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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR
ENDED DECEMBER 31, 1999
OR
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<TABLE>
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM ------------- TO -------------
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Commission file number 033-18392
AMERICORP
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(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
State of California 77-0164985
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(State or other jurisdiction of (I.R.S. Identification No.)
employee incorporation or organization)
304 East Main Street, Ventura, California 93001 (805) 658-6633
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(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
As of February 29, 2000, the aggregate market value of the common stock held by
non-affiliates of the Company was $27,060,390.
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Number of shares of common stock of the Company outstanding as of February 29,
2000: 2,104,171.
<PAGE>
INDEX TO FORM 10-K
PART I
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PAGE
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Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for Common Equity and Related Stockholders Matters 12
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition 15
and 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 55
Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the Registrant 55
Item 11. Executive Compensation 56
Item 12. Security Ownership of Certain Beneficial Owners and 58
Management
Item 13. Certain Relationships and Related Transactions 59
Item 14. Exhibits and Reports on Form 8-K 59
</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, 1999, Americorp had approximately $246 million in
consolidated assets, $179 million in consolidated net loans, $210 million in
consolidated deposits, and $23 million in consolidated stockholders' equity.
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 acquirer 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 0.7282 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 one full service office in the city of Camarillo. ACB's
banking services include the acceptance of checking and savings deposits, and
the making of commercial, SBA, real estate, personal, automobile and other
installment loans. ACB also offers traveler's checks, notary public and other
customary bank services to its customers. While ACB does offer credit cards to
its customers, other financial institutions issue the cards. Trust services are
not offered by ACB.
ACB's deposits are attracted primarily from individuals and small and
medium-sized business-related sources. ACB also attracts deposits from several
local agencies. In connection with municipal deposits, ACB is generally required
to pledge securities to secure such deposits, except for the first $100,000 of
such deposits which are insured by the FDIC.
Americorp is engaged in lending activities to businesses and consumers
throughout the geographic area of Ventura County, California. ACB has, to some
degree, concentrations in real estate loans and real estate associated
businesses. The risks associated with 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, 1999, totaled $42.2 million representing 23.2%
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, 1999, totaled $119.7 million, representing 65.8% 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 4.3% 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
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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 bank
regulatory authorities), franchises or concessions.
EMPLOYEES
As of December 31, 1999, ACB had a total of 109 full-time employees and 25
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 six full service-banking
offices in Ventura County.
Recently adopted financial modernization legislation will likely increase
competition in the markets in which the Company operates, although it is
difficult to assess the impact that such increased competition may have on the
Company's operations. See "Financial Modernization Legislation."
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
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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 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 was adopted in 1999 that, among other things, repealed, the
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 currently 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's ability to engage in non-banking activities is also regulated
by the Federal Reserve Board. See "Financial Modernization Legislation."
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
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Board to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both.
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").
AMERICAN COMMERCIAL BANK
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.
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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, 1999.
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DECEMBER 31, 1999
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MINIMUM CAPITAL
ACTUAL REQUIREMENT
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Leverage ratio..................................... 9.5% 4.0%
Tier 1 risk-based ratio............................ 10.9 4.0
Total risk-based ratio............................. 11.8 8.0
</TABLE>
Under applicable regulatory guidelines, the Bank was considered "Well
Capitalized" at December 31, 1999. For more information concerning the capital
ratios of the Company and the Bank, see Note 14 to the Americorp Financial
Statements contained in Item 8 of this Report.
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:
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"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 closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and
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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 may include the imposition of a conservator or receiver, the
issuance of a cease and desist order that can
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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 and 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. As a result of its "Well
Capitalized" status, the Bank currently pays approximately $23,000 per year.
FINANCIAL MODERNIZATION LEGISLATION
On November 12, 1999, the President signed into law the Gramm-Leach-Bliley
Act, ("GLB Act"), which significantly changed the regulatory structure and
oversight of the financial services industry. The GLB Act revises the Bank
Holding Company Act and repeals the affiliation provisions of the Glass-
Steagall Act of 1933, permitting a qualifying holding company, called a
financial holding company, to engage in a full range of financial activities,
including banking, insurance, and securities activities, as well as merchant
banking and additional activities that are "financial in nature" or
"complementary" to such financial activities. The GLB Act thus provides expanded
financial affiliation opportunities for existing bank holding companies and
permits various non-bank financial services providers to acquire banks by
allowing bank holding companies to engage in activities such as securities
underwriting, and underwriting and brokering of insurance products. The GLB Act
also expands passive investments by financial holding companies in any type of
company, financial or nonfinancial, through merchant banking and insurance
company investments. In order for a bank holding company to qualify as a
financial holding company, its subsidiary depository institutions must be
"well-capitalized" and "well-managed" and have at least a "satisfactory"
Community Reinvestment Act rating.
The GLB Act also reforms the regulatory framework of the financial services
industry. Under the GLB Act, financial holding companies are subject to primary
supervision by the Federal Reserve Board while current federal and state
regulators of financial holding company regulated subsidiaries such as insurers,
broker-dealers, investment companies and banks generally retain their
jurisdiction and authority. In order to implement its underlying purposes, the
GLB Act preempts state laws restricting the establishment of financial
affiliations authorized or permitted under the GLB Act, subject to specified
exceptions for state insurance regulators. With regard to securities laws, the
GLB Act removes the current blanket exemption for banks from the broker-dealer
registration requirements under the Securities Exchange Act of 1934, amends the
Investment Company Act of 1940 with respect to bank common trust fund and mutual
fund activities, and amends the Investment Advisers Act of 1940 to require
registration of banks that act as investment advisers for mutual funds.
The GLB Act also includes provisions concerning subsidiaries of national
banks, permitting a national bank to engage in most financial activities through
a financial subsidiary, provided that the bank and its depository institution
affiliates are "well capitalized" and "well managed" and meet certain other
qualification requirements relating to total assets, subordinated debt, capital,
risk management, and affiliate transactions. With respect to subsidiaries of
state banks, new activities as "principal" would be limited to those permissible
for a national bank financial subsidiary. The GLB Act requires a state bank with
a financial subsidiary permitted under the GLB Act as well as its depository
institution affiliates to be "well capitalized," and also subjects the bank to
the same capital, risk management and affiliate transaction rules as applicable
to national banks. The provisions of the GLB Act relating to financial holding
companies become effective 120 days after its enactment, or about March 15,
2000, excluding, the federal preemption provisions, which became effective on
the date of enactment.
10
<PAGE>
The Company currently meets all the requirements for financial holding
company status. However, the Company does not expect to elect financial holding
company status unless and until it intends to engage in any of the expanded
activities under the GLB Act which require such status. Unless and until it
elects such status, the Company will only be permitted to engage in non-banking
activities that were permissible for bank holding companies as of the date of
the enactment of the GLB Act.
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 fede11ral
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 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 upon mergers and acquisitions
involving financial institutions and upon the Company and the value of the
Company's Common Stock can not presently be predicted nor can when, or if, the
change will actually be adopted.
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 4 to the Americorp Financial
Statements contained in Item 8 of this Report for certain additional information
concerning the amount of ACB's lease commitments. Americorp has no separate
facilities.
11
<PAGE>
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
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Americorp Common Stock is listed on the OTC Bulletin Board and trades under
the symbol "AICA." Trading in the stock has not been extensive.
The management of Americorp is aware of three securities dealers who
maintain an inventory and makes a market in Americorp Common Stock--Maguire
Investments, Santa Maria, California; Monroe Securities, Inc., Rochester, New
York and Hoefer & Arnett, San Francisco, California.
The following prices 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: All
prices have been adjusted for the two-for-one stock split of the Common Stock
which was effective on April 15, 1999.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
- ------- -------- --------
<S> <C> <C>
1st '98..................................................... $16.00 $15.50
2nd '98..................................................... 16.00 15.50
3rd '98..................................................... 18.50 18.00
4th '98..................................................... 19.00 18.50
1st '99..................................................... $20.00 $19.50
2nd '99..................................................... 19.75 18.75
3rd '99..................................................... 20.50 18.50
4th '99..................................................... 19.63 17.88
</TABLE>
HOLDERS
As of February 1, 2000, there were approximately 398 holders of Americorp
Common Stock. There are no other classes of equity securities 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
12
<PAGE>
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 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 65 consecutive quarterly cash dividends to its
shareholders. Americorp is currently paying quarterly cash dividends of $0.12
per share.
The dividend policy of Americorp is expected to continue; 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 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.
13
<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, 1999 and 1998 and its consolidated statements of income for the
years ended December 31, 1999, 1998 and 1997 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 Americorp 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, 1997,
1996 and 1995 and its consolidated statements of income for the years ended
December 31, 1996 and 1995 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,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest Income......................... $ 18,821 $ 18,054 $ 16,575 $ 15,120 $ 13,757
Interest Expense........................ 4,604 4,972 4,626 4,593 3,852
-------- -------- -------- -------- --------
Net Interest Income..................... 14,217 13,082 11,949 10,527 9,905
Provision for Loan Losses............... 720 523 780 1,743 496
-------- -------- -------- -------- --------
Net Interest Income After Provision for
Loan Losses........................... 13,497 12,559 11,169 8,784 9,409
Noninterest Income...................... 2,898 2,708 2,719 1,955 2,021
Noninterest Expense..................... 11,928 13,425 11,013 9,938 9,226
-------- -------- -------- -------- --------
Income Before Income Taxes.............. 4,467 1,842 2,875 801 2,204
Income Taxes............................ 1,145 678 972 272 659
-------- -------- -------- -------- --------
Net Income.............................. $ 3,322 $ 1,164 $ 1,903 $ 529 $ 1,545
======== ======== ======== ======== ========
Dividends............................... $ 928 $ 615 $ 581 $ 572 $ 557
PER SHARE DATA:
Net Income--Basic....................... $ 1.60 $ 0.59 $ 1.04 $ 0.29 $ 0.86
Net Income--Diluted..................... $ 1.49 $ 0.55 $ 0.93 $ 0.26 $ 0.75
Book Value.............................. $ 10.96 $ 9.94 $ 9.59 $ 8.90 $ 8.87
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION SUMMARY:
Total Assets............................ $245,966 $241,725 $223,252 $201,680 $184,319
Total Deposits.......................... 209,877 217,721 201,795 183,047 165,964
Securities.............................. 27,364 32,388 39,262 39,199 39,904
Loans, net.............................. 179,347 152,638 134,027 114,798 100,933
Allowance for Loan Losses (ALLL)........ 1,978 1,953 1,966 1,535 1,364
Total Shareholders' Equity.............. 23,064 20,396 17,907 16,068 15,967
SELECTED RATIOS:
Return on Average Assets................ 1.36% 0.51% 0.92% 0.27% 0.92%
Return on Average Equity................ 15.32% 6.00% 11.33% 3.24% 10.60%
Net Interest Margin..................... 6.58% 6.56% 6.60% 6.22% 6.58%
Dividend Payout Ratio................... 27.93% 52.84% 30.53% 108.13% 36.05%
Non-performing Loans to Total Loans..... 0.99% 1.65% 1.45% 0.96% 1.82%
Non-performing Assets to Total Assets... 0.82% 1.06% 1.01% 0.58% 1.77%
ALLL to Non-performing Loans............ 109.65% 76.17% 99.70% 136.81% 73.49%
Average Shareholders' Equity to Average
Assets................................ 8.90% 8.51% 8.10% 8.37% 8.65%
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EARNINGS OVERVIEW
The Company reported net earnings of $3.3 million or $1.49 diluted earnings
per share for 1999. This represents almost a threefold increase from 1998 when
net earnings were $1.2 million or $0.55 diluted earnings per share. This
significant increase occurred as the Company experienced strong growth in
operating income (up approximately 8%) and significantly lower operating costs
(down approximately 12%). Nonrecurring 1998 costs associated with the CIB merger
and a reduction of approximately 10% in personnel costs represented the majority
of this decline.
The Company reported earnings of $1.2 million in 1998. This represented a
39% decline compared to the $1.9 million reported in 1997. This decrease was a
combination of increases in net interest income offset with significant one-time
merger related expenses and increased personnel costs.
The following table sets forth several key operating ratios for 1999, 1998
and 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1999 1998 1997
----- ----- -----
Return on Average Assets............................. 1.36% 0.51% 0.92%
Return on Average Equity............................. 15.32% 6.00% 11.33%
Dividend Payout Ratio................................ 27.93% 52.84% 30.53%
Average Shareholder's Equity to Average Total
Assets............................................. 8.90% 8.51% 8.10%
</TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY
The following table presents, for the years indicated, the distribution of
average assets, liabilities and shareholders' equity, as well as the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, and the dollar amounts of interest expense and average
interest-bearing
15
<PAGE>
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,
------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ ------------------------------
AVERAGE AVERAGE AVERAGE
INTEREST YIELD OR INTEREST YIELD OR INTEREST YIELD OR
AVERAGE EARNED RATE AVERAGE EARNED RATE AVERAGE EARNED RATE
BALANCE OR PAID PAID BALANCE OR PAID PAID BALANCE OR PAID PAID
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Investment Securities........ $ 28,925 $ 1,596 5.52% $ 35,834 $ 2,002 5.59% $ 38,531 $ 2,250 5.84%
Federal Funds Sold........... 19,229 932 4.85% 21,565 1,110 5.15% 15,550 848 5.45%
Other Earning Assets......... -- -- 0.00% 1,189 68 5.72% 1,690 102 6.04%
Loans........................ 168,042 16,293 9.70% 140,848 14,874 10.56% 125,248 13,375 10.68%
-------- ------- -------- ------- -------- -------
Total Interest-Earning
Assets....................... 216,196 18,821 8.71% 199,436 18,054 9.05% 181,019 16,575 9.16%
Cash and Due From Banks........ 21,190 21,281 17,670
Premises and Equipment......... 2,074 2,348 2,155
Other Real Estate Owned........ 519 96 251
Accrued Interest and Other
Assets....................... 5,625 6,714 8,155
Allowance for Loan Losses...... (1,882) (1,947) (1,747)
-------- -------- --------
Total Assets................... $243,722 $227,928 $207,503
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Money Market and NOW......... $ 65,767 1,209 1.84% $ 66,501 1,352 2.03% $ 64,693 1,448 2.24%
Savings...................... 18,568 367 1.98% 18,017 389 2.16% 17,979 402 2.24%
Time Deposits under
$100,000................... 36,943 1,694 4.59% 35,173 1,823 5.18% 29,933 1,507 5.03%
Time Deposits of $100,000 or
More....................... 26,973 1,329 4.93% 26,398 1,408 5.33% 23,121 1,269 5.49%
Other........................ 110 5 4.55% -- -- n/a -- -- n/a
-------- ------- -------- ------- -------- -------
Total Interest-Bearing
Liabilities.................. 148,361 4,604 3.10% 146,089 4,972 3.40% 135,726 4,626 3.41%
Noninterest-Bearing
Liabilities:
Demand Deposits.............. 70,774 59,383 52,601
Other Liabilities............ 2,896 3,062 2,374
Shareholders' Equity......... 21,691 19,394 16,802
-------- -------- --------
Total Liabilities and
Shareholders' Equity......... $243,722 $227,928 $207,503
======== ======== ========
Net Interest Income............ $14,217 $13,082 $11,949
======= ======= =======
Net Yield on Interest-Earning
Assets....................... 6.58% 6.56% 6.60%
</TABLE>
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 1999 was $14.2 million, an increase of $1.1 million
or 8.7% when compared to $13.1 million in 1998. This increase was primarily
attributable to the growth in interest-earning assets, as the net yield on
interest-earning assets was relatively unchanged at 6.58% in 1999 compared to
6.56% in 1998. Interest-earning assets increased $16.8 million or 8.4% to
$216.2 million in 1999 compared to $199.4 million in 1998.
During 1998, net interest income increased $1.2 million or 9.5% to
$13.1 million from the 1997 amount of $11.9 million. As in 1999 the 1998
increase was primarily the result of increases in interest-earning assets which
grew 10.2% from $181.0 million in 1997 to $199.4 million in 1998. The Company
16
<PAGE>
experienced a slight reduction of 4 basis point in its net yield on
interest-earning assets, which was 6.56% in 1998 compared to 6.60% in 1997.
Interest income for 1999 was $18.8 million compared to $18.1 million in
1998. This increase of $0.7 million was comprised of additional income of
$2.2 million resulting from increased interest-earning assets reduced by
$1.4 million resulting from a 34 basis point decline in the overall yield on
interest-earning assets.
Interest income in 1998 was also up $1.5 million compared to the
$16.6 million reported in 1997. This increase was primarily attributable to
growth in interest-earning assets as the net yield on interest-earning assets
declined by 11 basis points.
Interest expense in 1999 was $4.6 million compared to $5.0 million in 1998.
This decrease was primarily attributable to declining interest rates paid on
interest-bearing liabilities, which declined 30 basis points from 3.40% in 1998
to 3.10% in 1999. The positive impact on net interest income from this rate
decline was partially offset by nominal increases in the average
interest-bearing liabilities outstanding.
During 1999 the Company increased it average interest-earning assets by
$16.8 million while limiting its increase in average interest-bearing
liabilities to $2.3 million. This apparent shortfall was funded primarily by a
$11.4 million increase in average noninterest-bearing demand deposits and a
$2.3 million increase in shareholders' equity. This form of funding has a
positive impact of the Company's net interest income.
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.
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, 1999 YEAR ENDED DECEMBER 31, 1998
VERSUS VERSUS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997
------------------------------------ ------------------------------------
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............... $ (381) $ (25) $ (406) $ (153) $ (95) $ (248)
Federal Funds Sold.................. (115) (63) (178) 312 (50) 262
Other Earning Assets................ (34) (34) (68) (29) (5) (34)
Loans............................... 2,707 (1,288) 1,419 1,648 (149) 1,499
------ ------- ------ ------ ----- ------
TOTAL INTEREST INCOME............... 2,177 (1,410) 767 1,778 (299) 1,479
INTEREST-BEARING LIABILITIES:
Money Market and NOW................ (15) (128) (143) 39 (135) (96)
Savings............................. 12 (34) (22) 1 (14) (13)
Time Deposits under $100,000........ 89 (218) (129) 271 45 316
Time Deposits $100,000 or More...... 30 (109) (79) 176 (37) 139
Other............................... 3 2 5 -- -- --
------ ------- ------ ------ ----- ------
TOTAL INTEREST EXPENSE.............. 119 (487) (368) 487 (141) 346
------ ------- ------ ------ ----- ------
NET INTEREST INCOME................. $2,058 $ (923) $1,135 $1,291 $(158) $1,133
====== ======= ====== ====== ===== ======
</TABLE>
17
<PAGE>
PROVISION 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 the Company's loan
portfolio. During 1999, the provision for loan losses was $720,000 compared to
$523,000 in 1998 and $780,000 in 1997. 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 $2.9 million in 1999, of which approximately 90% were
the traditional service charges on accounts and fees collected in commercial
banking. This amount represents 1.2% of average assets for 1999. This was
comparable to the $2.7 million, or 1.2% of average assets, reported in 1998.
Noninterest income in 1998 declined slightly from the 1997 amount due
primarily to a decline in real estate loan brokering fees.
NONINTEREST EXPENSE
Noninterest expense reflects the costs of products and services related to
systems, facilities and personnel for the Company. Noninterest expense was
$11.9 million in 1999, $13.4 million in 1998 and $11.0 million in 1997. The
major components of noninterest expense stated as a percentage of average assets
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Salaries and Employee Benefits....................... 2.43% 2.90% 2.76%
Occupancy Expenses................................... 0.46% 0.52% 0.50%
Furniture and Equipment.............................. 0.42% 0.31% 0.29%
Advertising and Promotion Expense.................... 0.10% 0.13% 0.13%
Legal and other Professional Expense................. 0.23% 0.30% 0.32%
Data Processing...................................... 0.27% 0.22% 0.21%
Office Supplies and Expenses......................... 0.25% 0.22% 0.23%
Merchant Card Program Expenses....................... 0.16% 0.21% 0.19%
Restructuring Charges and Merger-Related Costs....... -- 0.23% --
Other................................................ 0.57% 0.85% 0.68%
---- ---- ----
4.89% 5.89% 5.31%
==== ==== ====
</TABLE>
Disregarding the restructuring charges and merger-related costs incurred in
1998, noninterest expense as a percentage of average assets has declined from
5.66% in 1998 to 4.89% in 1999. The Company believes this decline is primarily
related to the operating efficiencies derived from its 1998 merger with CIB as
well as its continuing effort to control and reduce noninterest expense.
INCOME TAXES
Income tax expense was $1,145,000, $678,000, and $972,000 for the years
ended December 31, 1999, December 31, 1998, and December 31, 1997, respectively.
These expenses resulted in an effective tax rate of 25.6% in 1999, 36.8% in 1998
and 33.8% in 1997. The significant decline in the effective rate in 1999 was due
to the utilization of previously unrecognized tax credits. As of December 31,
1999, the Company had a valuation allowance of $706,000 related primarily to
unused credits. The Company anticipates utilizing these credits in 2000, which
will again reduce the Company's effective tax rate. The increase in effective
rate in 1998 compared to 1997 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
18
<PAGE>
in municipal securities. See also Note 8 to the consolidated financial
statements for additional information on the Company's income taxes.
BALANCE SHEET ANALYSIS
The Company's primarily operating goals for 1999 were the successful
integration of the branches it obtained in the merger on December 31, 1998 with
CIB and maximization of the operating efficiencies provided by that merger.
While working to achieve these goals, the Company's primary service area,
Ventura County experienced a significant growth in loan demand coupled with
increased competition from other banks and financial institutions for the area
deposits. The combination of these factors had the following impacts on the
Company's balance sheet.
First, the Company experienced asset growth below its historical levels.
Total assets at December 31, 1999 were $246.0 million compared to
$241.7 million at December 31, 1998. This represented an increase of
$4.3 million or 1.8% of which $10 million was the result of the Company's
decision to prepare for any potential Y2K liquidity problems by obtaining an
advance from the Federal Home Loan Bank and increasing cash and due from banks.
This is compared to an increase of $18.4 million or 8.3% during 1998. However,
during 1999, the Company did experience significant loan growth as net loans
grew by $26.7 million or 17.5% from $152.6 million at December 31, 1998 to
$179.3 million at December 31, 1999. This substantial increase in loans was
funded by reductions in cash, federal funds sold and investments, which had a
positive impact on the Company's net interest margin.
Similarly, the Company experienced a slight decline in total deposits, which
ended 1999 at $209.9 million compared to $217.7 million at the end of 1998. This
decline of $7.8 million was actually comprised of an increase of $6.3 million in
noninterest-bearing demand and a decrease of $14.1 million in interest-bearing
deposits.
19
<PAGE>
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, 1999 (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
------------------------------ --------
WEIGHTED
BOOK MARKET AVERAGE BOOK
VALUE VALUE YIELD VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES:
One to Five Years..................................... $ 1,892 $ 1,892 4.34% $ --
U.S. GOVERNMENT AND AGENCY SECURITIES:
Within One Year....................................... 998 996 5.41% 2,500
One to Five Years..................................... 3,458 3,458 5.78% 4,100
------- ------- -------
Total U.S. Government and Agency Securities......... 4,456 4,454 5.69% 6,600
MUNICIPAL SECURITIES:
Within One Year....................................... 631 631 5.76% 1,466
One to Five Years..................................... 3,107 3,106 5.48% 2,776
Five to Ten Years..................................... 2,860 2,919 5.88% 4,206
After Ten Years....................................... 955 975 5.69% 1,053
------- ------- -------
Total Municipal Securities.......................... 7,553 7,631 5.69% 9,501
CORPORATE DEBT SECURITIES:
Within One Year....................................... 2,415 2,415 5.74% 3,014
One to Five Years..................................... 1,727 1,727 5.77% 2,437
------- ------- -------
Total Corporate Debt Securities..................... 4,142 4,142 5.75% 5,451
MUTUAL FUNDS............................................ 2,138 2,138 5.81% 4,488
MORTGAGE BACKED SECURITIES.............................. 7,183 7,167 6.30% 6,149
OTHER................................................... -- -- 199
------- ------- -------
$27,364 $27,424 5.78% $32,388
======= ======= =======
</TABLE>
Securities may be pledged to meet security requirements imposed as a
condition to receipt of deposits of public funds and other purposes. At
December 31, 1999 and 1998, the carrying values of securities pledged to secure
public deposits and other purposes were approximately $6.4 million and
$2.0 million, respectively. The increase in pledged investment securities is
related to the lines of credit obtained from the Federal Home Loan Bank.
20
<PAGE>
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,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
LOANS
Commercial.............................. $ 42,242 $ 60,433 $ 45,609 $ 47,395 $ 37,957
Real Estate--Construction............... 7,794 7,395 3,966 2,086 2,815
Real Estate--Other...................... 119,732 69,829 64,556 44,934 49,065
Consumer................................ 12,262 17,333 22,176 22,218 12,722
-------- -------- -------- -------- --------
Total Loans........................... 182,030 154,990 136,307 116,633 102,559
Net Deferred Loan Costs................. (705) (399) (314) (300) (262)
Allowance for Loan Losses............... (1,978) (1,953) (1,966) (1,535) (1,364)
-------- -------- -------- -------- --------
Net Loans............................. $179,347 $152,638 $134,027 $114,798 $100,933
======== ======== ======== ======== ========
COMMITMENTS
Standby Letters of Credit............... $ 968 $ 814 $ 921 $ 1,701 $ 1,451
Undisbursed Loans and Commitments to
Grant Loans........................... 44,584 43,768 35,004 30,133 28,712
-------- -------- -------- -------- --------
Total Commitments..................... $ 45,552 $ 44,582 $ 35,925 $ 31,834 $ 30,163
======== ======== ======== ======== ========
</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, 1999:
<TABLE>
<CAPTION>
OVER
3 MONTHS
THROUGH DUE AFTER DUE AFTER DUE
3 MONTHS 12 ONE YEAR TO THREE YEARS TO AFTER
OR LESS MONTHS THREE YEARS FIVE YEARS FIVE YEARS TOTAL
- -------- -------- ----------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
$109,813 $ 5,071 $20,673 $27,130 $17,549 $180,236
======== ======= ======= ======= =======
Loans on Non-Accrual 1,794
--------
$182,030
========
</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 the Company's 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 watch-list and loss allowances are established
for them. Additionally, the loan portfolio is examined regularly by the FDIC and
DFI. Management also utilizes on independent loan review company to asses loan
portfolio quality and adequacy of the allowance for loan losses.
21
<PAGE>
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,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Loans 90 Days Past Due and Still Accruing......... $ 10 $ 784 $ 81 $ 525 $1,101
Nonaccrual Loans.................................. 1,794 1,780 1,891 597 755
------ ------ ------ ------ ------
Total Nonperforming Loans......................... 1,804 2,564 1,972 1,122 1,856
Other Real Estate Owned........................... 206 -- 275 136 1,398
------ ------ ------ ------ ------
Total Nonperforming Assets........................ $2,010 $2,564 $2,247 $1,258 $3,254
====== ====== ====== ====== ======
Nonperforming Loans as a Percentage of Total
Loans........................................... 0.99% 1.65% 1.45% 0.96% 1.82%
Allowance for Loan Loss as a Percentage of
Nonperforming Loans............................. 109.65% 76.17% 99.70% 136.81% 73.49%
Nonperforming Assets as a Percentage of Total
Assets.......................................... 0.82% 1.06% 1.01% 0.58% 1.77%
</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, 1999, the Company
had loans totaling $3.3 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 the Company's loans. The
provision for loan losses was $720,000 in 1999 compared to $523,000 in 1998 and
$780,000 in 1997.
22
<PAGE>
The following table summarizes, for the years indicated, changes in the
allowances for loan losses arising from loans charged-off, recoveries on loans
previously charged-off, and additions to the allowance which have been charged
to operating expenses and certain ratios relating to the allowance for loan
losses (dollar amounts in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OUTSTANDING LOANS
Average for the Year.................... $168,042 $140,848 $125,248 $108,368 $ 94,889
End of the Year......................... $182,030 $154,990 $136,307 $116,633 $102,134
ALLOWANCE FOR LOAN LOSSES
Balance at Beginning of Year............ $ 1,953 $ 1,966 $ 1,535 $ 1,364 $ 1,518
Actual Charge-Offs:
Commercial............................ 379 318 295 1,304 154
Real Estate........................... 46 5 31 158 376
Consumer.............................. 475 411 308 182 132
-------- -------- -------- -------- --------
Total Charge-Offs....................... 900 734 634 1,644 662
Less Recoveries:
Commercial............................ 69 132 237 29 17
Real Estate........................... 29 27 30 11 38
Consumer.............................. 107 39 18 32 62
-------- -------- -------- -------- --------
Total Recoveries........................ 205 198 285 72 117
-------- -------- -------- -------- --------
Net Loans Charged-Off................... 695 536 349 1,572 545
Provision for Loan Losses............... 720 523 780 1,743 391
-------- -------- -------- -------- --------
Balance at End of Year.................. $ 1,978 $ 1,953 $ 1,966 $ 1,535 $ 1,364
======== ======== ======== ======== ========
RATIOS
Net Loans Charged-Off to Average
Loans................................. 0.41% 0.38% 0.28% 1.45% 0.57%
Allowance for Loan Losses to Total
Loans................................. 1.09% 1.26% 1.44% 1.32% 1.34%
Net Loans Charged-Off to Beginning
Allowance for Loan Losses............. 35.59% 27.26% 22.74% 115.25% 35.90%
Net Loans Charged-Off to Provision for
Loan Losses........................... 96.53% 102.49% 44.74% 90.19% 139.39%
Allowance for Loan Losses to
Nonperforming Loans................... 109.65% 76.17% 99.70% 136.81% 73.49%
</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
present to the board of directors for discussion, review and approval.
23
<PAGE>
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, 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, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------------- ------------------- ------------------- -------------------
LOAN LOAN LOAN LOAN
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................. $ 591 23.2% $ 876 39.0% $ 740 33.4% $ 632 40.6%
Construction................ 53 4.3% 14 4.8% 15 2.9% 11 1.8%
Real Estate................. 859 65.8% 621 45.0% 734 47.4% 531 38.5%
Consumer.................... 312 6.7% 198 11.2% 169 16.3% 144 19.1%
Unallocated................. 163 n/a 244 n/a 308 n/a 217 n/a
------ ----- ------ ----- ------ ----- ------ -----
$1,978 100.0% $1,953 100.0% $1,966 100.0% $1,535 100.0%
====== ===== ====== ===== ====== ===== ====== =====
<CAPTION>
DECEMBER 31,
1995
-------------------
LOAN
AMOUNT PERCENT
-------- --------
<S> <C> <C>
Commercial.................. $ 562 37.1%
Construction................ 10 2.8%
Real Estate................. 472 47.6%
Consumer.................... 128 12.5%
Unallocated................. 192 n/a
------ -----
$1,364 100.0%
====== =====
</TABLE>
FUNDING
Deposits are the Company's primary source of funds. At December 31, 1999,
the Company had a deposit mix of 36.4% in time and savings deposits, 30.3% in
money market and NOW deposits, and 33.3% 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,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE BALANCE RATE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Money Market and NOW Accounts.............. $ 65,767 1.84% $ 66,501 2.03% $ 64,693 2.18%
Savings Deposits........................... 18,568 1.98% 18,017 2.16% 17,979 2.24%
TCD Less than $100,000..................... 36,943 4.59% 35,173 5.18% 29,933 5.03%
TCD $100,000 or More....................... 26,973 4.93% 26,398 5.33% 23,121 5.49%
-------- -------- --------
Total Interest-Bearing Deposits............ 148,251 3.10% 146,089 3.40% 135,726 100.00%
Noninterest-Bearing Demand Deposits........ 70,774 n/a 59,383 n/a 52,601 n/a
-------- -------- --------
Total Average Deposits..................... $219,025 2.10% $205,472 2.42% $188,327 2.46%
======== ======== ========
</TABLE>
24
<PAGE>
The scheduled maturity distribution of the Company's time deposits of
$100,000 or greater, as of December 31, 1999, 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.................... $10,759 $21,144 $2,360 $ 63 $34,326
Time Deposits of $100 or more............... 9,911 14,052 521 -- 24,484
------- ------- ------ ---- -------
$20,670 $35,196 $2,881 $ 63 58,810
======= ======= ====== ==== =======
</TABLE>
OTHER BORROWINGS
To supplement its liquidity, the Company has lines of credit with the
Federal Home Loan Bank and its primary correspondent. Available credit on these
lines totaled $16 million, of which $10 million was advanced as of December 31,
1999. See Note 7 of the consolidated financial statements for additional
information, including pledged loans and securities on these lines.
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,
1999, 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
25
<PAGE>
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.................... $ 18,000 $ -- $ -- $ -- $ 18,000
Investment Securities................. 3,697 6,077 11,703 5,887 27,364
Gross Loans........................... 111,607 5,071 47,803 17,549 182,030
-------- -------- ------- ------- --------
Total............................... $133,304 $ 11,148 $59,506 $23,436 $227,394
======== ======== ======= ======= ========
INTEREST-BEARING LIABILITIES:
Money Market and NOW Deposits......... $ 63,585 $ -- $ -- $ -- $ 63,585
Savings............................... 17,656 -- -- -- 17,656
Time Deposits......................... 20,670 35,196 2,944 -- 58,810
Other Borrowings...................... 10,000 -- -- -- 10,000
-------- -------- ------- ------- --------
$111,911 $ 35,196 $ 2,944 $ -- $150,051
======== ======== ======= ======= ========
Interest Rate Sensitivity Gap......... $ 21,393 $(24,048) $56,562 $23,436 $ 77,343
Cumulative Interest Rate Sensitivity
Gap................................. $ 21,393 $ (2,655) $53,907 $77,343
Ratios Based on Total Assets:
Interest Rate Sensitivity Gap..... 8.70% (9.78%) 23.00% 9.53% 31.45%
Cumulative Interest Rate
Sensitivity Gap................. 8.70% (1.08%) 21.92% 31.45%
</TABLE>
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, 1999, 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, 1999, 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% 10.9%
Total Capital............................................. 8.0% 11.8%
Leverage Ratio............................................ 4.0% 9.5%
</TABLE>
See also note 14 to the consolidated financial statements for additional
information on the Bank's capital ratios.
26
<PAGE>
On February 24, 2000, the Company approved a stock repurchase program for up
to 200,000 of its outstanding shares. Repurchases will be made from time to time
over the next three years in the open market and privately negotiated
transactions based on then current market prices.
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.
Y2K DISCLOSURES
During the periods leading up to January 1, 2000, the Company addressed the
potential problems associated with the possibility that the computers that
control or operate the Company's information technology system and
infrastructure may not have been programmed to read four-digit date codes and,
upon the arrival of the Year 2000, may have recognized the two-digit code "00"
as the year 1900, causing systems to fail to function or generate erroneous
data.
The Company expended approximately $243,000 through the periods ended
December 31, 1999 in connection with its Year 2000 compliance program. The
Company experienced no significant problems related to its information
technology systems upon arrival of the Year 2000, nor was there any interruption
in service to its customers.
The Company could still incur losses if Year 2000 issues adversely affect
its depositors or borrowers. Such problems could include delayed loan payments
due to Year 2000 problems affecting any significant borrowers or impairing the
payroll systems of large employers in the Company's primary market areas.
Because the Company's loan portfolio is highly diversified with regard to
individual borrowers and types of businesses, the Company does not expect, and
to date has not realized, any significant or prolonged difficulties that will
affect net earning or cash flow.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
See note 1 to the consolidated financial statements for information on this
matter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
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
27
<PAGE>
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 6.58% in 1999 compared to 6.56% in 1998 and 6.60% in
1997.
The following is a summary of the carrying amounts and estimated fair values
of selected Company financial assets and liabilities at December 31, 1999
(amounts in thousands):
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
Financial Assets:
Securities............................................ $ 27,364 $ 27,424
Loans, Net of Allowance for Loan Losses............... $179,347 $177,422
Financial Liabilities:
Deposits.............................................. $209,877 $209,929
</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 $1.9 million. The amount is not deemed to
be significant compared to the outstanding balances taken as a whole.
The net difference for deposits is $52,000. 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.
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.
28
<PAGE>
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, 1999 (the
dollar change in net interest income represents the estimated change for the
next 12 months):
<TABLE>
<CAPTION>
CHANGE IN NET
CHANGE IN INTEREST RATES INTEREST INCOME
- ------------------------ ---------------
<S> <C>
+200 basis points........................................... 745,000
+100 basis points........................................... 373,000
+50 basis points............................................ 186,000
- -50 basis points............................................ (389,000)
- -100 basis points........................................... (576,000)
- -200 basis points........................................... (991,000)
</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 my 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
INDEPENDENT AUDITORS' REPORT
To the Shareholders
and Board of Directors of Americorp
We have audited the accompanying consolidated balance sheets of Americorp
and subsidiary (the "Company") as of December 31, 1999 and 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years 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 audits. 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. The financial statements of the Company as of December 31, 1997, which
are not presented separately, herein, were audited by other auditors whose
report dated January 23, 1998 on those statements expressed and unqualified
opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Americorp
and subsidiary as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
/s/ VAVRINEK, TRINE, DAY & CO., LLP
Laguna Hills, California
January 20, 2000
30
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
and Board of Directors of Americorp:
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 year then ended. These
consolidated financial statements, which are not presented herein, are the
responsibility of the Company'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 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 at December 31, 1997 and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ 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>
AMERICORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS:
Cash and due from banks..................................... $ 12,839 $ 20,511
Federal funds sold.......................................... 18,000 27,700
-------- --------
Total Cash and Cash Equivalents......................... 30,839 48,211
Time deposits in other institutions......................... -- 595
Securities.................................................. 27,364 32,388
Federal Home Loan Bank stock, at cost....................... 750 --
Loans, net.................................................. 179,347 152,638
Accrued interest receivable................................. 1,284 1,321
Premises and equipment, net................................. 1,667 2,202
Other real estate owned..................................... 206 --
Cash surrender value of life insurance...................... 2,758 2,492
Other assets................................................ 1,751 1,878
-------- --------
TOTAL ASSETS............................................ $245,966 $241,725
======== ========
LIABILITIES:
Noninterest-bearing demand.................................. $ 69,826 $ 63,482
NOW and money market accounts............................... 63,585 69,367
Savings..................................................... 17,656 18,000
Time deposits, under $100,000............................... 34,326 37,632
Time deposits, $100,000 and over............................ 24,484 29,240
-------- --------
Total Deposits.......................................... 209,877 217,721
Borrowings.................................................. 10,000 --
Accrued interest payable.................................... 354 559
Other liabilities........................................... 2,671 3,049
-------- --------
TOTAL LIABILITIES....................................... 222,902 221,329
-------- --------
Commitments and Contingencies--Notes 4 and 15
STOCKHOLDERS' EQUITY:
Common stock--$0.50 par value; 5,000,000 shares authorized;
2,104,171 and 2,051,994 issued and outstanding in 1999 and
1998, respectively........................................ 1,052 1,026
Surplus..................................................... 9,558 8,771
Retained earnings........................................... 12,567 10,453
Accumulated other comprehensive income...................... (113) 146
-------- --------
TOTAL STOCKHOLDERS' EQUITY.............................. 23,064 20,396
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $245,966 $241,725
======== ========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................ $16,293 $14,874 $13,375
Interest on investment securities--taxable................ 1,135 1,441 1,614
Interest on investment securities--tax exempt............. 461 561 636
Other interest............................................ 932 1,178 950
------- ------- -------
Total Interest Income................................... 18,821 18,054 16,575
INTEREST EXPENSE ON DEPOSITS................................ 4,604 4,972 4,626
------- ------- -------
NET INTEREST INCOME................................. 14,217 13,082 11,949
PROVISION FOR LOANS AND LEASE LOSSES........................ 720 523 780
------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE
LOSSES.................................................... 13,497 12,559 11,169
NONINTEREST INCOME:
Service charges on deposit accounts....................... 1,531 1,326 1,192
Other service charges and fees............................ 1,083 926 748
Gain (loss) on sale of investment securities.............. (15) 16 54
Other income.............................................. 299 440 725
------- ------- -------
2,898 2,708 2,719
NONINTEREST EXPENSE:
Salaries and employee benefits............................ 5,932 6,613 5,737
Net occupancy expense..................................... 1,131 1,190 1,029
Furniture and equipment expense........................... 1,034 717 599
Advertising and promotion expense......................... 242 312 267
Legal and other professional expense...................... 572 686 663
Data processing expense................................... 661 507 443
Office supplies and expenses.............................. 605 509 468
Merchant card program expenses............................ 392 478 392
Restructuring charges and merger-related costs............ -- 518 --
Other operating expense................................... 1,359 1,895 1,415
------- ------- -------
11,928 13,425 11,013
------- ------- -------
INCOME BEFORE INCOME TAXES.............................. 4,467 1,842 2,875
INCOME TAXES................................................ 1,145 678 972
------- ------- -------
NET INCOME.......................................... $ 3,322 $ 1,164 $ 1,903
======= ======= =======
EARNINGS PER SHARE--BASIC................................... $ 1.60 $ 0.59 $ 1.04
======= ======= =======
EARNINGS PER SHARE--DILUTED................................. $ 1.49 $ 0.55 $ 0.93
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(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, 1997.... 1,811,156 $ 906 $6,451 $ 8,712 $ 1
Issuance of stock............. 61,162 30 502
Retirement of Stock........... (3,824) (2) (7) (49)
Dividends..................... (581)
COMPREHENSIVE INCOME
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........................ 1,868,494 934 6,946 9,985 42
Issuance of stock............. 188,946 95 1,837
Retirement of Stock........... (5,446) (3) (12) (79)
Dividends..................... (615)
Cash paid for fractional
shares...................... (2)
COMPREHENSIVE INCOME
Net Income.................... $1,164 1,164
Unrealized gain on securities
available for sale, net of
taxes of $67................ 95 95
Reclassification adjustment
for gain 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........................ 2,051,994 1,026 8,771 10,453 146
Issuance of stock............. 70,970 35 870
Retirement of Stock........... (18,793) (9) (83) (280)
Dividends..................... (928)
COMPREHENSIVE INCOME
Net Income.................... $3,322 3,322
Unrealized loss on securities
available for sale, net of
taxes of $147............... (250) (250)
Reclassification adjustment
for loss on sale of
investment securities
included in net income, net
of taxes of $6.............. (9) (9)
------
TOTAL COMPREHENSIVE
INCOME.................. $3,072
--------- ------ ------ ====== ------- -----
BALANCE AT DECEMBER 31,
1999........................ 2,104,171 $1,052 $9,558 $12,567 $(113)
========= ====== ====== ======= =====
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
AMERICORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 3,322 $ 1,164 $ 1,903
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan and lease losses..................... 720 523 780
Depreciation and Amortization........................... 860 644 484
Benefit for deferred income taxes....................... (246) (130) (226)
Net (gain) loss on investment securities................ 15 (16) (54)
Net change in other assets and liabilities.............. 191 (246) 487
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES........... 4,862 1,939 3,374
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in time deposits in other institutions......... 595 896 --
Purchases of securities held-to-maturity.................. (1,003) -- (2,039)
Purchases of securities available-for-sale................ (7,821) (21,606) (17,051)
Proceeds from maturities and calls of securities
held-to-maturity........................................ 2,131 4,076 4,018
Proceeds from maturities, calls and sales of securities
available-for-sale...................................... 10,802 24,474 15,211
Purchase of Federal Home Loan Bank stock.................. (750) -- --
Net increase in loans..................................... (28,750) (19,134) (20,420)
Purchases of premises and equipment....................... (349) (445) (870)
Proceed from the sale of other real estate owned.......... 1,150 344 369
Distribution from partnership............................. -- 2,549 400
-------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES............... (23,995) (8,846) (20,382)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits....................... (7,844) 15,926 18,748
Increase in borrowings.................................... 10,000 -- --
Proceeds from exercise of stock options................... 533 1,838 475
Dividends and fractional shares........................... (928) (617) (581)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES........... 1,761 17,147 18,642
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................... (17,372) 10,240 1,634
Cash and Cash Equivalents at Beginning of Year.............. 48,211 37,971 36,337
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 30,839 $ 48,211 $ 37,971
======== ======== ========
Supplemental Disclosures of Cash Flow Information
Interest Paid............................................. $ 4,812 $ 4,893 $ 4,720
Income Taxes Paid......................................... $ 977 $ 874 $ 296
Supplemental Disclosures of Noncash Activities:
Other real estate owned acquired in settlement of loans... $ 1,321 $ -- $ 644
Sales of other real estate owned financed by loans........ $ -- $ -- $ 80
Value of outstanding shares exchanged in exercise of stock
options................................................. $ 358 $ 94 $ 57
Total change in unrealized gain/loss on securities
available-for-sale...................................... $ (397) $ 161 $ 15
</TABLE>
See notes to consolidated financial statements.
35
<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.
The Bank has been organized as a single operating segment and operates three
branches in Ventura, two branches in Oxnard and one branch in Camarillo,
California. The Bank's primary source of revenue is providing loans to
customers, who are predominately small and middle-market businesses and
individuals.
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.
CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents include cash, due from banks and federal funds sold. Generally,
federal funds are sold for one day periods.
CASH AND DUE FROM BANKS--Banking regulations require that all banks maintain
a percentage of their deposits as reserves in cash or on deposit with the
federal reserve bank. The Bank complied with the reserve requirements as of
December 31, 1999.
The Bank maintains amounts due from banks that exceed federally insured
limits. The Bank has not experienced any losses in such accounts.
36
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The
discount is accreted and premium is amortized over the period to maturity of the
related security.
Securities Available-for-Sale--Securities available-for-sale consist of
investment securities not classified as trading securities nor as securities
held-to-maturity. Securities available-for-sale are recorded at their fair
market values. Unrealized holding gains and losses, net of tax, are reported as
a net amount in a separate component of equity until realized. Gains and losses
are determined using the specific identification method. The accretion of
discounts and the amortization of premiums are recognized in interest income
using the interest method over the period to maturity.
LOANS--Loans are stated at unpaid principal balances, less the allowance for
loan losses and net deferred loan fees and unearned discounts.
Loan origination fees, as well as certain direct origination costs, are
deferred and amortized as a yield adjustment over the lives of the related loans
using the interest method. Amortization of deferred loan fees is discontinued
when a loan is placed on nonaccrual status.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received. For impairment recognized in accordance with Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN", 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
37
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... 3 to 10 years
Leasehold improvements...................................... 5 to 15 years
</TABLE>
OTHER REAL ESTATE OWNED--Real estate acquired through foreclosure or deed in
lieu of foreclosure is recorded at the lower of the outstanding loan balance at
the time of foreclosure or appraised value. Gains and losses on the sale of
other real estate owned and write-downs resulting from periodic revaluation of
the property are charged to other operating expenses.
ADVERTISING COSTS--The Company expenses the costs of advertising when
incurred.
INCOME TAXES--Deferred income taxes arise from temporary differences between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
COMPREHENSIVE INCOME--Beginning in 1998, the Company adopted SFAS No. 130,
"REPORTING COMPREHENSIVE INCOME", which requires the disclosure of comprehensive
income and its components. Changes in unrealized gain (loss) on
available-for-sale securities net of income taxes is the only component of
accumulated other comprehensive income for the Bank.
FINANCIAL INSTRUMENTS--In the ordinary course of business, the Bank has
entered into off-balance sheet financial instruments consisting of commitments
to extend credit, commercial letters of credit, and standby letters of credit as
described in Note 15. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
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 1999 were 2,082,672 and 2,228,136,
respectively. The average number of common shares outstanding and common
equivalent shares outstanding for 1998 were 1,975,800 and 2,133,600,
respectively. The average number of common shares outstanding and common
equivalent shares outstanding for 1997 were 1,826,600 and 2,059,000,
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.
38
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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--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 ("APB")
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 10.
CURRENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS
No. 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 was originally
effective for 2000. In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133". This Statement establishes the effective date of SFAS
No. 133 for 2001 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 reclassifications are of a
normal recurring nature.
39
<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,
1999 and 1998 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, 1999:
U.S. Agency securities........................... $ 997 $ -- $ (2) $ 995
State, county and municipal securities........... 4,281 87 (9) 4,359
Mortgage-backed securities....................... 1,104 -- (16) 1,088
------- ---- ----- -------
$ 6,382 $ 87 $ (27) $ 6,442
======= ==== ===== =======
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
======= ==== ===== =======
SECURITIES AVAILABLE-FOR-SALE:
DECEMBER 31, 1999:
U.S. Treasury securities......................... $ 1,973 $ -- $ (81) $ 1,892
U.S. Agency securities........................... 3,508 -- (49) 3,459
State, county and municipal securities........... 3,194 78 -- 3,272
Corporate bonds.................................. 4,213 -- (71) 4,142
Mortgage-backed securities....................... 6,121 -- (42) 6,079
Mutual funds..................................... 2,138 -- -- 2,138
------- ---- ----- -------
$21,147 $ 78 $(243) $20,982
======= ==== ===== =======
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
======= ==== ===== =======
</TABLE>
40
<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, 1999 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............................... $ 500 $ 498 $ 3,544 $ 3,543
Due after one year through five years................. 1,933 1,931 8,414 8,252
Due after five years through ten years................ 2,341 2,410 828 868
Due after ten years................................... 504 515 102 102
Mortgage-backed securities............................ 1,104 1,088 6,121 6,079
Mutual funds.......................................... -- -- 2,138 2,138
------ ------ ------- -------
$6,382 $6,442 $21,147 $20,982
====== ====== ======= =======
</TABLE>
Proceeds from sales and calls of securities available-for-sale during 1999,
1998 and 1997 were $2,291, $20,284 and $2,752, respectively. Gross losses of $15
were realized on those sales in 1999. 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.
Securities carried at approximately $6,381 and $2,032 at December 31, 1999
and 1998, respectively, were pledged to secure public funds on deposit, as
required by law.
Included in accumulated other comprehensive income at December 31, 1999 and
1998 are unrealized gains (losses) on securities available for sale of
$(165) and $247, net of taxes of $52 and $101, respectively.
3. LOANS
Loans consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Commercial.............................................. $ 42,242 $ 60,433
Real estate--construction............................... 7,794 7,395
Real estate--other...................................... 119,732 69,829
Consumer................................................ 12,262 17,333
-------- --------
Total loans........................................... 182,030 154,990
Less allowance for loan losses.......................... (1,978) (1,953)
Less deferred loan fees................................. (705) (399)
-------- --------
Loans, net............................................ $179,347 $152,638
======== ========
</TABLE>
41
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
3. LOANS (CONTINUED)
Transactions in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year.......................... $1,953 $1,966 $1,535
Provision for losses charges to expense............. 720 523 780
Loans charged off................................... (900) (734) (634)
Recoveries on loans previously charged off.......... 205 198 285
------ ------ ------
Balance, end of year................................ $1,978 $1,953 $1,966
====== ====== ======
</TABLE>
At December 31, 1999 and 1998, the recorded investment in loans that are
considered to be impaired was $1,797 and $1,780, respectively, all of which,
were on a nonaccrual basis and for which the related allowance for loan losses
is approximately $184 and $368, respectively. The average recorded investment in
impaired loans during the year ended December 31, 1999, 1998 and 1997 was
approximately $1,556, $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 $165, $209 and $140
for 1999, 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 $1,255 in 1999 and $2,003 in
1998. Balances outstanding at December 31, 1999 and 1998 were $1,320 and $2,922,
respectively.
4. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Furniture, fixtures, and equipment.......................... $3,126 $4,096
Leasehold improvements...................................... 1,304 1,268
------ ------
4,430 5,364
Less accumulated depreciation and amortization.............. (2,763) (3,162)
------ ------
Premises and equipment, net................................. $1,667 $2,202
====== ======
</TABLE>
During 1999, the Bank wrote off $1,235 in assets that had been fully
depreciated in prior years.
42
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
4. PREMISES AND EQUIPMENT (CONTINUED)
At December 31, 1999, the Company was obligated under operating leases
requiring annual rentals as follows:
<TABLE>
<S> <C>
2000................................................ $ 861
2001................................................ 675
2002................................................ 542
2003................................................ 263
2004................................................ 224
Thereafter.......................................... 1,039
------
Total............................................... $3,604
======
</TABLE>
Rental expense was $864 in 1999, $892 in 1998, and $705 in 1997.
5. OTHER REAL ESTATE OWNED
Other real estate owned consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Foreclosed assets held for sale............................. $206 $ --
Valuation allowance......................................... -- --
---- ----
Other real estate owned, net................................ $206 $ --
==== ====
</TABLE>
6. INVESTMENT IN PARTNERSHIPS
During 1998, the Bank received $2,549 in full settlement of its investment
in Ventura Affordable Homes, Ltd. The following paragraphs summarize the history
and resolution of that investment.
The Company had a 50% limited partner interest in 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 in
1998 and the Bank received a $2,549 distribution in full satisfaction of its 50%
interest in the partnership.
43
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
7. BORROWINGS
During 1999, in anticipation of potential Y2K related liquidity issues, the
Company obtained two lines of credit with the Federal Home Loan Bank.
Approximately $24,000 in loans and approximately $4,000 in investments held by
the Company secured these lines. On December 28, 1999, the Bank obtained two
advances against these lines, both due on January 18, 2000. One advance was for
$6,000, including interest at 6.09% and the other advance was for $4,000,
including interest at 5.98%. Both advances were repaid at maturity.
At December 31, 1999, the Company also had an unused line of credit with one
bank. The line totals $5,000, has variable interest rates based on the lending
bank's daily Federal funds rates, and is due on demand. The line of credit is
unsecured.
8. INCOME TAXES
The current and deferred amounts of the provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 900 $ 508 $ 818
State.............................................. 511 300 380
------ ----- ------
1,411 808 1,198
Deferred............................................. (266) (130) (226)
------ ----- ------
Provision for income taxes........................... $1,145 $ 678 $ 972
====== ===== ======
</TABLE>
The following summarizes the differences between the provision for income
taxes for financial statement purposes and the federal statutory rate of 34%:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<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... 7.0 7.6 7.1
Municipal interest....................................... (3.3) (9.6) (6.8)
Benefit of deferred deductions, alternative minimum tax
credits and changes in valuation allowance, net........ (11.6) -- --
Nondeductible merger related expenses.................... -- 6.9 --
Other.................................................... (0.6) (2.1) (0.5)
------ ---- ----
Tax provision............................................ 25.6% 36.8% 33.8%
====== ==== ====
</TABLE>
44
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
The tax effects of each type of significant item that gave rise to deferred
taxes are:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses....................... $ 445 $ 356 $ 418
Deferred compensation and retirement benefits... 717 850 742
AMT credit carryover............................ 392 904 893
Unrealized loss on securities available for
sale.......................................... 52 -- --
Depreciation.................................... 41 -- --
Other assets.................................... 334 135 200
------ ------- -------
1,981 2,245 2,253
Deferred tax liabilities:
Unrealized gain on securities available for
sale.......................................... -- (68) (42)
Depreciation.................................... -- (60) (45)
Other liabilities............................... (19) (47) (133)
------ ------- -------
(19) (175) (220)
Valuation allowance............................... (706) (1,218) (1,211)
------ ------- -------
Net deferred tax assets........................... $1,256 $ 852 $ 822
====== ======= =======
</TABLE>
9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS
PROFIT SHARING--The Company has a combination 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 to the employee salary deferrals or profit sharing
contributions. For 1999, 1998 and 1997, the Company's salary deferral matching
contribution amounted to $79, $73, and $42, respectively. No profit sharing
contributions were made in 1999, 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 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 Plans to provide for significant reductions in the retirement
benefits, eliminated participation by any existing Director with less than five
years of service and closed the Plans 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
45
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS (CONTINUED)
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, 1999 and 1998, the projected benefit obligation and the
net benefit liability of these Plans are $1,544 and $1,866, respectively, and
are included in other liabilities in the accompanying consolidated financial
statements. Compensation expense relating to these Plans was $156, $386, and
$267 in 1999, 1998 and 1997, respectively.
In anticipation of the future obligation of the deferred compensation plans,
the Company has invested in life insurance policies, which are carried at cash
surrender value. The Company's intention is to partially fund these plans from
the proceeds and investment earnings of these insurance policies.
10. 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. There are 220,000 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.
The 1998 Plan superceded all prior stock option plans of the Company but did
not effect any of the stock options granted under such plans that remain
outstanding. Outstanding options from plans other than the 1998 plan totaled
57,700 at December 31, 1999.
In accordance with SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION",
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:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Dividend yields........................................... 2.30% 2.50% 3.16%
Risk-free interest rates.................................. 5.87% 5.37% 5.72%
Expected option life--in years............................ 3.83 3.63 3.91
Expected volatility....................................... 8.88% 6.20% 4.29%
</TABLE>
46
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
10. STOCK OPTION PLANS (CONTINUED)
A summary of the status of the Company's stock option plan and the changes
in the shares outstanding for the three years ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
-------------------
EXERCISE FAIR
SHARES PRICE VALUE
-------- -------- --------
<S> <C> <C> <C>
Options outstanding January 1, 1997......................... 345,056 $ 9.37
Granted..................................................... 38,800 14.31 $1.28
=====
Exercised................................................... (61,162) 7.51
Canceled.................................................... (13,056) 12.09
--------
Options outstanding December 31, 1997....................... 309,638 10.01
Granted..................................................... 114,466 14.38 $1.49
=====
Exercised................................................... (188,946) 8.45
Canceled.................................................... (18,234) 12.39
--------
Options outstanding December 31, 1998....................... 216,924 13.81
Granted..................................................... 127,040 19.33 $2.61
=====
Exercised................................................... (70,970) 12.75
Canceled.................................................... (31,332) 15.22
--------
Options outstanding December 31, 1999....................... 241,662 16.83
========
</TABLE>
The above table also includes activity in the stock option plans of Channel
Islands Bank prior to the merger on December 31, 1998.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
RANGE OF NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER EXERCISABLE
EXERCISE PRICES AT 12/31/99 REMAINING LIFE AT 12/31/99
- ----------------------- ------------------ ---------------- ------------------
<S> <C> <C> <C>
$12.00 to $14.00 50,442 7.84 years 19,866
$14.00 to $17.00 64,180 3.53 years 32,320
$19.00 to $20.00 127,040 4.76 years 25,408
------- ------
241,662 5.08 years 77,594
======= ======
</TABLE>
47
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
10. STOCK OPTION PLANS (CONTINUED)
As permitted by SFAS No. 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, net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Income:
As Reported....................................... $3,322 $1,164 $1,903
Pro Forma......................................... $3,239 $1,141 $1,866
Basic Earnings per Share:
As Reported....................................... $ 1.60 $ 0.59 $ 1.04
Pro Forma......................................... $ 1.55 $ 0.58 $ 1.02
Diluted Earnings per Share:
As Reported....................................... $ 1.49 $ 0.55 $ 0.93
Pro Forma......................................... $ 1.45 $ 0.53 $ 0.91
</TABLE>
11. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers throughout its
primary market area of Ventura County, California. Although the Company seeks to
avoid concentrations of loans to a single industry or based upon a single class
of collateral, real estate and real estate associated businesses are among the
principal industries in the Company's market area and, as a result, the
Company's loan and collateral portfolios are, to some degree, concentrated in
those industries.
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.
12. 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 SFAS No. 106, "EMPLOYERS'
ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS" 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.
48
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
12. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED)
The net periodic cost for postretirement health care and life insurance
benefits includes the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Service cost................................................ $45 $21
Interest cost............................................... 15 13
Amortization of unrecognized transition obligation.......... 8 8
--- ---
Total....................................................... $68 $42
=== ===
</TABLE>
Summary information on the Company's plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................... $ -- $ 2
Fully eligible, active employees.................. 63 71
Other active plan participants.................... 180 137
----- -----
Total............................................. 243 210
Fair value of plan assets........................... -- --
----- -----
Unfunded accrued postretirement benefits
obligation........................................ 243 210
Unrecognized net gain............................... 47 19
Unrecognized net transition obligation.............. (137) (145)
----- -----
Accrued postretirement benefit cost................. $ 153 $ 84
===== =====
</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 5.5% declining to 4.75% in
6 years. If the health care cost trend rate assumptions were increased by 1%,
the accrued postretirement benefit cost, as of December 31, 1999, would be
increased by approximately $30.
13. STOCK SPLIT
On March 18, 1999, the Board of Directors of the Company declared a
two-for-one stock split of its outstanding shares of common stock. All per share
data has been retroactively adjusted to reflect this split.
14. REGULATORY MATTERS
The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's and Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Company's and Bank's
49
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
14. REGULATORY MATTERS (CONTINUED)
capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the 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, 1999, that the Company and the Bank meet all capital adequacy
requirements to which it is subject.
As of December 31, 1999, 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 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, 1999:
Tier 1 Capital (to Average Assets)....... $23,093 9.5% $ 9,705 4.0% $12,131 5.0%
Tier 1 Capital (to Risk-Weighted
Assets)................................ $23,093 10.9% $ 8,480 4.0% $12,720 6.0%
Total Capital (to Risk-Weighted
Assets)................................ $25,071 11.8% $16,960 8.0% $21,200 10.0%
AS OF DECEMBER 31, 1998:
Tier 1 Capital (to Average Assets)....... $20,231 8.4% $ 9,600 4.0% $12,000 5.0%
Tier 1 Capital (to Risk-Weighted
Assets)................................ $20,231 10.6% $ 7,700 4.0% $11,500 6.0%
Total Capital (to Risk-Weighted
Assets)................................ $22,164 11.6% $15,300 8.0% $19,200 10.0%
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
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, 1999, the Company had commitments to extend credit
of $44,584 and obligations under standby letters of credit of $968.
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.
50
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
15. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
The Company is involved in various litigation that has arisen in the
ordinary course of its business. In the opinion of management and legal counsel,
the disposition of such pending litigation will not have a material effect on
the Company's financial statements.
16. 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.
FEDERAL HOME LOAN BANK STOCK--The fair value of Federal Home Loan Bank stock
is based on its redemption value.
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)
16. 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.
CASH SURRENDER VALUE OF LIFE INSURANCE--The fair value of life insurance
policies are based on their surrender value.
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.
BORROWINGS--Due to the short-term nature of other borrowings, book value is
determined to approximate fair value.
The following is a summary of the carrying amounts and estimated fair values
of the Company's financial assets and liabilities at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks.............................. $12,839 $12,839 $21,106 $21,106
Federal funds sold................................... 18,000 18,000 27,700 27,700
Securities........................................... 27,364 27,424 32,388 32,628
Federal Home Loan Bank stock......................... 750 750 -- --
Loans, net of allowance for loan losses.............. 179,347 177,422 152,638 153,772
Accrued interest receivable.......................... 1,284 1,284 1,321 1,321
Cash surrender value of life insurance............... 2,758 2,758 2,492 2,492
Financial Liabilities:
Deposits............................................. 209,877 209,929 217,721 217,988
Borrowings........................................... 10,000 10,000 -- --
Accrued interest payable............................. 354 354 559 559
</TABLE>
At December 31, 1999 and 1998, the Bank had outstanding standby letters of
credit and commitments to extend credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the date
the underlying transaction will be completed, and, therefore, they were deemed
to have no current fair market value (see Note 15).
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.
52
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
17. MERGER WITH CHANNEL ISLANDS BANK (CONTINUED)
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>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest and Noninterest Income:
The Company.................................... $21,719 $12,366 $11,319
Channel Islands Bank........................... -- 8,396 7,975
------- ------- -------
$21,719 $20,762 $19,294
======= ======= =======
Net Income:
The Company.................................... $ 3,322 $ 507 $ 1,103
Channel Islands Bank........................... -- 657 800
------- ------- -------
$ 3,322 $ 1,164 $ 1,903
======= ======= =======
</TABLE>
In connection with this merger, the Company identified one-time
restructuring charges and incurred merger-related costs of $518 ($434 after
tax). These restructuring charges and merger-related costs included employee
benefits and severance payments, professional fees associated with the merger
and asset-related write-downs related to the closure of one branch location. The
majority of these costs were incurred in 1998, however $159 of these costs were
accrued at the consummation of the merger on December 31, 1998 and incurred in
1999.
53
<PAGE>
AMERICORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS)
18. PARENT COMPANY INFORMATION
The following are condensed financial statements of Americorp (parent
company only) as of and for the years ended December 31 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
CONDENSED BALANCE SHEET
Cash........................................................ $ 26 $ 9
Investment in and advances to the Bank...................... 23,005 20,387
Other assets................................................ 285 129
------- -------
TOTAL ASSETS.............................................. $23,316 $20,525
======= =======
Liabilities................................................. $ 252 $ 129
Stockholders' equity........................................ 23,064 20,396
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $23,316 $20,525
======= =======
CONDENSED STATEMENT OF INCOME
Equity in earnings of the Bank.............................. $ 3,370 $ 1,193
Other....................................................... (48) (29)
------- -------
NET INCOME................................................ $ 3,322 $ 1,164
======= =======
CONDENSED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 3,322 $ 1,164
Adjustments:
Undistributed earnings of the Bank........................ (2,344) (548)
Change in other assets.................................... (156) 2
Change in other liabilities............................... 123 6
------- -------
Net cash provided by operating activities................... 945 624
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in and advances to the Bank...................... (533) (1,838)
------- -------
Net Cash Used by Investing Activities....................... (533) (1,838)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock...................... 533 1,838
Dividends paid.............................................. (928) (617)
------- -------
Net cash used for financing activities...................... (395) 1,221
------- -------
CHANGE IN CASH............................................ 17 7
Cash at Beginning of Year................................... 9 2
------- -------
CASH AT END OF YEAR....................................... $ 26 $ 9
======= =======
</TABLE>
54
<PAGE>
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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information on the current members of the
Boards of Directors of Americorp and ACB.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED OR
NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS APPOINTED
- ---- -------- --------------------------------------- ----------
<S> <C> <C> <C>
Michael T. Hribar................. 52 Certified Public Accountant 1998
Allen W. Jue...................... 64 Chairman of the Board (since 1994); 1973
Owner, Jue's Market
Robert J. Lagomarsino............. 73 Secretary, Americorp and ACB; VP 1993
Lagomarsino's (family business); U.S.
Congress, 1974-93
Gerald J. Lukiewski............... 46 Banker, President of ACB 3/98 to present; 1998
S.V.P. Chief Credit 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.................. 56 Manager, Sunset Beach Estates (real 1996
estate development) 1999 to present;
Chairman, DSI Toys, Inc. 1999 to
present; President, Martin Resorts,
Inc. (hotel) 1998 to present; Manager,
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.................. 72 Retired, former President of ACB 1976
Edward F. Paul.................... 62 President, Walker, Inc. (real estate 1998
management and sales); President, CIB
1995-96
Joseph L. Priske.................. 50 Vice Chairman of the Board; CEO, Priske- 1998
Jones Company (real estate development)
Jacqueline S. Pruner.............. 61 Consultant, American Medical Response 1998
6/94-5/97; Co-Owner, Pruner Investments
</TABLE>
55
<PAGE>
The following table sets forth information on the current executive officers
of ACB.
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS OR APPOINTED
- ---- -------- --------------------------------------- ------------
<S> <C> <C> <C>
Gerald J. Lukiewski............... 46 Banker, President of ACB 3/98 to present; 1998
S.V.P. Chief Credit 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
Chuck Meyers...................... 61 Banker, Senior Vice President and Chief 1999
Lending Officer of ACB 11/99 to
present; First Vice President with East
West Bank 1/94 to 11/99
Ronald S. Paul.................... 57 Banker, Senior Vice President and Chief 1998
Administrative Officer of ACB 7/98 to
present; General Manager/Attorney
Lagomarsino's (beverage distributor)
3/91 to 11/97
Keith Sciarillo................... 38 Banker, Senior Vice President and Chief 1999
Financial Officer of ACB 11/99 to
present; Controller 1/99 to 10/99;
Chief Financial Officer 8/94 to 12/98
(prior to merger with CIB)
Susan Woolf....................... 51 Banker, Senior Vice President and Chief 1999
Operating Officer of ACB 11/99 to
present; Vice President Sales and
Service Manager 11/1996 to 10/99; prior
thereto First V.P., Great Western Bank
</TABLE>
Messrs. Lukiewski and Sciarillo also serve as the President and Chief
Financial Officer, respectively, of Americorp.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Set forth below is the compensation accrued during 1999 to the executive
officers of Americorp/ACB who received total annual salary and bonus of more
than $100,000 during 1999.
56
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL
SALARY BONUS COMPEN-
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) SATION(2)
--------------------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C>
Gerald J. Lukiewski ........................................ 1999 143,654 50,000 --
President(3) 1998 114,166 50,000 --
Ronald S. Paul(4) .......................................... 1999 86,087 24,625 --
SVP, Chief Admin. Officer 1998 36,160 -- --
</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) Became Senior Vice President and Chief Administrative Officer in July 1999.
OPTION GRANTS IN 1999
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 1999 under the various
Americorp stock option plans to either of the officers set forth in the Summary
Compensation Table are as follows:
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF PERCENT OF
SECURITIES OPTIONS GRANTED EXERCISE OR
UNDERLYING TO EMPLOYEES BASE PRICE
NAME OPTIONS GRANTED IN 1999 PER SHARE EXPIRATION DATE
---- --------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Lukiewski.............................. 25,600 19.24 $19.00 10/21/04
Paul................................... 5,200 3.91 $19.00 10/21/04
</TABLE>
The following table sets forth certain information concerning unexercised
options under the Americorp stock option plans to the persons named in the
Summary Compensation Table.
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS
12/31/99(#) AT 12/31/99($)
SHARES ------------- --------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- --------------
<S> <C> <C> <C> <C>
Lukiewski................................... -- -- 12,320/23,280 $33,000/11,500
Paul........................................ -- -- 3,440/7,760 5,400/8,100
</TABLE>
- ------------------------
(1) The aggregate value has been determined based upon the closing sales price
for Americorp's stock as of December 31, 1999, minus the exercise price.
57
<PAGE>
DIRECTOR COMPENSATION
In 1999, 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
received $2,000 per month in fees and the Vice-Chairmen of the Board also
received $2,000 per month in fees. The Chairman of the Board received $3,500 per
month in fees.
EMPLOYMENT AGREEMENT
In connection with his appointment as President and Chief Executive Officer
of Americorp and ACB, ACB entered into an employment agreement with Gerald J.
Lukiewski as of March 2, 1998. The agreement, as amended and extended, currently
provides for a three year term with an annual salary of $135,000. The agreement
also provides for participation in ACB's bonus plan and certain other benefits,
including vacation, automobile allowance, insurance, retirement benefits and
expense reimbursements. In the event of termination without cause, the agreement
provides for the lesser of (i) three months of additional salary and benefits or
(ii) the remaining salary and benefits due under the term of the agreement.
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, 2000,
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................................ 14,702(3) *
Allen W. Jue..................................... 24,383 1.2%
Robert J. Lagomarsino............................ 82,624 3.9%
Gerald J. Lukiewski.............................. 14,720(4) *
E. Thomas Martin................................. 115,550 5.6%
Harry L. Maynard................................. 30,404 1.4%
Edward F. Paul................................... 83,544(5) 4.0%
Joseph L. Priske................................. 15,328(6) *
Jacqueline S. Pruner............................. 33,540(7) 1.6%
Directors and Executive Officers as a Group (13
persons)....................................... 424,452(8) 20.2%
</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, 2000 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.
58
<PAGE>
(3) Includes 4,370 shares exercisable pursuant to the Americorp stock option
plans.
(4) Includes 12,720 shares exercisable pursuant to the Americorp stock option
plans.
(5) Includes 4,370 shares exercisable pursuant to the Americorp stock option
plans.
(6) Includes 4,370 shares exercisable pursuant to the Americorp stock option
plans.
(7) Includes 2,914 shares exercisable pursuant to the Americorp stock option
plans.
(8) Includes 38,401 shares exercisable pursuant to the Americorp stock option
plans.
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>
<CAPTION>
EXHIBITS:
---------------------
<C> <S>
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.*
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
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:
None.
59
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, Americorp caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 23, 2000.
<TABLE>
<S> <C> <C>
AMERICORP
By: /s/ GERALD J. LUKIEWSKI
-----------------------------------------
Gerald J. Lukiewski
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By: /s/ KEITH SCIARILLO
-----------------------------------------
Keith Sciarillo
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.
<TABLE>
<CAPTION>
Dated:
<C> <S> <C>
/s/ ALLEN W. JUE
------------------------------------------- Chairman of the Board of March 23, 2000
Allen W. Jue Directors
/s/ MICHAEL T. HRIBAR
------------------------------------------- Director March 23, 2000
Michael T. Hribar
/s/ ROBERT J. LAGOMARSINO
------------------------------------------- Director March 23, 2000
Robert J. Lagomarsino
/s/ GERALD J. LUKIEWSKI
------------------------------------------- Director March 23, 2000
Gerald J. Lukiewski
/s/ E. THOMAS MARTIN
------------------------------------------- Director March 23, 2000
E. Thomas Martin
/s/ HARRY L. MAYNARD
------------------------------------------- Director March 23, 2000
Harry L. Maynard
/s/ EDWARD P. PAUL
------------------------------------------- Director March 23, 2000
Edward P. Paul
/s/ JOSEPH L. PRISKE
------------------------------------------- Director March 23, 2000
Joseph L. Priske
/s/ JACQUELINE S. PRUNER
------------------------------------------- Director March 23, 2000
Jacqueline S. Pruner
</TABLE>
60
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL PAGE
NUMBER DESCRIPTION NUMBER
- --------------------- ----------- --------
<C> <S> <C>
27 Financial Data Schedule
</TABLE>
61
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in the registration
statement dated November 3, 1999 on Form S-8 of Americorp of our independent
auditors report dated January 20, 2000, on our audit of the consolidated balance
sheets of Americorp and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholder's equity and
cash flows for the years then ended, which report is included in the 1999 Annual
Report on Form 10-K.
/s/ Vavrinek, Trine, Day & Co., LLP
Laguna Hills, California
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 30,839
<SECURITIES> 27,364
<RECEIVABLES> 181,325
<ALLOWANCES> (1,978)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,430
<DEPRECIATION> (2,763)
<TOTAL-ASSETS> 245,966
<CURRENT-LIABILITIES> 222,902
<BONDS> 0
0
0
<COMMON> 1,052
<OTHER-SE> 22,012
<TOTAL-LIABILITY-AND-EQUITY> 245,966
<SALES> 18,821
<TOTAL-REVENUES> 21,719
<CGS> 4,604
<TOTAL-COSTS> 4,604
<OTHER-EXPENSES> 11,928
<LOSS-PROVISION> 720
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,467
<INCOME-TAX> 1,145
<INCOME-CONTINUING> 3,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,322
<EPS-BASIC> $1.60
<EPS-DILUTED> $1.49
</TABLE>
