-----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, MwwrDr8kxromzPH1/QHpHxgZQESeaCfEHUxQoBL2LPySqgnU2RWuV3MNlF4V7V5a XSMGSoeHzyfmks5BYZYP3Q== 0000912057-00-014023.txt : 20000329 0000912057-00-014023.hdr.sgml : 20000329 ACCESSION NUMBER: 0000912057-00-014023 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICORP CENTRAL INDEX KEY: 0000824906 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 770164985 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-18392 FILM NUMBER: 581082 BUSINESS ADDRESS: STREET 1: 304 EAST MAIN STREET CITY: VENTURA STATE: CA ZIP: 93001 BUSINESS PHONE: 8056420383 MAIL ADDRESS: STREET 1: 300 SOUTH MILLS ROAD STREET 2: 300 SOUTH MILLS ROAD CITY: VENTURA STATE: CA ZIP: 93003 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1999 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------------- TO -------------
Commission file number 033-18392 AMERICORP --------------- (Exact name of registrant as specified in its charter) State of California 77-0164985 - --------------------------------- --------------------- (State or other jurisdiction of (I.R.S. Identification No.) employee incorporation or organization) 304 East Main Street, Ventura, California 93001 (805) 658-6633 - --------------------------------- --------------------- (Address of principal executive offices and Zip Code) Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. NOT APPLICABLE As of February 29, 2000, the aggregate market value of the common stock held by non-affiliates of the Company was $27,060,390. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Number of shares of common stock of the Company outstanding as of February 29, 2000: 2,104,171. INDEX TO FORM 10-K PART I
PAGE -------- Item 1. Business 3 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 PART II Item 5. Market for Common Equity and Related Stockholders Matters 12 Item 6. Selected Financial Data 14 Item 7. Management's Discussion and Analysis of Financial Condition 15 and Results of Operations Item 7A Quantitative and Qualitative Disclosure About Market Risk 27 Item 8. Financial Statements 30 Item 9. Changes and Disagreements with Accountants on Accounting and 55 Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 55 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and 58 Management Item 13. Certain Relationships and Related Transactions 59 Item 14. Exhibits and Reports on Form 8-K 59
2 PART I ITEM 1. BUSINESS GENERAL Americorp ("Americorp" or the "Company") is a California corporation organized to act as the bank holding company for American Commercial Bank ("ACB" or the "Bank"). In 1987, Americorp acquired all of the outstanding common stock of ACB in a holding company formation transaction. Other than holding the shares of ACB, Americorp conducts no significant activities, although it is authorized, with the prior approval of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), Americorp's principal regulator, to engage in a variety of activities which are deemed closely related to the business of banking. At December 31, 1999, Americorp had approximately $246 million in consolidated assets, $179 million in consolidated net loans, $210 million in consolidated deposits, and $23 million in consolidated stockholders' equity. ACB was licensed by the California Department of Financial Institutions (the "DFI") and commenced operation in September 1973 as a California state bank. As a California state bank, ACB is subject to primary supervision, examination and regulation by the DFI and the Federal Deposit Insurance Corporation (the "FDIC"). ACB is also subject to certain other federal laws and regulations. The deposits of ACB are insured by the FDIC up to the applicable limits thereof. ACB is not a member of the Federal Reserve System. TRANSACTION WITH CHANNEL ISLANDS BANK Americorp and ACB entered into an Agreement to Merge and Plan of Reorganization dated July 7, 1998 and amended on September 17, 1998 (the "Merger Agreement") with Channel Islands Bank, headquartered in Oxnard, California ("CIB"). The Merger Agreement provided for, among other things, (i) the merger of CIB with and into ACB with ACB as the surviving bank, and (ii) the shareholders of CIB becoming shareholders of Americorp in accordance with the exchange ratio set forth in the Merger Agreement. The merger was consummated on December 31, 1998. The merger with CIB was intended to be a so-called "Merger of Equals" whereby comparatively similar sized financial institutions and their respective managements, boards of directors, shareholder groups and businesses are combined to create an institution which may provide for, among other things, increased synergies, expended products and markets, higher lending limits and a reduction of overall overhead costs, including a reduction in duplicate positions and employee benefits. Such mergers may also enhance the liquidity of a shareholder's investment and may provide the combined entity with easier access to the capital markets. "Mergers of Equals" provide the same types of risk associated with combining any two entities, including (i) the disadvantages of being part of a larger entity, including reduced voting power and the potential for decreased customer service; (ii) the integration of the different corporate cultures of the entities will divert the combined entities' management time from other activities and (iii) the proposed changes to policies and procedures of the combined entity may not prove to be successful to the customers of the combined entity. "Mergers of Equals" also generally provide, among other less favorable aspects, a smaller premium on their investment to the non-surviving institutions' shareholders than would be anticipated in an actual sale of control, less liquidity to such shareholders for their investment than if the non-surviving institution had been acquired by a larger acquirer as well as the difficulties associated with combining the human resources and cultural differences of two similar sized institutions. At the consummation of the merger, CIB had approximately $95 million in total assets, approximately $63 million in total loans, approximately $87 million in total deposits and approximately $8 million in total stockholders' equity. 3 The exchange ratio used in the merger was 0.7282 shares of Americorp Common Stock for each share of CIB outstanding. Americorp issued a total of 405,505 shares of Common Stock in connection with the transaction. The merger was intended to be tax free at the corporate and shareholders levels. The merger was accounted for as a "pooling of interest" and the financial statement included in Item 8 hereof have been prepared in accordance with such determination. See footnote 17 to such financial statements. ALL INFORMATION CONCERNING AMERICORP AND ACB HEREIN REFLECTS THE CONSUMMATION OF THE MERGER. BANKING SERVICES ACB is engaged in substantially all of the business operations customarily conducted by independent California state bank. ACB maintains three full service-banking offices in the city of Ventura, two full service offices in the city of Oxnard and one full service office in the city of Camarillo. ACB's banking services include the acceptance of checking and savings deposits, and the making of commercial, SBA, real estate, personal, automobile and other installment loans. ACB also offers traveler's checks, notary public and other customary bank services to its customers. While ACB does offer credit cards to its customers, other financial institutions issue the cards. Trust services are not offered by ACB. ACB's deposits are attracted primarily from individuals and small and medium-sized business-related sources. ACB also attracts deposits from several local agencies. In connection with municipal deposits, ACB is generally required to pledge securities to secure such deposits, except for the first $100,000 of such deposits which are insured by the FDIC. Americorp is engaged in lending activities to businesses and consumers throughout the geographic area of Ventura County, California. ACB has, to some degree, concentrations in real estate loans and real estate associated businesses. The risks associated with loans vary with the borrower, associated type of industry and prevailing economic conditions. Business loans are extended to a variety of commercial borrowers. These loans include revolving lines of credit, both secured and unsecured; equipment financing and term loans on real estate. In general, business loans have a higher degree of risk associated with changing economic cycles, product obsolescence and management experience. ACB utilizes a loan policy manual which sets standards for the accepted level of risk in the particular area under consideration. Business loans are reviewed by experienced loan personnel utilizing a secondary review and approval process which ultimately is overseen by the Board of Directors. ACB typically obtains the guarantees of the borrowing company's principal owners. Business lending risk is also mitigated by the contracted services of an independent loan review company. Commercial loans outstanding, as of December 31, 1999, totaled $42.2 million representing 23.2% of the portfolio. ACB also structures commercial loans secured by the real estate. These loans also vary in risk depending primarily on business cycles. Commercial real estate loans generally are amortized over a 20 year period with maturity dates of 5 years. ACB accepts properties whose appraised values provides a loan-to-value ratio of 75% or less. Commercial loans outstanding secured by real estate, at December 31, 1999, totaled $119.7 million, representing 65.8% of the portfolio. ACB is not involved with any residential tract housing construction and limits construction loans to either pre-sold or contract homes with permanent financing arranged. Construction loans total less than 4.3% of the total loan portfolio. ACB is also engaged in the brokering of single family first trust deeds to other lenders. ACB also extends loans to consumers which include automobiles, installment, recreational vehicles, equity lines of credit, bankcard and overdraft protection. During 1998, ACB sold its bankcard portfolio for a nominal premium. Consumer loans are underwritten according to standards set in ACB's loan policy 4 manual. ACB utilizes Experian and Trans Union credit reporting agencies to obtain current information on a consumer's payment history, monitors delinquency trends regularly and sets reserves to mitigate risk in this area. Virtually all of the consolidated net income of Americorp is generated by ACB. ACB has not engaged in any material research activities relating to the development of new services or the improvement of existing ACB services. There has been no significant change in the types of services offered by ACB since its inception, except in connection with new types of accounts allowed by statute or regulation in recent years. ACB has no present plans regarding "a new line of business" requiring the investment of a material amount of total assets. Most of ACB's business originates from Ventura County and there is no emphasis on foreign sources and application of funds. ACB's business, based upon performance to date, does not appear to be seasonal. Except as described above, a material portion of ACB's loans is not concentrated within a single industry or group of related industries, nor is ACB dependent upon a single customer or group of related customers for a material portion of its deposits. Management of ACB is unaware of any material effect upon ACB's capital expenditures, earnings or competitive position as a result of federal, state or local environmental regulation. ACB holds no patents, licenses (other than licenses obtained from bank regulatory authorities), franchises or concessions. EMPLOYEES As of December 31, 1999, ACB had a total of 109 full-time employees and 25 part-time employees. The management of ACB believes that its employee relations are satisfactory. COMPETITION Banking and financial services business in California generally, and in ACB's market areas specifically, is highly competitive. The increasingly competitive environment is a result primarily of changes in regulation, changes in technology and product delivery systems, and the accelerating pace of consolidation among financial services providers. ACB competes for loans and deposits and customers for financial services with other commercial banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions, and other nonbank financial service providers. Many of these competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader array of financial services than ACB. In order to compete with the other financial services providers, ACB principally relies upon local promotional activities, personal relationships established by officers, directors and employees with its customers, and specialized services tailored to meet its customers' needs. ACB maintains six full service-banking offices in Ventura County. Recently adopted financial modernization legislation will likely increase competition in the markets in which the Company operates, although it is difficult to assess the impact that such increased competition may have on the Company's operations. See "Financial Modernization Legislation." EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION Banking is a business that depends on rate differentials. In general, the difference between the interest rate paid by the Bank on its deposits and its other borrowings and the interest rate received by the Bank on loans extended to its customers and securities held in the Bank's portfolio comprise the major portion of the Bank's earnings. These rates are highly sensitive to many factors that are beyond the control 5 of the Bank. Accordingly, the earnings and growth of the Bank are subject to the influence of domestic and foreign economic conditions, including inflation, recession and unemployment. The commercial banking business is not only affected by general economic conditions but is also influenced by the monetary and fiscal policies of the federal government and the policies of regulatory agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements national monetary policies (with objectives such as curbing inflation and combating recession) by its open-market operations in United States Government securities, by adjusting the required level of reserves for financial institutions subject to its reserve requirements and by varying the discount rates applicable to borrowings by depository institutions. The actions of the Federal Reserve Board in these areas influence the growth of bank loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of any future changes in monetary policies cannot be predicted. From time to time, legislation is enacted which has the effect of increasing the cost of doing business, limiting or expanding permissible activities or affecting the competitive balance between banks and other financial institutions. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies and other financial institutions are frequently made in Congress, in the California legislature and before various bank regulatory and other professional agencies. For example, legislation was adopted in 1999 that, among other things, repealed, the statutory restrictions on affiliations between commercial banks and securities firms. See "Financial Modernization Legislation." SUPERVISION AND REGULATION The Company and the Bank are extensively regulated under both federal and state law. Set forth below is a summary description of certain laws which relate to the regulation of the Company and the Bank. The description does not purport to be complete and is qualified in its entirety by reference to the applicable laws and regulations. AMERICORP The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and is registered as such with, and subject to the supervision of, the Federal Reserve Board. The Company is required to file with the Federal Reserve Board quarterly and annual reports and such additional information as the Federal Reserve Board may require pursuant to the Bank Holding Company Act. The Federal Reserve Board may conduct examinations of bank holding companies and their subsidiaries. The Company is currently required to obtain the approval of the Federal Reserve Board before it may acquire all or substantially all of the assets of any bank, or ownership or control of the voting shares of any bank if, after giving effect to such acquisition of shares, the Company would own or control more than 5% of the voting shares of such bank. Prior approval of the Federal Reserve Board is also required for the merger or consolidation of the Company and another bank holding company. The Company's ability to engage in non-banking activities is also regulated by the Federal Reserve Board. See "Financial Modernization Legislation." Under the Federal Reserve Board's regulations, a bank holding company is required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in an unsafe and unsound manner. In addition, it is the Federal Reserve Board's policy that in serving as a source of strength to its subsidiary banks, a bank holding company should stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks. A bank holding company's failure to meet its obligations to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve 6 Board to be an unsafe and unsound banking practice or a violation of the Federal Reserve Board's regulations or both. The Company is subject to the periodic reporting requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and files certain reports pursuant to such Act with the Securities and Exchange Commission (the "SEC"). AMERICAN COMMERCIAL BANK The Bank is chartered under the laws of the State of California and its deposits are insured by the FDIC to the extent provided by law. The Bank is subject to the supervision of, and is regularly examined by, the DFI and the FDIC. Such supervision and regulation include comprehensive reviews of all major aspects of the Banks business and condition. Various requirements and restrictions under the laws of the United States and the State of California affect the operations of the Bank. Federal and California statutes relate to many aspects of the Banks operations, including reserves against deposits, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends and locations of branch offices. Further, the Bank is required to maintain certain levels of capital. CAPITAL STANDARDS The Federal Reserve Board and the FDIC have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such as business loans. A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which includes off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock, retained earnings, noncumulative perpetual preferred stock (cumulative perpetual preferred stock for bank holding companies) and minority interests in certain subsidiaries, less most intangible assets. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses, cumulative preferred stock, long term preferred stock, eligible term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or 4% to 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. 7 The following table presents the amounts of regulatory capital and the capital ratios for the Bank, compared to its minimum regulatory capital requirements as of December 31, 1999.
DECEMBER 31, 1999 --------------------------- MINIMUM CAPITAL ACTUAL REQUIREMENT -------- ---------------- Leverage ratio..................................... 9.5% 4.0% Tier 1 risk-based ratio............................ 10.9 4.0 Total risk-based ratio............................. 11.8 8.0
Under applicable regulatory guidelines, the Bank was considered "Well Capitalized" at December 31, 1999. For more information concerning the capital ratios of the Company and the Bank, see Note 14 to the Americorp Financial Statements contained in Item 8 of this Report. On January 1, 1998 new legislation became effective which, among other things, gave the power to the DFI to take possession of the business and properties of a bank in the event that the tangible shareholders' equity of the bank is less than the greater of (i) 3% of the banks total assets or (ii) $1,000,000. PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An insured depository institution generally will be classified in the following categories based on capital measures indicated below: "Well capitalized" "Adequately capitalized" Total risk-based capital of 10%; Total risk-based capital of 8%; Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and Leverage ratio of 5%. Leverage ratio of 4%. "Undercapitalized" "Significantly undercapitalized" Total risk-based capital less than 8%; Total risk-based capital less than 6%; Tier 1 risk-based capital less than 4%; Tier 1 risk-based capital less than 3%; or or Leverage ratio less than 4%. Leverage ratio less than 3%. "Critically undercapitalized" Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions. The federal banking agencies, however, may not treat an institution as "critically undercapitalized" unless its capital ratio actually warrants such treatment. The law prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions if after such transaction the institution would be undercapitalized. If an insured depository institution is undercapitalized, it will be closely monitored by the appropriate federal banking agency, subject to asset growth restrictions and 8 required to obtain prior regulatory approval for acquisitions, branching and engaging in new lines of business. Any undercapitalized depository institution must submit an acceptable capital restoration plan to the appropriate federal banking agency 45 days after becoming undercapitalized. The appropriate federal banking agency cannot accept a capital plan unless, among other things, it determines that the plan (i) specifies the steps the institution will take to become adequately capitalized, (ii) is based on realistic assumptions and (iii) is likely to succeed in restoring the depository institution's capital. In addition, each company controlling an undercapitalized depository institution must guarantee that the institution will comply with the capital plan until the depository institution has been adequately capitalized on an average basis during each of four consecutive calendar quarters and must otherwise provide adequate assurances of performance. The aggregate liability of such guarantee is limited to the lesser of (a) an amount equal to 5% of the depository institution's total assets at the time the institution became undercapitalized or (b) the amount which is necessary to bring the institution into compliance with all capital standards applicable to such institution as of the time the institution fails to comply with its capital restoration plan. Finally, the appropriate federal banking agency may impose any of the additional restrictions or sanctions that it may impose on significantly undercapitalized institutions if it determines that such action will further the purpose of the prompt correction action provisions. An insured depository institution that is significantly undercapitalized, or is undercapitalized and fails to submit, or in a material respect to implement, an acceptable capital restoration plan, is subject to additional restrictions and sanctions. These include, among other things: (i) a forced sale of voting shares to raise capital or, if grounds exist for appointment of a receiver or conservator, a forced merger; (ii) restrictions on transactions with affiliates; (iii) further limitations on interest rates paid on deposits; (iv) further restrictions on growth or required shrinkage; (v) modification or termination of specified activities; (vi) replacement of directors or senior executive officers; (vii) prohibitions on the receipt of deposits from correspondent institutions; (viii) restrictions on capital distributions by the holding companies of such institutions; (ix) required divestiture of subsidiaries by the institution; or (x) other restrictions as determined by the appropriate federal banking agency. Although the appropriate federal banking agency has discretion to determine which of the foregoing restrictions or sanctions it will seek to impose, it is required to force a sale of voting shares or merger, impose restrictions on affiliate transactions and impose restrictions on rates paid on deposits unless it determines that such actions would not further the purpose of the prompt corrective action provisions. In addition, without the prior written approval of the appropriate federal banking agency, a significantly undercapitalized institution may not pay any bonus to its senior executive officers or provide compensation to any of them at a rate that exceeds such officer's average rate of base compensation during the 12 calendar months preceding the month in which the institution became undercapitalized. Further restrictions and sanctions are required to be imposed on insured depository institutions that are critically undercapitalized. For example, a critically undercapitalized institution generally would be prohibited from engaging in any material transaction other than in the ordinary course of business without prior regulatory approval and could not, with certain exceptions, make any payment of principal or interest on its subordinated debt beginning 60 days after becoming critically undercapitalized. Most importantly, however, except under limited circumstances, the appropriate federal banking agency, not later than 90 days after an insured depository institution becomes critically undercapitalized, is required to appoint a conservator or receiver for the institution. The board of directors of an insured depository institution would not be liable to the institution's shareholders or creditors for consenting in good faith to the appointment of a receiver or conservator or to an acquisition or merger as required by the regulator. In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease and desist order that can 9 be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. PREMIUMS FOR DEPOSIT INSURANCE All deposits of the Bank are insured by the FDIC and are subject to FDIC insurance assessment. The amount of FDIC assessment paid by individual insured depository institutions is based upon their relative risk as measured by regulatory capital ratios and certain other factors. As a result of its "Well Capitalized" status, the Bank currently pays approximately $23,000 per year. FINANCIAL MODERNIZATION LEGISLATION On November 12, 1999, the President signed into law the Gramm-Leach-Bliley Act, ("GLB Act"), which significantly changed the regulatory structure and oversight of the financial services industry. The GLB Act revises the Bank Holding Company Act and repeals the affiliation provisions of the Glass- Steagall Act of 1933, permitting a qualifying holding company, called a financial holding company, to engage in a full range of financial activities, including banking, insurance, and securities activities, as well as merchant banking and additional activities that are "financial in nature" or "complementary" to such financial activities. The GLB Act thus provides expanded financial affiliation opportunities for existing bank holding companies and permits various non-bank financial services providers to acquire banks by allowing bank holding companies to engage in activities such as securities underwriting, and underwriting and brokering of insurance products. The GLB Act also expands passive investments by financial holding companies in any type of company, financial or nonfinancial, through merchant banking and insurance company investments. In order for a bank holding company to qualify as a financial holding company, its subsidiary depository institutions must be "well-capitalized" and "well-managed" and have at least a "satisfactory" Community Reinvestment Act rating. The GLB Act also reforms the regulatory framework of the financial services industry. Under the GLB Act, financial holding companies are subject to primary supervision by the Federal Reserve Board while current federal and state regulators of financial holding company regulated subsidiaries such as insurers, broker-dealers, investment companies and banks generally retain their jurisdiction and authority. In order to implement its underlying purposes, the GLB Act preempts state laws restricting the establishment of financial affiliations authorized or permitted under the GLB Act, subject to specified exceptions for state insurance regulators. With regard to securities laws, the GLB Act removes the current blanket exemption for banks from the broker-dealer registration requirements under the Securities Exchange Act of 1934, amends the Investment Company Act of 1940 with respect to bank common trust fund and mutual fund activities, and amends the Investment Advisers Act of 1940 to require registration of banks that act as investment advisers for mutual funds. The GLB Act also includes provisions concerning subsidiaries of national banks, permitting a national bank to engage in most financial activities through a financial subsidiary, provided that the bank and its depository institution affiliates are "well capitalized" and "well managed" and meet certain other qualification requirements relating to total assets, subordinated debt, capital, risk management, and affiliate transactions. With respect to subsidiaries of state banks, new activities as "principal" would be limited to those permissible for a national bank financial subsidiary. The GLB Act requires a state bank with a financial subsidiary permitted under the GLB Act as well as its depository institution affiliates to be "well capitalized," and also subjects the bank to the same capital, risk management and affiliate transaction rules as applicable to national banks. The provisions of the GLB Act relating to financial holding companies become effective 120 days after its enactment, or about March 15, 2000, excluding, the federal preemption provisions, which became effective on the date of enactment. 10 The Company currently meets all the requirements for financial holding company status. However, the Company does not expect to elect financial holding company status unless and until it intends to engage in any of the expanded activities under the GLB Act which require such status. Unless and until it elects such status, the Company will only be permitted to engage in non-banking activities that were permissible for bank holding companies as of the date of the enactment of the GLB Act. COMMUNITY REINVESTMENT ACT The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the fede11ral banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate income neighborhoods. In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities. In connection with its assessment of CRA performance, the appropriate bank regulatory agency assigns a rating of "outstanding." "satisfactory," "needs to improve" or "substantial noncompliance." At its last examination by the FDIC, the Bank received a CRA rating of "Satisfactory." ACCOUNTING CHANGES From time to time the Financial Accounting Standards Board ("FASB") issues pronouncements which govern the accounting treatment for the Company's financial statements. For a description of the recent pronouncements applicable to the Company (see the Notes to the Financial Statements included in Item 8 of this Report). The FASB proposed for comment a change in the accounting rules relating to mergers and acquisitions. Specifically, the "pooling method" of accounting for mergers would be eliminated. Financial institutions often prefer to account for mergers using this method and many of the mergers in the financial institutions industry in the last several years have been accounted for using the pooling method. The impact of such accounting change upon mergers and acquisitions involving financial institutions and upon the Company and the value of the Company's Common Stock can not presently be predicted nor can when, or if, the change will actually be adopted. POTENTIAL ENFORCEMENT ACTIONS Commercial banking organizations, such as the Company and the Bank, may be subject to potential enforcement actions by the Federal Reserve Board, the DFI and the FDIC for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease and desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon a judicial determination that the agency would be harmed if such equitable relief was not granted. ITEM 2. PROPERTIES All ACB's offices are leased. See Note 4 to the Americorp Financial Statements contained in Item 8 of this Report for certain additional information concerning the amount of ACB's lease commitments. Americorp has no separate facilities. 11 ITEM 3. LEGAL PROCEEDINGS The Bank is, from time to time, subject to various pending and threatened legal actions which arise out of the normal course of its business. Neither the Company nor the Bank is a party to any pending legal or administrative proceedings (other than ordinary routine litigation incidental to the Company's or the Bank's business) and no such proceedings are known to be contemplated. There are no material proceedings adverse to the Company or the Bank to which any director, officer, affiliate of the Company or 5% shareholder of the Company or the Bank, or any associate of any such director, officer, affiliate or 5% shareholder of the Company or Bank is a party, and none of the above persons has a material interest adverse to the Company or the Bank. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Americorp Common Stock is listed on the OTC Bulletin Board and trades under the symbol "AICA." Trading in the stock has not been extensive. The management of Americorp is aware of three securities dealers who maintain an inventory and makes a market in Americorp Common Stock--Maguire Investments, Santa Maria, California; Monroe Securities, Inc., Rochester, New York and Hoefer & Arnett, San Francisco, California. The following prices do not necessarily include retail markups, markdowns or commissions and may not necessarily represent actual transactions. Additionally, there may have been transactions at prices other than those shown below: All prices have been adjusted for the two-for-one stock split of the Common Stock which was effective on April 15, 1999.
QUARTER HIGH LOW - ------- -------- -------- 1st '98..................................................... $16.00 $15.50 2nd '98..................................................... 16.00 15.50 3rd '98..................................................... 18.50 18.00 4th '98..................................................... 19.00 18.50 1st '99..................................................... $20.00 $19.50 2nd '99..................................................... 19.75 18.75 3rd '99..................................................... 20.50 18.50 4th '99..................................................... 19.63 17.88
HOLDERS As of February 1, 2000, there were approximately 398 holders of Americorp Common Stock. There are no other classes of equity securities outstanding. DIVIDENDS The Company is a legal entity separate and distinct from the Bank. The Company's shareholders are entitled to receive dividends when and as declared by its Board of Directors, out of funds legally available therefor, subject to the restrictions set forth in the California General Corporation Law (the "Corporation Law"). The Corporation Law provides that a corporation may make a distribution to its shareholders if the 12 corporation's retained earnings equal at least the amount of the proposed distribution. The Corporation Law also provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if it meets two conditions, which generally stated are as follows: (i) the corporation's assets equal at least 1 1/4 times its liabilities, and (ii) the corporation's current assets equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expenses for the two preceding fiscal years was less than the average of the corporation's interest expenses for such fiscal years, then the corporation's current assets must equal at least 1 1/4 times its current liabilities. The ability of the Company to pay a cash dividend depends largely on the Bank's ability to pay a cash dividend to the Company. The payment of cash dividends by the Bank is subject to restrictions set forth in the California Financial Code (the "Financial Code"). The Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of (a) the bank's retained earnings; or (b) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank to the shareholders of the bank during such period. However, a bank may, with the approval of the DFI, make a distribution to its shareholders in an amount not exceeding the greater of (x) its retained earnings; (y) its net income for its last fiscal year; or (z) its net income for its current fiscal year. In the event that the DFI determines that the shareholders' equity of a bank is inadequate or that the making of a distribution by the bank would be unsafe or unsound, the DFI may order the bank to refrain from making a proposed distribution. The FDIC may also restrict the payment of dividends if such payment would be deemed unsafe or unsound or if after the payment of such dividends, the Bank would be included in one of the "undercapitalized" categories for capital adequacy purposes pursuant to federal law. (See, "Item 1--Description of Business--Prompt Corrective Action and Other Enforcement Mechanisms.") Additionally, while the Federal Reserve Board has no general restriction with respect to the payment of cash dividends by an adequately capitalized bank to its parent holding company, the Federal Reserve Board might, under certain circumstances, place restrictions on the ability of a particular bank to pay dividends based upon peer group averages and the performance and maturity of the particular bank, or object to management fees to be paid by a subsidiary bank to its holding company on the basis that such fees cannot be supported by the value of the services rendered or are not the result of an arm's length transaction. Americorp has paid 65 consecutive quarterly cash dividends to its shareholders. Americorp is currently paying quarterly cash dividends of $0.12 per share. The dividend policy of Americorp is expected to continue; however, no assurances can be given that such policy may not change. Moreover, declarations or payments of dividends by the Board of Directors of Americorp will depend upon a number of factors, including capital requirements, regulatory limitations (as discussed above), Americorp's and ACB's financial condition and results of operations, tax considerations and general economic conditions. No assurance can be given that any dividends will be declared or, if declared, what the amount of dividends or their type (cash, stock or both) will be or whether such dividends, once declared, will continue. 13 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data with respect to the Company's consolidated statement of financial position for the years ended December 31, 1999 and 1998 and its consolidated statements of income for the years ended December 31, 1999, 1998 and 1997 have been derived from the audited consolidated financial statements included in Item 8 of this Form 10-K. The consolidated financial statements give retroactive effect to the merger of the Company's subsidiary, American Commercial Bank, with Channel Islands Bank on December 31, 1998, in a transaction accounted for as a pooling of interest, as discussed in Note 17 to the Americorp Financial Statements. This information should be read in conjunction with such consolidated financial statements and the notes thereto. The summary consolidated financial data with respect to Company's consolidated statement of financial position as of December 31, 1997, 1996 and 1995 and its consolidated statements of income for the years ended December 31, 1996 and 1995 have been derived from the audited financial statements of the Company, which are not presented herein.
AT OR FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- SUMMARY OF OPERATIONS: Interest Income......................... $ 18,821 $ 18,054 $ 16,575 $ 15,120 $ 13,757 Interest Expense........................ 4,604 4,972 4,626 4,593 3,852 -------- -------- -------- -------- -------- Net Interest Income..................... 14,217 13,082 11,949 10,527 9,905 Provision for Loan Losses............... 720 523 780 1,743 496 -------- -------- -------- -------- -------- Net Interest Income After Provision for Loan Losses........................... 13,497 12,559 11,169 8,784 9,409 Noninterest Income...................... 2,898 2,708 2,719 1,955 2,021 Noninterest Expense..................... 11,928 13,425 11,013 9,938 9,226 -------- -------- -------- -------- -------- Income Before Income Taxes.............. 4,467 1,842 2,875 801 2,204 Income Taxes............................ 1,145 678 972 272 659 -------- -------- -------- -------- -------- Net Income.............................. $ 3,322 $ 1,164 $ 1,903 $ 529 $ 1,545 ======== ======== ======== ======== ======== Dividends............................... $ 928 $ 615 $ 581 $ 572 $ 557 PER SHARE DATA: Net Income--Basic....................... $ 1.60 $ 0.59 $ 1.04 $ 0.29 $ 0.86 Net Income--Diluted..................... $ 1.49 $ 0.55 $ 0.93 $ 0.26 $ 0.75 Book Value.............................. $ 10.96 $ 9.94 $ 9.59 $ 8.90 $ 8.87
14
AT OR FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- STATEMENTS OF FINANCIAL CONDITION SUMMARY: Total Assets............................ $245,966 $241,725 $223,252 $201,680 $184,319 Total Deposits.......................... 209,877 217,721 201,795 183,047 165,964 Securities.............................. 27,364 32,388 39,262 39,199 39,904 Loans, net.............................. 179,347 152,638 134,027 114,798 100,933 Allowance for Loan Losses (ALLL)........ 1,978 1,953 1,966 1,535 1,364 Total Shareholders' Equity.............. 23,064 20,396 17,907 16,068 15,967 SELECTED RATIOS: Return on Average Assets................ 1.36% 0.51% 0.92% 0.27% 0.92% Return on Average Equity................ 15.32% 6.00% 11.33% 3.24% 10.60% Net Interest Margin..................... 6.58% 6.56% 6.60% 6.22% 6.58% Dividend Payout Ratio................... 27.93% 52.84% 30.53% 108.13% 36.05% Non-performing Loans to Total Loans..... 0.99% 1.65% 1.45% 0.96% 1.82% Non-performing Assets to Total Assets... 0.82% 1.06% 1.01% 0.58% 1.77% ALLL to Non-performing Loans............ 109.65% 76.17% 99.70% 136.81% 73.49% Average Shareholders' Equity to Average Assets................................ 8.90% 8.51% 8.10% 8.37% 8.65%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EARNINGS OVERVIEW The Company reported net earnings of $3.3 million or $1.49 diluted earnings per share for 1999. This represents almost a threefold increase from 1998 when net earnings were $1.2 million or $0.55 diluted earnings per share. This significant increase occurred as the Company experienced strong growth in operating income (up approximately 8%) and significantly lower operating costs (down approximately 12%). Nonrecurring 1998 costs associated with the CIB merger and a reduction of approximately 10% in personnel costs represented the majority of this decline. The Company reported earnings of $1.2 million in 1998. This represented a 39% decline compared to the $1.9 million reported in 1997. This decrease was a combination of increases in net interest income offset with significant one-time merger related expenses and increased personnel costs. The following table sets forth several key operating ratios for 1999, 1998 and 1997:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 ----- ----- ----- Return on Average Assets............................. 1.36% 0.51% 0.92% Return on Average Equity............................. 15.32% 6.00% 11.33% Dividend Payout Ratio................................ 27.93% 52.84% 30.53% Average Shareholder's Equity to Average Total Assets............................................. 8.90% 8.51% 8.10%
DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY The following table presents, for the years indicated, the distribution of average assets, liabilities and shareholders' equity, as well as the total dollar amounts of interest income from average interest-earning assets and the resultant yields, and the dollar amounts of interest expense and average interest-bearing 15 liabilities, expressed both in dollars and in rates. Nonaccrual loans are included in the calculation of the average balances of loans, and interest not accrued is excluded (dollar amounts in thousands).
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------------ 1999 1998 1997 ------------------------------ ------------------------------ ------------------------------ AVERAGE AVERAGE AVERAGE INTEREST YIELD OR INTEREST YIELD OR INTEREST YIELD OR AVERAGE EARNED RATE AVERAGE EARNED RATE AVERAGE EARNED RATE BALANCE OR PAID PAID BALANCE OR PAID PAID BALANCE OR PAID PAID -------- -------- -------- -------- -------- -------- -------- -------- -------- ASSETS Interest-Earning Assets: Investment Securities........ $ 28,925 $ 1,596 5.52% $ 35,834 $ 2,002 5.59% $ 38,531 $ 2,250 5.84% Federal Funds Sold........... 19,229 932 4.85% 21,565 1,110 5.15% 15,550 848 5.45% Other Earning Assets......... -- -- 0.00% 1,189 68 5.72% 1,690 102 6.04% Loans........................ 168,042 16,293 9.70% 140,848 14,874 10.56% 125,248 13,375 10.68% -------- ------- -------- ------- -------- ------- Total Interest-Earning Assets....................... 216,196 18,821 8.71% 199,436 18,054 9.05% 181,019 16,575 9.16% Cash and Due From Banks........ 21,190 21,281 17,670 Premises and Equipment......... 2,074 2,348 2,155 Other Real Estate Owned........ 519 96 251 Accrued Interest and Other Assets....................... 5,625 6,714 8,155 Allowance for Loan Losses...... (1,882) (1,947) (1,747) -------- -------- -------- Total Assets................... $243,722 $227,928 $207,503 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-Bearing Liabilities: Money Market and NOW......... $ 65,767 1,209 1.84% $ 66,501 1,352 2.03% $ 64,693 1,448 2.24% Savings...................... 18,568 367 1.98% 18,017 389 2.16% 17,979 402 2.24% Time Deposits under $100,000................... 36,943 1,694 4.59% 35,173 1,823 5.18% 29,933 1,507 5.03% Time Deposits of $100,000 or More....................... 26,973 1,329 4.93% 26,398 1,408 5.33% 23,121 1,269 5.49% Other........................ 110 5 4.55% -- -- n/a -- -- n/a -------- ------- -------- ------- -------- ------- Total Interest-Bearing Liabilities.................. 148,361 4,604 3.10% 146,089 4,972 3.40% 135,726 4,626 3.41% Noninterest-Bearing Liabilities: Demand Deposits.............. 70,774 59,383 52,601 Other Liabilities............ 2,896 3,062 2,374 Shareholders' Equity......... 21,691 19,394 16,802 -------- -------- -------- Total Liabilities and Shareholders' Equity......... $243,722 $227,928 $207,503 ======== ======== ======== Net Interest Income............ $14,217 $13,082 $11,949 ======= ======= ======= Net Yield on Interest-Earning Assets....................... 6.58% 6.56% 6.60%
NET INTEREST INCOME Net interest income is the amount by which the interest and amortization of fees generated from loans and other earning assets exceeds the cost of funding those assets, usually deposit account interest expense. Net interest income depends on the difference (the "interest rate spread") between gross interest and fees earned on the loans and investment portfolios and the interest rates paid on deposits and borrowings. Net interest income for 1999 was $14.2 million, an increase of $1.1 million or 8.7% when compared to $13.1 million in 1998. This increase was primarily attributable to the growth in interest-earning assets, as the net yield on interest-earning assets was relatively unchanged at 6.58% in 1999 compared to 6.56% in 1998. Interest-earning assets increased $16.8 million or 8.4% to $216.2 million in 1999 compared to $199.4 million in 1998. During 1998, net interest income increased $1.2 million or 9.5% to $13.1 million from the 1997 amount of $11.9 million. As in 1999 the 1998 increase was primarily the result of increases in interest-earning assets which grew 10.2% from $181.0 million in 1997 to $199.4 million in 1998. The Company 16 experienced a slight reduction of 4 basis point in its net yield on interest-earning assets, which was 6.56% in 1998 compared to 6.60% in 1997. Interest income for 1999 was $18.8 million compared to $18.1 million in 1998. This increase of $0.7 million was comprised of additional income of $2.2 million resulting from increased interest-earning assets reduced by $1.4 million resulting from a 34 basis point decline in the overall yield on interest-earning assets. Interest income in 1998 was also up $1.5 million compared to the $16.6 million reported in 1997. This increase was primarily attributable to growth in interest-earning assets as the net yield on interest-earning assets declined by 11 basis points. Interest expense in 1999 was $4.6 million compared to $5.0 million in 1998. This decrease was primarily attributable to declining interest rates paid on interest-bearing liabilities, which declined 30 basis points from 3.40% in 1998 to 3.10% in 1999. The positive impact on net interest income from this rate decline was partially offset by nominal increases in the average interest-bearing liabilities outstanding. During 1999 the Company increased it average interest-earning assets by $16.8 million while limiting its increase in average interest-bearing liabilities to $2.3 million. This apparent shortfall was funded primarily by a $11.4 million increase in average noninterest-bearing demand deposits and a $2.3 million increase in shareholders' equity. This form of funding has a positive impact of the Company's net interest income. Interest expense in 1998 was $5.0 million compared to $4.6 million in 1997. This increase was primarily attributable to increased interest-bearing liabilities, as the rate paid was relatively unchanged at 3.40% in 1998 compared to 3.41% in 1997. The following table sets forth changes in interest income and interest expense for each major category of interest-earning asset and interest-bearing liability, and the amount of change attributable to volume and rate changes for the years indicated. Changes not solely attributable to rate or volume have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each (dollar amounts in thousands).
YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998 VERSUS VERSUS YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997 ------------------------------------ ------------------------------------ INCREASE (DECREASE) DUE INCREASE (DECREASE) DUE TO CHANGE IN TO CHANGE IN ------------------------------------ ------------------------------------ VOLUME RATE TOTAL VOLUME RATE TOTAL -------- -------- -------- -------- -------- -------- INTEREST-EARNING ASSETS: Investment Securities............... $ (381) $ (25) $ (406) $ (153) $ (95) $ (248) Federal Funds Sold.................. (115) (63) (178) 312 (50) 262 Other Earning Assets................ (34) (34) (68) (29) (5) (34) Loans............................... 2,707 (1,288) 1,419 1,648 (149) 1,499 ------ ------- ------ ------ ----- ------ TOTAL INTEREST INCOME............... 2,177 (1,410) 767 1,778 (299) 1,479 INTEREST-BEARING LIABILITIES: Money Market and NOW................ (15) (128) (143) 39 (135) (96) Savings............................. 12 (34) (22) 1 (14) (13) Time Deposits under $100,000........ 89 (218) (129) 271 45 316 Time Deposits $100,000 or More...... 30 (109) (79) 176 (37) 139 Other............................... 3 2 5 -- -- -- ------ ------- ------ ------ ----- ------ TOTAL INTEREST EXPENSE.............. 119 (487) (368) 487 (141) 346 ------ ------- ------ ------ ----- ------ NET INTEREST INCOME................. $2,058 $ (923) $1,135 $1,291 $(158) $1,133 ====== ======= ====== ====== ===== ======
17 PROVISION FOR LOAN LOSSES The allowance for loan losses is maintained at a level that is considered adequate to provide for the loan losses inherent in the Company's loan portfolio. During 1999, the provision for loan losses was $720,000 compared to $523,000 in 1998 and $780,000 in 1997. See "Allowance for Loan Losses" later in this discussion for additional information on the Company's methodology for determining the adequacy of the allowance, summary of historical loan losses and analysis of overall asset quality. NONINTEREST INCOME Noninterest income was $2.9 million in 1999, of which approximately 90% were the traditional service charges on accounts and fees collected in commercial banking. This amount represents 1.2% of average assets for 1999. This was comparable to the $2.7 million, or 1.2% of average assets, reported in 1998. Noninterest income in 1998 declined slightly from the 1997 amount due primarily to a decline in real estate loan brokering fees. NONINTEREST EXPENSE Noninterest expense reflects the costs of products and services related to systems, facilities and personnel for the Company. Noninterest expense was $11.9 million in 1999, $13.4 million in 1998 and $11.0 million in 1997. The major components of noninterest expense stated as a percentage of average assets are as follows:
1999 1998 1997 -------- -------- -------- Salaries and Employee Benefits....................... 2.43% 2.90% 2.76% Occupancy Expenses................................... 0.46% 0.52% 0.50% Furniture and Equipment.............................. 0.42% 0.31% 0.29% Advertising and Promotion Expense.................... 0.10% 0.13% 0.13% Legal and other Professional Expense................. 0.23% 0.30% 0.32% Data Processing...................................... 0.27% 0.22% 0.21% Office Supplies and Expenses......................... 0.25% 0.22% 0.23% Merchant Card Program Expenses....................... 0.16% 0.21% 0.19% Restructuring Charges and Merger-Related Costs....... -- 0.23% -- Other................................................ 0.57% 0.85% 0.68% ---- ---- ---- 4.89% 5.89% 5.31% ==== ==== ====
Disregarding the restructuring charges and merger-related costs incurred in 1998, noninterest expense as a percentage of average assets has declined from 5.66% in 1998 to 4.89% in 1999. The Company believes this decline is primarily related to the operating efficiencies derived from its 1998 merger with CIB as well as its continuing effort to control and reduce noninterest expense. INCOME TAXES Income tax expense was $1,145,000, $678,000, and $972,000 for the years ended December 31, 1999, December 31, 1998, and December 31, 1997, respectively. These expenses resulted in an effective tax rate of 25.6% in 1999, 36.8% in 1998 and 33.8% in 1997. The significant decline in the effective rate in 1999 was due to the utilization of previously unrecognized tax credits. As of December 31, 1999, the Company had a valuation allowance of $706,000 related primarily to unused credits. The Company anticipates utilizing these credits in 2000, which will again reduce the Company's effective tax rate. The increase in effective rate in 1998 compared to 1997 was related to the nondeductible merger-related costs incurred in connection with the CIB merger. The Company's effective tax rate is favorably impacted by its investments 18 in municipal securities. See also Note 8 to the consolidated financial statements for additional information on the Company's income taxes. BALANCE SHEET ANALYSIS The Company's primarily operating goals for 1999 were the successful integration of the branches it obtained in the merger on December 31, 1998 with CIB and maximization of the operating efficiencies provided by that merger. While working to achieve these goals, the Company's primary service area, Ventura County experienced a significant growth in loan demand coupled with increased competition from other banks and financial institutions for the area deposits. The combination of these factors had the following impacts on the Company's balance sheet. First, the Company experienced asset growth below its historical levels. Total assets at December 31, 1999 were $246.0 million compared to $241.7 million at December 31, 1998. This represented an increase of $4.3 million or 1.8% of which $10 million was the result of the Company's decision to prepare for any potential Y2K liquidity problems by obtaining an advance from the Federal Home Loan Bank and increasing cash and due from banks. This is compared to an increase of $18.4 million or 8.3% during 1998. However, during 1999, the Company did experience significant loan growth as net loans grew by $26.7 million or 17.5% from $152.6 million at December 31, 1998 to $179.3 million at December 31, 1999. This substantial increase in loans was funded by reductions in cash, federal funds sold and investments, which had a positive impact on the Company's net interest margin. Similarly, the Company experienced a slight decline in total deposits, which ended 1999 at $209.9 million compared to $217.7 million at the end of 1998. This decline of $7.8 million was actually comprised of an increase of $6.3 million in noninterest-bearing demand and a decrease of $14.1 million in interest-bearing deposits. 19 INVESTMENT PORTFOLIO The following table summarizes the amounts and distribution of the Company's investment securities held as of the dates indicated, and the weighted-average yields as of December 31, 1999 (dollar amounts in thousands):
DECEMBER 31, ----------------------------------------- 1999 1998 ------------------------------ -------- WEIGHTED BOOK MARKET AVERAGE BOOK VALUE VALUE YIELD VALUE -------- -------- -------- -------- U.S. TREASURY SECURITIES: One to Five Years..................................... $ 1,892 $ 1,892 4.34% $ -- U.S. GOVERNMENT AND AGENCY SECURITIES: Within One Year....................................... 998 996 5.41% 2,500 One to Five Years..................................... 3,458 3,458 5.78% 4,100 ------- ------- ------- Total U.S. Government and Agency Securities......... 4,456 4,454 5.69% 6,600 MUNICIPAL SECURITIES: Within One Year....................................... 631 631 5.76% 1,466 One to Five Years..................................... 3,107 3,106 5.48% 2,776 Five to Ten Years..................................... 2,860 2,919 5.88% 4,206 After Ten Years....................................... 955 975 5.69% 1,053 ------- ------- ------- Total Municipal Securities.......................... 7,553 7,631 5.69% 9,501 CORPORATE DEBT SECURITIES: Within One Year....................................... 2,415 2,415 5.74% 3,014 One to Five Years..................................... 1,727 1,727 5.77% 2,437 ------- ------- ------- Total Corporate Debt Securities..................... 4,142 4,142 5.75% 5,451 MUTUAL FUNDS............................................ 2,138 2,138 5.81% 4,488 MORTGAGE BACKED SECURITIES.............................. 7,183 7,167 6.30% 6,149 OTHER................................................... -- -- 199 ------- ------- ------- $27,364 $27,424 5.78% $32,388 ======= ======= =======
Securities may be pledged to meet security requirements imposed as a condition to receipt of deposits of public funds and other purposes. At December 31, 1999 and 1998, the carrying values of securities pledged to secure public deposits and other purposes were approximately $6.4 million and $2.0 million, respectively. The increase in pledged investment securities is related to the lines of credit obtained from the Federal Home Loan Bank. 20 LOAN PORTFOLIO The following table sets forth the components of total net loans outstanding in each category at the date indicated (dollar amounts in thousands):
DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- LOANS Commercial.............................. $ 42,242 $ 60,433 $ 45,609 $ 47,395 $ 37,957 Real Estate--Construction............... 7,794 7,395 3,966 2,086 2,815 Real Estate--Other...................... 119,732 69,829 64,556 44,934 49,065 Consumer................................ 12,262 17,333 22,176 22,218 12,722 -------- -------- -------- -------- -------- Total Loans........................... 182,030 154,990 136,307 116,633 102,559 Net Deferred Loan Costs................. (705) (399) (314) (300) (262) Allowance for Loan Losses............... (1,978) (1,953) (1,966) (1,535) (1,364) -------- -------- -------- -------- -------- Net Loans............................. $179,347 $152,638 $134,027 $114,798 $100,933 ======== ======== ======== ======== ======== COMMITMENTS Standby Letters of Credit............... $ 968 $ 814 $ 921 $ 1,701 $ 1,451 Undisbursed Loans and Commitments to Grant Loans........................... 44,584 43,768 35,004 30,133 28,712 -------- -------- -------- -------- -------- Total Commitments..................... $ 45,552 $ 44,582 $ 35,925 $ 31,834 $ 30,163 ======== ======== ======== ======== ========
The following table shows the maturity distribution of the fixed rate portion of the loan portfolio and the repricing distribution of the variable rate portion of the loan portfolio at December 31, 1999:
OVER 3 MONTHS THROUGH DUE AFTER DUE AFTER DUE 3 MONTHS 12 ONE YEAR TO THREE YEARS TO AFTER OR LESS MONTHS THREE YEARS FIVE YEARS FIVE YEARS TOTAL - -------- -------- ----------- -------------- ---------- -------- $109,813 $ 5,071 $20,673 $27,130 $17,549 $180,236 ======== ======= ======= ======= ======= Loans on Non-Accrual 1,794 -------- $182,030 ========
ASSET QUALITY The risk of nonpayment of loans is an inherent feature of the banking business. That risk varies with the type and purpose of the loan, the collateral that is utilized to secure payment, and ultimately, the credit worthiness of the borrower. In order to minimize this credit risk, the Loan Committee of the board of directors approves significant loans. The Loan Committee is comprised of directors and members of the Company's senior management. The Company grades all loans from "acceptable" to "loss", depending on credit quality, with "acceptable" representing loans with an acceptable degree of risk given the favorable aspects of the credit and with both primary and secondary sources of repayment. Classified loans or substandard loans are ranked below "acceptable" loans. As these loans are identified in the review process, they are added to the internal watch-list and loss allowances are established for them. Additionally, the loan portfolio is examined regularly by the FDIC and DFI. Management also utilizes on independent loan review company to asses loan portfolio quality and adequacy of the allowance for loan losses. 21 NONPERFORMING ASSETS The following table provides information with respect to the components of the Company's nonperforming assets at the dates indicated (dollar amounts in thousands):
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- Loans 90 Days Past Due and Still Accruing......... $ 10 $ 784 $ 81 $ 525 $1,101 Nonaccrual Loans.................................. 1,794 1,780 1,891 597 755 ------ ------ ------ ------ ------ Total Nonperforming Loans......................... 1,804 2,564 1,972 1,122 1,856 Other Real Estate Owned........................... 206 -- 275 136 1,398 ------ ------ ------ ------ ------ Total Nonperforming Assets........................ $2,010 $2,564 $2,247 $1,258 $3,254 ====== ====== ====== ====== ====== Nonperforming Loans as a Percentage of Total Loans........................................... 0.99% 1.65% 1.45% 0.96% 1.82% Allowance for Loan Loss as a Percentage of Nonperforming Loans............................. 109.65% 76.17% 99.70% 136.81% 73.49% Nonperforming Assets as a Percentage of Total Assets.......................................... 0.82% 1.06% 1.01% 0.58% 1.77%
Loans are generally placed on non-accrual status when they are delinquent 90 days or more, unless the loan is well secured and in the process of collection. The Company stops recognizing income from the interest on the loan and reverses any uncollected interest that had been accrued but not received. Loans are not returned to accrual status until it is brought current with respect to both principal and interest payments, the loan is performing to current terms and conditions, the interest rate is commensurate with market interest rates and future principal and interest payments are no longer in doubt. See Note 3 to the consolidated financial statements for additional information on the Company's average investment in impaired loans and the amount of income recognized thereon. In addition to the loans reported above, at December 31, 1999, the Company had loans totaling $3.3 million which it had graded less than acceptable. As discussed in the following section, evaluation of these loans is an integral portion of the Company's methodology for establishing the adequacy of the allowance for loan losses. The Company has no foreign loans in its loan portfolio. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained at a level that is considered adequate to provide for the loan losses inherent in the Company's loans. The provision for loan losses was $720,000 in 1999 compared to $523,000 in 1998 and $780,000 in 1997. 22 The following table summarizes, for the years indicated, changes in the allowances for loan losses arising from loans charged-off, recoveries on loans previously charged-off, and additions to the allowance which have been charged to operating expenses and certain ratios relating to the allowance for loan losses (dollar amounts in thousands):
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- OUTSTANDING LOANS Average for the Year.................... $168,042 $140,848 $125,248 $108,368 $ 94,889 End of the Year......................... $182,030 $154,990 $136,307 $116,633 $102,134 ALLOWANCE FOR LOAN LOSSES Balance at Beginning of Year............ $ 1,953 $ 1,966 $ 1,535 $ 1,364 $ 1,518 Actual Charge-Offs: Commercial............................ 379 318 295 1,304 154 Real Estate........................... 46 5 31 158 376 Consumer.............................. 475 411 308 182 132 -------- -------- -------- -------- -------- Total Charge-Offs....................... 900 734 634 1,644 662 Less Recoveries: Commercial............................ 69 132 237 29 17 Real Estate........................... 29 27 30 11 38 Consumer.............................. 107 39 18 32 62 -------- -------- -------- -------- -------- Total Recoveries........................ 205 198 285 72 117 -------- -------- -------- -------- -------- Net Loans Charged-Off................... 695 536 349 1,572 545 Provision for Loan Losses............... 720 523 780 1,743 391 -------- -------- -------- -------- -------- Balance at End of Year.................. $ 1,978 $ 1,953 $ 1,966 $ 1,535 $ 1,364 ======== ======== ======== ======== ======== RATIOS Net Loans Charged-Off to Average Loans................................. 0.41% 0.38% 0.28% 1.45% 0.57% Allowance for Loan Losses to Total Loans................................. 1.09% 1.26% 1.44% 1.32% 1.34% Net Loans Charged-Off to Beginning Allowance for Loan Losses............. 35.59% 27.26% 22.74% 115.25% 35.90% Net Loans Charged-Off to Provision for Loan Losses........................... 96.53% 102.49% 44.74% 90.19% 139.39% Allowance for Loan Losses to Nonperforming Loans................... 109.65% 76.17% 99.70% 136.81% 73.49%
The Company performs quarterly detailed reviews to identify the risks inherent in the loan portfolio, assess the overall quality of the loan portfolio and to determine the adequacy of the allowance for loan losses and the related provision for loan losses to be charged to expense. This systematic reviews follow the methodology set forth by the FDIC in its 1993 policy statement on the allowance for loan losses. A key element of this methodology is the previously discussed credit classification process. Loans identified as less than "acceptable" are reviewed individually to estimate the amount of probable losses that need to be included in the allowance. These reviews include analysis of financial information as well as evaluation of collateral securing the credit. Additionally, the Company considers the inherent risk present in the "acceptable" portion of the loan portfolio taking into consideration historical losses on pools of similar loans, adjusted for trends, conditions and other relevant factors that may affect repayment of the loans in these pools. Upon completion, the written analysis is present to the board of directors for discussion, review and approval. 23 The Company believes the allowance for loan losses to be adequate to provide for losses inherent in the loan portfolio. While the Company uses available information to recognize losses on loans and leases, future additions to the allowance may be necessary based on changes in economic conditions. In addition, federal regulators, as an integral part of their examination process, periodically review the allowance for loan losses and may recommend additions based upon their evaluation of the portfolio at the time of their examination. Accordingly, there can be no assurance that the allowance for loan losses will be adequate to cover future loan losses or that significant additions to the allowance for loan losses will not be required in the future. The following table summarizes the allocation of the allowance for loan losses by loan type for the years indicated and the percent of loans in each category to total loans (dollar amounts in thousands):
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ------------------- ------------------- ------------------- ------------------- LOAN LOAN LOAN LOAN AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- -------- -------- -------- -------- -------- -------- -------- Commercial.................. $ 591 23.2% $ 876 39.0% $ 740 33.4% $ 632 40.6% Construction................ 53 4.3% 14 4.8% 15 2.9% 11 1.8% Real Estate................. 859 65.8% 621 45.0% 734 47.4% 531 38.5% Consumer.................... 312 6.7% 198 11.2% 169 16.3% 144 19.1% Unallocated................. 163 n/a 244 n/a 308 n/a 217 n/a ------ ----- ------ ----- ------ ----- ------ ----- $1,978 100.0% $1,953 100.0% $1,966 100.0% $1,535 100.0% ====== ===== ====== ===== ====== ===== ====== ===== DECEMBER 31, 1995 ------------------- LOAN AMOUNT PERCENT -------- -------- Commercial.................. $ 562 37.1% Construction................ 10 2.8% Real Estate................. 472 47.6% Consumer.................... 128 12.5% Unallocated................. 192 n/a ------ ----- $1,364 100.0% ====== =====
FUNDING Deposits are the Company's primary source of funds. At December 31, 1999, the Company had a deposit mix of 36.4% in time and savings deposits, 30.3% in money market and NOW deposits, and 33.3% in noninterest-bearing demand deposits. The Company's net interest income is enhanced by its percentage of noninterest-bearing deposits. The following table summarizes the distribution of average deposits and the average rates paid for the years indicated (dollar amounts in thousands):
DECEMBER 31, --------------------------------------------------------------- 1999 1998 1997 ------------------- ------------------- ------------------- AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE -------- -------- -------- -------- -------- -------- Money Market and NOW Accounts.............. $ 65,767 1.84% $ 66,501 2.03% $ 64,693 2.18% Savings Deposits........................... 18,568 1.98% 18,017 2.16% 17,979 2.24% TCD Less than $100,000..................... 36,943 4.59% 35,173 5.18% 29,933 5.03% TCD $100,000 or More....................... 26,973 4.93% 26,398 5.33% 23,121 5.49% -------- -------- -------- Total Interest-Bearing Deposits............ 148,251 3.10% 146,089 3.40% 135,726 100.00% Noninterest-Bearing Demand Deposits........ 70,774 n/a 59,383 n/a 52,601 n/a -------- -------- -------- Total Average Deposits..................... $219,025 2.10% $205,472 2.42% $188,327 2.46% ======== ======== ========
24 The scheduled maturity distribution of the Company's time deposits of $100,000 or greater, as of December 31, 1999, were as follows (dollar amounts in thousands):
OVER 3 MONTHS DUE AFTER 3 MONTHS THROUGH ONE YEAR TO DUE AFTER OR LESS 12 MONTHS THREE YEARS THREE YEARS TOTAL -------- --------- ----------- ----------- -------- Time Deposits under $100.................... $10,759 $21,144 $2,360 $ 63 $34,326 Time Deposits of $100 or more............... 9,911 14,052 521 -- 24,484 ------- ------- ------ ---- ------- $20,670 $35,196 $2,881 $ 63 58,810 ======= ======= ====== ==== =======
OTHER BORROWINGS To supplement its liquidity, the Company has lines of credit with the Federal Home Loan Bank and its primary correspondent. Available credit on these lines totaled $16 million, of which $10 million was advanced as of December 31, 1999. See Note 7 of the consolidated financial statements for additional information, including pledged loans and securities on these lines. LIQUIDITY AND INTEREST RATE SENSITIVITY The objective of the Company's asset/liability strategy is to manage liquidity and interest rate risks to ensure the safety and soundness of the Bank and its capital base, while maintaining adequate net interest margins and spreads to provide an appropriate return to the Company's shareholders. The Company manages its interest rate risk exposure by limiting the amount of long-term fixed rate loans it holds, increasing emphasis on shorter-term, higher yield loans for portfolio, increasing or decreasing the relative amounts of long-term and short-term borrowings and deposits and/or purchasing commitments to sell loans. The table below sets forth the interest rate sensitivity of the Company's interest-earning assets and interest-bearing liabilities as of December 31, 1999, using the interest rate sensitivity gap ratio. For purposes of the following table, an asset or liability is considered rate-sensitive within a specified period 25 when it can be repriced or matures within its contractual terms, except for loans held for sale which the Company classifies as highly liquid based on historical sale patterns (dollar amounts in thousands):
AFTER AFTER ONE WITHIN THREE MONTHS YEAR BUT THREE BUT WITHIN WITHIN AFTER MONTHS ONE YEAR FIVE YEARS FIVE YEARS TOTAL -------- ------------ ---------- ---------- -------- INTEREST-EARNING ASSETS: Federal Funds Sold.................... $ 18,000 $ -- $ -- $ -- $ 18,000 Investment Securities................. 3,697 6,077 11,703 5,887 27,364 Gross Loans........................... 111,607 5,071 47,803 17,549 182,030 -------- -------- ------- ------- -------- Total............................... $133,304 $ 11,148 $59,506 $23,436 $227,394 ======== ======== ======= ======= ======== INTEREST-BEARING LIABILITIES: Money Market and NOW Deposits......... $ 63,585 $ -- $ -- $ -- $ 63,585 Savings............................... 17,656 -- -- -- 17,656 Time Deposits......................... 20,670 35,196 2,944 -- 58,810 Other Borrowings...................... 10,000 -- -- -- 10,000 -------- -------- ------- ------- -------- $111,911 $ 35,196 $ 2,944 $ -- $150,051 ======== ======== ======= ======= ======== Interest Rate Sensitivity Gap......... $ 21,393 $(24,048) $56,562 $23,436 $ 77,343 Cumulative Interest Rate Sensitivity Gap................................. $ 21,393 $ (2,655) $53,907 $77,343 Ratios Based on Total Assets: Interest Rate Sensitivity Gap..... 8.70% (9.78%) 23.00% 9.53% 31.45% Cumulative Interest Rate Sensitivity Gap................. 8.70% (1.08%) 21.92% 31.45%
Liquidity refers to the Company's ability to maintain a cash flow adequate to fund both on-balance sheet and off-balance sheet requirements on a timely and cost-effective basis. Potentially significant liquidity requirements include funding of commitments to loan customers and withdrawals from deposit accounts. CAPITAL RESOURCES In 1990, the banking industry began to phase in new regulatory capital adequacy requirements based on risk-adjusted assets. These requirements take into consideration the risk inherent in investments, loans, and other assets for both on-balance sheet and off-balance sheet items. Under these requirements, the regulatory agencies have set minimum thresholds for Tier 1 capital, total capital and leverage ratios. At December 31, 1999, the Bank's capital exceeded all minimum regulatory requirements and the Bank was considered to be "well capitalized" as defined in the regulations issued by the FDIC. The Bank's risk-based capital ratios, shown below as of December 31, 1999, have been computed in accordance with regulatory accounting policies (The Company's capital ratios are comparable to the Bank's).
MINIMUM REQUIREMENTS BANK ------------ -------- Tier 1 Capital............................................ 4.0% 10.9% Total Capital............................................. 8.0% 11.8% Leverage Ratio............................................ 4.0% 9.5%
See also note 14 to the consolidated financial statements for additional information on the Bank's capital ratios. 26 On February 24, 2000, the Company approved a stock repurchase program for up to 200,000 of its outstanding shares. Repurchases will be made from time to time over the next three years in the open market and privately negotiated transactions based on then current market prices. EFFECTS OF INFLATION The financial statements and related financial information presented herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or same magnitude as the price of goods and services. Y2K DISCLOSURES During the periods leading up to January 1, 2000, the Company addressed the potential problems associated with the possibility that the computers that control or operate the Company's information technology system and infrastructure may not have been programmed to read four-digit date codes and, upon the arrival of the Year 2000, may have recognized the two-digit code "00" as the year 1900, causing systems to fail to function or generate erroneous data. The Company expended approximately $243,000 through the periods ended December 31, 1999 in connection with its Year 2000 compliance program. The Company experienced no significant problems related to its information technology systems upon arrival of the Year 2000, nor was there any interruption in service to its customers. The Company could still incur losses if Year 2000 issues adversely affect its depositors or borrowers. Such problems could include delayed loan payments due to Year 2000 problems affecting any significant borrowers or impairing the payroll systems of large employers in the Company's primary market areas. Because the Company's loan portfolio is highly diversified with regard to individual borrowers and types of businesses, the Company does not expect, and to date has not realized, any significant or prolonged difficulties that will affect net earning or cash flow. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS See note 1 to the consolidated financial statements for information on this matter. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK NET INTEREST MARGIN. As previously discussed, net interest income is the difference between the interest income and fees earned on loans and investments and the interest expense paid on deposits and other liabilities. The amount by which interest income exceeds interest expense depends on two factors: the volume of earnings assets compared to the volume of interest-bearing deposits and liabilities, and the interest rate earned on those interest earning assets compared with the interest rate paid on those interest-bearing deposits and liabilities. Net interest margin is the net interest income expressed as a percentage of earning assets. To maintain its net interest margin, the Company must manage the relationship between interest earned and paid, and that relationship is subject to the following types of risks that are related to changes in interest rates. MARKET RISK. The market values of assets or liabilities on which the interest rate is fixed will increase or decrease with changes in market interest rates. If the Company invests funds in a fixed rate long-term security and then interest rates rise, the security is worth less than a comparable security just issued 27 because the older security pays less interest than the newly issued security. If the older security had to be sold, the Company would have to recognize a loss. Correspondingly, if interest rates decline after a fixed rate security is purchased, its value increases. Therefore, while the value changes regardless of which direction interest rates move, the adverse exposure to "market risk" is primarily due to rising interest rates. This exposure is lessened by managing the amount of fixed rate assets and by keeping maturities relatively short. However, this strategy must be balanced against the need for adequate interest income because variable rate and shorter fixed rate securities generally earn less interest than longer term fixed rate securities. There is market risk relating to the Company's fixed rate or term liabilities as well as its assets. For liabilities, the adverse exposure to market risk is to lower rates because the Company must continue to pay the higher rate until the end of the term. However, because the amount of fixed rate liabilities is significantly less than the fixed rate assets, and because the average maturity is substantially less than for the assets, the market risk is not as great. Net interest margin was 6.58% in 1999 compared to 6.56% in 1998 and 6.60% in 1997. The following is a summary of the carrying amounts and estimated fair values of selected Company financial assets and liabilities at December 31, 1999 (amounts in thousands):
CARRYING ESTIMATED AMOUNT FAIR VALUE -------- ---------- Financial Assets: Securities............................................ $ 27,364 $ 27,424 Loans, Net of Allowance for Loan Losses............... $179,347 $177,422 Financial Liabilities: Deposits.............................................. $209,877 $209,929
Other than a relatively small difference due to credit quality issues pertaining to loans, the difference between the carrying amount and the fair value is a measure of how much more or less valuable the Company's financial instruments are to it than when acquired. The net difference for interest-bearing financial assets is $1.9 million. The amount is not deemed to be significant compared to the outstanding balances taken as a whole. The net difference for deposits is $52,000. The amount is not deemed to be significant compared to the outstanding balances taken as a whole. MISMATCH RISK. Another interest-related risk arises from the fact that when interest rates change, the changes do not occur equally in the rates of interest earned and paid because of difference in the contractual terms of the assets and liabilities held. The Company has a large portion of its loan portfolio tied to the prime interest rate. If the prime rate is lowered because of general market conditions, e.g., other banks are lowering their lending rates; these loans will be repriced. If the Company were at the same time to have a large proportion of its deposits in long-term fixed rate certificates, net interest income would decrease immediately. Interest earned on loans would decline while interest expense would remain at higher levels for a period of time because of the higher rate still being paid on the deposits. A decrease in net interest income could also occur with rising interest rates if the Company had a large portfolio of fixed rate loans and securities funded by deposit accounts on which the rate is steadily rising. This exposure to "mismatch risk" is managed by matching the maturities and repricing opportunities of assets and liabilities. This is done by varying the terms and conditions of the products that are offered to depositors and borrowers. For example, if many depositors want longer-term certificates while most borrowers are requesting loans with floating interest rates, the Company will adjust the interest rates on the certificates and loans to try to match up demand. The Company can then partially fill in mismatches by purchasing securities with the appropriate maturity or repricing characteristics. 28 One of the means of monitoring this matching process is the use of a "gap" report table. This table shows the extent to which the maturities or repricing opportunities of the major categories of assets and liabilities are matched based upon specific interest rate change scenarios and assumptions. The Company utilizes gap reports assuming simultaneous interest rate shifts of up to +/- 200 basis points. The following table shows the estimated impact to net interest income for an instantaneous shift in various interest rates as of December 31, 1999 (the dollar change in net interest income represents the estimated change for the next 12 months):
CHANGE IN NET CHANGE IN INTEREST RATES INTEREST INCOME - ------------------------ --------------- +200 basis points........................................... 745,000 +100 basis points........................................... 373,000 +50 basis points............................................ 186,000 - -50 basis points............................................ (389,000) - -100 basis points........................................... (576,000) - -200 basis points........................................... (991,000)
The Company has adequate capital to absorb any potential losses as a result of a decrease in interest rates. Periods of more than one year are not estimated because steps can be taken to mitigate the adverse effects of any interest rate changes. BASIS RISK. A third interest-related risk arises from the fact that interest rates rarely change in a parallel or equal manner. The interest rates associated with the various assets and liabilities differ in how often they change, the extent to which they change, and whether they change sooner or later than other interest rates. For example, while the repricing of a specific asset and a specific liability may fall in the same period of a gap report the interest rate on the asset my rise 100 basis points, while market conditions dictate that the liability increases only 50 basis points. While evenly matched in the gap report, the Company would experience an increase in net interest income. This exposure to "basis risk" is the type of interest risk least able to be managed, but is also the least dramatic. Avoiding concentration in only a few types of assets or liabilities is the best insurance that the average interest received and paid will move in tandem, because the wider diversification means that many different rates, each with their own volatility characteristics, will come into play. The Company has made an effort to minimize concentrations in certain types of assets and liabilities. 29 ITEM 8. FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Americorp We have audited the accompanying consolidated balance sheets of Americorp and subsidiary (the "Company") as of December 31, 1999 and 1998 and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of the Company's subsidiary, American Commercial Bank, with Channel Islands Bank on December 31, 1998, in a transaction accounted for as a pooling of interest, as discussed in Note 17. The financial statements of the Company as of December 31, 1997, which are not presented separately, herein, were audited by other auditors whose report dated January 23, 1998 on those statements expressed and unqualified opinion. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Americorp and subsidiary as of December 31, 1999 and 1998, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ VAVRINEK, TRINE, DAY & CO., LLP Laguna Hills, California January 20, 2000 30 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Americorp: We have audited the consolidated balance sheet of Americorp and subsidiary (the "Company") as of December 31, 1997 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements, which are not presented herein, are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Americorp and subsidiary at December 31, 1997 and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ FANNING & KARRH January 23, 1998, except for Note 6 as to which the date is May 7, 1998 and for Note 17 as to which the date is August 27, 1998 Ventura, California 31 AMERICORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (DOLLAR AMOUNTS IN THOUSANDS)
1999 1998 -------- -------- ASSETS: Cash and due from banks..................................... $ 12,839 $ 20,511 Federal funds sold.......................................... 18,000 27,700 -------- -------- Total Cash and Cash Equivalents......................... 30,839 48,211 Time deposits in other institutions......................... -- 595 Securities.................................................. 27,364 32,388 Federal Home Loan Bank stock, at cost....................... 750 -- Loans, net.................................................. 179,347 152,638 Accrued interest receivable................................. 1,284 1,321 Premises and equipment, net................................. 1,667 2,202 Other real estate owned..................................... 206 -- Cash surrender value of life insurance...................... 2,758 2,492 Other assets................................................ 1,751 1,878 -------- -------- TOTAL ASSETS............................................ $245,966 $241,725 ======== ======== LIABILITIES: Noninterest-bearing demand.................................. $ 69,826 $ 63,482 NOW and money market accounts............................... 63,585 69,367 Savings..................................................... 17,656 18,000 Time deposits, under $100,000............................... 34,326 37,632 Time deposits, $100,000 and over............................ 24,484 29,240 -------- -------- Total Deposits.......................................... 209,877 217,721 Borrowings.................................................. 10,000 -- Accrued interest payable.................................... 354 559 Other liabilities........................................... 2,671 3,049 -------- -------- TOTAL LIABILITIES....................................... 222,902 221,329 -------- -------- Commitments and Contingencies--Notes 4 and 15 STOCKHOLDERS' EQUITY: Common stock--$0.50 par value; 5,000,000 shares authorized; 2,104,171 and 2,051,994 issued and outstanding in 1999 and 1998, respectively........................................ 1,052 1,026 Surplus..................................................... 9,558 8,771 Retained earnings........................................... 12,567 10,453 Accumulated other comprehensive income...................... (113) 146 -------- -------- TOTAL STOCKHOLDERS' EQUITY.............................. 23,064 20,396 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $245,966 $241,725 ======== ========
See notes to consolidated financial statements. 32 AMERICORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 -------- -------- -------- INTEREST INCOME: Interest and fees on loans................................ $16,293 $14,874 $13,375 Interest on investment securities--taxable................ 1,135 1,441 1,614 Interest on investment securities--tax exempt............. 461 561 636 Other interest............................................ 932 1,178 950 ------- ------- ------- Total Interest Income................................... 18,821 18,054 16,575 INTEREST EXPENSE ON DEPOSITS................................ 4,604 4,972 4,626 ------- ------- ------- NET INTEREST INCOME................................. 14,217 13,082 11,949 PROVISION FOR LOANS AND LEASE LOSSES........................ 720 523 780 ------- ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES.................................................... 13,497 12,559 11,169 NONINTEREST INCOME: Service charges on deposit accounts....................... 1,531 1,326 1,192 Other service charges and fees............................ 1,083 926 748 Gain (loss) on sale of investment securities.............. (15) 16 54 Other income.............................................. 299 440 725 ------- ------- ------- 2,898 2,708 2,719 NONINTEREST EXPENSE: Salaries and employee benefits............................ 5,932 6,613 5,737 Net occupancy expense..................................... 1,131 1,190 1,029 Furniture and equipment expense........................... 1,034 717 599 Advertising and promotion expense......................... 242 312 267 Legal and other professional expense...................... 572 686 663 Data processing expense................................... 661 507 443 Office supplies and expenses.............................. 605 509 468 Merchant card program expenses............................ 392 478 392 Restructuring charges and merger-related costs............ -- 518 -- Other operating expense................................... 1,359 1,895 1,415 ------- ------- ------- 11,928 13,425 11,013 ------- ------- ------- INCOME BEFORE INCOME TAXES.............................. 4,467 1,842 2,875 INCOME TAXES................................................ 1,145 678 972 ------- ------- ------- NET INCOME.......................................... $ 3,322 $ 1,164 $ 1,903 ======= ======= ======= EARNINGS PER SHARE--BASIC................................... $ 1.60 $ 0.59 $ 1.04 ======= ======= ======= EARNINGS PER SHARE--DILUTED................................. $ 1.49 $ 0.55 $ 0.93 ======= ======= =======
See notes to consolidated financial statements. 33 AMERICORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLAR AMOUNTS IN THOUSANDS)
COMMON STOCK ACCUMULATED -------------------- OTHER NUMBER OF COMPREHENSIVE RETAINED COMPREHENSIVE SHARES AMOUNT SURPLUS INCOME EARNINGS INCOME --------- -------- -------- ------------- -------- ------------- BALANCE AT JANUARY 1, 1997.... 1,811,156 $ 906 $6,451 $ 8,712 $ 1 Issuance of stock............. 61,162 30 502 Retirement of Stock........... (3,824) (2) (7) (49) Dividends..................... (581) COMPREHENSIVE INCOME Net Income.................... $1,903 1,903 Unrealized gain on securities available for sale, net of taxes of $6................. 9 9 Reclassification adjustment for gain on sale of investment securities included in net income, net of taxes of $22............. 32 32 ------ TOTAL COMPREHENSIVE INCOME.................. $1,944 --------- ------ ------ ====== ------- ----- BALANCE AT DECEMBER 31, 1997........................ 1,868,494 934 6,946 9,985 42 Issuance of stock............. 188,946 95 1,837 Retirement of Stock........... (5,446) (3) (12) (79) Dividends..................... (615) Cash paid for fractional shares...................... (2) COMPREHENSIVE INCOME Net Income.................... $1,164 1,164 Unrealized gain on securities available for sale, net of taxes of $67................ 95 95 Reclassification adjustment for gain on sale of investment securities included in net income, net of taxes of $7.............. 9 9 ------ TOTAL COMPREHENSIVE INCOME.............. $1,268 --------- ------ ------ ====== ------- ----- BALANCE AT DECEMBER 31, 1998........................ 2,051,994 1,026 8,771 10,453 146 Issuance of stock............. 70,970 35 870 Retirement of Stock........... (18,793) (9) (83) (280) Dividends..................... (928) COMPREHENSIVE INCOME Net Income.................... $3,322 3,322 Unrealized loss on securities available for sale, net of taxes of $147............... (250) (250) Reclassification adjustment for loss on sale of investment securities included in net income, net of taxes of $6.............. (9) (9) ------ TOTAL COMPREHENSIVE INCOME.................. $3,072 --------- ------ ------ ====== ------- ----- BALANCE AT DECEMBER 31, 1999........................ 2,104,171 $1,052 $9,558 $12,567 $(113) ========= ====== ====== ======= =====
See notes to consolidated financial statements. 34 AMERICORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (DOLLAR AMOUNTS IN THOUSANDS)
1999 1998 1997 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income................................................ $ 3,322 $ 1,164 $ 1,903 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan and lease losses..................... 720 523 780 Depreciation and Amortization........................... 860 644 484 Benefit for deferred income taxes....................... (246) (130) (226) Net (gain) loss on investment securities................ 15 (16) (54) Net change in other assets and liabilities.............. 191 (246) 487 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES........... 4,862 1,939 3,374 CASH FLOWS FROM INVESTING ACTIVITIES: Net change in time deposits in other institutions......... 595 896 -- Purchases of securities held-to-maturity.................. (1,003) -- (2,039) Purchases of securities available-for-sale................ (7,821) (21,606) (17,051) Proceeds from maturities and calls of securities held-to-maturity........................................ 2,131 4,076 4,018 Proceeds from maturities, calls and sales of securities available-for-sale...................................... 10,802 24,474 15,211 Purchase of Federal Home Loan Bank stock.................. (750) -- -- Net increase in loans..................................... (28,750) (19,134) (20,420) Purchases of premises and equipment....................... (349) (445) (870) Proceed from the sale of other real estate owned.......... 1,150 344 369 Distribution from partnership............................. -- 2,549 400 -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES............... (23,995) (8,846) (20,382) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits....................... (7,844) 15,926 18,748 Increase in borrowings.................................... 10,000 -- -- Proceeds from exercise of stock options................... 533 1,838 475 Dividends and fractional shares........................... (928) (617) (581) -------- -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES........... 1,761 17,147 18,642 -------- -------- -------- INCREASE IN CASH AND CASH EQUIVALENTS................... (17,372) 10,240 1,634 Cash and Cash Equivalents at Beginning of Year.............. 48,211 37,971 36,337 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR................ $ 30,839 $ 48,211 $ 37,971 ======== ======== ======== Supplemental Disclosures of Cash Flow Information Interest Paid............................................. $ 4,812 $ 4,893 $ 4,720 Income Taxes Paid......................................... $ 977 $ 874 $ 296 Supplemental Disclosures of Noncash Activities: Other real estate owned acquired in settlement of loans... $ 1,321 $ -- $ 644 Sales of other real estate owned financed by loans........ $ -- $ -- $ 80 Value of outstanding shares exchanged in exercise of stock options................................................. $ 358 $ 94 $ 57 Total change in unrealized gain/loss on securities available-for-sale...................................... $ (397) $ 161 $ 15
See notes to consolidated financial statements. 35 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Americorp and subsidiary (the "Company") are in accordance with generally accepted accounting principles and conform to practices within the banking industry. The following are descriptions of the more significant of those policies. BASIS OF PRESENTATION--The consolidated financial statements include Americorp and its wholly owned subsidiary, American Commercial Bank (the "Bank"). The consolidated financial statements also give retroactive effect to the merger of the Company's subsidiary, American Commercial Bank, with Channel Islands Bank on December 31, 1998, in a transaction accounted for as a pooling of interest, as discussed further in Note 17. All significant intercompany accounts and transactions have been eliminated. The Bank has been organized as a single operating segment and operates three branches in Ventura, two branches in Oxnard and one branch in Camarillo, California. The Bank's primary source of revenue is providing loans to customers, who are predominately small and middle-market businesses and individuals. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation allowance for deferred tax assets. In connection with the determination of the allowance for losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties. While management uses available information to recognize losses on loans and foreclosed real estate, future additions to the allowances may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgements about information available to them at the time of their examination. Because of these factors, it is possible that the allowances for losses on loans and foreclosed real estate may change materially in the near future. In connection with the determination of the valuation allowance for deferred tax assets, management considers whether it is more likely than not that all or part of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near future for changes in certain assumptions or estimates used to calculate future taxable income. CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and cash equivalents include cash, due from banks and federal funds sold. Generally, federal funds are sold for one day periods. CASH AND DUE FROM BANKS--Banking regulations require that all banks maintain a percentage of their deposits as reserves in cash or on deposit with the federal reserve bank. The Bank complied with the reserve requirements as of December 31, 1999. The Bank maintains amounts due from banks that exceed federally insured limits. The Bank has not experienced any losses in such accounts. 36 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) SECURITIES--The Company classifies its investment securities into two categories as follows: Securities Held-to-Maturity--Securities for which the Company has the positive intent and ability to hold to maturity are carried at cost, increased by the accretion of discounts and decreased by the amortization of premiums. The discount is accreted and premium is amortized over the period to maturity of the related security. Securities Available-for-Sale--Securities available-for-sale consist of investment securities not classified as trading securities nor as securities held-to-maturity. Securities available-for-sale are recorded at their fair market values. Unrealized holding gains and losses, net of tax, are reported as a net amount in a separate component of equity until realized. Gains and losses are determined using the specific identification method. The accretion of discounts and the amortization of premiums are recognized in interest income using the interest method over the period to maturity. LOANS--Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees and unearned discounts. Loan origination fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual status. Loans are placed on nonaccrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. For impairment recognized in accordance with Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 114, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN", amended by SFAS No. 118, the entire change in the present value of expected cash flows is reported as either provision for loan losses in the same manner in which impairment initially was recognized, or as a reduction in the amount of provision for loan losses that otherwise would be reported. On January 1, 1997, the Company adopted SFAS No. 125 "ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES". The statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. Under this statement, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). The Company performs quarterly detailed reviews to identify the risks inherent in the loan portfolio, assess the overall quality of the loan portfolio and to determine the adequacy of the allowance for loan losses and the related provision for loan losses to be charged to expense. These systematic reviews follow the methodology set forth by the FDIC in its 1993 policy statement on the allowance for loan losses. Loans identified as less than "acceptable" are reviewed individually to estimate the amount of probable losses that need to be included in the allowance. These reviews include analysis of financial 37 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) information as well as evaluation of collateral securing the credit. Additionally, management considers the inherent risk present in the "acceptable" portion of the loan portfolio taking into consideration historical losses on pools of similar loans, adjusted for trends, conditions and other relevant factors that may affect repayment of the loans in these pools. PREMISES AND EQUIPMENT--Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is generally charged to income over the estimated useful lives of the assets by use of the straight-line method. Leasehold improvements are amortized over the terms of the leases or the estimated useful lives of improvements, whichever is shorter. Estimated useful lives are as follows: Furniture, fixtures and equipment........................... 3 to 10 years Leasehold improvements...................................... 5 to 15 years
OTHER REAL ESTATE OWNED--Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at the lower of the outstanding loan balance at the time of foreclosure or appraised value. Gains and losses on the sale of other real estate owned and write-downs resulting from periodic revaluation of the property are charged to other operating expenses. ADVERTISING COSTS--The Company expenses the costs of advertising when incurred. INCOME TAXES--Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. COMPREHENSIVE INCOME--Beginning in 1998, the Company adopted SFAS No. 130, "REPORTING COMPREHENSIVE INCOME", which requires the disclosure of comprehensive income and its components. Changes in unrealized gain (loss) on available-for-sale securities net of income taxes is the only component of accumulated other comprehensive income for the Bank. FINANCIAL INSTRUMENTS--In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit as described in Note 15. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. EARNINGS PER SHARE--Basic earnings per share are based on the weighted average number of common shares outstanding. Diluted earnings per share are based on the weighted average number of common and equivalent shares outstanding. The average number of common shares outstanding and common equivalent shares outstanding for 1999 were 2,082,672 and 2,228,136, respectively. The average number of common shares outstanding and common equivalent shares outstanding for 1998 were 1,975,800 and 2,133,600, respectively. The average number of common shares outstanding and common equivalent shares outstanding for 1997 were 1,826,600 and 2,059,000, respectively. Common equivalent shares consist of the dilutive effect of stock options using the treasury stock method. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--SFAS No. 107 specifies the disclosure of the estimated fair value of financial instruments. The Bank's estimated fair value amounts have been determined by the Bank using available market information and appropriate valuation methodologies. 38 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) However, considerable judgment is required to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts the Company could have realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since the balance sheet date and, therefore, current estimates of fair value may differ significantly from the amounts presented in the accompanying Notes. STOCK-BASED COMPENSATION--SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APB") No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. The pro forma effects of adoption are disclosed in Note 10. CURRENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. This new standard was originally effective for 2000. In June 1999, the FASB issued SFAS No. 137, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO. 133". This Statement establishes the effective date of SFAS No. 133 for 2001 and is not expected to have a material impact on the Bank's financial statements. RECLASSIFICATIONS--Certain reclassifications were made to prior years' presentations to conform to the current year. These reclassifications are of a normal recurring nature. 39 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 2. SECURITIES Debt securities have been classified according to management's intent. The amortized cost of securities and their approximate fair values at December 31, 1999 and 1998 follows.
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE --------- ---------- ---------- --------- SECURITIES HELD-TO-MATURITY: DECEMBER 31, 1999: U.S. Agency securities........................... $ 997 $ -- $ (2) $ 995 State, county and municipal securities........... 4,281 87 (9) 4,359 Mortgage-backed securities....................... 1,104 -- (16) 1,088 ------- ---- ----- ------- $ 6,382 $ 87 $ (27) $ 6,442 ======= ==== ===== ======= DECEMBER 31, 1998: U.S. Agency securities........................... $ 1,996 $ 10 $ -- $ 2,006 State, county and municipal securities........... 4,830 228 -- 5,058 Mortgage-backed securities....................... 1,696 2 -- 1,698 ------- ---- ----- ------- $ 8,522 $240 $ -- $ 8,762 ======= ==== ===== ======= SECURITIES AVAILABLE-FOR-SALE: DECEMBER 31, 1999: U.S. Treasury securities......................... $ 1,973 $ -- $ (81) $ 1,892 U.S. Agency securities........................... 3,508 -- (49) 3,459 State, county and municipal securities........... 3,194 78 -- 3,272 Corporate bonds.................................. 4,213 -- (71) 4,142 Mortgage-backed securities....................... 6,121 -- (42) 6,079 Mutual funds..................................... 2,138 -- -- 2,138 ------- ---- ----- ------- $21,147 $ 78 $(243) $20,982 ======= ==== ===== ======= DECEMBER 31, 1998: U.S. Agency securities........................... $ 4,621 $ 9 $ (26) $ 4,604 State, county and municipal securities........... 4,471 200 -- 4,671 Corporate bonds.................................. 5,428 23 -- 5,451 Mortgage-backed securities....................... 4,425 38 (10) 4,453 Mutual funds..................................... 4,508 -- (20) 4,488 Other............................................ 199 -- -- 199 ------- ---- ----- ------- $23,652 $270 $ (56) $23,866 ======= ==== ===== =======
40 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 2. SECURITIES (CONTINUED) The scheduled maturities of securities held-to-maturity and available-for-sale at December 31, 1999 are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
HELD-TO-MATURITY AVAILABLE-FOR-SALE --------------------- --------------------- ESTIMATED ESTIMATED AMORTIZED MARKET AMORTIZED MARKET COST VALUE COST VALUE --------- --------- --------- --------- Due in one year or less............................... $ 500 $ 498 $ 3,544 $ 3,543 Due after one year through five years................. 1,933 1,931 8,414 8,252 Due after five years through ten years................ 2,341 2,410 828 868 Due after ten years................................... 504 515 102 102 Mortgage-backed securities............................ 1,104 1,088 6,121 6,079 Mutual funds.......................................... -- -- 2,138 2,138 ------ ------ ------- ------- $6,382 $6,442 $21,147 $20,982 ====== ====== ======= =======
Proceeds from sales and calls of securities available-for-sale during 1999, 1998 and 1997 were $2,291, $20,284 and $2,752, respectively. Gross losses of $15 were realized on those sales in 1999. Gross gains of $76 and gross losses of $60 were realized on those sales and calls during 1998. Gross gains of $54 were realized on those sales and calls in 1997. Securities carried at approximately $6,381 and $2,032 at December 31, 1999 and 1998, respectively, were pledged to secure public funds on deposit, as required by law. Included in accumulated other comprehensive income at December 31, 1999 and 1998 are unrealized gains (losses) on securities available for sale of $(165) and $247, net of taxes of $52 and $101, respectively. 3. LOANS Loans consisted of the following at December 31:
1999 1998 -------- -------- Commercial.............................................. $ 42,242 $ 60,433 Real estate--construction............................... 7,794 7,395 Real estate--other...................................... 119,732 69,829 Consumer................................................ 12,262 17,333 -------- -------- Total loans........................................... 182,030 154,990 Less allowance for loan losses.......................... (1,978) (1,953) Less deferred loan fees................................. (705) (399) -------- -------- Loans, net............................................ $179,347 $152,638 ======== ========
41 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 3. LOANS (CONTINUED) Transactions in the allowance for loan losses are summarized as follows:
1999 1998 1997 -------- -------- -------- Balance, beginning of year.......................... $1,953 $1,966 $1,535 Provision for losses charges to expense............. 720 523 780 Loans charged off................................... (900) (734) (634) Recoveries on loans previously charged off.......... 205 198 285 ------ ------ ------ Balance, end of year................................ $1,978 $1,953 $1,966 ====== ====== ======
At December 31, 1999 and 1998, the recorded investment in loans that are considered to be impaired was $1,797 and $1,780, respectively, all of which, were on a nonaccrual basis and for which the related allowance for loan losses is approximately $184 and $368, respectively. The average recorded investment in impaired loans during the year ended December 31, 1999, 1998 and 1997 was approximately $1,556, $1,982 and $1,314, respectively. No interest income was recognized on these loans. If these loans had been current throughout their terms, interest income would have increased approximately $165, $209 and $140 for 1999, 1998 and 1997, respectively. In the ordinary course of business, the Company has granted loans to certain executive officers, directors and companies with which they are associated. Loans made to such related parties amounted to $1,255 in 1999 and $2,003 in 1998. Balances outstanding at December 31, 1999 and 1998 were $1,320 and $2,922, respectively. 4. PREMISES AND EQUIPMENT Premises and equipment consisted of the following at December 31:
1999 1998 -------- -------- Furniture, fixtures, and equipment.......................... $3,126 $4,096 Leasehold improvements...................................... 1,304 1,268 ------ ------ 4,430 5,364 Less accumulated depreciation and amortization.............. (2,763) (3,162) ------ ------ Premises and equipment, net................................. $1,667 $2,202 ====== ======
During 1999, the Bank wrote off $1,235 in assets that had been fully depreciated in prior years. 42 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 4. PREMISES AND EQUIPMENT (CONTINUED) At December 31, 1999, the Company was obligated under operating leases requiring annual rentals as follows: 2000................................................ $ 861 2001................................................ 675 2002................................................ 542 2003................................................ 263 2004................................................ 224 Thereafter.......................................... 1,039 ------ Total............................................... $3,604 ======
Rental expense was $864 in 1999, $892 in 1998, and $705 in 1997. 5. OTHER REAL ESTATE OWNED Other real estate owned consisted of the following at December 31:
1999 1998 -------- -------- Foreclosed assets held for sale............................. $206 $ -- Valuation allowance......................................... -- -- ---- ---- Other real estate owned, net................................ $206 $ -- ==== ====
6. INVESTMENT IN PARTNERSHIPS During 1998, the Bank received $2,549 in full settlement of its investment in Ventura Affordable Homes, Ltd. The following paragraphs summarize the history and resolution of that investment. The Company had a 50% limited partner interest in Ventura Affordable Homes, Ltd. Affordable Communities, Inc., an unrelated entity, was the general partner. The partnership was formed for the purpose of constructing a low-to-moderate income housing development located in Ventura. The investment was accounted for on the equity method. In 1992, the Company sold a parcel of land to the partnership at its cost of $1,200. In exchange, the Company received a second trust deed for $1,200. During 1994, the Company contributed the trust deed and an additional $500 to the partnership. $258 was contributed to the partnership in 1995. In January of 1997, a dispute arose between the Bank as limited partner and Affordable Communities, Inc., the general partner, over the amount of management fees claimed to be owed to the general partner by the partnership. In February 1997, the Bank initiated a lawsuit against the general partner because of this dispute. The Bank and the general partner negotiated a complete settlement of the dispute and a request for dismissal was filed with the court. In connection with the settlement agreement, the partnership was dissolved in 1998 and the Bank received a $2,549 distribution in full satisfaction of its 50% interest in the partnership. 43 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 7. BORROWINGS During 1999, in anticipation of potential Y2K related liquidity issues, the Company obtained two lines of credit with the Federal Home Loan Bank. Approximately $24,000 in loans and approximately $4,000 in investments held by the Company secured these lines. On December 28, 1999, the Bank obtained two advances against these lines, both due on January 18, 2000. One advance was for $6,000, including interest at 6.09% and the other advance was for $4,000, including interest at 5.98%. Both advances were repaid at maturity. At December 31, 1999, the Company also had an unused line of credit with one bank. The line totals $5,000, has variable interest rates based on the lending bank's daily Federal funds rates, and is due on demand. The line of credit is unsecured. 8. INCOME TAXES The current and deferred amounts of the provision for income taxes are as follows:
1999 1998 1997 -------- -------- -------- Current: Federal............................................ $ 900 $ 508 $ 818 State.............................................. 511 300 380 ------ ----- ------ 1,411 808 1,198 Deferred............................................. (266) (130) (226) ------ ----- ------ Provision for income taxes........................... $1,145 $ 678 $ 972 ====== ===== ======
The following summarizes the differences between the provision for income taxes for financial statement purposes and the federal statutory rate of 34%:
1999 1998 1997 -------- -------- -------- Tax provision at federal statutory rate.................. 34.0% 34.0% 34.0% State franchise tax, net of federal income tax benefit... 7.0 7.6 7.1 Municipal interest....................................... (3.3) (9.6) (6.8) Benefit of deferred deductions, alternative minimum tax credits and changes in valuation allowance, net........ (11.6) -- -- Nondeductible merger related expenses.................... -- 6.9 -- Other.................................................... (0.6) (2.1) (0.5) ------ ---- ---- Tax provision............................................ 25.6% 36.8% 33.8% ====== ==== ====
44 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 8. INCOME TAXES (CONTINUED) The tax effects of each type of significant item that gave rise to deferred taxes are:
1999 1998 1997 -------- -------- -------- Deferred tax assets: Allowance for loan losses....................... $ 445 $ 356 $ 418 Deferred compensation and retirement benefits... 717 850 742 AMT credit carryover............................ 392 904 893 Unrealized loss on securities available for sale.......................................... 52 -- -- Depreciation.................................... 41 -- -- Other assets.................................... 334 135 200 ------ ------- ------- 1,981 2,245 2,253 Deferred tax liabilities: Unrealized gain on securities available for sale.......................................... -- (68) (42) Depreciation.................................... -- (60) (45) Other liabilities............................... (19) (47) (133) ------ ------- ------- (19) (175) (220) Valuation allowance............................... (706) (1,218) (1,211) ------ ------- ------- Net deferred tax assets........................... $1,256 $ 852 $ 822 ====== ======= =======
9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS PROFIT SHARING--The Company has a combination profit sharing and salary deferral 401(k) plan for the benefit of its employees. Under the plan, eligible employees may defer a portion of their salaries. The Company may, at its option, make matching contributions to the employee salary deferrals or profit sharing contributions. For 1999, 1998 and 1997, the Company's salary deferral matching contribution amounted to $79, $73, and $42, respectively. No profit sharing contributions were made in 1999, 1998 or 1997. DEFERRED COMPENSATION, DIRECTORS AND CHIEF EXECUTIVE OFFICERS--In May 1997, the Company approved the Directors' Retirement Plan and the Chief Executive Officer's Retirement Plan which restated and amended preexisting retirement plans. The original plans provided for payments upon retirement, death or disability for the benefit of directors and the chief executive officer (now a director) of the Company. The preexisting and the restated Plans are nonqualified and nonfunded plans. The preexisting Plans had been amended several times and as of January 1, 1997 provided for six years of retirement benefits upon retirement. Under the restated Plans, each participant upon normal retirement, death, or disability will receive a monthly retirement benefit for 120 months in an amount stipulated in the agreement. During 1998, the Company again amended the Plans to provide for significant reductions in the retirement benefits, eliminated participation by any existing Director with less than five years of service and closed the Plans for participation by any new Directors. DEFERRED COMPENSATION, SENIOR OFFICERS--The Company has a nonqualified, nonfunded income continuation plan providing for payments upon retirement, death or disability of certain employees. Under the Plan, certain employees will receive retirement payments equal to a portion of the last three years' average 45 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 9. PROFIT SHARING AND DEFERRED COMPENSATION PLANS (CONTINUED) compensation. The payments are to be made monthly for a period of ten years. The Plan also provides for reduced benefits upon early retirement, disability or termination of employment. As of December 31, 1999 and 1998, the projected benefit obligation and the net benefit liability of these Plans are $1,544 and $1,866, respectively, and are included in other liabilities in the accompanying consolidated financial statements. Compensation expense relating to these Plans was $156, $386, and $267 in 1999, 1998 and 1997, respectively. In anticipation of the future obligation of the deferred compensation plans, the Company has invested in life insurance policies, which are carried at cash surrender value. The Company's intention is to partially fund these plans from the proceeds and investment earnings of these insurance policies. 10. STOCK OPTION PLANS The Company has a stock option plan (the "1998 Plan") that provides for the granting of options to directors and officers to purchase stock at its market value on the date the options are granted. There are 220,000 shares of Americorp Stock reserved for issuance upon exercise of options granted under the 1998 Plan. Options granted under the 1998 Plan may not extend more than ten years from the date of grant. The 1998 Plan superceded all prior stock option plans of the Company but did not effect any of the stock options granted under such plans that remain outstanding. Outstanding options from plans other than the 1998 plan totaled 57,700 at December 31, 1999. In accordance with SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", which was effective as of January 1, 1996, the fair value of option grants is estimated on the date of grant using the Black-Scholes option-pricing model for proforma footnote purposes with the following assumptions used for grants in all years:
1999 1998 1997 -------- -------- -------- Dividend yields........................................... 2.30% 2.50% 3.16% Risk-free interest rates.................................. 5.87% 5.37% 5.72% Expected option life--in years............................ 3.83 3.63 3.91 Expected volatility....................................... 8.88% 6.20% 4.29%
46 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 10. STOCK OPTION PLANS (CONTINUED) A summary of the status of the Company's stock option plan and the changes in the shares outstanding for the three years ended December 31, 1999 is as follows:
WEIGHTED AVERAGE ------------------- EXERCISE FAIR SHARES PRICE VALUE -------- -------- -------- Options outstanding January 1, 1997......................... 345,056 $ 9.37 Granted..................................................... 38,800 14.31 $1.28 ===== Exercised................................................... (61,162) 7.51 Canceled.................................................... (13,056) 12.09 -------- Options outstanding December 31, 1997....................... 309,638 10.01 Granted..................................................... 114,466 14.38 $1.49 ===== Exercised................................................... (188,946) 8.45 Canceled.................................................... (18,234) 12.39 -------- Options outstanding December 31, 1998....................... 216,924 13.81 Granted..................................................... 127,040 19.33 $2.61 ===== Exercised................................................... (70,970) 12.75 Canceled.................................................... (31,332) 15.22 -------- Options outstanding December 31, 1999....................... 241,662 16.83 ========
The above table also includes activity in the stock option plans of Channel Islands Bank prior to the merger on December 31, 1998. The following table summarizes information about stock options outstanding at December 31, 1999:
RANGE OF NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER EXERCISABLE EXERCISE PRICES AT 12/31/99 REMAINING LIFE AT 12/31/99 - ----------------------- ------------------ ---------------- ------------------ $12.00 to $14.00 50,442 7.84 years 19,866 $14.00 to $17.00 64,180 3.53 years 32,320 $19.00 to $20.00 127,040 4.76 years 25,408 ------- ------ 241,662 5.08 years 77,594 ======= ======
47 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 10. STOCK OPTION PLANS (CONTINUED) As permitted by SFAS No. 123, the Company has chosen to continue accounting for stock options at their intrinsic value. Accordingly, no compensation expense has been recognized for its stock option compensation plans. Had the fair value method of accounting been applied to the Company's stock option plans, net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 -------- -------- -------- Net Income: As Reported....................................... $3,322 $1,164 $1,903 Pro Forma......................................... $3,239 $1,141 $1,866 Basic Earnings per Share: As Reported....................................... $ 1.60 $ 0.59 $ 1.04 Pro Forma......................................... $ 1.55 $ 0.58 $ 1.02 Diluted Earnings per Share: As Reported....................................... $ 1.49 $ 0.55 $ 0.93 Pro Forma......................................... $ 1.45 $ 0.53 $ 0.91
11. SIGNIFICANT CONCENTRATIONS OF CREDIT RISK Most of the Company's business activity is with customers throughout its primary market area of Ventura County, California. Although the Company seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Company's market area and, as a result, the Company's loan and collateral portfolios are, to some degree, concentrated in those industries. Investments in state and municipal securities involve governmental entities within the State of California. The Bank maintains amounts on deposit with correspondent banks that exceed federally insured limits. The Bank has not experienced any losses in connection with such accounts. 12. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS The Company provides health and life insurance benefits to retired employees and directors. Employees may become eligible for benefits if they retire after attaining specified age and service requirements while they worked for the Company. Directors may become eligible after five years regardless of their age at retirement. The Company implemented the provisions of SFAS No. 106, "EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS" effective January 1, 1996. These benefits are now accrued over the period the employee provides services to the Company. Prior to the change, costs were charged to expense as incurred. The Company elected the delayed recognition treatment of the adoption of SFAS 106. Under this method, the transition obligation will be amortized on a straight line basis over the remaining service period of active plan participants. The Company's current policy is to fund the cost of postretirement health care and life insurance plans on a pay-as-you-go basis. 48 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS) 12. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS (CONTINUED) The net periodic cost for postretirement health care and life insurance benefits includes the following:
1999 1998 -------- -------- Service cost................................................ $45 $21 Interest cost............................................... 15 13 Amortization of unrecognized transition obligation.......... 8 8 --- --- Total....................................................... $68 $42 === ===
Summary information on the Company's plans is as follows:
DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ Accumulated postretirement benefit obligation: Retirees.......................................... $ -- $ 2 Fully eligible, active employees.................. 63 71 Other active plan participants.................... 180 137 ----- ----- Total............................................. 243 210 Fair value of plan assets........................... -- -- ----- ----- Unfunded accrued postretirement benefits obligation........................................ 243 210 Unrecognized net gain............................... 47 19 Unrecognized net transition obligation.............. (137) (145) ----- ----- Accrued postretirement benefit cost................. $ 153 $ 84 ===== =====
The assumed discount rate and the assumed rate of increase in compensation levels are 7.25%. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 5.5% declining to 4.75% in 6 years. If the health care cost trend rate assumptions were increased by 1%, the accrued postretirement benefit cost, as of December 31, 1999, would be increased by approximately $30. 13. STOCK SPLIT On March 18, 1999, the Board of Directors of the Company declared a two-for-one stock split of its outstanding shares of common stock. All per share data has been retroactively adjusted to reflect this split. 14. REGULATORY MATTERS The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's and Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Bank's 49 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 14. REGULATORY MATTERS (CONTINUED) capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 1999, that the Company and the Bank meet all capital adequacy requirements to which it is subject. As of December 31, 1999, the most recent notification from the FDIC categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action (there are no conditions or events since that notification that management believes have changed the Bank's category). To be categorized as well-capitalized, the Bank must maintain minimum ratios as set forth in the table below. The following table also sets forth the Bank's actual capital amounts and ratios (the Company's capital ratios are comparable to the Bank's):
AMOUNT OF CAPITAL REQUIRED -------------------------------------------- TO BE ADEQUATELY TO BE WELL ACTUAL CAPITALIZED CAPITALIZED ------------------- ------------------- ------------------- AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO -------- -------- -------- -------- -------- -------- AS OF DECEMBER 31, 1999: Tier 1 Capital (to Average Assets)....... $23,093 9.5% $ 9,705 4.0% $12,131 5.0% Tier 1 Capital (to Risk-Weighted Assets)................................ $23,093 10.9% $ 8,480 4.0% $12,720 6.0% Total Capital (to Risk-Weighted Assets)................................ $25,071 11.8% $16,960 8.0% $21,200 10.0% AS OF DECEMBER 31, 1998: Tier 1 Capital (to Average Assets)....... $20,231 8.4% $ 9,600 4.0% $12,000 5.0% Tier 1 Capital (to Risk-Weighted Assets)................................ $20,231 10.6% $ 7,700 4.0% $11,500 6.0% Total Capital (to Risk-Weighted Assets)................................ $22,164 11.6% $15,300 8.0% $19,200 10.0%
15. COMMITMENTS AND CONTINGENCIES The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial position. Exposure to credit loss in the event of nonperformance by the other party to commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. At December 31, 1999, the Company had commitments to extend credit of $44,584 and obligations under standby letters of credit of $968. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 50 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 15. COMMITMENTS AND CONTINGENCIES (CONTINUED) Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The Company uses the same credit policies in making commitments and conditional commitments as it does for extending loan facilities to customers. The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, and equipment and real estate. The Company is involved in various litigation that has arisen in the ordinary course of its business. In the opinion of management and legal counsel, the disposition of such pending litigation will not have a material effect on the Company's financial statements. 16. FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Standards No. 107 ("FAS 107"), "DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS" requires corporations to disclose the fair value of its financial instruments, whether or not recognized in the balance sheet, where it is practical to estimate that value. Fair value estimates are based on relevant market information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holding of a particular financial instrument. In cases where quoted market prices are not available, fair value estimates are based on judgements regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: CASH AND CASH EQUIVALENTS--The carrying amounts reported in the balance sheets for cash and short-term instruments approximate those assets' fair values. SECURITIES--Fair values were based on quoted market prices, where available. If quoted market prices were not available, fair values were based on quoted market prices of comparable instruments. FEDERAL HOME LOAN BANK STOCK--The fair value of Federal Home Loan Bank stock is based on its redemption value. LOANS--The carrying values, reduced by estimated inherent credit losses, of variable-rate loans and other loans with short-term characteristics were considered fair values. For other loans, the fair market values were calculated by discounting scheduled future cash flows using current interest rates offered on loans with similar terms adjusted to reflect the estimated credit losses inherent in the portfolio. 51 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE--The carrying amounts reported in the balance sheets for accrued interest receivable and accrued interest payable approximate their fair values. CASH SURRENDER VALUE OF LIFE INSURANCE--The fair value of life insurance policies are based on their surrender value. DEPOSIT LIABILITIES--The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, NOW, savings, and money market deposits, was, by definition, equal to the amount payable on demand. The fair value of certificates of deposit was based on the discounted value of contractual cash flows, calculated using the discount rates that equaled the interest rates offered at the valuation date for deposits of similar remaining maturities. BORROWINGS--Due to the short-term nature of other borrowings, book value is determined to approximate fair value. The following is a summary of the carrying amounts and estimated fair values of the Company's financial assets and liabilities at December 31, 1999 and 1998:
1999 1998 --------------------- --------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Financial Assets: Cash and due from banks.............................. $12,839 $12,839 $21,106 $21,106 Federal funds sold................................... 18,000 18,000 27,700 27,700 Securities........................................... 27,364 27,424 32,388 32,628 Federal Home Loan Bank stock......................... 750 750 -- -- Loans, net of allowance for loan losses.............. 179,347 177,422 152,638 153,772 Accrued interest receivable.......................... 1,284 1,284 1,321 1,321 Cash surrender value of life insurance............... 2,758 2,758 2,492 2,492 Financial Liabilities: Deposits............................................. 209,877 209,929 217,721 217,988 Borrowings........................................... 10,000 10,000 -- -- Accrued interest payable............................. 354 354 559 559
At December 31, 1999 and 1998, the Bank had outstanding standby letters of credit and commitments to extend credit. These off-balance sheet financial instruments are generally exercisable at the market rate prevailing at the date the underlying transaction will be completed, and, therefore, they were deemed to have no current fair market value (see Note 15). 17. MERGER WITH CHANNEL ISLANDS BANK At the close of business on December 31, 1998, the Company consummated a merger with Channel Islands Bank. This merger was accounted for by the pooling of interest method, whereby the Company's Financial Statements have been restated as if the two companies were historically one unit. A total of 405,505 common shares were issued to the shareholders of Channel Islands Bank in connection with this merger. 52 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 17. MERGER WITH CHANNEL ISLANDS BANK (CONTINUED) The following table summarizes the separate revenue and net income of the Company and Channel Islands Bank that have been reported in the restated financial statements included herein:
1999 1998 1997 -------- -------- -------- Interest and Noninterest Income: The Company.................................... $21,719 $12,366 $11,319 Channel Islands Bank........................... -- 8,396 7,975 ------- ------- ------- $21,719 $20,762 $19,294 ======= ======= ======= Net Income: The Company.................................... $ 3,322 $ 507 $ 1,103 Channel Islands Bank........................... -- 657 800 ------- ------- ------- $ 3,322 $ 1,164 $ 1,903 ======= ======= =======
In connection with this merger, the Company identified one-time restructuring charges and incurred merger-related costs of $518 ($434 after tax). These restructuring charges and merger-related costs included employee benefits and severance payments, professional fees associated with the merger and asset-related write-downs related to the closure of one branch location. The majority of these costs were incurred in 1998, however $159 of these costs were accrued at the consummation of the merger on December 31, 1998 and incurred in 1999. 53 AMERICORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (DOLLAR AMOUNTS IN THOUSANDS) 18. PARENT COMPANY INFORMATION The following are condensed financial statements of Americorp (parent company only) as of and for the years ended December 31 1999 and 1998:
1999 1998 -------- -------- CONDENSED BALANCE SHEET Cash........................................................ $ 26 $ 9 Investment in and advances to the Bank...................... 23,005 20,387 Other assets................................................ 285 129 ------- ------- TOTAL ASSETS.............................................. $23,316 $20,525 ======= ======= Liabilities................................................. $ 252 $ 129 Stockholders' equity........................................ 23,064 20,396 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $23,316 $20,525 ======= ======= CONDENSED STATEMENT OF INCOME Equity in earnings of the Bank.............................. $ 3,370 $ 1,193 Other....................................................... (48) (29) ------- ------- NET INCOME................................................ $ 3,322 $ 1,164 ======= ======= CONDENSED STATEMENT OF CASH FLOWS CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................. $ 3,322 $ 1,164 Adjustments: Undistributed earnings of the Bank........................ (2,344) (548) Change in other assets.................................... (156) 2 Change in other liabilities............................... 123 6 ------- ------- Net cash provided by operating activities................... 945 624 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in and advances to the Bank...................... (533) (1,838) ------- ------- Net Cash Used by Investing Activities....................... (533) (1,838) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock...................... 533 1,838 Dividends paid.............................................. (928) (617) ------- ------- Net cash used for financing activities...................... (395) 1,221 ------- ------- CHANGE IN CASH............................................ 17 7 Cash at Beginning of Year................................... 9 2 ------- ------- CASH AT END OF YEAR....................................... $ 26 $ 9 ======= =======
54 ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Information in response to this Item is set forth in Americorp's Report on Form 8-K filed with the SEC on December 4, 1998 which by this reference is incorporated herein. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information on the current members of the Boards of Directors of Americorp and ACB.
YEAR FIRST ELECTED OR NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS APPOINTED - ---- -------- --------------------------------------- ---------- Michael T. Hribar................. 52 Certified Public Accountant 1998 Allen W. Jue...................... 64 Chairman of the Board (since 1994); 1973 Owner, Jue's Market Robert J. Lagomarsino............. 73 Secretary, Americorp and ACB; VP 1993 Lagomarsino's (family business); U.S. Congress, 1974-93 Gerald J. Lukiewski............... 46 Banker, President of ACB 3/98 to present; 1998 S.V.P. Chief Credit Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97; prior thereto various Vice President positions with Santa Barbara Bank & Trust Co. and Bank of A Levy E. Thomas Martin.................. 56 Manager, Sunset Beach Estates (real 1996 estate development) 1999 to present; Chairman, DSI Toys, Inc. 1999 to present; President, Martin Resorts, Inc. (hotel) 1998 to present; Manager, Martin & Hobbs LLC (real estate and vineyards) 1996 to present; President, Martin & MacFarlane, Inc. (outdoor advertising and winery) 1976-1998; President, MW Sign Corp. (management company) 1991- 1998 Harry L. Maynard.................. 72 Retired, former President of ACB 1976 Edward F. Paul.................... 62 President, Walker, Inc. (real estate 1998 management and sales); President, CIB 1995-96 Joseph L. Priske.................. 50 Vice Chairman of the Board; CEO, Priske- 1998 Jones Company (real estate development) Jacqueline S. Pruner.............. 61 Consultant, American Medical Response 1998 6/94-5/97; Co-Owner, Pruner Investments
55 The following table sets forth information on the current executive officers of ACB.
YEAR FIRST ELECTED NAME AGE BUSINESS EXPERIENCE FOR PAST FIVE YEARS OR APPOINTED - ---- -------- --------------------------------------- ------------ Gerald J. Lukiewski............... 46 Banker, President of ACB 3/98 to present; 1998 S.V.P. Chief Credit Officer 7/97 to 3/98; V.P. Regional Manager 9/96 to 7/97; prior thereto various Vice President positions with Santa Barbara Bank & Trust Co. and Bank of A Levy Chuck Meyers...................... 61 Banker, Senior Vice President and Chief 1999 Lending Officer of ACB 11/99 to present; First Vice President with East West Bank 1/94 to 11/99 Ronald S. Paul.................... 57 Banker, Senior Vice President and Chief 1998 Administrative Officer of ACB 7/98 to present; General Manager/Attorney Lagomarsino's (beverage distributor) 3/91 to 11/97 Keith Sciarillo................... 38 Banker, Senior Vice President and Chief 1999 Financial Officer of ACB 11/99 to present; Controller 1/99 to 10/99; Chief Financial Officer 8/94 to 12/98 (prior to merger with CIB) Susan Woolf....................... 51 Banker, Senior Vice President and Chief 1999 Operating Officer of ACB 11/99 to present; Vice President Sales and Service Manager 11/1996 to 10/99; prior thereto First V.P., Great Western Bank
Messrs. Lukiewski and Sciarillo also serve as the President and Chief Financial Officer, respectively, of Americorp. ITEM 11. EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION Set forth below is the compensation accrued during 1999 to the executive officers of Americorp/ACB who received total annual salary and bonus of more than $100,000 during 1999. 56 SUMMARY COMPENSATION TABLE
OTHER ANNUAL SALARY BONUS COMPEN- NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) SATION(2) --------------------------- -------- -------- -------- --------- Gerald J. Lukiewski ........................................ 1999 143,654 50,000 -- President(3) 1998 114,166 50,000 -- Ronald S. Paul(4) .......................................... 1999 86,087 24,625 -- SVP, Chief Admin. Officer 1998 36,160 -- --
- ------------------------ (1) Amounts shown include cash and non-cash compensation earned and received, including monthly auto allowances. (2) No executive officer received perquisites or other personal benefits in excess of the lesser of $50,000 or 10% of each such officer's total annual salary and bonus. (3) Became President on March 2, 1998 and Senior Vice President and Chief Credit Officer prior thereto. (4) Became Senior Vice President and Chief Administrative Officer in July 1999. OPTION GRANTS IN 1999 In connection with the merger with CIB, Americorp adopted a new stock option plan. Previous stock option plans of Americorp were terminated at such time but options granted pursuant to such plans remained outstanding and exercisable in accordance with their terms. Options granted during 1999 under the various Americorp stock option plans to either of the officers set forth in the Summary Compensation Table are as follows:
(A) (B) (C) (D) (E) NUMBER OF PERCENT OF SECURITIES OPTIONS GRANTED EXERCISE OR UNDERLYING TO EMPLOYEES BASE PRICE NAME OPTIONS GRANTED IN 1999 PER SHARE EXPIRATION DATE ---- --------------- --------------- ----------- --------------- Lukiewski.............................. 25,600 19.24 $19.00 10/21/04 Paul................................... 5,200 3.91 $19.00 10/21/04
The following table sets forth certain information concerning unexercised options under the Americorp stock option plans to the persons named in the Summary Compensation Table.
(A) (B) (C) (D) (E) NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS AT OPTIONS 12/31/99(#) AT 12/31/99($) SHARES ------------- -------------- ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/ NAME EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE ---- ----------- -------- ------------- -------------- Lukiewski................................... -- -- 12,320/23,280 $33,000/11,500 Paul........................................ -- -- 3,440/7,760 5,400/8,100
- ------------------------ (1) The aggregate value has been determined based upon the closing sales price for Americorp's stock as of December 31, 1999, minus the exercise price. 57 DIRECTOR COMPENSATION In 1999, each of the then directors received $1,000 per month in director's fees except as indicated in the following sentences. The Secretary to the Board received $2,000 per month in fees and the Vice-Chairmen of the Board also received $2,000 per month in fees. The Chairman of the Board received $3,500 per month in fees. EMPLOYMENT AGREEMENT In connection with his appointment as President and Chief Executive Officer of Americorp and ACB, ACB entered into an employment agreement with Gerald J. Lukiewski as of March 2, 1998. The agreement, as amended and extended, currently provides for a three year term with an annual salary of $135,000. The agreement also provides for participation in ACB's bonus plan and certain other benefits, including vacation, automobile allowance, insurance, retirement benefits and expense reimbursements. In the event of termination without cause, the agreement provides for the lesser of (i) three months of additional salary and benefits or (ii) the remaining salary and benefits due under the term of the agreement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Except as set forth in the following table, management of Americorp does not know of any person who owns beneficially more than 5% of Americorp Stock. The following table sets forth certain information as of February 1, 2000, concerning the beneficial ownership of Americorp Stock by each of the current directors of Americorp and ACB and by all current directors and executive officers of Americorp and ACB as a group.
AMOUNT OF BENEFICIAL PERCENT OF NAME OF BENEFICIAL OWNER OWNERSHIP(1) CLASS(2) ------------------------ -------------------- ---------- Michael T. Hribar................................ 14,702(3) * Allen W. Jue..................................... 24,383 1.2% Robert J. Lagomarsino............................ 82,624 3.9% Gerald J. Lukiewski.............................. 14,720(4) * E. Thomas Martin................................. 115,550 5.6% Harry L. Maynard................................. 30,404 1.4% Edward F. Paul................................... 83,544(5) 4.0% Joseph L. Priske................................. 15,328(6) * Jacqueline S. Pruner............................. 33,540(7) 1.6% Directors and Executive Officers as a Group (13 persons)....................................... 424,452(8) 20.2%
- ------------------------ * Less than 1%. (1) Beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares; (a) voting power, which includes the power to vote, or to direct the voting of such security; and/or; (b) investment power which includes the power to dispose, or to direct the disposition of such security. Beneficial owner also includes any person who has the right to acquire beneficial ownership of such security as defined above within 60 days of the date specified. (2) Shares subject to options held by directors and executive officers that were exercisable within 60 days after February 1, 2000 are treated as issued and outstanding for the purpose of computing the percentage of class owned by such person (or group) but not for the purpose of computing the percentage of class owned by any other individual person. 58 (3) Includes 4,370 shares exercisable pursuant to the Americorp stock option plans. (4) Includes 12,720 shares exercisable pursuant to the Americorp stock option plans. (5) Includes 4,370 shares exercisable pursuant to the Americorp stock option plans. (6) Includes 4,370 shares exercisable pursuant to the Americorp stock option plans. (7) Includes 2,914 shares exercisable pursuant to the Americorp stock option plans. (8) Includes 38,401 shares exercisable pursuant to the Americorp stock option plans. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Some of the current directors and officers of Americorp and ACB and the companies with which they are associated have been customers of, and have had banking transactions with ACB, in the ordinary course of ACB's business, and ACB expects to continue to have such banking transactions in the future. All loans and commitments to lend included in such transactions have been made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with persons of similar creditworthiness, and in the opinion of management of ACB, have not involved more than the normal risk of repayment or presented any other unfavorable features. ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: --------------------- 3.1 Articles of Incorporation of Americorp* 3.2 Bylaws of Americorp, as amended* 10.1 Employment Agreement of Gerald J. Lukiewski* 10.2 1994 Stock Option Plan* 10.3 1998 Stock Option Plan* 10.4 ACB 401K Profit Sharing Plan* 10.5 Restated and Amended Senior Executives Retirement Plan* 10.6 Restated and Amended Chief Executive Officer Retirement Plan* 10.7 Restated and Amended Directors Retirement Plan* 10.8 Data processing Agreement with Electronic Data Systems Corp.* 16 Letter concerning change in certifying accountant** 21 Subsidiary of Americorp--American Commercial Bank is the only subsidiary of Americorp 23.1 Consent of Vavrinek, Trine, Day & Co., LLP 23.2 Consent of Fanning & Karrh--see opinion in Item 8 27 Financial Data Schedule
- ------------------------ * filed with the SEC in Registration Statement 333-63841 on Form S-4 and by this reference incorporated herein. ** contained in Americorp's Report on Form 8-K filed with the SEC on December 4, 1998 and by this reference incorporated herein. REPORTS ON FORM 8-K: None. 59 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, Americorp caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 23, 2000. AMERICORP By: /s/ GERALD J. LUKIEWSKI ----------------------------------------- Gerald J. Lukiewski PRESIDENT AND CHIEF EXECUTIVE OFFICER By: /s/ KEITH SCIARILLO ----------------------------------------- Keith Sciarillo CHIEF FINANCIAL OFFICER
In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of Americorp and in the capacities and on the dates indicated.
Dated: /s/ ALLEN W. JUE ------------------------------------------- Chairman of the Board of March 23, 2000 Allen W. Jue Directors /s/ MICHAEL T. HRIBAR ------------------------------------------- Director March 23, 2000 Michael T. Hribar /s/ ROBERT J. LAGOMARSINO ------------------------------------------- Director March 23, 2000 Robert J. Lagomarsino /s/ GERALD J. LUKIEWSKI ------------------------------------------- Director March 23, 2000 Gerald J. Lukiewski /s/ E. THOMAS MARTIN ------------------------------------------- Director March 23, 2000 E. Thomas Martin /s/ HARRY L. MAYNARD ------------------------------------------- Director March 23, 2000 Harry L. Maynard /s/ EDWARD P. PAUL ------------------------------------------- Director March 23, 2000 Edward P. Paul /s/ JOSEPH L. PRISKE ------------------------------------------- Director March 23, 2000 Joseph L. Priske /s/ JACQUELINE S. PRUNER ------------------------------------------- Director March 23, 2000 Jacqueline S. Pruner
60 EXHIBIT INDEX
EXHIBIT SEQUENTIAL PAGE NUMBER DESCRIPTION NUMBER - --------------------- ----------- -------- 27 Financial Data Schedule
61 EX-23.1 2 EXHIBIT 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We hereby consent to the incorporation by reference in the registration statement dated November 3, 1999 on Form S-8 of Americorp of our independent auditors report dated January 20, 2000, on our audit of the consolidated balance sheets of Americorp and subsidiary as of December 31, 1999 and 1998, and the related consolidated statements of income, changes in stockholder's equity and cash flows for the years then ended, which report is included in the 1999 Annual Report on Form 10-K. /s/ Vavrinek, Trine, Day & Co., LLP Laguna Hills, California March 27, 2000 EX-27 3 EXHIBIT 27
5 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 30,839 27,364 181,325 (1,978) 0 0 4,430 (2,763) 245,966 222,902 0 0 0 1,052 22,012 245,966 18,821 21,719 4,604 4,604 11,928 720 0 4,467 1,145 3,322 0 0 0 3,322 $1.60 $1.49
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