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*****This file has been manipulated during the readback process-font set to
courier 12-margins to 0.0 inches-paper width of 13.2 inches.*******
As filed with the Securities and Exchange Commission on November 2, 1998
Registration No. 333-63841
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------
FORM S-4
AMENDMENT NO. 1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICORP
California 6712 77-0164985
---------- ---------------- ----------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code)
304 E. Main Street
Ventura, California, 93001
(805) 658-6633
(Address, including zip code and telephone number,
including area code, of registrant's principal office)
----------------------------------------------
Gerald J. Lukiewski
Chief Executive Officer
304 E. Main Street
Ventura, California, 93001
(805) 658-6633
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------------------------
copies to:
John F. Stuart, Esq. Loren P. Hansen, Esq.
Reitner & Stuart Knecht & Hansen
1730 K Street, N.W., Suite 1100 1301 Dove Street, Suite 900
Washington, D.C. 20006 Newport Beach, CA 92660
(202) 466-2818 (714) 851-8070
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
-------------------------------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box.
-------------------------------------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Proposed Proposed
maximum maximum
Title of each offering aggregate Amount of
class of securities Amount to price per offering registration
to be registered be registered unit* price* fee
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$23.50 $9,870,000 $2,912
Common Stock, $1.00 par value, 420,000 shares
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
* Estimated solely for the purposes of calculating the registration fee and
calculated pursuant to Rule 457 (f) (1) and based on the average of the bid and
asked price.
-------------------------------------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.
<PAGE>
AMERICORP PROSPECTUS
Cross-reference sheet pursuant to item 501(b) of Regulation S-K
Form S-4 Item
1. Forepart of Registration Statement and
Outside Front Cover page of
Prospectus................................ Outside front cover; facing page
2. Inside Front and Outside Back Cover
Pages of Prospectus....................... AVAILABLE INFORMATION; TABLE
OF CONTENTS
3. Risk Factors, Ration of Earnings to Fixed
Charges and Other Information ............ RISK FACTORS
4. Terms of the Transactions................. SUMMARY; THE MERGER;
DESCRIPTION OF CIB AND
AMERICORP STOCK
5. Pro forma Financial Information........... UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION
6. Material Contracts with the Company
Being Acquired............................ THE MERGER
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters................. *
8. Interests of Named Experts and Counsel... LEGAL MATTERS; EXPERTS
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants........ BUSINESS OF AMERICORP
15. Information with Respect to S-3
Companies................................ *
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16. Information with Respect to S-2 or S-3
Companies................................ *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies.......... BUSINESS OF CIB
18. Information if Proxies, Consents or
Authorizations are to be Solicited....... SUMMARY;THE CIB MEETING; THE
AMERICORP MEETING;
INFORMATION CONCERNING
AMERICORP MEETING ONLY
19. Information if Proxies, Consents or
Authorizations are not to be Solicited,
or in an Exchange Offer.................. *
* Not Applicable
3
<PAGE>
[CIB LETTERHEAD]
____________, 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 _______, ________ __, 1998, at _:__ 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
4
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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,
[SIGNATURE]
Joseph L. Priske
Chairman of the Board
5
<PAGE>
[AMERICORP LETTERHEAD]
Dear Shareholder:
You are cordially invited to attend a Special Meeting of the
Shareholders of Americorp to be held on _________ __, 1998, at _________ PM at
the ____________________________________________________, 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
6
<PAGE>
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
7
<PAGE>
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS
OF
CHANNEL ISLANDS BANK
TO BE HELD______________
_________________
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 ________, ____________, 1998, at _____ California
Time in the ______, _________________, 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 ____________,
1998 are entitled
8
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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
__________________________________
Secretary
_____________, 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.
9
<PAGE>
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
AMERICORP
TO BE HELD_____________________
_________________
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 _________, _______________, 1998, at _____ California Time in the __________,
_______________________, 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 ________,
1998 are entitled
10
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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
________________, 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.
11
<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 _____________, 1998 and
_________________, 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 _______________, 1998
and is first being mailed to shareholders of CIB and Americorp on or about
_____________, 1998.
THE SECURITIES OFFERED HEREBY ARE SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. SEE "RISK FACTORS"
BEGINNING ON PAGE ___ 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
12
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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.
13
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TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................ 15
SUMMARY.............................................. 16
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION.... 29
COMPARATIVE PER SHARE DATA........................... 30
RISK FACTORS......................................... 32
THE CIB MEETING...................................... 37
THE AMERICORP MEETING................................ 39
THE MERGER........................................... 41
Background and Reasons for the Merger And
Management's Recommendation -- Americorp........ 41
Background and Reasons for the Merger
And Management's Recommendation -- CIB.......... 43
Americorp Fairness Opinion........................ 46
CIB Fairness Opinion.............................. 50
Exchange Ratio.................................... 54
Fractional Shares................................. 55
Effective Time of Merger.......................... 55
Management and Operations of Americorp
and ACB after the Merger........................ 56
Amendment to the Bylaws of Americorp.............. 56
Regulatory Approvals.............................. 57
Interests of Certain Persons in the
Merger.......................................... 57
Additional Agreements............................. 59
Federal Income Tax
Consequences.................................... 59
Exchange Procedures............................... 60
Sales of Americorp Stock.......................... 61
Nasdaq Listing.................................... 61
Accounting Treatment.............................. 61
Conditions to the Merger.......................... 61
Nonsolicitation................................... 62
Expenses.......................................... 63
Treatment of Stock Options........................ 63
Termination....................................... 64
Covenants; Conduct of Business Prior to
Effective Time.................................. 64
Amendment and Waiver.............................. 66
Dissenting Shareholders' Rights................... 66
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS. 69
DESCRIPTION OF CIB AND AMERICORP STOCK............... 83
BUSINESS OF AMERICORP................................ 88
BUSINESS OF CIB...................................... 118
SUPERVISION AND REGULATION........................... 144
INFORMATION CONCERNING AMERICORP MEETING ONLY........ 154
LEGAL MATTERS........................................ 159
EXPERTS.............................................. 160
OTHER MATTERS........................................ 160
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.
14
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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.
15
<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 ___________, _________ __, 1998 at
____ _. m. California time, at _____________ 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, _________ __, 1998, will be entitled to vote at the CIB Meeting. At
such date, there were outstanding and entitled to vote ___________ shares of
CIB Stock. Each share of CIB Stock is entitled to one vote. See "THE CIB
MEETING."
16
<PAGE>
AMERICORP. The Americorp Meeting will be held on December 15,1998 at
4:00p. 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, _________ __, 1998, will be entitled
to vote at the Americorp Meeting. At such date, there were outstanding and
entitled to vote ______ 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 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."
17
<PAGE>
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 _____% 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 _____% 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.
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."
CIB FAIRNESS OPINION
18
<PAGE>
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 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."
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."
EFFECTIVE TIME OF THE MERGER
19
<PAGE>
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 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. There can be no assurance that the DFI
and 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
20
<PAGE>
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 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
21
<PAGE>
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 $68,000 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,
22
<PAGE>
see "THE MERGER - Federal Income Tax Consequences." 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.
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."
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<PAGE>
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 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".
24
<PAGE>
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
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<PAGE>
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.
SUMMARY HISTORICAL FINANCIAL DATA
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>
(amounts in thousands) (unaudited)
For the period
ended
June 30, Year Ended December 31,
-------------------- --------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<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
</TABLE>
SELECTED RATIOS:
26
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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>
AMERICORP
SELECTED CONSOLIDATED FINANCIAL DATA
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
------------------ --------------------------------------------------
------------------ --------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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
------------------ --------------------------------------------------
------------------ --------------------------------------------------
<CAPTION>
Six months
ended
June 30, December 31,
------------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------------ --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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>
28
<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 -------------------------------------------------------
June 30, 1998 December 31, 1997 December 31, 1996 December 31, 1995
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
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
</TABLE>
<TABLE>
<CAPTION>
Balance at Period End:
<S> <C> <C>
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
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
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>
30
<PAGE>
(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. 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, September 30,
-----------------------------------------------------------
1998 1997 1998 1997
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
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
<PAGE>
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>
STATEMENT OF INCOME ANALYSIS
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 there 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.
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
<PAGE>
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.
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>
<PAGE>
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
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
--------------- ---------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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
<PAGE>
Total Assets 93,762 81,546
Total Deposits 85,392 75,193
Shareholders' Equity 8,013 6,101
</TABLE>
<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
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.
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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.
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
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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.
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 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
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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 _______ shares were outstanding, and _________ 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 _____ shares of
Americorp Stock on the Americorp Record Date with exercise prices of between
$____ and $____.
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.
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
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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 underwriting and
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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 _________, ________, 1998 at
________________, located at __________________, Oxnard, California ________,
at ______ __.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 _________, 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 _____________ shares of CIB Stock outstanding, held
by approximately ___________ 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
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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 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
____________ 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 __________ shares of CIB Stock (not
including shares issuable upon exercise of stock options), or approximately
______% 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.
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THE AMERICORP MEETING
DATE, TIME AND PLACE
The Americorp Meeting will be held on _________, ________, 1998 at
________________, located at __________________, Ventura, California
________, at ______ __.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 _________,
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
_____________ shares of Americorp Stock outstanding, held by approximately
250 shareholders of record.
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
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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
____________ 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 __________ shares of Americorp
Stock (not including shares issuable upon exercise of stock options), or
approximately ______% 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 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
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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.
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
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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.
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
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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
customers and prospective customers, and the generally higher trading
multiples
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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
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.
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
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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 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.
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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 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
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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 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.
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<TABLE>
<CAPTION>
DECEMBER 31, 1997
(X000)
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>
The following table is a summary of various valuation results:
SUMMARY OF VALUATION RESULTS
<TABLE>
<CAPTION>
Completed
CIB-ACB Mergers in
CIB ACB Combined California1
<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
(3years at 12%) $34.53 $39.42 $59.48
</TABLE>
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 _________, 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.
- ---------------------
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.
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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 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.
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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.
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<PAGE>
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
["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
53
<PAGE>
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 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
54
<PAGE>
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 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.
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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.
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
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<PAGE>
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. There can be no assurance that the
DFI and 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 whether to approve the Merger, the DFI will consider
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.
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 ___% of the
outstanding shares in the case of CIB Stock and
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approximately ___% 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 ___% (in the case of CIB) and ___% (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.
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 $68,000, respectively, pursuant to their consulting
agreements and that Fred G. Buenger, William Burke and Glenn Farr (directors
of CIB) will
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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
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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.
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
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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 "- Certain 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.
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
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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 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
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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
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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 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
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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.
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.
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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 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
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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
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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>
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>
71
<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
</TABLE>
72
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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>
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>
73
<PAGE>
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.
74
<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
-------- -------- --------
-------- -------- --------
</TABLE>
75
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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>
76
<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
------ ------ -------
------ ------ -------
</TABLE>
77
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
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>
78
<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
------ ------ -------
------ ------ -------
</TABLE>
79
<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>
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>
80
<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
-------- -------- --------
-------- -------- --------
81
<PAGE>
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>
82
<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,
______________ 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,
__________ 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
83
<PAGE>
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.
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.
84
<PAGE>
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.
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
85
<PAGE>
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.
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
86
<PAGE>
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.
87
<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
88
<PAGE>
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.
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 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,
89
<PAGE>
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
90
<PAGE>
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
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.
91
<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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in 000's) 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>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
(dollars in 000's) 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.
92
<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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in 000's)
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.
93
<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
------- -------- ------- ------- --------
------- -------- ------- ------- --------
<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%.
94
<PAGE>
- ------------------------------------------------------------------------------
TABLE 3 (cont) - Investment Portfolio Maturity Distribution and Yield Analysis
- ------------------------------------------------------------------------------
(dollars in 000's)
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
------- ------- ------- ------- --------
------- ------- ------- ------- --------
<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%.
95
<PAGE>
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>
June 30, December 31,
------------- ----------------------------
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>
96
<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 t
- -------------------------------------------------------------------------------
TABLE 5 - Maturities and Sensitivities of Loans to Changes in Interest Rates
- -------------------------------------------------------------------------------
(dollars in 000's)
<TABLE>
<CAPTION>
Over
As of December 31, 1997: 3 Months Due after Due after
3 Months through one year to three years Due after
or less 12 months three years to five 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
--------
--------
<CAPTION>
Over
As of June 30, 1998: 3 Months Due after Due after
3 Months through one year to three years Due after
or less 12 months three years to five 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>
97
<PAGE>
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>
June 30, December 31,
-------------------------------------------------------------------
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>
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.
98
<PAGE>
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>
99
<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>
100
<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
-------- --------
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- ----------------------------
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
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.
101
<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
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in 000's)
At December 31, 1997
------------------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
At June 30, 1998
------------------------------------------------------------------------------------------------
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>
102
<PAGE>
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>
June 30, December 31,
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.
103
<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
104
<PAGE>
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.
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")
105
<PAGE>
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.
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.
106
<PAGE>
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
107
<PAGE>
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 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
108
<PAGE>
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.
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.
109
<PAGE>
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>
PERIOD YEAR-TO-DATE
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 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
110
<PAGE>
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
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<PAGE>
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
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:
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
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 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
Change in net interest
interest rates income
-------------- ------
<S> <C>
+200 basis points $ 226,000
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<PAGE>
+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.
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
BUSINESS EXPERIENCE APPOINTED AS
NAME AGE DURING PAST FIVE YEARS DIRECTOR AT ACB
---- --- ---------------------- ---------------
<C> <C> <C> <C>
Allen W. Jue 62 Owner, Jue's Market 1973
Robert J. Lagomarsino 71 VP Lagomarsino's 1993
(family business) U.S.
Congress, 1974-93
Gerald J. Lukiewski 44 Banker, President - ACB 3/98 to 1998
Present; S.V.P. Chief Credit Officer
7/97 to 3/98; V.P. Regional Manager
9/96 to 7/97; prior thereto various
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<PAGE>
positions with Santa Barbara Bank
& Trust Co. and Bank of A Levy
E. Thomas Martin 55 MW Sign Corp, President 1996
Harry L. Maynard 70 Retired, former President of 1976
American Commercial Bank
</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
BUSINESS EXPERIENCE DIRECTOR OR
NAME AND POSITION AGE DURING PAST FIVE YEARS OFFICER AT ACB
----------------- --- ---------------------- --------------
<C> <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 1997
President present; S.V.P. Chief Credit 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 1998
Senior Vice President, Operating Officer - ACB, 3/98 to
Chief Operating Officer Present; Senior Vice President Operations-
Colonial 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>
115
<PAGE>
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.
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
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<PAGE>
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 PERCENT
NAME OF BENEFICIAL OWNER BENEFICIAL 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%
- ----------------------------
</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. Benenficial 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.
(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.
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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>
- ----------------------------
(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.
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<PAGE>
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.
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
119
<PAGE>
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.
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,
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<PAGE>
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.
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).
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<PAGE>
<TABLE>
<CAPTION>
(unaudited)
For the period
ended Year Ended
June 30, December 31,
---------------------- ---------------------
1998 1997 1997 1996
----------- ---------- ---------- ----------
<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 December 31, 1996
-------------------------- ----------------------------- ----------------------------
Average Average Average Average Average Average
Earning Assets Balance Interest Yield Balance Interest Yield Balance Interest Yield
-------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Securities
U.S. treasuries(2) 680 17 5.00% 993 62 6.24% 475 30 6.32%
U.S. government agencies (2) 5,292 151 5.71% 5,250 334 6.36% 4,474 290 6.48%
Municipal agencies 76 2 5.26% 77 4 5.19% 77 4 5.19%
Mutual funds(2) 2,765 82 5.93% 2,001 119 5.95% 1,958 115 5.87%
Corporate bonds(2) 4,693 140 5.97% 412 26 6.31% 405 26 6.42%
Other securities 119 3 5.04% 173 9 5.20% 349 10 2.87%
Total Investment Securities 13,625 395 5.80% 8,906 554 6.22% 7,738 475 6.14%
Federal funds sold 7,325 200 5.46% 11,057 612 5.53% 14,259 561 3.93%
Due from banks- time deposits 1,246 37 5.94% 1,491 89 5.97% 2,012 116 5.77%
Loans (1) 55,585 2,795 10.06% 50,788 5,571 10.97% 47,090 5,175 10.99%
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest Earning
Assets 77,781 3,427 8.81% 72,242 6,826 9.45% 71,099 6,327 8.90%
Interest Bearing Liabilities
Domestic Deposits and Borrowed Funds
Savings deposits (3) 30,971 341 2.20% 30,904 754 2.44% 29,180 732 2.51%
Time Deposits 25,056 665 5.31% 21,330 1,125 5.27% 21,131 1,121 5.31%
Short-term borrowings
Total Interest Bearing
Liabilities 56,027 1,006 3.59% 52,234 1,879 3.60% 50,311 1,853 3.68%
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands) JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
<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 5.5% 6.1% 5.5%
(excluding loan fees) (1)
</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 June30, 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.
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
123
<PAGE>
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 Year Ended
June 30, 1998 December 31, 1997 December 31, 1996
Versus versus versus
Six months Ended Year Ended Year Ended
June 30, 1997 December 31, 1996 December 31, 1995
----------------------------- ------------------------------- -----------------------------
Increase (decrease) Due Increase (decrease) Due Increase (decrease) Due
To Change In To Change In To Change In
Rate Volume Total Rate Volume Total Rate Volume Total
--------- -------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment Securities:
Taxable (19) 180 161 (7) 86 79 68 (33) 35
Non-Taxable (1) 0 0 0 0 0 0 0 0 0
Federal Funds Sold 2 (71) (69) 114 (63) 51 (50) 148 98
Time Deposits 0 (7) (7) 4 (31) (27) (53) 3 (50)
Loans (2) (147) 204 57 (10) 406 396 (450) 1,476 1,026
--------- -------- --------- --------- --------- --------- --------- --------- ---------
Total Interest Income (164) 306 142 101 398 499 (485) 1,594 1,109
INTEREST-BEARING
LIABILITIES:
Savings Deposits (33) 18 (15) (19) 41 22 41 (10) 31
Time Deposit CD 16 122 138 (6) 10 4 (7) 500 493
--------- -------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
124
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Interest Expense (17) 140 123 (25) 51 26 34 490 524
--------- -------- --------- --------- --------- --------- --------- --------- ---------
Net-Interest Income (147) 166 19 126 347 473 (519) 1,104 585
--------- -------- --------- --------- --------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- --------- --------- --------- ---------
</TABLE>
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.
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.
125
<PAGE>
<TABLE>
<CAPTION>
June 30,
(dollars in thousands) 1998 Year Ended December 31,
------------------------ ---------------------------------------------------
1997 1996
Average Percent Average Percent Average Percent
Balance of Total Balance of Total Balance of Total
------------------------ ---------------------------------------------------
<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.
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
----------------------------------------------------------------------------------
(dollars in thousands) Within One year After One But within Five Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
126
<PAGE>
<TABLE>
<CAPTION>
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% 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>
(dollars in thousands) June 30,1998 December 31, 1997 December 31, 1996
TYPES OF LOANS
<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:
</TABLE>
127
<PAGE>
<TABLE>
<S> <C> <C> <C>
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 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
128
<PAGE>
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 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>
(amounts in thousands) December 31, June 30,
---------------------- -------------------
1997 1996 1998 1997
----------- ------- -------- -------
<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.
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<PAGE>
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.
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,
(dollars in thousands) (unaudited) June 30, 1998 1997 1996
---------------------------------------------------
<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
130
<PAGE>
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.
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%
131
<PAGE>
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>
(Dollars in Thousands) Year Ended December 31,
For period ended ------------------------------------------------
June 30, 1998 1997 1996
------------------------------------------------ ------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------------ ---------------------------------- ---------- -------------
<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:
(Dollars In Thousands) June 30,
1998
-----------------
Three months or less $ 3,506
132
<PAGE>
Over three through 12 months 6,247
Over one through five years 1,033
-----------------
$ 10,786
-----------------
-----------------
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
133
<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
----------------------------------------------------------------------------
(dollar in thousands) (unaudited) Three Over Three Over One
Months Through Through Over Five Non-Interest
or Less 12 Months Five Years Years Bearing Total
----------------------------------------------------------------------------
<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
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must be Tier 1 capital.
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
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Provisions
------------------- --------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------ ----------- --------- ----------- -------
As of June 30, 1998<S> <C> <C> <C> <C> <C> <C>
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
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<PAGE>
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.
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 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
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<PAGE>
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>
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;
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<PAGE>
(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.
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<PAGE>
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.
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>
NAME & ADDRESS OF AMOUNT OF BENEFICIAL PERCENT OF CLASS(2)(3)
BENEFICIAL OWNER OWNER(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
</TABLE>
139
<PAGE>
<TABLE>
<S> <C> <C>
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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
AMT. AND NATURE OF PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNER(2)(3) CLASS(2)(3)
- -------------- ------------------------ ----------------------- ----------
<S> <C> <C> <C>
Common James O. Birchfield as 27,251 4.83%
Stock Trustee of the James
O. Birchfield
1995 Trust
Common CEDE & Co. 48,134 8.53%
Stock
Common Cohen Family Trust 45,019 7.98%
Stock
Common Richard D. McNish 47,369 8.40%
Stock
</TABLE>
- ----------------------------------
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Martin V. Smith 36,258 6.43%
Stock
</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 $283,561.76.
The following table sets forth the cash compensation of the Chief
Executive Officer.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Name & Principal Position Year Salary ($) 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.
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<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
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<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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 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
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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
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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.
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
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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 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
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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>
<S><C>
"Well capitalized" "Adequately capitalized"
---------------- ----------------------
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%.
"Undercapitalized" "Significantly undercapitalized"
---------------- ------------------------------
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%.
"Critically undercapitalized"
---------------------------
Tangible equity to total assets less than 2%.
</TABLE>
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or undercapitalized" may be
treated as though it were in the next lower capital category if the
appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition or an unsafe or unsound
practice warrants such treatment. At each successive lower capital category,
an insured depository institution is subject to more restrictions. The
federal banking agencies, however, may not treat an institution as
"critically undercapitalized" unless its capital ratio actually warrants such
treatment.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited
exceptions, making capital distributions if after such transaction the
institution would be undercapitalized. If an insured depository institution
is undercapitalized, it will be closely monitored by the appropriate federal
banking agency, subject to asset growth restrictions and required to obtain
prior regulatory approval for acquisitions, branching and engaging in new
lines of business. Any undercapitalized depository institution must submit an
acceptable capital restoration plan to the appropriate federal banking agency
45 days after becoming undercapitalized. The appropriate federal banking
agency cannot accept a capital plan unless, among other things, it determines
that the plan (i) specifies the steps the institution will take to become
adequately capitalized, (ii) is based on realistic assumptions and (iii) is
likely to succeed in restoring the depository institution's capital. In
addition, each company controlling an undercapitalized depository institution
must guarantee that the institution will comply with the capital plan until
the depository institution has been adequately capitalized on an average
basis during each of four consecutive calendar quarters and must otherwise
provide adequate assurances of performance. The aggregate liability of such
guarantee is limited to the lesser of (a) an amount equal to 5% of the
depository institution's total assets at the time the institution became
undercapitalized or (b)
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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,
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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 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.
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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.
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.
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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
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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 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.
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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 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,
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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 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
157
<PAGE>
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 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
158
<PAGE>
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
159
<PAGE>
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, 1996 and 1995 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
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.
160
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
CHANNEL ISLANDS BANK
----
<S> <C>
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-7
Statements of Changes in Shareholders' Equity . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-10
Unaudited Balance Sheets (June 30, 1998 and 1997) F-24
Unaudited Statements of Income (June 30,1998 and 1997) F-25
Unaudited Statements of Changes in Stockholder's Equity
(June 30, 1998 and 1997) F-26
AMERICORP
Report of Fanning & Karrh, Independent Auditors F-27
Consolidated Balance Sheets F-28
Consolidated Statements of Income F-29
Consolidated Statement of Stockholders' Equity F-31
Consolidated Statements of Cash Flows F-33
Notes to Consolidated Financial Statements F-35
Unaudited Consolidated Balance Sheets (June 30, 1998 and 1997) F-52
Unaudited Consolidated Statements of Income (June 30, 1998 and 1997) F-53
Unaudited Consolidated Statements of Stockholders' Equity
(June 30, 1998 and 1997) F-55
Unaudited Consolidated Statements of Cash Flows (June 30, 1998 and 1997) F-57
Notes to Unaudited Consolidated Financial Statements F-59
</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
----------- -----------
----------- -----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Notes 1997 1996
----- ----------- -----------
INTEREST INCOME
<S> <C> <C> <C>
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.
F-8
<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, CONTINUED
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 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.
F-9
<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, CONTINUED
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 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.
F-10
<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, CONTINUED
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>
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>
F-11
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #3 - INVESTMENT SECURITIES, CONTINUED
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 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>
F-12
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #3 - INVESTMENT SECURITIES, CONTINUED
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-13
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
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.
F-14
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #4 - LOANS, CONTINUED
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.
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.
F-15
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #6 - STOCK OPTION PLANS, CONTINUED
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 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>
F-16
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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>
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.
F-17
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #7 - INCOME TAXES, CONTINUED
<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>
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>
F-18
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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 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.
F-19
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #9 - COMMITMENTS, CONTINUED
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 (as defined). Management believes, as of December 31,1997, that the Bank
meets all capital adequacy requirements to which it is subject.
F-20
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #11 - REGULATORY MATTERS, CONTINUED
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 To Be
Adequately 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.
F-21
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
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," 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
Notional Cost to Cede
Amount or Assume
------------ -----------
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.
F-22
<PAGE>
CHANNEL ISLANDS NATIONAL BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE #13 - FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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.
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-23
<PAGE>
Channel Islands Bank
BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) June 30, 1998 June 30, 1997
- ---------- ------------- -------------
<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-24
<PAGE>
Channel Islands Bank
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Six Month Periods Ended,
(UNAUDITED) June 30, 1998 June 30, 1998
- ----------- ------------- -------------
<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-25
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Valuation
Number of Allowance 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 4,000 20,000 25,740 45,740
(including the realization of
tax benefits of $5,740)
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
-------- --------- --------- --------- -------- ---------
-------- --------- --------- --------- -------- ---------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Valuation
Number of Allowance 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 54,269 271,345 348,182 619,527
(including the realization
of tax benefits of $229,472)
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-26
<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.
/s/ 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-27
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS NOTES 1997 1996
- ------ ----- ------------ ------------
<S> <C> <C> <C>
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-28
<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
---------- ---------- ----------
</TABLE>
F-29
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME - concluded
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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-30
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
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, 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
($.84 per share) (481,088)
NET CHANGE IN
UNREALIZED
GAIN (LOSS)
ON SECURITIES
AVAILABLE-
FOR-SALE,
NET OF TAXES (21,144)
------- -------- ---------- ---------- ---------
BALANCE,
DECEMBER 31, 1996 575,665 575,665 1,913,280 7,932,965 50,173
</TABLE>
F-31
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - continued
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Net
Unrealized
COMMON STOCK Gain (Loss) on
---------------- Securities
Number of Retained Available-
Shares Amount Surplus Earnings For-sale
-------- ------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
ISSUANCE OF STOCK 11,765 11,765 277,678
RETIREMENT OF STOCK (1,912) (1,912) (6,794) (48,685)
NET INCOME 1,102,513
DIVIDENDS
($.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-32
<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-33
<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-34
<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.
F-35
<PAGE>
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 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.
F-36
<PAGE>
Estimated useful lives are as follows:
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 5 to 15 years
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.
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>
F-37
<PAGE>
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>
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-38
<PAGE>
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-39
<PAGE>
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.
F-40
<PAGE>
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.
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-41
<PAGE>
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.
F-42
<PAGE>
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
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
F-43
<PAGE>
purposes with the following assumptions used for grants in all years;
dividend yield of 3.16%, risk-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
Range of Number Average Number
Exercise Outstanding Remaining Exercisable
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.
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
F-44
<PAGE>
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>
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>
F-45
<PAGE>
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.
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>
F-46
<PAGE>
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.
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.
F-47
<PAGE>
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.
F-48
<PAGE>
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.
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.
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:
F-49
<PAGE>
<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
-----------
-----------
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 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.
F-50
<PAGE>
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-51
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
- --------------------------------------
<TABLE>
<CAPTION>
ASSETS NOTES 1998 1997
- ------ ----- ---- ----
<S> <C> <C> <C>
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-52
<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
----------- -----------
</TABLE>
F-53
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME - concluded
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997
- -------------------------------------------------------
<TABLE>
<CAPTION>
NOTES 1998 1997
----- ---- ----
<S> <C> <C> <C>
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-54
<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)
</TABLE>
F-55
<PAGE>
AMERICORP AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - concluded
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>
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-56
<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-57
<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> <S> <S>
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-58
<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.
F-59
<PAGE>
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 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
F-60
<PAGE>
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:
Furniture, fixtures and equipment 3 to 10 years
Leasehold improvements 5 to 15 years
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.
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.
F-61
<PAGE>
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>
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>
F-62
<PAGE>
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>
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.
F-63
<PAGE>
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 $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>
F-64
<PAGE>
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.
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.
F-65
<PAGE>
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>
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>
F-66
<PAGE>
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
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
F-67
<PAGE>
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>
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.
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
F-68
<PAGE>
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>
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
-------- --------
F-69
<PAGE>
<CAPTION>
<S> <C> <C>
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.
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%)
F-70
<PAGE>
<CAPTION>
<S> <C> <C>
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 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
F-71
<PAGE>
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.
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:
F-72
<PAGE>
<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
</TABLE>
F-73
<PAGE>
<TABLE>
<CAPTION>
Financial liabilities:
<S> <C> <C>
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.
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>
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
-----------
-----------
</TABLE>
STATEMENT OF CASH FLOWS
<TABLE>
<S> <C> <C>
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)
F-74
<PAGE>
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-75
<PAGE>
APPENDIX A
<PAGE>
AGREEMENT TO MERGE
AND PLAN OF REORGANIZATION
DATED AS OF JULY 7, 1998
BY AND AMONG
AMERICAN COMMERCIAL BANK
AMERICORP
AND
CHANNEL ISLANDS BANK
<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.
R E C I T A L S:
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.
A G R E E M E N T
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.
2
<PAGE>
"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, 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
3
<PAGE>
"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.
4
"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.
"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.
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"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, 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.
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"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.
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"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.
"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.
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"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.
"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.
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"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
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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 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:
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(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 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.
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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
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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.
(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.
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(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.
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
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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
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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 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
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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, 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
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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 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,
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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;
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(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 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;
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(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;
(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
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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 any such contract,
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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
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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.
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
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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 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
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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
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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.
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.
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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
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
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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 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'
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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
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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.
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
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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.
(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,
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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.
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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 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
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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;
(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);
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(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
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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, 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.
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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
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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;
(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);
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(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;
(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
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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
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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;
(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
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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, 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;
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(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
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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 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.
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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 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.
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(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
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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
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
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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 Presdient/ Senior
Lending 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.
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(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
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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;
(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
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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;
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(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, 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);
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(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 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
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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 which they may receive
relating to any of such matters. For purposes of this Agreement, "Competing
Transaction"
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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.
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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 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
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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.
(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
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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.
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(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.
(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
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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 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
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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
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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 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
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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.
(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
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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 obligations of any other Party or to perform a
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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
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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.
(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
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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
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
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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
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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
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
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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.
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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:
AMERICORP
By: /s/ GERALD LUKIEWSKI
--------------------
President
Attest:
By: /s/ LINCOLN E. CRYNE
--------------------
Secretary
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:
AMERICAN COMMERCIAL BANK
By: /s/ GERALD L. LUKIEWSKI
-----------------------
President
Attest:
By: /s/ LINCOLN E. CRYNE
--------------------
Secretary
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:
CHANNEL ISLANDS BANK
By: /s/ THOMAS E. ANTHONY
---------------------
President
Attest:
By: /s/ ALLEN R. PARTRIDGE
----------------------
Secretary
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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
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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:
AMERICORP
By: /s/ GERLAD J. LUKIEWSKI
-----------------------
President
Attest:
By: /s/ LINCOLN E. CRYNE
--------------------
Secretary
WITNESS, the signature of Bank, as of the17th 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:
AMERICAN COMMERCIAL BANK
By: /s/ GERLAD J. LUKIEWSKI
-----------------------
President
Attest:
By: /s/ LINCOLN E. CRYNE
--------------------
Secretary
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:
CHANNEL ISLANDS BANK
By: /s/ THOMAS E. ANTHONY
---------------------
President
Attest:
By: /s/ ALLEN R. PARTRIDGE
----------------------
Secretary
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APPENDIX B
<PAGE>
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.
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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.
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.
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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
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APPENDIX C
<PAGE>
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;
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(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 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
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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
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APPENDIX D
<PAGE>
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
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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 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.
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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.
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.
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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.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
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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.
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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 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
<PAGE>
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
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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.
(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.
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(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 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
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<PAGE>
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
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<PAGE>
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 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:
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<PAGE>
(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.
(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
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<PAGE>
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.
(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.
(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
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<PAGE>
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
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<PAGE>
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, 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.
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<PAGE>
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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<PAGE>
PART II INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
CALIFORNIA LEGISLATION
Americorp and its subsidiary, ACB, are subject to the California General
Corporation Law (the "CGCL"), which provides a detailed statutory framework
covering indemnification of any officer or other agent of a corporation who
is made or threatened to be made a party to any legal proceeding by reason of
his or her services on behalf of such corporation.
With respect to indemnification, the CGCL provides that to the extent
any officer, director or other agent of a corporation is successful "on the
merits" in defense of any legal proceeding to which such person is a party or
is threatened to be made a party by reason of his or her service on behalf of
such corporation or in defense of any claim, issue, or matter therein, such
agent shall be indemnified against expenses actually and reasonably incurred
by the agent in connection therewith, but does not require indemnification in
any other circumstance. The CGCL also provides that a corporation may
indemnify any agent of the corporation, including officers and directors,
against expenses, judgments, fines, settlements and other amounts actually
and reasonably incurred in a third party proceeding against such person by
reason of his or her services on behalf of the corporation, provided the
person acted in good faith and in a manner he or she reasonably believed to
be in the best interests of such corporation. The CGCL further provides that
in derivative suites a corporation may indemnify such a person against
expenses incurred in such a proceeding, provided such person acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the corporation and its shareholders. Indemnification is not
available in derivative actions (i) for amounts paid or expenses incurred in
connection with a matter that is settled or otherwise disposed of without
court approval or (ii) with respect to matters for which the agent shall have
been adjudged to be liable to the corporation unless the court shall
determine that such person is entitled to indemnification.
The CGCL permits the advancing of expenses incurred in defending any
proceeding against a corporate agent by reason of his or her service on
behalf of the corporation upon the giving of a promise to repay any such sums
in the event it is later determined that such person is not entitled to be
indemnified. Finally, the CGCL provides that the indemnification provided by
the statute is not exclusive of other rights to which those seeking
indemnification may be entitled, by bylaw, agreement or otherwise, to the
extent additional rights are authorized in a corporation's articles of
incorporation. The law further permits a corporation to procure insurance on
behalf of its directors, officers and agents against any liability incurred
by any such individual, even if a corporation would not otherwise have the
power under applicable law to indemnify the director, officer or agent for
such expenses.
The Bylaws of Americorp and ACB contain provisions substantial identical
to the provisions of the CGCL.
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<PAGE>
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
Americorp presently maintains a policy of directors' and officers'
liability insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
2.1 Agreement to Merge and Plan of Reorganization, dated
July 7, 1998, and amended on September 17, 1998 - Appendix A
of Joint Proxy Statement/Prospectus
3.1 Articles of Incorporation of Americorp *
3.2 Bylaws of Americorp, as amended *
4.1 Specimen Share Certificate for Common Stock *
5.1 Opinion of Reitner & Stuart *
8.1 Tax Opinion of Vavrinek, Trine, Day & Co., LLP
10.1 Employment Agreement of Gerald J. Lukiewski *
10.2 1994 Stock Option Plan *
10.3 1998 Stock Option Plan - Appendix E of Joint Proxy Statement/Prospectus
10.4 ACB 401K Profit Sharing Plan *
10.5 Restated and Amended Senior Executives' Retirement Plan *
10.6 Restated and Amended Chief Executive Officer Retirement Plan *
10.7 Restated and Amended Directors Retirement Plan *
10.8 Data processing Agreement with Electronic Data Systems Corp. *
10.9 Findley Fairness Opinion - Appendix B of Joint Proxy Statement/Prospectus
10.10 Cal.Research Fairness Opinion - Appendix C of Joint Proxy Statement/Prospectus
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<PAGE>
21.1 Subsidiary of Americorp - American Commercial Bank is the only subsidiary of Americorp *
23.1 Consent of Findley*
23.2 Consent of Cal.Research (included in Appendix C)*
23.3 Consent of Vavrinek, Trine, Day & Co., LLP
23.4 Consent of Fanning & Karrh
23.5 Consent of Reitner & Stuart (included in Exhibit 5.1)*
23.6 Consent of Persons about to Become Directors
27 Financial Data Schedule *
99.1 Americorp - form of proxy *
99.2 CIB - form of proxy *
</TABLE>
- -------------------------
* previously filed
(b) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because the required information is not
applicable or is included in the financial statements of Americorp and the
related notes.
(c) NOT APPLICABLE.
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertake to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth
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<PAGE>
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section
do not apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to section 13 or
section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
2. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
3. The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
Americorp has duly caused this Amendment No.1 to the Registration Statement
to be signed on its behalf by the undersigned, there unto duly authorized, in
the City of Ventura, State of California on October 29, 1998.
AMERICORP
By: /s/ Gerald J. Lukiewski
---------------------------------
GERALD J. LUKIEWSKI
President and Chief Executive Officer
By: /s/ Keith Sciarillo
---------------------------------
KEITH SCIARILLO
Chief Financial Officer
(principal accounting officer)
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<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No.1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Dated:
<S> <C> <C>
/s/ ALLEN W. JUE
- ----------------
ALLEN W. JUE Chairman of the Board of Directors October 29, 1998
/s/ LINCOLN E. CRYNE
- --------------------
LINCOLN E. CRYNE Director October 29, 1998
/s/ ROBERT J. LAGOMARSINO
- -------------------------
ROBERT J. LAGOMARSINO Director October 29, 1998
/s/ E. THOMAS MARTIN
- --------------------
E. THOMAS MARTIN Director October 29, 1998
/s/ HARRY L. MAYNARD
- --------------------
HARRY L. MAYNARD Director October 29, 1998
/s/ CATHERINE S. WOOD
- ---------------------
CATHERINE S. WOOD Director October 29 1998
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT PAGE NO.
- ----------- ------- --------
<S> <C> <C>
2.1 Agreement to Merge and Plan of Reorganization, dated
July 7, 1998, and amended on September 17, 1998 - Appendix A
of Joint Proxy Statement/Prospectus
3.1 Articles of Incorporation of Americorp*
3.2 Bylaws of Americorp, as amended*
4.1 Specimen Share Certificate for Common Stock*
5.1 Opinion of Reitner & Stuart*
8.1 Tax Opinion of Vavrinek, Trine, Day & Co., LLP
10.1 Employment Agreement of Gerald J. Lukiewski*
10.2 1994 Stock Option Plan*
10.3 1998 Stock Option Plan - Appendix E of Joint Proxy Statement/Prospectus
10.4 ACB 401K Profit Sharing Plan*
10.5 Restated and Amended Senior Executives' Retirement Plan*
10.6 Restated and Amended Chief Executive Officer Retirement Plan*
10.7 Restated and Amended Directors Retirement Plan*
10.8 Data processing Agreement with Electronic Data Systems Corp.*
10.9 Findley Fairness Opinion - Appendix B of Joint Proxy Statement/Prospectus
10.10 Cal.Research Fairness Opinion - Appendix C of Joint Proxy Statement/Prospectus
21.1 Subsidiary of Americorp - American Commercial Bank is the only subsidiary of Americorp*
23.1 Consent of Findley*
23.2 Consent of Cal.Research (included in Appendix C)*
23.3 Consent of Vavrinek, Trine, Day & Co., LLP
23.4 Consent of Fanning & Karrh
23.5 Consent of Reitner & Stuart (included in Exhibit 5.1)*
23.6 Consent of Persons about to Become Directors
27 Financial Data Schedule*
99.1 Americorp - form of proxy*
99.2 CIB - form of proxy*
</TABLE>
- -------------------------
* previously filed
<PAGE>
October 30, 1998
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Gentlemen:
You have requested our opinion regarding certain federal income tax consequences
of the proposed merger of Channel Islands Bank ("Target") with and into American
Commercial Bank ("Sub").
FACTS
Americorp, a corporation organized in California ("Parent"), is the parent
corporation of American Commercial Bank ("Sub"), also a California corporation
through which Parent engages in the business of general commercial banking.
Parent does not directly engage in the business of general commercial banking
but instead does so indirectly as the holding company for Sub. Neither Parent
nor any person related to Parent owns, or immediately prior to the merger will
own, any stock of Target.
Target is a California corporation. Target engages in the business of general
commercial banking.
The terms of the proposed merger (the "Merger") are contained in the Agreement
to Merge and Plan of Reorganization dated as of July 7, 1998 and amended on
September 17,1998 (the "Merger Agreement").
Terms not otherwise defined in this letter shall have the meanings assigned to
them in the Merger Agreement.
You have directed us to assume in preparing this opinion that (1) the Merger
will be consummated in accordance with the terms, conditions and other
provisions of the Merger Agreement, and (2) all of the factual information,
descriptions, representations and assumptions set forth in this letter, in the
Merger Agreement, in the letters to us from Parent dated September 1, 1998, and
from Target dated September 1, 1998 (the "Letters"), and in the Proxy
Statement/Prospectus dated _____, 1998, and mailed to Target shareholders in
connection with the special meeting of shareholders to approve the Merger, are
accurate and complete and will be accurate and complete at the time the Merger
becomes effective (the "Effective Date"). We have not independently verified
any factual matters relating to the Merger with or apart from our preparation of
this opinion and, accordingly, our opinion does not take into account any
matters not set forth herein which might have been disclosed by independent
verification.
<PAGE>
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Page 2
The Merger Agreement provides that Target will in accordance with the Exchange
Ratio set forth in the Merger Agreement be merged with and into Sub in
accordance with the applicable provisions of the General Corporation Law of the
State of California and the California Financial Code. The Merger must be
approved as required by law by the Target shareholders at a special meeting to
be held on _____, 1998.
On the Effective Date, all assets and liabilities of Target will be transferred
by operation of law to Sub; the separate corporate existence of Target will
cease, and, except as provided below, each share of Target Common Stock then
outstanding will be converted into .7000 share of Parent Common Stock. In the
event Parent changes (or establishes a record date for changing) the number of
shares of Parent Common Stock issued and outstanding prior to the Effective Date
as a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding Parent Common Stock and the record
date therefor shall be prior to the Effective Date, the Exchange Ratio shall be
proportionately adjusted.
No fractional shares of Parent Common Stock will be issued in the Merger. Each
holder of Target Common Stock, who otherwise would be entitled to receive a
fraction of a share of Parent Common Stock, will receive instead, cash equal to
such fraction multiplied by the Parent's book value per share. Except for cash
paid to dissenters and cash exchanged in lieu of issuing fractional shares of
Parent Common Stock, no cash will be exchanged for shares of Target Common Stock
or shares of Parent Common Stock pursuant to the Merger.
On the Effective Date, Target's obligations with respect to stock options, shall
be assumed by Parent for (i) each and every officer and employee of Target who
shall continue as an officer and employee of Sub and (ii) each director of
Target. Each outstanding option, shall become the right to receive, upon
payment of the exercise price, that number of shares of Parent Common Stock
equal to the product of the Exchange Ratio and the number of shares of Target
Common Stock covered by the option.
Except for the options issued pursuant to above, no options to purchase Target
Common Stock and no securities or other instruments convertible into Target
Common Stock will be outstanding on the Effective Date.
We have also relied with your permission on the following additional
representations and/or assumptions:
1. The Merger will be a statutory merger in accordance with the
applicable provisions of the General Corporation Law of the State of
California and the California Financial Code.
2. The fair market value of the Parent Common Stock and other
consideration received by each Target shareholder will be
approximately equal to the fair market value of the Target Common
Stock surrendered in the exchange.
<PAGE>
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Page 3
3. Target has not (and, as of the Effective Date, will not have)
redeemed, and no person related (within the meaning of Treasury
Regulation Section 1.368-1(e)(3)) to Target has (or, as of the
Effective Date, will have) acquired, any stock of Target (1) within
one year prior to the Effective Date, or, (2) as part of a plan which
includes the Merger.
4. Parent has no plan or intention to reacquire, and no person related
(within the meaning of Treasury Regulation Section 1.368-1(e)(3)) to
Parent has any intention to acquire, any of the Parent Common Stock to
be issued in the Merger.
5. Except as provided in the next sentence, Parent, Target and the
shareholders of Target will pay their respective expenses, if any,
incurred in connection with the Merger. Sub will pay or assume only
those expenses of Target that are solely and directly related to the
Merger in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
6. There is no intercorporate indebtedness existing between Sub and
Target that was issued, acquired or will be settled at a discount.
7. No two parties to the Merger are investment companies as defined in
section 368(a)(2)(F)(iii) and (iv).
8. Target is not under the jurisdiction of a court in a title 11 or
similar case within the meaning of section 368(a)(3)(A).
9. The fair market value of the assets of Target transferred to Sub will
equal or exceed the sum of the liabilities assumed by Sub plus the
amount of liabilities, if any, to which the transferred assets are
subject.
10. Except as described in the Proxy Statement/Prospectus, no dividends or
distributions, other than regular or normal dividends or
distributions, will be made with respect to any Target stock prior to
the Merger. After the Merger, no dividends or distributions will be
made to the former Target shareholders by Parent, other than regular
or normal dividend distributions made with regard to all shares of
Parent Common Stock.
11. None of the compensation received by any shareholder-employees of
Target will be separate consideration for, or allocable to, any of
their shares of Target Common Stock. The compensation paid to any
shareholder-employees of Target will be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. None of the Parent Common Stock
received by any shareholder-employee of Target will be in exchange
for, or in consideration of, services rendered to Sub, Target or any
other entity by such shareholder-employee.
<PAGE>
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Page 4
12. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not
represent separately bargained-for consideration. In addition, this
cash payment will not be made pro rata either to all Target
shareholders or to all Target and Parent shareholders. The total cash
consideration that will be paid in the Merger to Target shareholders
in lieu of issuing fractional shares of Parent Common Stock will not
exceed one percent of the total consideration that will be issued in
the Merger to the Target shareholders in exchange for their shares of
Target Common Stock. The fractional share interests of each Target
shareholder will be aggregated, and no Target shareholder will receive
cash in an amount equal to or greater than the value of one full share
of Parent Common Stock.
13. The Target shareholders that will receive cash in lieu of fractional
shares of Parent Common Stock will not have control of Parent, for
purposes of section 302(b)(1), following the Merger.
14. The Merger is being effected for bona fide business reasons as
described in the Proxy Statement/Prospectus.
15. Prior to the Merger, Target will not sell or otherwise dispose of any
of its assets, except for dispositions made in the ordinary course of
business or transfers described in section 368(a)(2)(C) or Treasury
Regulation Section 1.368-2(k).
16. Sub has no plan or intention to sell or otherwise dispose of any of
the assets of Target to be acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers
described in section 368(a)(2)(C) or Treasury Regulation Section
1.368-2(k).
17. Prior to the Merger, Target will continue its historic businesses and
will use a significant portion of its historic assets in those
businesses.
18. Following the Merger, Sub will continue the historic business of
Target and will use a significant portion of Target's historic
business assets in a business.
<PAGE>
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Page 5
OPINION
Assuming that the Merger is consummated in accordance with the terms and
conditions set forth in the Merger Agreement and based on the facts set forth in
the Proxy Statement/Prospectus, the Letters, and this letter (including all
assumptions and representations), it is our opinion that for federal income tax
purposes:
1. The Merger will constitute a "reorganization" within the meaning of section
368(a), Parent, Sub and Target will each be a party to the reorganization
within the meaning of Section 368 (b) of the Code.
2. Neither Parent nor Sub will recognize gain or loss as a result of the
Merger.
3. Target will not recognize gain or loss as a result of the Merger.
4. To the extent Target Common Stock is exchanged in the Merger for Parent
Common Stock, no gain or loss will be recognized by the shareholders of
Target. The exchange of Parent or Target Stock for cash pursuant to the
exercise of dissenters' rights will be a taxable transaction.
5. The tax basis of the assets in Sub after the Merger will be the same as the
tax basis of assets held by Target and Sub immediately before the Merger.
6. The holding period for the shares of Parent Common Stock received by each
shareholder of Target will include the holding period for the shares of
Target Common of such shareholder exchanged in the Merger.
7. The tax basis of the shares of Parent Common Stock received by each
shareholder of Target will equal the tax basis of such shareholder's shares
of Target Common Stock (reduced by any amount allocable to fractional share
interests for which cash is received) exchanged in the Merger.
8. The payment of cash to shareholders of Target in lieu of fractional share
of interest of Parent will be treated as if the fractional shares were
distributed as part of the exchange and then redeemed by Parent. 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 Parent
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.
9. No gain or loss will be recognized for federal income tax purposes by the
holders of outstanding stock options granted under Target's stock option
plan as a result of the granting of substitute options granted pursuant to
Parent's stock option plan.
10. The granting of any substitute stock option to a holder of a Target stock
option will not be deemed a modification of an incentive stock option.
<PAGE>
Channel Islands Bank
155 South A Street
Oxnard, CA 93032-0829
Page 6
Our opinion is limited to the foregoing federal income tax consequences of the
Merger, which are the only matters as to which you have requested our opinion,
and you must judge whether the matters addressed herein are sufficient for your
purposes. We do not address any other federal income tax consequences of the
Merger or other matters of federal law and have not considered matters
(including state or local tax consequences) arising under the laws of any
jurisdiction other than matters of federal law arising under the laws of the
United States.
Our opinion is based on the understanding that the relevant facts are, and will
be on the Effective Date, as set forth in this letter. If this understanding is
incorrect or incomplete in any respect, our opinion could be affected. Our
opinion is also based on the Code, Treasury Regulations, case law, and Internal
Revenue Service rulings as they now exist. These authorities are all subject to
change and such change may be made with retroactive effect. We can give no
assurance that after any such change, our opinion would not be different.
We undertake no responsibility to update or supplement our opinion.
/s/ Varinek, Trine, Day & Co., LLP
Vavrinek, Trine, Day & Co., LLP
Rancho Cucamonga, California
<PAGE>
EXHIBIT 23.3
Consent of Vavrinek, Trine, Day & Co. LLP
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our Independent Auditor's Report dated
January 23, 1998 regarding the balance sheets of Channel Islands National
Bank as of December 31, 1997 and 1996 and the related statements of income,
changes in shareholder's equity and cash flows for the years then ended, in
the Form S-4 filed by Americorp with the Securities and Exchange Commission,
and the reference to our firm as experts.
/s/ VAVRINEK, TRINE, DAY & CO., LLP
- -----------------------------------
VAVRINEK, TRINE, DAY & CO., LLP
Rancho Cucamonga, CA
October 29, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our auditors' report, dated 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), included in Channel Islands Bank and Americorp Joint
Proxy/Prospectus Statement and to the reference to our firm under the heading of
"Experts" in the Joint Proxy/Prospectus Statement.
/s/ Fanning & Karrh
Fanning & Karrh
Ventura, California
October 29, 1998
<PAGE>
CONSENT OF PERSONS ABOUT TO BECOME DIRECTORS
To: To Securities and Exchange Commission
Washington, D.C.
Pursuant to Rule 438, each of us consents to being named as about to
become a director of Americorp in the registration statement on Form S-4 of
Americorp and any amendments.
DATED:
/s/ Michael T. Hribar 10/23/98
- ------------------------------------- -------------------------
Michael T. Hribar
/s/ Edward F. Paul 10/28/98
- ------------------------------------- -------------------------
Edward F. Paul
/s/ Joseph L. Priske 10/23/98
- ------------------------------------- -------------------------
Joseph L. Priske
/s/ Jacqueline S. Pruner 10/23/98
- ------------------------------------- -------------------------
Jacqueline S. Pruner
