $1.9 million in both 1997 and 1996.
The overall rate paid on interest-bearing liabilities was 3.59% in 1997 and
3.68% in 1996.
Interest expense increased $100,000 from $0.9 million to $1.0 million for
the six month periods ended June 30, 1997 and June 30, 1998, respectively. This
increase was primarily due to overall growth in interest-bearing deposits.
The following table sets forth changes in interest income and interest
expense for each major category of interest-earning asset and interest-bearing
liability, and the amount of change attributable to volume and rate changes for
the years indicated. Changes not solely attributable to rate or volume have been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the changes in each (dollar amounts in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
VERSUS VERSUS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
------------------------------------- -------------------------------------
INCREASE (DECREASE) DUE TO CHANGE IN INCREASE (DECREASE) DUE TO CHANGE IN
------------------------------------- -------------------------------------
RATE VOLUME TOTAL RATE VOLUME TOTAL
----- ----------- ----- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment Securities:
Taxable.................................. (19) 180 161 (7) 86 79
Non-Taxable(1)........................... 0 0 0 0 0 0
Federal Funds Sold......................... 2 (71) (69) 114 (63) 51
Time Deposits.............................. 0 (7) (7) 4 (31) (27)
Loans(2)................................... (147) 204 57 (10) 406 396
--- --- --- --- --- ---
Total Interest Income.................... (164) 306 142 101 398 499
INTEREST-BEARING LIABILITIES:
Savings Deposits........................... (33) 18 (15) (19) 41 22
Time Deposit CD............................ 16 122 138 (6) 10 4
--- --- --- --- --- ---
Total Interest Expense................... (17) 140 123 (25) 51 26
--- --- --- --- --- ---
Net-Interest Income...................... (147) 166 19 126 347 473
--- --- --- --- --- ---
--- --- --- --- --- ---
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
VERSUS
YEAR ENDED
DECEMBER 31, 1995
-----------------------------------
INCREASE (DECREASE) DUE TO CHANGE
IN
-----------------------------------
RATE VOLUME TOTAL
----- ----------- ---------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment Securities:
Taxable.................................. 68 (33) 35
Non-Taxable(1)........................... 0 0 0
Federal Funds Sold......................... (50) 148 98
Time Deposits.............................. (53) 3 (50)
Loans(2)................................... (450) 1,476 1,026
--- ----- ---------
Total Interest Income.................... (485) 1,594 1,109
INTEREST-BEARING LIABILITIES:
Savings Deposits........................... 41 (10) 31
Time Deposit CD............................ (7) 500 493
--- ----- ---------
Total Interest Expense................... 34 490 524
--- ----- ---------
Net-Interest Income...................... (519) 1,104 585
--- ----- ---------
--- ----- ---------
</TABLE>
97
<PAGE>
NONINTEREST INCOME. Noninterest income increased $400,000 in 1997 from $.7
million in 1996 to $1.1 million in 1997. During 1997 CIB sold the servicing
rights on mortgage loans totaling approximately $54 million. CIB received
$492,000 from the sale which represents approximately 90% of the proceeds from
the sale. CIB will receive the balance of the proceeds in 1998.
Noninterest income increased $98,000 from $354,000 for the six month period
ending June 30, 1997 to $453,000 for the same six month period in 1998. This
increase resulted primarily from increases in deposit account service charges
and a gain on the sale of a property classified as other real estate owned.
NONINTEREST EXPENSE. Noninterest expense reflects the costs of products and
services related to systems, facilities and personnel for CIB.
Noninterest expense for 1997 was $4.3 million, a net increase of $400,000 or
10.9% from the $3.9 million reported in 1996. One significant component of this
increase was salaries and employee benefits which increased $193,000, primarily
from increased staffing levels. Costs related to the corporate office move and
to the application for a state banking charter also increased costs in 1997.
Noninterest expense for the six month period ending June 30, 1998 was $2.4
million, a $300,000 increase from $2.1 million for the first six months of 1997.
Increase in salaries and benefits, related to staff increases, accounted for
$148,000 of this increase. An increase in occupancy costs related to the move of
the corporate office, and legal costs related to the application for the state
banking charter account for most of the balance of the difference.
INCOME TAXES. CIB's income tax provisions were $576,000 and $235,000 for
1997 and 1996, respectively. The effective tax rate was 41.9% in 1997 and 42.0%
in 1996.
Income taxes were $236,000 for the six month period ending June 30, 1998,
and $248,000 for the six month period ending June 30, 1997.
BALANCE SHEET ANALYSIS
Total assets of CIB at December 31, 1997 were $89.0 million compared to
$74.6 million on December 31, 1996, representing an increase of 19.3%. Based on
average balances, total assets of $80.3 million in 1997 represent a 4.3%
increase over $77.0 for 1996.
98
<PAGE>
CIB's total assets at June 30, 1998 was $86.9 million, and increase of $6.2
million, representing and increase of 7.7% over the June 30, 1997 balance of
$80.7 million.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
JUNE 30, 1998 --------------------------------------------
--------------------- 1997 1996
AVERAGE PERCENT AVERAGE PERCENT AVERAGE PERCENT
BALANCE OF TOTAL BALANCE OF TOTAL BALANCE OF TOTAL
--------- ---------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets
Investment Securities
Taxable....................................... 13,478 15.54% 8,782 10.94% 7,662 9.96%
Non-taxable..................................... 76 0.09% 77 0.10% 77 0.10%
Federal funds sold.............................. 7,325 8.45% 11,057 13.78% 14,259 18.53%
Due from banks--time deposits................... 1,246 1.44% 1,491 1.86% 2,012 2.61%
Loans........................................... 55,585 64.09% 50,788 63.28% 47,090 61.19%
Reserve for loan and lease losses............... (919) -1.06% (769) -0.96% (851) 1.10%
Net Loans and Leases.......................... 54,666 63.03% 50,019 62.32% 46,239 60.09%
Total Interest Earning Assets................. 76,791 88.55% 71,426 89.00% 70,249 91.29%
Cash and non-interest earning deposits.......... 7,967 9.18% 7,077 8.82% 5,348 6.95%
Net premises, furniture and equipment........... 993 1.14% 887 1.10% 584 0.76%
Other assets.................................... 985 1.13% 874 1.08% 773 1.00%
Total Assets.................................. 86,736 100.00% 80,264 100.00% 76,954 100.00%
Liabilities and Stockholders' Equity
Savings deposits (1)............................ 30,971 35.71% 30,904 38.51% 29,180 37.92%
Time deposits................................... 25,056 28.89% 21,330 26.57% 21,131 27.46%
Short-term borrowings
Total Interest-bearing Liabilities............ 56,027 64.60% 52,234 65.07% 50,311 65.38%
Demand deposits................................. 23,386 26.96% 21,768 27.12% 20,864 27.11%
Other liabilities............................... 174 0.20% 242 0.30% 224 0.29%
Total Liabilities............................. 79,587 91.76% 74,244 92.50% 71,399 92.78%
Stockholders' Equity............................ 7,149 8.24% 6,020 7.50% 5,554 7.22%
Total Liabilities and Stockholders'
Equity...................................... 86,736 100.00% 80,264 100.00% 76,954 100.00%
</TABLE>
- ------------------------
(1) Includes Savings, NOW, and Money Market Accounts.
99
<PAGE>
INVESTMENT PORTFOLIO
The following table summarizes the amounts and distribution of CIB's
investment securities held as of the dates indicated, and the weighted average
yields as of December 31, 1997:
<TABLE>
<CAPTION>
JUNE 30, 1998
-----------------------------------------------------------------
WITHIN ONE YEAR AFTER ONE BUT WITHIN FIVE YEARS
------------------------------- -------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------- -------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agencies.................... -- 0.00% 999 5.65% -- 0.00% 3,044 6.11%
Corporate debt securities................... -- 0.00% 2,013 6.34% -- 0.00% 3,421 6.08%
Other securities............................ -- 0.00% 2,631 5.74% 76 4.80% -- 0.00%
--
------ ----- ------ ----- ----- ------ -----
Total....................................... -- 0.00% 5,643 6.01% 76 4.80% 6,465 6.10%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------
WITHIN ONE YEAR AFTER ONE BUT WITHIN FIVE YEARS
------------------------------- -------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------- -------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agencies.................... -- 0.00% 4,491 5.63% -- 0.00% 4,509 6.47%
Corporate debt securities................... -- 0.00% 1,500 5.92% -- 0.00% 1,417 6.61%
Other securities............................ -- 0.00% 2,154 6.05% 77 4.80% -- 0.00%
--
------ ----- ------ ----- ----- ------ -----
Total....................................... -- 0.00% 8,145 5.79% 77 4.80% 5,926 6.50%
</TABLE>
Securities may be pledged to meet security requirements imposed as a
condition to receipt of deposits of public funds and other purposes. At December
31, 1997 and 1996, and June 30, 1998 the carrying values of securities pledged
to secure public deposits and other purposes were $500,052, $501,633 and
$500,000, respectively.
LOAN PORTFOLIO
The following table set forth the components of total net loans outstanding
in each category at the date indicated:
<TABLE>
<CAPTION>
TYPES OF LOANS JUNE 30,1998, DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------- ------------- ----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Domestic
Commercial and industrial.................................... 15,079 12,745 14,110
Real estate construction..................................... 2,764 1,584 2,658
Real estate mortgage......................................... 28,946 26,104 22,697
Installment loans to individuals............................. 12,742 12,216 12,561
All other loans (including overdrafts)....................... 91 163 18
Less:
Unearned income.............................................. 1,331 1,265 1,466
Reserve for loan and lease losses............................ 930 918 723
Total........................................................ 57,361 50,629 49,855
</TABLE>
Average loans in 1997 were $50.8 million representing an increase of 7.9%
over 1996. Average loans represented 63.28% of average assets in 1997 compared
to 61.19% 1996. Average loans were $55.6 million representing 64.09% of average
assets for the six month period ending June 30, 1998.
Commercial and industrial loans consist of credit lines for operating needs,
loans for equipment purchases and working capital, and various other business
purposes. At December 31, 1997, CIB had
100
<PAGE>
commercial loans outstanding representing 24.1% of total loans compared to 27.1%
at December 31, 1996. Commercial loans represented 25.3% of total loans at June
30, 1998.
Real estate construction loans expressed as a percentage of total loans were
3.0% and 5.1% at December 31, 1997 and 1996, respectively. Construction loans
were 4.6% of total loans on June 30, 1998. The construction loans outstanding
are generally composed of commitments to customers within CIB's service area for
construction of custom, semi-custom single family residences, and industrial
buildings.
Real estate mortgage loans, which consist primarily of loans to CIB's
depositors secured by trust deeds on commercial and residential real estate,
expressed as a percentage of total loans were 49.5% and 43.6% at December 31,
1997 and 1996, respectively. At $28.9 million, other real estate loans represent
48.6% of total loans on June 30, 1998.
Installment loans to individuals and all other loans include a range of
traditional consumer loan products offered by CIB such as home equity and
personal lines of credit and loans to finance purchases of autos, boats,
recreational vehicles, and various other consumer items. Dealer loans, which are
automobile loans purchased from local automobile dealers, are included in this
category. Unearned discounts on dealer loans are recognized as income over the
term of the loans by the sum-of-the-month-digits method (Rule of 78's.) At
December 31, 1997, consumer loans outstanding were $12.4 million representing
23.5% of total loans. This compares to consumer loans of $12.6 million
representing 24.2% of total loans at December 31, 1996. Consumer loans
outstanding were $12.8 million representing 21.5% of total loans on June 30,
1998.
RISK ELEMENTS
CIB assesses and manages credit risk on an ongoing basis through lending
policies. Management strives to continue the historically low level of credit
losses by continuing its emphasis on credit quality in the loan approval
process, active credit administration and regular monitoring.
In extending credit and commitments to borrowers, CIB generally requires
collateral and/or guarantees as security. The repayment of such loans is
expected to come from cash flow or from proceeds from the sale of selected
assets of the borrower. CIB's requirement for collateral and/or guarantees is
determined on a case-by-case basis in connection with management's evaluation of
the credit worthiness of the borrower. Collateral held varies but may include
accounts receivable, inventory, plant and equipment, income-producing
properties, residences and other real property. CIB secures its collateral by
perfecting its interest in business assets, obtaining deeds of trust, or
outright possession among other means.
CIB provides the community with three general categories of loans: (i)
commercial, (ii) consumer and (iii) real estate. Within each of these
categories, CIB makes available various types of loans. For example, CIB makes
commercial loans for working capital lines of credit, term loans, equipment
loans, consumer loans for automobile purchases, secured and unsecured personal
loans, overdraft protection, and real estate loans for single family residence
purchases, commercial/industrial building purchases, home equity lines of credit
and construction loans. In each instance, CIB has established specific
underwriting guidelines and policies. While it is recognized that there is
inherent risk in the granting of credit, it is through the establishment and
adherence to specific underwriting guidelines and policies for each type of loan
that CIB endeavors to mitigate this risk. Additionally, CIB has established
specific loan limits for lending personnel. Loans in excess of these limits
require further approval of a Directors' Loan Committee and may involve the
approval of the entire Board of Directors.
CIB has established a loan review/classification system to detect and follow
credits that have a greater than a normal degree of risk. Further, CIB has
developed a methodology to provide for an adequate Allowance for Loan and Lease
Losses ("ALLL"). This methodology involves the analysis of various pools of
loans utilizing the loan loss history for those pools, a system of loan
migration analysis and a provision for Year 2000 risk. Additionally, CIB adjusts
the ALLL based on an analysis of the trend in past due and non-accrual loans;
the trend in the volume and severity of problem credits; the volume and nature
of the existing loan portfolio; concentration of credits in the loan portfolio;
changes in lending policies and
101
<PAGE>
systems; and changes in the experience, ability, and depth of lending personnel;
off balance sheet credit risk; international credit risk and trends in the
national, state and local economy.
Further, CIB has segmented its real estate loan portfolio and established
specific concentration limits as a percentage of capital permitted in each
category. An aggregate limit of real estate loans as a percentage of total
assets has also been established. The vast majority of single family residence
loans originated by CIB are underwritten to specific investor guidelines and
resold into the secondary market, further mitigating the concentration and
credit risk within this category.
Management believes that its lending policies and underwriting standards
will tend to minimize losses in an economic downturn, however, there is no
assurance that losses will not occur under such circumstances.
NONPERFORMING ASSETS
Management generally places loans on nonaccrual status when they become 90
days past due, unless the loan is well secured and in the process of collection.
Loans are charged-off when, in management's opinion, collection appears
unlikely. The following table provides information with respect to the
components of CIB's nonperforming assets at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ----------------------
1997 1996 1998 1997
----- --------- ----- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Accruing Loans More Than 90 Days Past Due
Aggregate loan amounts
Commercial, financial and agricultural.......................................... $ 40 $ 15 $ 40 $ 50
Real estate.....................................................................
Installment loans to individuals................................................ 40 13 25 22
Aggregate leases..................................................................
Renegotiated loans..................................................................
Non-accrual loans...................................................................
Aggregate loan amounts
Commercial...................................................................... 41 1
Real estate..................................................................... 383 197
Installment loans to individuals................................................ 23 19
--- --------- --- ---------
$ 80 $ 475 $ 65 $ 289
--- --------- --- ---------
--- --------- --- ---------
</TABLE>
Interest due but excluded from interest income in nonaccrual loans was
approximately $0 in 1998 and 1997, and $39,000 in 1996. No payments received on
nonaccrual loans were included in interest income in 1998, 1997 and 1996.
The average recorded investment in loans that are considered impaired under
SFAS No. 114 was $293,000 in 1997, and $812,000 for 1996, and $0 for the six
months ended June 30, 1998, which are included as nonaccrual loans above. Such
impaired loans had a valuation allowance of $0 on December 31, 1997 and June 30,
1998, and $42,721 for December 31, 1996. CIB recognized no interest on impaired
loans in 1997 or 1996.
Other real estate owned is acquired through foreclosure or other means.
These properties are recorded on an individual basis at the estimated fair
values less selling expenses. At December 31, 1997, other real estate owned was
comprised of one commercial building with a carrying value of $152,000. This
property was subsequently sold resulting in a $0 balance in other real estate
owned on June 30, 1998.
102
<PAGE>
PROVISION AND ALLOWANCE FOR LOAN LOSS
The allowance for loan losses is maintained at a level that is considered
adequate to provide for the loan losses inherent in CIB's loans. The provision
for loan losses was $370,000 in 1997, $696,000 in 1996, and $58,000 for the six
month period ending June 30, 1998.
The following table summarizes, for the years indicated, changes in the
allowances for loan losses arising from loans charged-off, recoveries on loans
previously charged-off, and additions to the allowance which have been charged
to operating expenses and certain ratios relating to the allowance for loan
losses:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
JUNE 30, 1998 1997 1996
------------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Loans and Leases Outstanding, Period End (1)................................. $ 58,291 $ 49,821 $ 49,021
Average Amount of Loans and Leases Outstanding (1)........................... $ 55,585 $ 50,788 $ 47,090
Loans and Lease Loss Reserve Balance, Beginning of Period.................... $ 918 $ 723 $ 732
Charge-offs
Domestic
Commercial, financial & agricultural................................. 10 207 581
Real estate--construction............................................ -- -- --
Real estate--mortgage................................................ -- -- 81
Consumer loans....................................................... 138 231 112
Lease financing...................................................... -- -- --
------------- --------- ---------
148 438 774
Recoveries
Domestic
Commercial, financial & agricultural................................. 73 217 25
Real estate--construction............................................ -- -- --
Real estate--mortgage................................................ 14 30 11
Consumer loans....................................................... 15 16 33
Lease financing...................................................... -- -- --
------------- --------- ---------
102 263 69
------------- --------- ---------
Net charge-offs/(recoveries)................................................. 46 175 705
Additions/(Reductions) charged to operations................................. 58 370 696
Loan and Lease Loss Reserve balance..........................................
------------- --------- ---------
End of period.............................................................. $ 930 $ 918 $ 723
------------- --------- ---------
------------- --------- ---------
Ratio of Net Charge-offs/(Recoveries) During the Year to Average Loans and
Leases Outstanding During the Year......................................... 0.08% 0.34% 1.50%
Ratio of Reserve for Loan Losses to Loans at Period End...................... 1.60% 1.84% 1.47%
</TABLE>
- ------------------------
(1) Loans, net of unearned income
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans and leases,
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, both Federal and state regulators, as an integral part
of their examination process, periodically review CIB's allowance for loan
losses and may recommend additions based upon their evaluation of the portfolio
at the time of their examination.
103
<PAGE>
The following table summarizes the allocation of the allowance for loan
losses by loan type for the years indicated and the percent of loans in each
category to total loans (dollar amounts in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- -------------------------------- --------------------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH LOANS IN EACH
ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO ALLOWANCE CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------------- ------------- ------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Commercial............... 253 25.29% 228 24.11% 234 27.06%
Real Estate-
Construction........... 13 4.64% 15 3.00% 20 5.11%
Real Estate.............. 186 48.55% 289 49.45% 326 43.64%
Consumer................. 194 21.52% 120 23.45% 123 24.19%
Unallocated.............. 284 n/a 266 n/a 20 n/a
--- ------ --- ------ --- ------
Total................ 930 100.00% 918 100.00% 723 100.00%
--- ------ --- ------ --- ------
--- ------ --- ------ --- ------
</TABLE>
FUNDING
Deposits are CIB's primary source of funds. At December 31, 1997, CIB had a
deposit mix of 37.8% in time and savings deposits, 32.2% in money market and NOW
deposits, and 30.0% in noninterest-bearing demand deposits. CIB net interest
income is enhanced by its percentage of noninterest-bearing deposits.
At June 30, 1998, CIB had a deposit mix of 40.8% in time and savings
deposits, 28.2% in money market and NOW deposits, and 31.0% in
noninterest-bearing demand deposits
The following table summarizes the distribution of average deposits and the
average rates paid for the years indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
FOR PERIOD ENDED
JUNE 30, 1998 1997 1996
---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
In Domestic Offices
Noninterest bearing demand deposits............... $ 23,386 -- $ 21,768 -- $ 20,864 --
Savings deposits (1).............................. 30,971 2.2% 30,904 2.4% 29,180 2.5%
Time deposits..................................... 25,056 5.3% 21,330 5.3% 21,131 5.3%
-- -- --
--------- --------- ---------
Total Deposits.................................. $ 79,413 3.6% $ 74,002 3.6% $ 71,175 3.7%
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------------------
(1) Savings deposits include Savings, NOW, and Money Market deposit accounts.
The scheduled maturity distribution of CIB's time deposits of $100,000 or
greater, as of December 31, 1997, were as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Three months or less................................................... $ 3,506
Over three through 12 months........................................... 6,247
Over one through five years............................................ 1,033
-------
$ 10,786
-------
-------
</TABLE>
104
<PAGE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
LIQUIDITY. Liquidity management refers to CIB's ability to provide funds on
an ongoing basis to meet fluctuations in deposit levels as well as the credit
needs and requirements of its clients. Both assets and liabilities contribute to
CIB's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. CIB
assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. Commitments to fund loans and outstanding
letters of credit at June 30, 1998, December 31, 1997, and December 31, 1996
totaled approximately $17.2, $12.6 million, and $8.3 million, respectively. Such
loans relate primarily to revolving lines of credit, construction loans and
other commercial loans.
CIB's sources of liquidity consist of its deposits with other banks,
overnight funds sold to correspondent banks and unpledged short-term, marketable
investments. On December 31, 1997, liquid assets totaled $32.4 million or 36.4%
of total assets as compared to $27.2 million or 36.5% of total assets on
December 31, 1996. On June 30, 1998 liquid assets totaled $27.2 million or 31.3%
of total assets. In addition to liquid assets, CIB maintains lines of credit
with correspondent banks available on a short-term basis. Informal agreements
are also in place with various other banks to purchase participations in loans,
if necessary.
INTEREST RATE SENSITIVITY. Interest rate sensitivity is a measure of the
exposure to fluctuations in CIB's future earnings caused by fluctuation in
interest rates. Such fluctuations result from the mismatch in repricing
characteristics of assets and liabilities at a specific point in time. This
mismatch, or interest rate sensitivity gap, represents the potential mismatch in
the change in the rate of accrual of interest revenue and interest expense from
a change in market interest rates. Mismatches in interest rate repricing among
assets and liabilities arise primarily from the interaction of various customer
businesses (i.e. types of loans versus the types of deposits maintained) and
from management's discretionary investment and funds gathering activities. CIB
attempts to manage its exposure to interest rate sensitivity, but due to its
size and direct competition from the major banks, it must offer products which
are competitive in the market place, even if less than optimum with respect to
its interest rate exposure.
The table below sets forth the interest rate sensitivity of CIB's
interest-earning assets and interest-bearing liabilities as of June 30, 1998,
using the interest rate sensitivity gap ratio. For purposes of the
105
<PAGE>
following table, an asset or liability is considered rate sensitive with a
specified period when it can be repriced or matures within it contractual terms:
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------------------------------------
THREE OVER THREE OVER ONE
MONTHS THROUGH THROUGH OVER FIVE NON-INTEREST
OR LESS 12 MONTHS FIVE YEARS YEARS BEARING TOTAL
--------- ----------- ----------- ----------- ------------ ---------
(DOLLAR IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits in banks......... 595 497 -- -- -- 1,092
Federal funds sold......................... 5,950 -- -- -- -- 5,950
Investment securities...................... 2,449 3,012 6,539 183 -- 12,183
Net loans and leases....................... 35,295 604 12,359 10,072 (969) 57,361
Noninterest-bearing assets................. -- -- -- -- 10,340 10,340
--------- ----------- ----------- ----------- ------------ ---------
Total assets............................... 44,289 4,113 18,898 10,255 9,371 86,926
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits............... -- -- -- -- 24,629 24,629
Interest-bearing deposits.................. 30,846 15,137 2,320 6,353 -- 54,656
Other liabilities.......................... -- -- -- -- 201 201
Stockholders' Equity....................... -- -- -- -- 7,440 7,440
--------- ----------- ----------- ----------- ------------ ---------
Total Liabilities and Stockholders'
Equity................................... 30,846 15,137 2,320 6,353 32,270 86,926
Interest Rate Sensitivity Gap.............. $ 13,443 $ (11,024) $ 16,578 $ 3,902 $ (22,899) $ 0
--------- ----------- ----------- ----------- ------------ ---------
Cumulative Interest Rate Sensitivity Gap... $ 13,443 $ 2,419 $ 18,997 $ 22,899 $ 0
--------- ----------- ----------- ----------- ------------ ---------
--------- ----------- ----------- ----------- ------------ ---------
</TABLE>
CAPITAL RESOURCES
CIB's total shareholders' equity was $7.4 million on June 30, 1998, $6.6
million at December 31, 1997 and $5.6 million as of December 31, 1996.
CIB is subject to regulations issued by the Department of Financial
Institutions and the FDIC which require maintenance of a certain level of
capital. These regulations impose two capital standards: a risk-based capital
standard and a leverage capital standard.
Under the risk-based capital guidelines, assets reported on an institution's
balance sheet and certain off-balance sheet items are assigned to risk
categories, each of which has an assigned risk weight. Capital ratios are
calculated by dividing the institution's qualifying capital by its period-end
risk-weighted assets. The guidelines establish two categories of qualifying
capital: Tier 1 Capital (defined to include common shareholders' equity and
noncumulative perpetual preferred stock) and Tier 2 Capital defined to include
limited life (and in the case of bank, cumulative) preferred stock, mandatory
convertible securities, subordinated debt, and a limited amount of reserves for
loan and lease losses. Each institution is required to maintain a risk-based
capital ratio (including Tier 1 and Tier 2 capital) of 8%, of which at least
half must be Tier 1 capital.
106
<PAGE>
Under the leverage capital standard an institution is required to maintain a
minimum ratio of Tier 1 capital to the sum of its quarterly average total assets
and quarterly average reserve for loan losses, less intangibles not included in
Tier 1 capital. Period-end assets may be used in place of quarterly average
total assets on a case-by-case basis. A minimum leverage ratio of 3% is required
for institutions which have been determined to be in the highest of five
categories used by regulators to rate financial institutions and which are not
experiencing or anticipating significant growth. All other organizations are
required to maintain leverage ratios of at least 100 to 200 basis points above
the 3% minimum. The table below represents the capital and leverage ratios of
CIB as of December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL NEEDED
----------------------------------------------
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PURPOSES PROMPT CORRECTIVE
ACTUAL PROVISIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998
Total capital to risk-weighted assets............... $ 8,350 11.6% 5,746 8.0% 7,183 10.0%
Tier 1 capital to risk-weighted assets.............. 7,452 10.4% 2,873 4.0% 4,310 6.0%
Tier 1 capital to average assets.................... 7,452 8.5% 3,493 4.0% 4,366 5.0%
As of December 31, 1997
Total capital to risk-weighted assets............... 7,346 11.6% 5,079 8.0% 6,349 10.0%
Tier 1 capital to risk-weighted assets.............. 6,551 10.3% 2,539 4.0% 3,809 6.0%
Tier 1 capital to average assets.................... 6,551 8.2% 3,211 4.0% 4,013 5.0%
As of December 31, 1996
Total capital to risk-weighted assets............... 6,319 11.8% 4,518 8.0% 5,648 10.0%
Tier 1 capital to risk-weighted assets.............. 5,600 9.9% 2,259 4.0% 3,389 6.0%
Tier 1 capital to average assets.................... 5,600 7.4% 2,988 4.0% 3,735 5.0%
</TABLE>
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
substantially revises banking regulation and establishes a framework for
determination of capital adequacy of financial institutions. Under the FDICIA,
financial institutions are placed into one of five capital adequacy categories
as follows: (1) "well capitalized" consisting of institutions with a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based ratio of 6% or
greater and a leverage ratio of 5% or greater, and the institution is not
subject to an order, written agreement, capital directive or prompt corrective
action directive; (2) "adequately capitalized" consisting of institutions with a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and a leverage ratio of 4% or greater, and the
institution does not meet the definition of a "well-capitalized" institution;
(3) "under capitalized" consisting of institutions with a total risk-based
ration of less than 4%; (4) "significantly undercapitalized" consisting of
institutions with a total risk-based capital ratio of less than 6%, Tier 1
risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%;
and (5) "critically undercapitalized" consisting of an institution with a ratio
of tangible equity to total assets that is equal to or less than 2%.
Financial institutions classified as under capitalized or below are subject
to various limitations including, among other matters, certain supervisory
actions by bank regulatory authorities and restrictions relating to (i) growth
of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment
of dividends or other capital distributions, and (vi) payment of management fees
to a parent holding company. The FDICIA requires regulatory authorities to
initiate corrective action regarding financial institutions, which fail to meet
minimum capital requirements. Such actions may, among other matters, require
that the financial institution augment capital and reduce total assets.
Critically undercapitalized financial institutions may also be subject to
appointment of a receiver or conservator unless the financial institution
submits an adequate capitalization plan.
107
<PAGE>
EFFECTS OF INFLATION
The financial statements and related financial information presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates have a more significant impact on a financial institution's
performance than effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or same magnitude as the price of goods
and services.
YEAR 2000 ISSUES
CIB has established a working committee of senior management, a director and
other employees to plan and monitor CIB's compliance with Year 2000 ("Y2K")
issues. This committee has developed a policy setting forth priorities and a
timetable for CIB to follow in this process. The Federal Reserve Bank in their
most recent exam has indicated that CIB was in compliance with the progress
standards established by the Federal Reserve Bank with Y2K issues.
CIB has budgeted expenditures related to its Y2K readiness program. The
budget is made up of two major components. The first component consists of items
that will be expensed directly to net income including the salaries and benefits
of dedicated Y2K personnel, public relations, customer and employee awareness
programs, training, professional assistance through consultants and third party
reviews. This is budgeted at $115,000. As of June 30, 1998, $15,000 or 13% of
this component has been spent.
The second component consists of items that will be accounted for as fixed
assets and include the replacement of non compliant equipment and the cost of
hardware and software upgrades. This component is budgeted at $49,000. As of
June 30, 1998 $24,000 or 49% of this component has been spent. Management
reviews the budget from time to time as the Y2K program is implemented. There is
no assurance that additional amounts will not be added to the amounts already
allocated for Y2K program.
CIB has obtained the services of three professional organizations that
provide legal review of contracts and insurance, audit review of the
effectiveness of the Y2K program and technological assistance in reviewing or
conducting ClB's testing programming.
CIB has developed a contingency plan that identifies the mission critical
processes and service providers. An alternative process has been identified for
each mission critical item. In addition, on the assumption that the original or
alternative process fails at the point of processing in the Year 2000, a
contingency plan has been designed that will provide minimum levels of service
or outputs until the failed system can be repaired or replaced. Most of these
contingency plans are manual effort systems or manual systems enhanced by
micro-computers. Test results indicates that the original or alternative system
for each mission critical system should meet the demands of processing in the
Year 2000. As a reasonable worst case the manual systems designed should provide
the minimum levels of service for the time required to repair or replace failed
systems. However, in case of failure the ultimate impact on financial operations
is not known nor is it known what impact a regional or nationwide failure of
power or communications would have on the financial performance of CIB.
An important contingent alternative to CIB's technology oriented mission
critical systems is the use of ACB's systems. ACB and CIB intend to have the CIB
systems converted to the ACB systems shortly after consummation of the Merger.
However, there is no assurance that conversion to ACB's systems will proceed
according to plan. If the conversion to ACB's system is not successful,
substantial additional expense may be incurred in converting CIB's systems, and
customer service could be disrupted, causing a possible loss of business.
In April 1998 the Bank began mailing Y2K questionnaires to its existing
borrowers with total liability to CIB of a predetermined threshold amount. These
questionnaires were designed to provide CIB with
108
<PAGE>
information by which it could evaluate the borrower's awareness of and
sensitivity to Y2K risk. Additionally, the Bank requires this same questionnaire
and evaluation of new borrowers meeting the threshold amount. Depending upon the
rating on the evaluation, CIB will contact the borrower on a quarterly basis
until it can be determined that the Y2K risk is low. CIB is presently requiring
applicable loan agreements to contain language addressing the borrower's Y2K
readiness. On all loan participations purchased, CIB is requiring assurances
from the lead lender that it has obtained a Y2K questionnaire from the borrower
and also that the lead lender is satisfactorily progressing toward Y2K
compliance. CIB has established a Y2K risk component to its analysis of the its
Allowance for Loan and Lease Losses.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board issued Statement No.
130, "REPORTING COMPREHENSIVE INCOME". This statement, which is effective for
the year ending December 31, 1998, establishes standards of disclosure and
financial statement display for reporting comprehensive income and its
components.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION." This
statement changes current practice under SFAS 14 by establishing a new framework
on which to base segment reporting (referred to as the management approach) and
also requires certain related disclosures about products and services,
geographic areas and major customers. The disclosures are required for the year
ending December 31, 1998.
BOARD OF DIRECTORS
At the Effective Time and pursuant to the Agreement, the Boards of Directors
of the Americorp and ACB will consist of four (4) members of the current CIB
Board and five (5) members from Americorp and ACB, including Americorp's and
ACB's President. It is currently contemplated that the four members of the CIB
Board who will continue to serve as directors of the Americorp and ACB following
the Effective Time are Joseph Priske, Michael T. Hribar, Edward F. Paul and
Jacqueline Pruner. For information on the members of the Americorp and Bank
Boards who will serve on the Americorp's and ACB's Boards of Directors, see
"BUSINESS OF AMERICORP"
The table below sets forth certain information, as of the CIB Record Date,
with respect to members of the Board of Directors.
<TABLE>
<CAPTION>
DIRECTOR OF
NAME AND POSITION BANK SINCE AGE PRINCIPAL OCCUPATION FOR PAST FIVE YEARS
- -------------------------------------------- --------------- --- ---------------------------------------------
<S> <C> <C> <C>
Fred G. Buenger, Director................... 04/03/87 65 President and Owner of Buenger Enterprises,
Operator of Coast Chandlery
William P. Burke, Director.................. 04/03/87 62 President, Bill Burke Enterprises, Inc.
Glen C. Farr, Director...................... 03/19/98 39 Chartered Life Underwriter
Michael T. Hribar, Director................. 04/03/87 51 Certified Public Accountant
Edward F. Paul, Director.................... Organization 61 President, Walker, Inc.
Joseph L. Priske, Director; Chairman........ 03/16/95 49 Chief Executive Officer, Priske-Jones Company
Jacqueline S. Pruner, Director, Vice
Chairman.................................. Organization 59 Co-Owner, Pruner Investments
</TABLE>
109
<PAGE>
COMPENSATION OF NON-EXECUTIVE DIRECTORS
Directors who were not executive officers of CIB were paid the following in
1998:
(a) For each Board meeting attended, the Chairman of the Board was paid $1,000
and the other Directors were each paid $500;
(b) For each Loan Committee attended, the Committee Chairman was paid $100 and
the other Committee members were each paid $50; and
(c) For each other Committee meeting attended, the Committee Chairman was paid
$100 and the other Committee members were each paid $50.
No additional compensation was paid to executive officers of CIB for
attendance at Board or Committee meetings. For the fiscal year ended December
31, 1997, the total paid to all other Directors for Board and Committee meetings
attended was $61,500.
EXECUTIVE OFFICERS
The following table sets forth as to each of the persons who are currently
executive officers of CIB, such person's age as of September 1, 1998, and the
principal occupation during the past five (5) years.
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE YEAR FIRST APPOINTED
NAME AGE DURING PAST FIVE YEARS AS EXECUTIVE OFFICER
- ---------------------------- --- --------------------------------------------------------- ---------------------
<S> <C> <C> <C>
Thomas E. Anthony........... 50 Senior Vice President and Chief Lending Officer of CIB(1) 1992
Allen P. Partridge.......... 58 Senior Vice President and Chief Financial Officer of
CIB(2) 1997
</TABLE>
None of the directors or executive officers of CIB were selected pursuant to
any arrangement or understanding, other than with the directors and executive
officers of CIB, acting within their capacities as such. There are no family
relationships between the directors and executive officers of CIB, and none of
the directors or executive officers of CIB serve as directors of any company
which has a class of securities registered under, or which is subject to the
periodic reporting requirements of, the Securities Exchange Act of 1934 or any
investment company registered under the Investment Company Act of 1940, as
amended.
- ------------------------
(1) Mr. Anthony has been the Chief Lending Officer of Channel Islands Bank since
February 20, 1992. Prior to that time, Mr. Anthony served as Vice President
and Commercial Loan Officer for Independence Bank, Encino, California from
February 1987 through February 1992.
(2) Mr. Partridge was appointed Chief Financial Officer of Channel Islands Bank
on March 25, 1997. Prior to that date, Mr. Partridge served as an in-house
consultant for Israel Discount Bank from May 1996 to March 1997 acting as
the chief accountant and information systems manager. From November 1993
through June 1995, Mr. Partridge served as the Chief Operating Officer and
Chief Financial Officer of the Bank of Los Angeles, West Hollywood,
California. Mr. Partridge previously served as the Chief Financial Officer
for the Bank from July 1985 until July 1992.
None of the directors or executive officers of CIB have, during the last
five years, been involved in any legal proceedings that are material to an
evaluation of the ability or integrity of any director or executive officer of
CIB.
110
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information as of the Record Date pertaining
to beneficial ownership (as defined below) of CIB's no par value Common Stock
(the "Common Stock"), by (i) persons known to CIB to own more than 5% of its
Common Stock (a "Principal Shareholder"), and (ii) individually, each of the
"Executive Officers" (as defined below) of CIB, its current directors and
nominees for the office of director, and (iii) all directors and Executive
Officers(1) of CIB as a group. The information contained herein has been
obtained from CIB's records and from information furnished to CIB by each
individual or entity required by law to report such information to CIB and/or to
a regulatory agency having supervisory jurisdiction over CIB. Management knows
of no persons who own, beneficially or of record, either individually or with
associates, more than five percent of CIB's common stock, except as set forth
below.
The number of shares "beneficially owned" by a given shareholder are
determined under Securities and Exchange Commission Rules, and the designation
of ownership set forth below is not necessarily indicative of ownership for any
other purpose. In general, the beneficial ownership as set forth below includes
shares over which a director, director nominee, Principal Shareholder or
Executive Officer has sole or shared voting or investment power and certain
shares which such person has a vested right to acquire, under the stock options
or otherwise, within 60 days of the date hereof.
SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT OF
NAME & ADDRESS OF BENEFICIAL OWNER OWNER(2)(3) CLASS(2)(3)
- ----------------------------------------------------------------------- ------------------- ---------------------
<S> <C> <C>
Thomas Anthony ........................................................ 6,000(5) 1.06%
300 Esplanade Drive, #110
Oxnard, CA 93030
Fred G. Buenger ....................................................... 12,825(6) 2.27%
3600 S. Harbor Blvd.
Oxnard, CA 93035
William P. Burke ...................................................... 17,821(6) 3.16%
1960 S. Victoria
Oxnard, CA 93030
Glen Farr ............................................................. 1,050 0.19%
300 Esplanade Dr., #1140
Oxnard, California 93030
Michael T. Hribar ..................................................... 8,095 1.44%
5700 Ralston St., #202
Ventura, CA 93003
Allen Partridge ....................................................... 1,000(6) 0.18%
155 S. "A" Street
Oxnard, CA 93030
Edward P. Paul(4) ..................................................... 55,365(6) 9.82%
335 N. "A" Street
Oxnard, CA 93030
Joseph L. Priske ...................................................... 11,959(6) 2.12%
711 Daily Drive
Camarillo, CA 93010
Jacqueline S. Pruner .................................................. 21,029(6) 3.73%
29194 Old Mill Creek Ln.
Agoura, CA 91301
All Directors and Executive
Officers as a group (9 persons)...................................... 135,144(2) 23.96%
</TABLE>
111
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
AMT. AND NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNER(2)(3) CLASS(2)(3)
- --------------------------------------------------- ------------------------- --------------------- -----------
<S> <C> <C> <C>
Common Stock....................................... James O. Birchfield as 27,251 4.83%
Trustee of the James O.
Birchfield 1995 Trust
Common Stock....................................... CEDE & Co. 48,134 8.53%
Common Stock....................................... Cohen Family Trust 45,019 7.98%
Common Stock....................................... Richard D. McNish 47,369 8.40%
Common Stock....................................... Martin V. Smith 36,258 6.43%
</TABLE>
- ------------------------
(1) Based on a total of 546,414 shares issued and outstanding as of July 31,
1998 and a total of 17,566 vested option shares unexercised as of July 31,
1998.
(2) As used throughout this Proxy Statement, the term "Executive Officer" means
Senior Vice President and Senior Lending Officer, and the Senior Vice
President and Chief Financial Officer.
(3) Includes shares beneficially owned by the named shareholder, together with
"associates" (as defined under applicable law), subject to community
property laws and shared voting and investment power with a spouse, if
applicable. The persons listed have sole voting power unless otherwise
noted.
(4) In the third calendar quarter of 1997, the OCC required Mr. Paul to file an
application for approval of a change in control of CIB due to the fact that
Mr. Paul and his related family members owned or controlled more than 10% of
CIB's outstanding shares, which holding was and is the largest single
holding by any Bank shareholder, to the best knowledge of CIB. Mr. Paul was
approved as a control person by the OCC on December 31, 1997.
(5) Includes 6,000 vested option shares.
(6) Includes 1,000 vested option shares.
(7) Includes 6,566 vested option shares.
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
EXECUTIVE COMPENSATION
Any Executive Officer serving as a Director of CIB does not receive
additional compensation for attending Board and committee meetings, and such
attendance is remunerated by the compensation of such person in his or her
capacity as an Executive Officer of CIB. For the fiscal year ended December 31,
1997, the aggregate cash compensation paid to or accrued for all Executive
Officers of CIB, as a group (3 persons), for services rendered to CIB in all
capacities was $283,561.76.
The following table sets forth the cash compensation of the Chief Executive
Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME & PRINCIPAL POSITION YEAR SALARY ($) BONUS OPTIONS (#) ALL OTHER COMP. ($)
- ------------------------------------------------- --------- ----------- --------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Richard D. Spencer............................... 1997 100,000 $ 13,184 0 0
President and 1996 N/A
Chief Executive Officer 1995 N/A
</TABLE>
On June 1, 1998, Mr. Richard Spencer resigned as President and Chief
Executive Officer of CIB.
112
<PAGE>
On June 23, 1998, Mr. Spencer executed an agreement to release CIB from any
and all liability, and in return CIB agreed to pay Mr. Spencer all accrued
salary and unused vacation, certain health benefits, $60,000 representing
approximately six months salary, and $51,375 representing the value of Mr.
Spencer's CIB stock options. The parties agreed to make three installment
payments to Mr. Spencer, with the last installment payment due on October 1,
1998.
OPTION GRANTS FOR 1997 AND 1998
There were no stock options granted pursuant to the 1985 Incentive Stock
Option Plan to the Directors or Executive Officers in 1997. As of July 31, 1998,
45,000 shares had been granted to Directors and Executive Officers in 1998
pursuant to the 1998 Stock Option Plan.
OPTION EXERCISES IN 1997 AND 1998
There were no exercises in 1997 of stock options by Executive Officers, and
18,089 shares were exercised by Directors in 1997. As of July 31, 1998, 67,401
shares were exercised by Directors in 1998.
STOCK OPTION PLANS
1985 INCENTIVE STOCK OPTION PLAN
The 1985 Incentive Stock Option Plan of CIB adopted by the Board of
Directors on July 18, 1985, and approved by the shareholders on July 30, 1985
(the "1985 Plan"), intended to advance the interests of CIB by encouraging stock
ownership on the part of its officers and directors. According to its terms, the
1985 Plan terminated on July 31, 1994. At the 1994 Annual Meeting of
shareholders, the shareholders approved certain amendments to the 1985 Plan,
including an extension of time within which the grantees of options under the
1985 Plan would be able to exercise their options for an additional five years
or until July 31, 1999. Other basic terms of the 1985 Plan remained essentially
unchanged.
Since the nine (9) year term of the 1985 Plan expired on July 31, 1994,
stock options may no longer be granted under the 1985 Plan. However, options
previously granted and not exercised as of July 31, 1994 may not have expired on
that date. Under the terms of the 1985 Plan, options available for grant under
the 1985 Plan which were not granted, have been added to CIB's authorized but
unissued shares.
1998 STOCK OPTION PLAN
On March 19, 1998, the Board of Directors of CIB adopted, subject to
approval by a majority of the outstanding shares, the 1998 Stock Option Plan
(the "1998 Plan"). The 1998 Plan provides for the grant of "Incentive stock
options," within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, and "non-qualified options," which are options not intended to
qualify as incentive stock options. Under the 1998 Plan, options for the
acquisition of an aggregate of 100,000 shares of CIB's common stock may be
granted to directors, officers and employees of CIB. Incentive stock options may
not be granted to non-employee directors. The 1998 Plan is administered by the
full Board of Directors acting as the Stock Option Committee which has sole
discretion and authority, consistent with the provisions of the 1998 Plan, to
determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the applicable 1998 Plan.
With the adoption on March 19, 1998, of the 1998 Plan by the Board, the
Board granted, subject to stockholder approval of the Plan, 5,000 non-qualified
options to acquire shares of Bank common stock at an exercise price of $18.00
per share to each of the seven non-officer directors of CIB. Twenty (20) percent
of these options are to vest on the date of such grant with the remainder to
vest 20 percent per year for the succeeding four years. In addition, on June 18,
1998, the Board granted 5,000 incentive stock options to each executive officer
of CIB at an exercise price per share of $20.00.
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CHANNEL ISLANDS BANK 401(K) PLAN
On September 1, 1994, CIB's Board adopted a 401(K) Plan ("Plan"), which is a
defined contribution plan. The Plan is a "qualified" pension plan (as defined in
the Employee Retirement Income Security Act of 1974) for the exclusive benefit
of eligible employees and their beneficiaries. The Plan is intended to provide
death, disability or retirement income to participating employees and their
beneficiaries. Under the Plan, an employee must complete a minimum of ninety
(90) days of consecutive service and attain the age of eighteen (18) years
before he or she is eligible to participate in the Plan. Eligible employees may
elect to defer not less than 1 % or more than 15% of their annual salary up to a
dollar limit set by law each year based on cost of living changes. CIB makes
matching contributions equal to 50% of the employee share on employee deferrals
of up to 6%. These matching contributions are monthly, discretionary amounts
which may vary from month to month. The annual expense to CIB of its
contributions to the Plan for the years ended December 31, 1997 and 1996 were
$24,940.99 and $14,779.53, respectively. Contributions to the Plan are held and
invested by the Trustee of the Plan.
INDEBTEDNESS OF MANAGEMENT
Some of CIB's directors, Executive Officers and principal shareholders
(including beneficial owners of 5% or more of CIB's Common Stock), as well as
their associates, are customers of, and have had banking transactions with, CIB
in the ordinary course of CIB's business and CIB expects to have such ordinary
banking transactions with such persons in the future. In the opinion of the
management of CIB, all loans and commitments to lend included in such
transactions were made in compliance with applicable laws, and on substantially
the same terms, including interest rates and collateral, as those prevailing for
comparable transactions with other persons of similar credit worthiness, and did
not involve more than a normal risk of collectability or present other
unfavorable features. Loans to individual directors and officers must comply
with CIB's lending policies and statutory lending limits, and prior Board
approval, not including the vote of any director with a financial or other
interest in such transaction, is required for most of these loans. At December
31, 1997, the aggregate indebtedness of CIB's Executive Officers, directors and
principal shareholders along with their associates was $1,263,290.96.
EXECUTIVE OFFICER AGREEMENTS
On July 7, 1998, CIB entered into an employment agreement with Mr. Thomas
Anthony as CIB's Senior Vice President and Senior Lending Officer. The term of
the agreement commenced on June 18, 1998 and shall terminate on December 31,
1999. Mr. Anthony shall receive a salary of $95,258.89 per year, four weeks of
vacation, use of a Bank owned automobile, a stock option of 5,000 shares vesting
20% per year at an exercise price of $20.00 per share, certain health and
medical benefits, and reimbursement of certain business expenses. Mr. Anthony
may be terminated with cause for any of the various reasons enumerated in the
agreement, and upon such termination, Mr. Anthony would receive only accrued
salary and payment for any unused vacation. The agreement also provides for the
payment of six months salary if Mr. Anthony is terminated without cause. If Mr.
Anthony is terminated, Mr. Anthony may not, for a one year period following
termination, solicit any customers or employees of CIB to move their banking or
employment relationships from CIB.
Also on July 7, 1998, CIB entered into an employment agreement with Mr.
Allen Partridge as CIB's Senior Vice President and Chief Financial Officer. The
term of the agreement commenced on June 18, 1998 and shall terminate on December
31, 1999. Mr. Partridge shall receive a salary of $88,400 per year, four weeks
of vacation, a stock option of 5,000 shares vesting 20% per year at an exercise
price of $20.00 per share, certain health and medical benefits, and
reimbursement of certain business expenses. Mr. Partridge may be terminated with
cause for any of the various reasons enumerated in the agreement, and upon such
termination, Mr. Partridge would receive only accrued salary and payment for any
unused vacation. The agreement also provides for the payment of six months
salary if Mr. Partridge is terminated without cause. If Mr. Partridge is
terminated, Mr. Partridge may not, for a one year period following
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termination, solicit any customers or employees of CIB to move their banking or
employment relationships from CIB.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Some of the Company's Directors and executive officers and their immediate
families, as well as the companies with which they are associated, are customers
of, or have had banking transactions with, CIB in the ordinary course of CIB's
business, and CIB expects to have banking transactions with such persons in the
future. In management's opinion, all loans and commitments to lend included in
such transactions were made in the ordinary course of business, in compliance
with applicable laws 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 repayment or presented other unfavorable
features.
SUPERVISION AND REGULATION
Americorp, ACB and CIB are extensively regulated under both federal and
state law, as discussed below.
AMERICORP
Americorp is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"), and is
registered as such with, and subject to the supervision of, the Federal Reserve
Board. Americorp is required to file with the Federal Reserve Board quarterly
and annual reports and such additional information as the Federal Reserve Board
may require pursuant to the Bank Holding Company Act. The Federal Reserve Board
may conduct examinations of bank holding companies and their subsidiaries.
Americorp is required to obtain the approval of the Federal Reserve Board
before it may acquire 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 of shares, Americorp would own or control more than 5% of the
voting shares of such bank. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of Americorp and another bank holding
company.
Americorp is prohibited by the Bank Holding Company Act, except in certain
statutorily prescribed instances, from acquiring direct or indirect ownership or
control of more than 5% of the outstanding voting shares of any company that is
not a bank or bank holding company and from engaging, directly or indirectly, in
activities other than those of banking, managing or controlling banks or
furnishing services to its subsidiaries. However, Americorp may, subject to the
prior approval of the Federal Reserve Board, engage in any, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve Board to
be so closely related to banking or managing or controlling banks as to be a
proper incident thereto.
Americorp, and any subsidiaries which it may acquire or organize, are deemed
to be "affiliates" of ACB within the meaning of that term as defined in the
Federal Reserve Act. This means, for example, that there are limitations (a) on
loans by ACB to affiliates, and (b) on investments by ACB in affiliates' stock
as collateral for loans to any borrower. Americorp and its subsidiary are also
subject to certain restrictions with respect to engaging in the underwriting,
public sale and distribution of securities.
Americorp and ACB are prohibited from engaging in certain tie-in
arrangements in connection with an extension of credit, sale or lease of
property or furnishing of services. Section 106(b) of the Bank Holding Company
Act Amendments of 1970 generally prohibits a bank from tying a product or
service to another product or service offered by ACB, or by any of its
affiliates. Further, Americorp and ACB are
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required to maintain certain levels of capital. See, "Effect of Governmental
Policies and Recent Legislation--Capital Standards."
The Federal Reserve Board may require that Americorp terminate an activity
or terminate control of or liquidate or divest subsidiaries or affiliates when
the Federal Reserve Board determines that the activity or the control or the
subsidiary or affiliates constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
Board also has the authority to regulate provisions of certain bank holding
company debt, including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, Americorp must file
written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.
Under the Federal Reserve Board's regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe and unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving as
a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
ACB
ACB is extensively regulated under both federal and state law. Set forth
below is a summary description of certain laws which relate to the regulation of
ACB. The description does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.
ACB is chartered under the laws of the State of California and its deposits
are insured by the FDIC to the extent provided by law. ACB is subject to the
supervision of, and is regularly examined by, the DFI and the FDIC. Such
supervision and regulation include comprehensive reviews of all major aspects of
ACB's business and condition.
Various requirements and restrictions under the laws of the United States
and the State of California affect the operations of ACB. Federal and California
statutes relate to many aspects of ACB's operations, including reserves against
deposits, interest rates payable on deposits, loans, investments, mergers and
acquisitions, borrowings, dividends and locations of branch offices. Further,
ACB is required to maintain certain levels of capital.
California law and regulations of the DFI authorize California licensed
banks, subject to applicable limitations and approvals of the DFI to (1) provide
real estate appraisal services, management consulting and advice services, and
electronic data processing services; (2) engage directly in real property
investment or acquire and hold voting stock of one or more corporations, the
primary activities of which are engaging in real property investment; (3)
organize, sponsor, operate or render investment advice to an investment company
or to underwrite, distribute or sell securities in California; and (4) invest in
the capital stock, obligations or other securities of corporations not acting as
insurance companies, insurance agents or insurance brokers. In November 1988,
Proposition 103 was adopted by California voters. The DFI has established
certain procedures to be followed by banks desiring to engage in certain
insurance activities.
CIB
As a California state chartered bank whose deposits are insured by the FDIC,
CIB is regulated under the same federal and state laws as ACB.
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CAPITAL STANDARDS
The Federal Reserve Board and FDIC have adopted risk-based minimum capital
guidelines (for bank holding companies and insured non-member state banks,
respectively) intended to provide a measure of capital that reflects the degree
of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which includes off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) 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, long-term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.
In addition to the risked-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
In June 1996, the federal banking agencies adopted a joint agency policy
statement to provide guidance on managing interest rate risk. These agencies
indicated that the adequacy and effectiveness of a bank's interest rate risk
management process and the level of its interest rate exposures are critical
factors in the agencies' evaluation of ACB's capital adequacy. A bank with
material weaknesses in its risk management process or high levels of exposure
relative to its capital will be directed by the agencies to take corrective
action. Such actions will include recommendations or directions to raise
additional capital, strengthen management expertise, improve management
information and measurement systems, reduce levels of exposure, or some
combination thereof depending upon the individual institution's circumstances.
The federal banking agencies issued an interagency policy statement on the
allowance for loan and lease losses which, among other things, establishes
certain benchmark ratios of loan loss reserves to classified assets. The
benchmark set forth by such policy statement is the sum of (a) assets classified
loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of assets
classified substandard; and (d) estimated credit losses on other assets over the
upcoming 12 months.
Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. The federal
banking agencies recently issued final rules governing banks and bank holding
companies, which became effective April 1, 1995, which limit the amount of
deferred tax assets that are allowable in computing an institutions regulatory
capital. The standard has been in effect on an interim basis since March 1993.
Deferred tax assets that can be realized for taxes paid in prior carryback years
and from future reversals of existing taxable temporary differences are
generally
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not limited. Deferred tax assets that can only be realized through future
taxable earnings are limited for regulatory capital purposes to the lesser of
(i) the amount that can be realized within one year of the quarter-end report
date, or (ii) 10% of Tier 1 Capital. The amount of any deferred tax in excess of
this limit would be excluded from Tier 1 Capital and total assets and regulatory
capital calculations.
Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of ACB to grow and could restrict the amount of profits, if
any, available for the payment of dividends.
Under applicable regulatory guidelines, Americorp and ACB were each
considered "Well Capitalized" at June 30, 1998.
On January 1, 1998, new legislation became effective which, among other
things, gave the power to the DFI to take possession of the business and
properties of a bank in the event that the tangible shareholders' equity of the
bank is less than the greater of (i) 3% of the bank's total assets or (ii)
$1,000,000.
PROMPT CORRECTIVE ACTION
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
An insured depository institution generally will be classified in the
following categories based on capital measures indicated below:
<TABLE>
<CAPTION>
"WELL CAPITALIZED" "ADEQUATELY CAPITALIZED"
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4%.
<CAPTION>
"UNDERCAPITALIZED" "SIGNIFICANTLY UNDERCAPITALIZED"
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Total risk-based capital less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 4%. Leverage ratio less than 3%.
<CAPTION>
"CRITICALLY UNDERCAPITALIZED"
- ----------------------------------------------
<S> <C>
Tangible equity to total assets less than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of
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business. Any undercapitalized depository institution must submit an acceptable
capital restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced acquisition; (ii) restrictions on transactions with
affiliates; (iii) further limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency. Although the appropriate federal banking
agency has discretion to determine which of the foregoing restrictions or
sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action provisions. In
addition, without the prior written approval of the appropriate federal banking
agency, a significantly undercapitalized institution may not pay any bonus to
its senior executive officers or provide compensation to any of them at a rate
that exceeds such officer's average rate of base compensation during the 12
calendar months preceding the month in which the institution became
undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action provisions,
commercial banking organizations may be subject to potential enforcement actions
by the federal regulators for unsafe or unsound practices in conducting their
businesses or for violations of any law, rule, regulation or any condition
imposed in writing by the agency or any written agreement with the agency.
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SAFETY AND SOUNDNESS STANDARDS
Effective in 1995 the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by the Federal
Deposit Insurance Corporation Improvement Act of 1991 (AFDICIA). These standards
are designed to identify potential safety and soundness concerns and ensure that
action is taken to address those concerns before they pose a risk to the deposit
insurance fund. The standards relate to (i) internal controls, information
systems and internal audit systems; (ii) loan documentation; (iii) credit
underwriting; (iv) asset growth; (v) earnings; and (vi) compensation, fees and
benefits. If a federal banking agency determines that an institution fails to
meet any of these standards, the agency may require the institution to submit to
the agency an acceptable plan to achieve compliance with the standard. In the
event the institution fails to submit an acceptable plan within the time allowed
by the agency or fails in any material respect to implement an accepted plan,
the agency must, by order, require the institution to correct the deficiency.
Effective October 1, 1996, the federal banking agencies promulgated safety and
soundness regulations and accompanying interagency compliance guidelines on
asset quality and earnings standards. These new guidelines provide six standards
for establishing and maintaining a system to identify problem assets and prevent
those assets from deteriorating. The institution should (i) conduct periodic
asset quality reviews to identify problem assets; (ii) estimate the inherent
losses in those assets and establish reserves that are sufficient to absorb
estimated losses; (iii) compare problem asset totals to capital; (iv) take
appropriate corrective action to resolve problems assets; (v) consider the size
and potential risks of material asset concentrations; and (vi) provide periodic
asset reports with adequate information for management and the board of
directors to assess the level of risk. These new guidelines also set forth
standards for evaluating and monitoring earnings and for ensuring that earnings
are sufficient for the maintenance of adequate capital and reserves. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an accepted
plan may result in enforcement action.
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to protect
deposits insured by Bank Insurance Fund ("BIF") administered by the FDIC. The
FDIC is authorized to borrow up to $30 billion from the United States Treasury;
up to 90% of the fair market value of assets of institutions acquired by the
FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The FDIC also has authority to impose special assessments
against insured deposits.
The FDIC has adopted final regulations implementing a risk-based premium
system required by federal law. Under the regulations, which cover the
assessment periods commencing on and after January 1, 1994, insured depository
institutions are required to pay insurance premiums within a range of 23 cents
per $100 of deposits to 31 cents per $100 of deposits depending on their risk
classification. The FDIC, effective September 15, 1995, lowered assessments from
their rates of $.23 to $.31 per $100 of insured deposits to rates of $.04 to
$.31, depending on the health of the bank, as a result of the recapitalization
of the BIF. On November 15, 1995, the FDIC voted to drop its premiums for well
capitalized banks to zero effective January 1, 1996. Other banks will be charged
risk-based premiums up to $.27 per $100 of deposits. ACB and CIB pay the minimum
required premiums as a result of its "well capitalized" status.
Congress passed in 1996 and the President signed into law, provisions to
strengthen the Savings and Loan Insurance Fund ("SAIF") and to repay outstanding
bonds that were issued to recapitalize the SAIF as a result of payments made due
to the insolvency of savings and loan associations and other federally insured
savings institutions in the late 1980s and early 1990s. The new law requires
saving and loan
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associations to be bear the cost of recapitalizing the SAIF and, after January
1, 1997, banks will contribute towards paying off the financing bonds, including
interest. Effective January 1, 1997, SAIF-insured institutions pay 3.2 cents per
$100 in domestic deposits, and BIF-insured institutions, like ACB, pay 0.64
cents per $100 in domestics deposits. In 2000, banking industry will share on a
more equal basis in the bulk of the payments.
FINANCIAL MODERNIZATION LEGISLATION
Various proposals to adopt comprehensive financial modernization legislation
have been introduced in Congress which include, among other things, elimination
of the federal thrift charter, creation of a uniform financial institutions
charter, expansion of bank powers, and integration of banking, commerce,
securities activities and insurance. Under the proposed legislation, bank
holding companies would be allowed to control both a commercial bank and a
securities affiliate, which could engage in the full range of investment banking
activities, including corporate underwriting. In May, the House passed
legislation that would overhaul the financial service industry and allow mergers
among banking, securities and insurance firms. Congress adjourned without the
passage of similar legislation by the Senate. It is anticipated that
substantially similar legislation will be considered in the next session of
Congress.
INTERSTATE BANKING AND BRANCHING
On September 29, 1994, the President signed into law the Riegel-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act").
Under the Interstate Act, beginning one year after the date of enactment, a bank
holding company that is adequately capitalized and managed may obtain approval
under Bank Holding Company Act to acquire an existing bank located in another
state without regard to state law. A bank holding company would not be permitted
to make such an acquisition if, upon consummation, it would control (a) more
than 10% of the total amount of deposits of insured depository institutions in
the United States or (b) 30% or more of the deposits in the state in which ACB
is located. A state may limit the percentage of total deposits that may be held
in that state by any one bank or bank holding company if application of such
limitation does not discriminate against out-of-state banks. An out-of-state
bank holding company may not acquire a state bank in existence for less than a
minimum length of time that may be prescribed by state law except that a state
may not impose more than a five-year existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirements and conditions as for a merger
transaction.
In 1995, California adopted "opt in" legislation under the Interstate Act
that permits out-of-state banks to acquire California banks that satisfy a
five-year minimum age requirement (subject to exceptions for supervisory
transactions) by means of merger or purchases of assets, although entry through
acquisition of individual branches of California institutions and de novo
branching into California are not permitted. The Interstate Act and the
California branching statute will likely increase competition from out-of-state
banks in the markets in which Americorp operates, although it is difficult to
assess the impact that such increased competition may have on Americorp's
operations. Interstate Act may increase competition in Americorp's market areas
especially from larger financial institutions and their holding companies. It is
difficult to assess the impact such likely increased competition may have on
Americorp's operations.
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COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
ACB 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 substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
In 1995 the federal banking agencies issued final regulations which change
the manner in which they measure a bank's compliance with CRA obligations. The
final regulations adopt a performance-based evaluation system which bases CRA
ratings on an institution's actual lending, service and investment performance,
rather than the extent to which the institution conducts needs assessments,
documents community outreach activities or complies with other procedural
requirements.
In 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 connection with its assessment of CRA performance, the appropriate bank
regulatory agency assigns a rating of "outstanding," "satisfactory," "needs to
improve" or "substantial noncompliance." At its last examination by the FDIC,
ACB received a CRA rating of "Satisfactory."
POTENTIAL ENFORCEMENT ACTIONS
Commercial banking organizations and bank holding companies, such as ACB and
Americorp, may be subject to potential enforcement actions by federal and state
bank regulatory officials 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. Neither Americorp nor ACB is a party to any such
enforcement action.
INFORMATION CONCERNING AMERICORP MEETING ONLY
In connection with its obligations under the Agreement to grant substitute
options to certain officers and directors of CIB (see "THE MERGER--Treatment of
Stock Options"), Americorp, after consultation with CIB, concluded that the
adoption of a new stock option plan was more practical and better fitted the
future needs of Americorp than amending the current Americorp stock option plan.
This new stock option plan is referred to as the "1998 Plan." If for any reason
the Merger is not carried out, the 1998 Plan will not become effective.
SUMMARY OF THE 1998 PLAN
On October 22, 1998 the Board of Directors of Americorp adopted and
approved, subject to shareholder approval, the 1998 Plan to provide that
employees, employee directors, non-employee directors and consultants will be
eligible to receive options to purchase shares of Americorp Stock. Substitute
options will also be granted pursuant to the Merger from the 1998 Plan. See "THE
122
<PAGE>
MERGER--Treatment of Stock Options." The 1998 Plan will supersede the current
stock option plans of Americorp (which will be terminated as part of the Merger)
but will not effect any of the stock options granted under such plans which will
remain outstanding.
The 1998 Plan provides for the participation of directors and consultants as
well as employees and officers. The Board of Directors believes that a stock
option program is an important factor in retaining, motivating and attracting
key employees and directors. It also believes that such plans provide incentives
for high levels of performance and encourage stock ownership in Americorp.
THE FOLLOWING DESCRIPTION OF THE 1998 PLAN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE 1998 PLAN WHICH IS ATTACHED HERETO AS APPENDIX
E AND WHICH YOU ARE URGED TO READ AND CONSIDER CAREFULLY.
PURPOSE
The purpose of the 1998 Plan is to strengthen Americorp by providing to
participating employees and officers ("Employees"), employee directors
("Employee Directors"), non-employee directors ("Non-Employee Directors")and
consultants, business associates or other persons or entities with an important
business relationship with Americorp ("Consultants") added incentive for high
performance and to encourage stock ownership in Americorp. The 1998 Plan seeks
to accomplish these goals by a means whereby such Employees, Employee Directors,
Non-Employee Directors and Consultants of Americorp may be given an opportunity
to purchase, by way of option, Americorp Stock. The 1998 Plan is also intended
to enable Americorp to compete effectively for and retain the services of such
persons and to provide incentives for such persons to exert maximum efforts for
the success of Americorp.
Americorp intends that the options issued under the 1998 Plan shall, in the
discretion of the committee which administers the 1998 Plan, be either incentive
stock options ("Incentive Stock Options") as that term is used in Section 422A
of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor
thereto, or options which do not qualify as incentive stock options
("Non-Qualified Stock Options").
ADMINISTRATION
A committee of directors, appointed by the Board of Directors and composed
of not less than three "disinterested members," will administer the 1998 Plan
(the "Committee"). The Committee shall have full power and authority in its
discretion to take any and all action required or permitted to be taken under
the 1998 Plan, including the selection of participants to whom stock options may
be granted, the determination of the number of shares which may be covered by
stock options, the purchase price, and other terms and conditions thereof.
SHARES RESERVED
There are 110,000 shares of Americorp Stock reserved for issuance upon
exercise of options granted under the 1998 Plan. If any option granted under the
1998 Plan shall for any reason expire, be canceled or otherwise terminate
without having been exercised in full, the shares not purchased under such
option shall again become available for the 1998 Plan.
ELIGIBILITY
All Employees, Employee Directors, Non-Employee Directors and Consultants
are eligible to participate in the 1998 Plan and Employees and Employee
Directors are eligible to receive Incentive and Non-Qualified Stock Options.
Non-Employee Directors and Consultants are only eligible to receive Non-
Qualified Stock Options. Americorp may issue Incentive Stock Options provided
that the aggregate fair market value (determined at the time the Incentive Stock
Option is granted) of the stock with respect to
123
<PAGE>
which Incentive Stock Options are exercisable for the first time by the optionee
during any calendar year shall not exceed $100,000. Should it be determined that
any Incentive Stock Option granted pursuant to the 1998 Plan exceed such
maximum, such Incentive Stock Option shall be considered to be a Non-Qualified
Stock Option and not qualify for treatment as an Incentive Stock Option under
Section 422A of the Code to the extent, but only to the extent, of such excess.
OPTION PRICE
The exercise price of each option shall be determined by the Committee and
shall not be less than the fair market value of the stock subject to the option
on the date the option is granted; provided, however, that the purchase price of
the stock subject to an Incentive Stock Option may not be less than 110% of such
fair market value where the optionee owns (or is deemed to own pursuant to the
Code) shares of stock representing more than 10% of total combined voting power
of all classes of stock of Americorp. The purchase price of Americorp Stock
acquired pursuant to an option shall be paid in cash at the time the option is
exercised or other shares of Americorp Stock in partial or full payment. In such
event, the stock being tendered as payment shall be valued at its then-current
fair market value.
SUBSTITUTE OPTIONS
The 1998 Plan provides for the grant of substitute options in the event of
certain acquisitions by Americorp or its affiliates. The terms under which the
substitute stock options are to be granted pursuant to the Merger is discussed
in "THE MERGER--Treatment of Stock Options."
ADJUSTMENTS UPON CHANGES IN STOCK
If the outstanding shares of Americorp Stock are increased, decreased, or
changed into, or exchanged for a different number or kind of shares or
securities of Americorp without receipt of consideration by Americorp, through
reorganization, merger, recapitalization, reclassification, stock split, stock
dividend, stock consolidation, or otherwise, an appropriate and proportionate
adjustment shall be made in the number and kind of shares as to which options
may be granted. A corresponding adjustment changing the number or kind of shares
and the exercise price per share allocated to unexercised options, or portions
thereof, which shall have been granted prior to any such change shall likewise
be made. Any such adjustment, however, in an outstanding option shall be made
without change in the total price applicable to the unexercised portion of the
option but with a corresponding adjustment in the price for each share subject
to the option adjustments shall be made by the Committee whose determination as
to what adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued under the 1998 Plan on
account of any such adjustment.
EXPIRATION, TERMINATION AND TRANSFER OF OPTIONS
No option under the 1998 Plan may extend more than ten (10) years from the
date of grant. Notwithstanding the foregoing, any Incentive Stock Option granted
to an optionee who owns (or is deemed to own pursuant to the Code) shares of
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of Americorp or any of its affiliates shall expire
not later than five (5) years from the date of grant. For purposes of the 1998
Plan the date of grant of an option shall be the date on which the Committee
takes final action approving the award of the option, notwithstanding the date
the optionee accepts the option, the date of execution of the option agreement,
or any other date with respect to such option.
Except in the event of termination of employment due to death, disability or
termination for cause, options will terminate three months after an Employee or
Employee Director optionee ceases to be employed by Americorp or its
subsidiaries or a Non-Employee Director optionee ceases to serve as a director
of Americorp or its subsidiaries unless the options by their terms were
scheduled to terminate
124
<PAGE>
earlier. During that three month period after the Employee or Employee Director
optionee ceases to be employed by Americorp or its subsidiaries, or a
Non-Employee Director optionee ceases to serve as a director of Americorp or its
subsidiaries, such options shall be exercisable only as to those shares with
respect to which installments, if any, had accrued as of the date on which the
optionee ceased to be employed by Americorp or its subsidiaries or ceased to
serve as director of the Corporation or its subsidiaries. If such termination
was due to such optionee's permanent and total disability, or such optionee's
death, the option, by its terms, may be exercisable for one year after such
termination of employment or cessation of directorship. If the Employee or
Employee Director optionee's employment is terminated for "just cause," the
option terminates immediately. An option by its terms may only be transferred by
will or by laws of descent and distribution upon the death of the optionee,
shall be transferable during the optionee's lifetime only pursuant to a
qualified domestic relations order or pursuant to a guardianship or
conservatorship for the benefit of an optionee, and shall be exercisable during
the lifetime of the person to whom the option is granted only by such person.
TERMINATION AND AMENDMENT OF THE 1998 PLAN
The 1998 Plan will terminate upon the occurrence of a terminating event,
including, but not limited to, liquidation, reorganization, merger or
consolidation of Americorp with another corporation in which Americorp is not
the surviving corporation, or a sale of substantially all the assets of
Americorp to another person, or a tender offer or acquisition by one person or a
group of persons acting in concert of more than 50% of Americorp Stock (a
"Terminating Event"). The Committee shall notify each optionee not less than
thirty (30) days prior thereto of the pendency of a Terminating Event. Upon the
delivery of such notice, any option outstanding shall, notwithstanding any
vesting schedule contained in an option agreement, become fully exercisable. The
Board of Directors may also suspend or terminate the 1998 Plan at any time.
Unless sooner terminated, the 1998 Plan shall terminate ten (10) years from the
effective date of the 1998 Plan. No options may be granted under the 1998 Plan
while it is suspended or after it is terminated. Rights and obligations under
any option granted pursuant to the 1998 Plan while it is in effect shall not be
altered or impaired by suspension or termination of the 1998 Plan, other than
pursuant to the terms thereof, except with the consent of the person to whom the
stock option was granted.
The 1998 Plan may be amended by the Board of Directors at any time, and from
time to time. However, except as otherwise provided in the 1998 Plan relating to
adjustments upon changes in stock (e.g., stock splits or stock dividends), no
amendment shall be effective unless approved by the affirmative vote of a
majority of the shares of Americorp represented and voting, within twelve (12)
months before or after the adoption of the amendment, if the amendment will: (a)
increase the number of shares reserved for options under the 1998 Plan; (b)
materially modify the requirements as to eligibility for participation in the
1998 Plan; or (c) materially increase the benefits accruing to participants
under the 1998 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is only a summary of the principal federal income
tax consequences of the options and rights to be granted under the 1998 Plan and
is based on existing federal law (including administrative regulations and
rulings) which is subject to change, in some cases retroactively. This
discussion is also qualified by the particular circumstances of individual
optionees, which may substantially alter or modify the federal income tax
consequences herein discussed.
Generally under present law, when an option qualifies as an Incentive Stock
Option under Section 422A of the Code: (a) an Employee will not realize taxable
income either upon the grant or the exercise of the option, (b) any gain or loss
upon a qualifying disposition of the shares acquired by the exercise of the
option will be treated as capital gain or loss, and (c) no deduction will be
allowed to Americorp for federal income tax purposes in connection with the
grant or exercise of an Incentive Stock Option or a qualifying disposition of
the shares. A disposition by an Employee of stock acquired upon exercise of an
Incentive Stock Option will constitute a qualifying disposition if it occurs
more than two
125
<PAGE>
years after the grant of the option, and one year after the transfer of the
shares to the Employee. If such stock is disposed of by the Employee before the
expiration of those time limits, the transfer would be a "disqualifying
disposition" and the Employee, in general, will recognize ordinary income equal
to the lesser of (a) the aggregate fair market value of the shares as of the
date of exercise less the option price, or (b) the amount realized on the
disqualifying disposition less the option price. Ordinary income from a
disqualifying disposition will constitute compensation to the Employee.
Upon the exercise of an Incentive Stock Option, the difference between the
fair market value of stock on the date of exercise and the option price
generally is treated as a "tax preference" item in that taxable year for
alternative minimum tax purposes, as are a number of other items specified by
the Code. Such tax preference items (with adjustments) form the basis for the
alternative minimum tax, which may apply depending on the amount of the computed
"regular tax" of the employee for that year. Under certain circumstances the
amount of alternative minimum tax is allowed as a carry forward credit against
regular tax liability in subsequent years.
In the case of stock options which do not qualify as an Incentive Stock
Option (Non-Qualified Stock Options), no income generally is recognized by the
optionee at the time of the grant of the option. Under present law the optionee
generally will recognize ordinary income at the time the Non-Qualified Stock
Option is exercised equal to the aggregate fair market value of the shares
acquired less the option price. Notwithstanding the foregoing, if the shares
received upon exercising a Non-Qualified Stock Option are subject to certain
restrictions, the taxable event is postponed until the restrictions lapse.
Shares acquired upon exercise of Non-Qualified Stock Option will have a tax
basis equal to their market value on the exercise date or other relevant date on
which ordinary income is recognized and the holding period for the shares
generally will begin on the date of exercise or such other relevant date. Upon
subsequent disposition of the shares, the optionee generally will recognize
capital gain or loss provided the shares are held by the optionee for more than
one year prior to disposition.
Americorp generally will be entitled to a deduction equal to the ordinary
income recognized by the optionee in the case of a disqualifying disposition of
an Incentive Stock Option or in connection with the exercise of a Non-Qualified
Stock Option.
VOTE REQUIRED
Approval of the 1998 Plan requires the affirmative vote of a majority of the
outstanding shares of Americorp Stock.
The Board of Directors has approved the 1998 Plan and recommends that the
shareholders vote FOR the approval of the 1998 Plan.
LEGAL MATTERS
Certain legal matters in connection with the Merger will be passed upon for
Americorp and ACB by Reitner & Stuart, San Luis Obispo, California and for CIB
by Knecht & Hansen, Newport Beach, California.
EXPERTS
The consolidated financial statements of CIB as of December 31, 1997 and
1996 and for the years then ended appearing elsewhere in this Joint Proxy
Statement/Prospectus have been audited by Vavrinek, Trine, Day & Co. as
indicated in their report with respect thereto. Such consolidated financial
statements are included herein in reliance upon the authority of said firm as
independent auditors.
The consolidated financial statements of Americorp as of December 31, 1997,
and 1996 and for each of the three years in the period ended December 31, 1997
appearing elsewhere in of this Joint Proxy
126
<PAGE>
Statement/Prospectus have been audited by Fanning & Karrh as indicated in their
report with respect thereto. Such consolidated financial statements are included
herein in reliance upon the authority of said firm as independent auditors.
OTHER MATTERS
CIB and Americorp do not know of any business other than that described in
this Joint Proxy Statement/Prospectus which will be presented for consideration
at the respective Meetings. If any other business properly comes before the
respective Meetings or any and all adjournments or postponements thereof, the
proxy holders named in the accompanying proxies will vote their respective
shares represented by such proxies in accordance with their best judgment and,
as applicable, in accordance with said proxies.
127
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CHANNEL ISLANDS BANK
Report of Vavrinek, Trine, Day & Co., LLP, Independent Auditors............................................ F-3
Balance Sheets............................................................................................. F-4
Statements of Income....................................................................................... F-5
Statements of Cash Flows................................................................................... F-6
Statements of Changes in Shareholders' Equity.............................................................. F-7
Notes to Financial Statements.............................................................................. F-8
Unaudited Balance Sheets (June 30, 1998 and 1997).......................................................... F-22
Unaudited Statements of Income (June 30, 1998 and 1997).................................................... F-23
Unaudited Statements of Changes in Stockholder's Equity
(June 30, 1998 and 1997)................................................................................. F-24
AMERICORP
Report of Fanning & Karrh, Independent Auditors............................................................ F-25
Consolidated Balance Sheets................................................................................ F-26
Consolidated Statements of Income.......................................................................... F-27
Consolidated Statement of Stockholders' Equity............................................................. F-28
Consolidated Statements of Cash Flows...................................................................... F-29
Notes to Consolidated Financial Statements................................................................. F-31
Unaudited Consolidated Balance Sheets (June 30, 1998 and 1997)............................................. F-48
Unaudited Consolidated Statements of Income (June 30, 1998 and 1997)....................................... F-49
Unaudited Consolidated Statements of Stockholders' Equity
(June 30, 1998 and 1997)................................................................................. F-50
Unaudited Consolidated Statements of Cash Flows (June 30, 1998 and 1997)................................... F-51
Notes to Unaudited Consolidated Financial Statements....................................................... F-53
</TABLE>
F-1
<PAGE>
CHANNEL ISLANDS
NATIONAL BANK
------------------------
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
WITH
INDEPENDENT AUDITORS' REPORT
------------------------
F-2
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
DECEMBER 31, 1997 AND 1996
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Channel Islands National Bank
Oxnard, California
We have audited the accompanying balance sheets of Channel Islands National
Bank as of December 31, 1997 and 1996, and the related statements of income,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the management of the Bank. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to in
the first paragraph present fairly, in all material respects, the financial
positions of Channel Islands National Bank as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Vavrinek, Trine, Day & Co., LLP
Rancho Cucamonga, California
January 23, 1998
F-3
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NOTES 1997 1996
----------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks..................................................... 2 $ 7,858,739 $ 6,145,015
Federal funds sold.......................................................... 12,750,000 8,250,000
------------- -------------
Cash and Cash Equivalents............................................. 20,608,739 14,395,015
Time deposits in other financial institutions............................... 1,491,000 1,491,000
Investment securities....................................................... 3
Available-for-sale........................................................ 13,925,047 6,362,035
Held-to-Maturity, fair value of $77,400 (1997) and $578,344 (1996)........ 76,326 577,634
Loans, net.................................................................. 4 48,903,016 48,297,722
Loans held for sale......................................................... 1,725,659 1,557,231
Bank premises and equipment................................................. 5 942,841 877,069
Federal reserve bank stock, at cost......................................... 147,250 167,150
Other assets................................................................ 912,185 783,122
Other real estate owned..................................................... 151,690 44,600
Deferred taxes.............................................................. 155,885 47,276
------------- -------------
Total Assets.......................................................... $ 89,039,638 $ 74,599,854
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits......................................................... 24,557,499 19,261,426
NOW and money market deposits........................................... 26,346,147 22,068,130
Savings deposits........................................................ 7,055,770 7,594,905
Time deposits over $100,000............................................. 10,829,125 9,565,367
Other time deposits..................................................... 13,038,473 10,272,955
------------- -------------
Total Deposits........................................................ 81,827,014 68,762,783
Accrued interest and other liabilities.................................... 656,715 240,919
------------- -------------
Total Liabilities..................................................... 82,483,729 69,003,702
------------- -------------
STOCKHOLDERS' EQUITY
Contributed capital
Common stock--$5 par value;
2,000,000 shares authorized; issued and outstanding
479,013 shares in 1997 and 456,924 shares in 1996..................... 2,395,065 2,284,620
Surplus................................................................. 2,714,645 2,582,338
Retained earnings......................................................... 1,485,003 778,617
Valuation allowance for investments....................................... (38,804) (49,423)
------------- -------------
Total Stockholders' Equity............................................ 6,555,909 5,596,152
------------- -------------
Total Liabilities and Stockholders' Equity............................ $ 89,039,638 $ 74,599,854
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NOTES 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................................................. $ 5,570,544 $ 5,175,415
Interest on federal funds sold.............................................. 611,851 560,706
Interest on time deposits in other financial institutions................... 89,174 116,391
Interest on investments..................................................... 554,063 475,406
------------ ------------
Total Interest Income..................................................... 6,825,632 6,327,918
INTEREST EXPENSE ON DEPOSITS AND INVESTMENTS.................................. 1,879,079 1,853,411
------------ ------------
NET INTEREST INCOME........................................................... 4,946,553 4,474,507
PROVISION FOR LOAN LOSSES..................................................... 4 370,000 696,947
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........................... 4,576,553 3,777,560
------------ ------------
OTHER INCOME
Service charges, fees and other............................................. 1,120,704 705,977
Gain on sale of assets...................................................... 28,555 631
------------ ------------
Total Other Income........................................................ 1,149,259 706,608
------------ ------------
OTHER EXPENSES
Salaries and employee benefits.............................................. 2,344,668 2,151,747
Occupancy................................................................... 404,663 392,195
Other operating expenses.................................................... 1,600,146 1,379,781
------------ ------------
Total Other Expenses...................................................... 4,349,477 3,923,723
------------ ------------
Net Income Before Income Taxes................................................ 1,376,335 560,445
Income Taxes.................................................................. 7 575,959 234,938
------------ ------------
Net Income................................................................ $ 800,376 $ 325,507
------------ ------------
------------ ------------
Earnings Per Share--Basic..................................................... 8 $ 1.74 $ 0.71
------------ ------------
------------ ------------
Earnings Per Share--Diluted................................................... 8 $ 1.60 $ 0.66
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................................... $ 800,376 $ 325,507
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses...................................................... 370,000 696,947
Depreciation................................................................... 200,318 162,798
Gain on sale of fixed assets................................................... (7,545) --
Amortization of discount premium on investments, net........................... -- 21,002
Changes in operating assets and liabilities:
Other real estate owned...................................................... (107,090) (44,600)
Interest receivable and other assets......................................... (237,672) (42,218)
Interest payable and other liabilities....................................... 415,796 7,594
-------------- -------------
Net Cash Provided By Operating Activities.................................. 1,434,183 1,127,030
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in time certificates purchased.......................................... -- 592,000
Maturities and sales of investment securities.................................. 10,000,000 8,000,000
Purchases of investment securities............................................. (17,051,085) (8,985,110)
Sales (Purchases) of federal reserve bank stock................................ 19,900 (9,550)
Increase in loans made to customers, net....................................... (1,143,722) (8,840,815)
Purchase of fixed assets....................................................... (270,847) (601,668)
Proceeds on sale of fixed assets............................................... 12,302 --
-------------- -------------
Net Cash Used In Investing Activities...................................... (8,433,452) (9,845,143)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in noninterest-bearing demand deposits.................................. 5,296,073 1,770,781
Increase in interest-bearing demand and saving deposits.......................... 3,738,882 2,713,394
Increase in certificates of deposit under $100,000............................... 2,765,518 2,933,628
Increase in certificates of deposit of $100,000 or more.......................... 1,263,758 923,049
Proceeds from issuance of common stock........................................... 169,996 --
Stock options exercised--tax benefit............................................. 72,756 --
Dividends........................................................................ (93,990) (91,385)
-------------- -------------
Net Cash Provided By Financing Activities.................................. 13,212,993 8,249,467
-------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... 6,213,724 (468,646)
CASH AND CASH EQUIVALENTS, Beginning of year....................................... 14,395,015 14,863,661
-------------- -------------
CASH AND CASH EQUIVALENTS, End of year............................................. $ 20,608,739 $ 14,395,015
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest....................................................................... $ 1,859,259 $ 1,780,382
-------------- -------------
-------------- -------------
Income taxes................................................................... $ 146,000 $ 151,000
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Real estate acquired through foreclosure......................................... $ 151,690 $ 44,600
-------------- -------------
-------------- -------------
CHANGE IN VALUATION ALLOWANCE FOR INVESTMENT SECURITIES............................ $ 10,619 $ (5,630)
-------------- -------------
-------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
VALUATION
ALLOWANCE
FOR
COMMON RETAINED INVESTMENT
SHARES STOCK SURPLUS EARNINGS SECURITIES TOTAL
--------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996............... 456,924 $ 2,284,620 $ 2,582,338 $ 544,495 $ (43,793) $ 5,367,660
Net Income............................. 325,507 325,507
Dividends.............................. (91,385) (91,385)
Change in unrealized loss on
investments.......................... (5,630) (5,630)
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1996............. 456,924 2,284,620 2,582,338 778,617 (49,423) 5,596,152
Net Income............................. 800,376 800,376
Dividends.............................. (93,990) (93,990)
Stock options exercised (including the
realization of tax benefits of
$72,756)............................. 22,089 110,445 132,307 242,752
Change in unrealized loss on
investments.......................... 10,619 10,619
--------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997............. 479,013 $ 2,395,065 $ 2,714,645 $ 1,485,003 $ (38,804) $ 6,555,909
--------- ------------ ------------ ------------ ------------ ------------
--------- ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Channel Islands National Bank (the
Bank) are in accordance with generally accepted accounting principles and
conform to practices within the banking industry. The following are descriptions
of the more significant of those policies.
USE OF ESTIMATES--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.
Estimates that are particularly susceptible to significant change relate to
the determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for losses on loans and
foreclosed real estate, management obtains independent appraisals for
significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
Because of these factors, it is possible that the allowances for losses on loans
and foreclosed real estate may change.
INVESTMENT SECURITIES--The Bank adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which addresses the
accounting for investments in equity securities that have readily determinable
fair values and for investments in all debt securities. Pursuant to SFAS No.
115, securities are classified in three categories and accounted for as follows:
Debt securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and are measured at amortized cost;
debt and equity securities bought and held principally for the purpose of
selling in the near term are classified as trading securities and are measured
at fair value, with unrealized gains and losses included in earnings; debt and
equity securities not classified as either held-to-maturity or trading
securities are deemed as available-for-sale and are measured at fair value, with
unrealized gains and losses, net of applicable taxes, reported in a separate
component of stockholders equity.
LOANS--Loans are stated at amounts advanced less payments collected.
Interest is calculated using the simple-interest method on all loans not
discounted. Unearned discounts on applicable installment loans are recognized as
income over the term of the loans by the sum-of-the-month-digits method (Rule of
78's). Accrual of interest on a loan is generally discontinued when the loan
becomes 90 days past due as to principal or interest (unless the loan is well
secured and in the process of collection) or when, in management's opinion, the
full and timely collection of principal or interest becomes uncertain.
The Bank adopted SFAS No. 114 (as amended by SFAS No. 118), "Accounting by
Creditors for Impairment of a Loan." The statement generally requires those
loans identified as "impaired" to be measured on the present value of expected
future cash flows discounted at the loan's effective interest rate, except that
as a practical expedient, a creditor may measure impairment based on a loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent. A loan is impaired when
F-8
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
it is probable the creditor will not be able to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance.
Loan origination fees and certain direct loan origination costs are deferred
and amortized over the life of related loans as yield adjustments.
LOANS HELD FOR SALE--Loans held for sale are recorded at the lower of cost
or market.
ALLOWANCE FOR LOAN AND LEASE LOSSES--The allowance for loan losses is
established through provisions
for loan losses which are included in the accompanying statements of income.
Loans are charged against the allowance for loan losses when management
determines that collectibility of the principal is unlikely. Recoveries on loans
previously charged off are credited to the allowance. The accompanying financial
statements require the use of management estimates to calculate the allowance
for loan losses. These estimates are inherently uncertain and depend on the
outcome of future events. Management's estimates are based upon previous loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio, the value of collateral, and other relevant factors.
OTHER REAL ESTATE OWNED--Other real estate owned represents real estate
acquired through foreclosure, and is carried at the lower of fair market value
less estimated selling cost or the loan balance at time of foreclosure. Any
valuation adjustments required at the time of foreclosure are charged to the
allowance for loan losses. Any subsequent valuation adjustments, operating
expenses or income and gains and losses on disposition of such properties are
recognized in current operations.
PREMISES AND EQUIPMENT--Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which range
from five to ten years. Leasehold improvements are amortized over the shorter of
the estimated useful lives of the improvements or the terms of the leases.
INCOME TAXES--Provisions for income taxes are based on amounts reported in
the statements of income (after exclusion of non-taxable income such as interest
on state and municipal securities) and include deferred taxes on temporary
differences in the recognition of income and expense for tax and financial
statement purposes. Deferred taxes are computed on the liability method as
prescribed in SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
LOAN SALES AND SERVICING--Gains and losses from the sale of participating
interests in loans guaranteed by the Small Business Administration (SBA) are
recognized based on the premium received or discount paid and the cost basis of
the portion of the loan sold. The cost basis of the portion of the loan sold is
obtained by allocating the total cost of each loan between the guaranteed
portion of the loan sold and the unguaranteed portion of the loan retained,
based on their relative fair values. The book value allocated to the
unguaranteed portion of the loan, if less than the principal amount, is recorded
as a discount on the principal amount retained. The discount is accreted to
interest income over the remaining estimated life of the loan. The Bank retains
the servicing on the portion of the loans sold and recognizes income on the
F-9
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (1)--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
servicing fees that are received. During 1997 the Bank sold all loan servicing
rights; the gain is reflected in the Statements of Income as other income.
EARNINGS PER SHARE (EPS)
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number 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 or resulted in the issuance of common stock that then shared
in the earnings of the entity.
STATEMENTS OF CASH FLOWS--For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks and federal funds sold.
Generally, federal funds are sold for one-day periods. Certain cash flows
associated with loans and customer deposits have been reported net.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1996
financial statements to conform to the 1997 classifications.
NOTE (2)--RESERVE REQUIREMENTS
All depository institutions are required by law to maintain reserves on
transaction accounts. These reserves can be in the form of balances at the
Federal Reserve Bank or in cash held by the Bank. The average reserve
requirement for the Bank was $748,000 in 1997, and $633,000 in 1996.
NOTE (3)--INVESTMENT SECURITIES
At December 31, 1997, the investment securities portfolio was comprised of
securities classified as available-for-sale and held-to-maturity in conjunction
with the adoption of SFAS 115, resulting in investment securities available for
sale being carried at market value and investment securities held to maturity
being carried at cost, adjusted for amortization of premiums and accretions of
discounts.
The amortized cost and fair values of investment securities
available-for-sale at December 31, 1997, were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies and corporations... $ 8,990,885 $ 15,217 $ (5,851) $ 9,000,251
Corporate debt securities.................................. 2,917,641 2,819 (2,560) 2,917,900
Other securities........................................... 2,051,073 (44,177) 2,006,896
------------- ----------- ----------- -------------
Total.................................................... $ 13,959,599 $ 18,036 $ (52,588) $ 13,925,047
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
F-10
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (3)--INVESTMENT SECURITIES (CONTINUED)
The amortized cost and fair values of investment securities held-to-maturity
at December 31, 1997, were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Other securities................................................... $ 76,326 $ 1,074 $ -- $ 77,400
----------- ----------- ----- ---------
----------- ----------- ----- ---------
</TABLE>
The amortized cost and fair values of investment securities
available-for-sale at December 31, 1996, were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies and corporations..... $ 3,001,633 $ 1,625 $ (8,508) $ 2,994,750
U.S. Treasury note........................................... 990,776 2,694 -- 993,470
Corporate debt securities.................................... 406,110 -- (1,110) 405,000
Other securities............................................. 2,015,000 -- (46,185) 1,968,815
------------ ----------- ----------- ------------
Total...................................................... $ 6,413,519 $ 4,319 $ (55,803) $ 6,362,035
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
The amortized cost and fair values of investment securities held-to-maturity
at December 31, 1996, were:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies and corporations......... $ 500,439 $ -- $ (283) $ 500,156
Other securities 77,195 993 -- 78,188
---------- ----- ----- ----------
Total.......................................................... $ 577,634 $ 993 $ (283) $ 578,344
---------- ----- ----- ----------
---------- ----- ----- ----------
</TABLE>
The amortized cost and fair values of investment securities
available-for-sale and held-to-maturity at December 31, 1997, by expected
maturity, are shown below. Expected maturities may differ from
F-11
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (3)--INVESTMENT SECURITIES (CONTINUED)
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Due in one year or less..................................... $ 5,276,958 $ 5,277,273 $ -- $ --
Due after one year but less than five years................. 6,667,641 6,676,951 76,326 77,400
------------- ------------- ----------- ---------
Total..................................................... 11,944,599 11,954,224 76,326 77,400
Other securities............................................ 2,015,000 1,970,823 $ -- $ --
------------- ------------- ----------- ---------
Total..................................................... $ 13,959,599 $ 13,925,047 $ 76,326 $ 77,400
------------- ------------- ----------- ---------
------------- ------------- ----------- ---------
</TABLE>
Proceeds from sales and maturities of investment securities
available-for-sale during 1997 were $8,500,000. Proceeds from sales and
maturities of investment securities held-to-maturity during 1997 were
$1,500,000. There were no gains on those sales and maturities. Included in
shareholders' equity at December 31, 1997, is $209 ($361 minus estimated income
tax of $152) of net unrealized gains on the reclassification of securities from
available-for-sale to held-to-maturity. The reclassification gains are being
amortized on a straight-line basis over the remaining life of each security
reclassified.
Proceeds from sales and maturities of available-for-sale investment
securities during 1996 were $7,003,520. Proceeds from sales and maturities of
investment securities held-to-maturity during 1996 were $1,012,153. There were
no gains on those sales and maturities. Included in shareholders' equity at
December 31, 1996, is $164 ($283 minus estimated income tax of $119) of net
unrealized gains on the reclassification of securities from available-for-sale
to held-to-maturity. The reclassification gains are being amortized on a
straight-line basis over the remaining life of each security reclassified.
Securities with a carrying value of $500,052 and $501,633 and a market value
of $500,000 and $501,250 at December 31, 1997 and 1996, respectively, were
pledged to secure public deposits and for other purposes, as required or
permitted by law.
F-12
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (4)--LOANS
The loan portfolio consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial..................................................... $ 13,696,311 $ 14,934,111
Installment.................................................... 12,625,063 13,347,205
Equity......................................................... 2,313,225 1,755,290
Real Estate
Commercial................................................... 5,782,011 4,960,141
Mortgage..................................................... 16,817,800 15,059,227
Construction................................................. 1,472,429 2,085,805
All other loans (including overdrafts)......................... 162,880 18,065
------------- -------------
Total Loans................................................ 52,869,719 52,159,844
Unearned income on installment loans......................... (1,265,498) (1,466,030)
Unearned loan fees (deferred costs).......................... (44,637) (101,896)
Discounts and premiums, net.................................. (12,570) (13,717)
Allowance for loan losses.................................... (918,339) (723,248)
------------- -------------
Total Loans, Net........................................... 50,628,675 49,854,953
Less:
Loans held for sale.......................................... (1,725,659) (1,557,231)
------------- -------------
Loans, Net................................................... $ 48,903,016 $ 48,297,722
------------- -------------
------------- -------------
</TABLE>
The Bank grants loans to customers throughout its primary market area of
Ventura County, California. The Bank's portfolio is well diversified and no
significant industry concentrations exist.
Transactions in the allowance for loan and lease losses account are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Balance, beginning of year.......................................... $ 723,248 $ 732,367
Loans charged off................................................... (437,946) (767,493)
Provision for loan losses........................................... 370,000 696,947
Recoveries on loans previously charged off.......................... 263,037 61,427
----------- -----------
Balance, end of year................................................ $ 918,339 $ 723,248
----------- -----------
----------- -----------
</TABLE>
At December 31, 1997 and 1996, the Bank had approximately $0 and $447,072,
respectively, of loans on nonaccrual status. The interest income, which was
forgone on nonaccrual loans, was $0 and $39,064, respectively.
The Bank has identified all nonaccrual loans as being impaired loans in
accordance with SFAS No. 114 (as amended by SFAS No. 118), "Accounting by
Creditors for Impairment of a Loan." The allowance for loan losses related to
impaired loans amounted to approximately $0 for the year ended December 31,
1997, and $42,721 for the year ended December 31, 1996.
The average recorded investment in impaired loans was $293,000 for 1997, and
$812,000 for 1996.
F-13
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (4)--LOANS (CONTINUED)
In the ordinary course of business, the Bank has granted loans to officers
and directors and to entities with which they are associated. All such loans
were made under terms consistent with the Bank's normal lending policies. Loans
outstanding to these related parties amounted to $1,452,676 and $1,520,017 at
December 31, 1997 and 1996, respectively.
NOTE (5)--PREMISES AND EQUIPMENT
The following is a summary of the premises and equipment accounts at
December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Furniture, fixtures and equipment................................ $ 2,377,093 $ 2,181,228
Leasehold improvements........................................... 387,128 371,757
------------ ------------
Total Cost..................................................... 2,764,221 2,552,985
Accumulated depreciation and amortization........................ (1,821,380) (1,675,916)
------------ ------------
Premises and equipment, net...................................... $ 942,841 $ 877,069
------------ ------------
------------ ------------
</TABLE>
The amounts of depreciation included in other operating expenses and
amortization included in occupancy expense were $200,318 in 1997, and $162,798
in 1996.
NOTE (6)--STOCK OPTION PLAN
At December 31, 1997, the Bank had an incentive stock option plan which is
described below. The Bank applies APB Opinion 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been recognized
for its fixed stock option plan. Had compensation costs for these plans been
determined based on the fair value at the grant dates consistent with the method
of SFAS 123, the impact would not have materially affected net income.
In 1985, the Bank adopted a stock option plan under which the Bank's Common
shares may be issued to officers and key employees at not less than 100 percent
of fair market value at the date the options were granted.
The fair value of each option granted was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions for
1996; risk-free rate of 6.23 percent, dividend yield of 0 percent, volatility of
18.10 percent, and expected life of 5.9 years.
The Bank has an incentive stock-option plan which provides for the issuance
of up to 110,000 shares of the Bank's authorized but unissued common stock to
officers and directors. Options are granted at a price not less than the fair
market value of the stock at the date of grant (not less than 110 percent of
fair market value if the option is granted to a person owning more than 10
percent of the voting power of the
F-14
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (6)--STOCK OPTION PLAN (CONTINUED)
Bank's stock) and expire no later than fourteen years from the date of grant.
Information concerning stock options is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at beginning of year.................. 106,556 $ 8.08 99,056 $ 7.71
Options granted................................... -- -- 7,500 13.00
Options exercised................................. (22,089) 7.70 -- --
Options canceled.................................. (1,000) 10.00 -- --
--------- ---------
Outstanding at end of year........................ 83,467 8.16 106,556 8.08
--------- ---------
--------- ---------
Options exercisable at year-end................... 74,684 7.70 91,490 7.52
Weighted-average fair value of options granted
during the year................................. $ -- $ 4.02
</TABLE>
A summary of the status of the Bank's incentive stock option plan as of
December 31, 1997, is presented below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING EXERCISE PRICE
- ----------- --------------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
83,467 1.8 $ 8.16 74,684 $ 7.70
</TABLE>
NOTE (7)--INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Current Expense
Federal............................................................ $ 516,796 $ 127,072
State.............................................................. 189,815 52,980
----------- ----------
Total Current Expense............................................ 706,611 180,052
----------- ----------
Deferred Expense
Federal............................................................ (105,997) 40,613
State.............................................................. (24,655) 14,273
----------- ----------
Total Deferred Expense........................................... (130,652) 54,886
----------- ----------
Total Income Tax Expense......................................... $ 575,959 $ 234,938
----------- ----------
----------- ----------
</TABLE>
F-15
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (7)--INCOME TAXES (CONTINUED)
The reasons for the difference between income tax expense and the amount
computed by applying the Federal statutory income-tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Tax expense at federal statutory rate...................................... 34.0% 34.0%
State franchise tax, net of federal income tax benefit..................... 7.2% 7.5%
Other...................................................................... 0.3% 0.4%
--------- ---------
Effective Tax Rate......................................................... 41.5% 41.9%
--------- ---------
--------- ---------
</TABLE>
Deferred income taxes result from temporary differences in the recognition
of revenues and expenses for financial and income tax reporting purposes.
Principal items resulting in deferred income taxes include the provision for
loan and lease losses, OREO valuation allowance, state taxes, and recognition of
prepaid expenses for tax.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for loan and lease loss due to tax limitations............ $ 165,609 $ 44,576
Loan income recognized for tax purposes............................. 5,636 105,291
OREO valuation allowance............................................ 47,424 --
State taxes......................................................... 51,888 14,165
---------- ----------
270,557 164,032
Valuation allowance................................................... (29,966) (34,556)
Deferred Tax Liabilities:
Recognition of prepaid expenses for tax............................. (71,688) (77,279)
Depreciation........................................................ (13,018) (4,921)
---------- ----------
Net Deferred Taxes.................................................... $ 155,885 $ 47,276
---------- ----------
---------- ----------
</TABLE>
F-16
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (8)--EARNINGS PER SHARE
The following is a reconciliation of net income and shares outstanding to
the income and number of shares used to compute EPS:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
INCOME SHARES INCOME SHARES
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net income as reported......................... $ 800,376 -- $ 325,507 --
Shares outstanding at year end................. -- 479,013 -- 456,924
Impact of Weighting Shares..................... -- -- -- --
Purchased during the year.................... -- (18,185) -- --
---------- --------- ---------- ---------
Used in Basic EPS.......................... 800,376 460,828 325,507 456,924
Dilutive effect of outstanding stock options... -- 38,836 -- 34,625
---------- --------- ---------- ---------
Used in Dilutive EPS....................... $ 800,376 499,664 $ 325,507 491,549
---------- --------- ---------- ---------
---------- --------- ---------- ---------
</TABLE>
NOTE (9)--COMMITMENTS
The Bank leases its current facilities in Oxnard and Camarillo under
operating leases with lease terms expiring through 2012. The Camarillo branch
facility lease agreement includes an option to extend the lease for an
additional five-year period with future rentals to be determined based on the
change in a specified inflation index. Future minimum commitments under these
leases are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 390,433
1999............................................................ 391,621
2000............................................................ 391,621
2001............................................................ 344,447
2002............................................................ 336,237
Thereafter...................................................... 2,704,752
---------
$4,559,111
---------
---------
</TABLE>
Rent expense was $274,560 in 1997, and $268,506 in 1996.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the balance
sheet. The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. At December 31, 1997, the Bank had commitments to extend credit of
approximately $9,989,056 and obligations under standby letters of credit of
approximately $795,163.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to
F-17
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (9)--COMMITMENTS (CONTINUED)
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. Generally, the Bank
issues standby letters of credit for one year, which are reviewed annually for
renewal.
The Bank uses the same credit policies in making commitments and conditional
commitments as it does for extending loan facilities to customers. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Collateral held varies but may include certificates of deposit, marketable
securities, accounts receivable, inventory, property, plant and equipment, and
real estate.
At December 31, 1997, the Bank had a line of credit with a correspondent
bank totaling $2,000,000. There were no borrowings under this line of credit at
December 31, 1997 or 1996.
NOTE (10)--MORTGAGE LOAN SERVICING OPERATIONS
The Bank originated long-term first and second trust deed mortgages for
resale on the Secondary Market to Federal Home Loan Mortgage Corporation (FHLMC)
and Federal National Mortgage Association (FNMA). The gains or losses on the
sales of these loans were generally recognized at the time of sale. The Bank
retained servicing rights to these loans. Servicing arrangements provided for
the Bank to maintain all records related to the servicing agreement, to assume
responsibility for billing mortgagors, to collect periodic mortgage payments,
and to perform various other activity necessary to the mortgage servicing
function. The Bank receives as compensation a servicing fee on the principal
balance of the outstanding loans. Servicing fee income amounted to approximately
$124,122 and $136,629 in 1997 and 1996, respectively. During 1997, the Bank sold
the servicing rights on loans totaling approximately $54 million. The mortgage
servicing rights were sold without recourse. The Bank received approximately
$492,000 from the sale which represents approximately 90 percent of the proceeds
from the sale. The Bank will receive the balance of the proceeds in 1998.
NOTE (11)--REGULATORY MATTERS
The Bank is subject to various capital requirements administered by the
Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory--and possibly additional discretionary--actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and 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 Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets
F-18
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (11)--REGULATORY MATTERS (CONTINUED)
(as defined). Management believes, as of December 31,1997, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31,1997, the most recent notification from the Office of the
Comptroller of the Currency (OCC) categorized the Bank as well capitalized under
the regulatory framework for prompt corrective action (there are no conditions
or events since that notification that management believes have changed the
Bank's category). To be categorized as well-capitalized, the Bank must maintain
minimum ratios as set forth in the table below. The following table also sets
forth the Bank's actual capital amounts and ratios (dollar amounts in
thousands):
<TABLE>
<CAPTION>
TO BE ADEQUATELY TO BE WELL-
ACTUAL CAPITAL CAPITALIZED CAPITALIZED
------------------------ -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- ------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total Capital (to Risk-Weighted Assets).......... $ 7,346 11.6% $ 5,079 8.0% $ 6,349 10.0%
Tier 1 Capital (to Risk-Weighted Assets)......... 6,551 10.3 2,539 4.0 3,809 6.0
Tier 1 Capital (to Average Assets)............... 6,551 8.2 3,211 4.0 4,013 5.0
AS OF DECEMBER 31, 1996:
Total Capital (to Risk-Weighted Assets).......... $ 6,319 11.8% $ 4,518 8.0% $ 5,648 10.0%
Tier 1 Capital (to Risk-Weighted Assets)......... 5,600 9.9 2,259 4.0 3,389 6.0
Tier 1 Capital (to Average Assets)............... 5,600 7.4 2,988 4.0 3,735 5.0
</TABLE>
NOTE (12)--DEFINED CONTRIBUTION PLAN
Effective September 1, 1994, the Bank established a qualified defined
contribution plan [401(K) Retirement Savings Plan] for all eligible employees.
Employees may contribute from 1 percent to 15 percent of their compensation with
a maximum of $9,500 annually. The Bank's contributions to the plan are a
monthly, discretionary amount, which may vary from month-to-month. The Bank's
matching contribution will become vested at 60 percent after three years, 80
percent after four years, with full vesting after five years. The expense was
$24,941 and $14,780 for the years ended December 31, 1997 and 1996,
respectively.
NOTE (13)--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of
financial instruments at December 31, 1997. FASB Statement 107, "Disclosures
about Fair Value of Financial Instruments,"
F-19
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (13)--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1997
----------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Assets:
Cash and cash equivalents.................................................... $ 20,608,739 $ 20,608,739
Securities and money market investments...................................... 15,492,373 15,456,000
Loans receivable............................................................. 51,547,017 51,897,000
Accrued interest receivable.................................................. 456,372 456,372
Liabilities:
Noninterest-bearing deposits................................................. 24,557,499 24,557,499
Interest-bearing deposits.................................................... 57,269,515 57,288,000
Accrued interest payable..................................................... 85,760 85,760
</TABLE>
<TABLE>
<CAPTION>
NOTIONAL COST TO CEDE
AMOUNT OR ASSUME
------------- ------------
<S> <C> <C>
Off-balance sheet instruments:
Commitments to extend credit and standby letters of credit..................... $ 10,784,219 $ 107,842
</TABLE>
The Bank in estimating fair value disclosures used the following methods and
assumptions:
CASH AND CASH EQUIVALENTS--The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values due to
the short-term nature of the assets.
SECURITIES AND MONEY MARKET INVESTMENTS--Fair values are based upon quoted
market prices, where available.
LOANS--For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values.
Fair values of residential mortgage loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions. The fair
values for other loans are estimated using discounted cash flow analyses using
discount rates approximating the interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest receivable approximates its fair value.
DEPOSITS--The fair values for interest and noninterest-bearing demand
deposits, savings deposits, and money market savings are equal to their carrying
value. Fair values for fixed-rate certificates of deposit are estimated using
discount cash-flow calculations that apply interest rates currently being
offered on certificates, to a schedule of aggregated expected monthly maturities
on time deposits. The intangible value of long-term relationships with
depositors is not taken into account in estimating the fair values disclosed.
The carrying amount of accrued interest payable approximates fair value.
OFF-BALANCE SHEET INSTRUMENTS--Fair values of loan commitments and financial
guarantees are based upon fees currently charged to enter similar agreements,
taking into account the remaining terms of the agreement and the counterparties'
credit standing.
F-20
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE (14)--NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". The statement which is effective for the year ending
December 31,1998, establishes standards of disclosure and financial statement
display for reporting comprehensive income and its components.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". The statement changes current practice
under SFAS 14 by establishing a new framework on which to base segment reporting
(referred to as management approach) and requires certain related disclosures
about products and services, geographic areas and major customers. The
disclosures are required for the year ending December 31, 1998.
F-21
<PAGE>
CHANNEL ISLANDS BANK
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks............................................................ $ 8,223,101 $ 10,945,747
Federal funds sold................................................................. 5,950,000 9,525,000
------------- -------------
Cash and Cash Equivalents........................................................ 14,173,101 20,470,747
Time deposits in other financial institutions...................................... 1,092,000 1,491,000
Investment securities..............................................................
Available-for-sale............................................................... 11,939,201 5,865,928
Held to Maturity, fair value of $76,252 (June 30, 1998) and $1,077,738 (June 30,
1997).......................................................................... 76,143 1,076,290
Loans, net......................................................................... 55,781,176 48,408,404
Loans held for sale................................................................ 1,580,202 1,535,227
Bank premises and equipment........................................................ 1,042,785 883,091
Federal Reserve Bank stock, at cost................................................ 168,300 167,150
Other assets....................................................................... 1,027,936 755,067
Other real estate owned............................................................ -- 44,600
Deferred taxes..................................................................... 45,051 45,051
------------- -------------
------------- -------------
TOTAL ASSETS....................................................................... $ 86,925,895 $ 80,742,555
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand deposits................................................................ 24,629,083 24,033,553
NOW and money market deposits.................................................. 22,333,567 23,294,047
Savings deposits............................................................... 6,326,764 6,398,348
Time deposits over $100,000.................................................... 10,786,265 10,003,579
Other time deposits............................................................ 15,209,567 10,881,483
------------- -------------
Total Deposits................................................................. 79,285,246 74,611,010
Accrued Interest and other liabilities........................................... 200,193 197,963
------------- -------------
Total Liabilities................................................................ 79,485,439 74,808,973
------------- -------------
STOCKHOLDERS' EQUITY
Contributed capital
Common stock no par value at June 30,1998, $5.00 at June 30, 1997. 2,000,000
shares authorized: issued and outstanding 533,282 shares in June 30, 1998,
460,924 shares in June 30, 1997.............................................. 2,666,410 2,304,620
Surplus.......................................................................... 3,062,827 2,602,338
Retained earnings................................................................ 1,769,427 1,074,975
Valuation allowance for investments.............................................. (58,208) (48,351)
------------- -------------
Total Stockholders' Equity....................................................... 7,440,456 5,933,582
------------- -------------
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......................................... $ 86,925,895 $ 80,742,555
------------- -------------
------------- -------------
</TABLE>
F-22
<PAGE>
CHANNEL ISLANDS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED,
----------------------------
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans........................................................ $ 2,972,013 $ 2,737,846
Interest on federal funds sold.................................................... 200,347 268,595
Interest on time deposits in other financial institutions......................... 36,637 44,040
Interest on investments........................................................... 394,558 234,021
------------- -------------
Total Interest Income........................................................... 3,603,555 3,284,502
Interest Expense on Deposits and Investments........................................ 1,006,084 882,643
------------- -------------
NET INTEREST INCOME................................................................. 2,597,471 2,401,859
PROVISION FOR LOAN LOSSES........................................................... 57,800 105,000
------------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................................. 2,539,671 2,296,859
OTHER INCOME
Service Charges, fees and other................................................... 450,657 355,686
Gain (loss) on sale of assets..................................................... 1,645 (1,833)
------------- -------------
Total Other Income.............................................................. 452,302 353,853
OTHER EXPENSES
Salaries and employee benefits.................................................... 1,280,756 1,133,088
Occupancy......................................................................... 237,396 200,802
Other operating expenses.......................................................... 899,900 727,211
------------- -------------
Total Other Expenses............................................................ 2,418,052 2,061,101
------------- -------------
Net Income Before Income Taxes.................................................... 573,921 589,611
Income Taxes...................................................................... 236,168 247,165
------------- -------------
------------- -------------
NET INCOME...................................................................... $ 337,753 $ 342,446
------------- -------------
------------- -------------
Earnings Per Share Basic............................................................ $ 0.64 $ 0.74
------------- -------------
------------- -------------
Earnings Per Share Diluted.......................................................... $ 0.60 $ 0.68
------------- -------------
------------- -------------
</TABLE>
F-23
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VALUATION
ALLOWANCE
NUMBER OF FOR
SHARES COMMON RETAINED INVESTMENT
OUTSTANDING STOCK SURPLUS EARNINGS SECURITIES TOTAL
----------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ 456,924 2,284,620 2,582,338 778,617 (49,423) 5,596,152
Net Income...................... 342,446 342,446 342,446
Dividends....................... (46,088) (46,088)
Stock options exercised
(including the realization of
tax benefits of
$5,740)....................... 4,000 20,000 25,740 45,740
Change in unrealised loss on
investments..................... 1,072 1,072
----------- ---------- ---------- ---------- ------------ ----------
Balance, June 30, 1997............ 460,924 2,304,620 2,608,078 1,074,975 (48,351) 5,939,322
----------- ---------- ---------- ---------- ------------ ----------
----------- ---------- ---------- ---------- ------------ ----------
</TABLE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
VALUATION
ALLOWANCE
NUMBER OF FOR
SHARES COMMON RETAINED INVESTMENT
OUTSTANDING STOCK SURPLUS EARNINGS SECURITIES TOTAL
----------- ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ 479,013 2,395,065 2,714,645 1,485,003 (38,804) 6,555,909
Net Income...................... 337,752 337,752
Dividends....................... (53,328) (53,328)
Stock options exercised
(including the realization of
tax benefits of $229,472)..... 54,269 271,345 348,182 619,527
Change in unrealised loss on
investments..................... (19,404) (19,404)
----------- ---------- ---------- ---------- ------------ ----------
Balance, June 30, 1998............ 533,282 2,666,410 3,062,827 1,769,427 (58,208) 7,440,456
----------- ---------- ---------- ---------- ------------ ----------
----------- ---------- ---------- ---------- ------------ ----------
</TABLE>
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Americorp:
We have audited the accompanying consolidated balance sheets of Americorp
and subsidiary (the "Company") as of December 31, 1997 and 1996 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Americorp and subsidiary at
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period December 31, 1997 in conformity
with generally accepted accounting principles.
FANNING & KARRH
VENTURA, CALIFORNIA
January 23, 1998, except for Note 6 as to
which the date is May 7, 1998 and for
Note 17 as to which the date is
August 27, 1998
F-25
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NOTES 1997 1996
--------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks................................................. $ 11,461,522 $ 10,542,158
Federal funds sold...................................................... 5,900,000 11,400,000
Securities.............................................................. 1,2 25,112,659 32,259,246
Loans, net.............................................................. 1,3 83,397,506 64,942,883
Accrued interest receivable............................................. 855,551 703,295
Premises and equipment, net............................................. 1,4 1,465,201 1,136,975
Other real estate owned................................................. 1,5 123,048 91,000
Investment in partnerships.............................................. 6 2,549,515 2,898,943
Other assets............................................................ 7,8 3,346,911 3,105,443
-------------- --------------
TOTAL ASSETS............................................................ $ 134,211,913 $ 127,079,943
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Noninterest-bearing demand.............................................. $ 36,510,231 $ 30,625,649
Interest-bearing demand................................................. 40,351,999 41,487,472
Savings................................................................. 10,997,418 11,135,396
Time, under $100,000.................................................... 18,662,881 18,361,158
Time, $100,000 and over................................................. 13,444,974 12,674,418
-------------- --------------
Total deposits.......................................................... 119,967,503 114,284,093
Accrued interest payable................................................ 394,234 509,184
Other liabilities....................................................... 1,8 2,498,958 1,814,583
-------------- --------------
Total liabilities....................................................... 122,860,695 116,607,860
-------------- --------------
STOCKHOLDERS' EQUITY: 1,9,12
Common stock--$1 par value; 2,500,000 shares authorized................. 585,518 575,665
Surplus................................................................. 2,184,164 1,913,280
Retained earnings....................................................... 8,500,241 7,932,965
Net unrealized gain on securities available-for-sale, net of deferred
income taxes.......................................................... 81,295 50,173
-------------- --------------
Total stockholders' equity.............................................. 11,351,218 10,472,083
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $ 134,211,913 $ 127,079,943
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-26
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans...................................... $ 7,803,480 $ 6,491,245 $ 6,398,085
Interest on Federal funds sold.................................. 236,051 403,974 125,644
Interest on securities:
U.S. agency securities........................................ 368,240 461,865 525,146
State, county, and municipal securities....................... 664,370 774,635 848,825
Mortgage-backed securities.................................... 495,606 394,809 343,079
Mutual funds.................................................. 167,854 261,452 285,976
Other......................................................... 13,108 3,584 11,777
------------ ------------ ------------
Total interest income........................................... 9,748,709 8,791,564 8,538,532
------------ ------------ ------------
INTEREST EXPENSE ON DEPOSITS.................................... 2,746,538 2,739,824 2,519,965
------------ ------------ ------------
NET INTEREST INCOME............................................. 7,002,171 6,051,740 6,018,567
PROVISION FOR LOAN AND LEASE LOSSES............................. 3 410,000 1,045,600 554,002
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES... 6,592,171 5,006,140 5,464,565
------------ ------------ ------------
OTHER OPERATING INCOME:
Service charges on deposit accounts............................. 697,560 619,454 563,490
Other service charges and fees.................................. 525,950 440,190 423,888
Gain (loss) on securities....................................... 2 53,954 (206,940) (82,850)
Equity in net income of partnership............................. 6 50,572 214,844 353,384
Other income.................................................... 242,101 180,211 126,451
------------ ------------ ------------
Total other operating income.................................... 1,570,137 1,247,759 1,384,363
------------ ------------ ------------
OTHER EXPENSE:
Salaries and employee benefits.................................. 8 3,392,097 2,954,086 2,816,241
Net occupancy expense........................................... 624,083 521,085 482,741
Furniture and equipment expense................................. 306,622 219,560 112,553
Advertising expense............................................. 1 220,333 172,063 205,378
Legal expense................................................... 205,166 61,043 113,418
Data processing expense......................................... 359,902 318,451 272,327
Net cost of other real estate owned (including valuation
allowance for other real estate losses and gains and losses on
sales of other real estate)................................... 38,376 80,629 227,276
Write-down of real estate....................................... 6 200,000
Other operating expense......................................... 1,517,039 1,487,077 1,448,280
------------ ------------ ------------
Total other expense............................................. 6,663,618 6,013,994 5,678,214
------------ ------------ ------------
INCOME BEFORE INCOME TAXES...................................... 1,498,690 239,905 1,170,714
PROVISION FOR INCOME TAXES...................................... 7 396,177 37,027 225,317
------------ ------------ ------------
NET INCOME...................................................... $ 1,102,513 $ 202,878 $ 945,397
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER COMMON SHARE....................................... 1 $ 1.91 $ .35 $ 1.67
------------ ------------ ------------
------------ ------------ ------------
EARNINGS PER COMMON SHARE--ASSUMING DILUTION.................... 1 $ 1.66 $ .31 $ 1.41
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-27
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON STOCK GAIN (LOSS) ON
----------------------- SECURITIES
NUMBER OF RETAINED AVAILABLE-FOR-
SHARES AMOUNT SURPLUS EARNINGS SALE
----------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1995............................ 567,211 $ 567,211 $ 1,535,421 $ 7,944,292 $ (600,612)
ISSUANCE OF STOCK............................ 2,871 2,871 66,569
RETIREMENT OF STOCK.......................... (2,592) (2,592) (7,025) (59,069)
NET INCOME................................... 945,397
DIVIDENDS
($.82 per share)........................... (465,237)
NET CHANGE IN UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE, NET OF
TAXES...................................... 671,929
----------- ---------- ------------ ------------ --------------
BALANCE,
DECEMBER 31, 1995.......................... 567,490 567,490 1,594,965 8,365,383 71,317
ISSUANCE OF STOCK............................ 14,496 14,496 337,936
RETIREMENT OF STOCK.......................... (6,321) (6,321) (19,621) (154,208)
NET INCOME................................... 202,878
DIVIDENDS
($.84 per share)........................... (481,088)
NET CHANGE IN UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE, NET OF
TAXES...................................... (21,144)
----------- ---------- ------------ ------------ --------------
BALANCE,
DECEMBER 31, 1996.......................... 575,665 575,665 1,913,280 7,932,965 50,173
ISSUANCE OF STOCK............................ 11,765 11,765 277,678
RETIREMENT OF STOCK.......................... (1,912) (1,912) (6,794) (48,685)
NET INCOME................................... 1,102,513
DIVIDENDS
($.84 per share)........................... (486,552)
NET CHANGE IN UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE, NET OF
TAXES...................................... 31,122
----------- ---------- ------------ ------------ --------------
BALANCE,
DECEMBER 31, 1997.......................... 585,518 $ 585,518 $ 2,184,164 $ 8,500,241 $ 81,295
----------- ---------- ------------ ------------ --------------
----------- ---------- ------------ ------------ --------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-28
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 1,102,513 $ 202,878 $ 945,397
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan and lease losses............................ 410,000 1,045,600 554,002
Depreciation and amortization.................................. 283,276 173,300 59,699
Amortization of premium, net of accretion of discount.......... 74,729 82,454 132,751
Benefit for deferred income taxes.............................. (95,071) (161,575) (98,543)
Valuation allowance for other real estate owned................ 12,705
Loss on sale of other real estate owned........................ 11,450 42,853 80,053
Write-down of real estate...................................... 200,000
Loss on disposition of premises and equipment.................. 696
Net (gain) loss on securities available-for-sale............... (51,963) 208,129 47,617
Net (gain) loss on securities held-to-maturity................. (1,991) (1,301) 35,233
Equity in net income of partnership............................ (50,572) (214,844) (353,384)
(Increase) decrease in interest receivable..................... (152,256) 86,771 (103,503)
(Increase) decrease in other assets............................ (160,709) 327,649 337,753
(Decrease) increase in interest payable........................ (114,950) 82,926 322,796
Increase (decrease) in other liabilities....................... 684,375 85,331 (19,749)
--------------- -------------- --------------
Net cash provided by operating activities........................ 1,938,831 2,173,572 1,944,088
--------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held-to-maturity......................... (2,038,561) (2,387,265) (40,421)
Purchases of securities available-for-sale....................... (3,760,643) (444,741)
Proceeds from maturities, calls and sales of securities
held-to-maturity............................................... 4,018,308 2,283,086 3,224,083
Proceeds from maturities, calls and sales of securities
available-for-sale............................................. 5,191,499 5,050,097 1,664,605
Net increase in loans............................................ (19,276,853) (6,130,235) (4,571,326)
Proceeds from the sale of premises and equipment................. 940 11,000
</TABLE>
F-29
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONCLUDED
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES (CONCLUDED):
Purchases of premises and equipment............................... (611,502) (682,699) (500,176)
Proceeds from the sale of other real estate owned................. 368,732 296,347 387,167
Distribution from partnership..................................... 400,000 341,060
Contribution to partnership....................................... (257,775)
--------------- ------------- -------------
Net cash used for investing activities............................ (11,948,377) (4,989,312) (527,584)
--------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits.......................................... 5,683,410 8,742,456 7,861,498
Retirement of common stock........................................ (57,391) (180,150) (68,686)
Proceeds from issuance of common stock............................ 289,443 352,432 69,440
Dividends paid.................................................... (486,552) (481,088) (465,237)
--------------- ------------- -------------
Net cash provided by financing activities......................... 5,428,910 8,433,650 7,397,015
--------------- ------------- -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................. (4,580,636) 5,617,910 8,813,519
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................... 21,942,158 16,324,248 7,510,729
--------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................... $ 17,361,522 $ 21,942,158 $ 16,324,248
--------------- ------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid
during the year for:
Interest.......................................................... $ 2,861,488 $ 2,656,898 $ 2,197,169
Income taxes...................................................... $ 150,000 $ 257,965 $ 355,000
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Other real estate owned acquired in settlement of loans........... $ 492,230 $ 0 $ 375,000
Other real estate owned financed by loan.......................... $ 80,000 $ 635,800 $ 0
Total change in unrealized gain/loss on securities available-
for-sale........................................................ $ 45,434 $ 30,868 $ 952,148
</TABLE>
See Notes to Consolidated Financial Statements.
F-30
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Americorp and subsidiary (the
"Company") are in accordance with generally accepted accounting principles and
conform to practices within the banking industry. The following are descriptions
of the more significant of those policies.
BASIS OF PRESENTATION--The consolidated financial statements include
Americorp and its wholly owned subsidiary, American Commercial Bank (the
"Bank"). All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES--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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, the valuation of
real estate acquired in connection with foreclosures or in satisfaction of loans
and the valuation allowance for deferred tax assets.
In connection with the determination of the allowance for losses on loans
and foreclosed real estate, management obtains independent appraisals for
significant properties. While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for losses on loans and foreclosed
real estate. Such agencies may require the Company to recognize additions to the
allowances based on their judgements about information available to them at the
time of their examination. Because of these factors, it is reasonably possible
that the allowances for losses on loans and foreclosed real estate may change
materially in the near future.
In connection with the determination of the valuation allowance for deferred
tax assets, management considers whether it is more likely than not that all or
part of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near future for
changes in certain assumptions or estimates used to calculate future taxable
income.
SECURITIES--The Company classifies its investment securities into three
categories as follows:
TRADING SECURITIES--Securities held principally for resale in the near
future are classified as trading securities and recorded at their fair values.
The Company holds no securities that are classified as trading securities.
SECURITIES HELD-TO-MATURITY--Securities for which the Company has the
positive intent and ability to hold to maturity are carried at cost, increased
by the accretion of discounts and decreased by the amortization of premiums.
Discount is accreted and premium is amortized over the period to maturity of the
related security.
SECURITIES AVAILABLE-FOR-SALE--Securities available-for-sale consist of
investment securities not classified as trading securities nor as securities
held-to-maturity. Securities available-for-sale are recorded at their fair
market values. Unrealized holding gains and losses, net of tax, are reported as
a net amount in a
F-31
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separate component of equity until realized. Gains and losses are determined
using the specific identification method. The accretion of discounts and the
amortization of premiums are recognized in interest income using the interest
method over the period to maturity.
LOANS--Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan and lease losses is increased by provisions for loan
and lease losses which are included in the accompanying statements of income.
Losses are charged against the allowance for loan and lease losses when
management determines the collectibility of the principal is unlikely.
Recoveries on loans and leases previously charged off are credited to the
allowance. Management's determination of the allowance is based on periodic
evaluations of the loan and lease portfolio which take into consideration such
factors as changes in the growth, size and composition of the loan and lease
portfolio, overall portfolio quality, prior loan and lease loss experience,
review of specific loans and leases, collateral, guarantees and current economic
conditions.
DIRECT FINANCING LEASES--Income from direct financing leases is recorded
over the life of the lease under the financing method of accounting. The
investment includes the sum of aggregate rentals receivable and the estimated
residual value of leased equipment less deferred income.
PREMISES AND EQUIPMENT--Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is generally charged to
income over the estimated useful lives of the assets by use of the straight-line
method. Leasehold improvements are amortized over the terms of the leases or the
estimated useful lives of improvements, whichever is shorter.
Estimated useful lives are as follows:
<TABLE>
<CAPTION>
<S> <C>
Furniture, fixtures and equipment............................................ 3 to 10 years
Leasehold improvements....................................................... 5 to 15 years
</TABLE>
OTHER REAL ESTATE OWNED--Real estate acquired through foreclosure or deed in
lieu of foreclosure is recorded at the lower of the outstanding loan balance at
the time of foreclosure or appraised value. Gains and losses on the sale of
other real estate owned and write-downs resulting from periodic revaluation of
the property are charged to other operating expenses.
ADVERTISING COSTS--The Company expenses the costs of advertising when
incurred.
INCOME TAXES--Deferred income taxes arise from temporary differences between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
F-32
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE--Earnings per common share are based on the weighted
average number of common shares outstanding. Earnings per common share--assuming
dilution are based on the weighted average number of common and equivalent
shares outstanding. The average number of common shares outstanding and common
equivalent shares outstanding for 1997 were 577,719 and 665,649, respectively.
The average number of common shares outstanding and common equivalent shares
outstanding for 1996 were 571,685 and 660,293, respectively. The average number
of common shares outstanding and common equivalent shares outstanding for 1995
were 567,331 and 669,135, respectively. Common equivalent shares consist of the
dilutive effect of stock options using the treasury stock method.
STATEMENT OF CASH FLOWS--For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and Federal funds
sold. Generally, Federal funds are sold for one-day periods.
2. SECURITIES
Debt securities have been classified according to management's intent. The
amortized cost of securities and their approximate fair values at December 31,
1997 and 1996 follows.
Securities held-to-maturity:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------ ------------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency
securities.. $4,744,530 $ 6,795 $ (18,670) $4,732,655 $7,272,690 $ (80,758) $7,191,932
State, county
and
municipal
securities.. 4,903,883 184,340 (9,694) 5,078,529 4,378,779 $ 105,404 (38,713) 4,445,470
Mortgage-
backed
securities.. 2,841,375 820 (19,775) 2,822,420 3,869,990 6,784 (60,477) 3,816,297
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
Totals....... $12,489,788 $ 191,955 $ (48,139) $12,633,604 $15,521,459 $ 112,188 $(179,948) $15,453,699
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
</TABLE>
Securities available-for-sale:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------------ ------------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency
securities.. $ 250,823 $ 115 $ 250,938
State, county
and
municipal
securities.. $5,987,398 $ 234,832 $6,222,230 8,148,847 278,356 $ (18,446) 8,408,757
Mortgage-
backed
securities.. 3,713,330 16,849 $ (19,348) 3,710,831 5,413,001 29,439 (34,848) 5,407,592
Mutual
funds...... 2,803,463 (113,653) 2,689,810 2,851,871 (181,371) 2,670,500
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
Totals....... $12,504,191 $ 251,681 $(133,001) $12,622,871 $16,664,542 $ 307,910 $(234,665) $16,737,787
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
</TABLE>
F-33
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SECURITIES (CONTINUED)
The scheduled maturities of securities held-to-maturity and
available-for-sale at December 31, 1997 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------------- ----------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 1,499,945 $ 1,494,688 $ 738,377 $ 745,127
Due after one year through five years............... 3,860,359 3,846,548 2,640,833 2,733,883
Due after five years through ten years.............. 2,720,153 2,843,917 2,088,826 2,204,069
Due after ten years................................. 1,567,956 1,626,031 519,362 539,151
Mortgage-backed securities.......................... 2,841,375 2,822,420 3,713,330 3,710,831
Mutual funds........................................ 2,803,463 2,689,810
------------- ------------- ------------- -------------
Totals.............................................. $ 12,489,788 $ 12,633,604 $ 12,504,191 $ 12,622,871
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Proceeds from calls of securities held-to-maturity during 1997, 1996 and
1995 were $1,000,000, $700,000 and $1,175,000, respectively. No gains or losses
occurred on those calls during 1997. Gross losses of $2,637 and $38,103 were
realized on those calls during 1996 and 1995, respectively. Gross gains of
$2,870 were realized on those calls in 1995. Proceeds from the sale of a
security held-to-maturity during 1997 were $146,404. Gross gain of $1,991 was
realized on that sale.
Proceeds from sales and calls of securities available-for-sale during 1997,
1996 and 1995 were $2,751,558, $1,368,938 and $1,664,605, respectively. Gross
gains of $51,963 were realized on those sales and calls during 1997. Gross gains
of $3,938 were realized on those calls during 1996. Gross losses of $60,000 and
$47,617 were realized on those sales during 1996 and 1995, respectively.
At December 31, 1996, the Company wrote down certain mutual fund
investments. The write-down amounted to $148,129 and was due to a decline in
fair value considered to be other than temporary. The write-down is included in
loss on securities in the accompanying consolidated financial statements.
Securities carried at approximately $1,533,000 and $1,533,000 at December
31, 1997 and 1996, respectively, were pledged to secure public funds on deposit,
as required by law.
F-34
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LOANS
Loans consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Commercial..................................................... $ 30,244,952 $ 29,572,316
Real estate.................................................... 31,919,611 11,026,049
Equity lines................................................... 10,216,741 12,134,256
Installment.................................................... 10,669,495 10,259,703
Leases receivable.............................................. 1,495,295 2,859,330
Credit card loans.............................................. 145,145 75,955
Overdrafts..................................................... 10,020 11,180
------------- -------------
Total loans.................................................... 84,701,259 65,938,789
Less allowance for loan and lease losses....................... (1,047,545) (811,552)
Less deferred loan fees........................................ (256,208) (184,354)
------------- -------------
Loans, net..................................................... $ 83,397,506 $ 64,942,883
------------- -------------
------------- -------------
</TABLE>
Transactions in the allowance for loan and lease losses account are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- ------------
<S> <C> <C> <C>
Balance, beginning of year......................... $ 811,552 $ 632,271 $ 660,851
Provision for losses charged to expense............ 410,000 1,045,600 554,002
Loans and leases charged off....................... (195,521) (870,442) (588,764)
Recoveries on loans previously charged off......... 21,514 4,123 6,182
------------ ------------- ------------
Balance, end of year............................... $ 1,047,545 $ 811,552 $ 632,271
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
At December 31, 1997 and 1996, there were no significant loans that were
specifically classified as impaired or on non-accrual status.
In the ordinary course of business, the Company has granted loans to certain
directors and companies with which they are associated. Loans made to such
related parties amounted to $100,450 in 1997. Balances outstanding at December
31, 1997 and 1996 were $1,623,478 and $2,793,267, respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
<S> <C> <C>
Furniture, fixtures and equipment............................... $ 1,583,060 $ 1,198,277
Leasehold improvements.......................................... 897,323 671,279
-------------- ------------
Total cost...................................................... 2,480,383 1,869,556
Less accumulated depreciation and amortization.................. (1,015,182) (732,581)
-------------- ------------
Premises and equipment, net..................................... $ 1,465,201 $ 1,136,975
-------------- ------------
-------------- ------------
</TABLE>
F-35
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OTHER REAL ESTATE OWNED
Other real estate owned consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Foreclosed assets held for sale....................................... $ 123,048 $ 127,665
Valuation allowance................................................... (36,665)
---------- ----------
Other real estate owned, net.......................................... $ 123,048 $ 91,000
---------- ----------
---------- ----------
</TABLE>
6. INVESTMENT IN PARTNERSHIPS
The Company has a 50% limited partner interest in a limited partnership
(Ventura Affordable Homes, Ltd.). Affordable Communities, Inc., an unrelated
entity, is the general partner. The partnership was formed for the purpose of
constructing a low-to-moderate income housing development located in Ventura.
The investment is accounted for on the equity method. In 1992, the Company sold
a parcel of land to the partnership at its cost of $1,200,000. In exchange, the
Company received a second trust deed for $1,200,000. During 1994, the Company
contributed the trust deed and an additional $500,000 to the partnership.
$257,775 was contributed to the partnership in 1995. The partnership is
constructing 151 houses consisting of 5 phases. As of December 31, 1997, 150
houses have been sold and one is in escrow.
Condensed financial information excerpted from audited financial statements
of Ventura Affordable Homes, Ltd. as of December 31, 1997 and for the year then
ended is as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Inventory of unsold homes...................................................... $ 168
Other assets................................................................... $ 2,743
Accounts payable and accrued expenses.......................................... $ 4
Amounts due partners........................................................... $ 71
Partners' capital.............................................................. $ 2,835
Revenue from homebuilding...................................................... $ 4,904
Cost of revenue from homebuilding.............................................. $ 4,819
Net income..................................................................... $ 51
Company's equity in net income................................................. $ 51
</TABLE>
In January of 1997, a dispute arose between the Bank as limited partner and
Affordable Communities, Inc., the general partner, over the amount of management
fees claimed to be owed to the general partner by the partnership. In February
1997, the Bank initiated a lawsuit against the general partner because of this
dispute. As of the date of this report, the Bank and the general partner have
negotiated a complete settlement of the dispute and a request for dismissal has
been filed with the court. In connection with the settlement agreement, the
partnership is currently being dissolved and the Bank has received a $2,549,515
distribution in full satisfaction of its 50% interest in the partnership.
The Company has a 50% limited partner interest in a another limited
partnership (Santa Paula Affordable Homes, Ltd.). Affordable Communities, Inc.
is the general partner. The partnership was originally formed to construct a
low-to-moderate income housing development in Santa Paula, California. Due to
various factors, the development of the housing project will not commence. As a
result, the partners are in the process of dissolving the Santa Paula Affordable
Homes, Ltd. partnership. The partnership's operations to date have not been
significant. In connection with the partnership agreement,
F-36
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT IN PARTNERSHIPS (CONTINUED)
the Company had purchased a parcel of land to sell to Santa Paula Affordable
Homes, Ltd. The land was purchased in 1988 for $800,000. In December 1996, the
Company wrote down the land to estimated fair market value. The write-down
amounted to $200,000 and was based upon an estimate of future discounted cash
flows. The land was then sold to a 50% owner of Affordable Communities, Inc. for
$600,000. The Company financed 100% of the sale of the land.
7. INCOME TAXES
The current and deferred amounts of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal............................................... $ 346,224 $ 128,227 $ 141,576
State................................................. 190,090 70,375 182,284
Utilization of alternative minimum tax credit......... (45,066)
------------ ------------ ----------
491,248 198,602 323,860
------------ ------------ ----------
Deferred:
Federal............................................... (111,440) (205,124) (53,543)
State................................................. (31,654) (38,898) (48,871)
Change in valuation allowance......................... 48,023 82,447 3,871
------------ ------------ ----------
(95,071) (161,575) (98,543)
------------ ------------ ----------
Provision for income taxes............................ $ 396,177 $ 37,027 $ 225,317
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Current state income tax receivable of $5,565 is included in other assets
and current federal income tax payable of $226,295 is included in other
liabilities in the accompanying consolidated financial statements.
The following summarizes the differences between the provision for income
taxes for financial statement purposes and the federal statutory rate of 34%:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal statutory rate................................ 34% 34% 34%
State franchise tax, net of federal income tax benefit................. 7 9 8
Municipal interest..................................................... (13) (95) (21)
Benefit of deferred deductions, alternative minimum tax credits and
changes in valuation allowance, net.................................. 70
Other.................................................................. (2) (3) (2)
--- --- ---
Tax provision.......................................................... 26% 15% 19%
--- --- ---
--- --- ---
</TABLE>
F-37
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The components of the net deferred tax asset included in other assets in the
accompanying consolidated financial statements are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Deferred tax liability:
Federal..................................................... $ (186,257) $ (156,505)
State....................................................... (36,663) (29,493)
Deferred tax asset:
Federal..................................................... 1,789,800 1,711,803
State....................................................... 285,127 251,527
Valuation allowance........................................... (1,181,418) (1,187,502)
-------------- --------------
Net deferred tax asset........................................ $ 670,589 $ 589,830
-------------- --------------
-------------- --------------
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Net unrealized gain/loss on securities available-for-sale..... $ (52,199) $ (31,837)
Depreciation.................................................. (35,571) (9,690)
Allowance for loan losses..................................... 273,038 194,844
Deferred compensation......................................... 759,613 717,938
Leases........................................................ (46,032) (66,115)
AMT credit.................................................... 884,131 929,197
Other real estate owned....................................... 5,697
Postretirement benefits....................................... 48,566 27,782
State timing difference....................................... (89,118) (78,356)
Mutual fund................................................... 88,128 66,421
Investment in partnership..................................... 21,451 21,451
Valuation allowance........................................... (1,181,418) (1,187,502)
-------------- --------------
Net deferred tax asset........................................ $ 670,589 $ 589,830
-------------- --------------
-------------- --------------
</TABLE>
8. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
Profit Sharing--The Company has a profit sharing and salary deferral 401(k)
plan for the benefit of its employees. Under the plan, eligible employees may
defer a portion of their salaries. The Company may, at its option, make matching
contributions or profit sharing contributions. For 1997, 1996 and 1995, the
Company matched 50% of the employees' deferral which amounted to $17,031,
$34,212 and $35,876, respectively. No profit sharing contributions were made in
1997, 1996 or 1995. In lieu of a contribution to the profit sharing plan, the
Company accrued bonuses to its employees of $305,563 in 1997 and $193,410 in
1995. No bonuses were accrued in 1996.
Deferred Compensation, Directors and Chief Executive Officers--In May 1997,
the Company approved the Directors' Retirement Plan and the Chief Executive
Officer's Retirement Plan which restated and amended preexisting retirement
plans. The original plans provided for payments upon retirement, death or
disability for the benefit of directors and the chief executive officer (now a
director) of
F-38
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROFIT SHARING AND DEFERRED COMPENSATION PLANS (CONTINUED)
the Company. The preexisting and the restated plans are nonqualified and
nonfunded plans. The preexisting plans had been amended several times and as of
January 1, 1997 provided for six years of retirement benefits upon retirement.
Under the restated plans, each participant upon normal retirement, death, or
disability will receive a monthly retirement benefit for 120 months in an amount
stipulated in the agreement. Any new participants shall vest 8% per year for
services rendered after a three year waiting period has expired. The plans also
provide for reduced benefits upon early retirement.
Deferred Compensation, Senior Officers--The Company has a nonqualified,
nonfunded income continuation plan providing for payments upon retirement, death
or disability of certain employees. Under the plan, certain employees will
receive retirement payments equal to a portion of the last three years' average
compensation. The payments are to be made monthly for a period of ten years. The
plan also provides for reduced benefits upon early retirement, disability or
termination of employment.
As of December 31, 1997 and 1996, the projected benefit obligation and the
net benefit liability of the plans are $1,698,863 and $1,599,281, respectively,
and are included in other liabilities in the accompanying consolidated financial
statements. Compensation expense relating to the plans was $266,883, $403,397
and $219,250 in 1997, 1996 and 1995, respectively.
In anticipation of the future obligation of the deferred compensation plans,
the Company has invested in life insurance policies which are carried at cash
surrender values of $2,254,886 and are included in other assets in the
accompanying consolidated financial statements. The Company's intention is to
partially fund these plans from the proceeds and investment earnings of the
insurance policies and from the profits derived from the limited partnerships'
operations (see Note 6).
9. STOCK OPTION PLANS
The Company has stock option plans which provide for the granting of options
to directors and officers to purchase stock at its market value on the date the
options are granted. 150,000 shares of common stock have been reserved for the
granting of these options. Options granted become exercisable commencing from
the date of a grant. For the participants who have been employed by or directors
with the Company less than ten years, not more than 20% of the shares granted,
plus shares left over from previous years, can be exercised in any one year. For
participants who have been employed by or directors with the Company more than
ten years, up to 100% can be exercised during the first year, with the
percentage decreasing by 20% increments over the next four years. At the end of
the fifth year, the options expire.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which was effective as of
January 1, 1996, the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for proforma footnote
purposes with the following assumptions used for grants in all years; dividend
yield of 3.16%, risk-
F-39
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
free interest rates of 5.723% to 6.296% and expected option life of 3.91 years
and 4.03 years for 1997 and 1996, respectively. Expected volatility was assumed
to be .0429 and .0525 for 1997 and 1996, respectively.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE
OF EXERCISE FAIR
SHARES PRICE VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Options outstanding, December 31, 1995....................... 110,579 $ 24.43
Granted...................................................... 9,800 $ 28.50 $ 2.62
-----
Exercised.................................................... (14,496) $ 24.31
Canceled..................................................... (10,949) $ 23.35
----------
Options outstanding, December 31, 1996....................... 94,934 $ 25.00
Granted...................................................... 19,400 $ 28.63 $ 2.56
-----
-----
Exercised.................................................... (11,765) $ 24.60
Canceled..................................................... (5,800) $ 25.47
----------
Options outstanding, December 31, 1997....................... 96,769 $ 25.72
---------- -----------
---------- -----------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE NUMBER
OUTSTANDING REMAINING EXERCISABLE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE AT 12/31/97
- ------------------------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
$24.50................................................. 67,009 1.5 52,139
$26.50................................................. 560 2.9 280
$28.50................................................. 24,200 4.1 6,800
$29.00................................................. 5,000 4.8 1,000
----------- -----------
96,769 60,219
----------- -----------
----------- -----------
</TABLE>
As permitted by FAS 123, the Company has chosen to continue accounting for
stock options at their intrinsic value. Accordingly, no compensation expense has
been recognized for its stock option compensation plans. Had the fair value
method of accounting been applied to the Company's stock option plans, the
tax-effected impact would be as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Net income as reported.............................................. $ 1,102,513 $ 202,878
Estimated fair value of the year's options grants, net of tax....... (36,751) (21,825)
------------ ----------
Net income adjusted................................................. $ 1,065,762 $ 181,053
------------ ----------
------------ ----------
Adjusted net income per common share................................ $ 1.84 $ .32
------------ ----------
------------ ----------
</TABLE>
This proforma impact only takes into account options granted since January
1, 1996 and is likely to increase future years as additional options are granted
and amortized ratably over the vesting period.
F-40
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers throughout its
primary market area of Ventura County, California. The Company's loan portfolio
is well diversified and no significant industry concentrations exist.
Investments in state and municipal securities involve governmental entities
within the State of California. As of December 31, 1997, the Company had
$14,849,043 due from a correspondent bank in excess of federal deposit insurance
limits.
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
The Company provides health and life insurance benefits to retired employees
and directors. Employees may become eligible for benefits if they retire after
attaining specified age and service requirements while they worked for the
Company. Directors may become eligible after five years regardless of their age
at retirement.
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106") effective January 1, 1996. These benefits are now accrued
over the period the employee provides services to the Company. Prior to the
change, costs were charged to expense as incurred. The Company elected the
delayed recognition treatment of the adoption of SFAS 106. Under this method,
the transition obligation will be amortized on a straight line basis over the
remaining service period of active plan participants. The Company's current
policy is to fund the cost of postretirement health care and life insurance
plans on a pay-as-you-go basis.
The net periodic cost for postretirement health care and life insurance
benefits includes the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost................................................. $ 22,846 $ 19,754 $ 18,339
Interest cost................................................ 13,711 15,165 15,477
Amortization of unrecognized transition obligation........... 9,792 9,697 9,104
--------- --------- ---------
Total........................................................ $ 46,349 $ 44,616 $ 42,920
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-41
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED)
Summary information on the Company's plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 3,647 $ 8,205
Fully eligible, active employees............................... 63,179 69,637
Other active plan participants................................. 122,296 94,250
------------ ------------
Total.......................................................... 189,122 172,092
Fair value of plan assets........................................ 0 0
------------ ------------
Unfunded accrued postretirement benefits obligation.............. 189,122 172,092
Unrecognized net gain............................................ 18,417 18,954
Unrecognized net transition obligation........................... (154,765) (163,869)
------------ ------------
Accrued postretirement benefit cost.............................. $ 52,774 $ 27,177
------------ ------------
------------ ------------
</TABLE>
The assumed discount rate and the assumed rate of increase in compensation
levels are 7.25% and 7.25%, respectively. The assumed health care cost trend
rate used in measuring the accumulated postretirement benefit obligation was 6%
declining to 4.75% in 10 years. If the health care cost trend rate assumptions
were increased by 1%, the accrued postretirement benefit cost, as of December
31, 1997, would be increased by approximately $22,732.
12. REGULATORY MATTERS
Capital requirements--The Company is subject to various regulatory capital
requirements administered by the Federal banking agencies. The regulations
require the Company to meet specific capital adequacy guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Company's capital classification is also subject to qualitative judgements by
the regulators about components, risk weighting, and other factors. 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 financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier 1 capital (as defined by the regulations) to total average
assets (as defined), and minimum ratios of Tier 1 and total capital (as defined)
to risk-weighted assets (as defined). To be considered adequately capitalized
(as defined) under the regulatory framework for prompt corrective action, the
Company must maintain minimum Tier 1 leverage, Tier 1 risk-based, total
risk-based ratios as set forth in the table. The Company's actual capital
amounts and ratios are also presented in the table.
F-42
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY MATTERS (CONTINUED)
As of December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
REQUIRED ACTUAL
AMOUNT (RATIO) AMOUNT (RATIO)
----------------- -------------------
<S> <C> <C>
Tier 1 Capital (to Average Assets)................... $5,340 (4.00%) $11,044 (8.27%)
Tier 1 Capital (to Risk Weighted Assets)............. $4,396 (4.00%) $11,044 (10.05%)
Total Capital (to Risk Weighted Assets).............. $8,793 (8.00%) $12,072 (10.98%)
</TABLE>
As of December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
REQUIRED ACTUAL
AMOUNT (RATIO) AMOUNT (RATIO)
----------------- -------------------
<S> <C> <C>
Tier 1 Capital (to Average Assets)................... $5,044 (4.00%) $10,142 (8.04%)
Tier 1 Capital (to Risk Weighted Assets)............. $3,519 (4.00%) $10,142 (11.53%)
Total Capital (to Risk Weighted Assets).............. $7,038 (8.00%) $10,930 (12.42%)
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company was obligated under operating leases
requiring annual rentals as follows:
<TABLE>
<S> <C>
1998............................................................ $ 419,532
1999............................................................ 419,532
2000............................................................ 419,532
2001............................................................ 419,532
2002............................................................ 191,430
---------
Total........................................................... $1,869,558
---------
---------
</TABLE>
Rental expense was $430,467, $367,376 and $376,426 in 1997, 1996 and 1995,
respectively.
At December 31, 1997, the Company had unused lines of credit with two banks.
The lines total $4,700,000, have variable interest rates based on the lending
bank's daily Federal funds rates, and are due on demand. The lines of credit are
unsecured.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial position. Exposure to credit loss in the event of
nonperformance by the other party to commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. At December 31, 1997, the Company had commitments to extend credit
of $25,014,995 and obligations under standby letters of credit of $125,715.
F-43
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions.
The Company uses the same credit policies in making commitments and
conditional commitments as it does for extending loan facilities to customers.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant, and
equipment and real estate.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 ("FAS 107"), "Disclosures About Fair
Value of Financial Instruments" requires corporations to disclose the fair value
of its financial instruments, whether or not recognized in the balance sheet,
where it is practical to estimate that value.
Fair value estimates made as of December 31, 1997 are based on relevant
market information about the financial instruments. These estimates do not
reflect any premium or discount that could result from offering for sale at one
time the Company's entire holding of a particular financial instrument. In cases
where quoted market prices are not available, fair value estimates are based on
judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS--The carrying amounts reported in the balance
sheets for cash and short-term instruments approximate those assets' fair
values.
SECURITIES--Fair values were based on quoted market prices, where available.
If quoted market prices were not available, fair values were based on quoted
market prices of comparable instruments.
LOANS--The carrying values, reduced by estimated inherent credit losses, of
variable-rate loans and other loans with short-term characteristics were
considered fair values. For other loans, the fair market values were calculated
by discounting scheduled future cash flows using current interest rates offered
on loans with similar terms adjusted to reflect the estimated credit losses
inherent in the portfolio.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE--The carrying
amounts reported in the balance sheets for accrued interest receivable and
accrued interest payable approximate their fair values.
F-44
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSIT LIABILITIES--The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, NOW, savings, and money market
deposits, was, by definition, equal to the amount payable on demand as of
December 31, 1997. The fair value of certificates of deposit was based on the
discounted value of contractual cash flows, calculated using the discount rates
that equaled the interest rates offered at the valuation date for deposits of
similar remaining maturities.
The following is a summary of the carrying amounts and estimated fair values
of the Company's financial assets and liabilities at December 31, 1997:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------------- --------------
<S> <C> <C>
Financial assets:
Cash and due from banks.................................... $ 11,461,522 $ 11,461,522
Federal funds sold......................................... $ 5,900,000 $ 5,900,000
Securities................................................. $ 25,112,659 $ 25,256,475
Loans, net of allowance for loan losses.................... $ 83,397,506 $ 83,278,952
Accrued interest receivable................................ $ 855,551 $ 855,551
Financial liabilities:
Deposits................................................... $ 119,967,503 $ 120,013,526
Accrued interest payable................................... $ 394,234 $ 394,234
</TABLE>
At December 31, 1997, the Bank had outstanding standby letters of credit and
commitments to extend credit. These off-balance sheet financial instruments are
generally exercisable at the market rate prevailing at the date the underlying
transaction will be completed, and, therefore, they were deemed to have no
current fair market value (see Note 14).
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the discounted value of fee
revenues generated by the mortgage banking operation nor is the value of
deferred tax assets or premises and equipment considered.
F-45
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. PARENT COMPANY INFORMATION
The following are condensed financial statements of Americorp (parent
company only) as of and for the year ended December 31, 1997:
<TABLE>
<S> <C> <C>
BALANCE SHEET
ASSETS:
Cash................................................................. $ 2,689
Other assets......................................................... 130,871
Investment in and advances to the Bank............................... 11,340,617
----------
TOTAL ASSETS......................................................... $11,474,177
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities.......................................................... $ 122,959
Stockholders' equity................................................. 11,351,218
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $11,474,177
----------
----------
STATEMENT OF INCOME
Equity in earnings of the Bank....................................... $1,122,622
Other................................................................ (20,109)
----------
NET INCOME........................................................... $1,102,513
----------
----------
</TABLE>
<TABLE>
<S> <C> <C>
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $1,102,513
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the Bank................. (846,831)
Increase in dividend receivable to the Bank........ (3,637)
Decrease in accrued liabilities.................... 2,069 (848,399)
--------- ----------
Net cash provided by operating activities............ 254,114
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock............... 289,443
Retirement of common stock........................... (57,391)
Dividends paid....................................... (486,552) (254,500)
----------
----------
Net cash used for financing activities............... (254,500)
----------
----------
DECREASE IN CASH..................................... (386)
CASH AT BEGINNING OF YEAR............................ 3,075
----------
CASH AT END OF YEAR.................................. $ 2,689
----------
----------
</TABLE>
17. SUBSEQUENT EVENT
On July 7, 1998, the Company and Channel Islands Bank ("CIB") signed a
definitive merger agreement. The agreement calls for each share of CIB common
stock to be converted into Americorp
F-46
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SUBSEQUENT EVENT (CONTINUED)
common stock in accordance with the exchange ratio set forth in the agreement.
Consummation of the merger is expected to occur during the last quarter of 1998,
and is subject to various conditions, including, but not limited to, approval by
the stockholders of the Company and CIB.
It is expected that the merger will be accounted for under the pooling of
interests method and, accordingly, historical financial data in future reports
will be restated to include CIB data.
The following unaudited pro forma data summarized the combined results of
operations of the Company and CIB as though the merger had occurred at the
beginning of 1995 (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest income.............................................. $ 16,575 $ 15,120 $ 13,757
Interest expense............................................. $ 4,626 $ 4,593 $ 3,852
Provision for loan losses.................................... $ 780 $ 1,743 $ 496
Non-interest income.......................................... $ 2,719 $ 1,955 $ 2,107
Non-interest expense......................................... $ 11,013 $ 9,938 $ 9,313
Net income................................................... $ 1,903 $ 529 $ 1,545
Net income per share--basic.................................. $ 2.11 $ .59 $ 1.74
Net income per share--diluted................................ $ 1.87 $ .53 $ 1.52
--------- --------- ---------
</TABLE>
F-47
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
NOTES 1998 1997
--------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks............................................... $ 19,417,380 $ 13,522,615
Federal funds sold.................................................... 8,200,000 2,400,000
Securities............................................................ 1,2 23,316,635 29,366,610
Loans, net............................................................ 1,3 83,074,430 73,113,554
Accrued interest receivable........................................... 746,302 905,689
Premises and equipment, net........................................... 1,4 1,342,554 1,218,519
Other real estate owned............................................... 1,5 91,000
Investment in partnerships............................................ 6 2,498,943
Other assets.......................................................... 7,8 3,726,588 3,526,062
-------------- --------------
TOTAL ASSETS.......................................................... $ 139,823,889 $ 126,642,992
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Noninterest-bearing demand............................................ $ 37,741,076 $ 31,528,283
Interest-bearing demand............................................... 40,521,408 39,454,140
Savings............................................................... 11,855,170 11,553,557
Time, under $100,000.................................................. 20,831,324 18,107,667
Time, $100,000 and over............................................... 14,025,743 13,038,528
-------------- --------------
Total deposits........................................................ 124,974,721 113,682,175
Accrued interest payable.............................................. 448,915 196,488
Other liabilities..................................................... 1,8 2,499,592 2,046,428
-------------- --------------
Total liabilities..................................................... 127,923,228 115,925,091
-------------- --------------
STOCKHOLDERS' EQUITY:................................................. 1,9,12
Common stock--$1 par value; 2,500,000 shares authorized............... 594,518 575,665
Surplus............................................................... 2,395,664 1,913,280
Retained earnings..................................................... 8,812,789 8,201,876
Net unrealized gain on securities available-for-sale, net of deferred
income taxes........................................................ 97,690 27,080
-------------- --------------
Total stockholders' equity............................................ 11,900,661 10,717,901
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $ 139,823,889 $ 126,642,992
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-48
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
NOTES 1998 1997
--------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans.................................................. $ 4,363,187 $ 3,663,809
Interest on Federal funds sold.............................................. 183,519 85,659
Interest on securities:
U.S. agency securities.................................................... 116,632 202,759
State, county, and municipal securities................................... 311,561 352,722
Mortgage-backed securities................................................ 199,011 275,059
Mutual funds.............................................................. 57,700 114,142
Other..................................................................... 6,540 6,706
------------ ------------
Total interest income....................................................... 5,238,150 4,700,856
------------ ------------
INTEREST EXPENSE ON DEPOSITS................................................ 1,427,133 1,337,786
------------ ------------
NET INTEREST INCOME......................................................... 3,811,017 3,363,070
PROVISION FOR LOAN AND LEASE LOSSES......................................... 3 265,000 260,000
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES............... 3,546,017 3,103,070
------------ ------------
OTHER OPERATING INCOME:
Service charges on deposit accounts......................................... 340,675 345,323
Other service charges and fees.............................................. 330,269 239,541
Gain (loss) on securities................................................... 2 977 22,214
------------ ------------
Total other operating income................................................ 671,921 607,078
------------ ------------
OTHER EXPENSE:
Salaries and employee benefits.............................................. 8 1,726,036 1,508,034
Net occupancy expense....................................................... 363,688 276,670
Furniture and equipment expense............................................. 177,427 147,169
Data processing expense..................................................... 192,876 175,603
Other operating expense..................................................... 989,732 880,746
------------ ------------
Total other expense......................................................... 3,449,759 2,988,222
------------ ------------
INCOME BEFORE INCOME TAXES.................................................. 768,179 721,926
PROVISION FOR INCOME TAXES.................................................. 7 206,775 211,232
------------ ------------
NET INCOME.................................................................. $ 561,404 $ 510,694
------------ ------------
------------ ------------
EARNINGS PER COMMON SHARE................................................... 1 $ .95 $ .89
------------ ------------
------------ ------------
EARNINGS PER COMMON SHARE--ASSUMING DILUTION................................ 1 $ .84 $ .77
------------ ------------
------------ ------------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-49
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
NET UNREALIZED
COMMON STOCK GAIN (LOSS) ON
----------------------- SECURITIES
NUMBER OF RETAINED AVAILABLE-
SHARES AMOUNT SURPLUS EARNINGS FOR-SALE
----------- ---------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997..................... 575,665 $ 575,665 $ 1,913,280 $ 7,932,965 $ 50,173
NET INCOME................................... 510,694
DIVIDENDS ($.42 per share)................... (241,783)
NET CHANGE IN UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE, NET OF
TAXES...................................... (23,093)
----------- ---------- ------------ ------------ --------------
BALANCE, JUNE 30, 1997....................... 575,665 $ 575,665 $ 1,913,280 $ 8,201,876 $ 27,080
----------- ---------- ------------ ------------ --------------
----------- ---------- ------------ ------------ --------------
BALANCE, JANUARY 1, 1998..................... 585,518 $ 585,518 $ 2,184,164 $ 8,500,241 $ 81,295
ISSUANCE OF STOCK............................ 9,000 9,000 211,500
NET INCOME................................... 561,404
DIVIDENDS ($.42 per share)................... (248,856)
NET CHANGE IN UNREALIZED GAIN (LOSS) ON
SECURITIES AVAILABLE-FOR-SALE, NET OF
TAXES...................................... 16,395
----------- ---------- ------------ ------------ --------------
BALANCE, JUNE 30, 1998....................... 594,518 $ 594,518 $ 2,395,664 $ 8,812,789 $ 97,690
----------- ---------- ------------ ------------ --------------
----------- ---------- ------------ ------------ --------------
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-50
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................................... $ 561,404 $ 510,694
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses................................................ 265,000 260,000
Depreciation and amortization...................................................... 174,116 125,583
Amortization of premium, net of accretion of discount.............................. 8,460 55,504
Benefit for deferred income taxes.................................................. (52,477) (45,468)
Loss on sale of other real estate owned............................................ 13,112
Loss on disposition of premises and equipment...................................... 1,888
Net gain on securities available-for-sale.......................................... (921) (22,214)
Net gain on securities held-to-maturity............................................ (56)
Decrease (increase) in interest receivable......................................... 109,249 (202,394)
Increase in other assets........................................................... (334,740) (364,531)
Increase (decrease) in interest payable............................................ 54,681 (312,696)
Increase in other liabilities...................................................... 634 231,845
------------ ------------
Net cash provided by operating activities............................................ 800,350 236,323
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities held-to-maturity............................................. (1,038,559)
Purchases of securities available-for-sale........................................... (1,501,658) (1,000,000)
Proceeds from maturities, calls and sales of securities held-to-maturity............. 1,533,961 1,361,160
Proceeds from maturities, calls and sales of securities available-for-sale........... 1,780,173 3,503,032
Net (increase) decrease in loans..................................................... 58,076 (8,430,671)
Proceeds from the sale of premises and equipment..................................... 2,100
Purchases of premises and equipment.................................................. (55,457) (207,127)
Proceeds from the sale of other real estate owned.................................... 109,936
Distribution from partnership........................................................ 2,549,515 400,000
------------ ------------
Net cash provided by (used for) investing activities................................. 4,476,646 (5,412,165)
------------ ------------
</TABLE>
F-51
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONCLUDED)
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits................................................ 5,007,218 (601,918)
Proceeds from issuance of common stock............................................. 220,500
Dividends paid..................................................................... (248,856) (241,783)
------------- -------------
Net cash provided by (used for) financing activities............................... 4,978,862 (843,701)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... 10,255,858 (6,019,543)
------------- -------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................................... 17,361,522 21,942,158
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................... $ 27,617,380 $ 15,922,615
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--Cash paid during the period for:
Interest........................................................................... $ 1,372,452 $ 1,650,482
Income taxes....................................................................... $ 462,585 $ 23,000
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES--Total change in unrealized
gain/loss on securities available-for-sale....................................... $ (23,933) $ 33,713
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
F-52
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Americorp and subsidiary (the
"Company") are in accordance with generally accepted accounting principles and
conform to practices within the banking industry. The following are descriptions
of the more significant of those policies.
BASIS OF PRESENTATION--The consolidated financial statements include
Americorp and its wholly owned subsidiary, American Commercial Bank (the
"Bank"). All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES--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.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses, the valuation of
real estate acquired in connection with foreclosures or in satisfaction of loans
and the valuation allowance for deferred tax assets.
In connection with the determination of the allowance for losses on loans
and foreclosed real estate, management obtains independent appraisals for
significant properties. While management uses available information to recognize
losses on loans and foreclosed real estate, future additions to the allowances
may be necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for losses on loans and foreclosed
real estate. Such agencies may require the Company to recognize additions to the
allowances based on their judgements about information available to them at the
time of their examination. Because of these factors, it is reasonably possible
that the allowances for losses on loans and foreclosed real estate may change
materially in the near future.
In connection with the determination of the valuation allowance for deferred
tax assets, management considers whether it is more likely than not that all or
part of the deferred tax asset will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near future for
changes in certain assumptions or estimates used to calculate future taxable
income.
SECURITIES--The Company classifies its investment securities into three
categories as follows:
Trading Securities--Securities held principally for resale in the near
future are classified as trading securities and recorded at their fair values.
The Company holds no securities that are classified as trading securities.
SECURITIES HELD-TO-MATURITY--Securities for which the Company has the
positive intent and ability to hold to maturity are carried at cost, increased
by the accretion of discounts and decreased by the amortization of premiums.
Discount is accreted and premium is amortized over the period to maturity of the
related security.
SECURITIES AVAILABLE-FOR-SALE--Securities available-for-sale consist of
investment securities not classified as trading securities nor as securities
held-to-maturity. Securities available-for-sale are recorded at their fair
market values. Unrealized holding gains and losses, net of tax, are reported as
a net amount in a
F-53
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
separate component of equity until realized. Gains and losses are determined
using the specific identification method. The accretion of discounts and the
amortization of premiums are recognized in interest income using the interest
method over the period to maturity.
LOANS--Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan fees is
discontinued when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan and lease losses is increased by provisions for loan
and lease losses which are included in the accompanying statements of income.
Losses are charged against the allowance for loan and lease losses when
management determines the collectibility of the principal is unlikely.
Recoveries on loans and leases previously charged off are credited to the
allowance. Management's determination of the allowance is based on periodic
evaluations of the loan and lease portfolio which take into consideration such
factors as changes in the growth, size and composition of the loan and lease
portfolio, overall portfolio quality, prior loan and lease loss experience,
review of specific loans and leases, collateral, guarantees and current economic
conditions.
DIRECT FINANCING LEASES--Income from direct financing leases is recorded
over the life of the lease under the financing method of accounting. The
investment includes the sum of aggregate rentals receivable and the estimated
residual value of leased equipment less deferred income.
PREMISES AND EQUIPMENT--Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is generally charged to
income over the estimated useful lives of the assets by use of the straight-line
method. Leasehold improvements are amortized over the terms of the leases or the
estimated useful lives of improvements, whichever is shorter.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
3 to 10
Furniture, fixtures and equipment............................. years
5 to 15
Leasehold improvements........................................ years
</TABLE>
OTHER REAL ESTATE OWNED--Real estate acquired through foreclosure or deed in
lieu of foreclosure is recorded at the lower of the outstanding loan balance at
the time of foreclosure or appraised value. Gains and losses on the sale of
other real estate owned and write-downs resulting from periodic revaluation of
the property are charged to other operating expenses.
ADVERTISING COSTS--The Company expenses the costs of advertising when
incurred.
F-54
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Deferred income taxes arise from temporary differences between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
EARNINGS PER SHARE--Earnings per common share are based on the weighted
average number of common shares outstanding. Earnings per common share-assuming
dilution are based on the weighted average number of common and equivalent
shares outstanding. The average number of common shares outstanding and common
equivalent shares outstanding for the period ended June 30, 1998 were 590,015
and 666,615, respectively. The average number of common shares outstanding and
common equivalent shares outstanding for the period ended June 30, 1997 were
575,665 and 663,966, respectively. Common equivalent shares consist of the
dilutive effect of stock options using the treasury stock method.
STATEMENT OF CASH FLOWS--For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, and Federal funds
sold. Generally, Federal funds are sold for one-day periods.
2. SECURITIES
Debt securities have been classified according to management's intent. The
amortized cost of securities and their approximate fair values at June 30, 1998
and 1997 follows.
Securities held-to-maturity:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------ ------------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. agency
securities......... $3,745,143 $ 9,528 $ (8,343) $3,746,328 $6,747,085 $ 64,473 $ (57,964) $6,753,594
State, county and
municipal
securities......... 4,895,013 191,728 (4,766) 5,081,975 4,907,498 163,091 (25,526) 5,045,063
Mortgage-backed
securities......... 2,307,298 1,863 (10,239) 2,298,922 3,503,020 7,181 (56,618) 3,453,583
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
Totals............... $10,947,454 $ 203,119 $ (23,348) $11,127,225 $15,157,603 $ 234,745 $(140,108) $15,252,240
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
</TABLE>
Securities available-for-sale:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------ ------------------------------------------------
GROSS GROSS ESTIMATED GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE COST GAINS LOSSES VALUE
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State, county and
municipal
securities......... $5,364,536 $ 201,431 $5,565,967 $7,124,393 $ 282,000 $ (1,022) $7,405,371
Mortgage-backed
securities......... 4,091,845 16,214 $ (13,835) 4,094,224 4,193,210 13,348 (51,492) 4,155,066
Mutual funds......... 2,770,187 (61,197) 2,708,990 2,852,740 (204,170) 2,648,570
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
Totals............... $12,226,568 $ 217,645 $ (75,032) $12,369,181 $14,170,343 $ 295,348 $(256,684) $14,209,007
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
---------- ----------- ----------- ---------- ---------- ----------- ----------- ----------
</TABLE>
F-55
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SECURITIES (CONTINUED)
The scheduled maturities of securities held-to-maturity and
available-for-sale at June 30, 1998 are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
---------------------------- ----------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 2,757,144 $ 2,762,344 $ 725,959 $ 729,091
Due after one year through five years............... 2,082,277 2,080,500 2,583,807 2,675,170
Due after five years through ten years.............. 2,717,255 2,860,100 1,616,789 1,704,470
Due after ten years................................. 1,083,480 1,125,359 437,981 457,236
Mortgage-backed securities.......................... 2,307,298 2,298,922 4,091,845 4,094,224
Mutual funds........................................ 2,770,187 2,708,990
------------- ------------- ------------- -------------
Totals.............................................. $ 10,947,454 $ 11,127,225 $ 12,226,568 $ 12,369,181
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Proceeds from calls of securities held-to-maturity during the period ended
June 30, 1998 were $755,150 for a gross gain of $56.
Proceeds from sales and calls of securities available-for-sale during the
periods ended June 30, 1998 and 1997 were $1,169,412 and $2,788,845,
respectively. Gross gains of $921 and $22,214 were realized on those sales and
calls for the periods ended June 30, 1998 and 1997, respectively.
Securities carried at approximately $1,532,328 and $1,532,740 at June 30,
1998 and 1997, respectively, were pledged to secure public funds on deposit, as
required by law.
3. LOANS
Loans consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Commercial..................................................... $ 31,016,996 $ 27,438,195
Real estate.................................................... 35,613,745 22,045,963
Equity lines................................................... 9,204,355 11,883,647
Installment.................................................... 7,597,013 10,515,317
Leases receivable.............................................. 855,425 2,263,546
Credit card loans.............................................. 176,973 121,009
Overdrafts..................................................... 20,331 11,931
------------- -------------
Total loans.................................................... 84,484,838 74,279,608
Less allowance for loan and lease losses....................... (1,131,081) (937,896)
Less deferred loan fees........................................ (279,327) (228,158)
------------- -------------
Loans, net..................................................... $ 83,074,430 $ 73,113,554
------------- -------------
------------- -------------
</TABLE>
F-56
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LOANS (CONTINUED)
Transactions in the allowance for loan and lease losses account are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Balance, beginning of period....................................... $ 1,047,545 $ 811,552
Provision for losses charged to expense............................ 265,000 260,000
Loans and leases charged off....................................... (189,622) (139,616)
Recoveries on loans previously charged off......................... 8,158 5,960
------------ -----------
Balance, end of period............................................. $ 1,131,081 $ 937,896
------------ -----------
------------ -----------
</TABLE>
At June 30, 1998 and 1997, there were no significant loans that were
specifically classified as impaired or on non-accrual status.
In the ordinary course of business, the Company has granted loans to certain
directors and companies with which they are associated. Loans made to such
related parties amounted to $103,673 during the period ended June 30, 1998.
Balances outstanding at June 30, 1998 and 1997 were $1,283,231 and $2,752,484,
respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at June 30:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Furniture, fixtures and equipment................................ $ 1,608,061 $ 1,400,252
Leasehold improvements........................................... 901,815 676,431
------------ ------------
Total cost....................................................... 2,509,876 2,076,683
Less accumulated depreciation and amortization................... (1,167,322) (858,164)
------------ ------------
Premises and equipment, net...................................... $ 1,342,554 $ 1,218,519
------------ ------------
------------ ------------
</TABLE>
5. OTHER REAL ESTATE OWNED
Other real estate owned consisted of the following at June 30, 1997:
<TABLE>
<S> <C>
Foreclosed assets held for sale.................................... $ 91,000
Valuation allowance................................................
---------
Other real estate owned, net....................................... $ 91,000
---------
---------
</TABLE>
6. INVESTMENT IN PARTNERSHIPS
The Company has a 50% limited partner interest in a limited partnership
(Ventura Affordable Homes, Ltd.). Affordable Communities, Inc., an unrelated
entity, is the general partner. The partnership was formed for the purpose of
constructing a low-to-moderate income housing development located in Ventura.
The investment is accounted for on the equity method. In 1992, the Company sold
a parcel of land to the partnership at its cost of $1,200,000. In exchange, the
Company received a second trust deed for
F-57
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT IN PARTNERSHIPS (CONTINUED)
$1,200,000. During 1994, the Company contributed the trust deed and an
additional $500,000 to the partnership. $257,775 was contributed to the
partnership in 1995. The partnership is constructing 151 houses consisting of 5
phases. As of December 31, 1997, 150 houses have been sold and one is in escrow.
Condensed financial information excerpted from audited financial statements
of Ventura Affordable Homes, Ltd. as of December 31, 1997 and for the year then
ended is as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Inventory of unsold homes...................................................... $ 168
Other assets................................................................... $ 2,743
Accounts payable and accrued expenses.......................................... $ 4
Amounts due partners........................................................... $ 71
Partners' capital.............................................................. $ 2,835
Revenue from homebuilding...................................................... $ 4,904
Cost of revenue from homebuilding.............................................. $ 4,819
Net income..................................................................... $ 51
Company's equity in net income................................................. $ 51
</TABLE>
In January of 1997, a dispute arose between the Bank as limited partner and
Affordable Communities, Inc., the general partner, over the amount of management
fees claimed to be owed to the general partner by the partnership. In February
1997, the Bank initiated a lawsuit against the general partner because of this
dispute. As of the date of this report, the Bank and the general partner have
negotiated a complete settlement of the dispute and a request for dismissal has
been filed with the court. In connection with the settlement agreement, the
partnership is currently being dissolved and the Bank has received a $2,549,515
distribution in full satisfaction of its 50% interest in the partnership.
The Company has a 50% limited partner interest in a another limited
partnership (Santa Paula Affordable Homes, Ltd.). Affordable Communities, Inc.
is the general partner. The partnership was originally formed to construct a
low-to-moderate income housing development in Santa Paula, California. Due to
various factors, the development of the housing project will not commence. As a
result, the partners are in the process of dissolving the Santa Paula Affordable
Homes, Ltd. partnership. The partnership's operations to date have not been
significant. In connection with the partnership agreement, the Company had
purchased a parcel of land to sell to Santa Paula Affordable Homes, Ltd The land
was purchased in 1988 for $800,000. In December 1996, the Company wrote down the
land to estimated fair market value. The write-down amounted to $200,000 and was
based upon an estimate of future discounted cash flows. The land was then sold
to a 50% owner of Affordable Communities, Inc. for $600,000. The Company
financed 100% of the sale of the land. In connection with the aforementioned
settlement agreement with Affordable Communities, Inc., this partnership is also
currently being dissolved.
F-58
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The current and deferred amounts of the provision for income taxes are as
follows at June 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current:
Federal............................................................... $ 179,429 $ 181,301
State................................................................. 109,838 100,161
Utilization of alternative minimum tax credit......................... (30,015) (24,762)
---------- ----------
259,252 256,700
---------- ----------
Deferred:
Federal............................................................... (62,617) (68,058)
State................................................................. (22,404) (15,567)
Change in valuation allowance......................................... 32,544 38,157
---------- ----------
(52,477) (45,468)
---------- ----------
Provision for income taxes............................................ $ 206,775 $ 211,232
---------- ----------
---------- ----------
</TABLE>
Current Federal and state income tax payables of $106,676 and $6,506,
respectively, are included in other liabilities in the accompanying consolidated
financial statements as of June 30, 1998.
The following summarizes the differences between the provision for income
taxes for financial statement purposes and the federal statutory rate of 34%:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Tax provision at federal statutory rate........................................ 34% 34%
State franchise tax, net of federal income tax benefit......................... 8 8
Municipal interest............................................................. (12) (14)
Benefit of deferred deductions, alternative minimum tax credits and changes in
valuation allowance, net..................................................... 0 2
Other.......................................................................... (3) (1)
--- ---
Tax provision.................................................................. 27% 29%
--- ---
--- ---
</TABLE>
The components of the net deferred tax asset included in other assets in the
accompanying consolidated financial statements are as follows at June 30:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Deferred tax liability:
Federal.......................................................... $ (186,670) $ (147,877)
State............................................................ (35,478) (27,062)
Deferred tax asset:
Federal.......................................................... 1,815,039 1,754,051
State............................................................ 303,595 268,542
Valuation allowance.............................................. (1,180,960) (1,201,735)
------------ ------------
Net deferred tax asset........................................... $ 715,526 $ 645,919
------------ ------------
------------ ------------
</TABLE>
F-59
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net unrealized gain/loss on securities available-for-sale........ $ (62,725) $ (12,453)
Depreciation..................................................... (25,328) (27,716)
Allowance for loan losses........................................ 328,423 245,695
Deferred compensation............................................ 764,366 746,103
Leases........................................................... (37,360) (51,121)
AMT credit....................................................... 865,609 912,586
Other real estate owned.......................................... 5,697
Postretirement benefits.......................................... 57,188 37,348
State timing difference.......................................... (96,736) (83,649)
Mutual fund...................................................... 103,049 66,421
Investment in partnership........................................ 8,743
Valuation allowance.............................................. (1,180,960) (1,201,735)
------------ ------------
Net deferred tax asset........................................... $ 715,526 $ 645,919
------------ ------------
------------ ------------
</TABLE>
8. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
PROFIT SHARING--The Company has a profit sharing and salary deferral 401(k)
plan for the benefit of its employees. Under the plan, eligible temployees may
defer a portion of their salaries. The Company may, at its option, make matching
contributions or profit sharing contributions. For the periods ended June 30,
1998 and 1997, the Company matched 50% of the employees' deferral which amounted
to $44,246 and $7,960, respectively. No profit sharing contributions were made
for the periods ended June 30, 1998 and 1997.
DEFERRED COMPENSATION, DIRECTORS AND CHIEF EXECUTIVE OFFICERS--In May 1997,
the Company approved the Directors' Retirement Plan and the Chief Executive
Officer's Retirement Plan which restated and amended preexisting retirement
plans. The original plans provided for payments upon retirement, death or
disability for the benefit of directors and the chief executive officer (now a
director) of the Company. The preexisting and the restated plans are
nonqualified and nonfunded plans. The preexisting plans had been amended several
times and as of January 1, 1997 provided for six years of retirement benefits
upon retirement. Under the restated plans, each participant upon normal
retirement, death, or disability will receive a monthly retirement benefit for
120 months in an amount stipulated in the agreement. Any new participants shall
vest 8% per year for services rendered after a three year waiting period has
expired. The plans also provide for reduced benefits upon early retirement.
DEFERRED COMPENSATION, SENIOR OFFICERS--The Company has a nonqualified,
nonfunded income continuation plan providing for payments upon retirement, death
or disability of certain employees. Under the plan, certain employees will
receive retirement payments equal to a portion of the last three years' average
compensation. The payments are to be made monthly for a period of ten years. The
plan also provides for reduced benefits upon early retirement, disability or
termination of employment.
As of December 31, 1997 and 1996, the projected benefit obligation and the
net benefit liability of the plans are $1,698,863 and $1,599,281, respectively,
and are included in other liabilities in the accompanying
F-60
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROFIT SHARING AND DEFERRED COMPENSATION PLANS (CONTINUED)
consolidated financial statements. Compensation expense relating to the plans
was $115,437 and $141,500 for the periods ended June 30, 1998 and 1997,
respectively.
In anticipation of the future obligation of the deferred compensation plans,
the Company has invested in life insurance policies which are carried at cash
surrender values of $2,254,886 and are included in other assets in the
accompanying consolidated financial statements. The Company's intention is to
partially fund these plans from the proceeds and investment earnings of the
insurance policies and from the profits derived from the limited partnerships'
operations (see Note 6).
9. STOCK OPTION PLANS
The Company has stock option plans which provide for the granting of options
to directors and officers to purchase stock at its market value on the date the
options are granted. 150,000 shares of common stock have been reserved for the
granting of these options. Options granted become exercisable commencing from
the date of a grant. For the participants who have been employed by or directors
with the Company less than ten years, not more than 20% of the shares granted,
plus shares left over from previous years, can be exercised in any one year. For
participants who have been employed by or directors with the Company more than
ten years, up to 100% can be exercised during the first year, with the
percentage decreasing by 20% increments over the next four years. At the end of
the fifth year, the options expire.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which was effective as of
January 1, 1996, the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for pro forma footnote
purposes. This information is not available as of June 30, 1998 and 1997.
However, the weighted average fair value of annual option grants as of December
31, 1997 and 1996 was $2.56 and $2.62, respectively.
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Options outstanding, January 1, 1997.................................... 94,934 $ 25.00
Granted................................................................. 10,200 $ 28.50
Exercised............................................................... 0
Canceled................................................................ (4,200) $ 25.64
---------
Options outstanding, June 30, 1997...................................... 100,934 $ 25.32
---------
---------
Options outstanding, January 1, 1998.................................... 96,769 $ 25.74
Granted................................................................. 2,000 $ 31.50
Exercised............................................................... (9,000) $ 24.50
Canceled................................................................ (1,200) $ 28.50
---------
Options outstanding, June 30, 1998...................................... 88,569 $ 25.96
---------
---------
</TABLE>
F-61
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTION PLANS (CONTINUED)
The following table summarizes information about stock options outstanding
at June 30, 1998:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF NUMBER AVERAGE NUMBER
EXERCISE OUTSTANDING REMAINING EXERCISABLE
PRICES AT 6/30/98 LIFE AT 6/30/98
- ------------------------------------------------------- ----------- --------------- -----------
<S> <C> <C> <C>
$24.50................................................. 58,009 1.0 46,139
$26.50................................................. 560 2.4 280
$28.50................................................. 23,000 3.6 8,820
$29.00................................................. 5,000 4.3 1,000
$31.50................................................. 2,000 4.7 400
----------- -----------
88,569 56,639
----------- -----------
----------- -----------
</TABLE>
As permitted by FAS 123, the Company has chosen to continue accounting for
stock options at their intrinsic value. Accordingly, no compensation expense has
been recognized for its stock option compensation plans for the periods ended
June 30, 1998 and 1997.
F-62
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers throughout its
primary market area of Ventura County, California. The Company's loan portfolio
is well diversified and no significant industry concentrations exist.
Investments in state and municipal securities involve governmental entities
within the State of California. As of June 30, 1998, the Company had $20,228,503
due from a correspondent bank in excess of federal deposit insurance limits.
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS
The Company provides health and life insurance benefits to retired employees
and directors. Employees may become eligible for benefits if they retire after
attaining specified age and service requirements while they worked for the
Company. Directors may become eligible after five years regardless of their age
at retirement.
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("SFAS 106") effective January 1, 1996. These benefits are now accrued
over the period the employee provides services to the Company. Prior to the
change, costs were charged to expense as incurred. The Company elected the
delayed recognition treatment of the adoption of SFAS 106. Under this method,
the transition obligation will be amortized on a straight line basis over the
remaining service period of active plan participants. The Company's current
policy is to fund the cost of postretirement health care and life insurance
plans on a pay-as-you-go basis.
The net periodic cost for postretirement health care and life insurance
benefits includes the following for the periods ended June 30:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Service cost............................................................ $ 9,743 $ 9,799
Interest cost........................................................... 5,621 7,404
Amortization of unrecognized transition obligation...................... 3,864 4,129
--------- ---------
Total................................................................... $ 19,228 $ 21,332
--------- ---------
--------- ---------
</TABLE>
F-63
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED)
The following summary information on the Company's plans is presented as of
December 31, 1997 and 1996, which is the most recent available.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 3,647 $ 8,205
Fully eligible, active employees............................... 63,179 69,637
Other active plan participants................................. 122,296 94,250
------------ ------------
Total.......................................................... 189,122 172,092
Fair value of plan assets........................................ 0 0
------------ ------------
Unfunded accrued postretirement benefits obligation.............. 189,122 172,092
Unrecognized net gain............................................ 18,417 18,954
Unrecognized net transition obligation........................... (154,765) (163,869)
------------ ------------
Accrued postretirement benefit cost.............................. $ 52,774 $ 27,177
------------ ------------
------------ ------------
</TABLE>
The assumed discount rate and the assumed rate of increase in compensation
levels are 7.25% and 7.25%, respectively. The assumed health care cost trend
rate used in measuring the accumulated postretirement benefit obligation was 6%
declining to 4.75% in 10 years. If the health care cost trend rate assumptions
were increased by 1%, the accrued postretirement benefit cost, as of December
31, 1997, would be increased by approximately $22,732.
12. REGULATORY MATTERS
Capital requirements--The Company is subject to various regulatory capital
requirements administered by the Federal banking agencies. The regulations
require the Company to meet specific capital adequacy guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Company's capital classification is also subject to qualitative judgements by
the regulators about components, risk weighting, and other factors. 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 financial statements.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of Tier 1 capital (as defined by the regulations) to total average
assets (as defined), and minimum ratios of Tier 1 and total capital (as defined)
to risk-weighted assets (as defined). To be considered adequately capitalized
(as defined) under the regulatory framework for prompt corrective action, the
Company must maintain minimum Tier 1 leverage, Tier 1 risk-based, total
risk-based ratios as set forth in the table. The Company's actual capital
amounts and ratios are also presented in the table.
F-64
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY MATTERS (CONTINUED)
As of June 30, 1998 (in thousands):
<TABLE>
<CAPTION>
REQUIRED ACTUAL
AMOUNT (RATIO) AMOUNT (RATIO)
----------------- -------------------
<S> <C> <C>
Tier 1 Capital (to Average Assets)................... $5,338 (4.00%) $11,707 (8.77%)
Tier 1 Capital (to Risk Weighted Assets)............. $4,308 (4.00%) $11,707 (10.87%)
Total Capital (to Risk Weighted Assets).............. $8,616 (8.00%) $12,819 (11.90%)
</TABLE>
As of June 30, 1997 (in thousands):
<TABLE>
<CAPTION>
REQUIRED ACTUAL
AMOUNT (RATIO) AMOUNT (RATIO)
----------------- -------------------
<S> <C> <C>
Tier 1 Capital (to Average Assets)................... $4,966 (4.00%) $10,459 (8.42%)
Tier 1 Capital (to Risk Weighted Assets)............. $3,890 (4.00%) $10,459 (10.75%)
Total Capital (to Risk Weighted Assets).............. $7,780 (8.00%) $11,373 (11.69%)
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
At June 30, 1998, the Company was obligated under operating leases requiring
annual rentals as follows:
<TABLE>
<S> <C>
July 1 through December 31, 1998................................ $ 216,235
1999............................................................ 432,469
2000............................................................ 432,469
2001............................................................ 432,469
2002............................................................ 295,518
---------
Total........................................................... $1,809,160
---------
---------
</TABLE>
Rental expense was $257,575 and $197,783 for the periods ended June 30, 1998
and 1997, respectively.
At June 30, 1998, the Company had unused lines of credit with two banks. The
lines total $4,700,000, have variable interest rates based on the lending bank's
daily Federal funds rates, and are due on demand. The lines of credit are
unsecured.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial position. Exposure to credit loss in the event of
nonperformance by the other party to commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments. At June 30, 1998, the Company had commitments to extend credit of
$24,146,015 and obligations under standby letters of credit of $125,715.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other
F-65
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions.
The Company uses the same credit policies in making commitments and
conditional commitments as it does for extending loan facilities to customers.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant, and
equipment and real estate.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 ("FAS 107"), "Disclosures About Fair
Value of Financial Instruments" requires corporations to disclose the fair value
of its financial instruments, whether or not recognized in the balance sheet,
where it is practical to estimate that value.
Fair value estimates made as of June 30, 1998 are based on relevant market
information about the financial instruments. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
Company's entire holding of a particular financial instrument. In cases where
quoted market prices are not available, fair value estimates are based on
judgements regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS--The carrying amounts reported in the balance
sheets for cash and short-term instruments approximate those assets' fair
values.
SECURITIES--Fair values were based on quoted market prices, where available.
If quoted market prices were not available, fair values were based on quoted
market prices of comparable instruments.
LOANS--The carrying values, reduced by estimated inherent credit losses, of
variable-rate loans and other loans with short-term characteristics were
considered fair values. For other loans, the fair market values were calculated
by discounting scheduled future cash flows using current interest rates offered
on loans with similar terms adjusted to reflect the estimated credit losses
inherent in the portfolio.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE--The carrying
amounts reported in the balance sheets for accrued interest receivable and
accrued interest payable approximate their fair values.
F-66
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSIT LIABILITIES--The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, NOW, savings, and money market
deposits, was, by definition, equal to the amount payable on demand as of June
30, 1998. The fair value of certificates of deposit was based on the discounted
value of contractual cash flows, calculated using the discount rates that
equaled the interest rates offered at the valuation date for deposits of similar
remaining maturities.
The following is a summary of the carrying amounts and estimated fair values
of the Company's financial assets and liabilities at June 30, 1998:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------------- --------------
<S> <C> <C>
Financial assets:
Cash and due from banks.................................... $ 19,417,380 $ 19,417,380
Federal funds sold......................................... $ 8,200,000 $ 8,200,000
Securities................................................. $ 23,316,635 $ 23,496,406
Loans, net of allowance for loan losses.................... $ 83,074,430 $ 83,192,693
Accrued interest receivable................................ $ 746,302 $ 746,302
Financial liabilities:
Deposits................................................... $ 124,974,721 $ 124,926,795
Accrued interest payable................................... $ 448,915 $ 448,915
</TABLE>
At June 30, 1998, the Bank had outstanding standby letters of credit and
commitments to extend credit. These off-balance sheet financial instruments are
generally exercisable at the market rate prevailing at the date the underlying
transaction will be completed, and, therefore, they were deemed to have no
current fair market value (see Note 14).
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the discounted value of fee
revenues generated by the mortgage banking operation nor is the value of
deferred tax assets or premises and equipment considered.
F-67
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. PARENT COMPANY INFORMATION
The following are condensed financial statements of Americorp (parent
company only) as of and for the period ended June 30, 1998:
BALANCE SHEET
<TABLE>
<S> <C> <C>
ASSETS:
Cash................................................................ $ 129
Other assets........................................................ 150,320
Investment in and advances to the Bank.............................. 11,875,060
-----------
TOTAL ASSETS........................................................ $12,025,509
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities......................................................... $ 124,848
Stockholders' equity................................................ 11,900,661
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................... $12,025,509
-----------
-----------
STATEMENT OF INCOME
Equity in earnings of the Bank...................................... $ 574,223
Other............................................................... (12,819)
-----------
NET INCOME.......................................................... $ 561,404
-----------
-----------
STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 561,404
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed earnings of the Bank.................................. (518,047)
Increase in dividend receivable to the Bank....................... (19,449)
Decrease in accrued liabilities................................... 1,890 (535,606)
--------- -----------
Net cash provided by operating activities........................... 25,798
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.............................. 220,500
Dividends paid...................................................... (248,858) (28,358)
--------- -----------
Net cash used for financing activities.............................. (28,358)
-----------
DECREASE IN CASH.................................................... (2,560)
CASH AT BEGINNING OF PERIOD......................................... 2,689
-----------
CASH AT END OF PERIOD............................................... $ 129
-----------
-----------
</TABLE>
F-68
<PAGE>
APPENDIX A
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
DATED AS OF JULY 7, 1998
BY AND AMONG
AMERICAN COMMERCIAL BANK
AMERICORP
AND
CHANNEL ISLANDS BANK
A-1
<PAGE>
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
THIS AGREEMENT TO MERGE AND PLAN OF REORGANIZATION ("AGREEMENT") is entered
into as of July 7, 1998, among American Commercial Bank, a banking company
organized under the laws of California ("BANK"), being located in Ventura,
California, Americorp, a corporation and registered bank holding company
organized under the laws of California ("AMERICORP") located in Ventura,
California, and Channel Islands Bank, a banking company organized under the laws
of California ("CIB"), located in Oxnard, California.
RECITALS:
A. Bank is a wholly owned subsidiary of Americorp.
B. Americorp, Bank and CIB believe that it would be in their respective
best interests and in the best interests of their respective shareholders for
CIB to merge with and into Bank (the "Bank Merger"), and for the shareholders of
CIB to become shareholders of Americorp, all in accordance with the terms set
forth in this Agreement and applicable law.
C. The respective Boards of Directors of Bank and CIB have adopted by
majority vote resolutions approving and authorizing the Bank Merger upon the
terms and conditions set forth in this Agreement and the Board of Directors of
Americorp has adopted by majority vote resolutions approving the Bank Merger,
this Agreement and the transactions contemplated herein.
D. Americorp, Bank and CIB desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated by this Agreement.
AGREEMENT
IN CONSIDERATION of the premises and mutual covenants hereinafter contained,
Bank, Americorp and CIB agree as follows:
DEFINITIONS AND DETERMINATIONS
1.1 DEFINITIONS. Capitalized terms used in this Agreement shall have the
meanings set forth below:
"Agreement of Merger" means the Agreement of Merger substantially in the
form attached hereto as Exhibit A.
"Affiliate" means a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
"Aggregate Book Value of Americorp" shall mean the consolidated
stockholders' equity of Americorp determined in accordance with GAAP
consistently applied on the Determination Date except (i) as otherwise
provided herein, (ii) such amount shall not be reduced by the amount of
Americorp's or Bank's Expenses (even though some or all of such Expenses
shall have already been expensed) and (iii) Bank's allowance for loan and
lease losses shall be increased by any Impairment in the Reserve.
"Aggregate Book Value of CIB" shall mean the stockholders' equity of CIB
determined in accordance with GAAP consistently applied on the Determination
Date except (i) as otherwise provided herein, (ii) such amount shall not be
reduced by the amount of CIB's Expenses (even though some or all of such
Expenses shall have already been expensed) and (iii) CIB's allowance for
loan and lease losses shall be increased by any Impairment in the Reserve.
"Aggregate Book Value Certificate of Americorp" shall mean a
certificate, executed by the chief executive officer and the chief financial
officer of Americorp dated as of the Determination Date,
A-2
<PAGE>
setting forth the calculation of the Aggregate Book Value of Americorp and
the number of outstanding shares of Americorp Stock as of the Determination
Date.
"Aggregate Book Value Certificate of CIB" shall mean a certificate,
executed by the chief executive officer and the chief financial officer of
CIB dated as of the Determination Date, setting forth the calculation of the
Aggregate Book Value of CIB and the number of outstanding shares of CIB
Stock as of the Determination Date.
"Americorp" shall have the meaning given such term in the introductory
clause.
"Americorp Book Value Per Share" shall mean the Aggregate Book Value of
Americorp on the Determination Date divided by the number of outstanding
shares of Americorp Stock on the Determination Date.
"Americorp Corporate Governance Changes" shall have the meaning given
such term in Section 2.1(d).
"Americorp Directors' Agreement" shall mean an agreement, substantially
in the form attached as Exhibit 2.6(a).
"Americorp Dissenting Shares" means shares of Americorp Stock held by
"dissenting shareholders" within the meaning of Chapter 13 of the CGCL.
"Americorp Perfected Dissenting Shares" means Dissenting Shares which
the holders thereof have not withdrawn or caused to lose their status as
Americorp Dissenting Shares.
"Americorp Property" shall have the meaning given such term in Section
3.26.
"Americorp Scheduled Contracts" shall have the meaning given such term
in Section 3.15.
"Americorp Shareholders' Meeting" shall have the meaning given such term
in Section 5.6.
"Americorp Stock" means the common stock, $1.00 par value, of Americorp.
"Americorp Stock Option" means any option issued pursuant to the
Americorp Stock Option Plan.
"Americorp Stock Option Plan" means the Americorp 1994 Stock Option
Plan.
"Bank" shall have the meaning given such term in the introductory
clause.
"Bank Benefit Arrangement" shall have the meaning given such term in
Section 3.19(b).
"Bank Corporate Governance Changes" shall have the meaning given such
term in Section 2.1(b).
"Bank Merger" shall have the meaning given such term in the Recitals.
"Bank Stock" means the common stock, $1.25 par value, of Bank.
"Benefit Arrangement" means any plan or arrangement maintained or
contributed to by a Party, including an "employee benefit plan" within the
meaning of ERISA, (but exclusive of base salary and base wages) which
provides for any form of current or deferred compensation, bonus, stock
option, profit sharing, benefit, retirement, incentive, group health or
insurance, welfare or similar plan or arrangement for the benefit of any
employee, officer or director or class of employee, officer or director,
whether active or retired, of a Party.
"BHC Act" means the Bank Holding Company Act of 1956, as amended.
"Business Day" means any day other than a Saturday, Sunday or day on
which commercial banks in California are authorized or required to be
closed.
A-3
<PAGE>
"Certificates" shall have the meaning given such term in Section 2.5.
"CFC" means the California Financial Code.
"CGCL" means the California General Corporation Law.
"Charter Documents" means, with respect to any business organization,
any certificate or articles of incorporation or articles of association, and
any bylaws, each as amended to date, that regulate the basic organization of
the business organization and its internal relations.
"CIB" shall have the meaning given such term in the introductory clause.
"CIB Benefit Arrangement" shall have the meaning given such term in
Section 4.18(b).
"CIB Book Value Per Share" shall mean the Aggregate Book Value of CIB on
the Determination Date divided by the number of outstanding shares of CIB
Stock on the Determination Date.
"CIB's Directors' Agreement" shall mean an agreement, substantially in
the form attached as Exhibit 2.6(b).
"CIB Dissenting Shares" means shares of CIB Stock held by "dissenting
shareholders" within the meaning of Chapter 13 of the CGCL.
"CIB Perfected Dissenting Shares" means Dissenting Shares which the
holders thereof have not withdrawn or caused to lose their status as CIB
Dissenting Shares.
"CIB Property" shall have the meaning given such term in Section 4.25.
"CIB Scheduled Contracts" shall have the meaning given such term in
Section 4.30.
"CIB Shareholders' Meeting" shall have the meaning given such term in
Section 6.6.
"CIB Stock" means the common stock, no par value, of CIB.
"CIB Stock Options" shall have the meaning given such term in Section
7.4.
"Closing" means the consummation of the Bank Merger on the Effective Day
at the main office of Bank or at such other place as may be agreed upon by
the Parties.
"Code" means the United States Internal Revenue Code of 1986, as
amended, and all regulations thereunder.
"Commissioner" means the Commissioner of Financial Institutions, State
of California.
"Competing Transaction" shall have the meaning given such term in
Section 6.13.
"Confidential Information" means all information exchanged heretofore or
hereafter between CIB, its affiliates and agents, on the one hand, and
Americorp and Bank, their affiliates and agents, on the other hand, which is
information related to the business, financial position or operations of the
Person responsible for furnishing the information or an Affiliate of such
Person (such information to include, by way of example only and not of
limitation, client lists, company manuals, internal memoranda, strategic
plans, budgets, forecasts/projections, computer models, marketing plans,
files relating to loans originated by such Person, loans and loan
participation purchased by such Person from others, investments, deposits,
leases, contracts, employment records, minutes of board of directors
meetings (and committees thereof) and stockholder meetings, legal
proceedings, reports of examination by any Governmental Entity, and such
other records or documents such Person may supply to the other Party
pursuant to the terms of this Agreement or as contemplated hereby).
Notwithstanding the foregoing, "Confidential Information" shall not include
any information that (i) at the time of disclosure or thereafter is
generally available to and known by the public (other than as a result of a
disclosure directly or indirectly by the recipients or any of their
officers, directors,
A-4
<PAGE>
employees or other representatives or agents), (ii) was available to the
recipients on a nonconfidential basis from a source other than Persons
responsible for furnishing the information, PROVIDED that such source is not
and was not bound by a confidentiality agreement with respect to the
information, or (iii) has been independently acquired or developed by the
recipients without violating any obligations under this Agreement.
"Consents" means every required consent, approval, absence of
disapproval, waiver or authorization from, or notice to, or registration or
filing with, any Person.
"Determination Date" shall mean the last day of the month preceding the
Effective Time, unless the Parties mutually agree to another day.
"Disclosure Letter" means a disclosure letter from the Party making the
disclosure and delivered to the other Party.
"DPC Property" means voting securities, other personal property and real
property acquired by foreclosure or otherwise, in the ordinary course of
collecting a debt previously contracted for in good faith, retained with the
object of sale for any applicable statutory holding period, and recorded in
the holder's business records as such.
"Effective Day" means the day on which the Effective Time occurs.
"Effective Time" shall have the meaning given such term in Section 2.2.
"Encumbrances" means any option, pledge, security interest, lien,
charge, encumbrance, mortgage, assessment, claim or restriction (whether on
voting, disposition or otherwise), whether imposed by agreement,
understanding, law or otherwise.
"Environmental Laws" shall have the meaning given such term in Section
3.26.
"Equity Securities" means capital stock or any options, rights, warrants
or other rights to subscribe for or purchase capital stock, or any plans,
contracts or commitments that are exercisable in such capital stock or that
provide for the issuance of, or grant the right to acquire, or are
convertible into, or exchangeable for, such capital stock.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all regulations thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means either ChaseMellon Shareholder Services or U.S.
Stock Transfer Corporation (to be mutually determined by the Parties), to
effect the exchange contemplated by Section 2.5 hereof. The determination of
which entity shall be named Exchange Agent shall be based on a comparison of
the costs to be charged by each entity. Any transmittal documents to be sent
to be sent to holders of CIB Stock pursuant to Section 2.5 hereof shall be
subject to CIB's prior review and approval.
"Exchange Fund" shall have the meaning given such term in Section 2.5.
"Exchange Ratio" means the number of shares of Americorp Stock into
which a share of CIB Stock shall be converted which shall be equal to the
amount calculated (to the nearest ten thousandth) by dividing the CIB Book
Value Per Share by the Americorp Book Value Per Share.
"Expenses" shall have the meaning given such term in Section 11.1.
"Executive Officer" means with respect to any company a natural Person
who participates or has the authority to participate (other than solely in
the capacity of a director) in major policy making functions of the company,
whether or not such Person has a title or is serving with salary or
compensation.
A-5
<PAGE>
"F&K" shall have the meaning given such term in Section 5.1.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Statements of Americorp" means the audited consolidated
financial statements and notes thereto of Americorp and the related opinions
thereon for the years ended December 31, 1995, 1996 and 1997 and the
unaudited consolidated statements of financial condition and statements of
operations and cash flow of Americorp for the three months ended March 31,
1998.
"Financial Statements of CIB" means the audited financial statements and
notes thereto of CIB and the related opinions thereon for the years ended
December 31, 1995, 1996 and 1997 and the unaudited statements of financial
condition and statements of operations and cash flow of CIB for the three
months ended March 31, 1998.
"FRB" shall mean the Board of Governors of the Federal Reserve System.
"GAAP" means generally accepted accounting principles.
"Governmental Entity" means any court or tribunal in any jurisdiction or
any United States federal, state, district, domestic, or other
administrative agency, department, commission, board, bureau or other
governmental authority or instrumentality.
"Hazardous Materials" shall have the meaning given such term in Section
3.26.
"Immediate Family" shall mean a Person's spouse, parents, in-laws,
children and siblings.
"Impairment in the Reserve" shall mean the amount of any inadequacy in a
Party's allowance for loan and lease losses at the Determination Date with
any such inadequacy being determined in accordance with GAAP and in
accordance with all applicable regulatory requirements of any Governmental
Entity.
"IRS" shall mean the Internal Revenue Service.
"Investment Securities" means any equity security or debt security as
defined in Statement of Financial Accounting Standard No. 115.
"Operating Loss" shall have the meaning given such term in Section 3.25.
"Party" means any of Americorp, Bank or CIB.
"Permit" means any United States federal, foreign, state, local or other
license, permit, franchise, certificate of authority, order of approval
necessary or appropriate under applicable Rules.
"Person" means any natural person, corporation, trust, association,
unincorporated body, partnership, joint venture, Governmental Entity,
statutorily or regulatory sanctioned unit or any other person or
organization.
"Proxy Statement" means the joint proxy statement that is included as
part of the S-4 and used to solicit proxies for the CIB Shareholders'
Meeting and the Americorp Shareholders' Meeting and to offer and sell the
shares of Americorp Stock to be issued in connection with the Bank Merger.
"Related Group of Persons" means Affiliates, members of an Immediate
Family or Persons the obligation of whom would be attributed to another
Person pursuant to the regulations promulgated by the SEC.
"Rule" means any statute or law or any judgment, decree, injunction,
order, regulation or rule of any Governmental Entity.
A-6
<PAGE>
"S-4" means the registration statement on Form S-4, and such amendments
thereto, that is filed with the SEC to register the shares of Americorp
Stock to be issued in the Bank Merger under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" mean all reports filed by a Party hereto pursuant to the
Exchange Act with the SEC or other Governmental Entity.
"Securities Act" means the Securities Act of 1933, as amended.
"Surviving Bank" means the Bank as the California state-chartered bank
surviving the Bank Merger of CIB with and into Bank.
"Tank" shall have the meaning given such term in Section 3.26.
"Third Party Consent" shall have the meaning given such term in
subsection (b) of Section 5.7.
"To the knowledge" shall have the meaning given such term in Section
11.13.
"VTD" shall have the meaning given such term in Section 6.1.
ARTICLE 2
CONSUMMATION OF THE BANK MERGER
2.1 THE MERGER; PLAN OF REORGANIZATION.
(a) Subject to the terms and conditions of this Agreement and the Agreement
of Merger, at the Effective Time, CIB shall merge with and into Bank under the
charter of Bank.
(b) The Charter Documents of Bank as in effect immediately prior to the
Effective Time shall continue in effect after the Bank Merger until thereafter
amended in accordance with applicable law and the members of the Board of
Directors and the Executive Officers of Bank immediately prior to the Bank
Merger shall continue in their respective positions after the Bank Merger and be
the Board of Directors and Executive Officers of the Surviving Bank; except that
Bank shall have taken prior to the Effective Time all necessary steps so that at
the Effective Time (i) the number of authorized directors of Bank shall be
expanded to ten, (ii) the persons set forth on Exhibit 2.1(b) shall be the Board
of Directors of the Bank and shall serve until the earlier of their resignation
or removal or until their respective successors are duly elected and qualified,
(iii) the current Chairman of the Board of CIB shall be elected and appointed
Vice Chairman of the Board of Directors of the Bank and Chairman of the Bank's
Loan Committee, (iv) the head office of the Bank shall be relocated to 300
Esplanade, Suite 110, Oxnard, California 93030, (v) an executive committee shall
be established composed of those directors set forth on Exhibit 2.1(b) and (vi)
the Executive Officers of the Bank shall be Gerald J. Lukiewski (President and
Chief Executive Officers) and the persons selected by the committee provided for
in Section 9.1(a) (clauses (i)-(vi) being hereinafter collectively referred to
as the "Bank Corporate Governance Changes").
(c) At the Effective Time, the corporate existence of CIB shall be merged
and continued in the Surviving Bank. All assets, rights, franchises, titles and
interests of Bank and CIB, in and to every type of property (real, personal and
mixed) and choses in action shall be transferred to and vested in the Surviving
Bank by virtue of the Bank Merger without any deed or other transfer, and the
Surviving Bank, without any order or action on the part of any court or
otherwise, shall hold and enjoy all rights of property, franchises and
interests, including appointments, designations and nominations, and all other
rights and interests as trustee, executor, administrator, registrar of stocks
and bonds, guardian of estates, assignee or receiver and in every other
fiduciary capacity in the same manner and to the same extent that such rights,
franchises and interests were held by Bank and CIB at the Effective Time. At the
Effective Time, the Surviving Bank shall be liable for all liabilities of Bank
and CIB and all deposits, debts, liabilities, obligations and contracts of Bank
and CIB, matured or unmatured, whether accrued, absolute, contingent
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or otherwise, and whether or not reflected or reserved against on balance
sheets, books of accounts or records of Bank and CIB, shall be those of the
Surviving Bank; and all rights of creditors or other obligees and all liens on
property of Bank and CIB shall be preserved unimpaired.
(d) The Charter Document of Americorp as in effect immediately prior to the
Effective Time shall continue in effect after the Bank Merger until thereafter
amended in accordance with applicable law, the members of the Board of Directors
and the Executive Officers of Americorp immediately prior to the Bank Merger
shall continue in their respective positions after the Bank Merger and be the
Board of Directors and Executive Officers of Americorp and the operations of
Americorp shall continue in effect after the Bank Merger; except that Americorp
shall have taken prior to the Effective Time all necessary steps so that at the
Effective Time (i) the number of authorized directors of Americorp shall be
expanded to ten, (ii) the persons set forth on Exhibit 2.1(d) shall be the Board
of Directors of the Americorp and shall serve until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, (iii) the current Chairman of the Board of CIB shall be elected and
appointed Vice Chairman of the Board of Directors of Americorp, (iv) an
executive committee shall be established composed of those directors set forth
on Exhibit 2.1(d) and (v) the Executive Officers of Americorp shall be Gerald J.
Lukiewski (President and Chief Executive Officers) and the persons selected by
the committee provided for in Section 9.1(a) (clauses (i)-(v) being hereinafter
collectively referred to as the "Americorp Corporate Governance Changes").
2.2 EFFECTIVE TIME. The Closing shall take place as soon as practicable
following the satisfaction or waiver of the conditions set forth in Sections
8.1, 8.2 and 8.3, and the Parties shall use best efforts to cause the Closing to
occur as soon as possible after receipt of approval of the Bank Merger from the
Commissioner and the FDIC and the expiration of all required waiting periods, or
such later time and date as to which the Parties may agree. The Bank Merger
shall be effective upon the filing by the Commissioner of the Agreement of
Merger as specified in the CFC. Such time is referred to herein as the
"Effective Time."
2.3 CONVERSION OF SHARES. At the Effective Time and pursuant to the
Agreement of Merger:
(a) Subject to the exceptions and limitations in Section 2.4, each
outstanding share of CIB Stock shall, without any further action on the part
of CIB or the holders of any of such shares, be converted into shares of
Americorp Stock in accordance with the Exchange Ratio.
(b) Each outstanding share of Bank Stock shall, without any further
action on the part of Bank or of the holder of any of such shares, be
converted into shares of the Surviving Bank and each certificate that, prior
to the Effective Time, represented shares of Bank Stock shall evidence
ownership of shares of the Surviving Bank.
(c) Each outstanding share of Americorp Stock shall remain outstanding
and shall not be converted or otherwise affected by the Bank Merger, except
that any Americorp Perfected Dissenting Shares shall remain outstanding
subject to the right of the holder of such shares to receive payment for
such shares in an amount determined pursuant to Chapter 13 of the CGCL.
(d) The Aggregate Book Value of Americorp shall be set forth in the
Aggregate Book Value Certificate of Americorp, and the calculations and
procedures shall be reviewed by CIB. The Aggregate Book Value of CIB shall
be set forth in the Aggregate Book Value Certificate of CIB, and the
calculations and procedures shall be reviewed by Americorp. If the Parties
cannot initially agree on the Aggregate Book Value of Americorp, the
Aggregate Book Value of CIB, the Americorp Book Value Per Share, the CIB
Book Value Per Share, the Exchange Ratio, any Impairment in the Reserve of
any Party or the calculation of any of the foregoing, the Parties shall
attempt to agree upon the amount or amounts in dispute within seven days. If
no mutual agreement is reached within said period, the Parties shall
immediately hire an independent expert qualified to render an opinion
regarding the amount of the particular matter or matters in dispute. The
Parties shall cooperate fully
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with any such independent expert and will equally split the cost of such
expert. The opinion of such expert shall be binding on the parties for
purposes of this Agreement.
2.4 CERTAIN EXCEPTIONS AND LIMITATIONS. (A) Any shares of CIB Stock held
by Americorp or any subsidiary of Americorp (other than shares held in a
fiduciary capacity or as DPC Property) will be canceled at the Effective Time;
(B) CIB Perfected Dissenting Shares shall not be converted into shares of
Americorp Stock, but shall, after the Effective Time, be entitled only to such
rights as are granted them by Chapter 13 of the CGCL (each dissenting
shareholder who is entitled to payment for his shares of CIB Stock shall receive
such payment in an amount as determined pursuant to Chapter 13 of CGCL), and (C)
no fractional shares of Americorp Stock shall be issued in the Bank Merger and,
in lieu thereof, each holder of CIB Stock who would otherwise be entitled to
receive a fractional share shall receive an amount in cash equal to the product
(calculated to the nearest ten thousandth) obtained by multiplying (a) the
Americorp Book Value Per Share times (b) the fraction of the share of Americorp
Stock to which such holder would otherwise be entitled.
2.5 EXCHANGE PROCEDURES.
(a) As of the Effective Time, Americorp shall have deposited with the
Exchange Agent for the benefit of the holders of shares of CIB Stock, for
exchange in accordance with this Section 2.5 through the Exchange Agent,
certificates representing the shares of Americorp Stock issuable pursuant to
Section 2.3 in exchange for shares of CIB Stock outstanding immediately prior to
the Effective Time, and funds in an amount not less than the amount of cash
payable in lieu of fractional shares of Americorp Stock which would otherwise be
payable in connection with Section 2.3 hereof, but for the operation of Section
2.4 of this Agreement (collectively, the "Exchange Fund").
(b) Americorp shall direct the Exchange Agent to mail promptly after the
Effective Time, to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of CIB
Stock (the "Certificates") whose shares were converted into the right to receive
shares of Americorp Stock pursuant to Section 2.3 hereof: (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as CIB may reasonably specify), and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Americorp Stock. Upon surrendering of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by CIB, together with such letters of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor
that amount of cash and a certificate representing that number of whole shares
of Americorp Stock which such holder has the right to receive pursuant to the
provisions of Sections 2.3 and 2.4 hereof, and the Certificate so surrendered
shall forthwith be canceled. In the event a Certificate is surrendered
representing CIB Stock, the transfer of ownership which is not registered in the
transfer records of CIB, a certificate representing the proper number of shares
of Americorp Stock may be issued to a transferee if the Certificate representing
such CIB Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.5 and except as provided in subsection (g)
hereof, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive upon such surrender the certificate
representing shares of Americorp Stock and cash in lieu of any fractional shares
of stock as contemplated by this Section 2.5. Notwithstanding anything to the
contrary set forth herein, if any holder of shares of CIB should be unable to
surrender the Certificates for such shares, because they have been lost or
destroyed, such holder may deliver in lieu thereof, in the discretion of
Americorp, such bond in form and substance and with surety reasonably
satisfactory to Americorp and shall be entitled to receive the certificate
representing the proper number of shares of Americorp Stock and cash in lieu of
fractional shares in accordance with Sections 2.3 and 2.4 hereof.
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(c) No dividends or other distributions declared or made after the Effective
Time with respect to Americorp Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Americorp Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.4 until
the holder of record of such Certificate shall surrender such Certificate.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the record holder of the certificates
representing whole shares of Americorp Stock issued in exchange thereof, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional share of Americorp Stock to which such holder is entitled
pursuant to Section 2.4 and the amount of dividends or other distribution with a
record date after the Effective Time theretofore paid with respect to such whole
shares of Americorp Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Americorp Stock.
(d) All shares of Americorp Stock issued upon the surrender for exchange of
CIB Stock in accordance with the terms hereof (including any cash paid pursuant
to Section 2.4) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of CIB Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving Bank of
the shares of CIB Stock which were outstanding immediately prior to the
Effective Time. If after the Effective Time, Certificates are presented to
Americorp for any reason, they shall be canceled and exchanged as provided in
this Agreement.
(e) Any portion of the Exchange Fund which remains undistributed to the
shareholders of CIB following the passage of six months after the Effective Time
shall be delivered to Americorp, upon demand, and any shareholders of CIB who
have not theretofore complied with this Section 2.5 shall thereafter look only
to Americorp for payment of their claim for Americorp Stock, any cash in lieu of
fractional shares of Americorp Stock and any dividends or distributions with
respect CIB Stock.
(f) Neither Americorp nor CIB shall be liable to any holder of shares of CIB
Stock for such shares (or dividends or distributions with respect thereto) or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) The Exchange Agent shall not be entitled to vote or exercise any rights
of ownership with respect to the shares of Americorp Stock held by it from time
to time hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such shares of Americorp Stock
for the account of the Persons entitled thereto. Former shareholders of record
of CIB shall be entitled to vote after the Effective Time at any meeting of
Americorp shareholders the number of whole shares of Americorp Stock into which
their respective shares of CIB Stock are converted, regardless of whether such
holders have exchanged their Certificates for certificates representing
Americorp Stock in accordance with the provisions of this Agreement.
2.6 DIRECTORS' AGREEMENTS.
(a) Concurrently with the execution of this Agreement, Americorp and Bank
shall cause each of its respective directors to enter into a Americorp
Directors' Agreement.
(b) Concurrently with the execution of this Agreement, CIB shall cause each
of its respective directors to enter into an CIB's Directors' Agreement.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF AMERICORP AND BANK
Americorp and Bank represent and warrant to CIB as follows:
3.1 INCORPORATION, STANDING AND POWER. Americorp has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of California and is registered as a bank holding company
under the BHC Act. Bank has been duly incorporated and is validly existing as a
banking company under the laws of California and is authorized by the
Commissioner to conduct a general banking business. Bank's deposits are insured
by the FDIC in the manner and to the extent provided by law. Americorp and Bank
have all requisite corporate power and authority to own, lease and operate their
respective properties and assets and to carry on their respective businesses as
presently conducted. Neither the scope of the business of Americorp or Bank nor
the location of any of their respective properties requires that Americorp or
Bank be licensed to do business in any jurisdiction other than in California
where the failure to be so licensed would, individually or in the aggregate,
have a materially adverse effect on the financial condition, results of
operation or business of Americorp on a consolidated basis.
3.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of Americorp consists of 2,500,000 shares of Americorp Stock, of
which 594,518 shares are outstanding. As of the date of this Agreement, the
authorized capital stock of Bank consists of 720,000 shares of Bank Stock, of
which 523,200 shares are outstanding and are owned by Americorp without
Encumbrance. All the outstanding shares of Americorp Stock and Bank Stock are
duly authorized, validly issued, fully paid, nonassessable and without
preemptive rights. Except for Americorp Stock Options covering 86,569 shares of
Americorp stock granted pursuant to the Americorp Stock Option Plan and except
as set forth in Americorp's Disclosure Letter, there are no outstanding options,
warrants or other rights in or with respect to the unissued shares of Americorp
Stock or Bank Stock or any other securities convertible into such stock, and
neither Americorp nor Bank is obligated to issue any additional shares of its
capital stock or any options, warrants or other rights in or with respect to the
unissued shares of its capital stock or any other securities convertible into
such stock.
3.3 SUBSIDIARIES. Except as set forth in Americorp's Disclosure Letter,
neither Americorp nor Bank own, directly or indirectly, any outstanding stock,
Equity Securities or other voting interest in any corporation, partnership,
joint venture or other entity or Person, other than DPC Property.
3.4 FINANCIAL STATEMENTS. Americorp has previously furnished to CIB a copy
of the Financial Statements of Americorp. The Financial Statements of Americorp:
(a) present fairly the consolidated financial condition of Americorp as of the
respective dates indicated and its consolidated results of operations and cash
flow for the respective periods indicated; and (b) have been prepared in
accordance with GAAP. The audits of Americorp have been conducted in accordance
with generally accepted auditing standards. The books and records of Americorp
and Bank are being maintained in material compliance with applicable legal and
accounting requirements. Except to the extent (i) reflected in the Financial
Statements of Americorp and (ii) of liabilities incurred since December 31, 1997
in the ordinary course of business and consistent with past practice, neither
Americorp nor Bank has any liabilities, whether absolute, accrued, contingent or
otherwise.
3.5 AUTHORITY OF AMERICORP AND BANK. The execution and delivery by
Americorp and Bank of this Agreement and, subject to the requisite approval of
the shareholders of Americorp and of Americorp as the sole shareholder of Bank,
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of Americorp
and Bank, and this Agreement is a valid and binding obligation of Americorp and
Bank enforceable in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, liquidation, receivership,
conservatorship, insolvency, moratorium or other similar laws affecting the
rights of creditors generally and by general equitable principles and by Section
8(b)(6)(D) of the Federal Deposit Insurance Act, 12 U.S.C. Section
1818(b)(6)(D). Except as set forth in Americorp's Disclosure Letter, neither the
execution and
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delivery by Americorp and Bank of this Agreement, the consummation of the Bank
Merger or the transactions contemplated herein, nor compliance by Americorp and
Bank with any of the provisions hereof, will: (a) violate any provision of their
respective Charter Documents; (b) constitute a breach of or result in a default
(or give rise to any rights of termination, cancellation or acceleration, or any
right to acquire any securities or assets) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, franchise, license, permit,
agreement, Encumbrances or other instrument or obligation to which Americorp or
Bank is a party, or by which Americorp or Bank or any of their respective
properties or assets is bound, if in any such circumstances, such event could
have consequences materially adverse to Americorp on a consolidated basis; or
(c) violate any Rule applicable to Americorp or Bank or any of their respective
properties or assets. No Consent of any Governmental Entity having jurisdiction
over any aspect of the business or assets of Americorp or Bank, and no Consent
of any Person, is required in connection with the execution and delivery by
Americorp and Bank of this Agreement or the consummation by Americorp and Bank
of the Bank Merger and the transactions contemplated hereby, except (i) the
approval of this Agreement and the transactions contemplated hereby by the
shareholders of Americorp and by Americorp as the sole shareholder of Bank; (ii)
such approvals or notices as may be required by the FRB, the Commissioner and
the FDIC; (iii) the declaring effective of the S-4 by the SEC and the approvals
of all necessary blue sky administrators; (iv) the California Department of the
State of California as to certain matters related to stock options; and (v) as
otherwise set forth in Americorp's Disclosure Letter.
3.6 INSURANCE. Americorp and Bank have policies of insurance and bonds
covering their assets and businesses against such casualties and contingencies
and in such amounts, types and forms as are customary in the banking industry
for their businesses, operations, properties and assets. All such insurance
policies and bonds are in full force and effect. Except as set forth in
Americorp's Disclosure Letter, neither Americorp nor Bank has received notice
from any insurer that any such policy or bond has canceled or indicating an
intention to cancel or not to renew any such policy or bond or generally
disclaiming liability thereunder. Except as set forth in Americorp's Disclosure
Letter, neither Americorp nor Bank is in default under any such policy or bond
and all material claims thereunder have been filed in a timely fashion.
Americorp's Disclosure Letter sets forth a list of all policies of insurance
carried and owned by Americorp or Bank, showing the name of the owner and the
insurance company, the nature of the coverage, the policy limit, the annual
premiums and the expiration dates. The existing insurance carried by Americorp
and Bank is sufficient for compliance by Americorp and Bank with all material
requirements of law and regulations and agreements to which they are subject or
are a party.
3.7 TITLE TO ASSETS. Americorp's Disclosure Letter sets forth a summary of
all items of personal property and equipment with a book value of $25,000 or
more, or having an annual lease payment of $10,000 or more, owned or leased by
Americorp or Bank. Americorp and Bank have good and marketable title to all
their respective properties and assets, other than real property, owned or
stated to be owned by Americorp and Bank, free and clear of all Encumbrances
except: (a) as set forth in the Financial Statements of Americorp; (b)
Encumbrances for current taxes not yet due; (c) Encumbrances incurred in the
ordinary course of business, if any, that, to the knowledge of Americorp and
Bank, (i) are not substantial in character, amount or extent, (ii) do not
materially detract from the value, (iii) do not interfere with present use, of
the property subject thereto or affected thereby, and (iv) do not otherwise
materially impair the conduct of business of Americorp and Bank; or (d) as set
forth in Americorp's Disclosure Letter.
3.8 REAL ESTATE. Americorp's Disclosure Letter sets forth a list of all
real property, including leaseholds, owned by Americorp and Bank, together with
(i) a description of the locations thereof, (ii) a description of each real
property lease, sublease, installment purchase, or similar arrangement to which
either Americorp or Bank is a party, and (iii) a description of each contract
for the purchase, sale or development of real estate to which Americorp or Bank
is a party. Americorp and Bank have good and marketable title to the respective
real property, and valid leasehold interests in the respective leaseholds,
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set forth in Americorp's Disclosure Letter, free and clear of all Encumbrances,
except (a) for rights of lessors, co-lessees or sublessees in such matters that
are reflected in the lease; (b) Encumbrances for current taxes not yet due and
payable; (c) Encumbrances incurred in the ordinary course of business, if any,
that, to the knowledge of Americorp and Bank, (i) are not substantial in
character, amount or extent, (ii) do not materially detract from the value,
(iii) do not interfere with present use, of the property subject thereto or
affected thereby, and (iv) do not otherwise materially impair the conduct of
business of Americorp or Bank; or (d) as set forth in Americorp's Disclosure
Letter. Americorp or Bank, as the case may be, as lessee, has the right under
valid and subsisting leases to occupy, use and possess all property leased by
it, as identified in Americorp's Disclosure Letter, and, to the knowledge of
Americorp and Bank, there has not occurred under any such lease any breach,
violation or default. Except as set forth in Americorp's Disclosure Letter and
except with respect to deductibles under insurance policies set forth in
Americorp's Disclosure Letter, neither Americorp nor Bank has experienced any
uninsured damage or destruction with respect to the properties identified in
Americorp's Disclosure Letter. To the knowledge of Americorp and Bank, all
properties and assets used by Americorp and Bank are in good operating condition
and repair, suitable for the purposes for which they are currently utilized, and
comply with all applicable Rules related thereto. Americorp and Bank enjoy
peaceful and undisturbed possession under all leases for the use of real or
personal property under which it is the lessee, and, to the knowledge of
Americorp and Bank, all leases to which Americorp or Bank is a party are valid
and enforceable in all material respects in accordance with the terms thereof
except as may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting creditors' rights and except as may be limited by the exercise of
judicial discretion in applying principles of equity. Neither Americorp nor Bank
is in default with respect to any such lease, and to the knowledge of the
officers of Americorp and Bank no event has occurred which with the lapse of
time or the giving of notice, or both, would constitute a default under any such
lease. Copies of each such lease are attached to Americorp's Disclosure Letter.
3.9 LITIGATION. Except as set forth in Americorp's Disclosure Letter, to
the knowledge of Americorp and Bank, there is no private or governmental suit,
claim, action, investigation or proceeding pending, nor to Americorp's or Bank's
knowledge threatened, against Americorp or Bank or against any of their
directors, officers or employees relating to the performance of their duties in
such capacities or against or affecting any properties of Americorp or Bank.
Also, except as disclosed in Americorp's Disclosure Letter, there are no
judgments, decrees, stipulations or orders against Americorp or Bank enjoining
either of them or any of their directors, officers or employees in respect of,
or the effect of which is to prohibit, any business practice or the acquisition
of any property or the conduct of business in any area of Americorp or Bank. To
the knowledge of Americorp and Bank, neither Americorp nor Bank is a party to
any pending or, to the knowledge of any of the officers, threatened legal,
administrative or other claim, action, suit, investigation, arbitration or
proceeding challenging the validity or propriety of any of the transactions
contemplated by this Agreement.
3.10 TAXES. Except as set forth in Americorp's Disclosure Letter,
Americorp and Bank had filed all federal and foreign income tax returns, all
state and local franchise and income tax, real and personal property tax, sales
and use tax, premium tax, excise tax and other tax returns of every character
required to be filed by it and have paid all taxes, together with any interest
and penalties owing in connection therewith, shown on such returns to be due in
respect of the periods covered by such returns, other than taxes which are being
contested in good faith and for which adequate reserves have been established.
Except as set forth in Americorp's Disclosure Letter, Americorp and Bank have
filed all required payroll tax returns, have fulfilled all tax withholding
obligations and have paid over to the appropriate governmental authorities the
proper amounts with respect to the foregoing. The tax and audit positions taken
by Americorp and Bank in connection with the tax returns described in the
preceding sentence were reasonable and asserted in good faith. Adequate
provision has been made in the books and records of Americorp or Bank and, to
the extent required by generally accepted accounting procedures, reflected in
the Financial Statements of Americorp, for all tax liabilities, including
interest or penalties, whether or not due and payable and whether or not
disputed, with respect to any and all federal, foreign, state, local and
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other taxes for the periods covered by such financial statements and for all
prior periods. Americorp's Disclosure Letter sets forth (i) the date or dates
through which the IRS has examined the federal tax returns of Americorp and Bank
and the date or dates through which any foreign, state, local or other taxing
authority has examined any other tax returns of Americorp and Bank; (ii) a
complete list of each year for which any federal, state, local or foreign tax
authority has obtained or has requested an extension of the statute of
limitations from Americorp or Bank and lists each tax case of Americorp or Bank
currently pending in audit, at the administrative appeals level or in
litigation; and (iii) the date and issuing authority of each statutory notice of
deficiency, notice of proposed assessment and revenue agent's report issued to
Americorp within the last twelve (12) months. Except as set forth in Americorp's
Disclosure Letter, to the knowledge of Americorp and Bank, neither the IRS nor
any foreign, state, local or other taxing authority has, during the past three
years, examined or is in the process of examining any federal, foreign, state,
local or other tax returns of Americorp or Bank. To the knowledge of Americorp
and Bank, neither the IRS nor any foreign, state, local or other taxing
authority is now asserting or threatening to assert any deficiency or claim for
additional taxes (or interest thereon or penalties in connection therewith)
except as set forth in Americorp's Disclosure Letter.
3.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in
Americorp's Disclosure Letter,
neither Americorp nor Bank is in default under or in breach of any provision of
its Charter Documents or any Rule promulgated by any Governmental Entity having
authority over it, where such default or breach would have a material adverse
effect on the business, financial condition or results of operations of
Americorp or Bank.
3.12 PERFORMANCE OF OBLIGATIONS. Americorp and Bank have performed all of
the respective obligations required to be performed by it to date and neither of
them is in material default under or in breach of any term or provision of any
of the Americorp Scheduled Contracts, and no event has occurred that, with the
giving of notice or the passage of time or both, would constitute such default
or breach. To Americorp's and Bank's knowledge, no party with whom either has an
agreement that is material to the business of Americorp or Bank is in default
thereunder.
3.13 EMPLOYEES. Except as set forth in Americorp's Disclosure Letter,
there are no controversies pending or threatened between Americorp or Bank and
any of their respective employees that are likely to have a material adverse
effect on the business, financial condition or results of operation of Americorp
or Bank. Neither Americorp nor Bank is a party to any collective bargaining
agreement with respect to any of its employees or any labor organization to
which its employees or any of them belong.
3.14 BROKERS AND FINDERS. Except as provided in Americorp's Disclosure
Letter with copies of any such agreements attached, neither Americorp nor Bank
is not a party to or obligated under any agreement with any broker or finder
relating to the transactions contemplated hereby, and neither the execution of
this Agreement nor the consummation of the transactions provided for herein or
therein will result in any liability to any broker or finder.
3.15 MATERIAL CONTRACTS. Except as set forth in Americorp's Disclosure
Letter (all items listed or required to be listed in Americorp's Disclosure
Letter as a result of this Section being referred to herein as "Americorp
Scheduled Contracts"), neither Americorp nor Bank is a party or otherwise
subject to:
(a) any employment, deferred compensation, bonus or consulting contract;
(b) any advertising, brokerage, licensing, dealership, representative or
agency relationship or contract;
(c) any contract or agreement that would restrict Americorp or the
Surviving Bank after the Effective Time from competing in any line of
business with any Person or using or employing the services of any Person;
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(d) any collective bargaining agreement or other such contract or
agreement with any labor organization;
(e) any lease of real or personal property providing for annual lease
payments by or to Americorp or Bank in excess of $10,000 per annum other
than financing leases entered into in the ordinary course of business in
which Americorp or Bank is lessor and leases of real property presently used
by Bank as banking offices.
(f) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any
interest of Americorp or Bank (other than as mortgagor or pledgor in the
ordinary course of their banking business or as mortgagee, secured party or
deed of trust beneficiary in the ordinary course of their business) in
personal property having a value of $25,000 or more;
(g) any stock purchase, stock option, stock bonus, stock ownership,
profit sharing, group insurance, bonus, deferred compensation, severance
pay, pension, retirement, savings or other incentive, welfare or employment
plan or material agreement providing benefits to any present or former
employees, officers or directors of Americorp or Bank;
(h) any agreement to acquire equipment or any commitment to make capital
expenditures of $25,000 or more;
(i) other than agreements entered into in the ordinary course of
business with respect to DPC Property, any agreement for the sale of any
property or assets in which Americorp or Bank has an ownership interest or
for the grant of any preferential right to purchase any such property or
asset;
(j) any agreement for the borrowing of any money (other than liabilities
or interbank borrowings made in the ordinary course of their banking
business and reflected in the financial records of Americorp or Bank);
(k) any restrictive covenant contained in any deed to or lease of real
property owned or leased by Americorp or Bank (as lessee) that materially
restricts the use, transferability or value of such property;
(l) any guarantee or indemnification which involves the sum of $25,000
or more, other than letters of credit or loan commitments issued in the
normal course of business;
(m) any supply, maintenance or landscape contracts not terminable by
Americorp or Bank without penalty on 30 days or less notice and which
provides for payments in excess of $10,000 per annum;
(n) other than as disclosed with reference to subparagraph (k) of this
Section 3.15, any agreement which would be terminable other than by
Americorp or Bank or as a result of the consummation of the transactions
contemplated by this Agreement;
(o) any contract of participation with any other bank in any loan
entered into by Americorp or Bank subsequent to December 31, 1997 in excess
of $25,000 or any sales of assets of Americorp or Bank with recourse of any
kind to Americorp or Bank except the sale of mortgage loans, servicing
rights, repurchase or reverse repurchase agreements, securities or other
financial transactions in the ordinary course of business;
(p) any other agreement of any other kind, including for data processing
and similar services, which involves future payments or receipts or
performances of services or delivery of items requiring aggregate payment of
$10,000 or more to or by Americorp or Bank other than payments made under or
pursuant to loan agreements, participation agreements and other agreements
for the extension of credit in the ordinary course of their business;
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(q) any material agreement, arrangement or understanding not made in the
ordinary course of business;
(r) any agreement, arrangement or understanding relating to the
employment, election, retention in office or severance of any present or
former director, officer or employee of Americorp or Bank;
(s) any agreement, arrangement or understanding pursuant to which any
payment (whether severance pay or otherwise) became or may become due to any
director, officer or employee of Americorp or Bank upon execution of this
Agreement or upon or following consummation of the transactions contemplated
hereby (either alone or in connection with the occurrence of any additional
acts or events); or
(t) any written agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, capital order, or
condition of any regulatory order or decree with or by the Commissioner,
FDIC, FRB or any other regulatory agency.
True copies of all Americorp Scheduled Contracts, including all amendments
and supplements thereto, are attached to Americorp's Disclosure Letter.
3.16 ABSENCE OF MATERIAL CHANGE. Since December 31, 1997, the businesses
of Americorp and Bank have been conducted only in the ordinary course, in
substantially the same manner as theretofore conducted, and, except as set forth
in Americorp's Disclosure Letter, there has not occurred since December 31, 1997
any event that has had or may reasonably be expected to have a material adverse
effect on the business, financial condition or results of operation of Americorp
or Bank.
3.17 LICENSES AND PERMITS. Americorp and Bank have all licenses and
permits that are necessary for the conduct of their respective businesses, and
such licenses are in full force and effect, except for any failure to be in full
force and effect that would not, individually or in the aggregate, have a
material adverse effect on the business, financial condition or results of
operations of Americorp or Bank. The properties and operations of Americorp and
Bank are and have been maintained and conducted, in all material respects, in
compliance with all applicable Rules.
3.18 UNDISCLOSED LIABILITIES. Except as set forth in Americorp's
Disclosure Letter, neither Americorp nor Bank have any liabilities or
obligations, either accrued or contingent, that are material to Americorp or
Bank and that have not been: (a) reflected or disclosed in the Financial
Statements of Americorp or (b) incurred subsequent to December 31, 1997 in the
ordinary course of business. Neither Americorp nor Bank knows of any basis for
the assertion against it of any liability, obligation or claim (including,
without limitation, that of any Governmental Entity) that is likely to result in
or cause a material adverse change in the business, financial condition or
results of operations of Americorp or Bank that is not fairly reflected in the
Financial Statements of Americorp or otherwise disclosed in this Agreement.
3.19 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in Americorp's Disclosure Letter, neither Americorp
nor Bank has an "employee benefit plan," as defined in Section 3(3) of ERISA.
(b) Americorp's Disclosure Letter sets forth copies or descriptions of each
Benefit Arrangement maintained or otherwise contributed to by Americorp or Bank
(such plans and arrangements being collectively referred to herein as "Bank
Benefit Arrangements"). All Bank Benefit Arrangements which are in effect have
been in effect for substantially all of 1997. There has been no material
amendment thereof or increase in the cost thereof or benefits payable thereunder
since December 31, 1997. Except as set forth in Americorp's Disclosure Letter,
there has been no material increase in the compensation of or benefits payable
to any senior executive employee of Americorp or Bank since December 31, 1997,
nor any employment, severance or similar contract entered into with any such
employee, nor any amendment to
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any such contract, since December 31, 1997. Except as set forth in Americorp's
Disclosure Letter, there is no contract, agreement or benefit arrangement
covering any employee of Americorp or Bank which individually or collectively
could give rise to the payment of any amount which would constitute an "excess
parachute payment," as such term is defined in Section 280(G) of the Code.
(c) With respect to all Bank Benefit Arrangements, Americorp and Bank are in
substantial compliance (other than noncompliance the cost or liability for which
is not material) with the requirements prescribed by any and all statutes,
governmental or court orders, or governmental rules or regulations currently in
effect, applicable to such plans or arrangements.
(d) Except for the contracts set forth in Americorp's Disclosure Letter,
each Bank Benefit Arrangement and each personal services contract, fringe
benefit, consulting contract or similar arrangement with or for the benefit of
any officer, director, employee or other person can be terminated by Bank within
a period of 30 days following the Effective Time of the Bank Merger, without
payment of any amount as a penalty, bonus, premium, severance pay or other
compensation for such termination.
3.20 CORPORATE RECORDS. The Charter Documents of Americorp and Bank and
all amendments thereto to the date hereof (true, correct and complete copies of
which are set forth in Americorp's Disclosure Letter) are in full force and
effect as of the date of this Agreement. The minute books of Americorp and Bank,
together with the documents and other materials incorporated therein by
reference, reflect all meetings held and contain complete and accurate records
of all corporate actions taken by the boards of directors of Americorp and Bank
(or any committees thereof) and stockholders. Except as reflected in such minute
books, there are no minutes of meetings or consents in lieu of meetings of the
board of directors (or any committees thereof) or of the stockholders of
Americorp or Bank.
3.21 ACCOUNTING RECORDS. Americorp and Bank maintain accounting records
which fairly and validly reflect, in all material respects, their transactions
and accounting controls sufficient to provide reasonable assurances that such
transactions are (i) executed in accordance with their management's general or
specific authorization, and (ii) recorded as necessary to permit the preparation
of financial statements in conformity with GAAP. Such records, to the extent
they contain material information pertaining to Americorp or Bank which is not
easily and readily available elsewhere, have been duplicated, and such
duplicates are stored safely and securely.
3.22 OFFICES AND ATMS. Set forth in Americorp's Disclosure Letter is a
list of the headquarters of Bank (identified as such) and each of the offices
and automated teller machines ("ATMs") maintained and operated (or to be
maintained and operated) by Bank (including, without limitation, representative
and loan production offices and operations centers) and the location thereof.
Except as set forth in Americorp's Disclosure Letter, neither Americorp nor Bank
maintains any other office or ATM and conducts business at any other location,
and neither Americorp nor Bank has applied for or received permission to open
any additional branch nor operate at any other location.
3.23 LOAN PORTFOLIO. Americorp's Disclosure Letter sets forth a
description of: (a) by type and classification, all loans, leases, other
extensions and commitments to extend credit of Bank of $100,000 or more, that
have been classified by itself, its bank examiners or auditors (external or
internal) as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification; and (b) all loans due to Bank as to which any payment of
principal, interest or any other amount is 30 days or more past due. Americorp's
consolidated allowance for loan losses is and will be at the Effective Time
adequate and in accordance with GAAP in all material respects and in accordance
with all applicable regulatory requirements of any Governmental Entity.
3.24 POWER OF ATTORNEY. Except as set forth in Americorp's Disclosure
Letter, neither Americorp nor Bank has granted any Person a power of attorney or
similar authorization that is presently in effect or outstanding.
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3.25 OPERATING LOSSES. Americorp's Disclosure Letter sets forth any
Operating Loss (as herein defined) which has occurred at Americorp or Bank
during the period after December 31, 1997. To the knowledge of Americorp and
Bank, no action has been taken or omitted to be taken by an employee of
Americorp or Bank that has resulted in the incurrance by Americorp or Bank of an
Operating Loss or that might reasonably be expected to result in an Operating
Loss after December 31, 1997, which, net of any insurance proceeds payable in
respect thereof, would exceed $25,000. "Operating Loss" means any loss resulting
from cash shortages, lost or misposted items, disputed clerical and accounting
errors, forged checks, payment of checks over stop payment orders, counterfeit
money, wire transfers made in error, theft, robberies, defalcations, check
kiting, fraudulent use of credit cards or electronic teller machines or other
similar acts or occurrences.
3.26 ENVIRONMENTAL MATTERS. Except as set forth in Americorp's Disclosure
Letter, to the knowledge of Americorp and Bank, (i) each of Americorp and Bank
is in compliance with all Environmental Laws; (ii) there are no Tanks on or
about Americorp Property; (iii) there are no Hazardous Materials on, below or
above the surface of, or migrating to or from Americorp Property; (iv) neither
Americorp nor Bank has loans outstanding secured by real property that is not in
compliance with Environmental Laws or which has a leaking Tank or upon which
there are Hazardous Materials on or migrating to or from; and (v) without
limiting the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action ,
suit, or proceeding or notice thereof before any Governmental Entity pending
against Americorp or Bank or concerning property securing Americorp and Bank
loans and there is no outstanding judgment, order, writ, injunction, decree, or
award against or affecting Americorp Property or property securing Americorp or
Bank loans, relating to the foregoing representations (i)-(iv), in each case the
noncompliance with which, or the presence of which would have a material adverse
effect on the business, financial condition, results of operations or prospects
of Americorp or Bank. For purposes of this Agreement, the term "Environmental
Laws" shall mean all applicable statutes, regulations, rules, ordinances, codes,
licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items of all Governmental Entities and all applicable
judicial, administrative, and regulatory decrees, judgments, and orders relating
to the protection of human health or the environment, including, without
limitation: all requirements, including, but not limited to those pertaining to
reporting, licensing, permitting, investigation, and remediation of emissions,
discharges, releases, or threatened releases of Hazardous Materials, chemical
substances, pollutants, contaminants, or hazardous or toxic substances,
materials or wastes whether solid, liquid, or gaseous in nature, into the air,
surface water, groundwater, or land, or relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
chemical substances, pollutants, contaminates, or hazardous or toxic substances,
materials, or wastes, whether solid, liquid, or gaseous in nature and all
requirements pertaining to the protection of the health and safety of employees
or the public. "Americorp Property" shall mean real estate currently owned,
leased, or otherwise used by Americorp or Bank, or in which Americorp or Bank
has an investment or security interest by mortgage, deed of trust, sale and
lease-back or otherwise, including without limitation, properties under
foreclosure and properties held by Americorp or Bank in its capacity as a
trustee or otherwise. "Tank" shall mean treatment or storage tanks, sumps, or
water, gas or oil wells and associated piping transportation devices. "Hazardous
Materials" shall mean any substance the presence of which requires investigation
or remediation under any federal, state, or local statute, regulation,
ordinance, order, action, policy or common law, or which is or becomes defined
as a hazardous waste, hazardous substance, hazardous material, used oil,
pollutant or contaminant under any federal, state or local statute, regulation,
rule or ordinance or amendments thereto including without limitation, the
Comprehensive Environmental Response; Compensation and Liability Act (42
U.S.C.9601, ET SEQ.); the Resource Conservation and Recovery Act (42 U.S.C.
6901, ET SEQ.); the Clean Air Act, as amended (42 U.S.C. 7401, ET SEQ.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. 1251, ET SEQ.); the
Toxic Substances Control Act, as amended (15 U.S.C. 9601, ET SEQ.); the
Occupational Safety and Health Act, as amended (29 U.S.C. 65); the Emergency
Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001, ET SEQ.); the
Mine Safety and Health Act of 1977, as amended (30 U.S.C. 801, ET SEQ.); the
Safe Drinking
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Water Act (42 U.S.C. 300f, ET SEQ.); and all comparable state and local laws,
including without limitation, the Carpenter-Presley-Tanner Hazardous Substance
Account Act (State Superfund), the Porter-Cologne Water Quality Control Action,
25140, 25501(j) and (k); 25501.1.25281 and 25250.1 of the California HEALTH AND
SAFETY CODE and/or Article I of Title 22 of the California CODE OF REGULATIONS,
Division 4, Chapter 30; laws of other jurisdictions or orders and regulations;
or the presence of which causes or threatens to cause a nuisance, trespass or
other common law tort upon real property or adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons or without
limitation, which contains gasoline, diesel fuel or other petroleum
hydrocarbons; polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde
foam insulation.
3.27 COMMUNITY REINVESTMENT ACT. Bank received a rating of "satisfactory"
or better in its most recent examination or interim review with respect to the
Community Reinvestment Act. Neither Americorp nor Bank has been advised of any
concerns regarding compliance with the Community Reinvestment Act by any
Governmental Entity or by any other Person.
3.28 DERIVATIVES. Neither Americorp nor Bank is currently a party to any
interest rate swap, cap, floor, option agreement, other interest rate risk
management arrangement or agreement or derivative-type security or derivative
arrangement or agreement.
3.29 [INTENTIONALLY LEFT BLANK]
3.30 SEC REPORTS. Americorp is not currently required to file any reports
pursuant to the Exchange Act.
3.31 TRUST ADMINISTRATION. Americorp and Bank do not presently exercise
trust powers, including, but not limited to, trust administration, and have not
exercised such trust powers for a period of at least 3 years prior to the date
hereof. The term "trusts" as used in this Section 3.31 includes (i) any and all
common law or other trusts between an individual, corporation or other entities
and Americorp or Bank, as trustee or co-trustee, including, without limitation,
pension or other qualified or nonqualified employee benefit plans, compensation,
testamentary, inter vivos, charitable trust indentures; (ii) any and all
decedents' estates where Americorp or Bank are serving or have served as a
co-executor or sole executor, personal representative or administrator,
administrator de bonis non, administrator de bonis non with will annexed, or in
any similar fiduciary capacity; (iii) any and all guardianships,
conservatorships or similar positions where Americorp or Bank are serving or
have served as a co-grantor or a sole grantor or a conservator or a
co-conservator of the estate, or any similar fiduciary capacity; and (iv) any
and all agency and/or custodial accounts and/or similar arrangements, including
plan administrator for employee benefit accounts, under which Americorp or Bank
are serving or have served as an agent or custodian for the owner or other party
establishing the account with or without investment authority.
3.32 REGULATORY APPROVALS. To the knowledge of Americorp and Bank, except
as described in Americorp's Disclosure Letter, Americorp and Bank have no reason
to believe that they would not receive all required approvals from any
Governmental Entity of any application to consummate the transactions
contemplated by this Agreement without the imposition of a materially burdensome
condition in connection with the approval of any such application.
3.33 YEAR 2000. Except as described in Americorp's Disclosure Letter,
Americorp and Bank are taking all reasonable steps to correct their respective
computer programs and applications so that they will not fail or will create
erroneous results by or at the Year 2000 and neither Americorp nor Bank has been
advised of any concerns regarding compliance with Year 2000 issues by any
Governmental Entity or by any other Person.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
CIB
CIB represents and warrants to Americorp and Bank as follows:
4.1 INCORPORATION, STANDING AND POWER. CIB has been duly incorporated and
is validly existing as a banking company under the laws of California and is
authorized by the Commissioner to conduct a general banking business. CIB is a
member bank of the Federal Reserve System and its deposits are insured by the
FDIC in the manner and to the extent provided by law. CIB has all requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as presently conducted. Neither the scope of
the business of CIB nor the location of any of its properties requires that CIB
be licensed to do business in any jurisdiction other than in California where
the failure to be so licensed would, individually or in the aggregate, have a
materially adverse effect on the financial condition, results of operation or
business of CIB.
4.2 CAPITALIZATION. As of the date of this Agreement, the authorized
capital stock of CIB consists of 5,000,000 shares of CIB Stock, of which 533,282
shares are outstanding. All the outstanding shares of CIB Stock are duly
authorized, validly issued, fully paid, nonassessable and without preemptive
rights. Except as set forth in CIB's Disclosure Letter, there are no outstanding
options, warrants or other rights in or with respect to the unissued shares of
CIB Stock or any other securities convertible into such stock, and CIB is not
obligated to issue any additional shares of its capital stock or any options,
warrants or other rights in or with respect to the unissued shares of its
capital stock or any other securities convertible into such stock.
4.3 SUBSIDIARIES. Except as set forth in CIB's Disclosure Letter, CIB does
not own, directly or indirectly, any outstanding stock, Equity Securities or
other voting interest in any corporation, partnership, joint venture or other
entity or Person, other than DPC Property.
4.4 FINANCIAL STATEMENTS. CIB has previously furnished to Bank and
Americorp a copy of the Financial Statements of CIB. The Financial Statements of
CIB: (a) present fairly the financial condition of CIB as of the respective
dates indicated and its results of operations and cash flow for the respective
periods indicated; and (b) have been prepared in accordance with GAAP. The
audits of CIB have been conducted in accordance with generally accepted auditing
standards.
The books and records of CIB are being maintained in material compliance
with applicable legal and accounting requirements. Except to the extent (i)
reflected in the Financial Statements of CIB and (ii) of liabilities incurred
since December 31, 1997 in the ordinary course of business and consistent with
past practice, CIB has no liabilities, whether absolute, accrued, contingent or
otherwise.
4.5 AUTHORITY OF CIB. The execution and delivery by CIB of this Agreement
and, subject to the requisite approval of the shareholders of CIB, the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of CIB, and this
Agreement is a valid and binding obligation of CIB, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, liquidation, receivership, conservatorship, insolvency, moratorium
or other similar laws affecting the rights of creditors generally and by general
equitable principles and by Section 8(b)(6)(D) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1818(b)(6)(D). Except as set forth in CIB's Disclosure
Letter, neither the execution and delivery by CIB of this Agreement, the
consummation of the Bank Merger or the transactions contemplated herein, nor
compliance by CIB with any of the provisions hereof, will: (a) violate any
provision of its Charter Documents; (b) constitute a breach of or result in a
default (or give rise to any rights of termination, cancellation or
acceleration, or any right to acquire any securities or assets) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
franchise, license, permit, agreement, Encumbrance or other instrument or
obligation to which CIB is a party, or by which CIB or any of its properties or
assets is bound, if in any such circumstances, such event could have
consequences materially
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adverse to CIB; or (c) violate any Rule applicable to CIB or any of its
properties or assets. No Consent of any Governmental Entity having jurisdiction
over any aspect of the business or assets of CIB, and no Consent of any Person,
is required in connection with the execution and delivery by CIB of this
Agreement or the consummation by CIB of the Bank Merger and the transactions
contemplated hereby, except (i) the approval of this Agreement and the
transactions contemplated hereby by the shareholders of CIB; (ii) such approvals
or notices as may be required by the FRB, the Commissioner and the FDIC; (iii)
the declaring effective of the S-4 by the SEC and the approvals of all necessary
blue sky administrators; (iv) the California Department of the State of
California as to certain matters related to stock options; and (v) and (v) as
otherwise set forth in CIB's Disclosure Letter.
4.6 INSURANCE. CIB has policies of insurance and bonds covering its assets
and businesses against such casualties and contingencies and in such amounts,
types and forms as are customary in the banking industry for its businesses,
operations, properties and assets. All such insurance policies and bonds are in
full force and effect. Except as set forth in CIB's Disclosure Letter, CIB has
not received notice from any insurer that any such policy or bond has canceled
or indicating an intention to cancel or not to renew any such policy or bond or
generally disclaiming liability thereunder. Except as set forth in CIB's
Disclosure Letter, CIB is not in default under any such policy or bond and all
material claims thereunder have been filed in a timely fashion. CIB's Disclosure
Letter sets forth a list of all policies of insurance carried and owned by CIB,
showing the name of the insurance company, the nature of the coverage, the
policy limit, the annual premiums and the expiration dates. The existing
insurance carried by CIB is sufficient for compliance by CIB with all material
requirements of law and regulations and agreements to which CIB is subject or is
a party.
4.7 TITLE TO ASSETS. CIB's Disclosure Letter sets forth a summary of all
items of personal property and equipment with a book value of $25,000 or more,
or having an annual lease payment of $10,000 or more, owned or leased by CIB.
CIB has good and marketable title to all its properties and assets, other than
real property, owned or stated to be owned by CIB, free and clear of all
Encumbrances except: (a) as set forth in the Financial Statements of CIB; (b)
Encumbrances for current taxes not yet due; (c) Encumbrances incurred in the
ordinary course of business, if any, that, to the knowledge of CIB, (i) are not
substantial in character, amount or extent, (ii) do not materially detract from
the value, (iii) do not interfere with present use, of the property subject
thereto or affected thereby, and (iv) do not otherwise materially impair the
conduct of business of CIB; or (d) as set forth in CIB's Disclosure Letter.
4.8 REAL ESTATE. CIB's Disclosure Letter sets forth a list of all real
property, including leaseholds, owned by CIB, together with (i) a description of
the locations thereof, (ii) a description of each real property lease, sublease,
installment purchase, or similar arrangement to which CIB is a party, and (iii)
a description of each contract for the purchase, sale or development of real
estate to which CIB is a party. CIB has good and marketable title to the real
property, and valid leasehold interests in the leaseholds, set forth in CIB's
Disclosure Letter, free and clear of all Encumbrances, except (a) for rights of
lessors, co-lessees or sublessees in such matters that are reflected in the
lease; (b) Encumbrances for current taxes not yet due and payable; (c)
Encumbrances incurred in the ordinary course of business, if any, that, to the
knowledge of CIB, (i) are not substantial in character, amount or extent, (ii)
do not materially detract from the value, (iii) do not interfere with present
use, of the property subject thereto or affected thereby, and (iv) do not
otherwise materially impair the conduct of business of CIB; or (d) as set forth
in CIB's Disclosure Letter. CIB, as lessee, has the right under valid and
subsisting leases to occupy, use and possess all property leased by it, as
identified in CIB's Disclosure Letter, and, to the knowledge of CIB, there has
not occurred under any such lease any breach, violation or default. Except as
set forth in CIB's Disclosure Letter and except with respect to deductibles
under insurance policies set forth in CIB's Disclosure Letter, CIB has not
experienced any uninsured damage or destruction with respect to the properties
identified in CIB's Disclosure Letter. To the knowledge of CIB, all properties
and assets used by CIB are in good operating condition and repair, suitable for
the purposes for which they are currently utilized, and comply with all
applicable Rules related thereto. CIB enjoys peaceful and undisturbed possession
under all leases
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for the use of real or personal property under which it is the lessee, and, to
the knowledge of CIB, all leases to which CIB is a party are valid and
enforceable in all material respects in accordance with the terms thereof except
as may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights and except as may be limited by the exercise of
judicial discretion in applying principles of equity. CIB is not in default with
respect to any such lease, and to the knowledge of the officers of CIB no event
has occurred which with the lapse of time or the giving of notice, or both,
would constitute a default under any such lease. Copies of each such lease are
attached to CIB's Disclosure Letter.
4.9 LITIGATION. Except as set forth in CIB's Disclosure Letter, to the
knowledge of CIB, there is no private or governmental suit, claim, action,
investigation or proceeding pending, nor to CIB's knowledge threatened, against
CIB or against any of its directors, officers or employees relating to the
performance of their duties in such capacities or against or affecting any
properties of CIB. Also, except as disclosed in CIB's Disclosure Letter, there
are no judgments, decrees, stipulations or orders against CIB enjoining it or
any of its directors, officers or employees in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any property
or the conduct of business in any area of CIB. To the knowledge of CIB, CIB is
not a party to any pending or, to the knowledge of any of the officers,
threatened legal, administrative or other claim, action, suit, investigation,
arbitration or proceeding challenging the validity or propriety of any of the
transactions contemplated by this Agreement.
4.10 TAXES. Except as set forth in CIB's Disclosure Letter, CIB had filed
all federal and foreign income tax returns, all state and local franchise and
income tax, real and personal property tax, sales and use tax, premium tax,
excise tax and other tax returns of every character required to be filed by it
and have paid all taxes, together with any interest and penalties owing in
connection therewith, shown on such returns to be due in respect of the periods
covered by such returns, other than taxes which are being contested in good
faith and for which adequate reserves have been established. Except as set forth
in CIB's Disclosure Letter, CIB has filed all required payroll tax returns, has
fulfilled all tax withholding obligations and have paid over to the appropriate
governmental authorities the proper amounts with respect to the foregoing. The
tax and audit positions taken by CIB in connection with the tax returns
described in the preceding sentence were reasonable and asserted in good faith.
Adequate provision has been made in the books and records of CIB and, to the
extent required by generally accepted accounting procedures, reflected in the
Financial Statements of CIB, for all tax liabilities, including interest or
penalties, whether or not due and payable and whether or not disputed, with
respect to any and all federal, foreign, state, local and other taxes for the
periods covered by such financial statements and for all prior periods. CIB's
Disclosure Letter sets forth (i) the date or dates through which the IRS has
examined the federal tax returns of CIB and the date or dates through which any
foreign, state, local or other taxing authority has examined any other tax
returns of CIB; (ii) a complete list of each year for which any federal, state,
local or foreign tax authority has obtained or has requested an extension of the
statute of limitations from CIB and lists each tax case of CIB currently pending
in audit, at the administrative appeals level or in litigation; and (iii) the
date and issuing authority of each statutory notice of deficiency, notice of
proposed assessment and revenue agent's report issued to CIB within the last
twelve (12) months. Except as set forth in CIB's Disclosure Letter, to the
knowledge of CIB, neither the IRS nor any foreign, state, local or other taxing
authority has, during the past three years, examined or is in the process of
examining any federal, foreign, state, local or other tax returns of CIB. To the
knowledge of CIB, neither the IRS nor any foreign, state, local or other taxing
authority is now asserting or threatening to assert any deficiency or claim for
additional taxes (or interest thereon or penalties in connection therewith)
except as set forth in CIB's Disclosure Letter.
4.11 COMPLIANCE WITH LAWS AND REGULATIONS. Except as set forth in CIB's
Disclosure Letter, CIB is not in default under or in breach of any provision of
its Charter Documents or any Rule promulgated by any Governmental Entity having
authority over it, where such default or breach would have a material adverse
effect on the business, financial condition or results of operations of CIB.
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4.12 PERFORMANCE OF OBLIGATIONS. CIB has performed all of the obligations
required to be performed by it to date and is not in material default under or
in breach of any term or provision of any material contract, and no event has
occurred that, with the giving of notice or the passage of time or both, would
constitute such default or breach. To CIB's knowledge, no party with whom CIB
has an agreement that is material to the business of CIB is in default
thereunder.
4.13 EMPLOYEES. Except as set forth in CIB's Disclosure Letter, there are
no controversies pending or threatened between CIB and any of its employees that
are likely to have a material adverse effect on the business, financial
condition or results of operation of CIB. CIB is not a party to any collective
bargaining agreement with respect to any of its employees or any labor
organization to which its employees or any of them belong.
4.14 BROKERS AND FINDERS. Except as provided in CIB's Disclosure Letter
with copies of any such agreements attached, CIB is not a party to or obligated
under any agreement with any broker or finder relating to the transactions
contemplated hereby, and neither the execution of this Agreement nor the
consummation of the transactions provided for herein or therein will result in
any liability to any broker or finder.
4.15 ABSENCE OF MATERIAL CHANGE. Since December 31, 1997, the business of
CIB has been conducted only in the ordinary course, in substantially the same
manner as theretofore conducted, and, except as set forth in CIB's Disclosure
Letter, there has not occurred since December 31, 1997 any event that has had or
may reasonably be expected to have a material adverse effect on the business,
financial condition or results of operation of CIB.
4.16 LICENSES AND PERMITS. CIB has all licenses and permits that are
necessary for the conduct of its businesses, and such licenses are in full force
and effect, except for any failure to be in full force and effect that would
not, individually or in the aggregate, have a material adverse effect on the
business, financial condition or results of operations of CIB. The properties
and operations of CIB are and have been maintained and conducted, in all
material respects, in compliance with all applicable Rules.
4.17 UNDISCLOSED LIABILITIES. Except as set forth in CIB's Disclosure
Letter CIB has no liabilities or obligations, either accrued or contingent, that
are material to CIB and that have not been:(a) reflected or disclosed in the
Financial Statements of CIB or (b) incurred subsequent to December 31, 1997 in
the ordinary course of business. CIB does not know of any basis for the
assertion against it of any liability, obligation or claim (including, without
limitation, that of any Governmental Entity) that is likely to result in or
cause a material adverse change in the business, financial condition or results
of operations of CIB that is not fairly reflected in the Financial Statements of
CIB or otherwise disclosed in this Agreement.
4.18 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth in CIB's Disclosure Letter, CIB has no "employee
benefit plan," as defined in Section 3(3) of ERISA.
(b) CIB's Disclosure Letter sets forth copies or descriptions of each
Benefit Arrangement maintained or otherwise contributed to by CIB (such plans
and arrangements being collectively referred to herein as "CIB Benefit
Arrangements"). Except as set forth in CIB's Disclosure Letter, all CIB Benefit
Arrangements which are in effect have been in effect for substantially all of
1997. Except as set forth in CIB's Disclosure Letter, there has been no material
amendment thereof or increase in the cost thereof or benefits payable thereunder
since December 31, 1997. Except as set forth in CIB's Disclosure Letter, there
has been no material increase in the compensation of or benefits payable to any
senior executive employee of CIB since December 31, 1997, nor any employment,
severance or similar contract entered into with any such employee, nor any
amendment to any such contract, since December 31, 1997. Except as set forth in
CIB's Disclosure Letter, there is no contract, agreement or benefit arrangement
covering any employee of CIB which individually or collectively could give rise
to the payment of any amount which would constitute an "excess parachute
payment," as such term is defined in Section 280(G) of the Code.
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(c) With respect to all CIB Benefit Arrangements, CIB is in substantial
compliance (other than noncompliance the cost or liability for which is not
material) with the requirements prescribed by any and all statutes, governmental
or court orders, or governmental rules or regulations currently in effect,
applicable to such plans or arrangements.
(d) Except for the contracts set forth in CIB's Disclosure Letter, each CIB
Benefit Arrangement and each personal services contract, fringe benefit,
consulting contract or similar arrangement with or for the benefit of any
officer, director, employee or other person can be terminated by CIB within a
period of 30 days following the Effective Time of the Bank Merger, without
payment of any amount as a penalty, bonus, premium, severance pay or other
compensation for such termination.
4.19 CORPORATE RECORDS. The Charter Documents of CIB and all amendments
thereto to the date hereof (true, correct and complete copies of which are set
forth in CIB's Disclosure Letter) are in full force and effect as of the date of
this Agreement. The minute books of CIB, together with the documents and other
materials incorporated therein by reference, reflect all meetings held and
contain complete and accurate records of all corporate actions taken by the
board of directors of CIB (or any committees thereof) and stockholders. Except
as reflected in such minute books, there are no minutes of meetings or consents
in lieu of meetings of the board of directors (or any committees thereof) or of
the stockholders of CIB.
4.20 ACCOUNTING RECORDS. CIB maintains accounting records which fairly and
validly reflect, in all material respects, its transactions and accounting
controls sufficient to provide reasonable assurances that such transactions are
(i) executed in accordance with its management's general or specific
authorization, and (ii) recorded as necessary to permit the preparation of
financial statements in conformity with GAAP. Such records, to the extent they
contain material information pertaining to CIB which is not easily and readily
available elsewhere, have been duplicated, and such duplicates are stored safely
and securely.
4.21 OFFICES AND ATMS. Set forth in CIB's Disclosure Letter is a list of
the headquarters of CIB (identified as such) and each of the offices and
automated teller machines ("ATMs") maintained and operated (or to be maintained
and operated) by CIB (including, without limitation, representative and loan
production offices and operations centers) and the location thereof. Except as
set forth in CIB's Disclosure Letter, CIB maintains no other office or ATM and
conducts business at no other location, and CIB has not applied for nor received
permission to open any additional branch nor operate at any other location.
4.22 LOAN PORTFOLIO. CIB's Disclosure Letter sets forth a description of:
(a) by type and classification, all loans, leases, other extensions and
commitments to extend credit of CIB of $100,000 or more, that have been
classified by itself, its bank examiners or auditors (external or internal) as
"Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification; and (b) all loans due to CIB as to which any payment of
principal, interest or any other amount is 30 days or more past due. CIB's
allowance for loan losses is and will be at the Effective Time adequate and in
accordance with GAAP in all materials respects and in accordance with all
applicable regulatory requirements of any Governmental Entity.
4.23 POWER OF ATTORNEY. Except as set forth in CIB's Disclosure Letter,
CIB has not granted any Person a power of attorney or similar authorization that
is presently in effect or outstanding.
4.24 OPERATING LOSSES. CIB's Disclosure Letter sets forth any Operating
Loss which has occurred at CIB during the period after December 31, 1997. To the
knowledge of CIB, no action has been taken or omitted to be taken by an employee
of CIB that has resulted in the incurrence by CIB of an Operating Loss or that
might reasonably be expected to result in an Operating Loss after December 31,
1997, which, net of any insurance proceeds payable in respect thereof, would
exceed $25,000.
4.25 ENVIRONMENTAL MATTERS. Except as set forth in CIB's Disclosure
Letter, to the knowledge of CIB, (i) CIB is in compliance with all Environmental
Laws; (ii) there are no Tanks on or about CIB Property; (iii) there are no
Hazardous Materials on, below or above the surface of, or migrating to or from
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CIB Property; (iv) CIB has no loans outstanding secured by real property that is
not in compliance with Environmental Laws or which has a leaking Tank or upon
which there are Hazardous Materials on or migrating to or from; and (v) without
limiting the foregoing representations and warranties contained in clauses (i)
through (iv), as of the date of this Agreement, there is no claim, action ,
suit, or proceeding or notice thereof before any Governmental Entity pending
against CIB or concerning property securing CIB loans and there is no
outstanding judgment, order, writ, injunction, decree, or award against or
affecting CIB Property or property securing CIB loans, relating to the foregoing
representations (i)-(iv), in each case the noncompliance with which, or the
presence of which would have a material adverse effect on the business,
financial condition, results of operations or prospects of CIB. "CIB Property"
shall mean real estate currently owned, leased, or otherwise used by CIB, or in
which CIB has an investment or security interest by mortgage, deed of trust,
sale and lease-back or otherwise, including without limitation, properties under
foreclosure and properties held by CIB in its capacity as a trustee or
otherwise.
4.26 COMMUNITY REINVESTMENT ACT. CIB received a rating of "satisfactory"
or better in its most recent examination or interim review with respect to the
Community Reinvestment Act. CIB has not been advised of any concerns regarding
CIB's compliance with the Community Reinvestment Act by any Governmental Entity
or by any other Person.
4.27 DERIVATIVES. CIB is not currently a party to any interest rate swap,
cap, floor, option agreement, other interest rate risk management arrangement or
agreement or derivative-type security or derivative arrangement or agreement.
4.28 [INTENTIONALLY LEFT BLANK]
4.29 SEC REPORTS. CIB is not currently required to file any reports
pursuant to the Exchange Act.
4.30 MATERIAL CONTRACTS. Except as set forth in CIB's Disclosure Letter
(all items listed or required to be listed in CIB's Disclosure Letter as a
result of this Section being referred to herein as "CIB Scheduled Contracts"),
CIB is not a party or otherwise subject to:
(a) any employment, deferred compensation, bonus or consulting contract;
(b) any advertising, brokerage, licensing, dealership, representative or
agency relationship or contract;
(c) any contract or agreement that would restrict Americorp or the
Surviving Bank after the Effective Time from competing in any line of
business with any Person or using or employing the services of any Person;
(d) any collective bargaining agreement or other such contract or
agreement with any labor organization;
(e) any lease of real or personal property providing for annual lease
payments by or to CIB in excess of $10,000 per annum other than financing
leases entered into in the ordinary course of business in which CIB is
lessor and leases of real property presently used by CIB as banking offices.
(f) any mortgage, pledge, conditional sales contract, security
agreement, option, or any other similar agreement with respect to any
interest of CIB (other than as mortgagor or pledgor in the ordinary course
of their banking business or as mortgagee, secured party or deed of trust
beneficiary in the ordinary course of their business) in personal property
having a value of $25,000 or more;
(g) any stock purchase, stock option, stock bonus, stock ownership,
profit sharing, group insurance, bonus, deferred compensation, severance
pay, pension, retirement, savings or other incentive, welfare or employment
plan or material agreement providing benefits to any present or former
employees, officers or directors of CIB;
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(h) any agreement to acquire equipment or any commitment to make capital
expenditures of $25,000 or more;
(i) other than agreements entered into in the ordinary course of
business with respect to DPC Property, any agreement for the sale of any
property or assets in which CIB has an ownership interest or for the grant
of any preferential right to purchase any such property or asset;
(j) any agreement for the borrowing of any money (other than liabilities
or interbank borrowings made in the ordinary course of their banking
business and reflected in the financial records of CIB);
(k) any restrictive covenant contained in any deed to or lease of real
property owned or leased by CIB (as lessee) that materially restricts the
use, transferability or value of such property;
(l) any guarantee or indemnification which involves the sum of $25,000
or more, other than letters of credit or loan commitments issued in the
normal course of business;
(m) any supply, maintenance or landscape contracts not terminable by CIB
without penalty on 30 days or less notice and which provides for payments in
excess of $10,000 per annum;
(n) other than as disclosed with reference to subparagraph (k) of this
Section 4.30, any agreement which would be terminable other than by CIB or
as a result of the consummation of the transactions contemplated by this
Agreement;
(o) any contract of participation with any other bank in any loan
entered into by CIB subsequent to December 31, 1997 in excess of $25,000 or
any sales of assets of CIB with recourse of any kind to CIB except the sale
of mortgage loans, servicing rights, repurchase or reverse repurchase
agreements, securities or other financial transactions in the ordinary
course of business;
(p) any other agreement of any other kind, including for data processing
and similar services, which involves future payments or receipts or
performances of services or delivery of items requiring aggregate payment of
$10,000 or more to or by CIB other than payments made under or pursuant to
loan agreements, participation agreements and other agreements for the
extension of credit in the ordinary course of their business;
(q) any material agreement, arrangement or understanding not made in the
ordinary course of business;
(r) any agreement, arrangement or understanding relating to the
employment, election, retention in office or severance of any present or
former director, officer or employee of CIB;
(s) any agreement, arrangement or understanding pursuant to which any
payment (whether severance pay or otherwise) became or may become due to any
director, officer or employee of CIB upon execution of this Agreement or
upon or following consummation of the transactions contemplated hereby
(either alone or in connection with the occurrence of any additional acts or
events); or
(t) any written agreement, supervisory agreement, memorandum of
understanding, consent order, cease and desist order, capital order, or
condition of any regulatory order or decree with or by the Commissioner,
FDIC, FRB or any other regulatory agency.
True copies of all CIB Scheduled Contracts, including all amendments and
supplements thereto, are attached to CIB's Disclosure Letter.
4.31 TRUST ADMINISTRATION. CIB does not presently exercise trust powers,
including, but not limited to, trust administration, and has not exercised such
trust powers for a period of at least 3 years prior to the date hereof. The term
"trusts" as used in this Section 4.31 includes (i) any and all common law or
other trusts between an individual, corporation or other entities and CIB, as
trustee or co-trustee, including, without limitation, pension or other qualified
or nonqualified employee benefit plans, compensation,
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testamentary, inter vivos and charitable trust indentures; (ii) any and all
decedents' estates where CIB is serving or has served as a co-executor or sole
executor, personal representative or administrator, administrator de bonis non,
administrator de bonis non with will annexed, or in any similar fiduciary
capacity; (iii) any and all guardianships, conservatorships or similar positions
where CIB is serving or has served as a co-grantor or a sole grantor or a
conservator or a co-conservator of the estate, or any similar fiduciary
capacity; and (iv) any and all agency and/or custodial accounts and/or similar
arrangements, including plan administrator for employee benefit accounts, under
which CIB is serving or has served as an agent or custodian for the owner or
other party establishing the account with or without investment authority.
4.32 REGULATORY APPROVALS. To the knowledge of CIB, except as described in
CIB's Disclosure Letter, CIB has no reason to believe that it would not receive
all required approvals from any Governmental Entity of any application to
consummate the transaction contemplated by this Agreement without the imposition
of a materially burdensome condition in connection with the approval of any such
application.
4.33 YEAR 2000. Except as described in CIB's Disclosure Letter, CIB is
taking all reasonable steps to correct its computer programs and applications so
that they will not fail or will create erroneous results by or at the Year 2000
and CIB has not been advised of any concerns regarding compliance with Year 2000
issues by any Governmental Entity or by any other Person.
ARTICLE 5
AGREEMENTS WITH RESPECT TO CONDUCT OF
AMERICORP AND BANK AFTER THE DATE HEREOF
Americorp and Bank covenant and agree with CIB as follows:
5.1 ACCESS.
(a) Americorp and Bank will authorize and permit CIB, its representatives,
accountants and counsel, to have access during normal business hours, on notice
and in such manner as will not unreasonably interfere with the conduct of the
businesses of either Americorp or Bank, to all properties, books, records,
branch operating reports, branch audit reports, operating instructions and
procedures, tax returns, tax settlement letters, contracts and documents, and
all other information with respect to their business affairs, financial
condition, assets and liabilities as CIB may from time to time reasonably
request. Americorp and Bank shall permit CIB, its representatives, accountants
and counsel to make copies of such books, records and other documents and to
discuss the business affairs, condition (financial and otherwise), assets and
liabilities of Americorp and Bank with such third Persons, including, without
limitation, its directors, officers, employees, accountants, counsel and
creditors, as CIB considers necessary or appropriate for the purposes of
familiarizing itself with the businesses and operations of Americorp and Bank,
obtaining any necessary orders, consents or approvals of the transactions
contemplated by this Agreement by any Governmental Entity and conducting an
evaluation of the assets and liabilities of Americorp and Bank. Americorp and
Bank will cause Fanning & Karrh ("F&K") to make available to CIB, its
accountants, counsel and other agents, such personnel, work papers and other
documentation of F&K relating to its work papers and its audits of the books and
records of Americorp and Bank as may be requested by CIB in connection with its
review of the foregoing matters.
(b) The Chairman of the Board of CIB or in his absence another
representative of CIB selected by him shall be invited by Americorp and Bank to
attend all regular and special Board of Directors' and Executive Committee
meetings of Americorp or Bank from the date hereof until the Effective Time. The
Chairman of the Board of CIB and CIB's Senior Vice President/Senior Lending
Officer shall be invited by Bank to attend all loan committee meetings of Bank
from the date hereof until the Effective Time. Americorp and Bank shall inform
CIB of all such Board meeting at least 2 Business Days in advance of each such
meeting; provided, however, that the attendance of such representative of CIB
shall not be permitted at any meeting, or portion thereof, for the sole purpose
of discussing the transaction contemplated by this Agreement or the obligations
of either Americorp or the Bank under this Agreement.
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5.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS.
(a) Americorp and Bank will promptly notify CIB (i) of any event of which
Americorp or Bank obtains knowledge which may materially and adversely affect
the business, financial condition, or results of operations of either Americorp
or Bank; (ii) in the event Americorp or Bank determine that it is possible that
the conditions to the performance of CIB set forth in Sections 8.1 and 8.3 may
not be satisfied; (iii) of the opening or closing of any branch or other office
of Americorp or Bank at which business is conducted; or (iv) any event,
development or circumstance that, to the best knowledge of Americorp or Bank,
will or, with the passage of time or the giving of notice or both, is reasonably
expected to result in the loss to Americorp or Bank of the services of any
Executive Officer of Americorp or Bank.
(b) Americorp and Bank will furnish to CIB as provided in Section 11.12 of
this Agreement, as soon as practicable, and in any event within 5 Business Days
after it is prepared or becomes available to either Americorp or Bank, (i) a
copy of any report submitted to the board of directors of either Americorp or
Bank and access to the working papers related thereto and copies of other
operating or financial reports prepared for management of any of its businesses
and access to the working papers related thereto, PROVIDED, HOWEVER, that
Americorp and Bank need not furnish CIB any privileged communications of or
memoranda prepared by its legal counsel in connection with the transactions
contemplated by, and the rights and obligations of Americorp and Bank under,
this Agreement; (ii) quarterly unaudited consolidated balance sheets and
statements of operations, changes in stockholders' equity and cash flow for
Americorp and Bank; (iii) monthly unaudited consolidated balance sheets and,
statements of operations for Americorp and Bank; (iv) as soon as available, all
letters and communications sent by Americorp to its shareholders and all reports
filed by Americorp or Bank with the SEC, the FRB, the FDIC, the Commissioner and
any other Person; and (v) such other reports as CIB may reasonably request
relating to Americorp or Bank.
(c) Each of the financial statements delivered pursuant to subsection (b)
shall be (i) prepared in accordance with GAAP on a basis consistent with that of
the Financial Statements of Americorp, except that such financial statements may
omit statements of cash flows and footnote disclosures required by GAAP; and
(ii) accompanied by a certificate of the chief financial officer to the effect
that such consolidated financial statements fairly present the financial
condition and results of operations of Americorp and Bank for the period
covered, and reflect all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation.
5.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except (i) as
contemplated by this Agreement, (ii) for a new employment agreement and related
Benefit Arrangements to be entered into between Americorp/Bank with the Bank's
current president, (iii) for certain amendments to the Americorp Stock Option
Plan contemplated by Section 9.1 and as required to clarify its tax status, (iv)
for certain amendments to the Americorp Stock Option Plan and the
Americorp/Bank's Directors Retirement Plan contemplated by Section 9.1, (v)
certain amendments to the existing stock option agreement of one directors of
Americorp concerning the termination date of such option, and (vi) subject to
requirements of law and regulation generally applicable to bank holding
companies and banks, Americorp or Bank shall not, without prior written consent
of CIB (which consent shall not be unreasonably withheld and which consent
[except with respect to subparagraph (29) of this Section 5.3(a)] shall be
deemed granted if within five (5) Business Days of CIB's receipt of written
notice of a request for prior written consent, written notice of objection is
not received by Americorp and Bank):
(1) amend, modify, terminate or fail to renew or preserve their material
Permits;
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(2) amend or modify in any material respect, or, except as they may
expire in accordance with their terms, terminate any Americorp Scheduled
Contract or any other material contract or agreement to which Americorp or
Bank is a party, or materially default in the performance of any of its
obligations under any such contract or agreement;
(3) enter into any agreement or contract that would be required to be
included as a Americorp Scheduled Contract.
(4) terminate or unilaterally fail to renew any existing insurance
coverage or bonds;
(5) make any loan or other extension of credit, or enter into any
commitment to make any loan or other extension of credit to any director,
officer, employee or shareholder holding 5% or more of the outstanding
shares of Americorp Stock;
(6) grant any general or uniform increase in the rate of pay to any
employee or employee benefit or profit sharing plan or increase the salary
or employee benefits of any non-exempt employee or agent or pay any bonus,
severance or similar payment to any Person, except in the ordinary course of
business and consistent with past practice or established practices;
(7) grant any promotion or any increase in the rate of pay to any exempt
employee, profit sharing plan or increase in any employee benefits or pay
any bonus, severance or similar payment to any exempt employee except for
prorata bonuses, profit sharing or 401(k) matching payments which are in the
ordinary course of business and consistent with past practices and which do
not exceed the total amount of all such payments declared in 1997 multiplied
by the fraction derived by dividing (a) the number of full calendar months
between January 1, 1998 and the Effective Day by (b) twelve (12);
(8) sell, transfer, mortgage, encumber or otherwise dispose of any
assets or release or waive any claim, except in the ordinary course of
business and consistent with past practice or as required by any existing
contract or for ordinary repairs, renewals or replacements or as
contemplated in this Agreement;
(9) issue, sell, or grant any Equity Securities of Americorp or Bank
(except pursuant to the exercise of an Americorp Stock Option outstanding as
of the date hereof), any other securities (including long term debt), or any
rights, options or securities to acquire any Americorp Stock Option or any
Equity Securities of Americorp or any other securities (including long term
debt) of Americorp;
(10) declare, issue or pay any dividend or other distribution of assets,
whether consisting of money, other personal property, real property or other
things of value, to the shareholders of Americorp, or split, combine or
reclassify any shares of its capital stock or other Equity Securities except
for quarterly cash dividends payable by Americorp to its shareholders in
accordance with past practice and not to exceed $0.21 per share per quarter;
(11) purchase, redeem or otherwise acquire any Equity Securities, or
other securities of Americorp or Bank or any rights, options, or securities
to acquire any Equity Securities of Americorp or Bank;
(12) amend or modify its Charter Documents except as contemplated
hereby;
(13) make their credit underwriting policies, standards or practices
relating to the making of loans and other extensions of credit, or
commitments to make loans and other extensions of credit, less stringent
than those in effect on December 31, 1997;
(14) make any capital expenditures, or commitments with respect thereto,
in excess of $25,000 except in the ordinary course of business and
consistent with past practice;
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(15) make extraordinary payments to any Person other than as
contemplated, or as disclosed, in this Agreement;
(16) make any investment by purchase of stock or securities (including
an Investment Security), contributions to capital, property transfers or
otherwise in any other Person, except for federal funds or obligations of
the United States Treasury or an agency of the United States Government the
obligations of which are entitled to or implied to have the full faith and
credit of the United States government and which have an original maturity
not in excess of one year, or bank qualified investment grade municipal
bonds, in any case, in the ordinary course of business consistent with the
past practices, and which are not designated as trading;
(17) compromise or otherwise settle or adjust any assertion or claim of
a deficiency in taxes (or interest thereon or penalties in connection
therewith); file any appeal from an asserted deficiency except in a form
previously approved by CIB in writing; file or amend any United States
federal, foreign, state or local tax return without CIB's prior written
approval, which approval shall not be unreasonably withheld; or make any tax
election or change any method or period of accounting unless required by
GAAP or applicable law;
(18) enter into or consent to any new employment agreement or other
Benefit Arrangement, or amend or modify any employment agreement or other
Bank Benefit Arrangement in effect on the date of this Agreement to which
either Americorp or Bank is a party or bound;
(19) grant any Person a power of attorney or similar authority except in
accordance with a written policy previously disclosed to CIB;
(20) agree or make any commitment to take any actions prohibited by this
Section 5.3;
(21) change any of Bank's basic policies and practices with respect to
liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices or any
other material aspect of Bank's business or operations, except such changes
as may be required in the opinion of Americorp and Banks management to
respond to economic or market conditions or as may be required by any
Governmental Entity;
(22) take any action which would or is reasonably likely to (i)
adversely affect the ability of Americorp, Bank or CIB to obtain any
necessary approval of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect Americorp or Bank's ability to
perform their covenants and agreements under this Agreement; or (iii) result
in any of the conditions to the performance of Americorp, Bank or CIB's
obligations hereunder, as set forth in Article 8 herein not being satisfied;
(23) reclassify any Investment Security from hold-to-maturity or
available for sale to trading;
(24) sell any Investment Security prior to maturity, except in the
ordinary course of business;
(25) knowingly take or cause to be taken any action which would
disqualify the Bank Merger as a "reorganization" within the meaning of
Section 368 of the Code or prevent CIB from accounting for the business
combination to be effected by the Bank Merger as a pooling-of-interests;
(26) settle any claim, action or proceeding involving any material
liability for monetary damages or enter into any settlement agreement
containing material obligations;
(27) make, acquire a participation in, or reacquire an interest in a
participation sold of, any loan that is not in compliance with its normal
credit underwriting standards, policies and procedures as in effect as of
the date of this Agreement; or renew, extend the maturity of, or alter any
of the material terms of any such loan for a period of greater than six
months;
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(28) incur any indebtedness for borrowed money or assume, guaranty,
endorse or otherwise as an accommodation become responsible for the
obligations of any other Person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or
(ii) short-term borrowings made at prevailing market rates and terms; and
(29) grant, renew or commit to grant or renew any extension of credit if
such extension of credit, together with all other credit then outstanding to
the same Person and all Affiliated Persons, would exceed $500,000 on an
unsecured basis and $1,000,000 on a secured basis. Consent shall be deemed
granted if within two Business Days of written notice delivered to CIB's
Chief Credit Officer, written notice of objection is not received by
Americorp or Bank.
(b) Between the date hereof and the Effective Time, Americorp and Bank
shall:
(1) duly observe and conform in all material respects to all lawful
requirements applicable to its business;
(2) maintain their assets and properties in good condition and repair,
normal wear and tear excepted;
(3) promptly upon learning of such information, advise CIB in writing of
any event or any other transaction within its knowledge whereby any Person
or Related Group of Persons acquires, directly or indirectly, record or
beneficial ownership or control (as defined in Rule 13d-3 promulgated by the
SEC under the Exchange Act) of five percent (5%) or more of the outstanding
Americorp Stock prior to the record date fixed for the Americorp
Shareholders' Meeting or any adjourned meeting thereof to approve this
Agreement and the transaction contemplated herein;
(4) promptly notify CIB regarding receipt from any tax authority of any
notification of the commencement of an audit, any request to extend the
statute of limitations, any statutory notice of deficiency, any revenue
agent's report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the tax liabilities of Americorp or
Bank, or any actual or threatened collection enforcement activity by any tax
authority with respect to tax liabilities of Americorp or Bank; and
(5) maintain an allowance for loan and lease losses consistent with
practices and methodology as in effect on the date of the execution of this
Agreement, and shall not, notwithstanding any recoveries received with
respect to loans previously charged off, reduce the allowance for loan and
lease losses below the amount in effect on the date of the execution of this
Agreement.
5.4 CERTAIN LOANS AND OTHER EXTENSIONS OF AMERICORP AND BANK. Americorp
and Bank will promptly inform CIB of the amounts and categories of any loans,
leases or other extensions of credit that have been classified by any
Governmental Entity or by any internal or external loan reviewer of Americorp or
Bank as "Watch List," "Substandard," "Doubtful," "Loss" or any comparable
classification. Americorp and Bank will furnish to CIB, as soon as practicable,
and in any event within 10 days after the end of each calendar month, schedules
including a listing of the following:
(a) classified credits, showing with respect to each such credit in
amount equal to or exceeding $25,000, the classification category, credit
type, and office, and with respect to all other such credits, by credit type
and office, the aggregate dollar amount;
(b) nonaccrual credits, showing with respect to each such credit in
amount equal to or exceeding $25,000, the credit type and office, and with
respect to all other such credits, by credit type and office, the aggregate
dollar amount;
(c) accrual exception credits that are delinquent 90 or more days and
have not been placed on nonaccrual status, showing with respect to each such
credit in amount equal to or exceeding $25,000,
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the credit type and office, and with respect to all other such credits, by
credit type and office, the aggregate dollar amount;
(d) delinquent credits showing with respect to each such credit in
amount equal to or exceeding $25,000, the credit type, office and an aging
schedule broken down into 30-59, 60-89, 90 + day categories, and with
respect to all other such credits, by credit type, office and by aging
category, the aggregate dollar amount;
(e) loan and lease participations, stating, with respect to each,
whether it is purchased or sold, the loan or lease type, and the office;
(f) loans or leases (including any commitments) by Americorp or Bank to
any director, officer, or employee of Americorp or Bank, or any shareholder
holding 5% or more of the capital stock of Americorp, including with respect
to each such loan or lease, the identity and, to the best knowledge of
Americorp and Bank, the relation of the borrower to Americorp and Bank, the
loan or lease type and the outstanding and undrawn amounts;
(g) letters of credit, showing with respect to each letter of credit in
an amount equal to or exceeding $25,000, the credit type and office, and
showing with respect to all other such letters of credit, by credit type and
office, the aggregate dollar amount;
(h) loans or leases charged off during the previous month, showing with
respect to each such loan or lease, the credit type and office;
(i) loans or leases written down during the previous month, including
with respect to each the original amount, the writeoff amount, credit type
and office;
(j) other real estate or assets owned, stating with respect to each its
credit type;
(k) a reconciliation of the allowance for loan and lease losses,
identifying specifically the amount and sources of all additions and
reductions to the allowance (which may be by reference to specific portions
of another schedule furnished pursuant to this Section 5.4 and, in the case
of unallocated adjustments, shall disclose the methodology and calculations
through which the amount of such adjustment was determined);
(l) extensions of credit whether unsecured or secured in amount equal to
or exceeding $1,000,000, originated on or after the date of the schedule
previously provided to CIB (or if it is the first such schedule, the date of
this Agreement) and before the date of the schedule in which reported,
showing with respect to each, the credit type and the office; and
(m) renewals or extensions of maturity of outstanding extensions of
credit whether unsecured or secured in amount equal to or exceeding
$1,000,000, showing with respect to each, the credit type and the office.
5.5 DISCLOSURE LETTER. Promptly in the case of material matters, and not
less than monthly in the case of all other matters, Americorp and Bank shall
amend or supplement the Americorp Disclosure Letter provided for herein
pertaining to Americorp and Bank as necessary so that the information contained
therein accurately reflects the then current status of Americorp and Bank and
shall transmit copies of such amendments or supplements to CIB in accordance
with Section 11.12 of this Agreement.
5.6 SHAREHOLDER APPROVAL.
(a) Americorp will promptly take action necessary in accordance with
applicable law and its Charter Documents to convene a meeting of its
shareholders (the "Americorp Shareholders' Meeting") to be held as soon as
practicable, for the purpose of voting on the Bank Merger, this Agreement and
related matters. In connection with the Americorp Shareholders' Meeting, (i) the
Board of Directors of Americorp shall, subject to fiduciary duty, recommend
shareholder approval of the Bank Merger, this Agreement and
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related matters; and (ii) Americorp shall use its best efforts to obtain such
shareholder approval by the largest possible percentage.
(b) Bank will promptly take action necessary in accordance with applicable
law and its Charter Documents to convene a meeting of its shareholder to be held
as soon as practicable, for the purpose of voting on the Bank Merger, this
Agreement and related matters. Americorp shall vote all shares of Bank Stock
which it owns at such meeting in favor of the Bank Merger, this Agreement and
related matters.
5.7 CONSENTS AND APPROVALS.
(a) Americorp and Bank will cooperate with CIB in the preparation of all
filings, applications, notices and requests for waiver for Consents necessary or
desirable for the consummation of the Bank Merger, and the other transactions
contemplated in this Agreement. Americorp's and Bank's cooperation hereunder
shall include, but not be limited to, providing all information concerning
Americorp or Bank and their respective shareholders as may be required for such
filings, applications, notices and requests for Consents and signing, to the
extent required, all such filings, applications, notices and requests.
(b) To the extent that the consent of a third party ("Third Party Consent")
with respect to any contract, agreement, license, franchise, lease, commitment,
arrangement, Permit or release that is material to the business of Americorp or
Bank or that is contemplated in this Agreement is required in connection with
the Bank Merger or the transactions contemplated in this Agreement, Americorp
and Bank shall use its best efforts to obtain such consent prior to the
Effective Time.
5.8 PRESERVATION OF EMPLOYMENT RELATIONS PRIOR TO EFFECTIVE
TIME. Americorp and Bank will use their best efforts consistent with current
employment practices and policies to maintain the services of the officers and
employees of Americorp and Bank through the Effective Time.
5.9 COMPLIANCE WITH RULES. Americorp and Bank shall comply with the
requirements of all applicable Rules, the noncompliance with which would
materially and adversely affect the assets, liabilities, business, financial
condition or results of operations or prospects of Americorp or Bank.
5.10 AGREEMENT OF MERGER. As soon as practicable, Americorp and Bank shall
execute the Agreement of Merger.
5.11 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Within thirty
(30) days of the execution of this Agreement, (a) Americorp and Bank shall
deliver to CIB a letter identifying all persons who are then "affiliates" of
Americorp or Bank for purposes of Rule 145 under the Securities Act and (b)
Americorp shall advise the persons identified in such letter of the resale
restrictions imposed by applicable securities laws and shall use reasonable
efforts to obtain from each person identified in such letter a written agreement
substantially in the form attached hereto as Exhibit 5.11. Americorp shall use
reasonable efforts to obtain from any person who becomes an affiliate of
Americorp after Americorp's delivery of the letter referred to above, and on or
prior to the date of the Americorp Shareholders' Meeting to approve this
Agreement, a written agreement substantially in the form attached as Exhibit
5.11 hereto as soon as practicable after obtaining such status. At least 10
Business Days prior to the issuance of the opinion to be provided for in Section
8.1(h), Americorp shall use its best efforts to cause each person or group of
persons who holds more than five percent (5%) of the Americorp Stock (regardless
of whether such person is an "affiliate" under Rule 145) to deliver to F&K, VTD
(as hereinafter defined) and Reitner & Stuart, a letter stating that such
shareholder(s) has no present plan or intention to dispose of Americorp Stock
and committing that such shareholder(s) will not dispose of Americorp Stock in a
manner to cause a violation of the "continuity of shareholder interest"
requirements of Treasury Regulation 1.368-1.
5.12 INSURANCE.
(a) Americorp and Bank shall permit CIB to extend the discovery period of
its directors' and officers' liability insurance for a period of 36 months with
respect to all matters arising from facts or events which occurred before the
Effective Time for which CIB would have had an obligation to indemnify its
directors
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and officers. The cost of such extension shall not be included in the
calculation of the Aggregate Book Value of CIB.
(b) If Americorp or Bank or any of its successors or assigns (i) shall
consolidate with or merge into any other corporation or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) shall transfer all or substantially all of its properties and
assets to any individual, corporation or other entity, then and in each such
case, Americorp or Bank shall take no action to impair the rights provided in
this Section 5.12.
(c) The provisions of this Section are intended to be for the benefit of,
and shall be enforceable by, each director or officer of CIB and his or her
heirs and representatives.
5.13 NO SHOP. Neither Americorp nor any of its Affiliates shall, on or
before the earlier of the Effective Time or the date of termination of this
Agreement, initiate, solicit or encourage (including by way of furnishing
information or assistance), or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to any Competing Transaction (as such term is defined in
Section 6.13), or negotiate with any Person in furtherance of such inquiries or
to obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize or permit any of its officers, directors or employees
or any investment banker, financial advisor, attorney, accountant or any other
representative retained by it or any of its Affiliates to take any such action,
and Americorp shall promptly notify Americorp (orally and in writing) of all of
the relevant details relating to all inquiries and proposals which they may
receive relating to any of such matters. Notwithstanding any other provision in
this Section 5.13 or elsewhere in this Agreement, the obligations of Americorp
in this Agreement are subject to the continuing fiduciary duties of its Board of
Directors. In the event the Board of Directors of Americorp receives a bona fide
offer for a Competing Transaction with another entity, and reasonably
determines, upon written advice of counsel, that as a result of such offer, any
duty to act or to refrain from doing any act pursuant to this Agreement, is
inconsistent with the continuing fiduciary duties of said Board of Directors to
their shareholders, such failure to act or refrain from doing any act shall not
constitute the failure of any condition, breach of any covenant or otherwise
constitute any breach of this Agreement, except that any such failure to act or
refrain from doing any act shall entitle CIB to terminate this Agreement
pursuant to Section 10.1(g) hereof, and in no event shall this sentence or the
previous sentence operate to excuse or modify the obligations of Americorp under
Section 11.1(d) hereof.
5.14 BANK BENEFIT ARRANGEMENTS. Subject to Article 9 hereof, Bank and any
effected officers, directors or employees shall mutually terminate all Bank
Benefit Arrangements without the imposition of any liability therefor to
Americorp or any other Party.
ARTICLE 6
AGREEMENTS WITH RESPECT TO CONDUCT OF
CIB AFTER THE DATE HEREOF
CIB covenant and agree with Americorp and Bank as follows:
6.1 ACCESS.
(a) CIB will authorize and permit Americorp, its representatives,
accountants and counsel, to have access during normal business hours, on notice
and in such manner as will not unreasonably interfere with the conduct of the
businesses of CIB, to all properties, books, records, branch operating reports,
branch audit reports, operating instructions and procedures, tax returns, tax
settlement letters, contracts and documents, and all other information with
respect to its business affairs, financial condition, assets and liabilities as
Americorp may from time to time reasonably request. CIB shall permit Americorp,
its representatives, accountants and counsel to make copies of such books,
records and other documents and to discuss the business affairs, condition
(financial and otherwise), assets and liabilities of CIB with such
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third Persons, including, without limitation, its directors, officers,
employees, accountants, counsel and creditors, as Americorp considers necessary
or appropriate for the purposes of familiarizing itself with the businesses and
operations of CIB, obtaining any necessary orders, consents or approvals of the
transactions contemplated by this Agreement by any Governmental Entity and
conducting an evaluation of the assets and liabilities of CIB. CIB will cause
Vavrinek, Trine, Day and Co. ("VTD") to make available to Americorp, its
accountants, counsel and other agents, such personnel, work papers and other
documentation of VTD relating to its work papers and its audits of the books and
records of CIB as may be requested by Americorp in connection with its review of
the foregoing matters.
(b) The Chairman of the Board of Americorp or in his absence another
representative of Americorp selected by him shall be invited by CIB to attend
all regular and special Board of Directors' and Executive Committee meetings of
CIB from the date hereof until the Effective Time. The Chairman of the Board of
Bank and Bank's President shall be invited by CIB to attend all loan committee
meetings of CIB from the date hereof until the Effective Time. CIB shall inform
Americorp of all such Board meeting at least 2 Business Days in advance of each
such meeting; provided, however, that the attendance of such representative of
Americorp shall not be permitted at any meeting, or portion thereof, for the
sole purpose of discussing the transaction contemplated by this Agreement or the
obligations of CIB under this Agreement.
6.2 MATERIAL ADVERSE CHANGES; REPORTS; FINANCIAL STATEMENTS; FILINGS.
(a) CIB will promptly notify Americorp (i) of any event of which CIB obtains
knowledge which may materially and adversely affect the business, financial
condition, or results of operations of either CIB; (ii) in the event CIB
determine that it is possible that the conditions to the performance of
Americorp set forth in Sections 8.1 and 8.2 may not be satisfied; (iii) of the
opening or closing of any branch or other office of CIB at which business is
conducted; or (iv) any event, development or circumstance that, to the best
knowledge of CIB, will or, with the passage of time or the giving of notice or
both, is reasonably expected to result in the loss to CIB of the services of any
Executive Officer of CIB.
(b) CIB will furnish to Americorp as provided in Section 11.12 of this
Agreement, as soon as practicable, and in any event within 5 Business Days after
it is prepared or becomes available to either CIB, (i) a copy of any report
submitted to the board of directors of either CIB and access to the working
papers related thereto and copies of other operating or financial reports
prepared for management of any of its businesses and access to the working
papers related thereto, PROVIDED, HOWEVER, that CIB need not furnish Americorp
any privileged communications of or memoranda prepared by its legal counsel in
connection with the transactions contemplated by, and the rights and obligations
of CIB under, this Agreement; (ii) quarterly unaudited balance sheets and
statements of operations, changes in stockholders' equity and cash flow for CIB;
(iii) monthly unaudited balance sheets and, statements of operations for CIB;
(iv) as soon as available, all letters and communications sent by CIB to its
shareholders and all reports filed by CIB with the SEC, the FRB, the FDIC, the
Commissioner and any other Person; and (v) such other reports as Americorp may
reasonably request relating to CIB.
(c) Each of the financial statements delivered pursuant to subsection (b)
shall be (i) prepared in accordance with GAAP on a basis consistent with that of
the Financial Statements of CIB except that such financial statements may omit
statements of cash flows and footnote disclosures required by GAAP; and (ii)
accompanied by a certificate of the chief financial officer to the effect that
such financial statements fairly present the financial condition and results of
operations of CIB for the period covered, and reflect all adjustments (which
consist only of normal recurring adjustments) necessary for a fair presentation.
6.3 CONDUCT OF BUSINESS.
(a) Between the date hereof and the Effective Time, except (i) as
contemplated by this Agreement, (ii) for new employment agreements and related
Benefit Arrangements to be entered into between CIB with its Senior Vice
President and Chief Financial Officer and its Senior Vice President/Senior
Lending
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Officer, and (iii) subject to requirements of law and regulation generally
applicable to bank holding companies and banks, CIB shall not, without prior
written consent of Americorp (which consent shall not be unreasonably withheld
and which consent [except with respect to subparagraph (29) of this Section
6.3(a)] shall be deemed granted if within five (5) Business Days of Americorp's
receipt of written notice of a request for prior written consent, written notice
of objection is not received by CIB):
(1) amend, modify, terminate or fail to renew or preserve their material
Permits;
(2) amend or modify in any material respect, or, except as they may
expire in accordance with their terms, terminate any CIB Scheduled Contract
or any other material contract or agreement to which CIB is a party, or
materially default in the performance of any of its obligations under any
such contract or agreement;
(3) enter into any agreement or contract that would be required to be
included as a CIB Scheduled Contract;
(4) terminate or unilaterally fail to renew any existing insurance
coverage or bonds;
(5) make any loan or other extension of credit, or enter into any
commitment to make any loan or other extension of credit to any director,
officer, employee or shareholder holding 5% or more of the outstanding
shares of CIB Stock;
(6) grant any general or uniform increase in the rate of pay to any
employee or employee benefit or profit sharing plan or increase the salary
or employee benefits of any non-exempt employee or agent or pay any bonus,
severance or similar payment to any Person, except in the ordinary course of
business and consistent with past practice or established practices;
(7) grant any promotion or any increase in the rate of pay to any exempt
employee, profit sharing plan or increase in any employee benefits or pay
any bonus, severance or similar payment to any exempt employee except for
prorata bonuses, profit sharing or 401(k) matching payments which are in the
ordinary course of business and consistent with past practices and which do
not exceed the total amount of all such payments declared in 1997 multiplied
by the fraction derived by dividing (a) the number of full calendar months
between January 1, 1998 and the Effective Day by (b) twelve (12);
(8) sell, transfer, mortgage, encumber or otherwise dispose of any
assets or release or waive any claim, except in the ordinary course of
business and consistent with past practice or as required by any existing
contract or for ordinary repairs, renewals or replacements or as
contemplated in this Agreement;
(9) issue, sell, or grant any Equity Securities of CIB (except pursuant
to the exercise of CIB options outstanding as of the date hereof), any other
securities (including long term debt), or any rights, options or securities
to acquire any CIB Stock Option or any Equity Securities of CIB or any other
securities (including long term debt) of CIB;
(10) declare, issue or pay any dividend or other distribution of assets,
whether consisting of money, other personal property, real property or other
things of value, to the shareholders of CIB, or split, combine or reclassify
any shares of its capital stock or other Equity Securities except for semi-
annual cash dividends payable in accordance with past practice and schedule
not to exceed $0.10 per share per semi-annual period;
(11) purchase, redeem or otherwise acquire any Equity Securities, or
other securities of CIB or any rights, options, or securities to acquire any
Equity Securities of CIB;
(12) amend or modify its Charter Documents;
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(13) make their credit underwriting policies, standards or practices
relating to the making of loans and other extensions of credit, or
commitments to make loans and other extensions of credit, less stringent
than those in effect on December 31, 1997;
(14) make any capital expenditures, or commitments with respect thereto,
in excess of $25,000 except in the ordinary course of business and
consistent with past practice;
(15) make extraordinary payments to any Person other than as
contemplated, or as disclosed, in this Agreement;
(16) make any investment by purchase of stock or securities (including
an Investment Security), contributions to capital, property transfers or
otherwise in any other Person, except for federal funds or obligations of
the United States Treasury or an agency of the United States Government the
obligations of which are entitled to or implied to have the full faith and
credit of the United States government and which have an original maturity
not in excess of one year, or bank qualified investment grade municipal
bonds, in any case, in the ordinary course of business consistent with the
past practices, and which are not designated as trading;
(17) compromise or otherwise settle or adjust any assertion or claim of
a deficiency in taxes (or interest thereon or penalties in connection
therewith); file any appeal from an asserted deficiency except in a form
previously approved by Americorp in writing; file or amend any United States
federal, foreign, state or local tax return without Americorp's prior
written approval, which approval shall not be unreasonably withheld; or make
any tax election or change any method or period of accounting unless
required by GAAP or applicable law;
(18) enter into or consent to any new employment agreement or other
Benefit Arrangement, or amend or modify any employment agreement or other
CIB Benefit Arrangement in effect on the date of this Agreement to which
either CIB is a party or bound;
(19) grant any Person a power of attorney or similar authority except in
accordance with a written policy previously disclosed to Americorp;
(20) agree or make any commitment to take any actions prohibited by this
Section 6.3;
(21) change any of CIB's basic policies and practices with respect to
liquidity management and cash flow planning, marketing, deposit origination,
lending, budgeting, profit and tax planning, personnel practices or any
other material aspect of CIB's business or operations, except such changes
as may be required in the opinion of CIB's management to respond to economic
or market conditions or as may be required by any Governmental Entity;
(22) take any action which would or is reasonably likely to (i)
adversely affect the ability of CIB, Bank or Americorp to obtain any
necessary approval of any Governmental Entity required for the transactions
contemplated hereby; (ii) adversely affect CIB's ability to perform their
covenants and agreements under this Agreement; or (iii) result in any of the
conditions to the performance of CIB, Bank or Americorp's obligations
hereunder, as set forth in Article 8 herein not being satisfied;
(23) reclassify any Investment Security from hold-to-maturity or
available for sale to trading;
(24) sell any Investment Security prior to maturity, except in the
ordinary course of business;
(25) knowingly take or cause to be taken any action which would
disqualify the Bank Merger as a "reorganization" within the meaning of
Section 368 of the Code or prevent Americorp from accounting for the
business combination to be effected by the Bank Merger as a
pooling-of-interests;
(26) settle any claim, action or proceeding involving any material
liability for monetary damages or enter into any settlement agreement
containing material obligations;
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(27) make, acquire a participation in, or reacquire an interest in a
participation sold of, any loan that is not in compliance with its normal
credit underwriting standards, policies and procedures as in effect as of
the date of this Agreement; or renew, extend the maturity of, or alter any
of the material terms of any such loan for a period of greater than six
months;
(28) incur any indebtedness for borrowed money or assume, guaranty,
endorse or otherwise as an accommodation become responsible for the
obligations of any other Person, except for (i) in connection with banking
transactions with banking customers in the ordinary course of business, or
(ii) short-term borrowings made at prevailing market rates and terms; and
(29) grant, renew or commit to grant or renew any extension of credit if
such extension of credit, together with all other credit then outstanding to
the same Person and all Affiliated Persons, would exceed $500,000 on an
unsecured basis and $1,000,000 on a secured basis. Consent shall be deemed
granted if within two Business Days of written notice delivered to Bank's
Chief Credit Officer, written notice of objection is not received by CIB.
(b) Between the date hereof and the Effective Time, CIB shall:
(1) duly observe and conform in all material respects to all lawful
requirements applicable to its business;
(2) maintain its assets and properties in good condition and repair,
normal wear and tear excepted;
(3) promptly upon learning of such information, advise Americorp in
writing of any event or any other transaction within its knowledge whereby
any Person or Related Group of Persons acquires, directly or indirectly,
record or beneficial ownership or control (as defined in Rule 13d-3
promulgated by the SEC under the Exchange Act) of five percent (5%) or more
of the outstanding CIB Stock prior to the record date fixed for the CIB
Shareholders' Meeting or any adjourned meeting thereof to approve this
Agreement and the transaction contemplated herein;
(4) promptly notify Americorp regarding receipt from any tax authority
of any notification of the commencement of an audit, any request to extend
the statute of limitations, any statutory notice of deficiency, any revenue
agent's report, any notice of proposed assessment, or any other similar
notification of potential adjustments to the tax liabilities of CIB, or any
actual or threatened collection enforcement activity by any tax authority
with respect to tax liabilities of CIB; and
(5) maintain an allowance for loan and lease losses consistent with
practices and methodology as in effect on the date of the execution of this
Agreement, and shall not, notwithstanding any recoveries received with
respect to loans previously charged off, reduce the allowance for loan and
lease losses below the amount in effect on the date of the execution of this
Agreement.
6.4 CERTAIN LOANS AND OTHER EXTENSIONS OF CIB. CIB will promptly inform
Americorp of the amounts and categories of any loans, leases or other extensions
of credit that have been classified by any Governmental Entity or by any
internal or external loan reviewer of CIB as "Watch List," "Substandard,"
"Doubtful," "Loss" or any comparable classification. CIB will furnish to
Americorp, as soon as practicable, and in any event within 10 days after the end
of each calendar month, schedules including a listing of the following:
(a) classified credits, showing with respect to each such credit in
amount equal to or exceeding $25,000, the classification category, credit
type, and office, and with respect to all other such credits, by credit type
and office, the aggregate dollar amount;
(b) nonaccrual credits, showing with respect to each such credit in
amount equal to or exceeding $25,000, the credit type and office, and with
respect to all other such credits, by credit type and office, the aggregate
dollar amount;
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(c) accrual exception credits that are delinquent 90 or more days and
have not been placed on nonaccrual status, showing with respect to each such
credit in amount equal to or exceeding $25,000, the credit type and office,
and with respect to all other such credits, by credit type and office, the
aggregate dollar amount;
(d) delinquent credits showing with respect to each such credit in
amount equal to or exceeding $25,000, the credit type, office and an aging
schedule broken down into 30-59, 60-89, 90 + day categories, and with
respect to all other such credits, by credit type, office and by aging
category, the aggregate dollar amount;
(e) loan and lease participations, stating, with respect to each,
whether it is purchased or sold, the loan or lease type, and the office;
(f) loans or leases (including any commitments) by CIB to any director,
officer, or employee of CIB, or any shareholder holding 5% or more of the
capital stock of CIB, including with respect to each such loan or lease, the
identity and, to the best knowledge of CIB, the relation of the borrower to
CIB, the loan or lease type and the outstanding and undrawn amounts;
(g) letters of credit, showing with respect to each letter of credit in
an amount equal to or exceeding $25,000, the credit type and office, and
showing with respect to all other such letters of credit, by credit type and
office, the aggregate dollar amount;
(h) loans or leases charged off during the previous month, showing with
respect to each such loan or lease, the credit type and office;
(i) loans or leases written down during the previous month, including
with respect to each the original amount, the writeoff amount, credit type
and office;
(j) other real estate or assets owned, stating with respect to each its
credit type;
(k) a reconciliation of the allowance for loan and lease losses,
identifying specifically the amount and sources of all additions and
reductions to the allowance (which may be by reference to specific portions
of another schedule furnished pursuant to this Section 6.4 and, in the case
of unallocated adjustments, shall disclose the methodology and calculations
through which the amount of such adjustment was determined);
(l) extensions of credit whether unsecured or secured in amount equal to
or exceeding $1,000,000, originated on or after the date of the schedule
previously provided to Americorp (or if it is the first such schedule, the
date of this Agreement) and before the date of the schedule in which
reported, showing with respect to each, the credit type and the office; and
(m) renewals or extensions of maturity of outstanding extensions of
credit whether unsecured or secured in amount equal to or exceeding
$1,000,000, showing with respect to each, the credit type and the office.
6.5 DISCLOSURE LETTER. Promptly in the case of material matters, and not
less than monthly in the case of all other matters, CIB shall amend or
supplement the CIB Disclosure Letter provided for herein pertaining to CIB as
necessary so that the information contained therein accurately reflects the then
current status of CIB and shall transmit copies of such amendments or
supplements to Americorp in accordance with Section 11.12 of this Agreement.
6.6 SHAREHOLDER APPROVAL. CIB will promptly take action necessary in
accordance with applicable law and its Charter Documents to convene a meeting of
its shareholders (the "CIB Shareholders' Meeting") to be held as soon as
practicable, for the purpose of voting on the Bank Merger, this Agreement and
related matters. In connection with the CIB Shareholders' Meeting, (i) the Board
of Directors of CIB shall, subject to fiduciary duty, recommend shareholder
approval of the Bank Merger, this Agreement and
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related matters; and (ii) CIB shall use its best efforts to obtain such
shareholder approval by the largest possible percentage.
6.7 CONSENTS AND APPROVALS.
(a) CIB will cooperate with Americorp in the preparation of all filings,
applications, notices and requests for waiver for Consents necessary or
desirable for the consummation of the Bank Merger, and the other transactions
contemplated in this Agreement. CIB's and Bank's cooperation hereunder shall
include, but not be limited to, providing all information concerning CIB and its
shareholders as may be required for such filings, applications, notices and
requests for Consents and signing, to the extent required, all such filings,
applications, notices and requests.
(b) To the extent that a Third Party Consent with respect to any contract,
agreement, license, franchise, lease, commitment, arrangement, Permit or release
that is material to the business of CIB or that is contemplated in this
Agreement is required in connection with the Bank Merger or the transactions
contemplated in this Agreement, CIB shall use its best efforts to obtain such
consent prior to the Effective Time.
6.8 PRESERVATION OF EMPLOYMENT RELATIONS PRIOR TO EFFECTIVE TIME. CIB will
use its best efforts consistent with current employment practices and policies
to maintain the services of the officers and employees of CIB through the
Effective Time.
6.9 COMPLIANCE WITH RULES. CIB shall comply with the requirements of all
applicable Rules, the noncompliance with which would materially and adversely
affect the assets, liabilities, business, financial condition or results of
operations or prospects of CIB.
6.10 CIB BENEFIT ARRANGEMENTS. Subject to Article 9 hereof, CIB and any
effected officers, directors or employees shall mutually terminate all CIB
Benefit Arrangements without the imposition of any liability therefor to
Americorp or any other Party.
6.11 AGREEMENT OF MERGER. As soon as practicable, CIB shall execute the
Agreement of Merger.
6.12 LOAN POLICIES AND CERTAIN ACCRUALS.
(a) The Parties shall establish a committee composed of Messrs. Gerald L.
Lukiewski, Joseph L. Priske and the Senior Lending Officer of the Surviving
Bank. Mr. Priske will serve as chairman of such committee. The sole purpose of
the committee shall be to establish the Surviving Bank's Loan Policy and
Procedures which will be recommended to the board of directors for approval
within 60 days of the Effective Time. After the approval of such policy and
procedures by the board of directors of the Surviving Bank, the committee will
be dissolved.
(b) In addition to other costs and expenses provided for herein which are to
be paid or accrued by CIB prior to the Determination Date, the costs and
expenses relating to the termination of CIB's prior president and any severance
or similar payments related thereto (whether or not due after the Determination
Date) shall be paid and/or accrued prior to the Determination Date and shall be
a reduction to the Aggregate Book Value of CIB.
6.13 NO SHOP. Neither CIB nor any of its Affiliates shall, on or before
the earlier of the Effective Time or the date of termination of this Agreement,
initiate, solicit or encourage (including by way of furnishing information or
assistance), or take any other action to facilitate, any inquiries or the making
of any proposal which constitutes, or may reasonably be expected to lead to any
Competing Transaction (as such term is defined below), or negotiate with any
Person in furtherance of such inquiries or to obtain a Competing Transaction, or
agree to or endorse any Competing Transaction, or authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or any other representative retained by it or any of its
Affiliates to take any such action, and CIB shall promptly notify Americorp
(orally and in writing) of all of the relevant details relating to all inquiries
and proposals
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which they may receive relating to any of such matters. For purposes of this
Agreement, "Competing Transaction" shall mean any of the following involving
CIB: any merger, consolidation, share exchange or other business combination; a
sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets
of CIB representing ten percent (10%) or more of the asset of CIB; a sale of
shares of capital stock (or securities convertible or exchangeable into or
otherwise evidencing, or any agreement or instrument evidencing, the right to
acquire capital stock) or other Equity Security, representing ten percent (10%)
or more of the voting power of CIB, a tender offer or exchange offer for at
least ten percent (10%) of the outstanding shares of CIB Stock; a solicitation
of proxies in opposition to approval of the Bank Merger by CIB shareholders; or
a public announcement of an unsolicited BONA FIDE proposal, plan, or intention
to do any of the foregoing. Notwithstanding any other provision in this Section
6.13 or elsewhere in this Agreement, the obligations of CIB in this Agreement
are subject to the continuing fiduciary duties of its Board of Directors. In the
event the Board of Directors of CIB receives a bona fide offer for a Competing
Transaction with another entity, and reasonably determines, upon written advice
of counsel, that as a result of such offer, any duty to act or to refrain from
doing any act pursuant to this Agreement, is inconsistent with the continuing
fiduciary duties of said Board of Directors to their shareholders, such failure
to act or refrain from doing any act shall not constitute the failure of any
condition, breach of any covenant or otherwise constitute any breach of this
Agreement, except that any such failure to act or refrain from doing any act
shall entitle Americorp to terminate this Agreement pursuant to Section 10.1(f)
hereof, and in no event shall this sentence or the previous sentence operate to
excuse or modify the obligations of CIB under Section 11.1(c) hereof.
6.14 AFFILIATES AND FIVE PERCENT SHAREHOLDER AGREEMENTS. Within thirty
(30) days of the execution of this Agreement, (a) CIB shall deliver to Americorp
a letter identifying all persons who are then "affiliates" of CIB for purposes
of Rule 145 under the Securities Act and (b) CIB shall advise the persons
identified in such letter of the resale restrictions imposed by applicable
securities laws and shall use reasonable efforts to obtain from each person
identified in such letter a written agreement substantially in the form attached
hereto as Exhibit 6.14. CIB shall use reasonable efforts to obtain from any
person who becomes an affiliate of CIB after CIB's delivery of the letter
referred to above, and on or prior to the date of the CIB Shareholders' Meeting
to approve this Agreement, a written agreement substantially in the form
attached as Exhibit 6.14 hereto as soon as practicable after obtaining such
status. At least 10 Business Days prior to the issuance of the opinion to be
provided for in Section 8.1(h), CIB shall use its best efforts to cause each
person or group of persons who holds more than five percent (5%) of the CIB
Stock (regardless of whether such person is an "affiliate" under Rule 145) to
deliver to F&K, VTD and Reitner & Stuart, a letter stating that such
shareholder(s) has no present plan or intention to dispose of CIB Stock and
committing that such shareholder(s) will not dispose of CIB Stock in a manner to
cause a violation of the "continuity of shareholder interest" requirements of
Treasury Regulation 1.368-1.
ARTICLE 7
FURTHER COVENANTS OF AMERICORP, BANK AND CIB
7.1 S-4 AND PROXY STATEMENT.
(a) As promptly as practicable, Americorp and CIB shall cooperate with each
other and exercise their best efforts to prepare and file with the SEC the S-4,
in which the Proxy Statement will be included as a prospectus. The Parties
hereto agree to provide the information necessary for inclusion in the Proxy
Statement and S-4. Each of the parties will use its respective best efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after it is filed. Americorp and CIB shall divide equally all third
party costs (except legal and accounting fees) associated with the preparation
and filing of the S-4, including the filing fees with the SEC and Blue Sky
regulators as well as the costs of printing and mailing the Proxy Statement.
(b) After the date of the filing of the S-4 with the SEC, each of the
Parties agrees promptly to notify the other of and to correct any information
furnished by such Party that shall have become false or
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misleading in any material respect and to cooperate with the other to take all
steps necessary to file with the SEC and have declared effective or cleared by
the SEC any amendment or supplement to the S-4 so as to correct such information
and to cause the Proxy Statement as so corrected to be disseminated to the
shareholders of Americorp and CIB to the extent required by applicable Rules.
All documents that the Parties file with the SEC or any other Governmental
Entity in connection with this Agreement will comply as to form in all material
respects with the provisions of applicable Rules.
(c) Americorp shall take all required action with appropriate Governmental
Entities under state securities or blue sky laws in connection with the issuance
of Americorp Stock pursuant to this Agreement.
7.2 FILINGS. The Parties agree that through the Effective Time, each of
its reports, registration statements and other filings required to be filed with
any applicable Governmental Entity will comply in all material respects with the
applicable statutes, rules and regulations enforced or promulgated by the
Governmental Entity with which it will be filed and none will contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Any financial
statement contained in any such report, registration statement or other filing
that is intended to represent the financial position of the entities or entity
to which it relates will fairly present the financial position of such entities
or entity and will be prepared in accordance with GAAP consistently applied
during the periods involved.
7.3 APPLICATIONS. Americorp will promptly prepare and file or cause to be
prepared and filed (i) an application for approval of the Bank Merger with the
FDIC; (ii) an application for approval of the Bank Merger with the Commissioner;
(iii) if required, a request for waiver from the FRB; and (iv) any other
applications or notices necessary to consummate the transactions contemplated
hereby. Americorp shall afford CIB a reasonable opportunity to review all such
applications and all amendments and supplements thereto before the filing
thereof. The Parties covenant and agree that the S-4 and the Proxy Statement and
all applications to the appropriate Governmental Entities for approval or
consent to the Bank Merger, with respect to information relating to it, will
comply in all material respects with the provisions of applicable law. Americorp
will use its best efforts to obtain all regulatory approvals or consents
necessary to effect the Bank Merger and CIB shall cooperate with Americorp and
Bank in such efforts.
7.4 STOCK OPTIONS.
(a) At and as of the Effective Time and without further action by any Party,
the stock option plan of CIB shall terminate. The Americorp Stock Option Plan
shall not be terminated at the Effective Time and outstanding Americorp Stock
Options at the Effective Time shall continue in effect.
(b) Subject to the shareholder approval and receipt of any required Consent,
as of the Effective Time Americorp shall grant substitute stock options to (i)
each and every officer and employee of CIB who shall continue as an officer or
employee of the Surviving Bank and (ii) each director of CIB, who has at the
Effective Time an outstanding option to purchase shares of CIB Stock ("CIB Stock
Options"). Any other stock option granted by CIB other than a CIB Stock Option
shall be exercised or terminated without liability by the Effective Time. Each
and every substitute stock option so granted by Americorp to replace an CIB
Stock Option shall retain the "vesting" schedule reflected in each of the
respective stock option agreements evidencing a CIB Stock Option and shall be
exercisable for that number of whole shares of Americorp Stock equal to the
product of (A) the number of shares of CIB Stock that were purchasable under
such CIB Stock Option immediately prior to the Effective Time multiplied by (B)
the Exchange Ratio, rounded down to the nearest whole number of shares of
Americorp Stock. Further, each and every substitute stock option so granted by
Americorp to replace an CIB Stock Option shall provide for a per share exercise
price which shall be equal to the quotient determined by dividing (A) the
exercise price per share of CIB Stock at which such CIB Stock Option was
exercisable immediately prior to the Effective Time by (B) the Exchange Ratio.
At the Effective Time, Americorp shall issue to each holder of an outstanding
CIB Stock Option a substitute stock option providing for the terms discussed
above.
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(c) Americorp shall use its best effort to assure that each holder of an CIB
Stock Option which qualified as an incentive stock option prior to the Effective
Time shall receive a substitute stock option which will qualify as an incentive
stock option.
(d) Subject to the shareholder approval and receipt of any required Consent,
Americorp shall to amend, if necessary, the Americorp Stock Option Plan to
provide for the grant of substitute stock options to holders of CIB Stock
Options. Americorp shall seek all required Consents to effect the amendments to
the Americorp Stock Option Plan contemplated by this Section. The Parties may
also discuss the feasibility of Americorp adopting a new stock option plan from
which such substitute options could be granted.
7.5 FURTHER ASSURANCES. Americorp/Bank and CIB agree that from time to
time, whether before, at or after the Effective Time, they will execute and
deliver such further instruments of conveyance and transfer and to take such
other action as may be reasonable or necessary to consummate the Bank Merger and
the transactions contemplated in this Agreement. Americorp, Bank and CIB agree
to take such further action as may reasonably be requested to facilitate
consummation of the Bank Merger and the transactions contemplated in this
Agreement and that are not inconsistent with the other provisions of this
Agreement.
7.6 REMOVAL OF CONDITIONS. In the event of the imposition of a condition
to any consent of, the Commissioner, the FDIC or other Government Entity which
any Party deems to materially adversely affect it or to be materially burdensome
as provided in Section 8.1(c), the Parties shall use their respective best
efforts to obtain the removal of such condition.
7.7 CORPORATE GOVERNANCE.
(a) Prior to the Effective Time, Bank shall take all necessary steps to
effect the Bank Corporate Governance Changes at the Effective Time.
(b) Prior to the Effective Time, Americorp shall take all necessary steps to
effect the Americorp Corporate Governance Changes at the Effective Time.
7.8 LISTING OF AMERICORP STOCK. After the Effective Time, the Board of
Directors of Americorp shall explore the feasbility and costs of listing the
shares of Amerciorp Stock on Nasdaq with the intention of listing such shares
within one year after the Effective Time.
ARTICLE 8
CONDITIONS TO THE PARTIES' OBLIGATIONS TO CLOSE
8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CLOSE. The respective
obligations of Americorp and Bank, on the one hand, and CIB, on the other, to
consummate the Bank Merger and the other transactions contemplated hereby are
subject to the satisfaction or waiver at or prior to the Effective Time of each
of the following conditions:
(a) The Agreement and the transactions contemplated hereby shall have
received all requisite approvals of the shareholders of CIB, Americorp or
Bank.
(b) No judgment, decree, injunction, order or proceeding shall be
outstanding or threatened by any Governmental Entity which prohibits or
restricts the effectuation of, or threatens to invalidate or set aside, the
Bank Merger substantially in the form contemplated by this Agreement, unless
counsel to the party again whom such action or proceeding was instituted or
threatened renders to the other Parties hereto a favorable opinion that such
judgment, decree, injunction, order or proceeding is without merit.
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(c) On or before March 31, 1999, the Parties shall have received any
required Consent from the FRB, the Commissioner, the FDIC, and, at or prior
to the Effective Time, this Agreement and the transactions contemplated
hereby shall have been approved by any other Governmental Entity whose
Consent is required for consummation of the transactions contemplated in
this Agreement, in each case either unconditionally or without the
imposition of conditions or limitations that are applicable to any Party or
would become applicable to Americorp or the Surviving Bank after the Bank
Merger that Americorp reasonably and in good faith concludes would
materially adversely affect the financial condition or operations of any
Party or otherwise would be materially burdensome to any Party and all such
Consents shall be in effect at the Effective Time, which Consents shall
permit the Bank Merger and permit the Surviving Bank to acquire and conduct
all direct and indirect activities as previously conducted by CIB and Bank,
at or prior to the Effective Time, and all required waiting periods shall
have expired.
(d) No Rule shall be outstanding or threatened by any Governmental
Entity which prohibits or materially restricts the consummation of, or
threatens to invalidate or set aside, the Bank Merger substantially in the
forms contemplated by this Agreement or which would not permit the
businesses presently carried on by CIB, Americorp or Bank to continue
materially unimpaired following the Effective Time, unless counsel to the
Party or Parties against whom such action or proceeding was instituted or
threatened renders to the other Party or Parties hereto a favorable opinion
that such Rule is without merit and counsel to the other Party concurs with
such opinion.
(e) All Third Party Consents necessary to permit the Parties to
consummate the transactions contemplated in the Agreement shall have been
obtained prior to the Effective Time, unless the failure to obtain any such
Third Party Consent would not have a material adverse effect on the
business, financial condition, or results of operations of Americorp on a
consolidated basis.
(f) The S-4 shall have been declared effective by the SEC and shall not
be the subject of any stop order or proceedings seeking or threatening a
stop order. Americorp shall have received all state securities or "Blue Sky"
permits and other authorization necessary to issue the Americorp Stock to
consummate the Bank Merger.
(g) CIB and Americorp shall have received from VTD, an opinion
reasonably satisfactory to CIB and Americorp to the effect that the Bank
Merger shall not result in the recognition of gain or loss for federal
income tax purposes to CIB, Americorp or Bank, nor shall the issuance of
Americorp Stock result in the recognition of gain or loss by the holders of
CIB Stock who receive such stock in connection with the Bank Merger, nor
shall a holder of an outstanding stock option granted under CIB's stock
option plan recognize income, gain or loss as a result of the granting of a
substitute option nor shall the granting of such substitute options be
deemed to be a modification of any incentive stock option granted under
CIB's stock option plan, dated prior to the date of the Proxy Statement is
first mailed to the shareholders of Americorp and CIB and such opinions
shall not have been withdrawn or modified in any material respect.
(h) Prior to the Effective Time, F&K and VTD shall have jointly
delivered a written opinion to CIB and Americorp that the Bank Merger and
the other transactions contemplated hereby will qualify for
pooling-of-interest accounting treatment. In making their determination that
the Bank Merger will qualify for such treatment, F&K and VTD shall be
entitled to assume that cash will be paid with respect to all shares held of
record by any holder of Dissenting Shares.
8.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF AMERICORP AND BANK TO
CLOSE. The obligations of Americorp and Bank to consummate the Bank Merger and
the other transactions contemplated hereby are subject to the satisfaction or
waiver at or prior to the Effective Time of each of the following conditions:
(a) All actions necessary to authorize the execution, delivery and
performance of the Agreement by CIB, the consummation of the Bank Merger by
CIB and the consummation of the Agreement of
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Merger by CIB shall have been duly and validly taken by the board of
directors and shareholders of CIB, as the case may be.
(b) The representations and warranties of CIB contained in Article 4 of
this Agreement shall have been true and correct in all material respects (i)
on the date of this Agreement; and (ii) at and as of the Effective Time as
though all such representations and warranties had been made on and as of
the Effective Time, except with respect to representations and warranties
that, by their terms, speak as of a different time; and Americorp and Bank
shall have received a certificate to that effect dated the Effective Time
and executed on behalf of CIB by its chief executive officer and chief
financial officer. It is understood and acknowledged that the
representations made on and as of the Effective Time shall be made without
giving effect to any update with respect to the Disclosure Letter pertaining
to CIB as updated in accordance with Section 6.5.
(c) Each of the covenants and agreements of CIB contained in this
Agreement to be performed at or before the Effective Time shall have been so
performed in all material respects; and Americorp and Bank shall have
received a certificate to that effect dated the Effective Time and executed
by the chief executive officer and chief financial officer of CIB.
(d) During the period from the date of this Agreement to the Effective
Time, there shall not have occurred any event related to the business,
condition (financial or otherwise), capitalization or properties of CIB that
has had or could reasonably be expected to have a material adverse effect on
the business, financial condition, results of operations or prospects of CIB
after consummation of the Bank Merger, whether or not such event, change or
effect is reflected in CIB's Disclosure Letter to this Agreement, as amended
or supplemented, after the date of this Agreement; and Americorp and Bank
shall have received a certificate to that effect dated the Effective Time
and signed by the chief executive officer and chief financial officer of
CIB.
(e) CIB shall have delivered to Americorp and Bank a written opinion of
Knecht & Hansen dated as of the Effective Time substantially in the form
attached to this Agreement as Exhibit 8.2(e).
(f) Americorp shall have received a letter from California Research
Corp. dated as of a date within five (5) Business Days of the mailing of the
Proxy Statement to the shareholders of Americorp to the effect that the
transactions contemplated by this Agreement are fair from a financial point
of view to the shareholders of Americorp.
(g) Concurrently with the execution of this Agreement, each director of
CIB shall have executed and delivered to Americorp an CIB Directors'
Agreement substantially in the form of Exhibit 2.6(b).
(h) Americorp shall have received satisfactory evidence that all of
CIB's Benefit Arrangements have been treated as provided in Articles 6 and 9
of this Agreement.
8.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF CIB TO CLOSE. The obligations
of CIB to consummate the Bank Merger and the other transactions contemplated
herein is subject to the satisfaction or waiver, at or prior to the Effective
Time, of each of the following conditions:
(a) All actions necessary to authorize the execution, delivery and
performance of the Agreement, consummation of the Bank Merger by Americorp
and Bank and the consummation of the Agreement of Merger by Americorp and
Bank shall have been duly and validly taken by the respective boards of
directors and shareholders of Americorp and Bank, as the case may be.
(b) The representations and warranties of Americorp and Bank contained
in Article 3 of this Agreement shall be true and correct in all material
respects (i) on the date of this Agreement; and (ii) at and as of the
Effective Time as though all such representations and warranties had been
made at and as of such time, except with respect to representations and
warranties that, by their terms, speak as of a different time; and CIB shall
have received a certificate to that effect dated the Effective Time and
executed on behalf of Americorp and Bank by their respective chief executive
officers and
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chief financial officers. It is understood and acknowledged that the
representations made on and as of the Effective Time shall be made without
giving effect to any update with respect to the Disclosure Letters
pertaining to Americorp and Bank as updated in accordance with Section 5.5.
(c) The covenants and agreements of Americorp and Bank to be performed
at or before the Effective Time shall have been duly performed in all
material respects; and CIB shall have received one or more certificates to
that effect dated the Effective Time and executed by the respective chief
executive officers and chief financial officers of Americorp and Bank.
(d) During the period from the date of this Agreement to the Effective
Time, there shall not have occurred any event related to the business,
condition (financial or otherwise), capitalization or properties of
Americorp or Bank that has had or could reasonably be expected to have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Surviving Bank or Americorp after
consummation of the Bank Merger, whether or not such event, change or effect
is reflected in Americorp's Disclosure Letters to this Agreement, as amended
or supplemented, after the date of this Agreement; and CIB shall have
received a certificate to that effect dated the Effective Time and signed by
the chief executive officer and chief financial officer of Americorp and
Bank.
(e) Americorp and Bank shall have delivered to CIB a written opinion of
Reitner & Stuart dated the Effective Time substantially in the form attached
to this Agreement as Exhibit 8.3(e).
(f) CIB shall have received a letter from the Findley Companies dated as
of a date within five (5) Business Days of the mailing of the Proxy
Statement to the shareholder of CIB, to the effect that the transactions
contemplated by this Agreement are fair from a financial point of view to
the shareholders of CIB.
(g) Concurrently with the execution of this Agreement, each director of
Americorp and Bank shall have executed and delivered to CIB a Americorp
Directors' Agreement substantially in the form of Exhibit 2.6(a).
(h) All necessary action shall have been taken by Americorp and Bank,
respectively, to effect the Americorp and Bank Corporate Governance Changes.
ARTICLE 9
EMPLOYEE BENEFITS
9.1 EMPLOYEE BENEFITS
(a) The Surviving Bank shall honor, in accordance with their terms, the
employment agreement between CIB and its Senior Vice President/Chief Fiancial
Officer and its Senior Vice President/Senior Lending Officer.
(b) From the date hereof, Americorp, Bank and CIB shall cooperate to
determine mutually the appropriate treatment of the Benefit Arrangements, such
as termination, merger into a plan, etc., and shall take such actions as shall
be reasonably required with respect to the Benefit Arrangements, provided that
CIB, Americorp and Bank shall not be required to take any action that would be
in breach of the fiduciary duties of the plan trustees or administrators.
(c) The Parties shall establish a committee composed of the President of the
Surviving Bank, Joseph L. Priske and Jacqueline S. Pruner. The committee shall
develop a personnel, salary and benefits structure for the Survivng Bank and the
amount of severance to be paid to officers and employees displaced by the Bank
Merger. The committee shall also complete interviews of the officers of the
Parties within 60 days of the date of this Agreement in order to determine the
officers which shall be retained by the Surviving Bank after the Effective Time.
After completing these matters, the committee will be dissolved. Non-officer
positions shall be determined by the President of the Surviving Bank.
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(d) All proposed payments under the consulting agreements with the directors
of CIB who do not continue as directors of Americorp and the Surviving Bank
following the Effective Time shall be accrued prior to the Determination Date
and shall be a reduction to the Aggregate Book Value of CIB. Such consulting
agreements are attached as Exhibit 9.1(d).
(e) The aggregate of (i) all additional amounts to be accrued pursuant to
the director retirement plan which has been previously terminated and (ii) all
proposed payments under the consulting agreement with the director of Americorp
and the Surviving Bank who will not continue as a director of Americorp and the
Surviving Bank following the Effective Time, shall be accrued prior to the
Determination Date and shall be a reduction to the Aggregate Book Value of
Americorp. Such consulting agrement is attached as Exhibit 9.1(e).
ARTICLE 10
TERMINATION OF AGREEMENT; WAIVER OF CONDITIONS
10.1 TERMINATION OF AGREEMENT. Anything herein to the contrary
notwithstanding, this Agreement and the transactions contemplated hereby
including the Bank Merger may be terminated at any time before the Effective
Time, whether before or after approval by the respective shareholders of CIB and
Americorp as follows, and in no other manner:
(a) By mutual consent of Americorp and Bank, on the one hand, and CIB,
on the other;
(b) By Americorp, Bank or CIB (i) if any conditions set forth in Section
8.1 shall not have been met by March 31, 1999, or (ii) upon the expiration
of 20 Business Days after any Governmental Entity denies or refuses to grant
any approval, consent or authorization required to be obtained in order to
consummate the transaction contemplated by this Agreement unless, within
said 20 Business Day period after such denial or refusal, all Parties hereto
agree to resubmit the application to the Governmental Entity that has
denied, or refused to grant the approval, consent or authorization
requested;
(c) By Americorp and Bank if any conditions set forth in Section 8.2
shall not have been met, or by CIB if any conditions set forth in section
8.3 shall not have been met, by March 31, 1999, or such earlier time as it
becomes apparent that such condition cannot be met;
(d) By Americorp or Bank, if CIB should materially default in the
observance or in the due and timely performance of any of its covenants and
agreements herein contained and such default shall not have been fully cured
within 20 Business Days from the date of delivery of written notice
specifying the alleged default;
(e) By CIB, if Americorp or Bank should materially default in the
observance or in the due and timely performance of any of their covenants
and agreements herein contained and such default shall not have been fully
cured within 20 Business Days from the date of delivery of written notice
specifying the alleged default;
(f) By Americorp, if CIB shall have failed to act or refrain from doing
any act pursuant to Section 6.13; or
(g) By CIB, if Americorp shall have failed to act or refrain from doing
any act pursuant to Section 5.13
10.2 EFFECT OF TERMINATION. In the event that this Agreement shall be
terminated pursuant to Section 10.1 hereof, all further obligations of the
Parties hereto under this Agreement shall terminate without further liability of
any Party to another; provided, however, that no termination of this Agreement
under Section 10.1 for any reason or in any manner shall release, or be
construed as so releasing, any Party from its obligations under Sections 11.1,
11.9 or 11.10, hereof and notwithstanding the foregoing if such termination
shall result from the willful failure of a Party to fulfill a condition to the
performance of the
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<PAGE>
obligations of any other Party or to perform a covenant of such Party in this
Agreement, such Party shall, subject to the provision of Section 11.1, be fully
liable for any and all damages, costs and expenses (including, but not limited
to, reasonable attorneys' fees sustained or incurred by the other Party or
Parties in connection with negotiating and implementing the transactions
contemplated in this Agreement).
10.3 WAIVER OF CONDITIONS. If any of the conditions specified in Section
8.2 has not been satisfied, Americorp and Bank may nevertheless, at their
election, proceed with the transactions contemplated in this Agreement. If any
of the conditions specified in Section 8.3 has not been satisfied, CIB may
nevertheless, at its election, proceed with the transactions contemplated in
this Agreement. If any Party elects to proceed pursuant to the provisions
hereof, the conditions that are unsatisfied immediately prior to the Effective
Time shall be deemed to be satisfied, as evidence by a certificate delivered by
the electing Party.
ARTICLE 11
GENERAL
11.1 EXPENSES.
(a) CIB hereby agrees that if this Agreement is terminated by Americorp or
Bank pursuant to Section 10.1(c) with respect to the failure of CIB shareholders
to approve the Agreement and the transactions contemplated hereby, or pursuant
to Section 10.1(d), CIB shall promptly, and in any event within seven Business
Days after such termination, pay Americorp and Bank all Expenses (as defined
below) of Americorp and Bank but not to exceed $150,000.
(b) Americorp and Bank hereby agree that if this Agreement is terminated by
CIB pursuant to Section 10.1(c) with respect to the failure of Americorp
shareholders to approve the Agreement and transactions contemplated hereby, or
pursuant to Section 10.1(e), Americorp shall promptly, and in any event within
seven Business Days after such termination, pay (or cause Bank to pay) CIB all
Expenses (as defined below) of CIB but not to exceed $150,000.
(c) As an inducement to Americorp to enter into this Agreement, in the event
this Agreement is terminated by Americorp pursuant to Section 10.1(f) and CIB
enters into an agreement for a Competing Transaction prior to termination of
this Agreement or during the twelve-month period immediately following
termination of this Agreement, CIB shall promptly, and in any event within seven
Business Days after it enters into an agreement for such Competing Transaction,
pay Americorp $750,000 which amount represents (i) Americorp's and Bank's direct
costs and expenses (including, but not limited to, fees and expenses of
financial or other consultants, printing costs, accountants and counsel)
incurred in negotiating and undertaking to carry out the transactions
contemplated by this Agreement, including Americorp's and Bank's management time
devoted to negotiation and preparation for the transactions contemplated by this
Agreement; (ii) Americorp's and Bank's indirect costs and expenses incurred in
connection with the transactions contemplated by this Agreement; and (iii)
Americorp's and Bank's loss as a result of the transactions contemplated by this
Agreement not being consummated.
(d) As an inducement to CIB to enter into this Agreement, in the event this
Agreement is terminated by CIB pursuant to Section 10.1(g) and Americorp enters
into an agreement for a Competing Transaction prior to termination of this
Agreement or during the twelve-month period immediately following termination of
this Agreement, Americorp shall promptly, and in any event within seven Business
Days after it enters into an agreement for such Competing Transaction, pay CIB
$750,000 which amount represents (i) CIB's direct costs and expenses (including,
but not limited to, fees and expenses of financial or other consultants,
printing costs, accountants and counsel) incurred in negotiating and undertaking
to carry out the transactions contemplated by this Agreement, including CIB's
management time devoted to negotiation and preparation for the transactions
contemplated by this Agreement; (ii) CIB's indirect costs and expenses incurred
in connection with the transactions contemplated by this Agreement; and (iii)
CIB's loss as a result of the transactions contemplated by this Agreement not
being consummated.
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<PAGE>
(e) Except as otherwise provided herein and in Section 7.1, all Expenses
incurred by Americorp/Bank or CIB in connection with or related to the
authorization, preparation and execution of this Agreement, the solicitation of
shareholder approvals and all other matters related to the closing of the
transaction contemplated hereby, including, without limitation of the generality
of the foregoing, all fees and expenses of agents, representatives, counsel, and
accountants employed by either of the Parties or its affiliates, shall be borne
solely and entirely by the Party which has incurred the same.
(f) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including all fees and expenses of attorneys,
accountants, investment bankers, experts and consultants to the Party and its
Affiliates) incurred by the Party or on its behalf in connection with or related
to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transaction contemplated hereby.
11.2 AMENDMENTS. To the fullest extent permitted by law, this Agreement
may be amended by agreement in writing of the Parties hereto at any time prior
to the Effective Time, whether before or after approval of this Agreement by the
shareholders of CIB or the shareholders of Americorp.
11.3 DISCLOSURE LETTER; EXHIBITS; INTEGRATION. Each Disclosure Letter,
exhibit and letter delivered pursuant to this Agreement shall be in writing and
shall constitute a part of the Agreement, although Disclosure Letters and other
letters need not be attached to each copy of this Agreement. This Agreement,
together with such Disclosure Letters, exhibits and letters, constitutes the
entire agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior agreements and understanding of the Parties in connection
therewith.
11.4 BEST EFFORTS. Each Party will use its best efforts to cause all
conditions to the obligations of the Parties to be satisfied.
11.5 GOVERNING LAW. This Agreement and the legal relations between the
Parties shall be governed by and construed in accordance with the laws of
California except to the extent that the provisions of federal law are
mandatorily applicable.
11.6 NO ASSIGNMENT. Neither this Agreement nor any rights, duties or
obligations hereunder shall be assignable by Americorp/Bank or CIB, in whole or
in part, without the prior written consent of the other Party. Any attempted
assignment in violation of this prohibition shall be null and void. Subject to
the foregoing, all of the terms and provisions hereof shall be binding upon, and
inure to the benefit of, the successors and assigns of the Parties hereto.
11.7 HEADINGS. The descriptive headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
11.8 COUNTERPARTS. This Agreement and any exhibit hereto may be executed
in one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each Party hereto and delivered to each Party hereto.
11.9 PUBLICITY AND REPORTS. Americorp and CIB shall coordinate all
publicity relating to the transactions contemplated by this Agreement and no
Party shall issue any press release, publicity statement or other public notice
relating to this Agreement or any of the transactions contemplated hereby
without obtaining the prior consent of the other Party, except to the extent
that legal counsel to any Party shall deliver a written opinion to the other
Party to the effect that a particular action is required by applicable Rules.
11.10 CONFIDENTIALITY. All Confidential Information disclosed heretofore
or hereafter by any Party to this Agreement to any other Party to this Agreement
shall be kept confidential by such other Party and shall not be used by such
other Party otherwise than as herein contemplated, except to the extent that (a)
it is necessary or appropriate to disclose to the Commissioner, the FDIC or any
other Governmental Entity having jurisdiction over any of the Parties or as may
be otherwise be required by Rule (any disclosure of
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<PAGE>
Confidential Information to a Governmental Entity shall be accompanied by a
request that such Governmental Entity preserve the confidentiality of such
Confidential Information): or (b) to the extent such duty as to confidentiality
is waived by the other Party. Such obligation as to confidentiality and non-use
shall survive the termination of this Agreement pursuant to Article 10. In the
event of such termination and on request of another Party, each Party shall use
all reasonable efforts to (1) return to the other Parties all documents (and
reproductions thereof) received from such other Parties that contain
Confidential Information (and, in the case of reproductions, all such
reproductions made by the receiving Party); and (2) destroy the originals and
all copies of any analyses, computations, studies or other documents prepared
for the internal use of such Party that included Confidential Information.
11.11 SPECIFIC PERFORMANCE. CIB, Bank and Americorp each acknowledge that,
in view of the uniqueness of their respective businesses and the transactions
contemplated in this Agreement, each Party would not have an adequate remedy at
law for money damages in the event that this Agreement has not been performed in
accordance with its terms, and therefore each Party agrees that the other shall
be entitled to specific enforcement of the terms hereof in addition to any other
remedy to which it may be entitled, at law or in equity.
11.12 NOTICES. Any notice or communication required or permitted
hereunder, including, without limitation, supplemental Disclosure Letters shall
be deemed to have been given if in writing and (a) delivered in person, (b)
telexed, or (c) telecopied (provided that any notice given pursuant to clauses
(b) and (c) is also mailed by certified or registered mail, postage prepaid), as
follows:
If to Americorp or Bank, addressed to:
American Commercial Bank
300 South Mills Road
Ventura, CA 93003
Attn: Gerald J. Lukiewski, President and CEO
Fax No. (805) 658-6635
With a copy addressed to:
John F. Stuart, Esq.
Reitner & Stuart
1319 Marsh Street
San Luis Obispo, CA 93401
Fax No. (805) 545-8599
If to CIB, addressed to:
Mr. Joseph L. Priske
Chairman of the Board
Channel Islands Bank.
c/o Priskie-Jones Company
711 Daily Drive, Suite 200
Camarillo, CA 93010
Fax No. (805) 987-0820
With a copy addressed to:
Loren P. Hansen, Esq.
Knecht & Hansen
1301 Dove Street, Suite 900
Newport Beach, CA 92660
Fax No. (714) 851-1732
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<PAGE>
or at such other address and to the attention of such other Person as a Party
may notice to the others in accordance with this Section 11.12. Notwithstanding
anything to the contrary contained herein, notice and/ or delivery to Americorp
shall be deemed notice and/or delivery to Bank.
11.13 KNOWLEDGE. Whenever any statement herein or in any Disclosure
Letter, certificate or other document delivered to any Party pursuant to this
Agreement is made "to the knowledge" or "to the best knowledge" of any Party or
other Person such Party or other Person shall make such statement only after
conducting an investigation reasonable under the circumstances of the subject
matter thereof, and each such statement shall constitute a representation that
such investigation has been conducted.
11.14 SEVERABILITY. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms hereof shall provide for the consummation of
the transactions contemplated herein in substantially the same manner as
originally set forth at the date this Agreement was executed.
11.15 ATTORNEYS' FEES. In the event any of the parties to this Agreement
brings an action or suit against any other party by reason of any breach of any
covenant, agreement, representation, warranty or other provision hereof, or any
breach of any duty or obligation created hereunder by such other party, the
prevailing party, as determined by the court or the body having jurisdiction,
shall be entitled to have and recover of and from the losing party, as
determined by the court or other party having jurisdiction, all reasonable costs
and expenses incurred or sustained by such prevailing party in connection with
such prevailing action, including, without limitation, legal fees and court
costs (whether or not taxable as such).
11.16 TERMINATION OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations, warranties and covenants of each Party contained herein or in
any certificate or other writing delivered by such party pursuant hereto or in
connection herewith shall not survive the Effective Time.
WITNESS, the signature of Americorp, as of the 7th day of July, 1998, set by
its President and attested to by its Secretary, pursuant to a resolution of its
Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
AMERICORP
By: /s/ GERALD LUKIEWSKI
----------------------------------------
PRESIDENT
Attest:
By: /s/ LINCOLN E. CRYNE
------------------------------
SECRETARY
</TABLE>
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<PAGE>
WITNESS, the signature of Bank, as of the 7th day of July, 1998, set by its
President and attested to by its Secretary, pursuant to a resolution of its
Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
AMERICAN COMMERCIAL BANK
By: /s/ GERALD L. LUKIEWSKI
----------------------------------------
PRESIDENT
Attest:
By: /s/ LINCOLN E. CRYNE
------------------------------
SECRETARY
</TABLE>
WITNESS, the signature of CIB, as of the 7th day of July, 1998, set by its
President and attested to by its Secretary, pursuant to a resolution of its
Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
CHANNEL ISLANDS BANK
By: /s/ THOMAS E. ANTHONY
----------------------------------------
PRESIDENT
Attest:
By: /s/ ALLEN R. PARTRIDGE
------------------------------
SECRETARY
</TABLE>
A-52
<PAGE>
FIRST AMENDMENT TO
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
THIS FIRST AMENDMENT TO THE AGREEMENT TO MERGE AND PLAN OF REORGANIZATION
(the "First Amendment") is entered into as of September 17, 1998, among American
Commercial Bank, a banking company organized under the laws of California
("Bank"), being located in Ventura, California, Americorp, a corporation and
registered bank holding company organized under the laws of California
("Americorp"), and Channel Islands Bank, a banking company organized under the
laws of California ("CIB"), located in Oxnard, California.
WHEREAS, Bank, Americorp and CIB entered into an Agreement to Merge and Plan
of Reorganization dated as of July 7, 1998 (the "Agreement");
WHEREAS, the Parties wish to make certain changes and amendments to the
Agreement before it is submitted to their respective shareholders for approval;
NOW, THEREFORE, in consideration of the premises and mutual promises of the
parties, the Parties hereto agree as follows:
1. Clause (i) of Section 2.1(b) of the Agreement is hereby amended to
read:
"(i) the number of authorized directors of Bank shall be expanded to
nine,"
2. Clause (i) of Section 2.1(d) of the Agreement is hereby amended to
read:
"(i) the number of authorized directors of Americorp shall be
expanded to nine,"
3. Exhibits 2.1(b) and 2.1(d) of the Agreement are amended to read in
the form attached to this First Amendment.
4. Capitalized terms used herein and not otherwise defined shall have
the same meaning as set forth in the Agreement.
5. This First Amendment may be entered into in one or more
counterparts, all of which shall be considered one and the same instrument,
and it shall become effective when one or more counterparts have been signed
by each of the Parties and delivered to the other Parties, it being
understood that all Parties need not sign the same counterpart.
6. Except as herein amended, the Agreement shall remain in full force
and effect.
7. This First Amendment shall be governed by and construed in
accordance with the laws of the State of California.
WITNESS, the signature of Americorp, as of the 17th day of September, 1998,
set by its President and attested to by its Secretary, pursuant to a resolution
of its Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
AMERICORP
By: /s/ GERALD J. LUKIEWSKI
----------------------------------------
PRESIDENT
Attest:
By: /s/ LINCOLN E. CRYNE
------------------------------
SECRETARY
</TABLE>
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<PAGE>
WITNESS, the signature of Bank, as of the 17th day of September, 1998, set
by its President and attested to by its Secretary, pursuant to a resolution of
its Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
AMERICAN COMMERCIAL BANK
By: /s/ GERALD J. LUKIEWSKI
----------------------------------------
PRESIDENT
Attest:
By: /s/ LINCOLN E. CRYNE
------------------------------
SECRETARY
</TABLE>
WITNESS, the signature of CIB, as of the 17th day of September, 1998, set by
its President and attested to by its Secretary, pursuant to a resolution of its
Board of Directors, acting by a majority:
<TABLE>
<S><C> <C> <C>
CHANNEL ISLANDS BANK
By: /s/ THOMAS E. ANTHONY
----------------------------------------
PRESIDENT
Attest:
By: /s/ ALLEN R. PARTRIDGE
------------------------------
SECRETARY
</TABLE>
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<PAGE>
APPENDIX B
July 7, 1998
Members of the Board of Directors
Channel Islands Bank
1555 South "A" Street
Oxnard, California 93030
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial perspective, to the shareholders of Channel Islands Bank,
Oxnard, California ("CIB") of the terms of the proposed merger of CIB with and
into American Commercial Bank, Ventura, California ("ACB") and CIB shareholders
receiving shares of common stock of ACB's parent corporation, Americorp,
Ventura, California ("Americorp") as defined in the Agreement to Merge and Plan
of Reorganization (the "Agreement") entered into as of July 7, 1998. Pursuant to
the Agreement and subject to the terms and conditions therein, each share of CIB
Stock issued and outstanding immediately prior to the Effective Time of the
Merger shall, on and at the Effective Time of the Merger, pursuant to the
Agreement and without any further action on the part of CIB or the holders of
CIB Stock, be exchanged for and converted into the right to receive shares of
Americorp Stock which is equal to the Exchange Ratio. The Exchange Ratio is
obtained by dividing the CIB Book Value Per Share by the Americorp Book Value
Per Share. The components of CIB Book Value Per Share and Americorp Book Value
Per Share are set forth in the Agreement.
As part of its investment banking business, The Findley Group is continually
engaged in the valuation bank, bank holding company and thrift securities in
connection with mergers and acquisitions nationwide. We have not previously
provided investment banking and financial advisory services to CIB.
In arriving at our opinion, we have reviewed and analyzed, among other
things, the following: (i) a draft of the Agreement; (ii) Annual Reports to
Shareholders of CIB and Americorp for the years ended December 31, 1997 and
December 31, 1996; (iii) Quarterly Call Reports for the Quarters ended March 31,
1998 , December 31, 1997, September 30, 1997, June 30, 1997, March 31, 1997 and
December 31, 1996 for CIB and ACB; (iv) certain other publicly available
financial and other information concerning CIB, Americorp and ACB; and (v)
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 believe relevant to our inquiry. We have held discussions
with senior management of CIB concerning their past and current operations,
financial condition and prospects, as well as the results of regulatory
examinations.
We have reviewed earnings projections for 1998 through 2002 for CIB and ACB
as stand-alone entities, assuming the Merger does not occur, prepared by the
respective entities. We reviewed earnings projections for 1998 through 2002,
assuming the Merger does occur, as well as projected operating cost savings and
earnings enhancement opportunities expected to be achieved in each such years
resulting from the Merger. Certain pro forma financial projections for the
combined entity were derived by us based partially upon the projections
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 and earnings enhancement
opportunities derived by us partially based upon the projections discussed above
to be realizable in the Merger.
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<PAGE>
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 management of
CIB and Americorp as to the reasonableness of the financial and operating
forecasts, projections and projected operating cost savings and earnings
enhancement opportunities (and the assumptions and bases therefor) provided to
us, and we have assumed that such forecasts, projections and projected operating
cost savings and earnings enhancement opportunities reflect the best currently
available estimates and judgements of the applicable management's. We have also
assumed, without assuming any responsibility for the independent verification of
the same, that the aggregate allowances for loan losses for CIB and ACB are
adequate to cover such losses. We have not made or obtained any evaluations or
appraisals of the property of CIB or Americorp, 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 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 perspective, to the holders of the shares of CIB Common Stock of the
terms of the proposed merger of CIB with and into ACB, with CIB shareholders
receiving shares of Americorp Stock and does not address CIB'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 CIB
and Americorp; (ii) the assets and liabilities of CIB and Americorp, including
the loan and investment 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 upon conditions as they
exist and can be evaluated on the date hereof.
Based upon and subject to the foregoing, we are of the opinion as investment
bankers that, as of the date hereof, the terms of the proposed merger of CIB
with and into ACB, with CIB shareholders receiving Americorp Stock, are fair,
from a financial perspective, to the holders of the shares of CIB Stock.
This opinion may not be used or referred to by CIB or quoted or disclosed to
any person in any manner without our prior written consent, with the exception
of submission to the regulatory agencies as part of the applications and
included in the proxy materials provided to shareholders of CIB in relation to
approval of the Merger. This opinion is not intended to be and shall not be
deemed to be a recommendation to any shareholder of CIB as to how such
shareholder should vote with respect to the Merger.
Respectfully submitted,
THE FINDLEY GROUP
Gary Steven Findley
DIRECTOR
B-2
<PAGE>
APPENDIX C
As of August 12, 1998
Board of Directors
Americorp
300 So. Mills Road
Ventura, California 93001
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Americorp of the terms of the proposed merger of
American Commercial Bank ("ACB") with Channel Islands Bank of Oxnard ("CIB")
pursuant to the Agreement to Merge and Plan of Reorganization dated as of July
7, 1998. According to the terms of the Agreement each outstanding share of CIB
stock issued and outstanding immediately prior to the Effective Time of the
Merger shall be converted into shares of Americorp and each certificate that
represented shares of CIB stock shall evidence ownership of shares of Americorp
in accordance with the Exchange Ratio. The Exchange Ratio is obtained by
dividing the CIB Book Value per share by the Americorp Book Value per share.
Components of Book Value per share are set forth in the Agreement.
In connection with this opinion, we have:
(i) Reviewed a draft and final copy of the Agreement to Merge and Plan
of Re-Organization;
(ii) Reviewed certain publicly available business and financial
information on all the banks of Ventura County;
(iii) Reviewed Call Reports to the banking regulators for ACB and CIB for
the periods ending December 31, 1995, December 31, 1996, December 31, 1997,
and March 31, 1998. We have also reviewed the Annual Reports to Stockholders
for each bank for the years 1995, 1996 and 1997;
(iv) Reviewed information for each bank pertaining to classified or
criticized loans, premises, lease terms for office facilities, internal
financial reports, summaries of stock options, stock prices for the last
four quarters, and other data provided us by the senior management personnel
of each bank. We reviewed a pro-forma analysis of both banks as provided by
ACB's President/CEO;
(v) Reviewed certain other banking companies that California Research
considered relevant and compared them to ACB and CIB. We have analyzed the
financial terms of banks involved in comparable merger and consolidation
transactions.
We have had discussions with senior management personnel at both CIB and ACB
regarding current operations and projections of future lending volume and
earnings. We have also reviewed with senior managements of both banks earnings
projections for ACB and CIB as stand-alone entities and ACB's senior management
forecasts regarding projected operating cost savings expected to be achieved
each year over the next three years resulting from the merger.
We reviewed earnings projections for 1998, 1999 and 2000, assuming the
merger does occur and the projected operating cost savings to be expected from
the merger are achieved. We made a series of pro-forma projections based on our
forecasts of earning assuming various levels of operating cost savings are
achieved.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources and that was
C-1
<PAGE>
provided to us by ACB and CIB, including information provided during discussions
with their respective managements. We have assumed that the merger will be
accounted for as a pooling of interests under generally accepted accounting
principles. We have also assumed that in the course of obtaining the necessary
regulatory approvals for the merger, no restrictions will be imposed that will
have a material adverse effect on the contemplated benefits of the merger.
We have not independently verified such information nor undertaken an
independent evaluation or appraisal of any of the assets or liabilities of ACB
or CIB or been furnished with any such evaluation or appraisal. We have assumed
that the aggregate allowances for loan losses for CIB and ACB are adequate to
cover possible loss without independently verifying them. We have not examined
any individual loan credit files.
Our opinion as expressed herein is limited to the fairness from a financial
point of view to the shareholders of Americorp in going ahead with the merger.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including the present operations of both
banks, their current and historical financial trends, positions and the nature
and terms of other bank merger transactions. Our opinion is based upon market,
economic and other conditions as they exist and can be evaluated.
This opinion is for the use and benefit of the Board of Directors of
Americorp and ACB. Our opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed merger or any
matter related thereto. It is expected that this opinion will be included as
part of the applications submitted to the regulatory agencies and provided to
the shareholders as part of the proxy materials in relation to approval of the
Merger.
Based upon and subject to the foregoing and based upon such other matters as
we deem relevant, it is our opinion as of this date that the terms of the
Agreement and the Exchange Ratio are fair from a financial point of view to the
shareholders of Americorp.
We consent to the filing of this opinion as Appendix C to the Registration
Statement and to the description of this opinion in the Joint Proxy
Statement/Prospectus.
Very truly yours,
/s/ BARRY M. RUBENS
--------------------------------------
California Research Corporation
Barry M. Rubens
PRESIDENT
C-2
<PAGE>
APPENDIX D
CALIFORNIA CORPORATIONS CODE
CHAPTER 13
DISSENTERS' RIGHTS
Section 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-term merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stocks 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-form
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 this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this
provision does apply to any shares with respect to which there exists any
restrictions 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
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-form 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 the 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.
Section 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 of cash, such corporation shall mail to each such shareholder a notice
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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 rights 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 subsection (b)
of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
(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) 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 vote the fair
market value of those shares as of the day before the announcement of 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.
Section 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 or 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.
Section 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.
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Section 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 shareholder 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.
Section 1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed,
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
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Section 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
thereafter.
Section 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING
SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement
in accordance with Section 1302 or are surrendered for conversion into
shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice
of the approval by the outstanding shares or notice pursuant to subdivision
(i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT OF PENDING
LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
Section 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal
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terms of the reorganization are approved pursuant to subdivision (b) of Section
1202, is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of transaction except upon 10 days' prior
notice to the corporation and upon a determination by the court that clearly no
other remedy will adequately protect the complaining shareholder or the class of
shareholders of which such a shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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APPENDIX E
1998 AMERICORP
STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1998 Americorp Stock Option Plan (the "Plan") is to
advance the interests of the Company through providing Participants with the
opportunity to acquire Shares. By encouraging such stock ownership, the Company
seeks to attract, retain and motivate the best available personnel for positions
of substantial responsibility and to provide additional incentive to Directors,
Consultants and key Employees of the Company or any Affiliate to promote the
success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply:
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code, and any other subsidiary corporations of a
parent corporation of the Company.
(b) "Agreement" shall mean a written agreement entered into in
accordance with Paragraph 5(c).
(c) "Award" shall mean an Option evidenced by a written agreement
entered into in accordance with Paragraph 5(c).
(d) "Bank" shall mean American Commercial Bank.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean the Stock Option Committee appointed by the
Board in accordance with Paragraph 5(a) hereof.
(h) "Common Stock" shall mean the common stock, $1.00 par value, of the
Company.
(i) "Company" shall mean Americorp.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the
case of sick leave, military leave or any other leave of absence approved by
the Company or between the Company, an Affiliate or a successor.
(k) "Director" shall mean any member of the Board, and any member of the
board of directors of any Affiliate that the Board has by resolution
designated as being eligible for participation in this Plan.
(l) "Non-Employee Director" shall mean any member of the Board who is a
"non-employee director" within the meaning of Rule 16b-3.
(m) "Effective Date" shall mean the date specified in Paragraph 13
hereof.
(n) "Employee" shall mean any person employed by the Company, the Bank
or an Affiliate who is an employee for federal tax purposes.
(o) "Exercise Price" shall mean the price per Optioned Share at which an
Option may be exercised.
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(p) "ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422
of the Code.
(q) "Market Value" shall mean the fair market value of the Common Stock,
as determined under Paragraph 7(b) hereof.
(r) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is
not identified as an ISO.
(s) "Option" means an ISO and/or a Non-ISO.
(t) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(u) "Participant" shall mean any key Employee, Director, Consultant or
other person who receives an Award pursuant to the Plan. For purposes of
this Plan, the term "Consultant" shall mean a consultant, business associate
or other person or entity with an important business relationship with the
Company, Bank or Affiliate.
(v) "Plan" shall mean this 1998 Americorp Stock Option Plan.
(w) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(x) "Share" shall mean one share of Common Stock.
3. TERM OF THE PLAN AND AWARDS.
(a) TERM OF THE PLAN. The Plan shall continue in effect for a term of 10
years from the Effective Date or the date the Plan is adopted by the Board
(whichever period ends earlier), unless sooner terminated pursuant to Paragraph
15 hereof. No Award shall be granted under the Plan after such 10 year term.
(b) TERM OF AWARDS. The term of each Award granted under the Plan shall be
established by the Committee, but shall not exceed 10 years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years, subject to the provisions of Section 8(e) hereof.
4. SHARES SUBJECT TO THE PLAN.
Except as otherwise required by the provisions of Paragraph 10 hereof, the
aggregate number of Shares deliverable pursuant to Awards shall not exceed
110,000 Shares. Such Shares will be authorized but unissued Shares. If any
Awards should expire, become unexercisable, or be forfeited, for any reason
without having been exercised or become vested in full, the Optioned Shares
shall, unless the Plan shall have been terminated, be available for the grant of
additional Awards under the Plan.
5. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF THE COMMITTEE. The Plan shall be administered by the
Committee, which shall consist of not less than three (3) members of the Board
who are Non-Employee Directors. Members of the Committee shall serve at the
pleasure of the Board. In the absence at any time of a duly appointed Committee,
the Plan shall be administered by those members of the Board who are
Non-Employee Directors.
(b) POWERS OF THE COMMITTEE. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, (v) to
make other determinations necessary or advisable for the
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administration of the Plan. The Committee shall have and may exercise such other
power and authority as may be delegated to it by the Board from time to time. A
majority of the entire Committee shall constitute a quorum and the action of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be deemed the action of the Committee.
(c) AGREEMENT. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The terms
of each such Agreement shall be in accordance with the Plan. In particular, the
Committee shall set forth in each Agreement (i) the Exercise Price of an Option,
(ii) the number of Shares subject to, and the expiration date of, the Award,
(iv) the restrictions, if any, to be placed upon such Award, or upon Shares
which may be issued upon exercise of such Award, and (v) whether the Option is
intended to be an ISO or a Non-ISO.
The Chairman of the Committee and such other Directors and officers as shall
be designated by the Committee are hereby authorized to execute Agreements on
behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) EFFECT OF THE COMMITTEE'S DECISIONS. All decisions, determinations and
interpretations of the Committee shall be final and conclusive on all persons
affected thereby.
(e) INDEMNIFICATION. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
6. GRANT OF OPTIONS.
(a) GENERAL RULE. Only key Employees and Directors and Consultants shall
be eligible to receive grants of Options pursuant to the Plan.
(b) SPECIAL RULES FOR ISOS. The aggregate Market Value, as of the date the
option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Parent or Subsidiary of the Company) shall not exceed
$100,000. Notwithstanding the foregoing, the Committee may grant Options in
excess of the foregoing limitations, in which case such Options granted in
excess of such limitations shall be Options which are Non-ISOs.
(c) DELIVERY OF INFORMATION. The Company shall deliver to each Optionee at
the times required, the information and financial statements provided for in
Rule 428(b) of the Securities and Exchange Commission's Regulation C and by
Section 260.140.46 of the Rules of the California Corporations Commissioner.
7. EXERCISE PRICE FOR OPTIONS
(a) LIMITS ON COMMITTEE DISCRETION. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the Options
Shares on the date of grant without taking into account any restrictions on the
Optioned Shares. In the case of an Employee who owns Shares representing more
than 10% of the Company's outstanding Shares of Common Stock at the time an ISO
is granted, the Exercise Price shall not be less than 110% of the Market Value
of the Optioned Shares at the time the ISO is granted.
(b) STANDARDS FOR DETERMINING EXERCISE PRICE. If the Common Stock is
listed on a national securities exchange (including NASDAQ National Market or
Small Cap System) on the date in question, then the Market Value per Share will
be the average of the highest and lowest selling price on such exchange on
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such date, or if there were no sales on such date, then the Exercise Price shall
be the mean between the bid and asked price on such date. If the Common Stock is
traded otherwise than on a national securities exchange on the date in question,
then the Market Value per Share shall be the mean between the bid and asked
price on such date, or, if there is no bid and asked price on such date, then on
the next prior business day on which there was a bid and asked price. If no such
bid and asked price is available, then the Market Value per Share shall be its
fair market value as determined by the Committee, in its sole and absolute
discretion.
8. EXERCISE OF OPTIONS.
(a) GENERALLY. Subject to (e) below, any Option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Agreement granted to a Participant. An
Option may not be exercised for a fractional Share.
(b) PROCEDURE FOR EXERCISE. A Participant may exercise Options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Company (contemporaneously with
delivery of such notice) in cash , in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice shall be
delivered, or mailed by prepaid registered or certified mail, addressed to the
Chief Financial Officer of the Company at the Company's executive offices.
Common Stock utilized in full or partial payment of the Exercise Price for
Options shall be valued at its Market Value per Share at the date of exercise.
(c) PERIOD OF EXERCISABILITY. Except to the extent otherwise provided in
more restrictive terms of an Agreement, an Option may be exercised by a
Participant only with respect to the vested portion of such
Option and only while he is an Employee or Director and has maintained
Continuous Service from the date of the grant of the Option, or within three
months after termination of such Continuous Service (but not later than the date
on which the Option would otherwise expire), except if the Employee's or
Director's Continuous Service terminates by reason of:
(1) "Just Cause" which for purposes hereof shall mean termination
because of the Employee's or Director's personal dishonesty (meaning
material dishonesty with respect to any aspect of the Company's, the Bank's
or an Affiliate's affairs or business), incompetence (which actually results
in substantial harm to the Company, the Bank or an Affiliate or which could
reasonably be expected to result in such harm), willful misconduct, breach
of fiduciary duty involving personal profit, intentional failure to perform
stated duties, willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or final cease-and-desist order,
then the Participant's rights to exercise such Option shall expire on the
date of such termination;
(2) Death, then all Options of the deceased Participant shall become
immediately exercisable and may be exercised within one year from the date
of his death (but not later than the date on which the Option would
otherwise expire) by the personal representatives of his estate or person or
persons to whom his rights under such Option shall have passed by will or by
laws of descent and distribution;
(3) Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code), then all Options of the disabled Participant shall
become immediately exercisable and may be exercised within one year from the
date of such Permanent and Total Disability, but not later than the date on
which the Option would otherwise expire.
(d) EFFECT OF THE COMMITTEE'S DECISIONS. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
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(e) The vesting period of an Option shall be provided for in the Agreement
and shall be determined in the sole discretion of the Committee; provided ,
however, that a minimum or 20% of the Option shall be exercisable in each year
over a five year period from the date the Option is granted. The vesting periods
for Options need not be identical. Vesting shall cease immediately upon the
termination of employment or directorship of an optionee. If an optionee shall
not in any given period exercise any of an Option which has become exercisable
during that period, the optionee's right to exercise such part of the Option
shall continue until expiration of the Option.
9. SUBSTITUTE OPTIONS.
Notwithstanding any other provisions of this Plan to the contrary, where the
outstanding shares of another corporation are changed into or exchanged for
shares of Common Stock of the Company in a merger, consolidation, reorganization
or similar transaction, then, subject to the approval of the Board, Options may
be granted in exchange for unexercised, unexpired stock options of the other
corporation (whether to directors, officers or employees and irrespective of
whether they will continue with the Company), and the exercise price of the
Optioned Shares subject to such Option so granted may be fixed at a price less
than one hundred percent of the Market Value of the Common Stock at the time
such Option is granted if said Exercise Price has been computed to be not less
than the Exercise Price set forth in the stock option of the other corporation,
with appropriate adjustment to reflect the exchange ratio of the shares of stock
of the other corporation into the shares of Common Stock of the Company. The
number of shares of the options of the other corporation shall also be adjusted
in accordance with the exchange ratio so that any substituted Option shall
reflect such adjustment.
10. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards (and the Exercise Price thereof), shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company is not the surviving entity, (iii) the sale
or disposition of all or substantially all of the Company's assets or (iv) a
tender offer or acquisition by one person or a group of persons acting in
concert of more than 50% of the Company's outstanding Shares (any of the
foregoing to be referred to herein as a "Transaction"), the Committee shall
notify each optionee of the pendency of the Transaction. Upon delivery of said
notice, any Award granted prior to the Transaction shall be, notwithstanding the
provisions of Paragraph 8(e), exercisable in full and not only as to those
Shares with respect to which installments, if any, have been accrued, subject,
however, to earlier expiration or termination as provided elsewhere in the Plan.
Upon the date thirty (30) days after delivery of such notice, any option or
portion thereof not exercised shall terminate, and upon the effective date of
the Transaction, this Plan shall terminate, unless provision is made in
connection with the Transaction for assumption of Options theretofore granted,
or payment therefor, or substitution for such Options of new options covering
stock of a successor corporation, or a parent or subsidiary corporation thereof,
solely at the option of such successor corporation or parent or subsidiary
corporation, with appropriate adjustments as to number and kind of shares and
prices. Notwithstanding the foregoing, if the Company is the surviving entity in
any such Transaction, the options shall not terminate.
(c) SPECIAL RULE FOR ISOS. Any adjustment made pursuant to subparagraphs
(a) or (b) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
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(d) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL OR DIFFERENCE SHARES OR
SECURITIES. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional or different shares of stock or
securities, such new, additional or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) OTHER ISSUANCES. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible in to Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect and no adjustment
shall be made with respect to, the number, class, Exercise Price of Shares then
subject to Awards or reserved for issuance under the Plan.
11. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution, or pursuant to the terms of a "qualified domestic relations order"
(within the meaning of Section 414(p) of the Code and the regulations and
rulings thereunder). An Award may be exercised only by a Participant, the
Participant's personal representative or a permitted transferee.
12. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of the
date on which the Committee makes the determination of granting such Award, and
the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
13. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by a favorable
vote of stockholders owning at least a majority of the Shares eligible to be
cast at a meeting duly held in accordance with applicable laws.
14. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the Committee to
direct execution of an instrument providing for the modification of any
outstanding Award, provided no such modification shall confer on the holder of
said Award any right or benefit which could not be conferred on him by the grant
of a new Award at such time, or impair the Award without the consent of the
holder of the Award.
15. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan.
Except for any changes that may be required to be made at the direction of
the Department of Corporations in connection with a permit procedure under the
California Corporate Securities Law, shareholder approval must be obtained for
any amendment of the Plan that would change the number of Shares subject to the
Plan (except in accordance with Paragraph 10 above), change the category of
persons eligible to be Participants, or materially increase the benefits under
the Plan.
No amendment, suspension or termination of the Plan shall, without the
consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) COMPLIANCE WITH SECURITIES LAWS. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law,
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including, without limitation, the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, any applicable state securities law, and
the requirements of any stock exchange upon which the Shares may then be listed.
(b) SPECIAL CIRCUMSTANCE. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares.
(c) COMMITTEE DISCRETION. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable.
17. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep available a
number of Shares sufficient to satisfy the requirements of the Plan.
18. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and employment tax withholding obligations. The Committee, in its
discretion, may permit the Participant to satisfy the obligation, in whole or in
part, by irrevocably electing to have the Company withhold Shares, or to deliver
to the Company Shares that he already owns, having a value equal to the amount
required to be withheld. The value of Shares to be with withheld, or delivered
to the Company, shall be based on the Market Value of the Shares on the date the
amount of tax to be withheld is to be determined. As an alternative, the Company
may retain, or sell without notice, a number of such Shares sufficient to cover
the amount required to be withheld.
19. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to participate or
participation in the Plan create or be deemed to create any legal or equitable
right of the Employee, Director, or any other party to continue service with the
Company, the Bank, or any Affiliate of such corporations.
20. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the laws of
the State of California, except to the extent that federal law shall be deemed
to apply.
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