<PAGE>
THE FOLLOWING ITEMS WERE THE SUBJECT OF A FORM 12b-25 AND ARE INCLUDED HEREIN:
1, 6, 7, 7A, 8 AND 14.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR
ENDED DECEMBER 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM TO
/ /
Commission file number 033-18392
AMERICORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
State of California 77-0164985
(State or other jurisdiction of (I.R.S. Identification No.)
employee incorporation or organization)
304 East Main Street, Ventura, California 93001 (805) 658-6633
(Address of principal executive offices and Zip Code) Registrant's telephone
number, including area code
</TABLE>
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]. NOT APPLICABLE
- --------------------------------------------------------------------------------
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<PAGE>
INDEX TO FORM 10-K
PART I
<TABLE>
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PAGE
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<S> <C> <C>
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Common Equity and Related Stockholders Matters 14
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and 17
Results of Operations
Item 7A Quantitative and Qualitative Disclosure About Market Risk 27
Item 8. Financial Statements 30
Item 9. Changes and Disagreements with Accountants on Accounting and 54
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 55
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners and Management 60
Item 13. Certain Relationships and Related Transactions 61
Item 14. Exhibits and Reports on Form 8-K 61
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Americorp ("Americorp" or the "Company") is a California corporation
organized to act as the bank holding company for American Commercial Bank ("ACB"
or the "Bank"). In 1987, Americorp acquired all of the outstanding common stock
of ACB in a holding company formation transaction. Other than holding the shares
of ACB, Americorp conducts no significant activities, although it is authorized,
with the prior approval of the Board of Governors of the Federal Reserve System
(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 December 31, 1998, Americorp had approximately $241.7 million in
consolidated assets, $152.6 million in consolidated net loans, $217.7 million in
consolidated deposits, and $20.4 million in consolidated stockholders' equity
after giving effect to the transaction with Channel Islands Bank described
below.
ACB was licensed by the California Department of Financial Institutions (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 Federal Deposit Insurance Corporation (the
"FDIC"). ACB is also subject to certain other federal laws and regulations. The
deposits of ACB are insured by the FDIC up to the applicable limits thereof. ACB
is not a member of the Federal Reserve System.
TRANSACTION WITH CHANNEL ISLANDS BANK
Americorp and ACB entered into an Agreement to Merge and Plan of
Reorganization dated July 7, 1998 and amended on September 17, 1998 (the "Merger
Agreement") with Channel Islands Bank, headquartered in Oxnard, California
("CIB").
The Merger Agreement provided 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 set
forth in the Merger Agreement. The merger was consummated on December 31, 1998.
The merger with CIB was 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.
At the consummation of the merger, CIB had approximately $95 million in
total assets, approximately $63 million in total loans, approximately $87
million in total deposits and approximately $8 million in total stockholders'
equity.
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The exchange ratio used in the merger was .7282 shares of Americorp Common
Stock for each share of CIB outstanding. Americorp issued a total of 405,505
shares of Common Stock in connection with the transaction.
The merger was intended to be tax free at the corporate and shareholders
levels.
The merger was accounted for as a "pooling of interest" and the financial
statement included in Item 8 hereof have been prepared in accordance with such
determination. See footnote 17 to such financial statements. ALL INFORMATION
CONCERNING AMERICORP AND ACB HEREIN REFLECTS THE CONSUMMATION OF THE MERGER.
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, two full service offices in the
city of Oxnard and two full service offices 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.
Americorp is engaged in lending activities to businesses and consumers
throughout the geographic area of Ventura County, California. 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 December 31, 1998, totaled $60.4 million representing 39% 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 secured by real estate, at
December 31, 1998, totaled $38.8 million, representing 25% 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.
ACB also extends loans to consumers which include automobiles, installment,
recreational vehicles, equity lines of credit, bankcard and overdraft
protection. During 1998, ACB sold its bankcard portfolio for a nominal premium.
Consumer loans are underwritten according to standards set in ACB's loan policy
4
<PAGE>
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.
Virtually all of the consolidated net income of Americorp is generated by
ACB.
ACB has not engaged in any material research activities relating to the
development of new services or the improvement of existing ACB services.
There has been no significant change in the types of services offered by ACB
since its inception, except in connection with new types of accounts allowed by
statute or regulation in recent years. ACB has no present plans regarding "a new
line of business" requiring the investment of a material amount of total assets.
Most of ACB's business originates from Ventura County and there is no
emphasis on foreign sources and application of funds. ACB's business, based upon
performance to date, does not appear to be seasonal. Except as described above,
a material portion of ACB's loans is not concentrated within a single industry
or group of related industries, nor is ACB dependent upon a single customer or
group of related customers for a material portion of its deposits. Management of
ACB is unaware of any material effect upon ACB's capital expenditures, earnings
or competitive position as a result of federal, state or local environmental
regulation.
ACB holds no patents, licenses (other than licenses obtained from ACB
regulatory authorities), franchises or concessions.
EMPLOYEES
As of December 31, 1998, ACB had a total of 95 full-time employees and 24
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 seven full service-banking
offices in Ventura County.
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. In that the financial services business is highly dependent on
computer applications the Year 2000 issue affects the Company in a variety of
ways, including the following (i) the Company 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 the Company, (ii) other
5
<PAGE>
banks, clearing houses and vendors whose products and services the Company 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 the Company 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 the Company, the Company's
Management has initiated a program to prepare the Company'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. The Company 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.
As a part of the Year 2000 Plan, the Company is not only undertaking the
infrastructure and facilities enhancement and testing necessary to ensure that
the Company is adequately prepared for the Year 2000, but the Company is also
communicating with its vendors upon whose services the Company relies to ensure
Year 2000 compliance. Pursuant to the Year 2000 Plan, the Company substantially
completed testing of its mission-critical systems and the computer-related
interactive vendor systems by December 31, 1998 and expects to complete all
testing by June 1999. In addition, as part of the credit review process, the
Company 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. The Company is
communicating with its deposit customers as well. The Company is also preparing
contingency plans to protect the Company in the event that the Company is unable
to attain Year 2000 compliance in certain applications according to the Year
2000 Plan.
The Company has established a working committee comprised of Senior and
Middle Management to plan for and monitor the Company's compliance with Year
2000 issues. This committee has developed a comprehensive policy setting forth
priorities and a timetable for the Bank to follow in this process.
The Company 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 the Company.
The Company has created a budget specific to Year 2000 readiness. The budget
is comprised of the following components: (1) Consulting assistance for testing,
(2) Auditing, and (3) Operating system and network upgrades. These components
are budgeted at $300,000. As of December 31, 1998, $154,782, or 52% 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 Year 2000 expenditures. With respect
to components number (1) and (2), it should be noted that the Company has
engaged the services of three consulting firms that have or are currently
providing
6
<PAGE>
audit review of the effectiveness of the Year 2000 Plan and technological
assistance in preparing for and conducting the Company's testing plan. Some of
these fees, estimated to be approximately $7,500 combined, have yet to be
expensed.
In addition, the Company 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 December 31, 1998, the Company had expended
over $120,000 in "man-hours" to the project, equivalent to 100 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, the Company initiated a credit risk assessment program,
with loan officers completing a Year 2000 questionnaire for all new and renewed
credits in amounts over $100,000. These questionnaires were designed to provide
the Company's management with information by which it could evaluate the
borrower's awareness of and sensitivity to Year 2000 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 Year 2000
risk associated with the credit. As a result of this review, $148,000 has been
allocated to the Company's loan loss provision. In addition, legal language
addressing Year 2000 issues is included in significant commitment letters and
loan documentation for certain borrowers. Finally, on loan participations
purchased, the Company requires assurances from the lead lender that it has
obtained a Year 2000 questionnaire from the borrower and also that the lead
lender is satisfactorily progressing toward Year 2000 compliance.
Although the Company 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 the
Company's other Year 2000 remedial and contingency plans will fully protect the
Company from the risks associated with the Year 2000. The analysis of, and
preparation for, the Year 2000 and related problems necessarily rely on a
variety of assumptions about future events and there can be no assurance that
the Company's Management has accurately predicted such future events or that the
remedial and contingency plans of the Company will adequately address such
future events. In the event that the business of the Company, of vendors of the
Company or of customers of the Company is disrupted as a result of the Year 2000
problem, such disruption could have a material adverse effect on the Company.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate received by the Bank on loans extended to
its customers and securities held in the Bank's portfolio comprise the major
portion of the Bank's earnings. These rates are highly sensitive to many factors
that are beyond the control of the Bank. Accordingly, the earnings and growth of
the Bank 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 bank loans, investments and deposits and also affect
interest rates charged on loans and paid on deposits. The nature and impact of
any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of increasing
the cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation
7
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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 "Financial
Modernization Legislation."
SUPERVISION AND REGULATION
The Company and the Bank are extensively regulated under both federal and
state law. Set forth below is a summary description of certain laws which relate
to the regulation of the Company and the Bank. The description does not purport
to be complete and is qualified in its entirety by reference to the applicable
laws and regulations.
AMERICORP
The Company 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. The Company is required to file with the Federal Reserve Board quarterly
and annual reports and such additional information as the Federal Reserve Board
may require pursuant to the Bank Holding Company Act. The Federal Reserve Board
may conduct examinations of bank holding companies and their subsidiaries.
The Company 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, the Company 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 the Company and another bank holding
company.
The Company 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, the Company may, subject to
the prior approval of the Federal Reserve Board, engage in any, or acquire
shares of companies engaged in, activities that are deemed by the Federal
Reserve Board to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
The Federal Reserve Board may require that the Company terminate an activity
or terminate control of or liquidate or divest subsidiaries or affiliates when
the Federal Reserve Board determines that the activity or the control or the
subsidiary or affiliates constitutes a significant risk to the financial safety,
soundness or stability of any of its banking subsidiaries. The Federal Reserve
Board also has the authority to regulate provisions of certain bank holding
company debt, including authority to impose interest ceilings and reserve
requirements on such debt. Under certain circumstances, the Company 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.
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The Company is subject to the periodic reporting requirements of Section
15(d) of the Securities Exchange Act of 1934, as amended, and files certain
reports pursuant to such Act with the Securities and Exchange Commission (the
"SEC").
ACB
The Bank is chartered under the laws of the State of California and its
deposits are insured by the FDIC to the extent provided by law. The Bank 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 the Banks business and condition.
Various requirements and restrictions under the laws of the United States
and the State of California affect the operations of the Bank. Federal and
California statutes relate to many aspects of the Banks operations, including
reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends and locations of
branch offices. Further, the Bank is required to maintain certain levels of
capital.
CAPITAL STANDARDS
The Federal Reserve Board and the FDIC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively 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.
Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Bank to grow and could restrict the amount of profits,
if any, available for the payment of dividends.
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The following table presents the amounts of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of December 31, 1998.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------
MINIMUM CAPITAL
ACTUAL REQUIREMENT
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<S> <C> <C>
Leverage ratio.......................................................... 8.4% 4.0%
Tier 1 risk-based ratio................................................. 10.6 4.0
Total risk-based ratio.................................................. 11.6 8.0
</TABLE>
Under applicable regulatory guidelines, the Company and the Bank were
considered "Well Capitalized" at December 31, 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 banks total assets or (ii)
$1,000,000.
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law required each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
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%; Tier 1 risk-based capital less than 3%;
or 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
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closely monitored by the appropriate federal banking agency, subject to asset
growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.
An insured depository institution that is significantly undercapitalized, or
is undercapitalized and fails to submit, or in a material respect to implement,
an acceptable capital restoration plan, is subject to additional restrictions
and sanctions. These include, among other things: (i) a forced sale of voting
shares to raise capital or, if grounds exist for appointment of a receiver or
conservator, a forced merger; (ii) restrictions on transactions with affiliates;
(iii) further limitations on interest rates paid on deposits; (iv) further
restrictions on growth or required shrinkage; (v) modification or termination of
specified activities; (vi) replacement of directors or senior executive
officers; (vii) prohibitions on the receipt of deposits from correspondent
institutions; (viii) restrictions on capital distributions by the holding
companies of such institutions; (ix) required divestiture of subsidiaries by the
institution; or (x) other restrictions as determined by the appropriate federal
banking agency. 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.
Enforcement actions
11
<PAGE>
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.
PREMIUMS FOR DEPOSIT INSURANCE
All deposits of the Bank are insured by the FDIC through the Bank Insurance
Fund ("BIF") which are subject to FDIC insurance assessment. The amount of FDIC
assessment paid by individual insured depository institutions is based upon
their relative risk as measured by regulatory capital ratios and certain other
factors. During 1995, the FDIC significantly reduced premium rates assessed on
deposits insured by the BIF. As a result of its "Well Capitalized" status, the
Bank currently pays approximately $6,900 per year.
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. In May 1998, the House passed legislation
that would have overhauled the financial services industry and would have, among
other things, allowed mergers among banking, securities and insurance firms.
Congress adjourned for 1998 without the passage of similar legislation by the
Senate. Similar legislation has already been introduced in both houses of
Congress in the current session. It is currently impossible to predict whether
and in what form financial reform legislation will be passed in 1999 or in the
future or what the impact of such legislation might be on the Company, its
financial condition and business as well as its results of operations.
COMMUNITY REINVESTMENT ACT
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities.
In 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,
the Bank received a CRA rating of "Satisfactory."
ACCOUNTING CHANGES
From time to time the Financial Accounting Standards Board ("FASB") issues
pronouncements which govern the accounting treatment for the Company's financial
statements. For a description of the recent pronouncements applicable to the
Company (see the Notes to the Financial Statements included in Item 8 of this
Report). The FASB recently proposed for comment a change in the accounting rules
relating to mergers and acquisitions. Specifically, the "pooling method" of
accounting for mergers would be eliminated. Financial institutions often prefer
to account for mergers using this method and many of the mergers in the
financial institutions industry in the last several years have been accounted
for using the pooling method. The impact of such accounting change, if adopted,
upon mergers and acquisitions
12
<PAGE>
involving financial institutions and upon the Company, its acquisition of CIB
and the value of the Company's Common Stock can not presently be predicted.
POTENTIAL ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Company and the Bank, may be
subject to potential enforcement actions by the Federal Reserve Board, the DFI
and the FDIC 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.
ITEM 2. PROPERTIES
All ACB's offices are leased. See Note 13 to the Americorp Financial
Statements contained in Item 8 of this Report for certain additional information
concerning the amount of ACB's lease commitments.
ITEM 3. LEGAL PROCEEDINGS
The Bank is, from time to time, subject to various pending and threatened
legal actions which arise out of the normal course of its business. Neither the
Company nor the Bank is a party to any pending legal or administrative
proceedings (other than ordinary routine litigation incidental to the Company's
or the Bank's business) and no such proceedings are known to be contemplated.
There are no material proceedings adverse to the Company or the Bank to
which any director, officer, affiliate of the Company or 5 % shareholder of the
Company or the Bank, or any associate of any such director, officer, affiliate
or 5% shareholder of the Company or Bank is a party, and none of the above
persons has a material interest adverse to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 15, 1998, Americorp held a special meeting of its shareholders
in connection with a shareholder vote on the merger with CIB and on a new stock
option plan for Americorp. In connection with the merger with CIB, there were
418,092 shares voted in favor of the merger, 1,200 shares voted against and
2,036 shares abstained. In connection with the stock option plan, 403,837 shares
voted in favor of the plan, 12,931 shares voted against and 4,560 shares
abstained.
13
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Americorp Common 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.
The management of Americorp is aware of one securities dealer who maintains
an inventory and makes a market in Americorp Common 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
Third '98.................................................................... 36.00 37.00
Fourth '98................................................................... 37.00 38.00
</TABLE>
HOLDERS
As of February 1, 1999, there were approximately 419 holders of Americorp
Common Stock. There are no other classes of equity outstanding.
DIVIDENDS
The Company is a legal entity separate and distinct from the Bank. The
Company's shareholders are entitled to receive dividends when and as declared by
its Board of Directors, out of funds legally available therefor, subject to the
restrictions set forth in the California General Corporation Law (the
"Corporation Law"). The Corporation Law provides that a corporation may make a
distribution to its shareholders if the corporation's retained earnings equal at
least the amount of the proposed distribution. The Corporation Law also provides
that, in the event that sufficient retained earnings are not available for the
proposed distribution, a corporation may nevertheless make a distribution to its
shareholders if it meets two conditions, which generally stated are as follows:
(i) the corporation's assets equal at least 1-1/4 times its liabilities, and
(ii) the corporation's current assets equal at least its current liabilities or,
if the average of the corporation's earnings before taxes on income and before
interest expenses for the two preceding fiscal years was less than the average
of the corporation's interest expenses for such fiscal years, then the
corporation's current assets must equal at least 1-1/4 times its current
liabilities.
The ability of the Company to pay a cash dividend depends largely on the
Bank's ability to pay a cash dividend to the Company. The payment of cash
dividends by the Bank is subject to restrictions set forth in the California
Financial Code (the "Financial Code"). The Financial Code provides that a bank
may not make a cash distribution to its shareholders in excess of the lesser of
(a) the bank's retained earnings; or (b) the bank's net income for its last
three fiscal years, less the amount of any distributions made by the
14
<PAGE>
bank or by any majority-owned subsidiary of the bank to the shareholders of the
bank during such period. However, a bank may, with the approval of the DFI, make
a distribution to its shareholders in an amount not exceeding the greater of (x)
its retained earnings; (y) its net income for its last fiscal year; or (z) its
net income for its current fiscal year. In the event that the DFI determines
that the shareholders' equity of a bank is inadequate or that the making of a
distribution by the bank would be unsafe or unsound, the DFI may order the bank
to refrain from making a proposed distribution. The FDIC may also restrict the
payment of dividends if such payment would be deemed unsafe or unsound or if
after the payment of such dividends, the Bank would be included in one of the
"undercapitalized" categories for capital adequacy purposes pursuant to federal
law. (See, "Item 1 - Description of Business - Prompt Corrective Action and
Other Enforcement Mechanisms.") Additionally, while the Federal Reserve Board
has no general restriction with respect to the payment of cash dividends by an
adequately capitalized bank to its parent holding company, the Federal Reserve
Board might, under certain circumstances, place restrictions on the ability of a
particular bank to pay dividends based upon peer group averages and the
performance and maturity of the particular bank, or object to management fees to
be paid by a subsidiary bank to its holding company on the basis that such fees
cannot be supported by the value of the services rendered or are not the result
of an arm's length transaction.
Americorp has paid 61 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.
The dividend policy of Americorp is not expected to be changed as a result
of the merger with CIB; 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 with CIB will depend upon a number of
factors, including capital requirements, regulatory limitations (as discussed
above), 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.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data with respect to the
Company's consolidated statement of financial position for the years ended
December 31, 1998 and 1997 and its consolidated statements of income for the
years ended December 31, 1998, 1997 and 1996 have been derived from the audited
consolidated financial statements included in Item 8 of this Form 10-K. The
consolidated financial statements give retroactive effect to the merger of the
Company's subsidiary, American Commercial Bank, with Channel Islands Bank on
December 31, 1998, in a transaction accounted for as a pooling of interest, as
discussed in Note 17 to the consolidated financial statements. This information
should be read in conjunction with such consolidated financial statements and
the notes thereto. The summary consolidated financial data with respect to
Company's consolidated statement of financial position as of December 31, 1996,
1995 and 1994 and its consolidated statements of income for the years ended
December 31, 1995 and 1994 have been derived from the audited financial
statements of the Company, which are not presented herein.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
SUMMARY OF OPERATIONS:
Interest Income.................................... $ 18,054 $ 16,575 $ 15,120 $ 13,757 $ 12,250
Interest Expense................................... 4,972 4,626 4,593 3,852 3,065
---------- ---------- ---------- ---------- ----------
Net Interest Income................................ 13,082 11,949 10,527 9,905 9,185
Provision for Loan Losses.......................... 523 780 1,743 496 169
---------- ---------- ---------- ---------- ----------
Net Interest Income After Provision for Loan
Losses........................................... 12,559 11,169 8,784 9,409 9,016
Noninterest Income................................. 2,708 2,719 1,955 2,021 2,390
Noninterest Expense................................ 13,425 11,013 9,938 9,226 9,396
---------- ---------- ---------- ---------- ----------
Income Before Income Taxes......................... 1,842 2,875 801 2,204 2,010
Income Taxes....................................... 678 972 272 659 574
---------- ---------- ---------- ---------- ----------
Net Income......................................... $ 1,164 $ 1,903 $ 529 $ 1,545 $ 1,436
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Dividends.......................................... $ 615 $ 581 $ 572 $ 557 $ 453
PER SHARE DATA:
Net Income--Basic.................................. $ 1.18 $ 2.08 $ 0.58 $ 1.71 $ 1.60
Net Income--Diluted................................ $ 1.09 $ 1.85 $ 0.52 $ 1.50 $ 1.47
Book Value......................................... $ 19.88 $ 19.17 $ 17.79 $ 17.73 $ 15.71
STATEMENTS OF FINANCIAL CONDITION SUMMARY:
Total Assets....................................... $ 241,725 $ 223,252 $ 201,680 $ 184,319 $ 165,196
Total Deposits..................................... 217,721 201,795 183,047 165,964 130,124
Securities......................................... 32,388 39,262 39,199 39,904 45,934
Loans, net......................................... 152,638 134,027 114,798 100,933 87,490
Allowance for Loan Losses (ALLL)................... 1,953 1,966 1,535 1,364 1,518
Total Shareholders' Equity......................... 20,396 17,907 16,068 15,967 14,138
SELECTED RATIOS:
Return on Average Assets........................... 0.51% 0.92% 0.27% 0.92% 0.84%
Return on Average Equity........................... 6.00% 11.33% 3.24% 10.60% 10.24%
Net Interest Margin................................ 6.56% 6.60% 6.22% 6.58% 6.18%
Dividend Payout Ratio.............................. 52.84% 30.53% 108.13% 36.05% 31.55%
Non-performing Loans to Total Loans................ 1.65% 1.45% 0.96% 1.82% 0.21%
Non-performing Assets to Total Assets.............. 1.06% 1.01% 0.58% 1.77% 1.21%
ALLL to Non-performing Loans....................... 76.17% 99.70% 136.81% 73.49% 816.13%
Average Capital to Average Assets.................. 8.51% 8.10% 8.37% 8.65% 8.25%
</TABLE>
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS OVERVIEW
The Company reported net earnings of $1.2 million or $1.09 diluted earnings
per share for 1998. This represents a 39% decrease from 1997 when net earnings
were $1.9 million or $1.85 diluted earnings per share. This decline occurred as
growth in operating income (up approximately 8%) was offset by increased
operating costs (up approximately 22%). Nonrecurring cost associated with the
CIB merger and increased personnel costs represented the majority of this
increase.
The Company reported record earnings of $1.9 million in 1997. This
represented a 359% increase over the $529,000 reported in 1996. This increase
was a combination of significant increases in net interest income coupled with
significant reduction in losses relating to the loan portfolio and the Company's
investment in partnerships.
The following table sets forth several key operating ratios for 1998, 1997
and 1996:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Return on Average Assets........................................ 0.51% 0.92% 0.27%
Return on Average Equity........................................ 6.00% 11.33% 3.24%
Dividend Payout Ratio........................................... 52.84% 30.53% 108.13%
Average Shareholder's Equity to Average Total Assets............ 8.51% 8.10% 8.37%
</TABLE>
17
<PAGE>
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>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1996
--------------------------------- --------------------------------- ---------
<CAPTION>
AVERAGE AVERAGE
INTEREST YIELD OR INTEREST YIELD OR
AVERAGE EARNED RATE AVERAGE EARNED RATE AVERAGE
BALANCE OR PAID PAID BALANCE OR PAID PAID BALANCE
--------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Investment Securities...................... $ 35,834 $ 2,002 5.59% $ 38,531 $ 2,250 5.84% $ 40,041
Federal Funds Sold......................... 21,565 1,110 5.15% 15,550 848 5.45% 18,663
Other Earning Assets....................... 1,189 68 5.72% 1,690 102 6.04% 2,072
Loans...................................... 140,848 14,874 10.56% 125,248 13,375 10.68% 108,368
--------- --------- --------- --------- ---------
Total Interest-Earning Assets................ 199,436 18,054 9.05% 181,019 16,575 9.16% 169,144
Cash and Due From Banks...................... 21,281 17,670 15,041
Premises and Equipment....................... 2,348 2,155 1,637
Other Real Estate Owned...................... 96 251 222
Accrued Interest and Other Assets............ 6,714 8,155 10,316
Allowance for Loan Losses.................... (1,947) (1,747) (1,501)
--------- --------- ---------
Total Assets................................. $ 227,928 $ 207,503 $ 194,859
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Money Market and NOW....................... $ 66,501 1,352 2.03% $ 64,693 1,448 2.24% $ 62,050
Savings.................................... 18,017 389 2.16% 17,979 402 2.24% 18,377
Time Deposits under $100,000............... 35,173 1,823 5.18% 29,933 1,507 5.03% 30,612
Time Deposits of $100,000 or More.......... 26,398 1,408 5.33% 23,121 1,269 5.49% 21,056
Other...................................... -- -- 0.00% -- -- 0.00% --
--------- --------- --------- --------- ---------
Total Interest-Bearing Liabilities........... 146,089 4,972 3.40% 135,726 4,626 3.41% 132,095
Noninterest-Bearing Liabilities:
Demand Deposits............................ 59,383 52,601 44,689
Other Liabilities.......................... 3,062 2,374 1,766
Shareholders' Equity....................... 19,394 16,802 16,309
--------- --------- ---------
Total Liabilities and Shareholders' Equity... $ 227,928 $ 207,503 $ 194,859
--------- --------- ---------
--------- --------- ---------
Net Interest Income.......................... $ 13,082 $ 11,949
--------- ---------
--------- ---------
Net Yield on Interest-Earning Assets......... 6.56% 6.60%
<CAPTION>
<S> <C> <C>
AVERAGE
INTEREST YIELD OR
EARNED RATE
OR PAID PAID
--------- -----------
<S> <C> <C>
ASSETS
Interest-Earning Assets:
Investment Securities...................... $ 2,369 5.92%
Federal Funds Sold......................... 965 5.17%
Other Earning Assets....................... 119 5.74%
Loans...................................... 11,667 10.77%
---------
Total Interest-Earning Assets................ 15,120 8.94%
Cash and Due From Banks......................
Premises and Equipment.......................
Other Real Estate Owned......................
Accrued Interest and Other Assets............
Allowance for Loan Losses....................
Total Assets.................................
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Money Market and NOW....................... 1,428 2.30%
Savings.................................... 420 2.29%
Time Deposits under $100,000............... 1,475 4.82%
Time Deposits of $100,000 or More.......... 1,270 6.03%
Other...................................... -- 0.00%
---------
Total Interest-Bearing Liabilities........... 4,593 3.48%
Noninterest-Bearing Liabilities:
Demand Deposits............................
Other Liabilities..........................
Shareholders' Equity.......................
Total Liabilities and Shareholders' Equity...
Net Interest Income.......................... $ 10,527
---------
---------
Net Yield on Interest-Earning Assets......... 6.22%
</TABLE>
EARNINGS ANALYSIS
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 for 1998 was $13.1 million, an increase of $1.2 million
or 9.5% when compared to $11.9 million in 1997. This increase was primarily
attributable to the growth in interest-earning assets, as the net yield on
interest-earning assets was relatively unchanged at 6.56% in 1998 compared to
6.60% in
18
<PAGE>
1997. Interest-earning assets increased $18.4 million or 10.2% to $199.4 million
in 1998 compared to $181.0 million in 1997.
During 1997, net interest income increased $1.4 million or 13.5% to $11.9
million from the 1996 amount of $10.5 million. As in 1998 the 1997 increase was
primarily the result of increases in interest-earning assets which grew 7.0%
from $169.1 million in 1996 to $181.0 million in 1997. The Company also
benefited by 38 basis point increase in its net yield on interest-earning
assets, which was 6.60% in 1997 compared to 6.22% in 1996.
Interest income for 1998 was $18.1 million compared to $16.6 million in
1997. This increase of $1.5 million was comprised of additional income of $1.8
million resulting from increased interest-earning assets partially offset by an
11 basis point decline in the overall yield on interest-earning assets.
Interest income is 1997 was also up $1.5 million compared to the $15.1
million reported in 1996. Again, this increase was primarily attributable to
growth in interest-earning assets.
Interest expense in 1998 was $5.0 million compared to $4.6 million in 1997.
This increase was primarily attributable to increased interest-bearing
liabilities, as the rate paid was relatively unchanged at 3.40% in 1998 compared
to 3.41% in 1997.
Interest expense in 1997 and 1996 was $4.6 million, as the Company was able
to offset increases in interest-bearing liabilities by reducing the overall
rates paid on these liabilities. Average interest-bearing liabilities increased
$3.6 million while the rates paid declined 7 basis points from 3.48% in 1996 to
3.41% in 1997.
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>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
VERSUS VERSUS
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED DECEMBER 31, 1996
------------------------------- -------------------------------
INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE
TO CHANGE IN TO CHANGE IN
------------------------------- -------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment Securities............................ $ (153) $ (95) $ (248) $ (88) $ (31) $ (119)
Federal Funds Sold............................... 312 (50) 262 (168) 51 (117)
Other Earning Assets............................. (29) (5) (34) (23) 6 (17)
Loans............................................ 1,648 (149) 1,499 1,803 (95) 1,708
--------- --------- --------- --------- --- ---------
TOTAL INTEREST INCOME............................ 1,778 (299) 1,479 1,524 (69) 1,455
INTEREST-BEARING LIABILITIES:
Money Market and NOW............................. 39 (135) (96) 59 (39) 20
Savings.......................................... 1 (14) (13) (9) (9) (18)
Time Deposits under $100,000..................... 271 45 316 (33) 65 32
Time Deposits $100,000 or More..................... 176 (37) 139 119 (120) (1)
Other.............................................. -- -- -- -- -- --
--------- --------- --------- --------- --- ---------
TOTAL INTEREST EXPENSE............................. 487 (141) 346 136 (103) 33
--------- --------- --------- --------- --- ---------
NET INTEREST INCOME................................ $ 1,291 $ (158) $ 1,133 $ 1,388 $ 34 $ 1,422
--------- --------- --------- --------- --- ---------
--------- --------- --------- --------- --- ---------
</TABLE>
19
<PAGE>
PROVISION FOR LOANS LOSSES
The allowance for loan losses is maintained at a level that is considered
adequate to provide for the loan losses inherent in the Company's loan
portfolio. During 1998, the provision for loan losses was $523,000 compared to
$780,000 in 1997 and $1.7 million in 1996. See "Allowance for Loan Losses" later
in this discussion for additional information on the Company's methodology for
determining the adequacy of the allowance, summary of historical loan losses and
analysis of overall asset quality.
NONINTEREST INCOME
Noninterest income was $2.7 million in 1998, of which approximately 83% were
the traditional service charges on accounts and fees collected in commercial
banking. This was comparable to the $2.7 million reported in 1997, although in
1998 the Company increased service charges and fees by $312,000 and experienced
a decline in other noninterest income of $285,000 related to its investment in
partnership and real estate loan brokering fees.
Noninterest income in 1997 exceeded the 1996 amount by $764,000 or 39%. This
increase was primarily the result of a $173,000 increase in service charges and
fees and a $495,000 increase in other noninterest income relating primarily to
the sale of servicing rights on mortgage loans totaling approximately $54
million.
NONINTEREST EXPENSE
Noninterest expense reflects the costs of products and services related to
systems, facilities and personnel for the Company. Noninterest expense was $13.4
million in 1998, $11.0 million in 1997 and $9.9 million in 1996. The major
components of noninterest expense stated as a percentage of average assets are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Salaries and Employee Benefits.................................... 2.90% 2.76% 2.62%
Occupancy Expenses................................................ 0.52% 0.50% 0.51%
Furniture and Equipment........................................... 0.31% 0.29% 0.23%
Advertising....................................................... 0.13% 0.13% 0.11%
Legal Expense..................................................... 0.13% 0.13% 0.06%
Data Processing................................................... 0.22% 0.21% 0.20%
Merchant Card Program Expenses.................................... 0.21% 0.19% 0.19%
Resturcturing Charges and Merger-Related Costs.................... 0.23% -- --
Other............................................................. 1.24% 1.10% 1.18%
--- --- ---
5.89% 5.31% 5.10%
--- --- ---
--- --- ---
</TABLE>
Disregarding the restructuring charges and merger-related costs incurred in
1998, noninterest expense as a percentage of average assets has grown from 5.10%
in 1996, to 5.31% in 1997 and to 5.66% in 1998. Like most community banks, the
Company's salaries and employee benefits and technology related equipment
expenses have grown at a faster rate than its overall asset growth.
INCOME TAXES
Income tax expense was $678,000, $972,000, and $272,000 for the years ended
December 31, 1998, December 31, 1997, and December 31, 1996, respectively. These
expenses resulted in an effective tax rate of 36.8% in 1998, 33.8% in 1997 and
34.0% in 1996. The increase in effective rate in 1998 compared to 1997 and 1996
was related to the nondeductible merger-related costs incurred in connection
with the CIB merger. The Company's effective tax rate is favorably impacted by
its investments in municipal securities.
20
<PAGE>
See also Note 7 to the consolidated financial statements for additional
information on the Company's income taxes.
BALANCE SHEET ANALYSIS
The improvement in the Southern California economy in 1998 and 1997 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 the Company's balance sheets in 1997 and 1998. As of
December 31, 1998, total assets increased by 8.3% to $241.7 million compared to
$223.3 million at December 31, 1997. The 1998 increase in assets was centered in
net loans, which increased $18.6 million from $134.0 million at December 31,
1997 to $152.6 million at December 31, 1998.
Total deposits increased 7.9% during 1998 from $201.8 million at December
31, 1997 to $217.8 million at December 31, 1998. The Company also increased
total stockholders equity by $2.5 million in 1998, primarily through the
exercise of outstanding stock options for $1.8 million and retention of
earnings.
INVESTMENT PORTFOLIO
The following table summarizes the amounts and distribution of the Company's
investment securities held as of the dates indicated, and the weighted-average
yields as of December 31, 1998 (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1998
--------------------------------- 1997
WEIGHTED ---------
BOOK MARKET AVERAGE BOOK
VALUE VALUE YIELD VALUE
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCY SECURITIES:
Within One Year..................................................... 2,500 2,502 5.82% $ 6,741
One to Five Years................................................... 4,100 4,108 6.00% 6,004
Five to Ten Years................................................... -- -- --
After Ten Years..................................................... -- -- --
--------- --------- ---------
Total U.S. Government and Agency Securities....................... 6,600 6,610 5.93% 12,745
MUNICIPAL SECURITIES:
Within One Year..................................................... 1,466 1,467 5.92% 1,233
One to Five Years................................................... 2,776 2,786 5.61% 3,171
Five to Ten Years................................................... 4,206 4,395 5.74% 4,334
After Ten Years..................................................... 1,053 1,082 5.91% 1,522
--------- --------- ---------
Total Municipal Securities........................................ 9,501 9,730 5.75% 10,260
CORPORATE DEBT SECURITIES:
Within One Year..................................................... 3,014 3,014 6.46% 1,500
One to Five Years................................................... 2,437 2,437 6.38% 1,417
Five to Ten Years................................................... -- -- --
After Ten Years..................................................... -- -- --
--------- --------- ---------
Total Corporate Debt Securities................................... 5,451 5,451 6.42% 2,917
MUTUAL FUNDS.......................................................... 4,488 4,488 4.44% 2,770
MORTGAGE BACKED SECURITIES............................................ 6,149 6,150 5.88% 6,399
OTHER................................................................. 199 199 6.00% 2,231
--------- --------- ---------
$ 32,388 $ 32,628 5.74% $ 37,322
--------- --------- ---------
--------- --------- ---------
</TABLE>
21
<PAGE>
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, 1998 and 1997, the carrying values of securities pledged to secure public
deposits and other purposes were approximately $2.0 million.
LOAN PORTFOLIO
The following table sets forth the components of total net loans outstanding
in each category at the date indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
LOANS
Commercial.......................................... $ 60,433 $ 45,609 $ 47,395 $ 37,957 $ 27,048
Real Estate--Construction........................... 7,395 3,966 2,086 2,815 2,293
Real Estate--Other.................................. 69,829 64,556 44,934 49,065 43,713
Consumer............................................ 17,333 22,176 22,218 12,722 16,180
---------- ---------- ---------- ---------- ---------
Total Loans....................................... 154,990 136,307 116,633 102,559 89,234
Net Deferred Loan Costs............................. (399) (314) (300) (262) (226)
Allowance for Loan Losses........................... (1,953) (1,966) (1,535) (1,364) (1,518)
---------- ---------- ---------- ---------- ---------
Net Loans........................................... $ 152,638 $ 134,027 $ 114,798 $ 100,933 $ 87,490
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
COMMITMENTS
Standby Letters of Credit........................... $ 814 $ 921 $ 1,701 $ 1,451 $ 1,311
Undisbursed Loans and Commitments to Grant Loans.... 43,768 35,004 30,133 28,712 23,976
---------- ---------- ---------- ---------- ---------
Total Commitments................................. $ 44,582 $ 35,925 $ 31,834 $ 30,163 $ 25,287
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
</TABLE>
The following table shows the maturity distribution of the fixed rate
portion of the loan portfolio and the repricing distribution of the variable
rate portion of the loan portfolio at December 31, 1998:
<TABLE>
<CAPTION>
OVER DUE AFTER
3 MONTHS DUE AFTER THREE YEARS
3 MONTHS THROUGH ONE YEAR TO TO DUE AFTER
OR LESS 12 MONTHS THREE YEARS FIVE YEARS FIVE YEARS TOTAL
- ----------- ----------- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ 93,501 $ 4,018 $ 13,947 $ 25,091 $ 16,653 $ 153,210
- ----------- ----------- ----------- ------------- -----------
- ----------- ----------- ----------- ------------- -----------
Loans on Non-Accrual 1,780
----------
$ 154,990
----------
----------
</TABLE>
ASSET QUALITY
The risk of nonpayment of loans is an inherent feature of the banking
business. That risk varies with the type and purpose of the loan, the collateral
that is utilized to secure payment, and ultimately, the credit worthiness of the
borrower. In order to minimize this credit risk, the Loan Committee of the board
of directors approves significant loans. The Loan Committee is comprised of
directors and members of our senior management.
The Company grades all loans from "acceptable" to "loss", depending on
credit quality, with "acceptable" representing loans with an acceptable degree
of risk given the favorable aspects of the credit and with both primary and
secondary sources of repayment. Classified loans or substandard loans are ranked
below "acceptable" loans. As these loans are identified in the review process,
they are added to the internal watchlist and loss allowances are established for
them. Additionally, the loan portfolio is examined
22
<PAGE>
regularly by the FDIC and DFI. Management also utilizes an independent loan
review company to assess loan portfolio quality and adequacy of the allowance
for loan losses.
NONPERFORMING ASSETS
The following table provides information with respect to the components of
the Company's nonperforming assets at the dates indicated (dollar amounts in
thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Loans 90 Days Past Due and Still Accruing..................... $ 784 $ 81 $ 525 $ 1,101 $ 8
Nonaccrual Loans.............................................. 1,780 1,891 597 755 178
--------- --------- --------- --------- ---------
Total Nonperforming Loans..................................... 2,564 1,972 1,122 1,856 186
Other Real Estate Owned....................................... -- 275 136 1,398 1,816
--------- --------- --------- --------- ---------
Total Nonperforming Assets.................................... $ 2,564 $ 2,247 $ 1,258 $ 3,254 $ 2,002
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Nonperforming Loans as a Percentage of Total Loans............ 1.65% 1.45% 0.96% 1.82% 0.21%
Allowance for Loan Loss as a Percentage of Nonperforming
Loans....................................................... 76.17% 99.70% 136.81% 73.49% 816.13%
Nonperforming Assets as a Percentage of Total Assets.......... 1.06% 1.01% 0.58% 1.77% 1.21%
</TABLE>
Loans are generally placed on non-accrual status when they are delinquent 90
days or more, unless the loan is well secured and in the process of collection.
The Company stops recognizing income from the interest on the loan and reverses
any uncollected interest that had been accrued but not received. Loans are not
returned to accrual status until it is brought current with respect to both
principal and interest payments, the loan is performing to current terms and
conditions, the interest rate is commensurate with market interest rates and
future principal and interest payments are no longer in doubt. See Note 3 to the
consolidated financial statements for additional information on the Company's
average investment in impaired loans and the amount of income recognized
thereon.
In addition to the loans reported above, at December 31, 1998, the Company
had loans totaling $2.5 million which it had graded less than acceptable. As
discussed in the following section, evaluation of these loans is an integral
portion of the Company's methodology for establishing the adequacy of the
allowance for loan losses. The Company has no foreign loans in its loan
portfolio.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level that is considered
adequate to provide for the loan losses inherent in Company's loans. The
provision for loan losses was $523,000 in 1998 compared to $780,000 in 1997 and
$1.7 million in 1996.
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
23
<PAGE>
which have been charged to operating expenses and certain ratios relating to the
allowance for loan losses (dollar amounts in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------
OUTSTANDING LOANS
Average for the Year............................... $ 140,848 $ 125,248 $ 108,368 $ 94,889 $ 86,709
End of the Year.................................... $ 154,990 $ 136,307 $ 116,633 $ 102,134 $ 88,131
ALLOWANCE FOR LOAN LOSSES
Balance at Beginning of Year....................... $ 1,966 $ 1,535 $ 1,364 $ 1,518 $ 1,643
Actual Charge-Offs:
Commercial....................................... 318 295 1,304 154 98
Real Estate...................................... 5 31 158 376 463
Consumer......................................... 411 308 182 132 95
---------- ---------- ---------- ---------- ---------
Total Charge-Offs.................................. 734 634 1,644 662 656
Less Recoveries:
Commercial....................................... 132 237 29 17 343
Real Estate...................................... 27 30 11 38 66
Consumer......................................... 39 18 32 62 27
---------- ---------- ---------- ---------- ---------
Total Recoveries................................... 198 285 72 117 436
---------- ---------- ---------- ---------- ---------
Net Loans Charged-Off.............................. 536 349 1,572 545 220
Provision for Loan Losses.......................... 523 780 1,743 391 95
---------- ---------- ---------- ---------- ---------
Balance at End of Year............................. $ 1,953 $ 1,966 $ 1,535 $ 1,364 $ 1,518
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
RATIOS
Net Loans Charged-Off to Average Loans............. 0.38% 0.28% 1.45% 0.57% 0.25%
Allowance for Loan Losses to Total Loans........... 1.26% 1.44% 1.87% 1.34% 1.72%
Net Loans Charged-Off to Beginning Allowance for
Loan Losses...................................... 27.26% 22.74% 115.25% 35.90% 13.39%
Net Loans Charged-Off to Provision for Loan
Losses........................................... 102.49% 44.74% 90.19% 139.39% 231.58%
Allowance for Loan Losses to Nonperforming Loans... 76.17% 99.70% 136.81% 73.49% 816.13%
</TABLE>
The Company performs quarterly detailed reviews to identify the risks
inherent in the loan portfolio, assess the overall quality of the loan portfolio
and to determine the adequacy of the allowance for loan losses and the related
provision for loan losses to be charged to expense. This systematic reviews
follow the methodology set forth by the FDIC in its 1993 policy statement on the
allowance for loan losses.
A key element of this methodology is the previously discussed credit
classification process. Loans identified as less than "acceptable" are reviewed
individually to estimate the amount of probable losses that need to be included
in the allowance. These reviews include analysis of financial information as
well as evaluation of collateral securing the credit. Additionally, the Company
considers the inherent risk present in the "acceptable" portion of the loan
portfolio taking into consideration historical losses on pools of similar loans,
adjusted for trends, conditions and other relevant factors that may affect
repayment of the loans in these pools. Upon completion, the written analysis is
presented to the board of directors for discussion, review and approval.
The Company believes the allowance for loan losses to be adequate to provide
for losses inherent in the loan portfolio. While the Company uses available
information to recognize losses on loans and leases,
24
<PAGE>
future additions to the allowance may be necessary based on changes in economic
conditions. In addition, federal regulators, as an integral part of their
examination process, periodically review the allowance for loan losses and may
recommend additions based upon their evaluation of the portfolio at the time of
their examination. Accordingly, there can be no assurance that the allowance for
loan losses will be adequate to cover future loan losses or that significant
additions to the allowance for loan losses will not be required in the future.
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>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOAN LOAN LOAN LOAN
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Commercial.................. $ 876 39.0% $ 740 33.5% $ 632 40.6% $ 562 37.2%
Construction................ 14 4.8% 15 2.9% 11 1.8% 10 2.8%
Real Estate................. 621 45.1% 734 47.4% 531 38.5% 472 47.6%
Consumer.................... 198 11.2% 169 16.3% 144 19.0% 128 12.5%
Unallocated................. 244 n/a 308 n/a 217 n/a 192 n/a
----------- ----- ----------- ----- ----------- ----- ----------- -----
$ 1,953 100.0% $ 1,966 100.0% $ 1,535 100.0% $ 1,364 100.0%
----------- ----- ----------- ----- ----------- ----- ----------- -----
----------- ----- ----------- ----- ----------- ----- ----------- -----
<CAPTION>
DECEMBER 31, 1994
------------------------
<S> <C> <C>
LOAN
AMOUNT PERCENT
----------- -----------
Commercial.................. $ 625 30.7%
Construction................ 11 2.6%
Real Estate................. 525 48.3%
Consumer.................... 143 18.4%
Unallocated................. 214 n/a
----------- -----
$ 1,518 100.0%
----------- -----
----------- -----
</TABLE>
FUNDING
Deposits are the Company's primary source of funds. At December 31, 1998,
the Company had a deposit mix of 39.0% in time and savings deposits, 31.9% in
money market and NOW deposits, and 29.1% in noninterest-bearing demand deposits.
The Company's net interest income is enhanced by its percentage of
noninterest-bearing deposits.
The following table summarizes the distribution of average deposits and the
average rates paid for the years indicated (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ----------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market and NOW Accounts......................... $ 66,501 2.03% $ 64,693 2.24% $ 62,050 2.21%
Savings Deposits...................................... 18,017 2.16% 17,979 2.24% 18,377 2.29%
TCD Less than $100,000................................ 35,173 5.18% 29,933 5.03% 30,612 4.82%
TCD $100,000 or More.................................. 26,398 5.33% 23,121 5.49% 21,056 6.03%
---------- ---------- ----------
Total Interest-Bearing Deposits....................... 146,089 3.40% 135,726 3.41% 132,095 3.48%
Noninterest-Bearing Demand Deposits................... 59,383 n/a 52,601 n/a 44,689 n/a
---------- ---------- ----------
Total Average Deposits................................ $ 205,472 2.42% $ 188,327 2.46% $ 176,784 2.60%
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
25
<PAGE>
The scheduled maturity distribution of the Company's time deposits of
$100,000 or greater, as of December 31, 1998, were as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
OVER
3 MONTHS DUE AFTER
3 MONTHS THROUGH ONE YEAR TO DUE AFTER
OR LESS 12 MONTHS THREE YEARS THREE YEARS TOTAL
----------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Time Deposits under $100.............................. $ 12,343 $ 21,709 $ 3,475 $ 105 $ 37,632
Time Deposits of $100 or more......................... 12,597 14,054 2,589 -- 29,240
----------- ----------- ----------- ----- ---------
$ 24,940 $ 35,763 $ 6,064 $ 105 66,872
----------- ----------- ----------- ----- ---------
----------- ----------- ----------- ----- ---------
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The objective of the Company's asset/liability strategy is to manage
liquidity and interest rate risks to ensure the safety and soundness of the Bank
and its capital base, while maintaining adequate net interest margins and
spreads to provide an appropriate return to the Company's shareholders.
The Company manages its interest rate risk exposure by limiting the amount
of long-term fixed rate loans it holds, increasing emphasis on shorter-term,
higher yield loans for portfolio, increasing or decreasing the relative amounts
of long-term and short-term borrowings and deposits and/or purchasing
commitments to sell loans.
The table below sets forth the interest rate sensitivity of the Company's
interest-earning assets and interest-bearing liabilities as of December 31,
1998, using the interest rate sensitivity gap ratio. For purposes of the
following table, an asset or liability is considered rate-sensitive within a
specified period when it can be repriced or matures within its contractual
terms, except for loans held for sale which the Company classifies as highly
liquid based on historical sale patterns (dollar amounts in thousands):
<TABLE>
<CAPTION>
AFTER AFTER ONE
WITHIN THREE MONTHS YEAR BUT
THREE BUT WITHIN WITHIN AFTER
MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal Funds Sold.............................. $ 27,700 $ -- $ -- $ -- $ 27,700
Time Deposits at Other Institutions............. 595 -- -- -- 595
Investment Securities........................... 8,932 4,991 11,700 6,765 32,388
Gross Loans..................................... 93,501 4,018 39,038 16,653 153,210
---------- ------------- ----------- ----------- ----------
Total......................................... $ 130,728 $ 9,009 $ 50,738 $ 23,418 $ 213,893
---------- ------------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------
INTEREST-BEARING LIABILITIES:
Money Market and NOW Deposits................... $ 69,367 $ -- $ -- $ -- $ 69,367
Savings......................................... 18,000 -- -- -- 18,000
Time Deposits................................... 24,940 35,763 6,169 -- 66,872
Other Borrowings................................ -- -- -- -- --
---------- ------------- ----------- ----------- ----------
$ 112,307 $ 35,763 $ 6,169 $ -- $ 154,239
---------- ------------- ----------- ----------- ----------
---------- ------------- ----------- ----------- ----------
Interest Rate Sensitivity Gap................... $ 18,421 $ (26,754) $ 44,569 $ 23,418 $ 59,654
Cumulative Interest Rate Sensitivity Gap........ $ 18,421 $ (8,333) $ 36,236 $ 59,654
Ratios Based on Total Assets:
Interest Rate Sensitivity Gap............... 7.61% (11.05%) 18.40% 9.67% 24.63%
Cumulative Interest Rate
Sensitivity Gap........................... 7.61% (3.44%) 14.96% 24.63%
</TABLE>
26
<PAGE>
Liquidity refers to the Company's ability to maintain a cash flow adequate
to fund both on-balance sheet and off-balance sheet requirements on a timely and
cost-effective basis. Potentially significant liquidity requirements include
funding of commitments to loan customers and withdrawals from deposit accounts.
CAPITAL RESOURCES
In 1990, the banking industry began to phase in new regulatory capital
adequacy requirements based on risk-adjusted assets. These requirements take
into consideration the risk inherent in investments, loans, and other assets for
both on-balance sheet and off-balance sheet items. Under these requirements, the
regulatory agencies have set minimum thresholds for Tier 1 capital, total
capital and leverage ratios. At December 31, 1998, the Bank's capital exceeded
all minimum regulatory requirements and the Bank was considered to be "well
capitalized" as defined in the regulations issued by the FDIC. The Bank's
risk-based capital ratios, shown below as of December 31, 1998, have been
computed in accordance with regulatory accounting policies (The Company's
capital ratios are comparable to the Bank's).
<TABLE>
<CAPTION>
MINIMUM
REQUIREMENTS BANK
----------------- -----
<S> <C> <C>
Tier 1 Capital.......................................................... 4.0% 10.6%
Total Capital........................................................... 8.0% 11.6%
Leverage Ratio.......................................................... 4.0% 8.4%
</TABLE>
See also note 12 to the consolidated financial statements for additional
information on the Bank's capital ratios.
EFFECTS OF INFLATION
The financial statements and related financial information presented herein
have been prepared in accordance with generally accepted accounting principles,
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 the 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.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". This
Statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. This new standard is effective for 2000
and is not expected to have a material impact on the Bank' s financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NET INTEREST MARGIN. As previously discussed, net interest income is the
difference between the interest income and fees earned on loans and investments
and the interest expense paid on deposits and other liabilities. The amount by
which interest income exceeds interest expense depends on two factors: the
volume of earnings assets compared to the volume of interest-bearing deposits
and liabilities, and the interest rate earned on those interest earning assets
compared with the interest rate paid on those interest-bearing deposits and
liabilities.
27
<PAGE>
Net interest margin is the net interest income expressed as a percentage of
earning assets. To maintain its net interest margin, the Company 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 Company 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, the Company 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 the Company's fixed rate or term
liabilities as well as its assets. For liabilities, the adverse exposure to
market risk is to lower rates because the Company 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 6.56% in 1998 compared to 6.60% in 1997 and 6.22% in
1996.
The following is a summary of the carrying amounts and estimated fair values
of selected Company financial assets and liabilities at December 31, 1998:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Financial Assets:
Securities.......................................................... $ 32,388 $ 32,628
Loans, Net of Allowance for Loan Losses............................. $ 152,638 $ 153,772
Financial Liabilities:
Deposits............................................................ $ 217,721 $ 217,988
</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 the Company's financial
instruments are to it than when acquired. The net difference for
interest-bearing financial assets is $1.4 million. 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 $267,000.
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. The Company 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 the Company 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.
28
<PAGE>
A decrease in net interest income could also occur with rising interest
rates if the Company 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, the Company will adjust the
interest rates on the certificates and loans to try to match up demand. The
Company 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. The Company
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 December 31, 1998 (the
dollar change in net interest income represents the estimated change for the
next 12 months):
<TABLE>
<CAPTION>
CHANGE IN NET
INTEREST
CHANGE IN INTEREST RATES INCOME
- ------------------------------------------------------------------------------ --------------
<S> <C>
+200 basis points............................................................. $ 679,000
+100 basis points............................................................. $ 339,000
+50 basis points.............................................................. $ 354,000
- -50 basis points.............................................................. $ (82,000)
- -100 basis points............................................................. $ (558,000)
- -200 basis points............................................................. $ (985,000)
</TABLE>
The Company 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 may rise 100 basis points, while market conditions
dictate that the liability increases only 50 basis points. While evenly matched
in the gap report, the Company 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. The Company has made an effort to minimize concentrations in
certain types of assets and liabilities.
29
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
To the Shareholders
and Board of Directors of Americorp:
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheet of Americorp and
subsidiary (the "Company") as of December 31, 1998 and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. The consolidated financial
statements give retroactive effect to the merger of the Company's subsidiary,
American Commercial Bank, with Channel Islands Bank on December 31, 1998, in a
transaction accounted for as a pooling of interest, as discussed in Note 17.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Americorp
and subsidiary as of December 31, 1998, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
VAVRINEK, TRINE, DAY & CO., LLP
February 26, 1999
Laguna Hills, California
30
<PAGE>
To the Shareholders
and Board of Directors of Americorp:
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheet of Americorp and subsidiary
(the "Company") as of December 31, 1997 and the related consolidated statements
of income, stockholders' equity, and cash flows for the two years then ended.
These consolidated financial statements, which are not presented separately
herein, are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Americorp
and subsidiary as of December 31, 1997, and the results of their operations and
their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
FANNING & KARRH
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
Ventura, California
31
<PAGE>
To the Shareholders and Board of Directors
of Channel Islands Bank:
INDEPENDENT AUDITORS' REPORT
We have audited the balance sheet of Channel Islands Bank as of December 31,
1997 and the related statements of income, stockholders' equity, and cash flows
for the two years then ended. These financial statements, which are not
presented separately herein, are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Channel Islands Bank as of
December 31, 1997, and the results of their operations and their cash flows for
the two years then ended, in conformity with generally accepted accounting
principles.
VAVRINEK, TRINE, DAY & CO., LLP
January 23, 1998
Rancho Cucamonga, California
32
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks......................................................... $ 20,511 $ 19,321
Federal funds sold.............................................................. 27,700 18,650
---------- ----------
Total Cash and Cash Equivalents............................................. 48,211 37,971
Time deposits in other institutions............................................. 595 1,491
Securities...................................................................... 1,2 32,388 39,262
Loans, net...................................................................... 1,3 152,638 134,027
Accrued interest receivable..................................................... 1,321 1,312
Premises and equipment, net..................................................... 1,4 2,202 2,408
Other real estate owned......................................................... 1,5 -- 274
Investment in partnerships...................................................... 6 -- 2,549
Cash surrender value of life insurance.......................................... 2,492 2,255
Other assets.................................................................... 7,8 1,878 1,703
---------- ----------
TOTAL ASSETS................................................................ $ 241,725 $ 223,252
---------- ----------
---------- ----------
LIABILITIES:
Noninterest-bearing demand...................................................... $ 63,482 $ 61,068
NOW and money market accounts................................................... 69,367 66,698
Savings......................................................................... 18,000 18,054
Time, under $100,000............................................................ 37,632 31,701
Time, $100,000 and over......................................................... 29,240 24,274
---------- ----------
Total Deposits.............................................................. 217,721 201,795
Accrued interest payable........................................................ 559 480
Other liabilities............................................................... 1,8 3,049 3,070
---------- ----------
TOTAL LIABILITIES........................................................... 221,329 205,345
---------- ----------
STOCKHOLDERS' EQUITY: 1,9,12
Common stock--$1 par value; 2,500,000 shares authorized; issued and outstanding
1,025,997 in 1998 and 934,247 in 1997.......................................... 1,026 934
Surplus......................................................................... 8,771 6,946
Retained earnings............................................................... 10,453 9,985
Accumulated other comprehensive income.......................................... 146 42
---------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................................. 20,396 17,907
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $ 241,725 $ 223,252
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOTES 1998 1997 1996
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans........................................... $ 14,874 $ 13,375 $ 11,667
Interest on Federal funds sold....................................... 1,110 848 965
Interest on investment securities.................................... 2,002 2,250 2,369
Other Interest....................................................... 68 102 119
--------- --------- ---------
Total Interest Income.............................................. 18,054 16,575 15,120
INTEREST EXPENSE ON DEPOSITS........................................... 4,972 4,626 4,593
--------- --------- ---------
NET INTEREST INCOME............................................ 13,082 11,949 10,527
PROVISION FOR LOANS AND LEASE LOSSES................................... 3 523 780 1,743
--------- --------- ---------
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES.......... 12,559 11,169 8,784
NONINTEREST INCOME:
Service charges on deposit accounts.................................. 1,326 1,192 1,088
Other service charges and fees....................................... 926 748 679
Gain (loss) on sale of investment securities......................... 2 16 54 (207)
Equity in net income of partnership.................................. 6 -- 50 215
Other income......................................................... 440 675 180
--------- --------- ---------
2,708 2,719 1,955
NONINTEREST EXPENSE:
Salaries and employee benefits....................................... 8 6,613 5,737 5,106
Net occupancy expense................................................ 1,190 1,029 913
Furniture and equipment expense...................................... 717 599 453
Advertising expense.................................................. 1 312 267 213
Legal expense........................................................ 288 274 121
Data processing expense.............................................. 507 443 392
Merchant card program expenses....................................... 478 392 361
Restructuring charges and merger-related costs....................... 17 518 -- --
Other operating expense.............................................. 2,802 2,272 2,379
--------- --------- ---------
13,425 11,013 9,938
--------- --------- ---------
INCOME BEFORE INCOME TAXES......................................... 1,842 2,875 801
INCOME TAXES........................................................... 7 678 972 272
--------- --------- ---------
NET INCOME..................................................... $ 1,164 $ 1,903 $ 529
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE--BASIC.............................................. 1 $ 1.18 $ 2.08 $ 0.58
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE--DILUTED............................................ 1 $ 1.09 $ 1.85 $ 0.52
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ACCUMULATED OTHER
NUMBER OF COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT SURPLUS INCOME EARNINGS INCOME
----------- ----------- ----------- --------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............. 897,403 $ 897 $ 6,134 $ 8,909 $ 28
Issuance of stock...................... 14,496 15 337
Retirement of Stock.................... (6,321) (6) (20) (154)
Dividends.............................. (572)
<CAPTION>
COMPREHENSIVE INCOME
<S> <C> <C> <C> <C> <C> <C>
Net Income............................. $ 529 529
Unrealized loss on securities available
for sale, net of taxes of $66......... 95 95
Reclassification adjustment for loss on
sale of investment securities included
in net income, net of taxes of $85.... (122) (122)
------
TOTAL COMPREHENSIVE INCOME......... $ 502
----------- ----------- ----------- ------ ----------- -----
------
BALANCE AT DECEMBER 31, 1996........... 905,578 906 6,451 8,712 1
Issuance of stock...................... 30,581 30 502
Retirement of Stock.................... (1,912) (2) (7) (49)
Dividends.............................. (581)
<CAPTION>
COMPREHENSIVE INCOME
<S> <C> <C> <C> <C> <C> <C>
Net Income............................. $ 1,903 1,903
Unrealized gain on securities available
for sale, net of taxes of $6.......... 9 9
Reclassification adjustment for gain on
sale of investment securities included
in net income, net of taxes of $22.... 32 32
------
TOTAL COMPREHENSIVE INCOME..... $ 1,944
----------- ----------- ----------- ------ ----------- -----
------
BALANCE AT DECEMBER 31, 1997........... 934,247 934 6,946 9,985 42
Issuance of stock...................... 94,473 95 1,837
Retirement of Stock.................... (2,723) (3) (12) (79)
Dividends.............................. (615)
Cash paid for fractional shares........ (2)
<CAPTION>
COMPREHENSIVE INCOME
<S> <C> <C> <C> <C> <C> <C>
Net Income............................. $ 1,164 1,164
Unrealized gain on securities available
for sale, net of taxes of $67......... 95 95
Reclassification adjustment for loss on
sale of investment securities included
in net income, net of taxes of $7..... 9 9
------
TOTAL COMPREHENSIVE INCOME......... $ 1,268
----------- ----------- ----------- ------ ----------- -----
------
BALANCE AT DECEMBER 31, 1998........... 1,025,997 $ 1,026 $ 8,771 $ 10,453 $ 146
----------- ----------- ----------- ----------- -----
----------- ----------- ----------- ----------- -----
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................................. $ 1,164 $ 1,903 $ 529
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan and lease losses....................................... 523 780 1,743
Depreciation and Amortization............................................. 644 484 336
Amortization of premium, net of accretion of discount..................... 62 75 103
Benefit for deferred income taxes......................................... (130) (226) (107)
Net (gain) loss on investment securities.................................. (16) (54) 207
Equity in net income of partnership....................................... -- (50) (215)
Net change in other assets and liabilities................................ (308) 463 705
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 1,939 3,375 3,301
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in time deposits in other institutions........................... 896 -- 592
Purchases of securities held-to-maturity.................................... -- (2,039) (2,387)
Purchases of securities available-for-sale.................................. (21,606) (17,051) (12,755)
Proceeds from maturities and calls of securities held-to-maturity........... 4,076 4,018 2,283
Proceeds from maturities, calls and sales of securities available-for-
sale...................................................................... 24,474 15,211 13,050
Net increase in loans....................................................... (19,134) (20,420) (14,971)
Purchases of premises and equipment......................................... (445) (870) (1,284)
Proceed from the sale of other real estate owned............................ 344 369 297
Distribution from partnership............................................... 2,549 400 341
---------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES................................. (8,846) (20,382) (14,834)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits.................................................... 15,926 18,748 17,083
Retirement of common stock.................................................. (94) (58) (180)
Proceeds from issuance of common stock...................................... 1,932 532 352
Dividends and fractional shares............................................. (617) (581) (572)
---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................. 17,147 18,641 16,683
---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS..................................... 10,240 1,634 5,150
Cash and Cash Equivalents at Beginning of Year................................ 37,971 36,337 31,187
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................. $ 48,211 $ 37,971 $ 36,337
---------- ---------- ----------
---------- ---------- ----------
Supplemental Disclosures of Cash Flow Information
Interest Paid............................................................... $ 4,893 $ 4,720 $ 4,437
Income Taxes Paid........................................................... $ 874 $ 296 $ 409
Supplemental Disclosures of noncash activities:
Other real estate owned acquired in settlement of loans..................... $ -- $ 644 $ 45
Sales of other real estate owned financed by loans.......................... $ -- $ 80 $ 636
Total change in unrealized gain/loss on securities available-for-sale....... $ 130 $ 56 $ 25
</TABLE>
See notes to consolidated financial statements.
36
<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"). The consolidated financial statements also give retroactive effect to
the merger of the Company's subsidiary, American Commercial Bank, with Channel
Islands Bank on December 31, 1998, in a transaction accounted for as a pooling
of interest, as discussed further in Note 17. 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 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 two
categories as follows:
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.
37
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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.
For impairment recognized in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. 114, "ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN" (SFAS No. 114), amended by SFAS No. 118, the
entire change in the present value of expected cash flows is reported as either
provision for loan losses in the same manner in which impairment initially was
recognized, or as a reduction in the amount of provision for loan losses that
otherwise would be reported.
On January 1, 1997, the Company adopted SFAS No. 125 "ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES".
The statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Under this
statement, after a transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and liabilities it has incurred,
derecognizes financial assets when control has been surrendered, and
derecognizes liabilities when extinguished.
ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries). The Company
performs quarterly detailed reviews to identify the risks inherent in the loan
portfolio, assess the overall quality of the loan portfolio and to determine the
adequacy of the allowance for loan losses and the related provision for loan
losses to be charged to expense. These systematic reviews follow the methodology
set forth by the FDIC in its 1993 policy statement on the allowance for loan
losses.
Loans identified as less than "acceptable" are reviewed individually to
estimate the amount of probable losses that need to be included in the
allowance. These reviews include analysis of financial information as well as
evaluation of collateral securing the credit. Additionally, management considers
the inherent risk present in the "acceptable" portion of the loan portfolio
taking into consideration historical losses on pools of similar loans, adjusted
for trends, conditions and other relevant factors that may affect repayment of
the loans in these pools.
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.
38
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimated useful lives are as follows:
<TABLE>
<S> <C>
3 to 10
Furniture, fixtures and equipment............................. years
5 to 15
Leasehold improvements........................................ years
</TABLE>
OTHER REAL ESTATE OWNED--Real estate acquired through foreclosure or deed in
lieu of foreclosure is recorded at the lower of the outstanding loan balance at
the time of foreclosure or appraised value. Gains and losses on the sale of
other real estate owned and write-downs resulting from periodic revaluation of
the property are charged to other operating expenses.
ADVERTISING COSTS--The Company expenses the costs of advertising when
incurred.
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--Basic earnings per share are based on the weighted
average number of common shares outstanding. Diluted earnings per share 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 1998 were 987,900 and 1,066,800, respectively.
The average number of common shares outstanding and common equivalent shares
outstanding for 1997 were 913,300 and 1,029,500, respectively. The average
number of common shares outstanding and common equivalent shares outstanding for
1996 were 904,400 and 1,018,200, respectively. Common equivalent shares consist
of the dilutive effect of stock options using the treasury stock method.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--SFAS No. 107 specifies
the disclosure of the estimated fair value of financial instruments. The Bank's
estimated fair value amounts have been determined by the Bank using available
market information and appropriate valuation methodologies.
However, considerable judgment is required to develop the estimates of fair
value. Accordingly, the estimates are not necessarily indicative of the amounts
the Company could have realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since the
balance sheet date and, therefore, current estimates of fair value may differ
significantly from the amounts presented in the accompanying Notes.
STOCK-BASED COMPENSATION--Statement of Financial Accounting Standards
("SFAS") No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," encourages, but
does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock. The pro forma effects of adoption are disclosed in
Note 9.
39
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CURRENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES". This Statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. This new
standard is effective for 2000 and is not expected to have a material impact on
the Bank' s financial statements.
RECLASSIFICATIONS--Certain reclassifications were made to prior years'
presentations to conform to the current year. These classifications are of a
normal recurring nature.
40
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
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,
1998 and 1997 follows.
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
SECURITIES HELD-TO-MATURITY:
DECEMBER 31, 1998:
U.S. Agency securities........................................ $ 1,996 $ 10 $ 2,006
State, county and municipal securities........................ 4,830 228 -- 5,058
Mortgage-backed securities.................................... 1,696 2 1,698
----------- ----- ----- -----------
$ 8,522 $ 240 $ -- $ 8,762
----------- ----- ----- -----------
----------- ----- ----- -----------
DECEMBER 31, 1997:
U.S. Agency securities........................................ $ 4,745 $ 7 $ (18) $ 4,734
State, county and municipal securities........................ 4,904 184 (10) 5,078
Mortgage-backed securities.................................... 2,841 1 (20) 2,822
Other......................................................... 76 1 -- 77
----------- ----- ----- -----------
$ 12,566 $ 193 $ (48) $ 12,711
----------- ----- ----- -----------
----------- ----- ----- -----------
SECURITIES AVAILABLE-FOR-SALE:
DECEMBER 31, 1998:
U.S. Agency securities........................................ $ 4,621 $ 9 $ (26) $ 4,604
State, county and municipal securities........................ 4,471 200 -- 4,671
Corporate bonds............................................... 5,428 23 -- 5,451
Mortgage-backed securities.................................... 4,425 38 (10) 4,453
Mutual funds.................................................. 4,508 -- (20) 4,488
Other......................................................... 199 -- -- 199
----------- ----- ----- -----------
$ 23,652 $ 270 $ (56) $ 23,866
----------- ----- ----- -----------
----------- ----- ----- -----------
DECEMBER 31, 1997:
U.S. Agency securities........................................ $ 8,991 $ 15 $ (6) $ 9,000
State, county and municipal securities........................ 5,987 235 -- 6,222
Mutual funds.................................................. 2,803 -- (114) 2,689
Mortgage-backed securities.................................... 3,713 17 (19) 3,711
Corporate debt securities..................................... 2,918 3 (3) 2,918
Other......................................................... 2,200 -- (44) 2,156
----------- ----- ----- -----------
$ 26,612 $ 270 $ (186) $ 26,696
----------- ----- ----- -----------
----------- ----- ----- -----------
</TABLE>
41
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
2. SECURITIES (CONTINUED)
The scheduled maturities of securities held-to-maturity and
available-for-sale at December 31, 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>
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............................................ $ 1,546 $ 1,549 $ 5,418 $ 5,434
Due after one year through five years.............................. 2,215 2,253 7937 8041
Due after five years through ten years............................. 2,212 2,379 975 1,051
Due after ten years................................................ 853 883 190 200
Mortgage-backed securities......................................... 1,696 1,698 4,425 4,453
Mutual funds....................................................... -- -- 4,508 4,488
Other.............................................................. -- -- 199 199
----------- ----------- ----------- -----------
$ 8,522 $ 8,762 $ 23,652 $ 23,866
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Proceeds from sales and calls of securities available-for-sale during 1998,
1997 and 1996 were $20,284, $2,752 and $10,085, respectively. Gross gains of $76
and gross losses of $60 were realized on those sales and calls during 1998.
Gross gains of $54 were realized on those sales and calls in 1997. Gross losses
of $59 were realized on those sales and calls in 1996.
At December 31, 1996, the Company wrote down certain mutual fund
investments. The write-down amounted to $148 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 $2,032 and $2,035 at December 31, 1998
and 1997, respectively, were pledged to secure public funds on deposit, as
required by law.
Included in accumulated other comprehensive income at December 31, 1998 and
1997 are unrealized gains on securities available for sale of $247 and $70, net
of taxes of $101 and $28, respectively.
3. LOANS
Loans consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Commercial............................................................ $ 60,433 $ 45,609
Real estate--construction............................................. 7,395 3,966
Real estate--other.................................................... 69,829 64,556
Consumer.............................................................. 17,333 22,176
---------- ----------
Total loans......................................................... 154,990 136,307
Less allowance for loan losses........................................ (1,953) (1,966)
Less deferred loan fees............................................... (399) (314)
---------- ----------
Loans, net.......................................................... $ 152,638 $ 134,027
---------- ----------
---------- ----------
</TABLE>
42
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
3. LOANS (CONTINUED)
Transactions in the allowance for loan losses account are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year....................................... $ 1,966 $ 1,535 $ 1,364
Provision for losses charges to expense.......................... 523 780 1,743
Loans charged off................................................ (734) (634) (1,644)
Recoveries on loans previously charged off....................... 198 285 72
--------- --------- ---------
Balance, end of year............................................. $ 1,953 $ 1,966 $ 1,535
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1998 and 1997, the recorded investment in loans that are
considered to be impaired was $1,780 and $1,891, respectively, all of which,
were on a nonaccrual basis and for which the related allowance for loan losses
is approximately $368 and $398, respectively. The average recorded investment in
impaired loans during the year ended December 31, 1998 and 1997, was
approximately $1,982 and $1,314, respectively. No interest income was recognized
on these loans. If these loans had been current throughout their terms, interest
income would have increased approximately $209 and $140 for 1998 and 1997,
respectively.
In the ordinary course of business, the Company has granted loans to certain
executive officers, directors and companies with which they are associated.
Loans made to such related parties amounted to $2,003 in 1998 and $100 in 1997.
Balances outstanding at December 31, 1998 and 1997 were $2,922 and $3,076,
respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Furniture, fixtures, and equipment....................................... $ 4,096 $ 3,960
Leasehold improvements................................................... 1,268 1,284
--------- ---------
5,364 5,244
Less accumulated depreciation and amortization........................... (3,162) (2,836)
--------- ---------
Premises and equipment, net.............................................. $ 2,202 $ 2,408
--------- ---------
--------- ---------
</TABLE>
5. OTHER REAL ESTATE OWNED
Other real estate owned consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Foreclosed assets held for sale.......................................... $ -- $ 274
Valuation allowance...................................................... -- --
--------- ---------
Other real estate owned, net............................................. $ -- $ 274
--------- ---------
--------- ---------
</TABLE>
43
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
6. INVESTMENT IN PARTNERSHIPS
The Company had a 50% limited partner interest in a limited partnership
(Ventura Affordable Homes, Ltd.). Affordable Communities, Inc., an unrelated
entity, was the general partner. The partnership was formed for the purpose of
constructing a low-to-moderate income housing development located in Ventura.
The investment was accounted for on the equity method. In 1992, the Company sold
a parcel of land to the partnership at its cost of $1,200. In exchange, the
Company received a second trust deed for $1,200. During 1994, the Company
contributed the trust deed and an additional $500 to the partnership. $258 was
contributed to the partnership in 1995
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. The Bank and the general partner negotiated a complete settlement of
the dispute and a request for dismissal was filed with the court. In connection
with the settlement agreement, the partnership was dissolved and the Bank
received during 1998 a $2,549 distribution in full satisfaction of its 50%
interest in the partnership.
The Company also had a 50% limited partner interest in a another limited
partnership (Santa Paula Affordable Homes, Ltd.). Affordable Communities, Inc.
is also 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. This
partnership was also dissolved as a condition of the settlement discussed above.
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. In December 1996, the Company wrote down the land to estimated fair market
value. The write-down amounted to $200 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. 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.......................................................... $ 508 $ 818 $ 255
State............................................................ 300 380 124
--------- --------- ---------
808 1,198 379
Deferred........................................................... (130) (226) (107)
--------- --------- ---------
Provision for income taxes......................................... $ 678 $ 972 $ 272
--------- --------- ---------
--------- --------- ---------
</TABLE>
44
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
7. INCOME TAXES (CONTINUED)
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 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal statutory rate............................. 34.0% 34.0% 34.0%
State franchise tax, net of federal income tax benefit.............. 7.6 7.1 8.0
Municipal interest.................................................. (9.6) (6.8) (28.5)
Benefit of deferred deductions, alternative minimum tax credits and
changes in valuation allowance, net............................... -- -- 21.0
Nondeductible meger related expenses................................ 6.9 -- --
Other............................................................... (2.1) (0.5) (0.5)
--- --- ---------
Tax provision....................................................... 36.8% 33.8% 34.0%
--- --- ---------
--- --- ---------
</TABLE>
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Deferred tax Assets:
Allowance for loan losses................................... $ 406 $ 418 $ 224
Deferred compensation and retirement benefits............... 850 742 687
AMT credit carryover........................................ 889 893 929
Other assets................................................ 127 200 118
--------- --------- ---------
2,272 2,253 1,958
Deferred tax liabilities:
Unrealized gain on securities available for sale............ (68) (42) (21)
Depreciation................................................ (33) (45) (14)
Other liabilities........................................... (68) (133) (61)
--------- --------- ---------
(169) (220) (96)
Valuation allowance........................................... (1,251) (1,211) (1,223)
--------- --------- ---------
Net deferred tax asset........................................ $ 852 $ 822 $ 639
--------- --------- ---------
--------- --------- ---------
</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 1998, 1997 and 1996, the
Company's contribution amounted to $73, $42 and $49, respectively. No profit
sharing contributions were made in 1998 or 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
45
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. PROFIT SHARING AND DEFERRED COMPENSATION PLANS (CONTINUED)
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. During 1998,
the Company again amended the plan to provide for full vesting by Directors with
over five years of service, eliminated participation by any existing Director
with less than five years of service and closed the plan for participation by
any new Directors.
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, 1998 and 1997, the projected benefit obligation and the
net benefit liability of the plans are $1,866 and $1,699, respectively, and are
included in other liabilities in the accompanying consolidated financial
statements. Compensation expense relating to the plans was $386, $267 and $403
in 1998, 1997 and 1996, 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 value. The Company's intention is to partially fund these plans from
the proceeds and investment earnings of these insurance policies.
9. STOCK OPTION PLANS
The Company has a stock option plan (the "1998 Plan") that provides for the
granting of options to directors and officers to purchase stock at its market
value on the date the options are granted. The 1998 Plan superseded all prior
stock option plans of the Company but did not effect any of the stock options
granted under such plans that remained outstanding. There are 110,000 shares of
Americorp Stock reserved for issuance upon exercise of options granted under the
1998 Plan. Options granted under the 1998 Plan may not extend more than ten
years from the date of grant.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("FAS 123"), which was effective as of
January 1, 1996, the fair value of option grants is estimated on the date of
grant using the Black-Scholes option-pricing model for proforma footnote
purposes with the following assumptions used for grants in all years; dividend
yields of 3.16%, risk-free interest rates of 5.37% to 5.723% and expected option
life of 3.63 years and 3.91 years for 1998
46
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. STOCK OPTION PLANS (CONTINUED)
and 1997, respectively. Expected volatility was assumed to be .0620 and .0429
for 1998 and 1997, respectively.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE FAIR VALUE
--------- ----------- -----------
<S> <C> <C> <C>
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 $ 25.00
Granted........................................................................... 15,000 $ 32.83 $ 2.98
-----
-----
Exercised......................................................................... (37,697) $ 24.66
Canceled.......................................................................... (7,843) $ 26.95
---------
Options outstanding December 31, 1998............................................. 66,229
---------
---------
</TABLE>
The information above does not include historical information relating to
the stock option plan of Channel Islands Bank. All outstanding options of that
plan were exercised prior to the effective date of the merger with the Bank and
are included in the Consolidated Statements of Stockholders Equity at the merger
conversion ratio. Options granted by Channel Islands Bank during the three years
ended December 31, 1998 were not material and are excluded from the pro forma
disclosures on the next page.
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
RANGE OF NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER EXERCISABLE
EXERCISE PRICES AT 12/31/98 REMAINING LIFE AT 12/31/98
- ------------------ ------------------- ---------------- -------------------
<S> <C> <C> <C>
$24.50 27,829 0.75 years 27,829
$26.50 - $29.00 23,400 3.23 years 11,060
$31.50 - $33.50 15,000 4.48 years 3,000
------ ------
$24.50 - $33.50 66,229 2.43 years 41,889
------ ------
------ ------
</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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income as reported............................................ $ 1,164 $ 1,903 $ 529
Estimated fair value of the year's options grants, net of tax..... (11) (37) (22)
--------- --------- ---------
Net income as adjusted............................................ $ 1,153 $ 1,866 $ 507
--------- --------- ---------
--------- --------- ---------
Adjusted net income per common share--diluted..................... $ 1.08 $ 1.81 $ 0.49
--------- --------- ---------
--------- --------- ---------
</TABLE>
47
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. STOCK OPTION PLANS (CONTINUED)
This proforma impact only takes into account options granted since January
1, 1996 and is likely to increase in future years as additional options are
granted and amortized ratably over the vesting period.
10. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers throughout its
primary market area of Ventura County, California. The Company's loan portfolio
is well diversified and no significant industry concentrations exist.
Investments in state and municipal securities involve governmental entities
within the State of California. The Bank maintains amounts on deposit with
correspondent banks that exceed federally insured limits. The Bank has not
experienced any losses in connection with such accounts.
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>
1998 1997
----------------- -----------------
<S> <C> <C>
Service cost..................................................... $ 21 $ 23
Interest cost.................................................... 13 13
Amortization of unrecognized transition obligation............... 8 10
--- ---
Total............................................................ $ 42 $ 46
--- ---
--- ---
</TABLE>
48
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
11. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED)
Summary information on the Company's plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees....................................................... $ 2 $ 8
Fully eligible, active employees............................... 71 70
Other active plan participants................................. 137 94
----- -----
Total.......................................................... 210 172
Fair value of plan assets........................................ -- --
----- -----
Unfunded accrued postretirement benefits obligation.............. 210 172
Unrecognized net gain............................................ 19 19
Unrecognized net transition obligation........................... (145) (164)
----- -----
Accrued postretirement benefit cost.............................. $ 84 $ 27
----- -----
----- -----
</TABLE>
The assumed discount rate and the assumed rate of increase in compensation
levels are 7.25%. 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, 1998, would be increased
by approximately $27.
12. REGULATORY MATTERS
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 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,
1998, that the Company and the Bank meet all capital adequacy requirements to
which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
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
49
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
12. REGULATORY MATTERS (CONTINUED)
table also sets forth the Bank's actual capital amounts and ratios (the
Company's capital ratios are comparable to the Bank's):
<TABLE>
<CAPTION>
AMOUNT OF CAPITAL REQUIRED
--------------------------------------------
TO BE ADEQUATELY TO BE WELL
ACTUAL CAPITALIZED CAPITALIZED
-------------------- ---------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Tier 1 Capital (to Average Assets)................. $ 20,231 8.41% $ 9,600 4.0% $ 12,000 5.0%
Tier 1 Capital (to Risk-Weighted Assets)........... $ 20,231 10.56% $ 7,700 4.0% $ 11,500 6.0%
Total Capital (to Risk-Weighted Assets)............ $ 22,164 11.57% $ 15,300 8.0% $ 19,200 10.0%
AS OF DECEMBER 31, 1997:
Tier 1 Capital (to Average Assets)................. $ 17,595 8.24% $ 8,600 4.0% $ 10,700 5.0%
Tier 1 Capital (to Risk-Weighted Assets)........... $ 17,595 10.15% $ 6,900 4.0% $ 10,400 6.0%
Total Capital (to Risk-Weighted Assets)............ $ 19,418 11.21% $ 13,900 8.0% $ 17,300 10.0%
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company was obligated under operating leases
requiring annual rentals as follows:
<TABLE>
<S> <C>
1999................................................................ $ 783
2000................................................................ 783
2001................................................................ 727
2002................................................................ 616
2003................................................................ 325
Thereafter.......................................................... 2,400
---------
Total............................................................... $ 5,634
---------
---------
</TABLE>
Rental expense was $892 in 1998, $705 in 1997 and $636 in 1996.
At December 31, 1998, the Company had unused lines of credit with two banks.
The lines total $4,700, 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, 1998, the Company had commitments to extend credit
of $43,768 and obligations under standby letters of credit of $814.
50
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions.
The Company uses the same credit policies in making commitments and
conditional commitments as it does for extending loan facilities to customers.
The Company evaluates each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary upon extension of credit,
is based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant, and
equipment and real estate.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards No. 107 ("FAS 107"), "Disclosures About Fair
Value of Financial Instruments" requires corporations to disclose the fair value
of its financial instruments, whether or not recognized in the balance sheet,
where it is practical to estimate that value.
Fair value estimates 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.
51
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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. 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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks........................................ $ 21,106 $ 21,106 $ 20,812 $ 20,812
Federal funds sold............................................. 27,700 27,700 18,650 18,650
Securities..................................................... 32,388 32,628 39,262 39,407
Loans, net of allowance for loan losses........................ 152,638 153,772 134,027 135,176
Accrued interest receivable.................................... 1,321 1,321 1,312 1,312
Life insurance policies........................................ 2,492 2,492 2,255 2,255
Financial Liabilities:
Deposits....................................................... 217,721 217,988 201,795 201,859
Accrued interest payable....................................... 559 559 480 480
</TABLE>
At December 31, 1998 and 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.
52
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
16. PARENT COMPANY INFORMATION
The following are condensed financial statements of Americorp (parent
company only) as of and for the years ended December 31 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CONDENSED BALANCE SHEET
Cash........................................................................................ $ 9 $ 2
Other assets................................................................................ 129 131
Investment in and advances to the Bank...................................................... 20,387 17,897
--------- ---------
TOTAL ASSETS.............................................................................. $ 20,525 $ 18,030
--------- ---------
--------- ---------
Liabilities................................................................................. $ 129 $ 123
Stockholders' equity........................................................................ 20,396 17,907
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................................ $ 20,525 $ 18,030
--------- ---------
--------- ---------
CONDENSED STATEMENT OF INCOME
Equity in earnings of the Bank.............................................................. $ 1,193 $ 1,923
Other....................................................................................... (29) (20)
--------- ---------
NET INCOME.................................................................................. $ 1,164 $ 1,903
--------- ---------
--------- ---------
CONDENSED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................................. $ 1,164 $ 1,903
Adjustments:
Undistributed earnings of the Bank........................................................ (550) (1,321)
Change in dividends receivable from the Bank.............................................. 2 (4)
Change in accrued liabilities............................................................. 6 2
--------- ---------
Net cash provided by operating activities................................................... 622 580
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in and advances to the Bank...................................................... (1,838) (474)
--------- ---------
Net Cash Used by Investing Activities....................................................... (1,838) (474)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................................................... 1,932 532
Retirement of common stock.................................................................. (94) (58)
Dividends paid.............................................................................. (615) (581)
--------- ---------
Net cash used for financing activities...................................................... 1,223 (107)
--------- ---------
CHANGE IN CASH............................................................................ 7 (1)
Cash at Beginning of Year................................................................... 2 3
--------- ---------
CASH AT END OF YEAR....................................................................... $ 9 $ 2
--------- ---------
--------- ---------
</TABLE>
53
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
17. MERGER WITH CHANNEL ISLANDS BANK
At the close of business on December 31, 1998, the Company consummated a
merger with Channel Islands Bank. This merger was accounted for by the pooling
of interest method, whereby the Company's Financial Statements have been
restated as if the two companies were historically one unit. A total of 405,505
common shares were issued to the shareholders of Channel Islands Bank in
connection with this merger.
The following table summarizes the separate revenue and net income of the
Company and Channel Islands Bank that have been reported in the restated
financial statements included herein:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest and Noninterest Income:
The Company................................................ 12,366 11,319 10,040
Channel Islands Bank....................................... 8,396 7,975 7,035
--------- --------- ---------
$ 20,762 $ 19,294 $ 17,075
--------- --------- ---------
--------- --------- ---------
Net Income:
The Company................................................ 507 1,103 203
Channel Islands Bank....................................... 657 800 326
--------- --------- ---------
$ 1,164 $ 1,903 $ 529
--------- --------- ---------
--------- --------- ---------
</TABLE>
In connection with this merger, the Company identified one-time
restructuring charges and merger-related costs of $518 ($434 after tax). These
restructuring charges and merger-related costs included employee benefits and
severance payments, professional fees and asset-related write-downs related to
the closure of one branch location. These costs were accrued at the consummation
of the merger on December 31, 1998 and are expected to be incurred in the first
and second quarter of 1999.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Information in response to this Item is set forth in Americorp's Report on
Form 8-K filed with the SEC on December 4, 1998 which by this reference is
incorporated herein.
54
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth information on the current members of the
Boards of Directors of Americorp and ACB after the merger with CIB.
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
OR
NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS APPOINTED
- --------------------------------- --- ----------------------------------------------------------------- -------
<S> <C> <C> <C>
Michael T. Hribar................ 51 Certified Public Accountant 1998
Allen W. Jue..................... 63 Chairman of the Board (since 1994); Owner, Jue's Market 1973
Robert J. Lagomarsino............ 72 VP Lagomarsino's (family business); U.S. Congress, 1974-93 1993
Gerald J. Lukiewski.............. 45 Banker, President of ACB 3/98 to present; S.V.P. Chief Credit 1998
Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97; prior
thereto various Vice President positions with Santa Barbara
Bank & Trust Co. and Bank of A Levy
E. Thomas Martin................. 55 President, Martin Resorts, Inc. (hotel) 1998 to present; Manager, 1996
Martin & Hobbs LLC (real estate and vineyards) 1996 to present;
President, Martin & MacFarlane, Inc. (outdoor advertising and
winery) 1976-1998; President, MW Sign Corp. (management
company) 1991-1998
Harry L. Maynard................. 71 Retired, former President of ACB 1976
Edward F. Paul................... 61 President, Walker, Inc. (real estate management and sales); 1998
President, CIB 1995-96
Joseph L. Priske................. 49 Vice Chairman of the Board; CEO, Priske-Jones Company (real 1998
estate development)
Jacqueline S. Pruner............. 60 Consultant, American Medical Response 6/94-5/97; Co-Owner, Pruner 1998
Investments
</TABLE>
55
<PAGE>
The following table sets forth information on the current executive officers
of Americorp or ACB.
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED
OR
NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS APPOINTED
- --------------------------------- --- ----------------------------------------------------------------- -------
<S> <C> <C> <C>
Gerald J. Lukiewski ............. 45 Banker, President of ACB 3/98 to present; S.V.P. Chief Credit 1998
President Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97; prior
thereto various Vice President positions with Santa Barbara
Bank & Trust Co. and Bank of A Levy
Thomas E. Anthony ............... 50 Senior Vice President and Chief Lending Officer of CIB 1998
Sr. VP and Chief Lending
Officer
Allen R. Partridge .............. 58 Senior Vice President and Chief Financial Officer of CIB from 1998
Sr. VP and Chief Financial 3/97; in house con- sultant acting as chief accountant and
Officer information systems manager for the Israel Discount Bank from
5/96 to 3/97; Chief Operating Officer and Chief Financial
Officer for Bank of Los Angeles from 11/93 to 6/95
Mary Martha Stewart ............. 38 Senior Vice President and Chief Operating Officer of ACB from 1998
Sr. VP and Chief Operating 3/98; Senior Vice President Operations for Colonial Western
Officer Agency, Inc. from 10/97 to 1/98; Group Vice President and Area
Manager for City National Bank from 1/97 to 9/97; Senior Vice
President Branch Administration for Ventura County National
Bank (acquired by City National) from 5/90 to 1/97
</TABLE>
56
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Set forth below is the compensation accrued during 1998 to the five highest
paid executive officer of Americorp/ACB who received total annual salary and
bonus of more than $100,000 during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
(E)
OTHER (F)
(A) (C) (D) ANNUAL ALL OTHER
NAME AND (B) SALARY BONUS COMPEN- COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) SATION($)(2) ($)
- --------------------------------------------------------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gerald J. Lukiewski ..................................... 1998 114,166 50,000 -- --
President(3) N/A
Mary Martha Stewart ..................................... 1998 62,500 40,468 -- --
Senior V.P. N/A
Thomas E. Anthony(4) .................................... 1998 97,060 15,000 -- --
Senior VP N/A
Allen R. Partridge(4) ................................... 1998 88,400 15,000 -- --
Senior VP N/A
James E. Beeninga ....................................... 1998 11,940 -- 7,000(6) 119,027(7)
President(5) 1997 139,100 26,065 -- --
</TABLE>
- ------------------------
(1) Amounts shown include cash and non-cash compensation earned and received,
including monthly auto allowances.
(2) No executive officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus.
(3) Became President on March 2, 1998 and Senior Vice President and Chief Credit
Officer prior thereto.
(4) Reflects services and compensation received at CIB prior to the merger on
December 31, 1998.
(5) Resigned as President on March 2, 1998.
(6) Reflects the difference between the exercise price and the fair market value
on the exercise of a stock option for 1,000 shares of Americorp stock.
(7) Reflects amounts paid to Mr. Beeninga in connection with his resignation.
OPTION GRANTS IN 1998
In connection with the merger with CIB, Americorp adopted a new stock option
plan. Previous stock option plans of Americorp were terminated at such time but
options granted pursuant to such plans remained outstanding and exercisable in
accordance with their terms. Options granted during 1998 under
57
<PAGE>
the various Americorp stock option plans to any of the officers set forth in the
Summary Compensation Table are as follows:
<TABLE>
<CAPTION>
(B) (C)
NUMBER OF PERCENT OF (D)
SECURITIES OPTIONS GRANTED EXERCISE OR
(A) UNDERLYING TO EMPLOYEES BASE PRICE (E)
NAME OPTIONS GRANTED IN 1998 PER SHARE EXPIRATION DATE
- ------------------------------------------------- ----------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
Lukiewski........................................ 1,000 3.01 $ 31.50 3/25/03
Stewart.......................................... 4,000 12.05 $ 31.50 3/25/03
Anthony.......................................... 3,641 10.97 $ 27.46 6/18/08
Partridge........................................ 3,641 10.97 $ 27.46 6/18/08
Beeninga......................................... -- -- -- --
</TABLE>
The following table sets forth certain information concerning unexercised
options under the Americorp stock option plans to the persons named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
(D)
NUMBER OF (E)
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
(B) 12/31/98(#) AT 12/31/98($)
SHARES (C) ------------- ---------------
(A) ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C>
Lukiewski................................................. -- -- 2,600/2,400 21,500/18,000
Stewart................................................... -- -- 800/3,200 4,400/17,600
Anthony................................................... -- -- 729/2,912 7,684/30,692
Partridge................................................. -- -- 729/2,912 7,684/30,692
Beeninga.................................................. 1,000 7,000 -- --
</TABLE>
- ------------------------
(1) The aggregate value has been determined based upon the average of the bid
and asked prices for Americorp's stock at exercise or year-end, minus the
exercise price.
DIRECTOR COMPENSATION
In 1998, each of the then directors received $1,000 per month in director's
fees except as indicated in the following sentences. The Secretary to the Board
(Mr. Cryne - retired) 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 (retired), Jue, Lagomarsino and Wood (retired) were the only
participants in the plan. It is currently anticipated that the amount of such
additional accrual will be approximately $175,600.
EMPLOYMENT AGREEMENTS
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
58
<PAGE>
additional salary and benefits or (ii) the remaining salary and benefits due
under the term of the agreement.
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 to move their banking or
employment relationships.
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 to move their banking or employment
relationships.
The employment agreements of Messrs. Anthony and Partridge were assumed by
Americorp and ACB in connection with the merger of CIB with and into ACB.
59
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as set forth in the following table, management of Americorp does not
know of any person who owns beneficially more than 5% of Americorp Stock. The
following table sets forth certain information as of February 1, 1999,
concerning the beneficial ownership of Americorp Stock by each of the current
directors of Americorp and ACB and by all current directors and executive
officers of Americorp and ACB as a group.
<TABLE>
<CAPTION>
AMOUNT OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2)
- ------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
Michael T. Hribar............................................ 6,623(3) *
Allen W. Jue................................................. 17,681(4) 1.7%
Robert J. Lagomarsino........................................ 41,312 4.0%
Gerald J. Lukiewski.......................................... 3,300(5) *
E. Thomas Martin............................................. 55,575(6) 5.4%
Harry L. Maynard............................................. 15,202 1.5%
Edward F. Paul............................................... 41,044(7) 4.0%
Joseph L. Priske............................................. 9,443(8) *
Jacqueline S. Pruner......................................... 21,106(9) 2.0%
Directors and Executive Officers
as a Group (12 persons).................................... 217,985(10) 20.7%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise has or shares; (a) voting power, which includes the power to
vote, or to direct the voting of such security; and/or; (b) investment power
which includes the power to dispose, or to direct the disposition of such
security. Beneficial owner also includes any person who has the right to
acquire beneficial ownership of such security as defined above within 60
days of the date specified.
(2) Shares subject to options held by directors and executive officers that were
exercisable within 60 days after February 1, 1999 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 1,457 shares exercisable pursuant to the Americorp stock option
plans.
(4) Includes 5,000 shares exercisable pursuant to the Americorp stock option
plans.
(5) Includes 2,800 shares exercisable pursuant to the Americorp stock option
plans.
(6) Includes 2,000 shares exercisable pursuant to the Americorp stock option
plans.
(7) Includes 1,457 shares exercisable pursuant to the Americorp stock option
plans.
(8) Includes 1,457 shares exercisable pursuant to the Americorp stock option
plans.
(9) Includes 729 shares exercisable pursuant to the Americorp stock option
plans.
(10) Includes 17,958 shares exercisable pursuant to the Americorp stock option
plans.
60
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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.
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
EXHIBITS:
2.1 Agreement to Merge and Plan of Reorganization, dated July 7, 1998, and
amended on September 17, 1998*
3.1 Articles of Incorporation of Americorp*
3.2 Bylaws of Americorp, as amended*
10.1 Employment Agreement of Gerald J. Lukiewski*
10.2 1994 Stock Option Plan*
10.3 1998 Stock Option Plan*
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 Employment Agreement of Allen Partridge
10.10 Employment Agreement of Thomas Anthony
16 Letter concerning change in certifying accountant**
21 Subsidiary of Americorp - American Commercial Bank is the only subsidiary
of Americorp
23.1 Consent of Vavrinek, Trine, Day & Co., LLP -- see opinions in Item 8
23.2 Consent of Fanning & Karrh -- see opinion in Item 8
27 Financial Data Schedule
</TABLE>
- ------------------------
* filed with the SEC in Registration Statement 333-63841 on Form S-4 and by this
reference incorporated herein
** contained in Americorp's Report on Form 8-K filed with the SEC on December 4,
1998 and by this reference incorporated herein.
REPORTS ON FORM 8-K:
On December 4, 1998, the Company filed a report on Form 8-K in connection
with item 4 - Change in Accountants.
On January 13, 1999, the Company filed a report on Form 8-K in connection
with items 2 and 7 regarding the closing of the transaction with Channel Islands
Bank.
61
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, Americorp caused this amended report to be signed on its behalf by the
undersigned, thereunto duly authorized on April 14, 1999.
<TABLE>
<S> <C> <C>
AMERICORP
By: /s/ GERALD J. LUKIEWSKI
-----------------------------------------
Gerald J. Lukiewski
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ ALLEN PARTRIDGE
-----------------------------------------
Allen Partridge
CHIEF FINANCIAL OFFICER
</TABLE>
In accordance with the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of Americorp and in the
capacities and on the dates indicated.
Dated:
/s/ ALLEN W. JUE
- ----------------------------------- Chairman of the Board of March 18, 1999
Allen W. Jue Directors
/s/ MICHAEL T. HRIBAR
- ----------------------------------- Director March 18, 1999
Michael T. Hribar
/s/ ROBERT J. LAGOMARSINO
- ----------------------------------- Director March 18, 1999
Robert J. Lagomarsino
/s/ GERALD J. LUKIEWSKI
- ----------------------------------- Director March 18, 1999
Gerald J. Lukiewski
/s/ E. THOMAS MARTIN
- ----------------------------------- Director March 18, 1999
E. Thomas Martin
/s/ HARRY L. MAYNARD
- ----------------------------------- Director March 18, 1999
Harry L. Maynard
/s/ EDWARD P. PAUL
- ----------------------------------- Director March 18, 1999
Edward P. Paul
- ----------------------------------- Director March , 1999
Joseph L. Priske
/s/ JACQUELINE S. PRUNER
- ----------------------------------- Director March 18, 1999
Jacqueline S. Pruner
62
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------- ---------
<C> <S> <C>
10.9 Employment Agreement of Allen Partridge
10.10 Employment Agreement of Thomas Anthony
27 Financial Data Schedule
</TABLE>
63
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 20,511
<INT-BEARING-DEPOSITS> 595
<FED-FUNDS-SOLD> 27,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,866
<INVESTMENTS-CARRYING> 8,522
<INVESTMENTS-MARKET> 32,628
<LOANS> 152,638
<ALLOWANCE> 1,953
<TOTAL-ASSETS> 241,725
<DEPOSITS> 217,721
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,599
<LONG-TERM> 0
0
0
<COMMON> 8,771
<OTHER-SE> 11,625
<TOTAL-LIABILITIES-AND-EQUITY> 241,725
<INTEREST-LOAN> 14,874
<INTEREST-INVEST> 2,002
<INTEREST-OTHER> 1,178
<INTEREST-TOTAL> 18,054
<INTEREST-DEPOSIT> 4,972
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 13,082
<LOAN-LOSSES> 523
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 13,425
<INCOME-PRETAX> 1,842
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,164
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.09
<YIELD-ACTUAL> 6.56
<LOANS-NON> 1,780
<LOANS-PAST> 784
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,521
<ALLOWANCE-OPEN> 1,966
<CHARGE-OFFS> 734
<RECOVERIES> 198
<ALLOWANCE-CLOSE> 1,953
<ALLOWANCE-DOMESTIC> 1,709
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 244
</TABLE>
