-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FvRqtLGp/wfmrOA9XS9zHwFlAreor3pSnapP+fuXqjD083+HmBDxPd3KksyDpqV7 4UmKrrmRaJGnI6zsSa2flQ== 0000912057-96-005432.txt : 19960329 0000912057-96-005432.hdr.sgml : 19960329 ACCESSION NUMBER: 0000912057-96-005432 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA BANCSHARES INC CENTRAL INDEX KEY: 0000318779 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942147553 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09584 FILM NUMBER: 96540122 BUSINESS ADDRESS: STREET 1: 100 PARK PLACE STE 140 CITY: SAN RAMON STATE: CA ZIP: 94583 BUSINESS PHONE: 5107434200 MAIL ADDRESS: STREET 1: 100 PARK PLACE STREET 2: SUITE 140 CITY: RAMON STATE: CA ZIP: 94583 FORMER COMPANY: FORMER CONFORMED NAME: NORTHERN CALIFORNIA COMMUNITY BANCORPORATION INC DATE OF NAME CHANGE: 19910717 FORMER COMPANY: FORMER CONFORMED NAME: ALAMEDA BANCORPORATION INC DATE OF NAME CHANGE: 19900619 10-K405 1 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NO. 0-9584 ------------------------ CALIFORNIA BANCSHARES, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-2147553 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 100 PARK PLACE, SUITE 140 SAN RAMON, CA 94583 (Address of principal (Zip code) executive offices)
Registrant's telephone number, including area code: (510) 743-4200 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------- --------------------------- None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $2.50 par value per share ------------------------ 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. /X/ Aggregate market value of the voting stock held by non-affiliates of the registrant at March 7, 1996: $279,630,756 Number of shares of common stock outstanding at March 7, 1996: 10,089,123 DOCUMENTS INCORPORATED BY REFERENCE The Company's 1996 Proxy Statement to be filed pursuant to Regulation 14A is incorporated into Part III hereof to the extent indicated therein. THIS REPORT INCLUDES A TOTAL OF ___ PAGES EXHIBIT INDEX IS ON PAGE ___ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1 -- BUSINESS GENERAL THE COMPANY California Bancshares, Inc. (the "Company") was incorporated under the laws of the State of California in 1969, reincorporated under the laws of Delaware in 1971 and was approved as a bank holding company under the Bank Holding Company Act ("BHC Act") by the Federal Reserve Board in 1971. It was known as Alameda Bancorporation until 1990 and as Northern California Community Bancorporation ("NCCBI") from then until its merger with Mission-Valley Bancorp in 1991. The Company has ten (10) banking subsidiaries: Alameda First National Bank, The Bank of Milpitas, N.A., The Bank of San Ramon Valley, Centennial Bank (which was subsequently merged into Alameda First National Bank in 1996), Commercial Bank of Fremont, Community First National Bank, Concord Commercial Bank, Lamorinda National Bank, Modesto Banking Company and Westside Bank, collectively (the "Banks"). The Company also has three (3) non-banking subsidiaries: CBI Mortgage, which engages primarily in the origination of real estate loans for investors, Island Bancorp. Leasing, Inc., which engaged primarily in the leasing of imported automobiles but is currently inactive, and LNB Corp. which serves as a third-party trustee for deeds of trust originated or held by the Banks. The Company owns 100% of the issued and outstanding capital stock of the subsidiaries. The Company itself does not engage in any business activities other than ownership of the above-mentioned subsidiaries and provides accounting, data processing and other management services to its subsidiaries. BUSINESS OF THE BANKS GENERAL The Banks conduct their business through thirty-six (36) offices located throughout Alameda, Contra Costa, Santa Clara, San Joaquin and Stanislaus counties, in Northern California. They offer individuals and businesses services commonly associated with full-service banking institutions, with the exception of international banking and trust services. Eight of the Banks are members of the Federal Reserve System (the "FRS"). The deposits of each depositor of each of the Banks are insured by the Federal Deposit Insurance Corporation (the "FDIC") up to $100,000. The Banks also maintain correspondent relationships with a number of major banks located within California. EMPLOYEES At December 31, 1995 the Company and its subsidiaries had 564 full-time and 185 part-time employees. None of the Company's employees are presently represented by a union or covered under a collective bargaining agreement. COMPETITION The banking business in California generally, and in the Company's and its subsidiaries' primary service areas specifically, is highly competitive with respect to loans and deposits and is dominated by a relatively small number of major banks with many offices operating over a wide geographic area. Among the advantages such major banks have over the Company and its subsidiaries is their ability to finance wide ranging advertising campaigns and to allocate their investment assets to regions of highest yield and demand. Such banks offer certain services such as trust services and international banking services which are not offered directly by the Banks (but are offered indirectly through correspondent institutions) and, by virtue of their greater total capitalization (legal lending limits to an individual customer are limited to a percentage of a bank's total capital accounts), such banks have 2 substantially higher lending limits than the Banks. Other entities, both governmental and private, seeking to raise capital through the issuance and sale of debt or equity securities, as well as money market mutual funds, also provide competition for the Banks in the acquisition of deposits. These competitors include savings and loan associations, finance companies, money market funds, brokerage houses, credit unions and non-financial institutions. SUPERVISION AND REGULATION The Company, as a bank holding company, is subject to regulation under the BHC Act, as amended and is registered with the Federal Reserve Board under the BHC Act. The acquisition of more than 5% of the voting shares of any bank (not already majority owned) requires the prior approval of the Federal Reserve Board. The BHC Act also prohibits the Federal Reserve Board from approving an application which would result in the Company acquiring all or substantially all the assets or more than 5% of the voting shares of any bank (not already majority owned) located outside of California unless an acquisition of such bank by a California-based bank holding company is specifically authorized by the laws of the state in which the bank is located. The laws of several states permit such acquisitions. The BHC Act also prohibits the Company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to its Banks, except that the Company may engage in, and may own shares of companies engaged in, certain businesses found by the Federal Reserve Board to be so closely related to banking "as to be a proper incident thereto." The BHC Act does not place territorial restrictions on the activities of non-bank subsidiaries of bank holding companies. The Company is required by the BHC Act to file annual reports of its operations with the Federal Reserve Board and is subject to examination by the Federal Reserve Board. The Banks, as subsidiaries of the Company within the meaning of Section 23A of the Federal Reserve Act, are subject to certain restrictions on loans to the Company or its non-bank subsidiaries, or investments in the stock or other securities of the Company or its non-bank subsidiaries and on advances to any borrower collateralized by such stock or other securities. Further, the Banks are also subject to certain restrictions on most types of transactions with the Company or its non-bank subsidiaries, requiring that the terms of such transactions be substantially equivalent to terms of similar transactions with non-affiliated firms. Four of the Banks are national banks and six are California state-chartered banks. State banks are subject to regulation, supervision and regular examination by the California State Banking Department (the "Department"). Four of the state-chartered Banks are members of the FRS and are also subject to regulation, supervision and examination by the Federal Reserve Board. Two of the state-chartered banks are subject to regulation, supervision and examination by the FDIC. National banks are chartered by and are subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the "OCC"). The regulations of these agencies govern most aspects of the Banks' business, including the making of periodic reports by the Banks and the Banks' activities relating to investments, loans, borrowings, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits and numerous other areas. Regulations and policies of the Federal Reserve Board require the Company to serve as a source of financial and managerial strength to its Banks. It is the Federal Reserve Board's policy that a bank holding company should stand ready to use available resources to provide adequate capital funds to a subsidiary bank during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting a subsidiary bank. Under certain conditions, the Federal Reserve Board may conclude that certain actions of a bank holding company, such as payment of cash dividends, would constitute an unsafe and unsound practice because they violate the Federal Reserve Board's "source of financial and managerial strength" doctrine. 3 The Company is a legal entity separate and distinct from the Banks. The principal source of the Company's revenues is dividends and management fees received from the Banks. Various statutory provisions limit the amount of dividends the Banks can pay without regulatory approval, and various regulations also restrict the payment of dividends. In 1989, Congress enacted a law that purports to make banks liable to the FDIC for expenses the FDIC incurs in the case of either its provision of financial assistance to, or the failure of, any affiliated bank. Under that law, the Banks could theoretically be held liable to the FDIC in the event of financial assistance to, or failure of, any other Bank, and that liability could be substantial enough to cause the surviving Banks either to require financial assistance from the FDIC or to cause the failure of such Banks. On December 19, 1991, comprehensive legislation was enacted that reforms the regulation and supervision of banks and bank holding companies. Among the more significant aspects of the legislation is a requirement that federal regulators prescribe standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, employee, director and principal shareholder compensation, fees and benefits, standards specifying a maximum ratio of classified assets to capital, minimum earnings sufficient to absorb losses without impairing capital, and to the extent possible, a minimum ratio of market value to book value of publicly traded shares of bank holding companies, such as the Company. The legislation also provides for a system of early intervention by the regulators and prompt corrective action at troubled banks. Under that system, a bank may not pay dividends if its capital fails to meet any required minimum and will be expected to submit to its regulator an acceptable plan to restore its capital to adequate levels. While a bank is undercapitalized, its regulator may preclude its growth, require its recapitalization through the sale of shares, require its acquisition or merger, prohibit its parent from paying dividends, and require divestitures by its parent, including divestiture of the bank itself. Its parent holding company will be expected to guarantee that the bank will comply with the bank's capital restoration plan until the bank has been adequately capitalized, on average, for four consecutive quarters, unless the parent is to accept loss or closure of the bank by regulators. This guarantee is limited to the lesser of 5% of the bank's total assets at the time it became undercapitalized or the amount necessary to bring the bank into compliance with all applicable capital standards. If the bank does not submit an acceptable capital restoration plan or if its parent holding company does not guarantee such plan, the regulators will be required to take one or more actions, including requiring recapitalization of the bank through its sale of securities or forced sale or merger, restricting transactions with affiliates, restricting interest rates paid on deposits, restricting asset growth, restructuring activities, replacing management of the bank, prohibiting deposits from correspondent banks, requiring prior approval of dividends by the holding company, and requiring divestiture. The law requires the regulators, in such cases, to require the sale of securities by the bank or to force a sale or merger of the bank, to restrict affiliate transactions, and to restrict interest rates unless the regulator determines that these actions would not resolve the problems of the bank at the least possible long-term loss to the Bank Insurance Fund of the FDIC. The law also limits advances to any undercapitalized bank by any Federal Reserve Bank from being outstanding more than 60 days in any 120-day period unless the head of the bank regulatory agency certifies that, giving due regard to economic conditions and circumstances in the market in which the bank operates, the bank is not expected to become critically undercapitalized and is not expected to be placed in conservatorship or receivership. None of the Company's Banks are undercapitalized. The foregoing references to applicable statutes and regulations are brief summaries thereof, which do not purport to be complete and are qualified in their entirety by reference to such statutes and regulations. 4 From time to time various bills are introduced in the United States Congress which could result in additional or in less regulation of the business of the Company and the Banks. It cannot be predicted whether any such legislation will be adopted or how such adoption would affect the business of the Company and Banks. The Federal Reserve Board has established risk-based capital guidelines for bank holding companies. The guidelines define Tier 1 Capital and Total Capital. Tier 1 Capital consists of common and qualifying preferred shareholders' equity, before unrealized gains and losses on available-for-sale debt securities and minority interests in equity accounts of consolidated subsidiaries, less goodwill, other nonqualifying intangibles, excess deferred tax assets and 50% of investments in unconsolidated subsidiaries. Total Capital consists of, in addition to Tier 1 Capital, mandatory convertible debt, preferred stock not qualifying as Tier 1 Capital, subordinated and other qualifying term debt and a portion of the allowance for loan losses less the remaining 50% of investments in unconsolidated subsidiaries. The Tier 1 component must comprise at least 50% of qualifying Total Capital. Risk-based capital ratios are calculated with reference to risk-weighted assets, as outlined by bank supervisory authorities, which include both on and off-balance sheet exposures. The minimum required qualifying Total Capital ratio is 8%, of which at least 4% must consist of Tier 1 Capital. As of December 31, 1995, the Company's Tier 1 Capital and Total Capital ratios were 12.03% and 13.28%, respectively. The Federal Reserve Board has adopted a "minimum leverage ratio" which requires bank holding companies to maintain Tier 1 Capital of at least 3% of adjusted quarterly average assets, although the Federal Reserve Board may require a higher ratio depending upon the rating of the bank holding company and its expected growth. Regulations issued by the FDIC to implement the 1991 legislation referred to above establish five levels of capitalization for banks; any bank with a Tier 1 Capital ratio of 6%, Total Capital ratio of 10% and a leverage ratio of 5% is considered to be "well capitalized." As of December 31, 1995, the Company's leverage ratio was 7.98%, and all of the Banks had leverage ratios exceeding 6.0%. IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES The earnings and growth of the Company are and will be affected by general economic conditions, both domestic and international, and by the monetary and fiscal policies of the United States Government and its agencies, particularly the Federal Reserve Board. One function of the Federal Reserve Board is to regulate the national supply of bank credit in order to mitigate recessionary and inflationary pressures. Among the instruments of monetary policy used to implement those objectives are open market transactions in United States Government securities, changes in the discount rate on member bank borrowings and changes in reserve requirements held by depository institutions. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. However, the effect, if any, of such policies on the future business and earnings of the Company cannot be accurately predicted. RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994 INTERSTATE BANKING AND BRANCHING. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was signed by President Clinton on September 29, 1994. Generally, provisions of this Act authorize interstate banking and interstate branching, subject to certain state options. - Interstate acquisition banks will be permitted in all states on and after September 29, 1995; state law cannot vary this rule. However, states may continue to prohibit acquisition of banks that have been in existence less than five years and interstate chartering of new banks. - Interstate mergers of affiliated or unaffiliated banks will be permitted June 1, 1997, unless a state adopts legislation before June 1, 1997 to "opt out" of interstate merger, provided any limitations do not discriminate against out-of-state banks. Individual states may enact legislation to permit interstate mergers earlier than that date. 5 - Interstate acquisition of branches will be permitted to a bank only if the law of the state where the branch is located expressly permits interstate acquisition of a branch without acquiring the entire bank. - Interstate DE NOVO branching will be permitted to a bank only if a state adopts legislation to "opt in" to interstate de novo branching authority. LIMITATIONS ON CONCENTRATIONS. An interstate banking application may not be approved if the applicant and its depository institution affiliates would control more than 10% of insured deposits nationwide or more than 30% of insured deposits in the state in which the bank to be acquired is located. These limits do not apply to mergers solely between affiliates. States may waive the 30% cap on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market share of a depository institution and its affiliates are not affected. AGENCY AUTHORITY. A bank subsidiary of a bank holding company will be authorized to receive deposits, renew time deposits, close loans, service loans and receive payments on loans as an agent for a depository institution affiliate without being deemed a branch of the affiliate. A bank will not be permitted to engage, as agent for an affiliate, in any activity as agent that it could not conduct as a principal, or to have an affiliate, as its agent, conduct any activity that it could not conduct directly, under federal or state law. HOST STATE REGULATION. Out-of-state banks seeking to acquire or establish a branch will be required to comply with any nondiscriminatory filing requirements of the host state where the branch is located. The host state may set notification and reporting requirements for a branch of an out-of-state bank. A branch of an out-of-state bank will be subject to all of the laws of the host state regarding interstate branching, consumer protection, fair lending and community reinvestment. A branch of an out-of-state bank will not be permitted to conduct any activities at the branch that are not permissible for a bank chartered by the host state. COMMUNITY REINVESTMENT ACT. Community Reinvestment Act ("CRA") evaluations will be required for each state in which an interstate bank has a branch. Interstate banks will be prohibited from using out-of-state branches "primarily for the purpose of deposit production". Federal banking agencies are required to adopt regulations by June 1, 1997 to ensure that interstate branches are being operated with a view to the needs of the host communities. FOREIGN BANKS. Foreign banks will be able to branch to the same extent as U.S. domestic banks. Interstate branches acquired by foreign banks will be subject to the CRA to the extent the acquired branch was subject to CRA before the acquisition. CALIFORNIA LAW On September 28, 1995, California's Governor Wilson signed a bill enacting state legislation in accordance with authority under the Riegle-Neal Act. This new state law permits banks headquartered outside California to acquire or merge with California banks that have been in existence for at least five years, and thereby establish one or more California branch offices. An out-of-state bank may not enter California by acquiring one or more branches of a California bank or other operations constituting less than the whole bank. The law authorizes waiver of the 30% limit on state-wide market share for deposits as permitted by the Riegle-Neal Act. This law also authorizes California state-licensed banks to conduct certain banking activities (including receipt of deposits and loan payments and conducting loan closings) on an agency basis on behalf of out-of-state banks and to have out-of-state banks conduct similar agency activities on their behalf. Before this new legislation, California law allowed California banks and bank holding companies to be acquired by banking organizations in other states on a reciprocal basis (i.e., provided the other state's laws permitted California banking organizations to acquire banking organizations in that state on substantially the same terms and conditions applicable to banking organizations whose operations were principally conducted within that state). 6 EXPOSURE TO AND MANAGEMENT RISK The Federal Reserve Board and OCC have announced proposals to examine bank holding companies and national banks with respect to their exposure to and management of different categories of risk. Categories of risk identified by the Federal Reserve Board include legal risk, operational risk, market risk, credit risk, liquidity risk and reputation risk. Categories of risk identified by the OCC include interest rate risk, price risk, foreign exchange risk, transaction risk, compliance risk, strategic risk, credit risk, liquidity risk, and reputation risk. If adopted, this approach would cause bank regulators to focus on risk management procedures, rather than simply examining every asset and transaction. This approach, if adopted, would supplement rather than replace existing rating systems based on evaluation of an institution's capital, assets, management, earnings and liquidity. Although the FDIC has not announced its intention to adopt this approach to risk evaluation, it is likely that the different bank regulatory agencies will eventually adopt similar approaches to this issue. No assurance can be given as to the effect, if any, that this examination approach would have on the Company. STATE BANK SALES OF NON-DEPOSIT INVESTMENT PROCEDURES Securities activities of state non-member banks, as well as the activities of their subsidiaries and affiliates, are governed by guidelines and regulations issued by the securities and financial institution regulatory agencies. These agencies have taken the position that bank sales of alternative investment products, such as mutual funds and annuities, raise substantial bank safety and soundness concerns involving consumer confusion over the nature of the products offered, as well as the potential for mismanagement of sales programs which could expose a bank to liability under the antifraud provisions of federal securities laws. Accordingly, the agencies have issued guidelines that require, among other things, the establishment of a compliance and audit program to monitor a bank's mutual funds sales activities and its compliance with applicable federal securities laws; the provision of full disclosures to customers about the risks of such investments, including the possible loss of the customer's principal investment; and the conduct of securities activities of bank subsidiaries or affiliates in separate and distinct locations. In addition, the guidelines prohibit bank employees involved in deposit-taking activities from selling investment products or giving investment advice. Banks are also required to establish a qualitative standard for the selection and marketing of the investments offered by the bank, and to maintain appropriate documentation regarding the suitability of investments recommended to bank customers. ACCOUNTING CHANGES In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation". This Statement establishes an alternative method for accounting for stock based compensation plans and encourages employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion (APB No. 25), "Accounting for Stock Issued to Employees". SFAS No. 123 establishes a fair value based accounting method for stock-based compensation arrangements. Companies may continue to apply the accounting provisions of APB No. 25 in determining net income; however, they must apply the disclosure requirements of SFAS No. 123. The recognition provisions may be adopted immediately and apply to all awards granted after the beginning of the fiscal year in which the recognition provisions are first applied. The disclosure requirements of this Statement are effective January 1, 1996. Management believes the adoption of this Statement will not have a material effect on the financial condition of the Company. ITEM 2 -- PROPERTIES THE COMPANY The principal offices of the Company are located at 100 Park Place, Suite 140, San Ramon, California. The Company leases these offices under an agreement which expires in 1999. The lease provides for a three-year option to extend. The Company is uncertain as to the likelihood of exercising this option in the future. 7 The data processing and certain administration functions of the Company are located at the former headquarters of the Company at 2320 Blanding Avenue, Alameda, California, a two story freestanding structure. This facility is owned by Alameda First National Bank. Of the thirty-six (36) banking locations and one (1) nonbanking location, twelve (12) banking facilities are owned by the respective banking subsidiaries and twenty-five (25) are leased by the respective banking subsidiaries and nonbank subsidiary. The lease agreements expire between the years 1996 and 2015 and have a variety of renewal options. Consideration regarding renegotiated lease provisions, space needs and other significant factors are all considered in determing extension of leases. ITEM 3 -- LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries is a party to, nor is any of their property the subject of, any material pending legal proceedings other than ordinary routine litigations incidental to their respective businesses nor are any such proceedings known to be contemplated by governmental authorities. ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted in the fourth quarter of 1995. PART II ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common stock trades on the Nasdaq Stock Market under the symbol CABI. The following table sets forth the high, low and closing sales prices of the Company's common stock, as reported on Nasdaq. Also set forth in this table are the dividends declared in each of the periods presented.
MARKET PRICE DIVIDENDS ------------------------------- DECLARED HIGH LOW CLOSE ----------- --------- --------- --------- 1995 Fourth Quarter..................................................... $ 0.22 271/4 203/4 269/16 Third Quarter...................................................... 0.18 231/2 193/4 211/4 Second Quarter..................................................... 0.18 21 163/8 21 First Quarter...................................................... 0.18 181/2 161/2 17 1994 Fourth Quarter..................................................... $ 0.14 181/2 151/2 171/4 Third Quarter...................................................... 0.14 191/4 17 181/2 Second Quarter..................................................... 0.14 18 15 171/2 First Quarter...................................................... 0.13 16 141/2 153/8
As of December 31, 1995 there were approximately 4,620 holders of record of the Company's common stock. The Company presently intends to continue the policy of paying regular quarterly cash dividends. Future dividends will depend upon the earnings of the Company and management's assessment of the future need for funds by its subsidiaries and other factors. For information regarding restrictions on the payment of dividends, see Note 10 of the Notes to Consolidated Financial Statements. 8 ITEM 6 -- SELECTED FINANCIAL DATA The following table sets forth certain selected consolidated financial data of the Company for each year of the five year period ended December 31, 1995 and should be read in conjunction with Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations presented herein. FIVE YEAR SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------- ------------- ------------- ----------- ----------- (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS Interest income............................... $ 115,225 $ 77,972 $ 68,570 $ 73,025 $ 88,169 Interest expense.............................. 42,966 21,246 20,411 26,739 40,607 ------------- ------------- ------------- ----------- ----------- Net interest income........................... 72,259 56,726 48,159 46,286 47,562 Provision for loan losses..................... 1,485 1,895 3,425 4,065 4,855 ------------- ------------- ------------- ----------- ----------- Net interest income after provision for loan losses....................................... 70,774 54,831 44,734 42,221 42,707 ------------- ------------- ------------- ----------- ----------- Noninterest income............................ 9,479 7,506 8,807 8,143 7,971 Noninterest expense........................... 50,828 44,000 40,546 41,034 40,732 ------------- ------------- ------------- ----------- ----------- Income before taxes and cumulative effect of change in accounting method.................. 29,425 18,337 12,995 9,330 9,946 Provision for income taxes.................... 11,390 6,701 4,206 2,915 3,618 ------------- ------------- ------------- ----------- ----------- Income before cumulative effect of change in accounting method............................ 18,035 11,636 8,789 6,415 6,328 Cumulative effect of change in accounting method....................................... -- -- -- 895 596 ------------- ------------- ------------- ----------- ----------- Net Income.................................... $ 18,035 $ 11,636 $ 8,789 $ 7,310 $ 6,924 ------------- ------------- ------------- ----------- ----------- ------------- ------------- ------------- ----------- ----------- PER SHARE DATA Income before cumulative effect of change in accounting method............................ $ 1.80 $ 1.24 $ 0.94 $ 0.69 $ 0.69 Net income.................................... 1.80 1.24 0.94 0.79 0.76 Cash dividend declared per share.............. 0.76 0.55 0.52 0.52 0.45 Book value per share.......................... 13.00 12.00 11.33 10.85 10.51 WEIGHTED AVERAGE SHARES OUTSTANDING............. 10,014 9,365 9,318 9,249 9,157 BALANCE SHEET DATA Total loans................................... $ 1,030,780 $ 913,476 $ 609,297 $ 612,374 $ 646,563 Total assets.................................. 1,570,458 1,329,489 1,046,495 962,434 967,016 Total deposits................................ 1,425,895 1,179,717 933,773 854,813 861,380 Total shareholders' equity.................... 130,761 112,243 105,984 100,650 96,875 SELECTED FINANCIAL RATIOS Return on average assets...................... 1.23% 1.07% 0.89% 0.76% 0.72% Return on average shareholders' equity........ 14.57 10.63 8.52 7.38 7.23 Dividend payout ratio......................... 42.22 44.35 55.32 65.82 59.21 Average shareholders' equity to average assets....................................... 8.43 10.06 10.47 10.29 9.98 Capital ratios -- Total risk-based capital ratio.............. 13.28 13.90 15.92 15.55 14.21 Tier 1 risk-based capital ratio............. 12.03 12.65 14.67 14.34 13.11 Leverage ratio using Tier 1 capital......... 7.98 10.27 10.60 10.46 10.21
9 ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS California Bancshares, Inc. (Company) is a bank holding company, having ten banking subsidiaries; Alameda First National Bank, The Bank of Milpitas, N.A., The Bank of San Ramon Valley, Centennial Bank (which was subsequently merged with Alameda First National Bank in 1996), Commercial Bank of Fremont, Community First National Bank, Concord Commercial Bank, Lamorinda National Bank, Modesto Banking Company and Westside Bank (collectively, the Banks), and three nonbanking subsidiaries, CBI Mortgage, Island Bancorp Leasing, Inc. (Island) and LNB Corp. The Banks each provide depository, lending and various specialized services to the business, professional and consumer sectors of their communities. The Banks also offer installment note collection, issue cashier's checks and money orders, sell traveler's checks and provide other customary banking services, except for international banking and trust services. CBI Mortgage engages primarily in the origination of real estate loans for investors. Island engaged primarily in the leasing of imported automobiles but is currently inactive. LNB Corp. serves as a third-party trustee for deeds of trust originated by the Banks. SUBSEQUENT EVENT On February 11, 1996, the Company signed a definitive agreement for U.S. Bancorp to acquire the Company. Under the terms of the agreement, which is subject to approval by regulators and the Company's shareholders, the Company will be merged into U.S. Bancorp, and each share of the Company's common stock will be converted into .95 shares of U.S. Bancorp common stock. The total value, which can change based on U.S. Bancorp's stock price, is approximately $327 million, or $32.53 for each share of the Company's common stock, based on U.S. Bancorp's closing price of $34.25 on the last trading day preceding the announcement of the agreement. As of March 19, 1996, U.S. Bancorp's closing price was $33.00. In connection with the agreement, the Company granted U.S. Bancorp an option to acquire 19.9% of the Company's stock, which could become exercisable under certain circumstances. The proposed transaction is expected to be accounted for using the purchase method of accounting and is expected to be completed during the second half of 1996. OVERVIEW Net income in 1995 was $18.0 million ($1.80 per share) compared with $11.6 million ($1.24 per share) in 1994 and $8.8 million ($0.94 per share) in 1993. The return on average assets was 1.23% in 1995, 1.07% in 1994 and 0.89% in 1993. Return on average shareholders' equity for these same periods was 14.57%, 10.63% and 8.52%, respectively. Consolidated assets at December 31, 1995 reached $1.57 billion compared with $1.33 billion at December 31, 1994. Total loans were $1.03 billion, up $117 million or 12.8% at year end 1995 compared to $913 million at December 31, 1994. Total deposits increased $246 million or 20.9% to $1.43 billion at December 31, 1995 compared to $1.18 billion at December 31, 1994. The following discusses significant areas that have affected the Company's results of operations for the years ended December 31, 1995, 1994 and 1993 and financial position at December 31, 1995 compared with December 31, 1994. The discussion should be read in conjunction with the Consolidated Financial Statements and related Notes appearing elsewhere herein. ACQUISITIONS On June 30, 1995, the Company acquired all of the outstanding shares of First Community Bankshares, Inc. (FCB), the holding company for Centennial Bank. This acquisition was accounted for as a purchase and accordingly, the results of operations are included in the Company's consolidated financial statements from the acquisition date. Centennial Bank was merged with another of the 10 Company's bank subsidiaries in February 1996. On January 31, 1995, the Company acquired Bank of Livermore (Livermore), in a transaction accounted for as a pooling-of-interests. Livermore is not material to the consolidated financial condition or operating results of the Company, and therefore, prior period balances have not been restated. However, 1995 amounts were adjusted to reflect the transaction as if it had occurred January 1, 1995. Livermore was subsequently merged with another of the Company's bank subsidiaries during 1995. On December 2, 1994, the Company acquired Old Stone Bank of California, F.S.B. (Old Stone), which was merged into an existing subsidiary in 1994. This transaction was accounted for using the purchase method. Subsequent to the acquisition, the results of operations of Old Stone were combined with those of the Company's. On March 31, 1994, the Company acquired MBC Corp. and its banking subsidiary, Modesto Banking Company, in a transaction accounted for as a pooling-of-interests. The Company's consolidated financial statements were restated to combine the accounts of MBC Corp. with those of the Company. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income is defined as the difference between interest income and amortized fees on earning assets less interest expense paid on interest-bearing liabilities. Net interest income on a taxable-equivalent basis for 1995 was $73.5 million compared with $58.1 million in 1994 and $49.7 million in 1993. The increase in net interest income between 1995 and 1994 is primarily attributable to increases in loan volume. Average loans outstanding in 1995 were $986.8 million, up $342.6 million or 53.2% compared to 1994. A significant portion of this increase was attributable to the Company's acquisitions. Partially offsetting this increased volume in earning assets in 1995 is a substantial increase in the Company's interest-bearing liabilities during 1995 compared to 1994 which was also largely acquisition related. The net interest margin, which is net interest income on a taxable-equivalent basis as a percentage of average earning assets decreased to 5.39% in 1995 compared to 5.78% in 1994 and 5.47% in 1993. While the yield in the Company's earning assets have improved by 64 basis points between 1995 and 1994 this increase did not keep pace with the rates paid on interest-bearing liabilities, which increased 116 basis points between these same periods. The increase in the net interest margin in 1994 compared to 1993 was attributable primarily to increases in volumes and yields on loans and to a lesser extent, decreases in rates paid on interest-bearing liabilities. 11 The following table presents the Company's consolidated average balance sheets, including average yields and rates on a taxable-equivalent basis for the years ended December 31, 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------------------- 1995 1994 1993 --------------------------- -------------------------- ------------------------ YIELDS YIELDS YIELDS AVERAGE & AVERAGE & AVERAGE & BALANCE INTEREST RATES BALANCE INTEREST RATES BALANCE INTEREST RATES ---------- -------- ----- ---------- ------- ----- -------- ------- ----- (DOLLARS IN THOUSANDS) ASSETS: Interest-bearing time deposits.................... $ -- $ -- -- % $ 135 $ 5 3.70% $ 546 $ 18 3.30% Federal funds sold........... 73,033 4,222 5.78 46,069 2,119 4.60 73,097 2,129 2.91 Securities: Taxable.................... 262,789 14,945 5.69 264,240 13,627 5.16 173,344 9,292 5.36 Non-taxable (TE) (1)....... 42,928 3,663 8.53 51,673 4,149 8.03 55,660 4,497 8.08 ---------- -------- ----- ---------- ------- ----- -------- ------- ----- Total securities (1)..... 305,717 18,608 6.09 315,913 17,776 5.63 229,004 13,789 6.02 Loans (2).................... 986,796 93,677 9.49 644,205 59,481 9.23 605,412 54,159 8.95 ---------- -------- ----- ---------- ------- ----- -------- ------- ----- Total earning assets....... 1,365,546 116,507 8.53 1,006,322 79,381 7.89 908,059 70,095 7.72 Nonearning assets, net of allowance for loan losses... 102,480 81,696 76,789 ---------- ---------- -------- Total Assets............. $1,468,026 $1,088,018 $984,848 ---------- ---------- -------- ---------- ---------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY: Interest-bearing deposits: Savings and interest-bearing demand accounts.................. $ 553,847 $ 12,800 2.31 $ 482,340 $10,061 2.09 $443,873 $10,005 2.25 Time....................... 527,412 29,437 5.58 278,197 11,040 3.97 243,579 10,300 4.23 ---------- -------- ----- ---------- ------- ----- -------- ------- ----- Total interest-bearing deposits................ 1,081,259 42,237 3.91 760,537 21,101 2.77 687,452 20,305 2.95 Other borrowings............. 9,060 729 8.05 3,586 145 4.04 1,500 106 7.07 ---------- -------- ----- ---------- ------- ----- -------- ------- ----- Total interest-bearing liabilities............. 1,090,319 42,966 3.94 764,123 21,246 2.78 688,952 20,411 2.96 Demand deposits.............. 244,732 209,410 187,774 Other liabilities............ 9,182 5,007 4,999 ---------- -------- ----- ---------- ------- ----- -------- ------- ----- Total liabilities........ 1,344,233 978,540 881,725 Shareholders' equity......... 123,793 109,478 103,123 ---------- ---------- -------- Total Liabilities and Shareholders' Equity.... $1,468,026 $1,088,018 $984,848 ---------- ---------- -------- ---------- ---------- -------- Net Interest Income and Margin (3)................ $ 73,541 5.39% $58,135 5.78% $49,684 5.47% -------- ----- ------- ----- ------- ----- -------- ----- ------- ----- ------- -----
- ------------------------------ (1) Interest income is presented on a taxable-equivalent basis. The taxable-equivalent adjustments, were based on a marginal tax rate of 35%. (2) Nonaccrual loans are included in total loans, but are not material to this presentation. (3) Net interest margin is calculated as net interest income on a taxable-equivalent basis divided by average earning assets. 12 The following table details the approximate effect, on a taxable-equivalent basis, in net interest income of volume and rate changes for 1995 compared to 1994 and 1994 compared to 1993. The change in interest due to both rate and volume has been allocated to change due to rate and change due to volume in proportion to the relationship of absolute dollar amounts of change in each.
YEAR ENDED DECEMBER 31, -------------------------------------------------- 1995 COMPARED TO 1994 1994 COMPARED TO 1993 ------------------------- ----------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ------- ------- ------- ------ ------- ------ (IN THOUSANDS) Increase (decrease) in interest income: Interest-bearing time deposits............... $ (2) $ (3) $ (5) $ (15) $ 2 $ (13) Federal funds sold........................... 1,462 641 2,103 (970) 947 (23) Securities: Taxable.................................... (75) 1,393 1,318 4,699 (351) 4,348 Non-taxable (TE)........................... (734) 248 (486) (320) (28) (348) Loans........................................ 32,478 1,718 34,196 3,545 1,777 5,322 ------- ------- ------- ------ ------- ------ Total average earning assets............... 33,129 3,997 37,126 6,939 2,347 9,286 ------- ------- ------- ------ ------- ------ Increase (decrease) in interest expense: Savings and interest-bearing demand deposits.................................... 1,585 1,154 2,739 832 (776) 56 Time certificates............................ 12,655 5,742 18,397 1,401 (661) 740 Other borrowings............................. 354 230 584 99 (60) 39 ------- ------- ------- ------ ------- ------ Total average interest-bearing liabilities............................... 14,594 7,126 21,720 2,332 (1,497) 835 ------- ------- ------- ------ ------- ------ Net increase (decrease) in net interest income.................................. $18,535 $(3,129) $15,406 $4,607 $ 3,844 $8,451 ------- ------- ------- ------ ------- ------ ------- ------- ------- ------ ------- ------
PROVISION FOR LOAN LOSSES The provision for loan losses in 1995 was $1.5 million, compared with $1.9 million in 1994 and $3.4 million in 1993. The provision for loan losses, which is charged to operations, is based on credit losses, management's ongoing evaluation of the portfolio risk and economic conditions. The decrease in the Company's provision for loan losses between these periods reflects the general economic improvement in the Company's primary service areas. The Company has experienced a substantial reduction in net chargeoffs, which declined to $1.8 million in 1995 from $3.1 million in 1994 and $2.8 million in 1993. NONINTEREST INCOME Noninterest income for 1995 was $9.5 million, compared with $7.5 million in 1994 and $8.8 million in 1993. The components of noninterest income were as follows:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Service charges on deposit accounts................................................ $ 5,625 $ 4,446 $ 4,195 Other fee income................................................................... 1,621 1,185 1,052 Gain (loss) on sale of securities.................................................. -- (4) 223 Gains on sale of loans............................................................. 1,204 1,021 2,649 Other income....................................................................... 1,029 858 688 --------- --------- --------- Total noninterest income......................................................... $ 9,479 $ 7,506 $ 8,807 --------- --------- --------- --------- --------- ---------
13 The increase in service charge income and other fee income between 1995 and 1994 was primarily acquisition related. The increase in this fee income between 1994 and 1993 is attributable to the Company modifying its service charge schedule of fees and sales fees on mutual funds and annuities which were first introduced in the fourth quarter of 1993. NONINTEREST EXPENSE Total noninterest expense was $50.8 million in 1995, $44.0 million in 1994 and $40.5 in 1993. The ratio of noninterest expense to operating revenue, on a taxable-equivalent basis, excluding securities transactions was 61.2%, 67.0% and 69.6% for 1995, 1994 and 1993 respectively. The following table presents the major components of noninterest expense for the years ended December 31, 1995, 1994 and 1993.
YEAR ENDED DECEMBER 31, CHANGE 95/94 CHANGE 94/93 ------------------------------- -------------------- -------------------- 1995 1994 1993 $ % $ % --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS) Salaries and benefits..................... $ 27,872 $ 23,381 $ 21,083 $ 4,491 19.2% $ 2,298 10.9% Occupancy and equipment................... 8,414 6,729 6,417 1,685 25.0 312 4.9 Regulatory expense........................ 2,102 2,502 2,281 (400) (16.0) 221 9.7 Banking forms and stationery.............. 1,495 1,197 1,092 298 24.9 105 9.6 Communications expense.................... 1,784 1,359 1,243 425 31.3 116 9.3 Outside data processing expense........... 786 637 960 149 23.4 (323) (33.6) Legal expense............................. 548 567 653 (19) (3.4) (86) (13.2) Foreclosed assets expense, net............ 297 200 240 97 48.5 (40) (16.7) Consultant fees........................... 497 528 671 (31) (5.9) (143) (21.3) Courier service........................... 978 805 581 173 21.5 224 38.6 Promotional expense....................... 827 1,010 877 (183) (18.1) 133 15.2 Other..................................... 5,228 5,085 4,448 143 2.8 637 14.3 --------- --------- --------- --------- --------- --------- --------- Total noninterest expense............... $ 50,828 $ 44,000 $ 40,546 $ 6,828 15.5% $ 3,454 8.5% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The increase in salaries and benefits in 1995 compared to 1994 is directly related to the Company's expansion, primarily acquisition related. The Company's full-time equivalent staff numbered approximately 637 at December 31, 1995; this compares with 631 at December 31, 1994 and 546 at September 30, 1994 (number of full-time equivalent employees prior to the 1994 year-end acquisition of Old Stone). The increase in 1994 salaries and benefits compared to 1993 was primarily due to standard merit and promotional increases. The Company benefited from the significant reduction in premiums paid to the FDIC for deposit insurance during 1995. Effective June 30, 1995 the FDIC lowered the amount of the premiums assessed to all well capitalized insured banks from $.23 per $100 in deposits to $.04 per $100 in deposits. The FDIC has further lowered this assessment in 1996 to a flat assessment rate of $2,000 per well capitalized insured bank per year. There were no other material events, other than the Company's growth, both internal and through acquisitions that had a significant effect on the Company's noninterest expense between 1994 compared to 1995 and 1993 compared to 1994. INCOME TAXES The provision for income taxes was $11.4 million, $6.7 million and $4.2 million in 1995, 1994 and 1993, respectively. The effective tax rates for these periods were 38.7%, 36.5% and 32.4%, respectively. The increases in the Company's effective tax rate for these periods is primarily attributable to the decrease in nontaxable income relative to the Company's earnings. 14 FINANCIAL CONDITION SECURITIES The Company's securities portfolio increased $41.0 million or 13.8% between December 31, 1994, and December 31, 1995. Increases in the securities portfolio related to acquisitions were $54.0 million. Excluding these transactions the Company had 1995 maturities and repayments totalling $107.9 million, sales of $8.8 million and purchases of $103.3 million. At December 31, 1995 and 1994, the held to maturity securities portfolio had an estimated unrealized gain of $1.0 million and an unrealized loss of $12.5 million, respectively. At December 31, 1995, the available for sale securities portfolio had an unrealized pretax gain of $373,000. At December 31, 1994, the available for sale securities portfolio had an unrealized pretax loss of $721,000. The unrealized gain or loss on available for securities is reported on a net of tax basis as a separate component of shareholders' equity. At December 31, 1995 the unrealized gain on securities classified as available for sale, net of tax was $219,000, compared with an unrealized net loss of $421,000 at December 31, 1994. The improvement in the market value of the Company's total securities portfolio between December 31, 1994 and 1995, was predominately due to the improved market valuation of its mortgage-backed securities. As interest rates declined during 1995, these securities, as well as the Company's other securities, increased in market value. The following tables set forth the amortized cost and estimated market values of securities at the dates indicated.
SECURITIES AVAILABLE FOR SALE --------------------------------------------- ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (IN THOUSANDS) December 31, 1995 - ------------------------------------------------------------------ U.S. Treasury securities.......................................... $ 20,332 $ 171 $ (28) $ 20,475 Securities of U.S. Government agencies and corporations..................................................... 50,759 249 (60) 50,948 Obligations of states and political subdivisions.................. 1,178 41 -- 1,219 Federal Reserve stock............................................. 1,234 -- -- 1,234 --------- ----- ---------- --------- Total........................................................... $ 73,503 $ 461 $ (88) $ 73,876 --------- ----- ---------- --------- --------- ----- ---------- --------- December 31, 1994 - ------------------------------------------------------------------ U.S. Treasury securities.......................................... $ 45,591 -- $ (651) $ 44,940 Securities of U.S. Government agencies and corporations........... 5,464 -- (70) 5,394 Federal Reserve stock............................................. 1,092 -- -- 1,092 --------- ----- ---------- --------- Total........................................................... $ 52,147 $ -- $ (721) $ 51,426 --------- ----- ---------- --------- --------- ----- ---------- --------- December 31, 1993 - ------------------------------------------------------------------ U.S. Treasury securities.......................................... $ 46,830 $ 205 $ (10) $ 47,025 Securities of U.S. Government agencies and corporations........... 3,518 113 -- 3,631 --------- ----- ---------- --------- Total........................................................... $ 50,348 $ 318 $ (10) $ 50,656 --------- ----- ---------- --------- --------- ----- ---------- ---------
15
SECURITIES HELD TO MATURITY ------------------------------------------------- ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ----------- ---------- ----------- (IN THOUSANDS) December 31, 1995 - --------------------------------------------------------------- U.S. Treasury securities....................................... $ 63,300 $ 366 $ (186) $ 63,480 Securities of U.S. Government agencies and corporations........ 150,989 563 (865) 150,687 Obligations of states and political subdivisions............... 50,113 1,194 (49) 51,258 Other securities............................................... 150 -- -- 150 ----------- ----------- ---------- ----------- Total........................................................ $ 264,552 $ 2,123 $ (1,100) $ 265,575 ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- December 31, 1994 - --------------------------------------------------------------- U.S. Treasury securities....................................... $ 74,050 $ 4 $ (3,381) $ 70,673 Securities of U.S. Government agencies and corporations........ 109,787 10 $ (8,111) 101,686 Obligations of states and political subdivisions............... 61,997 347 (1,374) 60,970 Other securities............................................... 150 -- -- 150 ----------- ----------- ---------- ----------- Total........................................................ $ 245,984 $ 361 $ (12,866) $ 233,479 ----------- ----------- ---------- ----------- ----------- ----------- ---------- ----------- December 31, 1993 - --------------------------------------------------------------- U.S. Treasury securities....................................... $ 69,969 $ 525 $ (41) $ 70,453 Securities of U.S. Government agencies and corporations........ 110,642 241 (613) 110,270 Obligations of states and political subdivisions............... 66,943 2,591 (29) 69,505 Other securities............................................... 1,267 -- -- 1,267 ----------- ----------- ---------- ----------- Total........................................................ $ 248,821 $ 3,357 $ (683) $ 251,495 ----------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
The amortized cost and estimated market values of securities at December 31, 1995 by contractual maturity are shown on the following table. Actual maturities will differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. For asset/liability purposes, the Company monitors these securities with consideration of prepayment assumptions. Yields have been calculated by dividing the taxable-equivalent interest income, including discount or premium, by book value. Yields on nontaxable securities of states and political subdivisions were presented on a taxable-equivalent basis using a marginal tax rate of 35%.
SECURITIES AVAILABLE FOR SALE ------------------------------------------------------------------------------ AFTER ONE AFTER FIVE WITHIN ONE THROUGH FIVE THROUGH TEN AFTER TEN YEAR YEARS YEARS YEARS TOTAL -------------- -------------- -------------- -------------- -------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- (DOLLARS IN THOUSANDS) U.S. Treasury securities... $12,829 5.20 % $ 7,503 6.05 % $ -- -- % $ -- -- % $20,332 5.52 % Securities of U.S. Government agencies and corporations............. 2,991 6.20 20,597 6.57 21,666 6.78 5,505 6.58 50,759 6.64 Obligations of states and political subdivisions.... 230 9.64 549 8.69 399 8.42 -- -- 1,178 8.78 Federal Reserve stock...... -- -- -- -- -- -- 1,234 6.00 1,234 6.00 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total...................... $16,050 5.45 % $28,649 6.47 % $22,065 6.81 % $6,739 6.47 % $73,503 6.35 % ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Market Value............... $16,027 $28,898 $22,160 $6,791 $73,876 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
16
SECURITIES HELD TO MATURITY ------------------------------------------------------------------------------ AFTER ONE AFTER FIVE WITHIN ONE THROUGH FIVE THROUGH TEN AFTER TEN YEAR YEARS YEARS YEARS TOTAL -------------- -------------- -------------- -------------- -------------- AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- (DOLLARS IN THOUSANDS) U.S. Treasury securities.............. $20,676 4.83 % $42,624 5.51 % $ -- -- % $ -- -- % $63,300 5.29 % Securities of U.S. Government agencies and corporations............ 16,243 6.02 66,065 5.82 36,409 6.87 32,272 6.82 150,989 6.31 Obligations of states and political subdivisions............ 11,144 8.30 25,311 7.64 12,236 7.77 1,422 7.37 50,113 7.81 Other securities......... -- -- 150 8.37 -- -- -- -- 150 8.37 ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total.................... $48,063 6.04 % $134,150 6.07 % $48,645 7.10 % $33,694 6.84 % $264,552 6.35 % ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Market Value............. $48,203 $134,522 $49,357 $33,493 $265,575 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LOAN PORTFOLIO The Company's lending activities are geographically concentrated in Northern California, specifically the San Francisco Bay Area and Central Valley. The loan portfolio mix consists primarily of commercial, industrial and agricultural loans, real estate construction and land development loans, residential and commercial real estate mortgages, consumer installment loans and individual lines of credit. The following table sets forth the breakdown of loans outstanding by type at the dates indicated.
DECEMBER 31, ----------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------- ----------- ----------- ----------- ----------- (IN THOUSANDS) Real estate -- Construction and land development........... $ 125,837 $ 99,975 $ 74,748 $ 83,156 $ 93,792 1 - 4 family residential mortgages.......... 344,561 348,361 119,633 117,350 138,105 Other real estate mortgages................. 236,717 186,638 168,866 146,254 113,372 Commercial, industrial and agricultural....... 183,930 159,266 145,662 160,946 176,599 Consumer...................................... 139,735 119,236 100,388 104,668 124,695 ------------- ----------- ----------- ----------- ----------- Total loans................................. $ 1,030,780 $ 913,476 $ 609,297 $ 612,374 $ 646,563 ------------- ----------- ----------- ----------- ----------- ------------- ----------- ----------- ----------- -----------
The Company's loan portfolio increased $117.3 million or 12.8% at December 31, 1995 compared to December 31, 1994. The increase was primarily due to 1995 acquisitions. The Company has historically been active in financing the construction and development of residential properties. This portion of the loan portfolio increased $25.9 million (25.9%) at December 31, 1995 compared to December 31, 1994. Although a significant percentage of the Company's nonperforming loans come from this portion of the portfolio, the Company has not historically suffered any material losses in this area. Loans secured by 1 - 4 family residential properties decreased $3.8 million (1.1%) in 1995 compared to 1994. This decrease was primarily attributable to loan repayments on single family residences secured by first deeds of trust. The Company acquired a significant portion of these loans (approximately $240 million) in connection with the Old Stone acquisition during 1994. These loans have experienced an accelerated level of repayments and refinancings during 1995 due to favorable market rates. Other real estate mortgages, the majority of which are commercial properties, are another active market for the Company. The underwriting standards and administrative guidelines regarding these 17 credits are specific and stringent. These loans are generally owner occupied business properties that are limited to specific types of properties. This portion of the portfolio increased $50.1 million (26.8%) during 1995 compared to 1994. Commercial, industrial and agricultural loans increased $24.7 million (15.5%) at December 31, 1995 compared to December 31, 1994. This segment of the portfolio consists of secured and unsecured lines of credit for the operation and expansion needs of small and middle-market businesses and professionals, including inventory, accounts receivable and equipment. Agricultural loans consist of loans to finance agricultural production and other loans to farmers. Agricultural loans that are secured by real estate (farmland) are included in other real estate mortgages. Consumer loans increased by $20.5 million (17.2%) at December 31, 1995 compared to December 31, 1994. The consumer loan portfolio consists of automobile loans, personal lines of credit to individuals and other personal loans. Inherent in any loan portfolio are risks associated with certain types of loans. The Company's objective is to limit these risks through strict loan policies and review procedures. Included in these policies are specific loan-to-value limitations as to various categories of real estate related loans. The Company has also established policies to limit the degree of portfolio concentration in any product type or to any individual borrower. At December 31, 1995 there was no concentration of loans in any single category that was not otherwise disclosed in the loan portfolio table previously. The following table presents information for selected loans concerning loan maturities and sensitivity to change in the loan portfolio as well as the total of all such loans due after one year that have fixed or floating interest rates at December 31, 1995.
AFTER ONE AFTER ONE YEAR OR THROUGH FIVE LESS FIVE YEARS YEARS TOTAL ----------- ----------- --------- ----------- Maturity Distribution of Selected Loans: Construction and land development............................. $ 99,222 $ 11,051 $ 15,564 $ 125,837 Commercial, industrial and agricultural....................... 92,382 79,042 12,506 183,930 ----------- ----------- --------- ----------- Total....................................................... $ 191,604 $ 90,093 $ 28,070 $ 309,767 ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- Sensitivity to Changes in Interest Rates: Loans with fixed interest rates............................... $ 20,636 $ 8,386 Loans with floating interest rates............................ 69,457 19,684 ----------- --------- Total....................................................... $ 90,093 $ 28,070 ----------- --------- ----------- ---------
18 ALLOWANCE FOR LOAN LOSSES The following table summarizes the changes in the Company's allowance for loan losses for the years indicated.
YEAR ENDED DECEMBER 31, --------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- (DOLLARS IN THOUSANDS) Balance, beginning of year...................... $ 12,822 $ 11,547 $ 9,855 $ 9,459 $ 11,450 ----------- ----------- ----------- ----------- ----------- Deduct loans charged-off: Real estate................................... (540) (465) (740) (467) (1,138) Commercial, industrial and agricultural....... (1,292) (2,059) (1,820) (2,598) (5,366) Consumer...................................... (896) (1,178) (1,182) (1,673) (962) ----------- ----------- ----------- ----------- ----------- Total charge-offs........................... (2,728) (3,702) (3,742) (4,738) (7,466) ----------- ----------- ----------- ----------- ----------- Add recoveries of loans charged-off: Real estate................................... 145 8 177 46 16 Commercial, industrial and agricultural....... 597 320 384 721 349 Consumer...................................... 177 282 336 302 255 ----------- ----------- ----------- ----------- ----------- Total recoveries............................ 919 610 897 1,069 620 ----------- ----------- ----------- ----------- ----------- Net charge-offs............................... (1,809) (3,092) (2,845) (3,669) (6,846) ----------- ----------- ----------- ----------- ----------- Provision for loan losses....................... 1,485 1,895 3,425 4,065 4,855 Allowance related to acquisitions............... 2,338 2,472 1,112 -- -- ----------- ----------- ----------- ----------- ----------- Balance, end of year............................ $ 14,836 $ 12,822 $ 11,547 $ 9,855 $ 9,459 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Net charge-offs to average loans outstanding.... 0.18% 0.48% 0.47% 0.58% 1.03% Average loans outstanding....................... $ 986,796 $ 644,205 $ 605,412 $ 632,616 $ 663,444 Allowance at end of year to loans outstanding... 1.44% 1.40% 1.90% 1.61% 1.46%
Net charge-offs decreased $1.3 million or 41.5% during 1995 compared to 1994 which increased $247,000 (8.7%) compared to 1993. An improved economy and successful collection efforts were major factors contributing to lower charge-off levels. The Company's determination of the allowance for loan losses and the corresponding provision for loan losses is based on various judgments and assumptions including, but not limited to, general economic conditions, the composition of the loan portfolio, prior loss experience and estimates of potential future losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks' allowances for loan losses. On January 1, 1995, the Company adopted Statement of Financial Accounting Standards No. 114 (SFAS No. 114), "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118 (collectively referred to as SFAS No. 114), on a prospective basis. These Statements address the accounting treatment of certain impaired loans and amend SFAS No. 5 and 15. However, these Statements do not address the overall adequacy of the allowance for loan losses and do not apply to large groups of smaller-balance homogeneous loans unless they have been involved in a restructuring. A loan is considered impaired, within the scope of SFAS No. 114, when, based on current information and events, it is probable that the Company will be unable to collect principal or interest due according to the contractual terms of the original loan agreement. 19 The Company measures the impairment of a loan when and while a loan is on nonaccrual or the loan has been restructured. The amount of impairment is calculated by the Company using discounted cash flows, except when the source of repayment for the loan is through the liquidation of the underlying collateral. For these loans, the net realizable value of the collateral (current fair value less estimated costs to sell) is used in place of discounted cash flows. If the measurement of the impaired loan is less than the recorded investment in the loan, the Company recognizes such impairment by creating or adjusting the existing allowance for loan losses. If full collection is uncertain, cash receipts are applied first to principal, then to recovery of amounts previously charged-off, then to interest income. An analysis of the Company's recorded investment in impaired loans and the related SFAS No. 114 allowance for loan losses at December 31, 1995 is presented in Note 1, Allowance for Loan Losses, in the Notes to the Consolidated Financial Statements. The Company performs a quarterly assessment to determine the appropriate level of the allowance for loan losses. This process uses a series of allocation methods including specific credit allocations for individual loans and historical loss experience for each loan category and degree of criticism within each category. The total of these allocations is then supplemented by the unallocated portion of the allowance for loan losses. Based on management's analysis of the Company's overall allowance for loan losses, management believes that the provision for loan losses for 1995 is appropriate. It is management's opinion that the allowance for loan losses at December 31, 1995, is adequate to provide for potential losses in the current loan portfolio. No assurances can be given that adverse economic conditions or other factors will not result in increased losses in the Company's loan portfolio. The allocation of the allowance for loan losses ("Allocation") and the ratio of the loan category to outstanding loans ("Ratio") are summarized in the following table.
COMPONENTS OF ALLOWANCE FOR LOAN LOSSES -------------------------------------------------------------------------------------------------- DECEMBER 31, -------------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 ------------------ ------------------ ------------------ ------------------ ------------------ ALLOCATION RATIO ALLOCATION RATIO ALLOCATION RATIO ALLOCATION RATIO ALLOCATION RATIO ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- (IN THOUSANDS) Real estate............... $ 4,764 68.6 $ 4,736 69.5 $ 3,085 59.6 $2,586 56.6 $4,377 53.4 Commercial, industrial and agricultural............. 4,148 17.8 3,510 17.4 3,991 23.9 4,158 26.3 2,381 27.3 Consumer.................. 308 13.6 580 13.1 352 16.5 377 17.1 734 19.3 Unallocated(1)............ 5,616 n/a 3,996 n/a 4,119 n/a 2,734 n/a 1,967 n/a ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total................... $14,836 100.0 $12,822 100.0 $11,547 100.0 $9,855 100.0 $9,459 100.0 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
- -------------------------- (1) The unallocated portion of the allowance is evaluated as part of the overall evaluation of the adequacy of the allowance and takes into consideration various loan portfolio risk factors, including loan growth and concentrations, lending policies, delinquency trends and general economic conditions. This amount and any unabsorbed portion of the allocated allowance is also available for any of the above listed loan categories. The allowance for loan losses should not be interpreted as an indication that charge-offs in the future will occur in these amounts or proportions, or that the allocation indicates future charge-off trends. Furthermore, the portion allocated to each loan category is not the total amount available for future losses that might occur within such categories. NONACCRUAL, RESTRUCTURED AND PAST DUE LOANS AND FORECLOSED ASSETS The following table presents the Company's nonaccrual and restructured loans and foreclosed assets as well as loans past due 90 days and still accruing interest, covering a five year period. 20 Classification of a loan as nonaccrual or restructured does not necessarily indicate the loan is not performing with respect to collection of principal and interest nor does it mean that the principal of the loan is uncollectible in whole or in part.
DECEMBER 31, ------------------------------------------- 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) Nonaccrual loans: Construction and land development.................... $ 3,198 $ 4,052 $ 3,227 $ 3,410 $ 7,300 1-4 family residential mortgages..................... 5,341 3,359 510 325 110 Other real estate mortgages.......................... 2,720 53 1,041 1,923 59 Commercial, industrial and agricultural................ 679 1,209 2,364 1,029 298 Consumer............................................... 435 78 573 386 201 ------- ------- ------- ------- ------- Total nonaccrual loans............................... 12,373 8,751 7,715 7,073 7,968 Restructured loans..................................... 2,544 4,285 3,724 1,697 -- ------- ------- ------- ------- ------- Total nonperforming loans............................ 14,917 13,036 11,439 8,770 7,968 Foreclosed assets...................................... 3,215 2,415 2,842 6,388 9,967 ------- ------- ------- ------- ------- Total nonperforming assets........................... $18,132 $15,451 $14,281 $15,158 $17,935 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Nonperforming loans as a percentage of total loans..... 1.4% 1.4% 1.9% 1.4% 1.2% Nonperforming assets as a percentage of total loans and foreclosed assets..................................... 1.8% 1.7% 2.3% 2.4% 2.7% Loans past due 90 days and still accruing interest..... $ 161 $ 659 $ 640 $ 214 $ 505 Foregone interest...................................... $ 1,200 $ 665 $ 670 $ 747 $ 1,404
Loans are placed on nonaccrual status when full collectibility of principal or interest is uncertain or when principal or interest is past due for 90 days (unless the loan is well secured and in the process of collection). From the time a loan is placed on nonaccrual status, interest previously accrued but not collected is reversed and charged against interest income. Any interest or principal payments received on a nonaccrual loan are normally applied as a principal reduction. A nonaccrual loan may be restored to accrual status when none of its principal and interest is past due and unpaid or when it otherwise becomes well secured and in the process of collection. In a case where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms (i.e., the reduction of either interest or principal or other such modifications that the Company would not otherwise consider), the loan is classified as a restructured loan. If the borrower is not able to meet the revised payment schedule and the loan becomes delinquent, the loan is placed on nonaccrual status. Foreclosed assets include property acquired through foreclosure. These properties are carried at the lower of (i) fair value less estimated costs to sell or (ii) the recorded cost of the asset. Upon foreclosure, any necessary write-downs are charged to the allowance for loan losses. The difference between cost and fair value less estimated cost to sell, if lower, is recorded as a valuation allowance. Subsequent declines in the fair value of the property are recorded as an addition to the valuation allowance. Management is not aware of any significant potential problem loans which have not otherwise been disclosed as a nonaccrual or restructured loan at December 31, 1995, in which there is known information about possible credit problems of a borrower that has caused management to have serious doubts as to the ability of such borrowers to comply with the present loan repayment terms. 21 DEPOSITS Total deposits increased $246.2 million or 20.9% at December 31, 1995 compared to December 31, 1994. Average daily deposits, along with the average rates paid thereon, for the years ended December 31, 1995, 1994 and 1993 are summarized in the following table.
DECEMBER 31, --------------------------------------------------- 1995 1994 1993 ----------------- --------------- --------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE ---------- ----- -------- ----- -------- ----- (DOLLARS IN THOUSANDS) Noninterest-bearing demand................. $ 244,732 --% $209,410 --% $187,774 --% Savings and interest-bearing demand........ 553,847 2.31 482,340 2.09 443,873 2.25 Time certificates $100,000 or more......... 103,259 5.25 67,737 3.66 73,181 3.82 Other time................................. 424,153 5.66 210,460 4.07 170,398 4.41 ---------- ----- -------- ----- -------- ----- Total deposits........................... $1,325,991 3.19% $969,947 2.18% $875,226 2.32% ---------- ----- -------- ----- -------- ----- ---------- ----- -------- ----- -------- -----
The total amount held in the accounts of any single depositor is not material in relationship to total deposits. Summarized below, by time remaining until maturity, are the amount of outstanding time certificates of deposit issued in the amounts of $100,000 or more:
DECEMBER 31, 1995 ----------------- (IN THOUSANDS) Three months or less....................................................... $ 66,401 Over three through six months.............................................. 23,620 Over six through twelve months............................................. 33,989 Over twelve months......................................................... 21,398 ----------------- Total.................................................................... $ 145,408 ----------------- -----------------
ASSET/LIABILITY MANAGEMENT The Company has separate policies and guidelines for managing the Company's balance sheet and off-balance sheet activities which are incorporated and considered integral parts of the asset/ liability management process. Certain policies may be governed and implemented by committees or persons other than the Asset/Liability Committee (ALCO) as directed by the Board of Directors. Overall asset/liability management encompasses the management and monitoring of asset quality, liquidity and capital needs and interest rate risk. INTEREST RATE RISK One of the principal objectives of asset/liability management is to manage the risks associated with changing interest rates and their impact on earnings. The ALCO regularly evaluates and sets predetermined limits on the sensitivity of each Bank's net interest income to changes in interest rates. Interest rate risk can be viewed from a variety of perspectives, including the sensitivity of earnings to rate movements and the sensitivity of the market value of the Company's equity to changes in interest rates. One way to measure how a change in interest rates will impact net interest income in specific time frames is through a cumulative gap analysis. Traditional gap analysis represents interest rate risk in terms of the mismatch between the stated repricing of the Company's earning assets and interest-bearing liabilities within defined time periods. As shown in the following 22 table, at December 31, 1995, the cumulative one-year contractual gap for the Company was a negative $77.4 million, or (5.4%) of earning assets. In other words, 5.4% of the Company's interest-bearing liabilities has the potential to reprice or mature more quickly than its earning assets in one year.
INTEREST RATE SENSITIVITY ------------------------------------------------------------------- 0-3 OVER MONTHS 3-12 MONTHS 1-5 YEARS 5 YEARS NON-MARKET TOTAL --------- ----------- --------- --------- --------- ---------- (DOLLARS IN THOUSANDS) Assets: Federal funds sold........... $ 76,175 $ -- $ -- $ -- $ -- $ 76,175 Securities (1)............... 48,027 54,143 148,546 86,478 1,234 338,428 Loans (2).................... 490,539 279,089 170,899 77,880 12,373 1,030,780 --------- ----------- --------- --------- --------- ---------- Total earning assets..... 614,741 333,232 319,445 164,358 13,607 1,445,383 Noninterest-earning assets... -- -- -- -- 125,075 125,075 --------- ----------- --------- --------- --------- ---------- Total assets............... 614,741 333,232 319,445 164,358 138,682 1,570,458 --------- ----------- --------- --------- --------- ---------- Liabilities and Shareholders' Equity: Deposits: Savings and interest-bearing demand deposits.................. $ 565,370 $ -- $ -- $ -- $ -- $ 565,370 Time certificates, $100,000 or more................... 66,401 57,609 21,198 200 -- 145,408 Other time................. 157,286 178,715 87,681 -- -- 423,682 --------- ----------- --------- --------- --------- ---------- Total interest-bearing deposits.................. 789,057 236,324 108,879 200 -- 1,134,460 Borrowed funds............... -- -- -- -- 90 90 --------- ----------- --------- --------- --------- ---------- Total interest-bearing liabilities............... 789,057 236,324 108,879 200 90 1,134,550 --------- ----------- --------- --------- --------- ---------- Noninterest-bearing liabilities................. -- -- -- -- 305,147 305,147 Shareholders' equity......... -- -- -- -- 130,761 130,761 --------- ----------- --------- --------- --------- ---------- Total liabilities and shareholders' equity...... 789,057 236,324 108,879 200 435,998 1,570,458 --------- ----------- --------- --------- --------- ---------- Incremental gap.............. (174,316) 96,908 210,566 164,158 (297,316) -- --------- ----------- --------- --------- --------- ---------- Cumulative gap............... $(174,316) $ (77,408) $ 133,158 $ 297,316 $ -- --------- ----------- --------- --------- --------- --------- ----------- --------- --------- --------- % to earning assets.......... (12.1) (5.4) 9.2 20.6 -- --------- ----------- --------- --------- --------- --------- ----------- --------- --------- ---------
- ------------------------ (1) The nonmarket column consists of Federal Reserve Bank stock (2) The nonmarket column consists of nonaccrual loans of $12,373 Over the short period (one year or less) changes in interest rates affect net interest income to the extent that there is a timing difference between the repricing of assets and liabilities. For instance, if more liabilities than assets reprice during a time period, such as the Company's gap analysis indicates, given a rising rate environment, net interest income will have a tendency to decrease if the assets and liabilities reprice in rate by approximately the same amount. Conversely, if an institution is considered to be asset sensitive, or as having a positive gap, when the amount of its liabilities maturing or repricing is less than the amount of its assets also maturing or repricing during the same period, net interest income would benefit from a rising rate environment. However, shortcomings are inherent in a simplified gap analysis that may result in an institution with a nominally negative gap having interest rate behavior associated with an asset sensitive balance sheet. For example, although certain assets and liabilities may have similar maturities or periods to 23 repricing, they may react in different degrees to changes in market interest rates. Furthermore, repricing characteristics of certain assets and liabilities vary substantially within a given time period. In the event of a change in interest rates, prepayment and early withdrawal levels could also deviate significantly from those assumed in calculating gap. The Company attempts to quantify these characteristics by taking into account the expected repricing or maturities of earning assets and funding sources, as opposed to their contractual maturities. Because net interest income is not necessarily a conclusive indication of an institution's ongoing net worth, a second measure of interest rate risk - the market value of portfolio equity (MVPE) is important. This measure attempts to quantify the ongoing worth of the institution by considering all cash flows, regardless of their timing, and discounting these back to the present. The difference between the discounted assets less the discounted liabilities is the present value of equity or the economic measure of the institution's net worth. These two approaches to interest rate risk measurement are complementary and are used in tandem by the individual Banks to provide a more complete picture of the interest rate risk associated with their balance sheets. Included in the Company's Asset/Liability Management Policy are limitations on the maximum volatility each Bank may undertake associated with possible interest rate movement. LIQUIDITY Liquidity is defined as the Company's ability to provide funds to meet customers' loan and deposit needs and to fund operations in the most timely and cost effective basis. The Company's liquidity is measured and managed on an individual bank basis. The holding company (parent) is funded primarily by dividends and management fee income from its subsidiaries. Core deposits have historically provided the Company with funding sources. The Company also utilizes repurchase agreements. In addition, the Banks have informal federal funds borrowing arrangements with correspondent banks to meet unforeseen deposit outflows. At December 31, 1995 and December 31, 1994, the Company's loan to deposit ratio was 72.3% and 77.4%, respectively. CAPITAL The Company reviews various capital adequacy ratios on a quarterly basis to ensure that each banking subsidiary and the consolidated Company are within established internal and external guidelines. The Company and its banking subsidiaries are subject to risk-based capital regulations. These guidelines are used to evaluate capital adequacy and are based on an institution's balance sheet risk and off-balance sheet risk. Current regulations define capital adequacy into five categories; well capitalized, adequately capitalized, undercapitalized, significantly under capitalized and critically undercapitalized. Each of these capital categories have predefined risk-based capital ratio minimums. At December 31, 1995 and December 31, 1994, the capital ratios of the Company exceeded the "well capitalized" threshold as prescribed by banking regulators. An institution's deposit insurance premiums are determined through a matrix based on the institution's capital category and supervisory subgroup. Any reduction in an institution's capital category can significantly increase premiums. 24 The following table presents the Company's capital positions at December 31, 1995 and December 31, 1994, including the risk-based capital ratio and leverage ratio.
DECEMBER 31, -------------------------- 1995 1994 ------------- ----------- (DOLLARS IN THOUSANDS) Tier 1: Shareholders' equity.............................................................. $ 130,761 $ 112,243 Less: Intangibles................................................................. (6,975) (906) Adjust: Unrealized (gains) losses on securities available for sale, net........... (219) 421 ------------- ----------- Total Tier 1 capital............................................................ 123,567 111,758 Tier 2 capital........................................................................ 12,838 11,042 ------------- ----------- Total risk-based capital........................................................ $ 136,405 $ 122,800 ------------- ----------- ------------- ----------- Risk-adjusted assets.................................................................. $ 1,027,057 $ 883,325 ------------- ----------- ------------- ----------- Tier 1 capital/risk-adjusted assets Capital ratio..................................................................... 12.03% 12.65% Minimum ratio..................................................................... 4.00 4.00 Total risk-based capital/risk-adjusted assets Capital ratio..................................................................... 13.28 13.90 Minimum........................................................................... 8.00 8.00 Leverage ratio........................................................................ 7.98 10.27
25 CONSOLIDATED QUARTERLY FINANCIAL INFORMATION The following quarterly financial information for 1995 and 1994 is unaudited. In the opinion of management, all adjustments necessary to present fairly the results of operations for the periods shown have been made.
1995 QUARTER ENDED ------------------------------------ DEC. 31 SEPT. 30 JUNE 30 MAR. 31 ------- -------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE) Interest income.................................................... $30,627 $ 30,326 $27,541 $26,731 Interest expense................................................... 11,585 11,524 10,366 9,491 ------- -------- ------- ------- Net interest income.............................................. 19,042 18,802 17,175 17,240 Provision for loan losses.......................................... 440 445 210 390 ------- -------- ------- ------- Net interest income after provision for loan losses.............. 18,602 18,357 16,965 16,850 Noninterest income................................................. 2,608 2,611 2,250 2,010 Noninterest expense................................................ 12,920 13,020 12,500 12,388 Provision for income taxes......................................... 3,207 3,206 2,505 2,472 ------- -------- ------- ------- Net income....................................................... $ 5,083 $ 4,742 $ 4,210 $ 4,000 ------- -------- ------- ------- ------- -------- ------- ------- Net income per share............................................. $ 0.51 $ 0.47 $ 0.42 $ 0.40 ------- -------- ------- ------- ------- -------- ------- -------
1994 QUARTER ENDED ------------------------------------ DEC. 31 SEPT. 30 JUNE 30 MAR. 31 ------- -------- ------- ------- (IN THOUSANDS EXCEPT PER SHARE) Interest income.................................................... $21,906 $ 19,774 $18,722 $17,570 Interest expense................................................... 6,252 5,221 4,943 4,830 ------- -------- ------- ------- Net interest income.............................................. 15,654 14,553 13,779 12,740 Provision for loan losses.......................................... 415 425 585 470 ------- -------- ------- ------- Net interest income after provision for loan losses.............. 15,239 14,128 13,194 12,270 Noninterest income................................................. 2,068 1,724 1,716 1,998 Noninterest expense................................................ 11,907 10,903 10,592 10,598 Provision for income taxes......................................... 2,057 1,852 1,552 1,240 ------- -------- ------- ------- Net income....................................................... $ 3,343 $ 3,097 $ 2,766 $ 2,430 ------- -------- ------- ------- ------- -------- ------- ------- Net income per share............................................. $ 0.36 $ 0.33 $ 0.30 $ 0.26 ------- -------- ------- ------- ------- -------- ------- -------
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See index to Financial Statements and Schedules included on page 29 of this report. ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 26 PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) DIRECTORS. Set forth below are the names and ages of the directors of the Company, the principal occupations at present and for the past five years of each director, certain directorships held by each, and the year since which the director has been continuously a director of the Company. Except as otherwise indicated below, each director has been engaged in the indicated principal occupation or employment for more than the past five years. The information set forth in the following table has been furnished to the Company by the respective directors.
YEAR FIRST ELECTED DIRECTOR, POSITION AND OFFICES WITH THE COMPANY; PRINCIPAL OCCUPATION DURING THE PAST FIVE NAME AGE YEARS - --------------------------- --- -------------------------------------------------------- Dale C. Adams 54 Director of the Company (1991-present). Attorney at law and partner in the law firm of Boatwright, Adams and Bechelli. Harry A. Avila 57 Director of the Company (1991-present). President of Essanay Property Management, a real estate investment firm. Wayne W. Bennett 47 Director of the Company (1991-present). Certified Public Accountant. Richard J. Clancy 63 Director of the Company (1991-present). Chairman and CEO of Security Pacific Real Estate. Joseph P. Colmery 42 Director, President and CEO of the Company (1991-present). President and CEO of Mission-Valley Bancorp (1987-1991). Keith S. Fraser 59 Director of the Company (1988-present). Attorney at law and partner in the law firm of Varni, Fraser, Hartwell & Rodgers. Donald J. Gehb 64 Director and Chairman of the Company (1991-present). Director, President and CEO of the Company (1971-1991). Thomas F. Matthews 65 Director of the Company (1990-present). Co-publisher of Tracy Press, newspaper. James L. McKenna, Jr. 60 Director of the Company (1984-present). Certified public accountant, and a partner in the accounting firm of Kimbell, McKenna & von Kaschnitz. Ralph N. Mendelson 65 Director of the Company (1971-present). Attorney, of counsel for the law firm of Mendelson & Brown, a partnership composed of professional corporations and individuals. A. Steve Simi 62 Director of the Company (1976-present). President of Cochran & Celli, automobile dealerships.
27 (b) EXECUTIVE OFFICERS OF THE REGISTRANT.
NAME AGE POSITIONS AND OFFICES HELD AND DATE FROM WHICH HELD - --------------------------- --- -------------------------------------------------------- Donald J. Gehb 64 Chairman of the Board of the Company (1991 to present), Director, President and Chief Executive Officer of the Company (1971 to 1991). Joseph P. Colmery 42 Director, President and Chief Executive Officer of the Company (1991 to present), Director, President and Chief Executive Officer of Mission-Valley Bancorp (1987 to 1991). John W. Larsen 60 Executive Vice President and Senior Credit Officer of the Company (1991 to present), Senior Vice President and Senior Credit Officer of Mission-Valley Bancorp (1987 to 1991). Vincent M. Leveroni 48 Executive Vice President and Chief Financial Officer of the Company (1979 to present). Ted Teruo Kitada 47 Executive Vice President, General Counsel and Assistant Corporate Secretary of the Company (1994 to present), Executive Vice President, General Counsel and Assistant Corporate Secretary of Pacific Western Bancshares, Inc. (1986 to 1994). James A. Mayer 54 Executive Vice President of the Company (1994 to present) President and Chief Executive Officer of Lamorinda National Bank (1990 to 1994).
(c) OFFICER AND DIRECTOR REPORTS. None. ITEM 11 -- EXECUTIVE COMPENSATION Information regarding executive compensation will be included in the Company's Proxy Statement to be filed with the SEC by April 30, 1996, under the caption "EXECUTIVE COMPENSATION." Such information is incorporated herein by reference. ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The security ownership of certain beneficial owners and of management will be included in the Company's Proxy Statement to be filed with the SEC by April 30, 1996, under the caption "STOCK OWNERSHIP OF MANAGEMENT." Such information is incorporated herein by reference. ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain transactions to which the Company or its subsidiaries and directors or executive officers of the Company have been a party will be included in the Company's Proxy Statement to be filed with the SEC by April 30, 1996, under the caption "TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS AND OTHERS." Such information is incorporated herein by reference. 28 PART IV ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statement Schedule The following is an index of the financial statements filed in this report. CONSOLIDATED FINANCIAL STATEMENTS
PAGE ------------- Consolidated Balance Sheet -- December 31, 1995 and 1994................................. F-1 Consolidated Statement of Income -- For Each of the Years in the Three-Year Period Ended December 31, 1995....................................................................... F-2 Consolidated Statement of Changes in Shareholders' Equity -- For Each of the Years in the Three-Year Period Ended December 31, 1995............................................... F-3 Consolidated Statement of Cash Flows -- For Each of the Years in the Three-Year Period Ended December 31, 1995................................................................. F-4,5 Notes to Consolidated Financial Statements............................................... F-6 to F-21 Independent Auditors' Report............................................................. F-22
2. All of the schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are either not required under the related instruction, the required information is contained elsewhere in the Form 10-K, or the schedules are inapplicable and therefore have been omitted. 3. Exhibits are listed on Exhibit Index on pages 32-33 of this report on Form 10-K. (b) Reports of Form 8-K No reports on Form 8-K were filed by the Company during the last quarter of 1995. 29 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 20, 1996 CALIFORNIA BANCSHARES, INC. (Registrant) By: ____/S/__JOSEPH P. COLMERY________ Joseph P. Colmery PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - ------------------------------------------------ -------------------------------------- ----------------------- /S/ JOSEPH P. COLMERY President and Chief Executive Officer -------------------------------------- (Principal Executive Officer), March 20, 1996 Joseph P. Colmery Director /S/ DONALD J. GEHB -------------------------------------- March 20, 1996 Donald J. Gehb Chairman of the Board and Director /S/ VINCENT M. LEVERONI Executive Vice President and Chief -------------------------------------- Financial Officer and Principal March 20, 1996 Vincent M. Leveroni Accounting Officer /S/ DALE C. ADAMS -------------------------------------- March 20, 1996 Dale C. Adams Director /S/ HARRY A. AVILA -------------------------------------- March 20, 1996 Harry A. Avila Director /S/ WAYNE W. BENNETT -------------------------------------- March 20, 1996 Wayne W. Bennett Director /S/ RICHARD J. CLANCY -------------------------------------- March 20, 1996 Richard J. Clancy Director /S/ KEITH S. FRASER -------------------------------------- March 20, 1996 Keith S. Fraser Director /S/ THOMAS F. MATTHEWS -------------------------------------- March 20, 1996 Thomas F. Matthews Director
30
SIGNATURE TITLE DATE - ------------------------------------------------ -------------------------------------- ----------------------- /S/ JAMES L. MCKENNA, JR. -------------------------------------- March 20, 1996 James L. McKenna, Jr. Director /S/ RALPH N. MENDELSON -------------------------------------- March 20, 1996 Ralph N. Mendelson Director /S/ A. STEVE SIMI -------------------------------------- March 20, 1996 A. Steve Simi Director
31 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, ---------------------------- 1995 1994 ------------- ------------- (IN THOUSANDS EXCEPT SHARE AMOUNTS) Cash and due from banks............................................................. $ 81,606 $ 66,587 Federal funds sold.................................................................. 76,175 14,800 ------------- ------------- Total cash and cash equivalents................................................... 157,781 81,387 Securities: Available for sale................................................................ 73,876 51,426 Held to maturity (approximate market values of $265,575 in 1995 and $233,479 in 1994)............................................................................ 264,552 245,984 ------------- ------------- Total securities................................................................ 338,428 297,410 Loans, net of allowance for loan losses of $14,836 in 1995 and $12,822 in 1994...... 1,015,944 900,654 Premises and equipment, net......................................................... 20,040 17,329 Interest receivable and other assets................................................ 38,265 36,516 ------------- ------------- TOTAL ASSETS........................................................................ $ 1,570,458 $ 1,333,296 ------------- ------------- ------------- ------------- LIABILITIES Deposits: Non interest-bearing demand....................................................... $ 291,435 $ 228,211 Savings and interest-bearing demand............................................... 565,370 519,431 Time certificates, $100,000 or more............................................... 145,408 86,338 Other time........................................................................ 423,682 345,737 ------------- ------------- Total deposits.................................................................. 1,425,895 1,179,717 Borrowed funds...................................................................... 90 29,747 Interest payable and other liabilities.............................................. 13,712 11,589 ------------- ------------- Total liabilities............................................................... 1,439,697 1,221,053 ------------- ------------- Commitments and contingent liabilities SHAREHOLDERS' EQUITY Preferred stock, no par value Shares authorized: 2,000,000 Shares issued: none Common stock, $2.50 par value Shares authorized: 16,000,000 Shares issued and outstanding: 1995 -- 10,060,685 1994 -- 9,353,364................................... 25,152 23,383 Capital surplus..................................................................... 38,766 35,707 Unrealized gain (loss) on securities available for sale, net........................ 219 (421) Retained earnings................................................................... 66,624 53,574 ------------- ------------- Total shareholders' equity...................................................... 130,761 112,243 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................................... $ 1,570,458 $ 1,333,296 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-1 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ----------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) INTEREST INCOME Loans......................................................................... $ 93,677 $ 59,481 $ 54,159 Securities: Taxable..................................................................... 14,945 13,627 9,292 Exempt from Federal income taxes............................................ 2,381 2,740 2,972 Other interest income......................................................... 4,222 2,124 2,147 ----------- --------- --------- Total interest income....................................................... 115,225 77,972 68,570 ----------- --------- --------- INTEREST EXPENSE Interest on deposits.......................................................... 42,237 21,101 20,305 Interest on borrowed funds.................................................... 729 145 106 ----------- --------- --------- Total interest expense...................................................... 42,966 21,246 20,411 ----------- --------- --------- Net interest income......................................................... 72,259 56,726 48,159 Provision for loan losses..................................................... 1,485 1,895 3,425 ----------- --------- --------- Net interest income after provision for loan losses......................... 70,774 54,831 44,734 ----------- --------- --------- NONINTEREST INCOME Service charges on deposit accounts........................................... 5,625 4,446 4,195 (Loss) gain on sale of securities, net........................................ -- (4) 223 Other operating income........................................................ 3,854 3,064 4,389 ----------- --------- --------- Total noninterest income.................................................... 9,479 7,506 8,807 ----------- --------- --------- NONINTEREST EXPENSE Salaries and employee benefits................................................ 27,872 23,381 21,083 Occupancy..................................................................... 4,635 3,416 3,352 Equipment..................................................................... 3,779 3,313 3,065 Other operating expense....................................................... 14,542 13,890 13,046 ----------- --------- --------- Total noninterest expense................................................... 50,828 44,000 40,546 ----------- --------- --------- Income before provision for income taxes...................................... 29,425 18,337 12,995 Provision for income taxes.................................................... 11,390 6,701 4,206 ----------- --------- --------- NET INCOME.................................................................... $ 18,035 $ 11,636 $ 8,789 ----------- --------- --------- ----------- --------- --------- PER SHARE Net Income.................................................................. $ 1.80 $ 1.24 $ 0.94 ----------- --------- --------- ----------- --------- --------- Weighted average shares outstanding......................................... 10,014 9,365 9,318 ----------- --------- --------- ----------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements. F-2 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE SHARES COMMON CAPITAL RETAINED FOR SALE, OUTSTANDING STOCK SURPLUS EARNINGS NET TOTAL ----------- --------- --------- --------- ------------ ----------- (IN THOUSANDS) BALANCE, DECEMBER 31, 1992.................... 9,279 $ 23,199 $ 32,782 $ 44,669 $ -- $ 100,650 Issuance of stock for dividend reinvestment and stock option plans..................... 127 316 878 1,194 Common stock repurchased.................... (54) (135) (531) (666) Tax benefit of stock options exercised...... 95 95 Cash dividends declared ($0.52 per share)... (4,078) (4,078) Net income.................................. 8,789 8,789 ----------- --------- --------- --------- ------------ ----------- BALANCE, DECEMBER 31, 1993.................... 9,352 23,380 33,755 48,849 -- 105,984 Issuance of stock for dividend reinvestment and stock option plans..................... 139 348 1,767 2,115 Common stock repurchased.................... (138) (345) (1,946) (2,291) Tax benefit of stock options exercised...... 185 185 Payment of merger related fractional shares..................................... (6) (6) Cash dividends declared ($0.55 per share)... (4,959) (4,959) Unrealized loss on securities available for sale, net.................................. (421) (421) Net income.................................. 11,636 11,636 ----------- --------- --------- --------- ------------ ----------- BALANCE, DECEMBER 31, 1994.................... 9,353 23,383 35,707 53,574 (421) 112,243 Equity accounts of immaterial pooling....... 634 1,585 1,528 3,439 4 6,556 Issuance of stock for dividend reinvestment and stock option plans..................... 123 307 1,451 1,758 Common stock repurchased.................... (49) (123) (808) (931) Tax benefit of stock options exercised...... 80 80 Payment of merger related fractional shares..................................... (2) (2) Cash dividends declared ($0.76 per share)... (7,614) (7,614) Unrealized gain on securities available for sale, net.................................. 636 636 Net income.................................. 18,035 18,035 ----------- --------- --------- --------- ------------ ----------- BALANCE, DECEMBER 31, 1995.................... 10,061 $ 25,152 $ 38,766 $ 66,624 $ 219 $ 130,761 ----------- --------- --------- --------- ------------ ----------- ----------- --------- --------- --------- ------------ -----------
The accompanying notes are an integral part of these consolidated financial statements. F-3 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................. $ 18,035 $ 11,636 $ 8,789 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................................ 3,297 2,790 2,582 Provision for loan losses................................................ 1,485 1,895 3,425 Net loss (gain) on sales of securities................................... -- 4 (223) Net gain on sales of premises and equipment and foreclosed assets........ (521) (66) (279) Gain on sale of loans.................................................... (1,496) (1,021) (2,649) Provision for foreclosed assets.......................................... 444 140 179 Net (disbursements) proceeds from sales of mortgages held for sale....... (6,200) 3,744 312 Net change in interest receivable, other assets interest payable and other liabilities....................................................... 2,344 1,607 1,823 ----------- ----------- ----------- Net cash provided by operations.......................................... 17,388 20,729 13,959 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Securities: Held to Maturity: Proceeds from prepayments and maturities............................... 64,625 68,912 73,597 Purchases.............................................................. (56,815) (68,854) (184,041) Available for Sale: Sales.................................................................. 8,838 8,985 13,274 Proceeds from prepayments and maturities............................... 43,245 27,400 22,691 Purchases.............................................................. (46,539) (37,047) (29,502) Loans made to customers less principal payments collected.................. 824 (53,514) 171 Net cash provided by (used in) acquisitions................................ 3,651 (9,299) -- Net change in interest-bearing time deposits............................... -- 300 495 Capital expenditures....................................................... (2,979) (3,154) (2,752) Proceeds from sales of premises and equipment.............................. 17 16 62 Proceeds from sales of foreclosed assets................................... 3,632 1,847 6,006 ----------- ----------- ----------- Net cash provided by (used in) investing activities.................... 18,499 (64,408) (99,999) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in deposits................................................... 76,058 18,586 78,960 Net decrease in borrowed funds............................................. (29,657) (3,500) -- Cash dividends paid........................................................ (6,717) (4,671) (4,078) Proceeds from issuance of common stock for stock options exercised and dividend reinvestment plan................................................ 1,758 2,630 1,194 Repurchase of common stock................................................. (933) (2,291) (666) Payment of merger related fractional shares................................ (2) (6) -- ----------- ----------- ----------- Net cash provided by financing actvities............................... 40,507 10,748 75,410 ----------- ----------- ----------- Net change in cash and cash equivalents.................................... 76,394 (32,931) (10,630) Cash and cash equivalents at beginning of year............................. 81,387 114,318 124,948 ----------- ----------- ----------- Cash and cash equivalents at end of year................................... $ 157,781 $ 81,387 $ 114,318 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of theses consolidated financial statements. F-4 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS -- CONTINUED
YEAR ENDED DECEMBER 31, ----------------------------------- 1995 1994 1993 ----------- ----------- --------- (IN THOUSANDS) Supplemental disclosure of cash flow information Cash paid during the year for: Interest................................................................ $ 42,285 $ 21,199 $ 20,593 Income taxes............................................................ $ 7,058 $ 5,595 $ 5,053 Supplemental disclosure of non-cash activities: Loans transferred to foreclosed assets.................................. $ 3,750 $ 1,181 $ 2,775 Purchase of FCB (1995) and Old Stone (1994): Fair value of assets assumed -- Cash and cash equivalents............................................. $ 15,134 $ 7,401 $ -- Loans, net of allowance............................................... 71,477 250,079 -- Other................................................................. 36,358 23,772 -- ----------- ----------- --------- Total assets........................................................ 122,969 281,252 -- ----------- ----------- --------- Liabilities assumed -- Deposits.............................................................. 105,622 227,358 -- Borrowed funds........................................................ -- 31,747 -- Other................................................................. 1,097 5,447 -- ----------- ----------- --------- Total liabilities................................................... 106,719 264,552 -- ----------- ----------- --------- Cash paid in transaction.................................................. $ 16,250 $ 16,700 $ -- ----------- ----------- --------- ----------- ----------- ---------
The accompanying notes are an integral part of theses consolidated financial statements. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of California Bancshares, Inc. (Company) and subsidiaries are prepared in conformity with generally accepted accounting principles and prevailing practices within the banking industry. The following is a summary of the significant accounting and reporting policies. CONSOLIDATION The consolidated financial statements include the accounts of the Company, its bank subsidiaries (Banks): Alameda First National Bank, The Bank of Milpitas, N.A., The Bank of San Ramon Valley, Centennial Bank, Commercial Bank of Fremont, Community First National Bank, Concord Commercial Bank, Lamorinda National Bank, Modesto Banking Company and Westside Bank; and its non-bank subsidiaries: CBI Mortgage, LNB Corp. and Island Bancorp Leasing, Inc. Significant inter-company accounts and transactions have been eliminated in consolidation. SECURITIES The Company's securities portfolio includes U.S. Treasury securities and other government agency securities, mortgage-backed securities, state, county and municipal securities and Federal Reserve Bank stock. Securities are accounted for according to their purpose and holding period. Realized gains and losses are recorded in noninterest income using the specific identification method. The Company classifies its securities portfolio in accordance with Statement of Financial Accounting Standards No. 115 (SFAS No. 115), "Accounting for Certain Investments in Debt and Equity Securities". Securities are classified as "available for sale" when the Company intends to hold the securities for an indefinite period of time. These securities are carried at fair value, with unrealized gains or losses, net of applicable taxes, reported as a separate component of shareholders' equity. Declines in the value of securities that are considered other than temporary are recorded in noninterest income as a loss on securities. Securities acquired with the positive intent and ability to hold to maturity are classified as "held to maturity". These securities are carried at historical cost, adjusted for amortization of premium and accretion of discount to maturity or, in the case of mortgage-backed securities, over the estimated life of the security. LOANS Loans held for investment are stated at the principal amount outstanding less unearned income, while loans held for sale are carried at the lower of cost or market on an aggregate basis. Market is based upon quoted market rates. Interest income on loans, other than discounted loans, is accrued daily based on the outstanding loan balance. Interest income on discounted loans is accrued based on a method that approximates the interest method. All nonrefundable loan origination fees, net of related costs, are deferred and amortized, using the interest method, over the term of the loan. It is management's policy to place a loan on nonaccrual status when principal or interest is past due for 90 days (unless the loan is well secured and in the process of collection). Classification of a loan as nonaccrual does not necessarily indicate the loan is not performing with respect to collection of principal and interest nor does it mean that the principal of the loan is uncollectible in whole or in part. A loan may also be classified as nonaccrual if the borrower's financial condition deteriorates resulting in uncertainty as to the amounts or timing of future cash flows to service the loan. This can occur regardless of whether the loan is performing according to its contractual terms. From the time a loan is placed on nonaccrual status, interest is recorded only when cash is received, and any interest income previously accrued but not collected is reversed. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level adequate to cover potential losses which may exist in the portfolio. The evaluation of the allowance is an ongoing process involving many factors including current and projected economic conditions, portfolio composition and prior loss experience. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks' allowances based on their judgment of information available to them at the time of their examination. On January 1, 1995, the Company adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118 (collectively referred to as SFAS No. 114), on a prospective basis. These Statements address the accounting treatment of certain impaired loans and amend SFAS No. 5 and 15. However, these Statements do not address the overall adequacy of the allowance for loan losses and do not apply to large groups of smaller-balance homogeneous loans unless they have been involved in restructuring. A loan is considered impaired, within the scope of SFAS No. 114, when based on current information and events, it is probable that the Company will be unable to collect principal or interest due according to the contractual terms of the loan. For a loan that has been restructured the contractual terms of the loan refer to the contractual terms of the original loan agreement. The Company measures the impairment of a loan when and while a loan is on nonaccrual or the loan has been restructured. The amount of impairment is calculated by the Company using discounted cash flows, except when the source of repayment for the loan is through the liquidation of the underlying collateral. For these loans, the net realizable value of the collateral (current fair value less estimated costs to sell) is used in place of discounted cash flows. If the measurement of the impaired loan is less than the recorded investment in the loan, the Company recognizes such impairment by creating or adjusting the existing allowance for loan losses. If full collection is uncertain, cash receipts are applied first to principal, then to recovery of amounts previously charged off, then to interest income. The following table presents the recorded investment in impaired loans and the related SFAS No. 114 allowance for loan losses at December 31, 1995:
RELATED SFAS RECORDED NO. 114 INVESTMENT IN ALLOWANCE FOR IMPAIRED LOANS LOAN LOSSES -------------- ------------- (IN THOUSANDS) Impaired loans with a required allowance....................... $ 3,177 $ 771 Impaired loans not requiring an allowance...................... 9,196 -- -------------- ----- Total...................................................... $ 12,373 $ 771 -------------- ----- -------------- -----
The Company's average investment in impaired loans during 1995 was $10.8 million. FORECLOSED ASSETS Foreclosed assets are recorded in other assets at the lower of cost or fair value less estimated costs to sell. Fair value is determined by independent appraisals. Upon foreclosure any necessary writedowns are charged to the allowance for loan losses. Any subsequent writedowns to the carrying value that may be required are charged to operations and recorded in a valuation reserve. Expenses for holding costs are charged to operations as incurred. At December 31, 1995 and 1994, the Company had $3.2 million and $2.4 million, respectively, in foreclosed assets. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PREMISES AND EQUIPMENT Premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the related assets, which are generally between three and thirty years, or the lease term. Cost of improvements are capitalized. Maintenance, repairs and minor improvements are expensed as incurred. INCOME TAXES The Company and its subsidiaries file a consolidated Federal tax return and a combined California franchise tax return. Income taxes are calculated by individual subsidiaries as though each subsidiary had filed a separate return. Payments or refunds between the Company and its subsidiaries are made on this basis. The Company computes its income taxes for financial statement purposes using the asset and liability method. Under the asset/liability method deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial reporting and tax reporting bases of assets and liabilities, as well as for operating losses and tax credit carryforwards, using enacted tax laws and rates. Deferred tax expense represents the net change in the deferred tax asset or liability balance during the year. This amount, together with income taxes currently payable or refundable for the current year, represents the total income tax expense for the year. BENEFIT PLANS The Company and its subsidiaries have a profit sharing-salary deferral plan which covers substantially all employees with one year of continuous service. Contributions to the profit sharing portion of the plan are made at the discretion of the Board of Directors. In the salary deferral portion of the plan, the Company matches one-half of the employee's 401(k) plan contributions up to 2% of their annual salary. PER SHARE CALCULATIONS Earnings per common share are calculated using the weighted average number of common shares outstanding during the years presented. Exercise of outstanding stock options would not have had a material dilutive effect on earnings per share. CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks and federal funds sold. Generally, federal funds sold are sold for one business day. GOODWILL Goodwill, which represents the excess of purchase price over fair value of net assets acquired is amortized on a straight line basis over the expected periods to be benefited, generally five to fifteen years. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operations. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. Negative goodwill, which represents the excess of the fair value of net assets acquired over the purchase price, is accreted to income on a straight line basis over five years. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts for prior years have been reclassified to conform with the 1995 presentation. (2) ACQUISITIONS On June 30, 1995, the Company acquired all of the outstanding shares of First Community Bankshares, Inc. (FCB), the holding company for Centennial Bank. FCB had assets of $118 million at June 30, 1995. This acquisition was accounted for as a purchase and accordingly, the results of operations, which are not material to the consolidated financial statements, are included in the Company's consolidated financial statements from the acquisition date. FCB's assets and liabilities were revalued to reflect the estimated fair value at the time of acquisition. The total cost of the acquisition was $16.25 million in cash. The excess of the purchase price over fair value of net assets acquired was $5.1 million. On January 31, 1995, the Company completed the acquisition of Bank of Livermore (Livermore), which was subsequently merged with another of the Company's subsidiaries. Livermore had $71 million in total assets at December 31, 1994. The Company issued 633,908 shares of common stock valued at approximately $10.9 million at the time of the transaction. The acquisition of Livermore was accounted for as a pooling-of-interests. Livermore is not material to the financial condition or operating results of the Company, and therefore, prior period balances were not restated. However, 1995 amounts were adjusted to reflect the transaction as if it had occurred January 1, 1995. On December 2, 1994, the Company acquired Old Stone Bank of California, F.S.B. (Old Stone). The transaction was a taxable acquisition of all of the outstanding stock of Old Stone by a subsidiary bank of the Company. The consideration for the purchase was $16.7 million paid in cash at closing. The acquisition was recorded under the purchase method of accounting and accordingly, the Company's consolidated financial statements include Old Stone's results of operations beginning December 2, 1994. Old Stone's assets and liabilities were revalued to reflect the estimated fair value at the time of acquisition. The purchase accounting valuations resulted in negative goodwill in the amount of $3.4 million, which will amortize over a five year period. On March 31, 1994, the Company acquired MBC Corp. (MBC) and its banking subsidiary, Modesto Banking Company. Each share of MBC common stock outstanding on March 31, 1994, was converted into .7271 shares of the Company's common stock. The Company issued approximately 1,478,000 shares of common stock and cash in lieu of fractional shares for all of the outstanding shares of MBC. The consolidated financial statements of the Company give effect to the merger, which has been accounted for as a pooling-of-interests. Accordingly, the accounts of MBC have been combined with those of the Company for all periods presented. F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) SECURITIES The amortized cost and estimated market values of securities at December 31, 1995 and 1994 are as follows:
SECURITIES AVAILABLE FOR SALE --------------------------------------------- ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (IN THOUSANDS) December 31, 1995 U.S. Treasury securities........................................ $ 20,332 $ 171 $ (28) $ 20,475 Securities of U.S. Government agencies and corporations......... 50,759 249 (60) 50,948 Obligations of states and political subdivisions................ 1,178 41 -- 1,219 Federal Reserve stock........................................... 1,234 -- -- 1,234 --------- ----- ---------- --------- Total......................................................... $ 73,503 $ 461 $ (88) $ 73,876 --------- ----- ---------- --------- --------- ----- ---------- --------- December 31, 1994 U.S. Treasury securities........................................ $ 45,591 -- $ (651) $ 44,940 Securities of U.S. Government agencies and corporations......... 5,464 -- (70) 5,394 Federal Reserve stock........................................... 1,092 -- -- 1,092 --------- ----- ---------- --------- Total......................................................... $ 52,147 $ -- $ (721) $ 51,426 --------- ----- ---------- --------- --------- ----- ---------- ---------
SECURITIES HELD TO MATURITY --------------------------------------------- ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- --------- (IN THOUSANDS) December 31, 1995 U.S. Treasury securities..................................... $ 63,300 $ 366 $ (186) $ 63,480 Securities of U.S. Government agencies and corporations...... 150,989 563 (865) 150,687 Obligations of states and political subdivisions............. 50,113 1,194 (49) 51,258 Other securities............................................. 150 -- -- 150 --------- ---------- ---------- --------- Total...................................................... $ 264,552 $ 2,123 $ (1,100) $ 265,575 --------- ---------- ---------- --------- --------- ---------- ---------- --------- December 31, 1994 U.S. Treasury securities..................................... $ 74,050 $ 4 $ (3,381) $ 70,673 Securities of U.S. Government agencies and corporations...... 109,787 10 (8,111) 101,686 Obligations of states and political subdivisions............. 61,997 347 (1,374) 60,970 Other securities............................................. 150 -- -- 150 --------- ---------- ---------- --------- Total...................................................... $ 245,984 $ 361 $ (12,866) $ 233,479 --------- ---------- ---------- --------- --------- ---------- ---------- ---------
F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (3) SECURITIES (CONTINUED)
SECURITIES HELD TO SECURITIES AVAILABLE FOR SALE MATURIIY -------------------- -------------------- ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE --------- --------- --------- --------- (IN THOUSANDS) Due in one year or less......................................... $ 16,008 $ 16,027 $ 48,063 $ 48,203 Due after one year through five years........................... 25,230 25,198 80,390 81,077 Due after five years through ten years.......................... 13,441 13,497 25,110 25,879 Due after ten years............................................. 3,133 3,235 2,015 2,034 --------- --------- --------- --------- 57,812 57,957 155,578 157,193 Mortgage-backed securities...................................... 15,691 15,919 108,974 108,382 --------- --------- --------- --------- Total....................................................... $ 73,503 $ 73,876 $ 264,552 $ 265,575 --------- --------- --------- --------- --------- --------- --------- ---------
Proceeds from sales of securities during 1995, 1994 and 1993 were $8.8 million, $9.0 million and $13.3 million, respectively. Securities carried at approximately $44.9 million and $48.5 million, at December 31, 1995 and 1994, respectively, were pledged to collateralize public deposits and other deposits as required by law. (4) LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of the major categories of the loan portfolio at December 31, 1995 and 1994 is shown in the following table. Most of the Company's business activity is with customers located within Northern California. The majority of the Company's portfolio of real estate construction and land development loans consisted of loans to contractors who specialize in single family residential construction. Real estate mortgages encompass a variety of real estate secured loans, including residential mortgage loans and commercial loans secured by real estate. Commercial, industrial and agricultural loans are unsecured and secured loans and lines of credit for the operation and expansion needs of business, including inventory, agricultural production, accounts receivable and equipment. Consumer loans are primarily automobile loans. The following is a summary of loans by category:
DECEMBER 31, -------------------------- 1995 1994 ------------- ----------- (IN THOUSANDS) Real estate -- Construction and land development................................................... $ 125,837 $ 99,975 Mortgage............................................................................ 573,810 533,731 Loans held for sale................................................................. 7,468 1,268 Commercial, industrial and agricultural............................................... 183,930 159,266 Consumer.............................................................................. 143,515 123,030 ------------- ----------- 1,034,560 917,270 Unearned income....................................................................... (3,780) (3,794) ------------- ----------- 1,030,780 913,476 Allowance for loan losses............................................................. (14,836) (12,822) ------------- ----------- Loans, net.......................................................................... $ 1,015,944 $ 900,654 ------------- ----------- ------------- -----------
F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (4) LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED) The following is a summary of transactions in the allowance for loan losses account:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Balance beginning of year...................................................... $ 12,822 $ 11,547 $ 9,855 --------- --------- --------- Loan losses.................................................................... (2,728) (3,702) (3,742) Recoveries..................................................................... 919 610 897 --------- --------- --------- Net loan losses.............................................................. (1,809) (3,092) (2,845) Provision charged to expense................................................... 1,485 1,895 3,425 Allowance related to acquisitions.............................................. 2,338 2,472 1,112 --------- --------- --------- Balance, end of year........................................................... $ 14,836 $ 12,822 $ 11,547 --------- --------- --------- --------- --------- ---------
The Company had nonaccrual and restructured loans of $14.9 million, $13.0 million and $11.4 million at December 31, 1995, 1994 and 1993, respectively. Foregone interest was $1.2 million, $665,000 and $670,000 for the related periods. (5) PREMISES AND EQUIPMENT The following is a summary of the major classifications of premises and equipment:
DECEMBER 31, ------------------------ 1995 1994 ------------ ---------- (IN THOUSANDS) Land................................................................................... $ 3,814 $ 3,090 Premises and leasehold improvements.................................................... 19,900 16,875 Furniture and equipment................................................................ 16,705 16,064 ------------ ---------- Total................................................................................ 40,419 36,029 Accumulated depreciation and amortization.............................................. (20,379) (18,700) ------------ ---------- Net book value....................................................................... $ 20,040 $ 17,329 ------------ ---------- ------------ ----------
The Company leases certain premises under agreements expiring between the years 1996 and 2015. Future minimum rental payments as of December 31, 1995 are as follows:
(IN THOUSANDS) -------------- 1996.................................................................................... $ 2,093 1997.................................................................................... 1,803 1998.................................................................................... 1,721 1999.................................................................................... 1,611 2000.................................................................................... 1,347 Thereafter.............................................................................. 7,404 -------------- Total............................................................................... $ 15,979 -------------- --------------
Rental expense included in occupancy expense for 1995, 1994 and 1993 was $1.5 million, $1.1 million and $973,000 (net of rental income of $736,000, $624,000 and $666,000), respectively. F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INCOME TAXES The provision for income taxes reflected in the consolidated statement of income consisted of the following:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Current Federal............................................................... $ 5,235 $ 5,063 $ 3,494 State................................................................. 2,201 2,084 1,415 --------- --------- --------- 7,436 7,147 4,909 --------- --------- --------- Deferred Federal............................................................... 2,844 (549) (643) State................................................................. 1,110 103 (60) --------- --------- --------- 3,954 (446) (703) --------- --------- --------- Total............................................................... $ 11,390 $ 6,701 $ 4,206 --------- --------- --------- --------- --------- ---------
The provision for income taxes differs from the amount computed by applying the statutory Federal income tax rate to income before taxes. The reasons for these differences are as follows:
PERCENTAGE OF PRETAX INCOME --------------------- 1995 1994 1993 ----- ----- ----- Federal income tax based on statutory tax rate.......................... 35.0 35.0 35.0 Increase (decrease) resulting from: California franchise tax, net of Federal benefit...................... 7.3 7.7 7.1 Interest on state and municipal securities not taxable for Federal income tax purposes.................................................. (3.3) (6.6) (9.1) Nondeductible merger expenses......................................... -- 1.0 0.5 Other, net............................................................ (0.3) (0.6) (1.1) ----- ----- ----- Total............................................................... 38.7 36.5 32.4 ----- ----- ----- ----- ----- -----
At December 31, 1995, accrued taxes were comprised of current taxes payable of $786,000 and deferred tax assets of $11.4 million. At December 31, 1994, accrued taxes consisted of current taxes payable of $819,000 and deferred tax assets of $13.9 million. F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INCOME TAXES (CONTINUED) Significant components of deferred tax assets are presented below:
DECEMBER 31, -------------------- 1995 1994 --------- --------- (IN THOUSANDS) Deferred Tax Assets: Allowance for loan losses................................................................ $ 5,802 $ 5,135 Net operating loss carryforward.......................................................... 3,297 3,297 Loan origination fees.................................................................... 132 120 California franchise taxes............................................................... 167 -- Foreclosed assets........................................................................ 340 282 Deferred compensation.................................................................... 362 332 Available for sale securities............................................................ -- 300 Loans.................................................................................... 372 366 Fixed assets............................................................................. 994 1,389 Real estate investment reserves.......................................................... 51 3,799 Amortization of intangibles.............................................................. 176 -- Acquisition costs........................................................................ 232 144 Other.................................................................................... -- 20 --------- --------- Gross deferred tax assets.............................................................. 11,925 15,184 Less valuation allowance............................................................... -- (317) --------- --------- Total deferred tax assets.............................................................. 11,925 14,867 --------- --------- Deferred Tax Liabilities: California franchise taxes............................................................... -- (125) Amortization of intangibles.............................................................. -- (184) Available for sale securities............................................................ (173) -- Excess servicing......................................................................... -- (295) Deposits................................................................................. (220) (389) Other.................................................................................... (95) -- --------- --------- Total deferred tax liabilities......................................................... (488) (993) --------- --------- Net deferred tax assets................................................................ $ 11,437 $ 13,874 --------- --------- --------- ---------
Amounts for the current year are based upon estimates and assumptions as of the date of this report and could vary significantly from amounts shown on the tax returns as filed. Accordingly, the variances from the amounts previously reported for 1994 are primarily a result of adjustments to conform to tax returns as filed. As indicated in Note 2, Acquisitions, the Company completed the acquisition of Old Stone in 1994 and Livermore and FCB in 1995. In connection with these acquisitions, cumulative temporary differences reflecting the difference between the tax basis and assigned values of assets and liabilities resulted in net deferred tax assets of $9.0 million, $750,000 and $870,000 for Old Stone, Livermore and FCB, respectively, being recorded on the balance sheet. During 1995, management evaluated the deferred tax assets recognized under SFAS 109 and determined that the valuation allowance of $317,000 established in connection with the acquisition of Old Stone was no longer necessary. It is currently anticipated that the total amount of deferred tax assets are more likely than not to be realized through recovery of previously paid federal taxes and by claiming deductions against future taxable income. The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose substantial restrictions on the utilization of net operating loss carryforwards if an "ownership change", as F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) INCOME TAXES (CONTINUED) defined in the Internal Revenue Code, has occurred. Accordingly, the Company has determined its ability to utilize its net operating loss carryforwards pursuant to the limitations set forth in the Code resulting from the acquisition of Old Stone. At December 31, 1995, the Company had approximately $3.3 million of deferred tax assets related to that portion of net operating loss carryforwards which are expected to be utilized through the year 2005. During 1995, the Company agreed to pay additional tax assessments proposed by the California Franchise Tax Board principally related to the tax treatment of direct financing leases in its tax returns for the years 1977 through 1979, 1983 and 1984. The resolution of the dispute did not have a material effect on the Company's financial position. (7) STOCK OPTION PLANS The Company grants options to purchase shares of its common stock to officers and key employees through a stock incentive plan (employee plan). In addition, the Company offers options to purchase shares of common stock to directors of the Company and its subsidiaries (director plan). Options granted under both plans are protected against dilution by stock splits and other changes in capitalization. Options awarded under the two plans by the Board of Directors allow the recipients to purchase shares of the Company's common stock at a price not less than the fair market value of the stock at the time the option is granted. The employee plan reserved 2,126,231 shares for issuance and had 1,418,628 shares available for grant at December 31, 1995 while the director plan reserved 262,760 shares for issuance and had 28,528 shares available for grant at December 31, 1995. The following is a summary of changes in employee and director plan options outstanding.
NUMBER OF OPTIONS OPTION PRICE ----------- ------------------ Balance, December 31, 1993........................................................ 561,439 $ 5.50 - $21.07 Exercised......................................................................... (90,554) 5.50 - 13.50 Forfeited......................................................................... (33,574) 7.54 - 21.07 Granted........................................................................... 187,750 15.50 - 17.00 ----------- ------------------ Balance, December 31, 1994........................................................ 625,061 5.50 - 21.07 Exercised......................................................................... (62,820) 5.50 - 20.10 Forfeited......................................................................... (15,008) 13.50 - 19.56 Granted........................................................................... 101,000 18.25 Livermore Exchange................................................................ 29,321 7.33 ----------- ------------------ Balance, December 31, 1995........................................................ 677,554 $ 5.50 - $21.07 ----------- ------------------ ----------- ------------------
Of the 677,554 options outstanding 324,144 are currently exercisable. In addition to options, the employee plan allows for awards of restricted shares, stock units and stock appreciation rights. No such awards have been granted. (8) EMPLOYEE BENEFITS The Company has a profit sharing/salary deferral plan. The Company contributed $660,000, $594,000 and $440,000 to the plan in 1995, 1994 and 1993, respectively. In October 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation". This Statement establishes an alternative method for accounting for stock based-compensation plans and encourages employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion (APB No. 25), "Accounting for Stock Issued to Employees". SFAS No. 123 establishes a F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (8) EMPLOYEE BENEFITS (CONTINUED) fair value based accounting method for stock-based compensation arrangements. Companies may continue to apply the accounting provisions of APB No. 25 in determining net income; however, they must apply the disclosure requirements of SFAS No. 123. The recognition provisions may be adopted immediately and apply to all awards granted after the beginning of the fiscal year in which the recognition provisions are first applied. The disclosure requirements of this Statement are effective January 1, 1996. Management believes the adoption of this Statement will not have a material effect on the financial condition of the Company. (9) OTHER OPERATING EXPENSE Components of other operating expense, including all expense categories which exceeded one percent of total operating income in at least one of the periods presented are outlined below:
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Regulatory expense................................................... $ 2,102 $ 2,502 $ 2,281 Banking forms and stationery......................................... 1,495 1,197 1,092 Communications expense............................................... 1,784 1,359 1,243 Outside data processing expense...................................... 786 637 960 Legal expense........................................................ 548 567 653 Foreclosed assets expense, net....................................... 297 200 240 Consultant fees...................................................... 497 528 671 Courier service...................................................... 978 805 581 Promotional expense.................................................. 827 1,010 877 Other................................................................ 5,228 5,085 4,448 --------- --------- --------- Total other operating expense.................................... $ 14,542 $ 13,890 $ 13,046 --------- --------- --------- --------- --------- ---------
(10) REGULATORY RESTRICTIONS The Company is subject to regulation under the Bank Holding Company Act of 1956 and to regulation by the Federal Reserve Board. The regulations require the maintenance of cash reserve balances at the Federal Reserve Bank and limit the extension of credit to affiliates by the Banks. The average reserve balance maintained in accordance with such requirements for the years ended December 31, 1995 and 1994 was $9.6 million and $9.2 million, respectively. The Banks are also restricted by banking regulations that limit the transfer of funds by the Banks to the Company and its nonbank subsidiaries including dividends that can be paid to the Company. At December 31, 1995, the Banks could pay dividends of $5.5 million (subject to minimum capital and other requirements) without prior written approval of banking regulators. The Banks' combined shareholders' equity at December 31, 1995 was $116.3 million. The Banks are subject to regulation by the Federal Reserve Board and the Office of the Comptroller of the Currency, as well as the California State Banking Department and the FDIC. Each of the Banks' deposits are insured by the Federal Deposit Insurance Corporation up to the maximum limits allowed. (11) COMMITMENTS AND CONTINGENCIES In the normal course of business there are outstanding various commitments to extend credit, letters of credit and contingent liabilities that are not reflected in the consolidated financial statements. While no related losses are anticipated, such instruments do involve elements of credit and interest rate risk in excess of amounts recorded in the consolidated balance sheet. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (11) COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 amount does not necessarily represent future cash requirements. Standby and commercial letters of credit are written conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Letters of credit have fixed expiration dates and require payment of a fee. When making commitments or issuing letters of credit, the Banks evaluate each customer's creditworthiness on a case-by-case basis. The same credit policies are used in making commitments and conditional obligations as are used for on-balance sheet instruments. The Banks control the credit risk of these transactions through credit approvals, credit limits, and monitoring procedures. The amount of collateral obtained, if deemed necessary, is based on management's credit evaluation of the customer. Exposure to credit loss, in the event of nonperformance by the other party to the financial instrument, for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. Approximate amounts of these financial instruments are summarized below:
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (IN THOUSANDS) Commitments to extend credit............................................................ $ 249,753 $ 195,217 Standby letters of credit............................................................... 10,554 5,837
(12) CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY) The Balance Sheet, Statement of Income and Statement of Cash Flows for California Bancshares, Inc. (Parent Company Only) are shown below: BALANCE SHEET
DECEMBER 31, ------------------------ 1995 1994 ----------- ----------- (IN THOUSANDS) Assets Cash and cash equivalents............................................................... $ 8,852 $ 5,475 Premises and equipment, net............................................................. 2,266 2,305 Investments in subsidiaries at equity in net assets: Bank.................................................................................. 116,252 104,656 Non-bank.............................................................................. 633 1,142 Other assets............................................................................ 7,096 1,507 ----------- ----------- Total Assets........................................................................ $ 135,099 $ 115,085 ----------- ----------- ----------- ----------- Liabilities and Shareholders' Equity Dividends payable....................................................................... $ 2,209 $ 1,312 Other liabilities....................................................................... 2,129 1,530 ----------- ----------- Total Liabilities................................................................... 4,338 2,842 ----------- ----------- Shareholders' Equity.................................................................... 130,761 112,243 ----------- ----------- Total Liabilities and Shareholders' Equity.......................................... $ 135,099 $ 115,085 ----------- ----------- ----------- -----------
F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (12) CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED) STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS) Income Dividends from subsidiaries: Bank.......................................................................... $ 27,340 $ 4,941 $ 3,688 Non-bank...................................................................... -- 185 -- Interest from subsidiaries...................................................... 157 208 314 Management fees from subsidiaries............................................... 11,350 9,138 7,875 Other income.................................................................... 148 156 13 --------- --------- --------- Total income................................................................ 38,995 14,628 11,890 --------- --------- --------- Expense Interest expense................................................................ -- 89 111 Other expense................................................................... 13,912 11,893 9,092 --------- --------- --------- Total expense............................................................... 13,912 11,982 9,203 --------- --------- --------- Income before provision for income taxes and equity in undistributed income of subsidiaries................................................................. 25,083 2,646 2,687 Allocated income tax benefit.................................................... 776 832 292 --------- --------- --------- Income before equity in undistributed income of subsidiaries.................. 25,859 3,478 2,979 Equity in undistributed income of subsidiaries: Bank.......................................................................... (7,315) 8,608 5,770 Non-bank...................................................................... (509) (450) 40 --------- --------- --------- Net income.................................................................. $ 18,035 $ 11,636 $ 8,789 --------- --------- --------- --------- --------- ---------
F-18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (12)CALIFORNIA BANCSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED) STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------- 1995 1994 1993 ---------- --------- ---------- (IN THOUSANDS) Cash flows from operating activities: Net income................................................................... $ 18,035 $ 11,636 $ 8,789 Adjustments to reconcile net income to net cash provided from operations: Net change in other assets and other liabilities........................... (34) 700 674 Goodwill amortization...................................................... 254 81 81 Depreciation and amortization.............................................. 828 669 389 Equity in undistributed income of subsidiaries............................. 7,824 (8,158) (5,810) ---------- --------- ---------- Net cash provided by operations.............................................. 26,907 4,928 4,123 ---------- --------- ---------- Cash flows from investing activities: Capital contribution to subsidiary........................................... (600) -- -- Cash used in acquisition..................................................... (16,250) -- -- Capital expenditures......................................................... (789) (1,565) (807) Proceeds from sales of premises and equipment................................ 3 5 37 Principal payments collected on loans to non-bank subsidiary................. -- 2,420 22,210 Principal payments collected on loans to bank subsidiary..................... -- 1,500 -- Loans made to non-bank subsidiary............................................ -- (1,870) (21,900) ---------- --------- ---------- Net cash (used in) provided by investing activities...................... (17,636) 490 (460) ---------- --------- ---------- Cash flows from financing activities: Repayment of debt............................................................ -- (1,500) -- Proceeds from the issuance of stock for stock option and dividend reinvestment plans.......................................................... 1,758 2,115 1,194 Repurchase of common stock................................................... (933) (2,291) (666) Payment of merger related fractional shares.................................. (2) (6) -- Cash dividends paid.......................................................... (6,717) (4,671) (4,078) ---------- --------- ---------- Net cash used in financing activities.................................... (5,894) (6,353) (3,550) ---------- --------- ---------- Net change in cash and cash equivalents.................................. 3,377 (935) 113 Cash and cash equivalents at beginning of year............................... 5,475 6,410 6,297 ---------- --------- ---------- Cash and cash equivalents at end of year..................................... $ 8,852 $ 5,475 $ 6,410 ---------- --------- ---------- ---------- --------- ----------
For purposes of reporting cash flows, cash and cash equivalents are comprised solely of cash on deposit with the subsidiary banks. F-19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, ---------------------------------------------------------- 1995 1994 ---------------------------- ---------------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------- ------------- ------------- ------------- (IN THOUSANDS) Financial assets: Cash and short term investments.................... $ 157,781 $ 157,781 $ 81,387 $ 81,387 Securities available for sale...................... 73,876 73,876 51,426 51,426 Securities held to maturity........................ 264,552 265,575 245,984 233,479 Loans.............................................. 1,015,944 1,035,356 900,654 895,168 Financial liabilities: Deposits........................................... 1,425,895 1,430,199 1,179,717 1,174,796 Other borrowings................................... 90 90 29,747 29,747 Off balance sheet: Commitments to extend credit....................... 1,406 1,406 2,015 2,015 Standby letters of credit.......................... 54 54 8 8
These estimated fair values do not necessarily represent actual amounts that may be realized upon any sale or liquidation of the related assets or liabilities. In addition, these values do not give effect to discounts to fair value which may occur when financial instruments are sold in large quantities. The fair value presented above represent the Company's best estimate of fair value using the following methodologies: CASH AND SHORT TERM INVESTMENTS For cash and short term investments, the carrying amount is a reasonable estimate of fair value. SECURITIES For securities available for sale and held to maturity, fair values are primarily based on quoted market prices. LOANS The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. DEPOSIT LIABILITIES The fair value of noninterest-bearing and interest-bearing demand accounts, savings accounts and money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, and the present credit worthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. F-20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (14) PROPOSED ACQUISITION OF CALIFORNIA BANCSHARES, INC. BY U.S. BANCORP On February 11, 1996, the Company signed a definitive agreement for U.S. Bancorp to acquire the Company. Under the terms of the agreement, which is subject to approval by regulators and the Company's shareholders, the Company will be merged into U.S. Bancorp, and each share of the Company's common stock will be converted into .95 shares of U.S. Bancorp common stock. The total value, which can change based on U.S. Bancorp's stock price, is approximately $327 million, or $32.53 for each share of the Company's common stock, based on U.S. Bancorp's closing price of $34.25 on the last trading day preceding the announcement of the agreement. In connection with the agreement, the Company granted U.S. Bancorp an option to acquire 19.9% of the Company's stock, which could become exercisable under certain circumstances. The proposed transaction is expected to be accounted for using the purchase method of accounting and is expected to be completed during the second half of 1996. F-21 INDEPENDENT AUDITORS' REPORT KPMG PEAT MARWICK LLP The Board of Directors and Shareholders of California Bancshares, Inc.: We have audited the accompanying consolidated balance sheet of California Bancshares, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statement of income, changes in shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. 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. 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 California Bancshares, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Oakland, California January 17, 1996, except as to Note 14, which is as of February 12, 1996 F-22 EX-3.4 2 EXHIBIT 3.4 EXHIBIT 3.4 It was duly moved, seconded, and unanimously passed, to adopt the following resolutions amending CBI's By-Laws to eliminate the two nominating committees: RESOLUTIONS OF BOARD OF DIRECTORS OF CALIFORNIA BANCSHARES, INC. WHEREAS, the By-Laws of California Bancshares, Inc. (the "Corporation ") provide for two nominating committees to nominate candidates for the Board of Directors; WHEREAS, the Board of Directors no longer deems necessary to have two nominating committees; NOW, THEREFORE, IT IS HEREBY RESOLVED that Article III, Section 1, Paragraph Sixth of the By-Laws is amended by deleting therefrom the phrase "and the below defined Nominating Committees." FURTHER RESOLVED that Article III, Section 1 of the By-Laws is hereby amended by deleting Paragraph Seven, providing for two nominating committees, in its entirety. FURTHER RESOLVED that Article III, Section 15 of the By-Laws, providing for the designation, nomination of members and operation of two nominating committees, is deleted in its entirety and shall be replaced by the designation "SECTION 15 (Intentionally Omitted)." FURTHER RESOLVED that Article III, Section 17, Paragraph (b)(vii) of the By-Laws is deleted in its entirety. FURTHER RESOLVED that Article III, Section 17, Paragraph (b)(viii) of the By-Laws is redesignated Paragraph (b)(vii) and amended by deleting the phrase "or any member of either of the nominating Committees." FURTHER RESOLVED that Article III, Section 17, Paragraph (b)(ix) of the By-Laws is redesignated Paragraph (b)(viii) and is amended by deleting the phrases "or Seventh" and "Section 15." WHEREAS, Article III, Section 2 of the By-Laws provides for 18 directors, and the Board of the Directors desires to act with 12 directors; IT IS HEREBY RESOLVED that Article III, Section 2 is hereby amended so that the first sentence of the section reads as follows: "The authorized number of directors shall be twelve (12)." Certified: March 15, 1995 /s/Diane Mietzel - ---------------- Diane Mietzel Secretary CERTIFICATE OF SECRETARY The undersigned hereby certifies as follows: 1. I am the duly appointed and acting Secretary of California Bancshares, Inc. (the "Corporation"). 2. The resolutions attached to this Certificate have been duly adopted by a two-thirds majority of the Board of Directors as required by the By- Laws of the Corporation, are in full force and effect and have not been modified or rescinded as of the date of this Certificate. Dated: March 15, 1995. -------------- ----------------------------------- Secretary ANNEX D ANNEX D SECRETARY'S CERTIFICATE The undersigned, Secretary of Northern California Community Bancorporation, Inc., hereby certifies that the following is a true and correct copy of certain amendments to the By-Laws of said corporation which were approved by the Board of Directors of said corporation on January 16, 1991 at a meeting duly held at which a quorum was present, and by the stockholders of said corporation on May 8, 1991 at a meeting duly held at which a quorum was present. AMENDMENT OF BY-LAWS 1. Paragraph Sixth of Article III, Section I is hereby amended in its entirety to read as follows: "SIXTH, to appoint an executive committee (the "Executive Committee") and such other committees as the board of directors deems necessary or appropriate, and to delegate to the Executive Committee certain of the powers and authority of the board in the management of the business and affairs of the corporation, as provided and subject to the limitations set forth in Article III, Section 16 of these By-Laws. The proceedings of the Executive Committee shall be conducted as hereinafter provided in these By- Laws. The proceedings of any other committees appointed by the board of directors shall be conducted as prescribed by the board of directors." 2. The following Paragraph Seventh is hereby appended to the end of Article III, Section I (deleted in its entirety): 3. Article III, Section 2 is hereby amended in its entirety to read as follows: SECTION 2. NUMBER OF DIRECTORS. The authorized number of directors shall be eleven (11). 4. Article III, Section 10 is hereby amended in its entirety to read as follows: "SECTION 10. QUORUM. A majority of the authorized number of directors shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided." 5. The following Sections 15, 16 and 17 are hereby appended to the end of Article III: SECTION 16. EXECUTIVE COMMITTEE. (A) POWERS AND AUTHORITY. The Executive Committee shall exercise all of the powers and authority of the board of directors in the management of the business and affairs of the corporation, provided, however, that the Executive Committee shall not take any of the following actions unless the board of directors shall approve of such action in advance (such approval to be in accordance with Section 17 hereof): (i) declare a dividend or authorize the issuance of stock; (ii) create any other committees; (iii) nominate, appoint or remove any members of or fill any vacancies on the board or any other committee of the corporation or any of its subsidiaries; (iv) fix or change the compensation of any Executive Officer (as defined below), director or committee member of the corporation or any of its subsidiaries; Certified: November 18, 1995 /s/ Diane Mietzel - ----------------- Diane Mietzel (v) terminate or approve the employment of any Executive Officer of the corporation or any of its subsidiaries; (vi) authorize the officers of the corporation to execute any agreement by or on behalf of the corporation other than in the ordinary course of business; (vii) amend or repeal any resolution of the board which is by its terms not so amendable or repealable; (viii) amend the By-Laws of the corporation; (ix) take any of the actions set forth in Article 111, Section 17 of the By-Laws; or (x) terminate the engagement of the corporation's outside counsel or public accountants, or engage any new outside counsel or public accountants. Notwithstanding the foregoing, the board of directors, by resolutions adopted from time to time, may further limit or expand the power and authority of the Executive Committee as the board deems necessary appropriate or advisable. For purposes of this Section 16, "Executive Officer" shall be deemed to refer to (i) the following officers of the corporation: the president, chairman of the board, chief executive officer, chief financial officer, each executive vice president and each senior vice president; and (ii) the president of each subsidiary of the corporation. (B) NUMBER AND TERM OF MEMBERS. The Executive Committee shall be composed of six members, who shall be directors of the corporation. In the event of any amendment of the immediately preceding sentence to provide for a greater or lesser number of members on the Executive Committee, the authorized number of members shall continue to be an even number. The members of the Executive Committee shall be appointed for a term of two years. Each Executive Committee member shall hold office until the expiration of his term of office or until his earlier resignation or removal from the Executive Committee or from the board of directors. (C) MEETINGS. The Executive Committee shall be authorized to meet (i) in the period between the regularly scheduled meetings of the board of directors, (ii) at any time at the direction of the board of directors or (iii) at any other time upon a determination by the President or the Chairman of the Board of the corporation (which determination shall be conclusive and binding on the board) that a meeting is necessary or desirable when a meeting of the full board of directors is impractical. Meetings of the Executive Committee shall be called upon at least twenty- four (24) hours prior telephonic or written notice to the members thereof. Attendance by a member at an Executive Committee meeting shall constitute a waiver of notice of such meeting unless the member objects, at the beginning of such meeting, to the transaction of any business because the meeting is not lawfully called. (D) VOTING. Every act or decision done or made by a majority of the number of members of the Executive Committee authorized in Article III, Section 16(B) hereof, at a meeting duly held at which a quorum is present, shall be regarded as the act of the Executive Committee. (E) QUORUM. A majority of the number of members of the Executive Committee authorized in Article III, Section 16(B) hereof shall be necessary to constitute a quorum for the transaction of business, except to adjourn as hereinafter provided. (F) ADJOURNMENT. A majority of the members of the Executive Committee present at any meeting of the Executive Committee may adjourn to meet again at a stated day and hour. (G) MINUTES: DELIVERY OF MINUTES TO BOARD. The proceedings of the Executive Committee shall be memorialized by written minutes which shall be taken by a member of the Executive Committee. The minute book of the Executive Committee shall be held by the Secretary of the corporation. Within five business days after any meeting of the Executive Committee, a copy of the minutes of such meeting shall be deposited in the United States mail, postage prepaid, for delivery to each member of the board of directors, addressed to each director at his address as it is shown upon the records of the corporation. (H) WRITTEN CONSENT. Any action required or permitted to be taken by the Executive Committee pursuant to these Bylaws may be taken without a meeting if all members of the Executive Committee shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Executive Committee and shall have the same force and effect as a unanimous vote of such directors. SECTION 17. VOTING BY BOARD. (A) MAJORITY VOTE. Except as provided in section 17(13) hereof, every act or decision done or made by the board shall require the approval of a majority of the directors present at a meeting duly held at which a quorum is present. (B) SUPERMAJORITY REQUIREMENT. Notwithstanding the foregoing, the board shall take no action with regard to the following matters unless such action has been approved by at least two-thirds of the authorized number of directors at a meeting duly held: (i) amend the Certificate of Incorporation; (ii) adopt an agreement of merger or consolidation; (iii) recommend to the stockholders, or adopt any agreement for, the sale, lease, assignment, encumbrance, or other disposition of all or substantially all of the corporation's property or assets; (iv) recommend to the stockholders a dissolution of the corporation or a revocation of dissolution; (v) take any action to create, relocate or terminate the operations of any subsidiary, banking office or branch, or form any new subsidiary or affiliated entity; (vi) make any change in the authorized, issued or outstanding capital stock; except for (X) issuances of capital stock pursuant to the exercise of options authorized by the board, the Dividend Reinvestment Plan or other employee stock purchase or incentive plans; (Y) one or more issuances of capital stock which, taken together, do not exceed twenty percent (20%) of the capital stock outstanding at the time of the first such issuance; and (Z) one or more redemptions of capital stock which, taken together, do not exceed two percent (2%) of the capital stock outstanding at the time of the first such redemption; (vii) the removal of any member of the Executive Committee; or (viii) the amendment or deletion of the following provisions of Article III of these By-Laws: Paragraph Sixth of Section 1; the second sentence of Section 2; Section 16; or this Section 17. 7. Except as hereby amended, the By-Laws of Northern California Community Bancorporation, Inc. shall remain in full force and effect. Date: March 15, 1995 ------------------------ -------------- Diane Mietzel, Secretary EX-10.1 3 EXHIBIT 10.1 1995 PLAN CALIFORNIA BANCSHARES, INC. MANAGEMENT INCENTIVE COMPENSATION PLAN SECTION 1: PURPOSE OF THE PLAN The purpose of the Management Incentive Compensation Plan ("MICP"), or "the Plan" is to provide incentives and awards to those employee who are responsible for significant organizational units or projects and who attain and sustain consistently high levels of performance that exceed expectations and that contribute to the success, profitability, and return to California Bancshares, Inc.'s shareholders. The Plan is designed to support the organization's objectives and financial goals. SECTION 2: GENERAL DESCRIPTION 2.1 Incentive compensation awards are based on corporate results and individual contributions to performance as measured by selected financial ratios, operating results, subjective evaluations and qualitative evaluations against objectives established before the beginning of the Plan year. These measures are constructed to recognize the influence of both external and internal factors on performance, by establishing the relationship of performance to benchmark measures. The benchmark measures are external peer groups, operating performance data, and objectives agreed upon by Plan participants and Senior management or the Board. 2.2 The Plan protects shareholders' interests by limiting the amount of awards to be paid by restricting it to a percentage of earnings. The Plan specifies annual goals and provides a performance review and measurement system. The Plan has been designed to permit future inclusion of other individuals and groups. 2.3 The calculation of awards to be distributed to the Plan participants and the incentive formulas, are constructed to provide awards consistent with increases in profits. The incentive formula ensures a level of incentive award that is competitive with comparable positions and levels of performance in other financial institutions, in order that California Bancshares, Inc. will be able to attract, retain, and motivate high-quality personnel and support continued growth and profitability. SECTION 2: GENERAL DESCRIPTION, CONTINUED 2.4 Extraordinary occurrences may be excluded when calculating performance results to ensure that the best interests of the organization are protected and are not brought into conflict with the best interests of Plan participants. When and if extraordianry occurrences are excluded from the calculation of individual performance measures, they are also excluded in calculating the bonus pool. SECTION 3: DEFINITIONS 3.1 "Average total Assets" shall mean "average daily balances". 3.2 "Award" shall mean the amount to be paid at the conclusion of the Plan year. 3.3 "Committee" shall mean a Human Resources Committee of the Board of Directors chosen to administer the Plan. 3.4 "Company" shall mean California Bancshres, Inc. and its subsidiaries including any sponsored joint ventures with other companies. 3.5 "Extraordiary Occurrences" shall mean those events, that, in the opinion of the Human Resoruces Committee, are outside the significant influence of Plan participants and would, by their inclusion, cause significant unintended effect, positive or negative, on operating and financial results. 3.6 "Plan Year" shall mean the 12 month period beginning on January 1. 3.7 "Return on Assets" or " ROA" shall mean the net income after applicable income taxes, net securities gains or losses, incentive awards, and net extraordianry items, divided by average of total assets, excluding the impact of extraordinary occurrences as defined in Section 3.5. 3.8 ROA goals will be determined in accordance with calculation on Exhibit 2. 3.9 "Weight" shall mean a percentage weighing for each performance measure for each participating position, used to modify the basic incentive percentage to reflect the relative importance of the factor to that position. 3.10 "Rating" shall mean the numerical rating (between 0.0 to 5.0) given by the evaluator. 3.11 "Weighed Results" shall mean the numerical results created by multiplying the "Weight" by the "Rating". This result of all calculations will be rounded to the nearest tenth. SECTION 4: PLAN PARTICIPANTS 4.1 Those employees recommended by Senior management who, in management's judgement, are responsible for directing and performing functions which have significant bearing on the profitability and operational performance of the institution shall be eligible for participation in the MICP. 4.2 Before or at the beginning of each Plan year, the Committee shall review the recommendations of management on the selection of those employees eligible for participation in the Plan for that year. The Board of Director is responsible for final approval of Plan participant's eligibility. Participants shall be notified of their eligibility as soon as the selection is completed. 4.3 Participants may be added during the Plan year at the discretion of the President and the Committee, and their incentive award should be prorated as set forth in Section 8. SECTION 5: ADMINISTRATION OF THE PLAN 5.1 Throughout this Plan document, reference to the actions and authority of the Committee also presumes that the Committee wil recommend, and the Board of Directors will approve or disapprove, final disposition of all matters pertaining to administration of the Plan. 5.2 The Committee, with Board approval, has the responsibility to interpret, administer, and amend the Plan as necessary. The recommendations of the Committee as approved by the Board, affecting the construction, interpretation, and administration of the Plan shall be final and binding on all parties, including the Company and its employees. Responsibilty for actions taken under the Plan are summarized in Exhibit 1. 5.3 Before, at the beginning of, or during each Plan Year, the Committee may review and revise any aspect of the Plan. However, it is expected that the Plan will require modification only when significant changes in organization, goals, personnel, or performance occur. The President shall inform the Committee of any proposed changes to the operation of the Plan. 5.4 Computation of incentive awards will be made by an individual designated by the President. Maintenance of participant payment and deferred awards records shall be the responsibility of the Chief Financial Officer. SECTION 6: PERFORMANCE INCENTIVE COMPENSATION - GENERAL PROCEDURES 6.1 Computation of incentive awards is a two-stage process: Stage 1: Calculation of the bonus pool. Stage 2: Allocation of the bonus pool to Plan participants. 6.2 The general procedure for converting overall results into individual incentive awards is as follows: - Performance incentive goals/plans/standards are established before or at the start of the Plan Year. - Periodically, actual performance results are measured against the goals. - Scores on each performance measure are calculated as described in this document. - Total scores are calculated for every participant to regularly assess performance. - At the end of the Plan Year, the total scores and bonus awards are calculated for all participants. - If bonus awards for participants exceed bonus pool, bonus awards will be prorated. 6.3 The calculation of the bonus pool for the current year is shown on Exhibit 2. SECTION 7: PAYMENT OF INDIVIDUAL INCENTIVE COMPENSATION AWARDS Within 60 days following the end of the Plan Year, or as soon as financial and operating results are known, participants will receive the incentive payment determined by performance for the year using the best available performance data. SECTION 8: PARTIAL PAYMENTS 8.1 New Participants - If an individual becomes a participant during the Plan Year, the incentive compensation award will be earned on the basis of one-twelfth of the annual incentive compensation for each month of participation beginning before July 1 in the Plan year on initial employment or promotion. After July 1, new hires are not eligible to participate in that Plan Year, unless given special permission by the Committee. Special permission must be granted by the Committee to pay full Plan Year shares to partial-year employees. 8.2 Retirement - In the event of termination of employment through retirement, the employee shall be considered to have earned one- twelfth of the annual incentive compensation award of a particular year for each month of employment in the Plan Year of his retirement. 8.3 Leave of Absence - In the event a participant is absent from work due to an approved leave of absence of any nature or length, the annual incentive compensation award will be prorated to include only days of active employment. 8.4 Death - If a participant dies, any unpaid incentive awards shall be paid to the estate, or designated beneficiary, in one lump sum. The amount of the award may be prorated for each month of employment during the Plan Year at the discretion of the Committee. 8.5 Termination for Reasons Other Than Death or Retirement - In the event of termination of employment for reasons other than death or retirement, the participant, at the discretion of the Committee, may forfeit all unpaid incentive awards. SECTION 9: PERFORMANCE PROGRESS REPORTING The President/department heads will be responsible for reporting performance during the course of the Plan Year so that participants may evaluate their performance relative to goals throughout the year. The Chief Financial Officer will review calculation made by the above personnel. Data from internal and external sources are to be made available to Plan participants, the Committee, and the Board as soon as practical. SECTION 10: AMENDMENT OR TERMINATION OF THE PLAN 10.1 Right of Assignment - No right or interest of any participant in the Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law, or otherwise, including levy, garnishment, attachment, pledge, or bankruptcy. 10.2 Right of Employment - The receipt of an award under this Plan shall not guarantee any employee any right to continued employment; the right to dismiss any employee is specifically reserved to the organization. The receipt of an award for any one year shall not guarantee an employee the right to receive an award for any subsequent year. 10.3 Withholding for Taxes - The organization shall have the right to deduct from all payments under this Plan any federal or state taxes required by law to be withheld with respect to such payments. Exhibit 1 SUMMARY OF PLAN RESPONSIBILITIES
Responsibilty ------------------------------------ Human Board of Resources Planning Action Directors Committee Management - --------------- --------- --------- ---------- Plan Creation Design plan X Establish policies & objectives X X Recommendations to Board X X Plan approval X Annual Plan administration Review organizational objectives X X Recommend changes X X Approve any changes X Recommend participants X X Approve participation X During Plan Year Evaluate performance compared to plans X X Correction and feedback X End of Plan Year Determine if earnings justify bonus X X Decide to exclude extraordinary occurrences X X Calculate bonus pool X Calculate individual awards X Approve awards X X
EXHIBIT 2 CALIFORNIA BANCSHARES, INC. MANAGEMENT INCENTIVE PROGRAM CALCULATION OF BONUS POOL 1. A subsidiary's bonus pool will be nor more thatn 10% of pretax income before incentive compensation accrual. 2. CBI and subsidiaries' bonus pool will be nomore than 12% of pretax income before total incentive compensation accrual. If a subsidiary bonus exceeds calculation 1, or if the company-wide bonuses exceed calculation 2, bonuses will be scaled back proportionally. CALCULATION OF RETURN ON ASSETS (ROA) GOALS ROA will be based on the following: Minimum - .85 Target - 1.15 Maximum - 1.50 EX-10.4 4 EXHIBIT 10.4 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is made effective as of December 22, 1995, by and between CALIFORNIA BANCSHARES, INC., a Delaware corporation, a Bank Holding Company as that term is defined in 12 U.S.C. Section 1841 ("Employer"), and DONALD J. GEHB ("Employee"). Employee and Employer entered into a written agreement effective July 21, 1993 (the "Agreement"), pursuant to which Employer employed Employee as Chairman of the Board for a term commencing on July 21, 1993, and continuing until December 31, 1997. The parties hereto intend to amend said Agreement by deleting paragraphs 4.d. and 5.d. and substituting new paragraphs 4.d. and 5.d., which shall contain the following terms and conditions: 4. EXTENT OF SERVICES. d. During the calendar year 1996, Employee shall devote one- fourth of his time to the management and direction of the affairs of Employer. During the calendar year 1997, Employee shall act only as a consultant to Employer and shall be on call to meet and confer with the Chief Executive Officer of Employer, the Board of Directors of Employer, and the senior management of Employer regarding the management and direction of the affairs of Employer and its subsidiaries; provided, however, that as such consultant, Employee shall not be required to devote more than 20 hours per month in acting as a consultant for Employer. Notwithstanding the foregoing, Employee shall not engage in any other employment or activity without the prior written consent of the Board of Directors of Employer, with the exception of the activities permitted as provided in paragraph 4.a. of this Agreement. 5. COMPENSATION. d. During the calendar year 1996, Employee shall be paid an annual salary of One Hundred Thousand Dollars ($100,000), which compensation shall be paid to Employee in equal monthly installments commencing on the first day of January 1996 and continuing thereafter on the first day of each and every month up to and including December 1, 1996. Commencing January 1, 1997, Employee shall be paid an annual salary of Sixty Thousand Dollars ($60,000), which compensation shall be paid to Employee in equal monthly 1 installments commencing on the first day of January 1997 and continuing thereafter on the first day of each and every month, up to and including December 1, 1997. Except as modified by this Amendment, the parties hereto reaffirm all of the terms and conditions of the Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Amendment on 12/22 , 1995. --------- EMPLOYER: EMPLOYEE: CALIFORNIA BANCSHARES, INC., a Delaware corporation /s/ Donald J. Gehb ------------------------------- DONALD J. GEHB By /s/ J. Colmery -------------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 2 EX-10.5 5 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of November 18, 1995, by and between CALIFORNIA BANCSHARES, INC., a Delaware corporation and a bank holding company, as that term is defined in 12 U.S.C. Section 1841 (hereinafter referred to as "Employer"), and JOSEPH P. COLMERY (hereinafter referred to as "Employee"). This Agreement supersedes the Employment Agreement effective as of December 1, 1993, by and between Employer and Employee (hereinafter referred to as the "Previous Employment Agreement"). The Previous Employment Agreement is hereby terminated and shall be of no further force or effect; provided that the obligations and liabilities of each party thereto arising prior to such termination, and each party's rights with regard thereto, shall not be affected by such termination. Employee, being willing to be employed by Employer as President and Chief Executive Officer, and Employer, being willing to employ Employee in such capacity, all on the terms, covenants, and conditions hereinafter set forth, it is agreed as follows: 1. POSITION: Employee is hereby employed as President and Chief Executive Officer of Employer. 2. TERM: The term of this Agreement will commence on November 18, 1995, and will continue through December 31, 1999 (the "Employment Term"); subject, however, to prior termination as hereinafter set forth in this Agreement. 3. EMPLOYEE DUTIES AND REPORTING: Employee is hereby vested with such powers and duties as are designated by the Bylaws of Employer, by the Board of Directors of Employer (the "Board"), or by any duly authorized Committee of the Board. Subject to the control of the Board, Employee shall have general executive supervision of the business and affairs of Employer and shall be senior in rank to all officers of Employer. Employee shall have authority to sign contracts, bills, notes, drafts, and other obligations of Employer, as granted to the president by the Bylaws or the Board, and in accordance with appropriate governmental regulations. Employee shall regularly meet and confer with the Chairman of the Board concerning key management decisions, including any decisions requiring Board approval, such as acquisitions and divestitures of banking and non-banking subsidiaries, the establishment of branches or de novo banks, or the termination of any Executive Vice President of Employer or any President of a subsidiary bank of Employer. 4. EXTENT OF SERVICES: Employee shall devote his full time, attention, and energies to the business of Employer, and shall not during the Employment Term or any extension thereof 1 engage in any other business activities, except personal investments, without the prior written consent of Employer. 5. COMPENSATION: Employee's salary shall be $200,000 for each year of the Employment Term, prorated for any partial year in which this Agreement is in effect. Said salary shall be payable in accordance with Employer's normal payroll period. Employee's salary shall be reviewed annually by the Board and may be increased as the Board, in its sole discretion, shall determine. 6. BONUS: Employer agrees to pay Employee bonuses in the calendar year 1995 and in each calendar year thereafter during the term of this Agreement, which bonus shall be determined as follows: a. If Employer's return on average assets is .75% or greater, the bonus payable to Employee shall be a percentage of CBI's pretax profits as follows: If return on average Bonus (as a percentage of assets of Employer is: CBI pretax profits) shall be: .75% 1.50% b. For every one-hundredths of one percentage point increase in CBI's return on average assets above .75%, the bonus payable to Employee shall be increased by one-hundredth of one percent. Examples of the foregoing are as follows: If return on average assets is .76%, the bonus as a percentage of CBI pretax profits will be 1.51%. If the return on average assets is .95%, the bonus as a percentage of CBI pretax profits will be 1.70%. Notwithstanding the foregoing, regardless what the return on average assets of Employer may be, the maximum bonus payable as a percentage of pretax profits shall in no event exceed 2.50% and further, the dollar amount of any such bonus shall not exceed the dollar limit hereinafter set forth in this paragraph. Said bonus shall be calculated for each calendar year in which Employee is employed and this Agreement is in effect and shall be due and payable annually within thirty (30) days following receipt by Employer of its audited fiscal year consolidated financial statements from Employer's independent public accountants. Bonus payments are earned, and entitlement to them arises, only at the end of the relevant fiscal year; provided, however, that if this Agreement is terminated during the Employment Term or any extension thereof, for any reason other than as provided in Section 8(b) herein, including, without limitation, the death or disability of Employee, Employee's termination by Employer without cause as provided in Section 8(a), early termination by Employee as provided in Section 8(c), or termination occurring as a result of a Change of Control 2 as provided in Section 8(f), Employer shall partially vest the bonus and Employee shall receive a percentage of the bonus that would have been payable at the end of the then-current fiscal year, such percentage to be prorated based on the number of days from January 1 of the calendar year until the date of termination divided by 365. The foregoing payment shall be in addition to any other sums that may be payable to Employee, as provided in Section 8 hereof. In the event Employee's employment is terminated prior to the end of a fiscal year pursuant to Section 8(b), Employee shall have no right to receive any bonus whatsoever with regard to such fiscal year. Any pro rata bonus shall be due and payable on the same terms as the end-of-year bonus described in this Section 6. No bonus shall exceed $600,000 during any fiscal year. Notwithstanding anything hereinabove provided to the contrary, the Board of Directors, in its sole discretion, may elect to pay up to 50 percent of the bonus contemplated by this paragraph in restricted common stock of California Bancshares, Inc., a Delaware corporation. To the extent restricted common stock is issued to Employee, the removal of the restriction on said common stock shall occur 24 months after the date of issuance of the restricted common stock, except that said restriction shall be removed upon the termination of Employee's employment if said termination occurs as a result of the facts or events described in Section 8(a) of this Agreement, early termination without cause, because of the disability or death of Employee (Sections 8(d) and (e)), or if said termination occurs as a result of a Change of Control (Section 8(f)). 7. OTHER EMPLOYEE BENEFITS: In addition to the base compensation and bonus to be paid to Employee, as provided above, Employee shall be entitled to participate in any and all pension plans, profit sharing plans, retirement programs, life insurance programs, health insurance programs, and any other employee benefit programs (excepting any incentive compensation plans) which Employer, from time to time, shall offer generally to its executive officers. In addition, Employee shall receive the following specific benefits: a. AUTOMOBILE: Employer shall provide Employee with an automobile of the make and model to be mutually agreed upon by Employer and Employee. Employer shall pay all costs and expenses, including insurance premiums incurred in connection with the operation of said automobile. b. INSURANCE: Employer shall provide Employee, at Employer's sole cost and expense, Term Life and Accidental Death Insurance in the amount of $500,000. Employee shall have the right, in Employee's sole discretion, to determine ownership and beneficial interests in such life insurance policy. Employer shall provide Employee, at Employer's sole cost and expense, disability insurance coverage under Employer's existing long-term disability insurance policies and, in addition, Employer shall provide Employee with a supplemental policy so that the total benefit in the event of Employee's disability shall equal 70% of the salary payable to Employee as set forth in paragraph 5 hereof. Employer shall also provide Employee, at Employer's expense, with such medical, optical, dental, and hospitalization insurance for Employee and his family, as is provided generally by Employer to all executive officers of Employer, pursuant to Employer's personnel policies as such policies may be in effect on the date of this Agreement and as amended from time to time thereafter. 3 c. VACATION: Employee shall receive four weeks paid vacation per year, all of which must be taken at such time or times as are mutually agreed upon by Employee and the Board. Employee must take a minimum of two weeks vacation per year. In the event that Employee does not take four weeks paid vacation annually, his unused vacation time shall be carried over to the following year. Any vacation time accrued by Employee in excess of eight weeks shall be forfeited without compensation. d. CLUB EXPENSES: Employer shall reimburse Employee for all of Employee's monthly membership dues during the term of this Agreement in connection with Employee's membership in a country club or health and athletic club. The beneficial ownership of Employee's membership in such club shall be exclusively that of Employee. It is understood and agreed that any and all appreciation in the value of such membership shall inure exclusively to the benefit of Employee. e. GENERAL EXPENSE: In addition to the foregoing, Employer shall, upon submission and approval of written statements and bills in accordance with the then regular procedures of Employer relative to its executive officers, pay or reimburse Employee for any and all necessary, customary, and usual expenses incurred by Employee while traveling for or on behalf of Employer, and any and all other necessary, customary, or usual expenses (including, without limitation, gifts and entertainment) incurred by Employee for or on behalf of Employer in the normal course of business, as determined to be appropriate by Employer. The expenses of Employee's wife shall also be reimbursed by Employer when such expenses are approved in advance by the Board. f. ANNUAL PHYSICAL: Employee shall undergo a general physical examination annually throughout the duration of this Agreement and shall authorize and direct the examining physician to deliver to the Board, at Employer's expense, a written report of the results of such examination. If the cost of such physical examination is not covered by health or medical benefits or insurance provided to Employee by Employer, Employer shall pay or reimburse Employee for the cost of such physical examination. 8. TERMINATION: This Agreement may be terminated during the Employment Term in accordance with Sections 8(a) through 8(f). In the event of such termination, Employee shall be released from all obligations under this Agreement, except that Employee shall remain subject to Sections 9, 10, 11, 13(d), 13(i), and 13(j), and Employer shall be released from all obligations under this Agreement, except as otherwise provided in this section and Sections 13(e), 13(i) and 13(j). a. EARLY TERMINATION BY EMPLOYER WITHOUT CAUSE: This Agreement and the employment of Employee by Employer may be terminated (i) by the mutual consent of the parties hereto, or (ii) by the Board upon a determination by a majority of the Board the Employee has failed to properly perform his duties as President of Employer, or failed to abide by all of the terms and conditions of this Agreement. It is the intent of the parties hereto that Employee's 4 tenure as President of Employer shall continue for the term of this Agreement and shall only be terminated for a material breach of the terms and conditions of this Agreement. If Employee's employment is terminated during the term of this Agreement as hereinabove provided, under circumstances which do not involve acts of moral turpitude on the part of Employee or result from the willful violation of the terms and conditions of this Agreement, Employer agrees to pay Employee severance pay, in addition to all other payments due pursuant to this Agreement, in an amount equal to his then annual compensation at the time of termination of his employment as provided in paragraph 5 and paragraph 6, which severance pay shall be paid to him in twelve (12) equal monthly installments, commencing on the first day of the month following the date of termination of his employment and continuing thereafter on the first day of each month until the agreed upon severance pay is paid in full. For the purposes of the severance payments herein provided, Employee's compensation shall be deemed to include not only the annual or monthly compensation provided by the terms and conditions of this Agreement, but it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any bonus compensation described in Section 6 during the three (3) years prior to the termination of his employment, plus an amount equal to the contributions made by Employer in the last year prior to Employee's termination to Employer's profit sharing plan, 401K plan, or any other employee benefit plan. In addition, all options to purchase Employer's Common Stock shall vest immediately, and all restrictions on Restricted Stock previously issued to Employee shall be removed. Such salary and benefits shall constitute liquidated damages in lieu of any and all claims by Employee against Employer, and shall be in full and complete satisfaction of any and all rights which Employee may enjoy hereunder. Notwithstanding anything contained in this Agreement to the contrary and, in particular, in this Section 8, including, without limitation, the events or facts described in Sections 8(a), (b), (c), (d), (e), and (f) of this Agreement, Employee shall be entitled to the entire amount of any deferred compensation without deduction or offset of any kind to which Employee may be entitled, pursuant to the Deferred Compensation Plan heretofore adopted by Employer. b. EARLY TERMINATION BY EMPLOYER FOR CAUSE: This Agreement may be terminated for cause by Employer upon written notice to Employee, and Employee shall not be entitled to receive any compensation or other benefits for any period after termination for cause. For the purposes of this Agreement, "cause" shall mean: (1) The willful and continued failure of Employee to perform substantially Employee's duties with Employer or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to Employee by the Board which specifically identifies the manner in which the Board believes that Employee has not substantially performed Employee's duties; or (2) Employee engages in dishonest conduct detrimental to the best interests of Employer, illegal conduct, fraudulent acts, or willful misconduct which is materially and demonstrably injurious to Employer. 5 For purposes of this provision, no act or failure to act on the part of Employee shall be considered "willful" unless it is done, or omitted to be done, by Employee in bad faith or without reasonable belief that Employee's action or omission was in the best interests of Employer. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advice of counsel for Employer, shall be conclusively presumed to be done, or omitted to be done, by Employee in good faith and in the best interests of Employer. The cessation of employment of Employee shall not be deemed to be for cause unless and until there shall have been delivered to Employee a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to Employee and Employee is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, Employee is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. c. EARLY TERMINATION BY EMPLOYEE: This Agreement may be terminated by Employee upon ninety (90) days' written notice to Employer. d. EARLY TERMINATION UPON DISABILITY: If Employee becomes disabled during any Employment Term because of physical or mental disability so that he is unable to perform his duties hereunder, Employer may, at its option, terminate this Agreement. Employee shall be entitled to the salary as provided in Section 5 of this Agreement for a period not to exceed ninety (90) days from the date of employee's first absence due to disability, plus pro rata bonus as described in Section 6 hereof and accrued but unused vacation leave. Employee's salary in the event of disability and termination therefor shall be offset by any payments received by Employee as a result of the disability insurance policy purchased by Employer for Employee as described in Section 7(b) hereof. All other benefits provided for under this Agreement shall cease as of the date of termination. For purposes of this Agreement only, physical or mental disability shall mean the inability of Employee to fully perform under this Agreement for a continuous period of ninety (90) days, as determined in the case of physical disability by a physician, or in the case of mental disability by a psychiatrist, both of whom must be licensed to practice medicine in California. Such physicians shall be selected by Employer. Recurrent disabilities will be treated as separate disabilities if they result from unrelated causes or if they result from the same or related cause or causes and are separated by a continuous period of at least six (6) full months during which time Employee was able to perform his duties hereunder equal to at least eighty percent (80%) of his capacity prior to disability, Otherwise, recurrent disabilities will be treated as a continuation of previous disabilities for the purpose of determining the limitations established in this paragraph. e. DEATH DURING EMPLOYMENT: If Employee dies during any Employment Term, this Agreement shall terminate on such death and Employer shall pay to the estate of Employee only the salary which would otherwise be payable to Employee as described in Section 5 hereof for a period of ninety (90) days from the date of death; provided, however, that if Employee dies during negotiations which eventually lead to a transfer of control of the stock of Employer or a sale of substantially all of the assets of Employer, as described in Section 8(f) 6 hereof, all options granted to Employee shall vest immediately and be exercisable by Employee's estate, in accordance with Employer's stock option plan. f. CHANGE OF CONTROL: Notwithstanding anything hereinabove provided to the contrary, should, on or after the date hereof, a person, firm, or corporation ("Acquiror") obtain control of Employer, by or through the acquisition of the common stock of Employer, so that said person, firm or corporation has the power to appoint or elect a majority of the members of the Board ("Change of Control"), the Change of Control in and of itself shall be deemed to have terminated Employees' employment and, on the effective date of Change of Control, there shall be paid to Employee in one lump sum the following: (1) An amount equal to the compensation required by the terms and conditions of this Agreement for the remaining term of this Agreement, but in any event an amount equal to not less than Employee's then monthly compensation on the date of termination for a period of thirty-six (36) months from the effective date of the acquisition of control of Employer by Acquiror, together with any partial bonus payment due in accordance with Section 6 hereof. For the purposes of the payments herein provided, Employee's compensation shall be deemed to include not only the annual compensation provided by the terms and conditions of this Agreement, but it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any bonus compensation as provided in Section 6 during the three (3) years prior to the termination of his employment, plus an amount equal to the contribution made by Employer in the last year prior to termination to Employer's profit sharing plan, 401K plan, or any other employee benefit plan. Employee shall be entitled to the entire amount of any deferred compensation without deduction or offset of any kind to which Employee may be entitled, pursuant to the Deferred Compensation Plan heretofore adopted by Employer. (2) Employer shall, during the three-year period following the effective date of the acquisition of control of Employer by Acquiror, maintain all policies of life insurance insuring Employee's life as provided in this Agreement, and all health insurance policies insuring Employee and members of his family, as required by this Agreement. The Board has determined that it is in the best interests of Employer and its shareholders to assure that Employer will have the continued dedication of Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control of Employer. The Board believes it is imperative to diminish the inevitable distraction of Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage Employee's full attention and dedication to Employer currently and in the event of any threatened or pending Change of Control, and to provide Employee with compensation and benefit arrangements upon a Change of Control which ensure that the compensation and benefit expectations of Employee will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused Employer to enter into this Agreement. 7 Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if Employee's employment with Employer is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by Employee that such termination of employment (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control, or (2) otherwise arose in connection with or in anticipation of a Change of Control, then for all purposes of this Agreement, the effective date of the acquisition of control of Employer by Acquiror shall mean the date immediately prior to the date that Employee was in fact terminated, and Employee shall be compensated as provided in this Agreement as if his employment was terminated as a result of a Change of Control. 9. PRINTED MATERIAL: All written or printed materials used by Employee in performing duties for Employer are and shall remain the property of Employer Upon termination of employment, Employee shall promptly return such written or printed materials to Employer. 10. DISCLOSURE OF INFORMATION: Employee shall not, either before or after termination of this Agreement, disclose to anyone any confidential information relating to Employer or any affiliate of Employer or any financial information, trade secrets, or know-how germane to the business and operations of Employer or any affiliate of Employer. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special, and unique asset of the business of Employer. Nothing herein shall be deemed to prohibit Employee from performing services for another financial institution following the termination of this Agreement or termination of Employee's employment following a Change of Control. 11. NONCOMPETITION BY EMPLOYEE: So long as Employee is employed by Employer, pursuant to this Agreement. Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any competing business with Employer or any of its affiliates or subsidiaries; provided, however, Employee shall not be restricted by this section from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers so long as (except with respect to Employee's ownership of securities of Employer or any successor in interest of Employer) such investment does not exceed one percent (1%) of the market value of the outstanding securities of such corporation. Nothing herein contained shall be deemed to prohibit Employee from obtaining employment with another financial institution and performing services for such financial institution following the date of Employee's termination of employment with Employer. 12. FIDELITY BOND: Employee agrees that he will furnish all information and take any steps necessary to enable Employer or any of its affiliates or subsidiaries to obtain or maintain fidelity bond coverage conditional on the rendering of a true account by Employee of all monies, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The fidelity company issuing the fidelity bond and the amount of any such bond or bonds must be acceptable to Employer. All premiums on the bond(s) are to 8 be paid by Employer. If Employee cannot qualify for a fidelity bond at any time during the term of this Agreement, Employer shall have the option to terminate this Agreement immediately and said termination shall be deemed to be a termination "for cause" pursuant to Paragraph 8(b) hereof. 13. GENERAL: This Agreement is further governed by the following provisions: a. ENTIRE AGREEMENT: This Agreement supersedes any and all other agreements, either oral or in writing, among the parties hereto with respect to the employment of Employee by Employer and contains all of the covenants and agreements among the parties with respect to such employment. Any modification, waiver, or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. b. WAIVER: Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. c. CHOICE OF LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of California. d. BINDING EFFECT OF AGREEMENT: This Agreement shall inure to the benefit of and be binding upon Employer, its successors and assigns, including, without limitation, any person, partnership, corporation, or other business entity which may acquire all or substantially all of Employer's assets and business, or with or into which Employer may be consolidated, merged, or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives, The rights and obligations of Employee under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Employee's creditors, and any attempt to do any of the foregoing shall be void. e. INDEMNIFICATION: Employer shall indemnify Employee to the maximum extent permitted under the Bylaws of Employer and the Delaware Corporation Law. If available at reasonable rates as determined in the sole discretion of the Board, Employer shall endeavor to apply for and obtain Directors and Officers Liability Insurance to indemnify and insure Employer and Employee from and against liability or loss arising out of Employee's actual or asserted malfeasance or nonfeasance in the good faith performance of his duties or arising out of any actual or asserted wrongful act by Employee or Employer, including, but not limited to, judgments, fines, settlements, and expenses incurred in the defense of actions, proceedings, and appeals 9 therefrom. The provisions of this paragraph shall inure to the benefit of Employee's estate, executor, administrator, heirs, legatees, or devisees. f. SEVERABILITY: In the event that any term or condition contained in this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other term or condition of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable term or condition had never been contained herein. g. HEADINGS: The headings in this Agreement are solely for reference and shall be given no effect in the construction or interpretation of this Agreement. h. NOTICES: Any notices to be given hereunder by any party to another party must be in writing and may be effected either by personal delivery or by mail, registered or certified, postage prepaid, with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this paragraph, Notices delivered personally shall be deemed communicated as of actual receipt; mailed notices shall be deemed communicated as of three (3) days after mailing. i. ARBITRATION:. Any controversy or claim arising out of or relating to this Agreement, or any alleged breach of this Agreement, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction. There shall be three arbitrators who shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association, Each party shall pay the fees of his or its own attorneys, the expenses of his or its witnesses, and all other expenses connected with presenting his or its case. Other costs of the arbitration, including the cost of any record or transcripts of the arbitration, administrative fees, and the fees of the three arbitrators, and all other fees and costs, shall be borne equally by the parties. j. ATTORNEYS' FEES AND COSTS: In no event shall Employee be obligated to seek other employment or to take any other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not Employee obtains other employment. In the event of any dispute, arbitration, or litigation between Employer and Employee regarding the payment of any sum of money to Employee in accordance with the terms of this Agreement or concerning the validity or enforceability of or liability of any party under the provisions of this Agreement, the prevailing party shall be entitled to recover all of its reasonable attorneys' fees, costs, and expenses, together 10 with interest on the principal amount due, or on any judgment, as provided by the laws of the State of California. Executed as of this__________day of________________1995. EMPLOYER: CALIFORNIA BANCSHARES, INC., a Delaware corporation 100 Park Place, Suite 140 San Ramon, CA 94583 BY /s/Donald J. Gehb -------------------------------- DONALD J.GEHB Chairman of the Board EMPLOYEE: /s/Joseph P. Colmery -------------------------------- JOSEPH P. COLMERY 170 Alamo Hills Court Alamo, CA 94507 11 EX-10.6 6 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of December 1, 1995, by and between VINCENT M. LEVERONI (hereinafter referred to as "Employee") and CALIFORNIA BANCSHARES, INC., a Delaware corporation (hereinafter referred to as "Employer"). This Agreement supersedes all prior employment agreements by and between Employer and Employee and all previous employment agreements are hereby terminated and shall be of no further force or effect. Employee, being willing to be employed by Employer as its Chief Financial Officer, and Employer, being willing to employ Employee in such capacity, all on the terms, covenants and conditions hereinafter set forth, it is agreed as follows: 1. POSITION: Employee is hereby employed as Chief Financial Officer of Employer, and shall serve in that capacity during the Employment Term. In such capacity, Employee shall manage and direct all of the affairs of Employer, perform the duties of the office of Chief Financial Officer described in Employer's Bylaws and comply with all laws, rules and regulations applicable to persons holding that office in financial institutions such as Employer. Employee shall devote all of his time and effort to the management and direction of the affairs of Employer, and shall not engage in any other employment or activity without the prior written consent of the Board of Directors of Employer (the "Board"), but he shall be free to conduct such reasonable activities as are related to the management of his personal finances without the prior written consent of the Board. When any such personal activity poses a potential conflict with his duties as Chief Financial Officer, Employee shall promptly notify the Board, and he shall thereafter be guided by, and in all of his activities shall be responsible and accountable to, the Board. 2. TERM: The term of this Agreement will commence on December 1, 1995, and will continue until November 30, 1997, subject to prior termination as hereinafter set forth (the "Employment Term"). Unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of its term, this Agreement shall automatically be extended one additional year each December 1 commencing December 1, 1997. Notwithstanding the preceding sentence, upon any change of control as described in Section 7 1 hereof, the term of this Agreement shall automatically be extended two years from the effective date of such change of control and, unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of said year, shall automatically be extended to the next succeeding November 30 (and thereafter may be extended or terminated in accordance with the preceding sentence). 3. CONTINUING EDUCATION: From time to time during the term of this Agreement, Employee shall attend and participate in seminars and conferences to apprise himself as an executive officer of Employer of all current laws, regulations, practices, and procedures regarding the management and direction of Employer, and with the objective of maintaining his technical proficiency as an executive officer of such an organization. 4. COMPENSATION: In consideration of the services to be performed by Employee for Employer under this Agreement, as herein specified, Employer shall pay to Employee, as regular compensation, the sum of One Hundred Fifteen Thousand Dollars ($115,000) per year, payable in accordance with Employer's normal payroll practices. Said level of compensation shall be reviewed in March of each year in accordance with Employer's merit salary increase program. A merit increase may be granted to Employee as a result of this annual review procedure. Employee shall also be enrolled in the Management Incentive compensation Plan ("MICP"). Employee may be entitled to a bonus as additional Compensation in accordance with the Plan ("MICP"). 5. ADDITIONAL BENEFITS: In addition to the regular compensation to be paid to Employee as hereinabove provided: (a) Employer shall reimburse Employee, upon submission of appropriate vouchers, for all necessary disbursements and reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties under the terms of this Agreement, including but not limited to entertainment, travel, and membership in social and civic organizations approved by the Board. Unless expressly authorized to the contrary, Employee will adhere to all policies and procedures of Employer concerning incurring and being reimbursed for disbursements and expenses. (b) Employer shall pay Employee the sum of Three Hundred Fifty Dollars ($350) per month for automobile expenses. (c) Employee shall be entitled to participate in any and all pension plans, profit sharing plans, 401k plans, incentive plans, retirement programs, life insurance programs, health insurance programs, and any other employee benefit programs established by the Board of Directors for employees of Employer. Employee's benefits under this Section 5(c) shall be 2 subject to such changes, amendments, or revisions as the Board may make from time to time in such plans and programs. 6. TERMINATION: This Agreement may be terminated (i) by the mutual consent of the parties hereto, or (ii) by the Board upon a determination by a majority of the Board that Employee has either failed to properly perform his duties as Chief Financial Officer while serving in that capacity, or failed to abide by the terms and conditions of this Agreement. Without limiting the foregoing, Employee will be deemed to have failed to properly perform his duties and may be immediately terminated upon the occurrence of any of the following: (a) Employee's willful failure or refusal to perform any of his duties and responsibilities as set forth herein, if such failures or refusals, individually or in the aggregate, are material to Employee's performance and are not based on legitimate legal objections to such performance; (b) Conviction of a felony or of any crime involving moral turpitude, fraud, or misrepresentation, or any dishonesty or fraudulent acts or omissions of Employee adversely affecting Employer or its reputation, business, or business relationships; (c) Employee's drunkenness or use of illegal drugs interfering with performance of Employee's obligations under this Agreement; (d) A formal determination or recommendation by any regulatory authority having jurisdiction over the operations of Employer that Employer should or must remove or replace Employee; (e) Any adverse change in the physical or mental condition of Employee that the Board determines in good faith (i) has rendered Employee incapable of continuing to perform his duties properly, and (ii) is likely to continue to do so for a period of six months or more; (f) In the event of termination of this Agreement and Employee's employment thereunder, Employer shall not be obligated to make any severance payments to Employee and any such severance payments to be made shall be at the sole discretion of the Board; and (g) Notwithstanding anything herein provided to the contrary, the terms and conditions of this paragraph 6 shall not be utilized to terminate Employee for a period of two (2) years from the effective date of the change of control, as change of 3 control is hereinafter defined and described in paragraph 7 of this Agreement. 7. CHANGE OF CONTROL: Notwithstanding anything hereinabove provided to the contrary, should, on or after the date hereof, a person, partnership, corporation, other entity or "group" ("Acquiror"), as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, obtain control of Employer by or through the acquisition of the common stock of Employer, or by any merger, consolidation, or other corporate reorganization, so that Acquiror has the power to appoint or elect a majority of the members of the Board, neither Acquiror nor Employer shall be permitted to alter, vary, or amend the terms and conditions of this Agreement, or to terminate Employee's employment as herein provided, for a period of two (2) years from the effective date of the change control, other than for cause as set forth in Section 6 above. Should Acquiror (or Employer after Acquiror obtains control of Employer) seek to vary or alter the terms of Employee's employment as provided in this Agreement, or transfer Employee to a different position with Employer or with Acquiror at an office located outside of Alameda or Contra Costa Counties, or should Acquiror or Employer unduly harass Employee in the performance of his duties or seek to terminate the benefits and privileges provided for him pursuant to the terms of this Agreement (other than as permitted under Section 5(c) hereof), then any one or more of said acts on the part of Acquiror or Employer shall, at Employee's election, be deemed to have terminated Employee's employment and, within five (5) days of notice to Acquiror or Employer of said deemed termination, unless Acquiror can establish just cause as set forth in Section 6 hereof with clear and convincing evidence, there shall be paid to Employee the following: An amount equal to not less than Employee's then monthly compensation from the date of termination for a period of 24 months from the effective date of termination. For the purposes of the payments herein provided, Employee's compensation shall be deemed to include not only the annual and monthly compensation provided by the terms and conditions of this Agreement, and any amendments thereto, but it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any incentive compensation plan during the three (3) years prior to the termination of his employment, plus an amount equal to the contributions made by Employer to Employer's profit sharing plan and/or 401k plan for Employee's benefit in the last year prior to termination. Notwithstanding anything contained in this Section 7(a), or any other section of this Agreement to the contrary, if any compensation or benefit payment shall be considered in the aggregate to be an "excess parachute payment," as that term is defined in Section 28OG of the Internal Revenue Code of 1986, as amended, all such compensation and benefits shall be reduced to 4 the extent required to prevent such compensation and benefits, in the aggregate, from being considered an "excess parachute payment." The purpose of this section is to protect Employee from the acts of any Acquiror who may, subsequent to the date hereof, acquire control of Employer and who may seek to terminate Employee's employment by creating an atmosphere of tension and anxiety which may ultimately force him to tender his resignation because of the acts of harassment and pressures or stress inflicted upon Employee. Employer recognizes the contribution Employee has made to the success of Employer since the commencement of his employment, and it is the desire of Employer to ensure that Employee has some measure of protection from the unreasonable acts of any Acquiror. For purposes of this Section 7, the term "Employer" shall refer to any affiliate or successor of Employer for whom Employee is required to perform services. 8. PROPRIETARY MATERIALS: All written or printed materials and all data fixed in any other tangible medium, such as magnetic disks or computer databases, in the possession of or used by Employee in performing duties for Employer are and shall remain the property of Employer. Upon termination of employment, Employee shall promptly return all such materials, and any copies thereof, to Employer. 9. DISCLOSURE OF INFORMATION: Employee shall not, either before or after termination of this Agreement, disclose to anyone any nonpublic information relating to Employer or any affiliate of Employer, including, but not limited to, any financial information, trade secrets, or know-how germane to the business and operations of Employer or any affiliate of Employer. For purposes of this Agreement, "affiliates" of Employer shall include any subsidiary of Employer, and any entity that directly or indirectly controls, is controlled by, or is under common control with Employer or any subsidiary. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special, and unique asset of the business of Employer. Employee shall not, either before or after termination of this Agreement, disclose to anyone said financial information, or any part thereof, for any reason or purpose whatsoever. 10. NONCOMPETITION BY EMPLOYEE: During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business competitive with Employer or any of its affiliates; provided, however, Employee shall not be restricted by this 5 section from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers so long as (except with respect to Employee's ownership of securities of Employer or any successor in interest of Employer) such investment does not exceed one (1) percent of the market value of the outstanding securities of such corporation. 11. FIDELITY BOND: Employee agrees that he will furnish all information and take any steps necessary to enable Employer or any of its affiliates to obtain or maintain fidelity bond coverage conditional on the rendering of a true account by Employee of all moneys, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The fidelity company issuing the fidelity bond and the amount of any such bond or bonds must be acceptable to Employer. All premiums on the bond(s) are to be paid by Employer. 12. ASSUMPTION OF AGREEMENT: In the event that the Board elects to sell, merge, or otherwise dispose of the assets or the shares of common stock of Employer, said agreement of sale or merger shall provide for the assumption of this Agreement by the purchaser, or said sale or merger shall be subject to the purchaser entering into a new employment agreement with Employee, the terms of which shall be substantially similar to this Agreement. In the event that no such provision is agreed to by the successor, this Agreement shall nonetheless be binding on said successor. 13. GENERAL: This Agreement is further governed by the following provisions: (a) ENTIRE AGREEMENT: This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Employee by Employer, and contains all of the covenants and agreements between the parties with respect to such employment. Any modification, waiver, or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. Employee shall be bound by the policies and procedures duly adopted by Employer, which may be changed from time to time at the discretion of Employer. In the event of any conflict between such policies and procedures and this Agreement, however, the terms of this Agreement shall govern. (b) WAIVER: Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of 6 this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (c) CHOICE OF LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of California. (d) BINDING EFFECT OF AGREEMENT: This Agreement shall inure to the benefit of and be binding upon Employer, its successors and assigns, including, without limitation, any person, partnership, corporation, or other entity or group which may acquire all or substantially all of Employer's assets and business, or with or into which Employer may be consolidated, merged, or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives. The rights and obligations of Employee under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Employee's creditors, other than by operation or force of law which cannot be altered or waived by agreement between Employer and Employee, and any attempt to do any of the foregoing shall be void. (e) INDEMNIFICATION: Employer shall indemnify Employee to the maximum extent permitted under the Bylaws of Employer, the corporate law of the jurisdiction under which the Employer is organized, and the laws and regulations applicable to financial institutions such as Employer. If available at reasonable rates as determined in the sole discretion of the Board, Employer shall endeavor to apply for and obtain Directors and Officers Liability Insurance to indemnify and insure Employer and Employee from and against liability or loss arising out of Employee's actual or asserted malfeasance or nonfeasance in the good faith performance of his duties or out of any actual or asserted wrongful act against or by Employer, including, but not limited to, judgments, fines, settlements, and expenses incurred in the defense of actions, proceedings, and appeals therefrom. The provisions of this section are contractual and not a mere recital and shall inure to the benefit of Employee's estate, executor, administrator, heirs, legatees, or devisees. (f) SEVERABILITY: In the event that any term or condition contained in this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other term or condition of this Agreement, but this Agreement shall be construed as if such 7 invalid or illegal or unenforceable term or condition had never been contained herein. (g) HEADINGS: The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. (h) NOTICES: Any notices to be given hereunder by any party to another party may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual delivery; mailed notices shall be deemed communicated as of five (5) days after mailing. (i) ARBITRATION: Any controversy or claim arising out of or relating to this Agreement or Employee's employment, or out of any actual or alleged breach of this Agreement, shall be settled in accordance with the Mutual Agreement to Arbitrate Claims between the parties of even date herewith. (j) ATTORNEYS' FEES AND COSTS: If any action at law or in equity (with regard to claims not covered by the Mutual Agreement to Arbitrate Claims) or any arbitration proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements, in addition to any other remedies to which he or it may be entitled. (k) LIFE/DISABILITY INSURANCE: Employer shall have the right at any time during the term hereof to obtain and maintain life insurance on Employee's life and disability insurance with respect to Employee, at Employer's sole expense, naming Employer as the sole beneficiary thereof. Employee shall (i) cooperate fully with Employer in obtaining such life and/or disability insurance, (ii) sign any necessary consents, applications, and other related forms or documents, and (iii) take any required medical examinations. (1) SURVIVAL: The provisions of Sections 8, 9, and this Section 13 shall survive the termination of this Agreement. Executed as of 1995. ---------------------------- I, THE UNDERSIGNED EMPLOYEE, ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT 8 IT, ALONG WITH ANY AGREEMENTS EXPRESSLY REFERRED TO IN IT, CONTAINS ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECT OF MY EMPLOYMENT AS AN OFFICER OF EMPLOYER, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. EMPLOYER: EMPLOYEE: CALIFORNIA BANCSHARES, INC., a Delaware corporation -------------------------- VINCENT M. LEVERONI By ---------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 9 MUTUAL AGREEMENT TO ARBITRATE CLAIMS I recognize that differences may arise between CALIFORNIA BANCSHARES, INC., a Delaware corporation ("Employer"), and me during or following my employment with Employer. I understand and agree that, by entering into this Mutual Agreement to Arbitrate Claims ("Agreement"), I anticipate gaining the benefits of a speedy, impartial, dispute resolution procedure. I understand that any reference in this Agreement to Employer will be a reference also to all subsidiary and affiliated entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them. 1. CLAIMS COVERED BY THE AGREEMENT Employer and I mutually consent to the resolution by arbitration of all claims or controversies ("claims") arising out of my employment or its termination that Employer may have against me or that I may have against Employer, or against its officers, directors, employees, or agents in their capacity as such or otherwise. The claims covered by this Agreement include, but are not limited to, claims based on contract or tort, including claims of discrimination based on race, sex, religion, national origin, age, marital status, or medical condition, handicap, or disability, except claims excluded in the following paragraph. 2. CLAIMS NOT COVERED BY THE AGREEMENT Claims I may have for workers' compensation or unemployment compensation benefits are not covered by this Agreement. Also not covered are claims by Employer for injunctive and/or other equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information, as to which I understand and agree that Employer may seek and obtain relief from a court of competent jurisdiction. 3. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS Employer and I agree that the aggrieved party must give written notice of any claim to the other party within one (1) year of the date the aggrieved party first knows or should have known of the event giving rise to the claim; otherwise, the claim shall be void and deemed waived even if there is a federal or 1 state statute of limitations which would have given more time to pursue the claim. Written notice to Employer, or its officers, directors, employees, or agents, shall be sent to its Chief Executive Officer at 100 Park Place, Suite 140, San Ramon, CA 94583. I will be given written notice at the last address recorded in my personnel file. The written notice shall identify and describe the nature of all claims asserted and the facts upon which such claims are based. The notice shall be sent to the other party by certified or registered mail, return receipt requested. 4. REPRESENTATION Any party may be represented by an attorney or other representative selected by the party. 5. DISCOVERY Each party shall have the right to take the deposition of one individual and one expert witness designated by another party. Each party also shall have the right to make one request for production of documents to any party. The subpena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of substantial need. 6. DESIGNATION OF WITNESSES At least thirty (30) days before the arbitration, the parties must exchange lists of witnesses, including any experts, and copies of all exhibits intended to be used at the arbitration. 7. SUBPENAS Each party shall have the right to subpena witnesses and documents for the arbitration. 8. ARBITRATION PROCEDURES Employer and I agree that, except as provided in this Agreement, any arbitration shall be in accordance with the model Employment Arbitration Procedures of the American Arbitration Association ("AAA") before an arbitrator who is licensed to practice law in the state of California. Any conflict between the procedures specified in this Agreement and the model Employment Arbitration Procedures shall be resolved in favor of the procedures specified herein. 2 The Arbitrator shall be selected by mutual agreement of the parties or, if they cannot agree within ten (10) business days after a request for arbitration is made and a list of eligible arbitrators is received, then in accordance with the model Employment Arbitration Procedures. The Arbitrator shall apply the substantive law (and the law of remedies, if applicable ) of the state in which the claim arose, or federal law, or both, as applicable to the claim(s) asserted. The Federal Rules of Evidence shall apply. The Arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties. The Arbitrator shall have jurisdiction to hear and rule on prehearing disputes and is authorized to hold prehearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. Either party, upon request at the close of hearing, shall be given leave to file a posthearing brief. The time for filing such a brief shall be set by the Arbitrator. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award. Except as otherwise provided in this Agreement, both Employer and I agree that neither of us shall initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination or any claim expressly excluded under Section 2 above) in any way related to any claim covered by this Agreement. Any arbitration award shall be accompanied by a written statement containing summary of the issues in controversy, a description of the award, and an explanation of the reasons for the award. 9. ARBITRATION FEES AND COSTS Employer and I shall equally share the fees and costs of the Arbitrator. Each party shall pay for its own costs and attorneys' fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, or if there is a written agreement providing for fees, the Arbitrator may award reasonable fees to the party the Arbitrator determines to be the prevailing party under applicable law. 3 10. INTERSTATE COMMERCE I understand and agree that Employer is engaged in transactions involving interstate commerce and that my employment involves such commerce. Specifically, Employer engages in transactions with correspondent Employers in other states, provides financial services to persons with businesses in interstate commerce, and participates in electronic networks permitting banking transactions from locations outside the state. 11. REQUIREMENTS OF MODIFICATION OR REVOCATION This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a writing signed by the parties which specifically states an intent to revoke or modify this Agreement. 12. SOLE AND ENTIRE AGREEMENT This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration agreement in connection with any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written understanding on the subject. No party is relying on any representations, oral or written, on the subject of the effect, enforceability, or meaning of this Agreement, except as specifically set forth in this Agreement. 13. CONSTRUCTION If any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement. 14. CONSIDERATION In consideration for my agreement to arbitrate the claims covered by this Agreement, rather than litigate them before courts or other bodies, I acknowledge that Employer has extended to me the benefits and privileges provided in that certain Employment Agreement of even date herewith, and that Employer has given up its right to pursue any claims against me in a court of law pertaining to the subject matter of this Agreement, except as expressly set forth in Section 2 hereof. 15. NOT AN EMPLOYMENT AGREEMENT This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor does this Agreement in any way alter the "at-will" status of my employment. 4 16. VOLUNTARY AGREEMENT I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. Dated: ,1995 ----------------------- ------------------------------- VINCENT M. LEVERONI Dated: ,1995 CALIFORNIA BANCHSARES, INC., a ----------------------- Delaware corporation By ------------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 5 EX-10.7 7 EXHIBIT 10.7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of December 1, 1995, by and between JOHN W. LARSEN (hereinafter referred to as "Employee") and CALIFORNIA BANCSHARES, INC., a Delaware corporation (hereinafter referred to as "Employer"). This Agreement supersedes all prior employment agreements by and between Employer and Employee and all previous employment agreements are hereby terminated and shall be of no further force or effect. Employee, being willing to be employed by Employer as its Senior Credit Officer, and Employer, being willing to employ Employee in such capacity, all on the terms, covenants and conditions hereinafter set forth, it is agreed as follows: 1. POSITION: Employee is hereby employed as Senior Credit Officer of Employer, and shall serve in that capacity during the Employment Term. In such capacity, Employee shall be charged with the responsibility of supervising, managing, and directing all of the lending activities of Employer and all of its banking subsidiaries. Employee shall devote all of his time and effort to the supervision, management, and direction of the lending activities of Employer and all of its banking subsidiaries, and shall not engage in any other employment or activity without the prior written consent of the Board of Directors of Employer (the "Board"), but he shall be free to conduct such reasonable activities as are related to the management of his personal finances without the prior written consent of the Board. When any such personal activity poses a potential conflict with his duties as Senior Credit Officer, Employee shall promptly notify the Board, and he shall thereafter be guided by, and in all of his activities shall be responsible and accountable to, the Board. 2. TERM: The term of this Agreement will commence on December 1, 1995, and will continue until November 30, 1997, subject to prior termination as hereinafter set forth (the "Employment Term"). Unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of its term, this Agreement shall automatically be extended one additional year each December 1 commencing December 1, 1997. Notwithstanding the preceding sentence, upon any change of control as described in Section 7 hereof, the term of this Agreement shall automatically be 1 extended two years from the effective date of such change of control and, unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of said year, shall automatically be extended to the next succeeding November 30 (and thereafter may be extended or terminated in accordance with the preceding sentence). 3. CONTINUING EDUCATION: From time to time during the term of this Agreement, Employee shall attend and participate in seminars and conferences to apprise himself as an executive officer of Employer of all current laws, regulations, practices, and procedures regarding the management and direction of Employer, and with the objective of maintaining his technical proficiency as an executive officer of such an organization. 4. COMPENSATION: In consideration of the services to be performed by Employee for Employer under this Agreement, as herein specified, Employer shall pay to Employee, as regular compensation for his services, the sum of One Hundred Twenty Thousand Dollars ($120,000) per year, payable in accordance with Employer's normal payroll practices. Said level of compensation shall be reviewed in March of each year in accordance with Employer's merit salary increase program. A merit increase may be granted to Employee as a result of this annual review procedure. Employee shall also be enrolled in the Management Incentive Compensation Plan ("MICP"). Employee may be entitled to a bonus as additional compensation in accordance with the Plan ("MICP"). 5. ADDITIONAL BENEFITS: In addition to the regular compensation to be paid to Employee as hereinabove provided: (a) Employer shall reimburse Employee, upon submission of appropriate vouchers, for all necessary disbursements and reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties under the terms of this Agreement, including but not limited to entertainment, travel, and membership in social and civic organizations approved by the Board. Unless expressly authorized to the contrary, Employee will adhere to all policies and procedures of Employer concerning incurring and being reimbursed for disbursements and expenses. (b) During the term of this Agreement, Employer shall provide Employee with an automobile to be used by Employee for the performance of his duties under the terms and conditions of this Agreement. The automobile will be used by employee as required in the course of conducting the business of Employer. Employer shall pay all costs of maintaining the automobile in good condition and repair and shall pay all costs of operating the vehicle during the term of this Agreement. Employee may also use the automobile for reasonable personal use. Employee shall 2 keep appropriate mileage logs of such use and provide an accounting to Employer at least as of each calendar year end. Employee shall be responsible for such personal use in accordance with applicable Internal Revenue Service regulations. A W-2 shall be issued to Employee for the imputed value of personal use. (c) Employee shall be entitled to participate in any and all pension plans, profit sharing plans, 401k plans, incentive plans, retirement programs, life insurance programs, health insurance programs, and any other employee benefit programs established by the Board of Directors for employees of Employer. Employee's benefits under this Section 5(c) shall be subject to such changes, amendments, or revisions as the Board may make from time to time in such plans and programs. 6. TERMINATION: This Agreement may be terminated (i) by the mutual consent of the parties hereto, or (ii) by the Board upon a determination by a majority of the Board that Employee has either failed to properly perform his duties as Senior Credit Officer while serving in that capacity, or failed to abide by the terms and conditions of this Agreement. Without limiting the foregoing, Employee will be deemed to have failed to properly perform his duties and may be immediately terminated upon the occurrence of any of the following: (a) Employee's willful failure or refusal to perform any of his duties and responsibilities as set forth herein, if such failures or refusals, individually or in the aggregate, are material to Employee's performance and are not based on legitimate legal objections to such performance; (b) Conviction of a felony or of any crime involving moral turpitude, fraud, or misrepresentation, or any dishonesty or fraudulent acts or omissions of Employee adversely affecting Employer or its reputation, business, or business relationships; (c) Employee's drunkenness or use of illegal drugs interfering with performance of Employee's obligations under this Agreement; (d) A formal determination or recommendation by any regulatory authority having jurisdiction over the operations of Employer that Employer should or must remove or replace Employee; (e) Any adverse change in the physical or mental condition of Employee that the Board determines in good faith (i) has rendered Employee incapable of continuing to perform his 3 duties properly, and (ii) is likely to continue to do so for a period of six months or more; (f) In the event of termination of this Agreement and Employee's employment thereunder, Employer shall not be obligated to make any severance payments to Employee and any such severance payments to be made shall be at the sole discretion of the Board; and (g) Notwithstanding anything herein provided to the contrary, the terms and conditions of this paragraph 6 shall not be utilized to terminate Employee for a period of two (2) years from the effective date of the change of control, as change of control is hereinafter defined and described in paragraph 7 of this Agreement. 7. CHANGE OF CONTROL: Notwithstanding anything hereinabove provided to the contrary, should, on or after the date hereof, a person, partnership, corporation, other entity or "group" ("Acquiror"), as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, obtain control of Employer by or through the acquisition of the common stock of Employer, or by any merger, consolidation, or other corporate reorganization, so that Acquiror has the power to appoint or elect a majority of the members of the Board, neither Acquiror nor Employer shall be permitted to alter, vary, or amend the terms and conditions of this Agreement, or to terminate Employee's employment as herein provided, for a period of two (2) years from the effective date of the change control, other than for cause as set forth in Section 6 above. Should Acquiror (or Employer after Acquiror obtains control of Employer) seek to vary or alter the terms of Employee's employment as provided in this Agreement, or transfer Employee to a different position with Employer or with Acquiror at an office located outside of Alameda, Contra Costa, Santa Clara, or San Joaquin Counties, or should Acquiror or Employer unduly harass Employee in the performance of his duties or seek to terminate the benefits and privileges provided for him pursuant to the terms of this Agreement (other than as permitted under Section 5(c) hereof), then any one or more of said acts on the part of Acquiror or Employer shall, at Employee's election, be deemed to have terminated Employee's employment and, within five (5) days of notice to Acquiror or Employer of said deemed termination, unless Acquiror can establish just cause as set forth in Section 6 hereof with clear and convincing evidence, there shall be paid to Employee the following: An amount equal to not less than Employee's then monthly compensation from the date of termination for a period of 24 months from the effective date of termination. For the purposes of the payments herein provided, Employee's compensation shall be deemed to include not only the annual and monthly compensation provided by the terms and conditions of this Agreement, and any amendments thereto, but 4 it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any incentive compensation plan during the three (3) years prior to the termination of his employment, plus an amount equal to the contributions made by Employer to Employer's profit sharing plan and/or 401k plan for Employee's benefit in the last year prior to termination. Notwithstanding anything contained in this Section 7(a), or any other section of this Agreement to the contrary, if any compensation or benefit payment shall be considered in the aggregate to be an "excess parachute payment," as that term is defined in Section 280G of the Internal Revenue Code of 1986, as amended, all such compensation and benefits shall be reduced to the extent required to prevent such compensation and benefits, in the aggregate, from being considered an "excess parachute payment." The purpose of this section is to protect Employee from the acts of any Acquiror who may, subsequent to the date hereof, acquire control of Employer and who may seek to terminate Employee's employment by creating an atmosphere of tension and anxiety which may ultimately force him to tender his resignation because of the acts of harassment and pressures or stress inflicted upon Employee. Employer recognizes the contribution Employee has made to the success of Employer since the commencement of his employment, and it is the desire of Employer to ensure that Employee has some measure of protection from the unreasonable acts of any Acquiror. For purposes of this section 7, the term "Employer" shall refer to any affiliate or successor of Employer for whom Employee is required to perform services. 8. PROPRIETARY MATERIALS: All written or printed materials and all data fixed in any other tangible medium, such as magnetic disks or computer databases, in the possession of or used by Employee in performing duties for Employer are and shall remain the property of Employer. Upon termination of employment, Employee shall promptly return all such materials, and any copies thereof, to Employer. 9. DISCLOSURE OF INFORMATION: Employee shall not, either before or after termination of this Agreement, disclose to anyone any nonpublic information relating to Employer or any affiliate of Employer, including, but not limited to, any financial information, trade secrets, or know-how germane to the business and operations of Employer or any affiliate of Employer. For purposes of this Agreement, "affiliates" of Employer shall include any subsidiary of Employer, and any entity that directly or indirectly controls, is controlled by, or is under common control with Employer or any subsidiary. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is 5 strictly confidential and is a valuable, special, and unique asset of the business of Employer. Employee shall not, either before or after termination of this Agreement, disclose to anyone said financial information, or any part thereof, for any reason or purpose whatsoever. 10. NONCOMPETITION BY EMPLOYEE: During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business competitive with Employer or any of its affiliates; provided, however, Employee shall not be restricted by this section from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers so long as (except with respect to Employee's ownership of securities of Employer or any successor in interest of Employer) such investment does not exceed one (1) percent of the market value of the outstanding securities of such corporation. 11. FIDELITY BOND: Employee agrees that he will furnish all information and take any steps necessary to enable Employer or any of its affiliates to obtain or maintain fidelity bond coverage conditional on the rendering of a true account by Employee of all moneys, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The fidelity company issuing the fidelity bond and the amount of any such bond or bonds must be acceptable to Employer. All premiums on the bond(s) are to be paid by Employer. 12. ASSUMPTION OF AGREEMENT: In the event that the Board elects to sell, merge, or otherwise dispose of the assets or the shares of common stock of Employer, said agreement of sale or merger shall provide for the assumption of this Agreement by the purchaser, or said sale or merger shall be subject to the purchaser entering into a new employment agreement with Employee, the terms of which shall be substantially similar to this Agreement. In the event that no such provision is agreed to by the successor, this Agreement shall nonetheless be binding on said successor. 13. GENERAL: This Agreement is further governed by the following provisions: (a) ENTIRE AGREEMENT: This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Employee by Employer, and contains all of the covenants and agreements between the parties with respect to such employment. Any 6 modification, waiver, or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. Employee shall be bound by the policies and procedures duly adopted by Employer, which may be changed from time to time at the discretion of Employer. In the event of any conflict between such policies and procedures and this Agreement, however, the terms of this Agreement shall govern. (b) WAIVER: Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (c) CHOICE OF LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of California. (d) BINDING EFFECT OF AGREEMENT: This Agreement shall inure to the benefit of and be binding upon Employer, its successors and assigns, including, without limitation, any person, partnership, corporation, or other entity or group which may acquire all or substantially all of Employer's assets and business, or with or into which Employer may be consolidated, merged, or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives. The rights and obligations of Employee under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Employee's creditors, other than by operation or force of law which cannot be altered or waived by agreement between Employer and Employee, and any attempt to do any of the foregoing shall be void. (e) INDEMNIFICATION: Employer shall indemnify Employee to the maximum extent permitted under the Bylaws of Employer, the corporate law of the jurisdiction under which the Employer is organized, and the laws and regulations applicable to financial institutions such as Employer. If available at reasonable rates as determined in the sole discretion of the Board, Employer shall endeavor to apply for and obtain Directors and Officers Liability Insurance to indemnify and insure Employer and Employee from and against liability or loss arising out of Employee's actual or asserted malfeasance or nonfeasance in the good faith performance of his duties or out of any actual or 7 asserted wrongful act against or by Employer, including, but not limited to, judgments, fines, settlements, and expenses incurred in the defense of actions, proceedings, and appeals therefrom. The provisions of this section are contractual and not a mere recital and shall inure to the benefit of Employee's estate, executor, administrator, heirs, legatees, or devisees. (f) SEVERABILITY: In the event that any term or condition contained in this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other term or condition of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable term or condition had never been contained herein. (g) HEADINGS: The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. (h) NOTICES: Any notices to be given hereunder by any party to another party may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual delivery; mailed notices shall be deemed communicated as of five (5) days after mailing. (i) ARBITRATION: Any controversy or claim arising out of or relating to this Agreement or Employee's employment, or out of any actual or alleged breach of this Agreement, shall be settled in accordance with the Mutual Agreement to Arbitrate Claims between the parties of even date herewith. (j) ATTORNEYS' FEES AND COSTS: If any action at law or in equity (with regard to claims not covered by the Mutual Agreement to Arbitrate Claims) or any arbitration proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements, in addition to any other remedies to which he or it may be entitled. (k) LIFE/DISABILITY INSURANCE: Employer shall have the right at any time during the term hereof to obtain and maintain life insurance on Employee's life and disability insurance with respect to Employee, at Employer's sole expense, naming Employer as the sole beneficiary thereof. Employee shall (i) cooperate fully with Employer in obtaining such life and/or 8 disability insurance, (ii) sign any necessary consents, applications, and other related forms or documents, and (iii) take any required medical examinations. (1) SURVIVAL: The provisions of Sections 8, 9, and this Section 13 shall survive the termination of this Agreement. Executed as of 1995. -------------------------- I, THE UNDERSIGNED EMPLOYEE, ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT IT, ALONG WITH ANY AGREEMENTS EXPRESSLY REFERRED TO IN IT, CONTAINS ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECT OF MY EMPLOYMENT AS AN OFFICER OF EMPLOYER, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. EMPLOYER: EMPLOYEE: CALIFORNIA BANCSHARES, INC., a Delaware corporation ------------------------------ JOHN W. LARSEN By -------------------------------- JOSEPH P. COLMERY President and Chief Executive officer 9 MUTUAL AGREEMENT TO ARBITRATE CLAIMS I recognize that differences may arise between CALIFORNIA BANCSHARES, INC., a Delaware corporation ("Employer"), and me during or following my employment with Employer. I understand and agree that, by entering into this Mutual Agreement to Arbitrate Claims ("Agreement"), I anticipate gaining the benefits of a speedy, impartial, dispute resolution procedure. I understand that any reference in this Agreement to Employer will be a reference also to all subsidiary and affiliated entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them. 1. CLAIMS COVERED BY THE AGREEMENT Employer and I mutually consent to the resolution by arbitration of all claims or controversies ("claims") arising out of my employment or its termination that Employer may have against me or that I may have against Employer, or against its officers, directors, employees, or agents in their capacity as such or otherwise. The claims covered by this Agreement include, but are not limited to, claims based on contract or tort, including claims of discrimination based on race, sex, religion, national origin, age, marital status, or medical condition, handicap, or disability, except claims excluded in the following paragraph. 2. CLAIMS NOT COVERED BY THE AGREEMENT Claims I may have for workers' compensation or unemployment compensation benefits are not covered by this Agreement. Also not covered are claims by Employer for injunctive and/or other equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information, as to which I understand and agree that Employer may seek and obtain relief from a court of competent jurisdiction. 3. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS Employer and I agree that the aggrieved party must give written notice of any claim to the other party within one (1) year of the date the aggrieved party first knows or should have known of the event giving rise to the claim; otherwise, the claim shall be void and deemed waived even if there is a federal or 1 state statute of limitations which would have given more time to pursue the claim. Written notice to Employer, or its officers, directors, employees, or agents, shall be sent to its Chief Executive Officer at 100 Park Place, Suite 140, San Ramon, CA 94583. I will be given written notice at the last address recorded in my personnel file. The written notice shall identify and describe the nature of all claims asserted and the facts upon which such claims are based. The notice shall be sent to the other party by certified or registered mail, return receipt requested. 4. REPRESENTATION Any party may be represented by an attorney or other representative selected by the party. 5. DISCOVERY Each party shall have the right to take the deposition of one individual and one expert witness designated by another party. Each party also shall have the right to make one request for production of documents to any party. The subpena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of substantial need. 6. DESIGNATION OF WITNESSES At least thirty (30) days before the arbitration, the parties must exchange lists of witnesses, including any experts, and copies of all exhibits intended to be used at the arbitration. 7. SUBPENAS Each party shall have the right to subpena witnesses and documents for the arbitration. 8. ARBITRATION PROCEDURES Employer and I agree that, except as provided in this Agreement, any arbitration shall be in accordance with the model Employment Arbitration Procedures of the American Arbitration Association ("AAA") before an arbitrator who is licensed to practice law in the state of California. Any conflict between the procedures specified in this Agreement and the model Employment Arbitration Procedures shall be resolved in favor of the procedures specified herein. 2 The Arbitrator shall be selected by mutual agreement of the parties or, if they cannot agree within ten (10) business days after a request for arbitration is made and a list of eligible arbitrators is received, then in accordance with the model Employment Arbitration Procedures. The Arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the state in which the claim arose, or federal law, or both, as applicable to the claim(s) asserted. The Federal Rules of Evidence shall apply. The Arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties. The Arbitrator shall have jurisdiction to hear and rule on prehearing disputes and is authorized to hold prehearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. Either party, upon request at the close of hearing, shall be given leave to file a posthearing brief. The time for filing such a brief shall be set by the Arbitrator. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award. Except as otherwise provided in this Agreement, both Employer and I agree that neither of us shall initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination or any claim expressly excluded under Section 2 above) in any way related to any claim covered by this Agreement. Any arbitration award shall be accompanied by a written statement containing summary of the issues in controversy, a description of the award, and an explanation of the reasons for the award. 9. ARBITRATION FEES AND COSTS Employer and I shall equally share the fees and costs of the Arbitrator. Each party shall pay for its own costs and attorneys' fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, or if there is a written agreement providing for fees, the Arbitrator may award reasonable fees to the party the Arbitrator determines to be the prevailing party under applicable law. 3 10. INTERSTATE COMMERCE I understand and agree that Employer is engaged in transactions involving interstate commerce and that my employment involves such commerce. Specifically, Employer engages in transactions with correspondent Employers in other states, provides financial services to persons with businesses in interstate commerce, and participates in electronic networks permitting banking transactions from locations outside the state. 11. REQUIREMENTS OF MODIFICATION OR REVOCATION This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a writing signed by the parties which specifically states an intent to revoke or modify this Agreement. 12. SOLE AND ENTIRE AGREEMENT This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration agreement in connection with any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written understanding on the subject. No party is relying on any representations, oral or written, on the subject of the effect, enforceability, or meaning of this Agreement, except as specifically set forth in this Agreement. 13. CONSTRUCTION If any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement. 14. CONSIDERATION In consideration for my agreement to arbitrate the claims covered by this Agreement, rather than litigate them before courts or other bodies, I acknowledge that Employer has extended to me the benefits and privileges provided in that certain Employment Agreement of even date herewith, and that Employer has given up its right to pursue any claims against me in a court of law pertaining to the subject matter of this Agreement, except as expressly set forth in Section 2 hereof. 15. NOT AN EMPLOYMENT AGREEMENT This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor does this Agreement in any way alter the "at-will" status of my employment. 4 16. VOLUNTARY AGREEMENT I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. Dated: ,1995 ------------------------- ------------------------- JOHN W. LARSEN Dated: ,1995 CALIFORNIA BANCHSARES, INC., a ------------------------- Delaware corporation By ------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 5 EX-10.8 8 EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of December 1, 1995, by and between CALIFORNIA BANCSHARES, INC., a Delaware corporation (hereinafter referred to as "Employer"), and TED TERUO KITADA (hereinafter referred to as "Employee"). This Agreement supersedes all prior employment agreements by and between Employer and Employee and all previous employment agreements are hereby terminated and shall be of no further force or effect. Employee, being willing to be employed by Employer as its General Counsel, and Employer, being willing to employ Employee in such capacity, all on the terms, covenants and conditions hereinafter set forth, it is agreed as follows: 1. POSITION: Employee is hereby employed as General Counsel of Employer, and shall serve in that capacity during the Employment Term. In such capacity, Employee shall be charged with the responsibility of supervising, managing, and directing all compliance and legal affairs of Employer and all of its banking subsidiaries. Employee shall devote all of his time and effort to the supervision, management, and direction of all compliance and legal affairs of Employer and all of its banking subsidiaries, and shall not engage in any other employment or activity without the prior written consent of the Board of Directors of Employer (the "Board"), but he shall be free to conduct such reasonable activities as are related to the management of his personal finances without the prior written consent of the Board. When any such personal activity poses a potential conflict with his duties as General Counsel, Employee shall promptly notify the Board, and he shall thereafter be guided by, and in all of his activities shall be responsible and accountable to, the Board. 2. TERM: The term of this Agreement will commence on December 1, 1995, and will continue until November 30, 1996, subject to prior termination as hereinafter set forth (the "Employment Term"). Unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of its term, this Agreement shall automatically be extended for one additional year commencing each December 1. Notwithstanding the preceding sentence, upon any change of control as described in Section 7 hereof, the term of this Agreement shall automatically be extended one year from the 1 effective date of such change of control and, unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of said year, shall automatically be extended to the next succeeding November 30 (and thereafter may be extended or terminated in accordance with the preceding sentence). 3. CONTINUING EDUCATION: From time to time during the term of this Agreement, Employee shall attend and participate in seminars and conferences to apprise himself as an executive officer of Employer of all current laws, regulations, practices, and procedures regarding the management and direction of Employer, and with the objective of maintaining his technical proficiency as an executive officer of such an organization. 4. COMPENSATION: In consideration of the services to be performed by Employee for Employer under this Agreement, as herein described, Employer shall pay to Employee, as regular compensation, the sum of One Hundred Eighteen Thousand Dollars ($118,000) per year effective July 1, 1994, payable in accordance with Employer's normal payroll practices. Said level of compensation shall be reviewed in March of each year in accordance with Employer's merit salary increase program. A merit increase may be granted to Employee as a result of this annual review procedure. Employee shall also be enrolled in the Management Incentive Compensation Plan ("MICP"). Employee may be entitled to a bonus as additional compensation in accordance with the Plan ("MICP"). 5. ADDITIONAL BENEFITS: In addition to the regular compensation to be paid to Employee as hereinabove provided: (a) Employer shall reimburse Employee, upon submission of appropriate vouchers, for all necessary disbursements and reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties under the terms of this Agreement, including but not limited to entertainment, travel, and membership in social and civic organizations approved by the Board. Unless expressly authorized to the contrary, Employee will adhere to all policies and procedures of Employer concerning incurring and being reimbursed for disbursements and expenses. (b) Employer shall pay Employee the sum of $500.00 per month for automobile expenses. Employer shall provide Employee, at Employer's sole cost and expense, a car phone, along with the regular monthly costs associated with a car phone. (c) Employee shall be entitled to participate in any and all pension plans, profit sharing plans, 401k plans, incentive plans, retirement programs, life insurance programs, health insurance programs, and any other employee benefit 2 programs established by the Board of Directors for employees of Employer. Employee's benefits under this Section 5(c) shall be subject to such changes, amendments, or revisions as the Board may make from time to time in such plans and programs. (d) INSURANCE. Employer shall provide Employee, at Employer's sole cost and expense, Term life insurance in the amount of $200,000. Employee shall have the right, in Employee's sole discretion, to determine ownership and beneficial interests in such life insurance policy. (e) CLUB MEMBERSHIP. Employer shall reimburse Employee for Employee's dues and memberships in mutually agreed upon clubs. 6. TERMINATION: This Agreement may be Terminated (i) by the mutual consent of the parties hereto, or (ii) by the Board upon a determination by a majority of the Board that Employee has either failed to properly perform his duties as General Counsel while serving in that capacity, or failed to abide by the terms and conditions of this Agreement. Without limiting the foregoing, Employee will be deemed to have failed to properly perform his duties and may be immediately terminated upon the occurrence of any of the following: (a) Employee's willful failure or refusal to perform any of his duties and responsibilities as set forth herein, if such failures or refusals, individually or in the aggregate, are material to Employee's performance and are not based on legitimate legal objections to such performance; (b) Conviction of a felony or of any crime involving moral turpitude, fraud, or misrepresentation, or any dishonesty or fraudulent acts or omissions of Employee adversely affecting Employer or its reputation, business, or business relationships; (c) Employee's drunkenness or use of illegal drugs interfering with performance of Employee's obligations under this Agreement; (d) A formal determination or recommendation by any regulatory authority having jurisdiction over the operations of Employer that Employer should or must remove or replace Employee; (e) Any adverse change in the physical or mental condition of Employee that the Board determines in good faith (i) has rendered Employee incapable of continuing to perform his duties properly, and (ii) is likely to continue to do so for a period of six months or more; 3 (f) In the event of termination of this Agreement and Employee's employment thereunder, Employer shall not be obligated to make any severance payments to Employee and any such severance payments to be made shall be at the sole discretion of the Board; and (g) Notwithstanding anything herein provided to the contrary, the terms and conditions of this paragraph 6 shall not be utilized to terminate Employee for a period of one (1) year from the effective date of the change of control, as change of control is hereinafter defined and described in paragraph 7 of this Agreement. 7. CHANGE OF CONTROL: Notwithstanding anything hereinabove provided to the contrary, should, on or after the date hereof, a person, partnership, corporation, other entity or "group" ("Acquiror"), as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, obtain control of Employer by or through the acquisition of the common stock of Employer, or by any merger, consolidation, or other corporate reorganization, so that Acquiror has the power to appoint or elect a majority of the members of the Board, neither Acquiror nor Employer shall be permitted to alter, vary, or amend the terms and conditions of this Agreement, or to terminate Employee's employment as herein provided, for a period of one (1) year from the effective date of the change control, other than for cause as set forth in Section 6 above. Should Acquiror (or Employer after Acquiror obtains control of Employer) seek to vary or alter the terms of Employee's employment as provided in this Agreement, or transfer Employee to a different position with Employer or with Acquiror at an office located outside of Alameda, Contra Costa, Santa Clara, or San Joaquin Counties, or should Acquiror or Employer unduly harass Employee in the performance of his duties or seek to terminate the benefits and privileges provided for him pursuant to the terms of this Agreement (other than as permitted under Section 5(c) hereof), then any one or more of said acts on the part of Acquiror or Employer shall, at Employee's election, be deemed to have terminated Employee's employment and, within five (5) days of notice to Acquiror or Employer of said deemed termination, unless Acquiror can establish just cause as set forth in Section 6 hereof with clear and convincing evidence, there shall be paid to Employee the following: An amount equal to one (1) year's compensation at the rate in effect on the date of said deemed termination. For the purposes of the payments herein provided, Employee's compensation shall be deemed to include not only the annual and monthly compensation provided by the terms and conditions of this Agreement, and any amendments thereto, but it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any incentive compensation plan during the three (3) years prior to the termination of his employment, plus an amount equal to the 4 contributions made by Employer to Employer's profit sharing plan and/or 401k plan for Employee's benefit in the last year prior to termination. Notwithstanding anything contained in this Section 7(a), or any other section of this Agreement to the contrary, if any compensation or benefit payment shall be considered in the aggregate to be an "excess parachute payment," as that term is defined in Section 280G of the Internal Revenue Code of 1986, as amended, all such compensation and benefits shall be reduced to the extent required to prevent such compensation and benefits, in the aggregate, from being considered an "excess parachute payment. The purpose of this section is to protect Employee from the acts of any Acquiror who may, subsequent to the date hereof, acquire control of Employer and who may seek to terminate Employee's employment by creating an atmosphere of tension and anxiety which may ultimately force him to tender his resignation because of the acts of harassment and pressures or stress inflicted upon Employee. Employer recognizes the contribution Employee has made to the success of Employer since the commencement of his employment, and it is the desire of Employer to ensure that Employee has some measure of protection from the unreasonable acts of any Acquiror. For purposes of this section 7, the term "Employer" shall refer to any affiliate or successor of Employer for whom Employee is required to perform services. 8. PROPRIETARY MATERIALS: All written or printed materials and all data fixed in any other tangible medium, such as magnetic disks or computer databases, in the possession of or used by Employee in performing duties for Employer are and shall remain the property of Employer. Upon termination of employment, Employee shall promptly return all such materials, and any copies thereof, to Employer. 9. DISCLOSURE OF INFORMATION: Employee shall not, either before or after termination of this Agreement, disclose to anyone any nonpublic information relating to Employer or any affiliate of Employer, including, but not limited to, any financial information, trade secrets, or know-how germane to the business and operations of Employer or any affiliate of Employer. For purposes of this Agreement, "affiliates" of Employer shall include any subsidiary of Employer and any entity that directly or indirectly controls, is controlled by, or is under common control with Employer, or any subsidiary. Employee recognizes and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special, and unique asset of the business of Employer. Employee shall not, either before or after termination of this Agreement, disclose to anyone 5 said financial information, or any part thereof, for any reason or purpose whatsoever. 10. NONCOMPETITION BY EMPLOYEE: During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business competitive with Employer or any of its affiliates; provided, however, Employee shall not be restricted by this section from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers so long as (except with respect to Employee's ownership of securities of Employer or any successor in interest of Employer) such investment does not exceed one (1) percent of the market value of the outstanding securities of such corporation. 11. FIDELITY BOND: Employee agrees that he will furnish all information and take any steps necessary to enable Employer or any of its affiliates to obtain or maintain fidelity bond coverage conditional on the rendering of a true account by Employee of all moneys, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The fidelity company issuing the fidelity bond and the amount of any such bond or bonds must be acceptable to Employer. All premiums on the bond(s) are to be paid by Employer. 12. ASSUMPTION OF AGREEMENT: In the event that the Board elects to sell, merge, or otherwise dispose of the assets or the shares of common stock of Employer, said agreement of sale or merger shall provide for the assumption of this Agreement by the purchaser, or said sale or merger shall be subject to the purchaser entering into a new employment agreement with Employee, the terms of which shall be substantially similar to this Agreement. In the event that no such provision is agreed to by the successor, this Agreement shall nonetheless be binding on said successor. 13. GENERAL: This Agreement is further governed by the following provisions: (a) ENTIRE AGREEMENT: This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Employee by Employer, and contains all of the covenants and agreements between the parties with respect to such employment. Any modification, waiver, or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. Employee shall be bound by the policies and procedures 6 duly adopted by Employer, which may be changed from time to time at the discretion of Employer. In the event of any conflict between such policies and procedures and this Agreement, however, the terms of this Agreement shall govern. (b) WAIVER: Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (c) CHOICE OF LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of California. (d) BINDING EFFECT OR AGREEMENT: This Agreement shall inure to the benefit of and be binding upon Employer, its successors and assigns, including, without limitation, any person, partnership, corporation, or other entity or group which may acquire all or substantially all of Employer's assets and business, or with or into which Employer may be consolidated, merged, or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives. The rights and obligations of Employee under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Employee's creditors, other than by operation or force of law which cannot be altered or waived by agreement between Employer and Employee, and any attempt to do any of the foregoing shall be void. (e) INDEMNIFICATION: Employer shall indemnify Employee to the maximum extent permitted under the Bylaws of Employer, the corporate law of the jurisdiction under which the Employer is organized, and the laws and regulations applicable to financial institutions such as Employer. If available at reasonable rates as determined in the sole discretion of the Board, Employer shall endeavor to apply for and obtain Directors and Officers Liability Insurance to indemnify and insure Employer and Employee from and against liability or loss arising out of Employee's actual or asserted malfeasance or nonfeasance in the good faith performance of his duties or out of any actual or asserted wrongful act against or by Employer, including, but not limited to, judgments, fines, settlements, and expenses incurred in the defense of actions, proceedings, and appeals therefrom. 7 The provisions of this section are contractual and not a mere recital and shall inure to the benefit of Employee's estate, executor, administrator, heirs, legatees, or devisees. (f) SEVERABILITY: In the event that any term or condition contained in this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other term or condition of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable term or condition had never been contained herein. (g) HEADINGS; The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this agreement. (h) NOTICES: Any notices to be given hereunder by any party to another party may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual delivery; mailed notices shall be deemed communicated as of five (5) days after mailing. (i) ARBITRATION: Any controversy or claim arising out of or relating to this Agreement or Employee's employment, or out of any actual or alleged breach of this Agreement, shall be settled in accordance with the Mutual Agreement to Arbitrate Claims between the parties of even date herewith. (j) ATTORNEYS' FEES AND COSTS: If any action at law or in equity (with regard to claims not covered by the Mutual Agreement to Arbitrate Claims) or any arbitration proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements, in addition to any other remedies to which he or it may be entitled. (k) LIFE/DISABILITY INSURANCE: Employer shall have the right at any time during the term hereof to obtain and maintain life insurance on Employee's life and disability insurance with respect to Employee, at Employer's sole expense, naming Employer as the sole beneficiary thereof. Employee shall (i) cooperate fully with Employer in obtaining such life and/or disability insurance, (ii) sign any necessary consents, applications, and other related forms or documents, and (iii) take any required medical examinations. 8 (1) SURVIVAL: The provisions of Sections 8, 9, and this Section 13 shall survive the termination of this Agreement. Executed as of 1995. -------------------------- I, THE UNDERSIGNED EMPLOYEE, ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT IT, ALONG WITH ANY AGREEMENTS EXPRESSLY REFERRED TO IN IT, CONTAINS ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECT OF MY EMPLOYMENT AS AN OFFICER OF EMPLOYER, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. EMPLOYER: EMPLOYEE: CALIFORNIA BANCSHARES, INC., a Delaware corporation ------------------- TED TERUO KITADA By ---------------------------- JOSEPH P. COLMERY President and Chief Executive officer 9 MUTUAL AGREEMENT TO ARBITRATE CLAIMS I recognize that differences may arise between CALIFORNIA BANCSHARES, INC. , a Delaware corporation ("Employer") , and me during or following my employment with Employer. I understand and agree that, by entering into this Mutual Agreement to Arbitrate Claims ("Agreement"), I anticipate gaining the benefits of a speedy, impartial, dispute resolution procedure. I understand that any reference in this Agreement to Employer will be a reference also to all subsidiary and affiliated entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them. 1. CLAIMS COVERED BY THE AGREEMENT Employer and I mutually consent to the resolution by arbitration of all claims or controversies ("claims") arising out of my employment or its termination that Employer may have against me or that I may have against Employer, or against its officers, directors, employees, or agents in their capacity as such or otherwise. The claims covered by this Agreement include, but are not limited to, claims based on contract or tort, including claims of discrimination based on race, sex, religion, national origin, age, marital status, or medical condition, handicap, or disability, except claims excluded in the following paragraph. 2. CLAIMS NOT COVERED BY THE AGREEMENT Claims I may have for workers' compensation or unemployment compensation benefits are not covered by this Agreement. Also not covered are claims by Employer for injunctive and/or other equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information, as to which I understand and agree that Employer may seek and obtain relief from a court of competent jurisdiction. 3. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE 21 LIMITATIONS Employer and I agree that the aggrieved party must give written notice of any claim to the other party within one (1) year of the date the aggrieved party first knows or should have known of the event giving rise to the claim; otherwise, the claim shall be void and deemed waived even if there is a federal or state statute of limitations which would have given more time to pursue the claim. Written notice to Employer, or its officers, directors, employees, or agents, shall be sent to its Chief Executive Officer at l00 Park Place, Suite 140, San Ramon, CA 94583. I will be given written notice at the last address recorded in my personnel file. The written notice shall identify and describe the nature of all claims asserted and the facts upon which such claims are based. The notice shall be sent to the other party by certified or registered mail, return receipt requested. 4. REPRESENTATION Any party may be represented by an attorney or other representative selected by the party. 5. DISCOVERY Each party shall have the right to take the deposition of one individual and one expert witness designated by another party. Each party also shall have the right to make one request for production of documents to any party. The subpena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of substantial need. 6. DESIGNATION OF WITNESSES At least thirty (30) days before the arbitration, the parties must exchange lists of witnesses, including any experts, and copies of all exhibits intended to be used at the arbitration. 7. SUBPENAS Each party shall have the right to subpena witnesses and documents for the arbitration. 8. ARBITRATION PROCEDURES Employer and I agree that, except as provided in this Agreement, any arbitration shall be in accordance with the model Employment Arbitration Procedures of the American Arbitration Association ("AAA") before an arbitrator who is licensed to practice law in the state of California. Any conflict between the procedures specified in this Agreement and the model Employment Arbitration Procedures shall be resolved in favor of the procedures specified herein. 2 The Arbitrator shall be selected by mutual agreement of the parties or, if they cannot agree within ten (10) business days after a request for arbitration is made and a list of eligible arbitrators is received, then in accordance with the model Employment Arbitration Procedures. The Arbitrator shall apply of remedies, if applicable ) of arose, or federal law, or both, asserted. The Federal Rules of Arbitrator shall have exclusive relating to the interpretation, the substantive law (and the law the state in which the claim as applicable to the claim(s) Evidence shall apply. The authority to resolve any dispute applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties. The Arbitrator shall have jurisdiction to hear and rule on preheating disputes and is authorized to hold preheating conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the Standards governing such motions under the Federal Rules of Civil Procedure. Either party, upon request at the close of hearing, shall be given leave to file a posthearing brief. The time for filing such a brief shall be set by the Arbitrator. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award. Except as otherwise provided in this Agreement, both Employer and I agree that neither of us shall initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination or any claim expressly excluded under Section 2 above) in any way related to any claim covered by this Agreement. Any arbitration award shall be accompanied by a written statement containing summary of the issues in controversy, a description of the award, and an explanation of the reasons for the award. 9. ARBITRATION FEES AND COSTS Employer and I shall equally share the fees and costs of the Arbitrator. Each party shall pay for its own costs and attorneys' fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, or if there is a written agreement providing for fees, the Arbitrator may award reasonable fees to the party the Arbitrator determines to be the prevailing party under applicable law. 3 10. INTERSTATE COMMERCE I understand and agree that Employer is engaged in transactions involving interstate commerce and that my employment involves such commerce. Specifically, Employer engages in transactions with correspondent Employers in other states, provides financial services to persons with businesses in interstate commerce, and participates in electronic networks permitting banking transactions from locations outside the state. 11. REQUIREMENTS OF MODIFICATION OR REVOCATION This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a writing signed by the parties which specifically states an intent to revoke or modify this Agreement. 12. SOLE AND ENTIRE AGREEMENT This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration agreement in connection with any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written understanding on the subject. No party is relying on any representations, oral or written, on the subject of the effect, enforceability, or meaning of this Agreement, except as specifically set forth in this Agreement. 13. CONSTRUCTION If any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement. 14. CONSIDERATION In consideration for my agreement to arbitrate the claims covered by this Agreement, rather than litigate them before courts or other bodies, I acknowledge that Employer has extended to me the benefits and privileges provided in that certain Employment Agreement of even date herewith, and that Employer has given up its right to pursue any claims against me in a court of law pertaining to the subject matter of this Agreement, except as expressly set forth in Section 2 hereof. 15. NOT AN EMPLOYMENT AGREEMENT This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor does this Agreement in any way alter the "at-will" status of my employment. 4 16. VOLUNTARY AGREEMENT I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I FURTHER ACKNOWLEDGE THAT I RAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. Dated:--------------------,1995 ------------------------------ TED TERUO KITADA Dated:---------------------1995 CALIFORNIA BANCSHSARES, INC., a Delaware corporation By -------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 5 5 19 6 EX-10.9 9 EXHIBIT 10.9 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") is made effective as of December 1, 1995, by and between CALIFORNIA BANCSHARES, INC., a Delaware corporation (hereinafter referred to as "Employer"), and JAMES MAYER (hereinafter referred to as "Employee"). This Agreement supersedes all prior employment agreements by and between Employer and Employee and all previous employment agreements are hereby terminated, and shall be of no further force or effect. Employee, being willing to be employed by Employer as its Executive Vice President, and Employer, being willing to employ Employee in such capacity, all on the terms, covenants and conditions hereinafter set forth, it is agreed as follows: 1. POSITION: Employee is hereby employed as Executive Vice President of Employer, and shall serve in that capacity during the Employment Term. In such capacity, Employee shall manage and direct all of the affairs of Employer, perform the duties of the office of Executive Vice President described in Employer's Bylaws and comply with all laws, rules and regulations applicable to persons holding that office in financial institutions such as Employer. Employee shall devote all of his time and effort to the management and direction of the affairs of Employer, and shall not engage in any other employment or activity without the prior written consent of the Board of Directors of Employer (the "Board"), but he shall be free to conduct such reasonable activities as are related to the management of his personal finances without the prior written consent of the Board. When any such personal activity poses a potential conflict with his duties as Executive Vice President, Employee shall promptly notify the Board, and he shall thereafter be guided by, and in all of his activities shall be responsible and accountable to, the Board. 2. TERM: The term of this Agreement will commence on December 1, 1995, and will continue until November 30, 1996, subject to prior termination as hereinafter set forth (the "Employment Term"). Unless otherwise terminated upon written notice from either party served upon the other at least thirty (30)days prior to the end of its term, this Agreement shall automatically be extended for one additional year commencing each December 1. Notwithstanding the preceding sentence, upon any change of control as described in Section 7 hereof, the term of 1 this Agreement shall automatically be extended one year from the effective date of such change of control and, unless otherwise terminated upon written notice from either party served upon the other at least thirty (30) days prior to the end of said year, shall automatically be extended to the next succeeding November 30 (and thereafter may be extended or terminated in accordance with the preceding sentence). 3. CONTINUING EDUCATION: From time to time during the term of this Agreement, Employee shall attend and participate in seminars and conferences to apprise himself as an executive officer of Employer of all current laws, regulations, practices, and procedures regarding the management and direction of Employer, and with the objective of maintaining his technical proficiency as an executive officer of such an organization. 4. COMPENSATION: In consideration of the services to be performed by Employee for Employer under this Agreement, as herein described, Employer shall pay to Employee, as regular compensation for his services, the sum of $115,000 per year, payable in accordance with Employer's normal payroll practices until the expiration or earlier termination of this Agreement. From time to time, Employer will review Employee's compensation and consider whether or not an adjustment is appropriate. 5. ADDITIONAL BENEFITS: In addition to the regular compensation to be paid to Employee as hereinabove provided: (a) Employer shall reimburse Employee, upon submission of appropriate vouchers, for all necessary disbursements and reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties under the terms of this Agreement, including but not limited to entertainment, travel, and membership in social and civic organizations approved by the Board. Unless expressly authorized to the contrary, Employee will adhere to all policies and procedures of Employer concerning incurring and being reimbursed for disbursements and expenses. (b) During the term of this Agreement, Employer shall provide Employee with an automobile to be used by Employee for the performance of his duties under the terms and conditions of this Agreement. The automobile will be used by Employee as required in the course of conducting the business of Employer. Employer shall pay all costs of maintaining the automobile in good condition and repair and shall pay all costs of operating the vehicle during the term of this Agreement. Employee may also use the automobile for reasonable personal use. Employee shall keep appropriate mileage logs of such use and provide an accounting to Employer at least as of each calendar year end. Employee shall be responsible for such personal use in accordance with applicable Internal Revenue Service regulations. A W-2 2 shall be issued to Employee for the imputed value of personal use. (c) Employee shall be entitled to participate in any and all pension plans, profit sharing plans, 401k plans, incentive plans, retirement programs, life insurance programs.. health insurance programs, and any other employee benefit programs established by the Board of Directors for employees of Employer. Employee's benefits under this Section 5(c) shall be subject to such changes, amendments, or revisions as the Board may make from time to time in such plans and programs. 6. TERMINATION: (a) This Agreement may be terminated (i) by the mutual consent of the parties hereto, or (ii) by the Board at any time, with or without cause, for any reason or no reason. If the Board does not provide Employee with a statement of cause, Employee will be entitled to receive the severance benefits, if any, that would be payable to any executive officer who is involuntarily terminated without cause under Employer policy in effect at that time. Notwithstanding anything herein provided to the contrary, the terms and conditions of this paragraph 6(a) shall not be utilized to terminate Employee for a period of one (1) year from the effective date of the change of control, as change of control is hereinafter defined and described in paragraph 7 of this Agreement. (b) If the Board determines that Employee has either materially failed to properly perform his duties, or materially failed to abide by all of the terms and conditions of this Agreement, and if such failure is not or cannot be cured within ten (10) days after written notice thereof to Employee by Employer, then Employee may be terminated for cause, and shall receive no benefits upon termination of employment, regardless of Employer's policies then in effect. Without limiting the foregoing, Employee will be deemed to have failed to properly perform his duties and may be immediately terminated upon the occurrence of any of the following: (i) Employee's willful failure or refusal to perform any of his duties and responsibilities as set forth herein, if such failures or refusals, individually or in the aggregate, are material to Employee's performance and are not based on legitimate legal objections to such performance; (ii) Conviction of a felony or of any crime involving moral turpitude, fraud, or misrepresentation, or commission of any act of dishonesty or fraud of Employee adversely affecting Employer or its reputation, business, and affairs or business relationships; 3 (iii) Employee being under the influence of alcohol or illegal drugs at the workplace; or (iv) A formal determination or recommendation by any regulatory authority having jurisdiction over the operations of Employer that Employer should or must remove or replace Employee. In the event Employer can determine or reasonably estimate the amount of damages or losses suffered as a result of any dishonest or unlawful act of Employee, Employer may (A) offset any amounts due and owing Employee in satisfaction of such damages or losses, and (B) retain in pledge, as security for the repayment of such damages or losses, any stock of Employer owned or subsequently purchased by Employee upon exercise of any stock options granted in connection with his employment. Employee hereby consents to such offsets and pledges such stock, and authorizes Employer to take such other actions with regard to the stock as are permitted of a secured party under the California Commercial Code. 7. CHANGE OF CONTROL: Notwithstanding anything hereinabove provided to the contrary, should, on or after the date hereof, a person, partnership, corporation, other entity or "group" ("Acquiror") , as that term is used in Section 13 (cd) (3) of the Securities Exchange Act of 1934, obtain control of Employer by or through the acquisition of the common stock of Employer, or by any merger, consolidation, or other corporate reorganization, so that Acquiror has the power to appoint or elect a majority of the members of the Board, neither Acquiror nor Employer shall be permitted to alter, vary, or amend the terms and conditions of this Agreement, or to terminate Employee's employment as herein provided, for a period of one (1) year from the effective date of the change control, other than for cause as set forth in section 6(b) above. Should Acquiror (or Employer after Acquiror obtains control of Employer) seek to vary or alter the terms of Employee's employment as provided in this Agreement, or transfer Employee to a different position with Employer or with Acquiror at an office located outside of Alameda or Contra Costa Counties, or should Acquiror or Employer unduly harass Employee in the performance of his duties or seek to terminate the benefits and privileges provided for him pursuant to the terms of this Agreement (other than as permitted under Section 5(c) hereof), then any one or more of said acts on the part of Acquiror or Employer shall, at Employee's election, be deemed to have terminated Employee's employment and, within five (5) days of notice to Acquiror or Employer of said deemed termination, unless Acquiror can establish just cause as set forth in Section 6(b) hereof with clear and convincing evidence, there shall be paid to Employee the following: An amount equal to one (1) year's compensation at the rate in effect on the date of said deemed termination. For the purposes of the payments herein provided, Employee's compensation shall be deemed to include not only the 4 annual and monthly compensation provided by the terms and conditions of this Agreement, and any amendments thereto, but it shall also include an amount equal to the average of bonuses paid to Employee pursuant to any incentive compensation plan during the three (3) years prior to the termination of his employment, plus an amount equal to the contributions made by Employer to Employer's profit sharing plan and/or 401k plan for Employee's benefit in the last year prior to termination. Notwithstanding anything contained in this Section 7 (a), or any other section of this Agreement to the contrary, if any compensation or benefit payment shall be considered in the aggregate to be an "excess parachute payment," as that term is defined in Section 28OG of the Internal Revenue Code of 1986., as amended, all such compensation and benefits-shall be reduced to the extent required to prevent such compensation and benefits, in the aggregate, from being considered an "excess parachute payment." The purpose of this section is to protect Employee from the acts of any Acquiror who may, subsequent to the date hereof, acquire control of Employer and who may seek to terminate Employee's employment by creating an atmosphere of tension and anxiety which may ultimately force him to tender his resignation because of the acts of harassment and pressures or stress inflicted upon Employee. Employer recognizes the contribution Employee has made to the success of Employer since the commencement of his employment, and it is the desire of Employer to ensure that Employee has some measure of protection from the unreasonable acts of any Acquiror. For purposes of this Section 7, the term "Employer" shall refer to any affiliate or successor of Employer for whom Employee is required to perform services. 8. PROPRIETARY MATERIALS: All written or printed materials and all data fixed in any other tangible medium, such as magnetic disks or computer databases, in the possession of or used by Employee in performing duties for Employer are and shall remain the property of Employer. Upon termination of employment, Employee shall promptly return all such materials, and any copies thereof, to Employer. 9. DISCLOSURE OF INFORMATION: Employee shall not, either before or after termination of this Agreement, disclose to anyone any nonpublic information relating to Employer or any affiliate of Employer, including, but not limited to, any financial information, trade secrets, or know-how germane to the business and operations of Employer or any affiliate of Employer. For purposes of this Agreement, "affiliates" of Employer shall include any subsidiary of Employer and any entity that directly or indirectly controls, is controlled by, or is under common control with Employer, or any subsidiary. Employee recognizes 5 and acknowledges that any financial information concerning any of Employer's customers, as it may exist from time to time, is strictly confidential and is a valuable, special, and unique asset of the business of Employer. Employee shall not, either before or after termination of this Agreement, disclose to anyone said financial information, or any part thereof, for any reason or purpose whatsoever. 10. NONCOMPETITION BY EMPLOYEE: During the term of this Agreement, Employee shall not, directly or indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder, corporate officer, director, or in any other individual or representative capacity, engage or participate in any business competitive with Employer or any of its affiliates; provided, however, Employee shall not be restricted by this section from owning securities of corporations listed on a national securities exchange or regularly traded by national securities dealers so long as (except with respect to Employee's ownership of securities of Employer or any successor in interest of Employer) such investment does not exceed one (1) percent of the market value of the outstanding securities of such corporation. 11. FIDELITY BOND: Employee agrees that he will furnish all information and take any steps necessary to enable Employer or any of its affiliates to obtain or maintain fidelity bond coverage conditional on the rendering of a true account by Employee of all moneys, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The fidelity company issuing the fidelity bond and the amount of any such bond or bonds must be acceptable to Employer. All premiums on the bond(s) are to be paid by Employer. 12. ASSUMPTION OF AGREEMENT: In the event that the Board elects to sell, merge, or otherwise dispose of the assets or the shares of common stock of Employer, said agreement of sale or merger shall provide for the assumption of this Agreement by the purchaser, or said sale or merger shall be subject to the purchaser entering into a new employment agreement with Employee, the terms of which shall be substantially similar to this Agreement. In the event that no such provision is agreed to by the successor, this Agreement shall nonetheless be binding on said successor. 13. GENERAL: This Agreement is further governed by the following provisions: (a) ENTIRE AGREEMENT: This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Employee by 6 Employer, and contains all of the covenants and agreements between the parties with respect to such employment. Any modification, waiver, or amendment of this Agreement will be effective only if it is in writing and signed by the party to be charged. Employee shall be bound by the policies and procedures duly adopted by Employer, which may be changed from time to time at the discretion of Employer. In the event of any conflict between such policies and procedures and this Agreement, however, the terms of this Agreement shall govern. (b) WAIVER: Any waiver by any party of a breach of any provision of this Agreement shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement an one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (c) CHOICE OF LAW: This Agreement shall be governed by and construed in accordance with the laws of the State of California. (d) BINDING EFFECT OF AGREEMENT: This Agreement shall inure to the benefit of and be binding upon Employer, its successors and assigns, including, without limitation, any person, partnership, corporation, or other entity or group which may acquire all or substantially all of Employer's assets and business, or with or into which Employer may be consolidated, merged, or otherwise reorganized, and this provision shall apply in the event of any subsequent merger, consolidation, reorganization, or transfer. The provisions of this Agreement shall be binding upon and inure to the benefit of Employee and his heirs and personal representatives. The rights and obligations of Employee under this Agreement shall not be transferable by assignment or otherwise, such rights shall not be subject to commutation, encumbrance, or the claims of Employees creditors, other than by operation or force of law which cannot be altered or waived by agreement between Employer and Employee, and any attempt to do any of the foregoing shall be void. (e) INDEMNIFICATION: Employer shall indemnify Employee to the maximum extent permitted under the Bylaws of Employer, the corporate law of the jurisdiction under which the Employer is organized, and the laws and regulations applicable to financial institutions such as Employer. If available at reasonable rates as determined in the sole discretion of the Board, Employer shall endeavor to apply for and obtain Directors and Officers Liability Insurance to indemnify and insure Employer and Employee from and against liability or loss arising out of 7 Employee's actual or asserted malfeasance or nonfeasance in the good faith performance of his duties or out of any actual or asserted wrongful act against or by Employer, including, but not limited to, judgments, fines, settlements, and expenses incurred in the defense of actions, proceedings, and appeals therefrom. The provisions of this section are contractual and not a mere recital and shall inure to the benefit of Employee's estate, executor, administrator, heirs, legatees, or devisees. (f) SEVERABILITY: In the event that any term or condition contained in this Agreement shall, for any reason, be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other term or condition of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable term or condition had never been contained herein. (g) HEADINGS: The headings in this Agreement are solely for the convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. (h) NOTICES: Any notices to be given hereunder by any party to another party may be effected either by personal delivery in writing or by mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses indicated at the end of this Agreement, but each party may change his or its address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of actual delivery; mailed notices shall be deemed communicated as of five (5) days after mailing. (i) ARBITRATION: Any controversy or claim arising out of or relating to this Agreement or Employee's employment, or out of any actual or alleged breach of this Agreement, shall be settled in accordance with the Mutual Agreement to Arbitrate Claims between the parties of even date herewith. (j) ATTORNEYS' FEES AND COSTS: If any action at law or in equity (with regard to claims not covered by the Mutual Agreement to Arbitrate Claims) or any arbitration proceeding is brought to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements, in addition to any other remedies to which he or it may be entitled. (k) LIFE/DISABILITY INSURANCE: Employer shall have the right at any time during the term hereof to obtain and maintain life insurance on Employee's life and disability insurance with respect to Employee, at Employer's sole expense, 8 naming Employer as the sole beneficiary thereof. Employee shall (i) cooperate fully with Employer in obtaining such life and/or disability insurance, (ii) sign any necessary consents, applications, and other related forms or documents, and (iii) take any required medical examinations. (1) SURVIVAL: The provisions of Sections 8, 9, and this Section 13 shall survive the termination of this Agreement. Executed as of ____________________________________ 1995. I, THE UNDERSIGNED EMPLOYEE, ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT IT, ALONG WITH ANY AGREEMENTS EXPRESSLY REFERRED TO IN IT, CONTAINS ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECT OF MY EMPLOYMENT AS AN OFFICER OF EMPLOYER, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. EMPLOYER: EMPLOYEE: CALIFORNIA BANCSHARES, INC., a Delaware corporation ------------------------- JAMES MAYER By ------------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 9 MUTUAL AGREEMENT TO ARBITRATE CLAIMS I recognize that differences may arise between CALIFORNIA BANCSHARES, INC., a Delaware corporation ("Employer"), and me during or following my employment with Employer. I understand and agree that, by entering into this Mutual Agreement to Arbitrate Claims ("Agreement"), I anticipate gaining the benefits of a speedy, impartial, dispute resolution procedure. I understand that any reference in this Agreement to Employer will be a reference also to all subsidiary and affiliated entities, all benefit plans, the benefit plans' sponsors, fiduciaries, administrators, affiliates, and all successors and assigns of any of them. 1. CLAIMS COVERED BY THE AGREEMENT Employer and I mutually consent to the resolution by arbitration of all claims or controversies ("claims") arising out of my employment or its termination that Employer may have against me or that I may have against Employer, or against its officers, directors, employees, or agents in their capacity as such or otherwise. The claims covered by this Agreement include, but are not limited to, claims based on contract or tort, including claims of discrimination based on race, sex, religion, national origin, age, marital status, or medical condition, handicap, or disability, except claims excluded in the following paragraph. 2. CLAIMS NOT COVERED BY THE AGREEMENT Claims I may have for workers' compensation or unemployment compensation benefits are not covered by this Agreement. Also not covered are claims by Employer for injunctive and/or other equitable relief for unfair competition and/or the use and/or unauthorized disclosure of trade secrets or confidential information, as to which I understand and agree that Employer may seek and obtain relief from a court of competent jurisdiction. 3. REQUIRED NOTICE OF ALL CLAIMS AND STATUTE OF LIMITATIONS Employer and I agree that the aggrieved party must give written notice of any claim to the other party within one (1) year of the date the aggrieved party first knows or should have known of the event giving rise to the claim; otherwise, the claim shall be void and deemed waived even if there is a federal or 1 state statute of limitations which would have given more time to pursue the claim. Written notice to Employer, or its officers, directors, employees, or agents, shall be sent to its Chief Executive Officer at 100 Park Place, Suite 140, San Ramon, CA 94583. I will be given written notice at the last address recorded in my personnel file. The written notice shall identify and describe the nature of all claims asserted and the facts upon which such claims are based. The notice shall be sent to the other party by certified or registered mail, return receipt requested. 4. REPRESENTATION Any party may be represented by an attorney or other representative selected by the party. 5. DISCOVERY Each party shall have the right to take the deposition of one individual and one expert witness designated by another party. Each party also shall have the right to make one request for production of documents to any party. The subpena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of substantial need. 6. DESIGNATION OF WITNESSES At least thirty (30) days before the arbitration, the parties must exchange lists of witnesses, including any experts, and copies of all exhibits intended to be used at the arbitration. 7. SUBPENAS Each party shall have the right to subpena witnesses and documents for the arbitration. 8. ARBITRATION PROCEDURES Employer and I agree that, except as provided in this Agreement, any arbitration shall be in accordance with the model Employment Arbitration Procedures of the American Arbitration Association ("AAA") before an arbitrator who is licensed to practice law in the state of California. Any conflict between the procedures specified in this Agreement and the model Employment Arbitration Procedures shall be resolved in favor of the procedures specified herein. 2 The Arbitrator shall be selected by mutual agreement of the parties or, if they cannot agree within ten (10) business days after a request for arbitration is made and a list of eligible arbitrators is received, then in accordance with the model Employment Arbitration Procedures. The Arbitrator shall apply the substantive law (and the law of remedies, if applicable) of the state in which the claim arose, or federal law, or both, as applicable to the claim(s) asserted. The Federal Rules of Evidence shall apply. The Arbitrator shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of this Agreement, including but not limited to, any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties. The Arbitrator shall have jurisdiction to hear and rule on prehearing disputes and is authorized to hold prehearing conferences by telephone or in person, as the Arbitrator deems necessary. The Arbitrator shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. Either party, upon request at the close of hearing, shall be given leave to file a posthearing brief. The time for filing such a brief shall be set by the Arbitrator. Either party may bring an action in any court of competent jurisdiction to compel arbitration under this Agreement and to enforce an arbitration award. Except as otherwise provided in this Agreement, both Employer and I agree that neither of us shall initiate or prosecute any lawsuit or administrative action (other than an administrative charge of discrimination or any claim expressly excluded under Section 2 above) in any way related to any claim covered by this Agreement. Any arbitration award shall be accompanied by a written statement containing summary of the issues in controversy, a description of the award, and an explanation of the reasons for the award. 9. ARBITRATION FEES AND COSTS Employer and I shall equally share the fees and costs of the Arbitrator. Each party shall pay for its own costs and attorneys' fees, if any. However, if any party prevails on a statutory claim which affords the prevailing party attorneys' fees, or if there is a written agreement providing for fees, the Arbitrator may award reasonable fees to the party the Arbitrator determines to be the prevailing party under applicable law. 3 10. INTERSTATE COMMERCE I understand and agree that Employer is engaged in transactions involving interstate commerce and that my employment involves such commerce. Specifically, Employer engages in transactions with correspondent Employers in other states, provides financial services to persons with businesses in interstate commerce, and participates in electronic networks permitting banking transactions from locations outside the state. 11. REQUIREMENTS OF MODIFICATION OR REVOCATION This Agreement to arbitrate shall survive the termination of my employment. It can only be revoked or modified by a writing signed by the parties which specifically states an intent to revoke or modify this Agreement. 12. SOLE AND ENTIRE AGREEMENT This is the complete agreement of the parties on the subject of arbitration of disputes, except for any arbitration agreement in connection with any pension or benefit plan. This Agreement supersedes any prior or contemporaneous oral or written understanding on the subject. No party is relying on any representation, oral or written, on the subject of the effect, enforceability, or meaning of this Agreement, except as specifically set forth in this Agreement. 13. CONSTRUCTION If any provision of this Agreement is adjudged to be void or otherwise unenforceable, in whole or in part, such adjudication shall not affect the validity of the remainder of the Agreement. 14. CONSIDERATION In consideration for my agreement to arbitrate the claims covered by this Agreement, rather than litigate them before courts or other bodies, I acknowledge that Employer has extended to me the benefits and privileges provided in that certain Employment Agreement of even date herewith, and that Employer has given up its right to pursue any claims against me in a court of law pertaining to the subject matter of this Agreement, except as expressly set forth in Section 2 hereof. 15. NOT AN EMPLOYMENT AGREEMENT This Agreement is not, and shall not be construed to create, any contract of employment, express or implied, nor does this Agreement in any way alter the "at-will" status of my employment. 4 16. VOLUNTARY AGREEMENT I ACKNOWLEDGE THAT I HAVE CAREFULLY READ THIS AGREEMENT, THAT I UNDERSTAND ITS TERMS, THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN EMPLOYER AND ME RELATING TO THE SUBJECTS COVERED IN THE AGREEMENT ARE CONTAINED IN IT, AND THAT I HAVE ENTERED INTO THE AGREEMENT VOLUNTARILY AND NOT IN RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE CONTAINED IN THIS AGREEMENT ITSELF. I UNDERSTAND THAT THIS AGREEMENT WAS PREPARED BY EMPLOYER'S LEGAL COUNSEL, AND THAT SAID LEGAL COUNSEL DID NOT REPRESENT ME IN PREPARING THIS AGREEMENT. I FURTHER ACKNOWLEDGE THAT I HAVE BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH MY PRIVATE LEGAL COUNSEL AND HAVE AVAILED MYSELF OF THAT OPPORTUNITY TO THE EXTENT I WISH TO DO SO. Dated:_______________________, 1995 ---------------------------- JAMES MAYER Dated:_______________________, 1995 CALIFORNIA BANCHSARES, INC., a Delaware corporation By --------------------------- JOSEPH P. COLMERY President and Chief Executive Officer 5 EX-11 10 EXHIBIT 11 EXHIBIT 11 CALIFORNIA BANCSHARES, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
DECEMBER 31, ------------------------------- 1995 1994 1993 --------- --------- --------- (IN THOUSANDS EXCEPT PER SHARE DATA) Net income...................................................................... $ 18,035 $ 11,636 $ 8,789 --------- --------- --------- Weighted average number of common shares outstanding............................ 10,014 9,365 9,318 --------- --------- --------- Earnings per common share....................................................... $ 1.80 $ 1.24 $ 0.94 --------- --------- --------- --------- --------- --------- Fully diluted earnings per common share(1): Weighted average number of common shares outstanding............................ 10,014 9,365 9,318 Assuming exercise of stock options reduced by the number of shares which could have been purchased with the proceeds from the exercise of such options........ 298 161 97 --------- --------- --------- Fully diluted weighted average common and common equivalent shares outstanding.................................................................. 10,312 9,526 9,415 --------- --------- --------- --------- --------- --------- Fully diluted earnings per common and common equivalent share................... $ 1.75 $ 1.22 $ 0.93 --------- --------- --------- --------- --------- ---------
- ------------------------ (1) This presentation is submitted in accordance with Item 601(b)(11) of Regulation S-K. This presentation is not required by APB Opinion No. 15, because it results in dilution of less than 3%. EX-21 11 EXHIBIT 21 EXHIBIT 21 CALIFORNIA BANCSHARES, INC. LIST OF SUBSIDIARIES Alameda First National Bank The Bank of Milpitas, N.A. The Bank of San Ramon Valley Centennial Bank Commercial Bank of Fremont Community First National Bank Concord Commercial Bank Modesto Banking Company Lamorinda National Bank Westside Bank CBI Mortgage Island Bancorp. Leasing, Inc. LNB Corp. EX-23.1 12 EXHIBIT 23.1 [PEAT MARWICK LLP LETTERHEAD] Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS The Board of Directors California Bancshares, Inc.: We consent to incorporation by reference in the registration statements: No. 33-48708 on Form S-8 Incentive Stock Option Plan No. 33-20209 on Form S-3 Dividend Reinvestment Plan No. 33-41504 on Form S-8 Director's Stock Option Plan of California Bancshares, Inc. of our report dated January 17, 1996, except Note 14, which is as of February 12, 1996, relating to the consolidated balance sheet of California Bancshares, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years in the three year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of California Bancshares, Inc. KPMG PEAT MARWICK LLP March 25, 1996 EX-27 13 FINANCIAL DATA SCHEDULE
9 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 81,606 0 76,175 0 73,876 264,552 265,575 1,030,780 14,836 1,570,458 1,425,895 90 13,712 0 0 0 25,152 105,390 130,761 93,677 17,326 4,222 115,225 42,237 42,966 72,259 1,485 0 50,828 29,425 18,035 0 0 18,035 1.80 1.80 9.49 12,373 161 2,544 0 12,822 2,728 919 14,836 9,220 0 5,616
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