SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended 12/31/94
[_] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934. For the transition period to
COMMISSION FILE NUMBER 2-78788
CALIFORNIA COMMERCIAL BANKSHARES
--------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3748495
---------- ----------
(State or other jurisdiction of (IRS Employer identification No.)
incorporation or organization)
4100 NEWPORT PLACE, NEWPORT BEACH, 92660
---------------------------------- -----
CALIFORNIA
----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (714) 863-2300
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 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.
The aggregate market value of voting stock held by non-affiliates of the
registrant was $7,482,998 on March 7, 1995, based on the average bid and asked
price of $5.25 share as reported on the National Daily Quotation Service "Pink
Sheets".
2,425,000
---------
(Number of shares of Common Stock outstanding as of March 13, 1995)
The Exhibit Index is located on Page
The total number of sequentially numbered pages is
PART I.
ITEM 1. BUSINESS.
------------------
BUSINESS OF THE COMPANY
California Commercial Bankshares (the "Company") is a bank holding company,
incorporated under the laws of the State of California on June 16, 1982, and is
registered under the Bank Holding Company Act of 1956, as amended. The Company's
primary purpose is to be a bank holding company for its wholly-owned subsidiary,
National Bank of Southern California, a national banking association organized
under the laws of the United States (the "Bank"). At December 31, 1994, the
Company had total assets of $301 million and total shareholders' equity of $20
million.
On January 10, 1983, the Company purchased 450,000 shares of the Bank's common
stock, which constituted all of the issued and outstanding capital stock of the
Bank. The Bank's charter was granted by the Comptroller of the Currency (the
"Comptroller") on January 10, 1983, and the Bank began operations as a full-
service commercial bank on that date.
During 1985, the Company activated another subsidiary, Venture Partners, Inc., a
California corporation incorporated on March 11, 1983 ("Venture"), to act as an
intermediary for tax deferred exchanges, a service function for the escrow
department of the Bank.
The Company has no other subsidiaries or affiliated businesses other than the
Bank and Venture. The Company's executive offices are located at 4100 Newport
Place, Newport Beach, California 92660. Telephone number 714-497-9380
BUSINESS OF THE BANK
The Bank's accounts are insured by the Federal Deposit Insurance Corporation
("FDIC") and it is a member of the Federal Reserve System. In addition to its
headquarters office in Newport Beach, California, the Bank presently operates
three branches located in Santa Ana, El Toro and Orange, California. At
December 31, 1994, the Bank had total assets of $300 million, gross loans and
leases of $202 million, total deposits of $278 million and total shareholders'
equity of $21 million.
The Bank is engaged in substantially all of the services customarily conducted
by independent commercial banks in California including checking, savings and
time deposit accounts, commercial, interim construction, personal, home
improvement, mortgage, automobile and other installment and term loans, leasing,
traveler's checks, safe deposit boxes, collection services, night depository
facilities, wire transfers and automatic teller machines.
See distribution of assets, liabilities and shareholders' equity; interest rates
and interest differential at pages 19, 20 and 21.
LOANS AND LEASES
----------------
The aggregate balances of loans and leases, excluding deferred fees, outstanding
at the indicated dates are shown in the following table according to the type of
loan. All loans are domestic loans.
At December 31:
---------------
$ in 000's
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
REAL ESTATE:
Miniperms (Real
estate secured
with 1-5 years
maturity) $ 66,102 $ 62,799 $ 52,479 $ 47,688 $ 30,444
Equity Lines 8,691 10,838 11,191 14,281 12,481
Construction 29,792 38,563 56,703 66,996 66,925
-------- -------- -------- -------- --------
Total Real Estate 104,585 112,200 120,373 128,965 109,850
Commercial 82,600 86,887 103,576 128,750 140,485
Installment and
Other 10,845 11,290 15,506 20,544 18,937
Leases 3,615 3,970 5,590 8,109 9,062
----------------------------------------------------
TOTAL LOANS AND
LEASES $201,645 $214,347 $245,045 $286,368 $278,334
===================================================
The declining balance of loans from 1991 through 1994 reflects the continued
recession in the local economy, a reduction in the demand for loans and the
Bank's commitment of its financial and human resources to identifying and
collecting problem loans and leases and to disposing of other real estate owned
obtained through foreclosure.
The Bank concentrates its lending activities in three principal areas:
(1) REAL ESTATE LOANS Real estate loans are comprised of construction loans,
miniperm loans collateralized by first or junior trust deeds on specific
properties and equity lines of credit. The properties collateralizing real
estate loans are principally located in the Bank's primary market area of Orange
County and contiguous communities. The construction loans are comprised of
loans on residential and income producing properties, generally have terms less
than two years and typically bear an interest rate that floats with prime. The
miniperm loans finance the purchase and/or ownership of income producing
properties. Miniperm loans generally are made on a thirty year amortization
schedule with a lump sum, balloon payment due in 1-5 years. Equity lines of
credit are revolving lines of credit collateralized by junior trust deeds on
real properties. They bear a rate of interest that floats with prime and have
maturities of five to seven years. The Bank also makes a small number of loans
on 1-4 family residential properties and 5 or more unit residential properties.
From time to time, the Bank purchases participation interests in loans made by
other institutions. These loans are subject to the same underwriting criteria
and approval processes as loans made directly by the Bank. During 1994, the
Bank purchased $381,000 of participations in real estate loans from other
institutions. At December 31, 1994, the Bank had $1,685,000 outstanding in real
estate participation loans purchased from other institutions.
(2) COMMERCIAL LOANS Commercial loans are granted to finance operations or for
specific purposes, such as to finance the purchase of equipment. Since cash
flows from operations are generally the primary source of repayment, the Bank's
policies provide specific guidelines regarding required debt coverage and other
important financial ratios. Lines of credit are made to businesses or
individuals based on the financial strength and integrity of the borrower, are
generally collateralized by inventory and accounts receivable, but may be
uncollateralized, and generally have a maturity of one year or less. They
generally bear an interest rate that floats with prime. Commercial term loans
are typically made to finance the acquisition of fixed assets, refinance short
term debt originally used to purchase fixed assets or, in rare cases, to finance
purchases of businesses. Commercial term loans generally have a term of from
one to five years. Commercial term loans may be collateralized by the asset
being acquired or other available assets.
(3) CONSUMER LOANS Consumer loans include personal loans, auto loans, boat
loans, home improvement loans, equipment loans, revolving lines of credit and
other loans typically made by banks to individual borrowers. The Bank also
makes leases on new and used automobiles. These leases may be closed-end or
commercial leases, have a term of one to five years and bear interest at a fixed
rate.
The following tables show the amount of loans (excluding mortgages of 1-4 family
residences, installment loans and leases) of the Bank outstanding as of December
31, 1994 which, based on remaining scheduled repayments of principal, (1) are
due in the period indicated and (2) for the amounts due after one year, are
fixed rate or floating rate.
Maturing in Maturing in Maturing
1995 1996-2000 After 2000 Total
$ in 000's
----------
Commercial $51,942 $35,057 $17,622 $104,621
Real Estate and 32,020 $48,140 16,864 97,024
Construction
--------------------------------------------------
TOTAL $83,962 $83,197 $34,486 201,645
==================================================
$ in 000's INTEREST SENSITIVITY
--------------------------
Fixed Rate Variable Rate
--------------------------
Due After One But Within Five
Years $20,073 $63,124
Due After Five Years 5,937 28,549
-------------------------
TOTAL $26,010 $91,673
=========================
The prime rate with which the interest rate floats may be the prime rate of a
specific money center bank, the prime rate posted in the Wall Street Journal or
the Bank's own posted prime rate. The Bank's prime rate is set by Bank
management. The Bank's prime rate at December 31, 1994 was 10%.
$ in 000's December 31,
---------- -------------------------------------------------
1994 1993
----------------------- -----------------------
Balance Percentage Balance Percentage
-------------------------------------------------
Real Estate Loans:
Mortgage $ 66,102 32.78% $ 62,799 29.30%
Equity Lines 8,691 4.31% 10,838 5.06%
Construction 29,792 14.78% 38,563 17.99%
-------------------------------------------------
Total Real Estate Loans 104,585 51.87% 112,200 52.35%
Commercial Loans 82,600 40.96% 86,887 40.53%
Installment and Other 10,845 5.38% 11,290 5.27%
Leases 3,615 1.79% 3,970 1.85%
-------------------------------------------------
TOTAL LOANS & LEASES 201,645 100.00% 214,347 100.00%
============== ==============
Less: Deferred Loan Origination Fees (782) (756)
Less: Allowance For Loan and Lease
Losses (5,660) (7,221)
----------- ------------
NET LOANS & LEASES $195,203 $206,370
=========== ============
There are no concentrations of loans exceeding 10% of total loans which were not
otherwise disclosed as a category of loans in the above table.
CLASSIFIED ASSETS AND NONPERFORMING ASSETS. The Company maintains an internal
-------------------------------------------
loan review program. All loans are categorized into one of the five following
groups: Pass loans: loans that contain strong credit quality and ability to
repay. Special mention loans: loans that have an identified weakness which
requires correction to protect the Bank (not considered a classified loan).
Substandard loans: loans that exhibit some weakness and require immediate
attention to correct the deficiency. Doubtful loans: loans that exhibit a
significant weakness and whose full collection is improbable. Loss loans:
Loans that are charged off upon identification of being loss loans. The
following table shows the amounts of special mention loans, classified loans
(substandard or doubtful) and the amount of other real estate owned as of the
dates indicated (see ITEM 1. BUSINESS, BUSINESS OF THE BANK, ALLOWANCE FOR LOAN
---------------- ------------------
AND LEASE LOSSES):
----------------
$ in 000's At December 31,
1994 1993 1992
------- ------- -------
Special Mention $12,822 $11,988 $21,510
------- ------- -------
Substandard 37,451 39,314 53,762
Doubtful 1,505 4,156 1,553
----------------------------------------
Total Classified Loans 38,956 43,470 55,315
Other Real Estate Owned 2,676 2,289 12,088
----------------------------------------
TOTAL SPECIAL MENTION
LOANS, CLASSIFIED LOANS
AND OTHER REAL ESTATE
OWNED $54,454 $57,747 $88,913
========================================
Special mention loans, classified loans and other real estate owned decreased
significantly in 1993 as compared to 1992. Although the economy remained weak,
the balances decreased as the Bank increased the staffing levels of personnel
dedicated to problem loan identification and workout and the disposal of other
real estate owned. The sustained weak economy in 1994 continued to affect
borrower cash flows and real estate values keeping these balances at the same
level as the previous year.
It is generally the Company's policy to discontinue the accrual of interest on a
loan when any installment payment of interest or principal is 90 days or more
past due, when management otherwise determines the collectibility of the
interest or principal on the loan is unlikely or when the loan is deemed to be a
potential foreclosure. Accrued but unpaid interest on loans placed on
nonaccrual status is generally reversed from income. In certain cases where the
value of the collateral is sufficiently in excess of the balance of principal
and interest owing, the Bank may continue to accrue interest or may not reverse
accrued but not paid interest from income.
The following table shows the aggregate amount and percentage of the portfolio
of delinquent loans and nonaccrual loans as of December 31, 1994:
Loans Delinquent at December 31, 1994
----------------------------------------------------------------------------------------------------------------------
$ in 000's 30-89 Days 90 Days and Over Total Loans
----------------------------------------------------------------------------------------------------------------------
Percemt of Percent of Percent of
Amount Portfolio Amount Portfolio Amount Portfolio
------ ---------- ------- ---------- ------- ----------
NONACCRUAL LOANS
Real Estate 0 0 7,408 7.72% 7,408 7.72
Commercial 0 0 7,356 8.90% 7,356 8.90
Installment and Prime
Equity 0 0 7 .04% 7 .04
Leases 0 0
------------------------------------------------------------------------
TOTAL NONACCRUAL LOANS 0 0 14,771 7.33% 14,771 7.33
------------------------------------------------------------------------
ACCRUING LOANS
Real Estate 136 .14% 0 0 136 .14%
Commercial 877 1.06% 851 1.03% 1,728 2.09%
Installment and Prime
Equity 390 2.01% 0 0 390 2.01%
Leases 14 .39% 0 0 14 .39%
------------------------------------------------------------------------
TOTAL ACCRUING
DELINQUENT LOANS 1,417 .70% 851 .42% 2,268 1.13%
------------------------------------------------------------------------
TOTAL DELINQUENT LOANS $1,417 .70% $15,622 7.75% $17,039 8.45%
========================================================================
The following table sets forth information regarding the Company's nonperforming
assets at December 31, 1994:
$ IN 000'S
Specific ALLL
Property Description Location Balance Allocation
--------------------------------- --------------------- ------- -------------
NON-ACCRUAL LOANS
Land - 458 SFR Lots San Bernardino County $ 1,088 0
Land - 350 Acres Residential Riverside County 417 209
Commercial/Retail Complex Los Angeles County 953 0
Commercial Building &
Finished Lots Los Angeles County 1,354 0
56 Condos Units Orange County 2,620 0
6 SFR & 12 Finished Lots Riverside County 1,018 102
Commercial Building Los Angeles County 1,404 0
Auto Service Center Los Angeles County 2,402
26 Other Loans Various 3,515 432
--------------------------------------------------
TOTAL NONACCRUAL 14,771 743
OTHER REAL ESTATE OWNED
Land Riverside County 80
Partially Finished
Residential Lots Riverside County 1,177
Commercial Building Orange County 256
Auto Service Center Riverside County 607
SFR San Bernardino County 138
Land San Mateo County 418
--------------------------
TOTAL OTHER REAL ESTATE OWNED 2,676
--------------------------
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED $17,447 743
==========================
ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses is
-----------------------------------
based on an analysis of the portfolio and reflects an amount which, in
management's opinion, is adequate to provide for potential losses after giving
consideration to the portfolio, current economic conditions, past loss
experience and other pertinent factors. Management and the internal credit
review function monitor delinquency reports, new loans, renewals and reports of
on-site inspections to identify credits requiring special attention. Annual
examinations of the loan portfolio are also performed by an independent, third
party credit review professional.
On a quarterly basis, senior management, in conjunction with the board of
directors, reviews the adequacy of the allowance for loan and lease losses.
Loan officers prepare Special Asset Credit Reports ("SAC reports") for each loan
on the special asset report. SAC reports include all pertinent details about
the loan, a write-up of current status, steps being taken to correct any
problems, a detailed workout plan and recommendations as to classification of
the loans as pass, special mention, substandard, doubtful or loss (see ITEM 1.
-------
BUSINESS, BUSINESS OF THE BANK, CLASSIFIED ASSETS AND NONPERFORMING ASSETS) and
-------- ------------------------------------------
specific allocation of the Allowance for Loan and Lease Losses. Management
approves and informs the credit review function of loan classifications. Loans
classified as loss are charged against the Allowance for Loan and Lease Losses.
Specific allowances are established for loans designated by management.
Quarterly, the credit review function is responsible for preparing a historical
migration analysis of loans as part of the determination of the required balance
of the Allowance for Loan and Lease Losses. The migration analysis tracks
charged off loans to their original classifications and assigns a risk factor to
each loan in the portfolio based upon classifications of such loans as pass,
special mention, substandard or doubtful. The amount of the general portion of
the allowance is determined by multiplying the aggregate principal balance of
loans in each category by the specified percentage. The amount of the required
general portion of the allowance is added to the specific allowances previously
established to form the total balance of the allowance. The amount of the
allowance is based upon management's evaluation of this analysis and other
factors, including adequacy of collateral, economic conditions, collateral value
trends, nonperforming asset data, delinquencies and other material.
Management utilizes its best judgement in providing for possible loan losses and
establishing the allowance for loan and lease losses. However, the allowance is
an estimate which is inherently uncertain and depends on the outcome of future
events. Adverse economic conditions and a declining real estate market in
California have adversely affected certain borrowers' ability to repay loans. A
continuation of these conditions or a further decline in the California economy
could result in further deterioration in the quality of the loan portfolio and
could require increased provisions for loan and lease losses that cannot
reasonably be predicted at this date. In October 1993, the greater southern
California area was ravaged by a series of fires which destroyed thousands of
acres and caused millions of dollars in lost property. Although a significant
portion of the fires occurred in the Bank's service area, the Bank incurred no
losses directly attributable to the fires. In January 1994, a severe earthquake
occurred in the San Fernando Valley of Los Angeles, causing over 50 deaths,
destroying property valued in the billions of dollars, causing major impediments
to Southern California transportation networks and affecting the business
community. Damage in the Bank's service area was relatively minimal and, after
contacting customers and investigating its potential exposure, the Bank is not
aware of any of its borrowers who were directly affected by the earthquake.
Since the calculation of the adequacy of the allowance for credit losses is
based largely on loan classification categories and not only whether a loan is
performing or nonperforming, changes in the amount of nonperforming loans will
not necessarily be reflected in corresponding changes in the ratio of the
allowance for loan and lease losses to nonperforming loans. The following table
shows the ratios of the allowance for loan and lease losses to total loans and
the balance of the allowance for loan and lease losses to nonperforming loans as
of December 31:
At December 31,
---------------
1994 1993
----- -----
Ratio of the Allowance for Loan and Lease
Losses to Total Loans 2.81% 3.38%
Ratio of the Allowance for Loan and Lease
Losses to Nonperforming Loans 38.32% 39.97%
SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes loan and lease
-------------------------------
balances of the Bank at December 31, 1994, 1993, 1992, 1991 and 1990 changes in
the allowance for possible loan losses arising from loans charged off, additions
to the allowance for loan and lease losses which have been charged to expense
and the ratio of net charge-offs during the periods to average loans and leases:
$ in 000's December 31,
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Amount of Gross Loans and Leases
Outstanding at the End of the
Period $201,645 $214,347 $245,045 $286,368 $278,334
Balance of Allowance for Loan and
Lease Losses at the Beginning of
the Period $ 7,221 $ 6,253 $ 7,107 $ 3,705 $ 2,950
Loans and Leases Charged Off (1) (6,082) (4,664) (6,434) (3,722) (962)
Recoveries of Previously Charged
Off Loans and Leases (1) 1,156 743 805 261 422
-----------------------------------------------------------
Net Loans Charged Off (4,926) (3,921) (5,629) (3,461) (540)
Additions to the Allowance Charged
to Expense 3,365 4,889 4,775 6,863 1,295
-----------------------------------------------------------
Balance of the Allowance for Loan
and Lease Losses at the Ending of
the Period $ 5,660 $ 7,221 $ 6,253 $ 7,107 $ 3,705
===========================================================
Ratio of Net Charge-offs During the
Period to Average Loans
Outstanding 2.44% 1.74% 2.08% 1.25% .2%
(1) See the table below for summary of the amounts of loans and leases charged
off and recoveries of loans and leases previously charged off.
$ in 000's
----------
1994 1993 1992 1991 1990
Loans and Leases Charged Off:
Commercial $1,150 $2,763 $5,712 $3,463 $ 842
Real Estate - Mortgage and
Construction 4,764 1,274 344 102 0
Installment & Other 120 507 252 131 104
Leases 48 120 126 26 16
--------------------------------------------
Total Loans and Leases Charged Off $6,082 $4,664 $6,434 $3,722 $ 962
Recoveries of Loans and Leases
Previously Charged off:
Commercial $ 593 $ 669 $ 795 $ 255 $ 413
Real Estate - Mortgage and
Construction 461 0 0 0 0
Installment & Other 50 62 7 4 7
Lease 52 13 3 2 2
--------------------------------------------
Total Recoveries of Loans and Leases $1,156 $ 743 $ 805 $ 261 $ 422
--------------------------------------------
Net Loans and Leases Charged Off $4,926 $3,921 $5,629 $3,461 $ 540
============================================
The allowance for loan and lease losses has been allocated between the following
categories of loans and leases according to the amount deemed adequate to
provide for the possibility of losses being incurred at the dates indicated:
At December 31,
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
Ratio of Ratio of Ratio of Ratio of Ratio of
Allowance Allowance Allowance Allowance Allowance
to to to to to
Allow- Outstanding Allow- Outstanding Allow- Outstanding Allow- Outstanding Allow- Outstanding
$ in 00's ance Loans ance Loans ance Loans ance Loans ance Loans
--------- -------------------- -------------------- -------------------- -------------------- --------------------
Commercial $1,151 1.39% $2,573 2.96% $4,256 4.11% $3,995 3.10% $2,102 1.50%
Real Estate -
Construction 2,516 8.45% 3,095 8.03% 1,500 2.65% 1,563 2.33% 960 1.43%
Real Estate -
Mortgage 1,355 2.05% 100 .16% 67 .10% 954 1.54% 228 53%
Installment 352 1.90% 281 2.50% 250 1.60% 260 1.27% 121 .64%
Leases 88 2.43% 85 2.14% 125 2.24% 125 1.54% 113 1.25%
Not Allocated 198 .10% 1,087 55 210 181
---------------------------------------------------------------------------------------------------------------
TOTAL $5,660 $7,221 $6,253 $7,107 $3,705
===============================================================================================================
SFAS 114 which becomes effective after December 31, 1994 requires creditors to
measure impairment of a loan based on the present value of expected future cash
flows discounted at the loans effective interest rate. If the measure of the
impaired loan is less than the recorded investment in the loan, a creditor will
recognize an impairment by creating a valuation allowance with a corresponding
charge to bad debt expense. This statement also applies to restructured loans.
As of December 31, 1994, the Company had written down all its nonperforming
loans to the current collateral value or had established specific reserves that
the management believes, are more than adequate to cover future exposure.
INVESTMENT PORTFOLIO
The following table sets forth the book value and estimated fair value of
investment securities available for sale as of December 31, 1994 and investment
securities of the Company as of December 31, 1993 and 1992:
DESCRIPTION 1994 1993 1992
----------- ---- ---- ----
$ IN 000'S AMORTIZED ESTIMATED AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE COST FAIR VALUE
--------------------------------------------------------------------------
U.S. GOVERNMENT
SECURITIES $60,099 $58,778 $59,420 $59,946 $28,545 $29,033
U.S. GOVERNMENT AGENCIES
OR INSURED OBLIGATIONS 9,657 9,262 18,052 18,158 28,443 28,634
STATE AND POLITICAL
SUBDIVISIONS 1,509 1,274 619 619 264 271
MORTGAGE-BACKED SECURITIES -
U.S. AGENCIES 1,186 1,132 1,644 1,650 1,618 1,641
OTHER SECURITIES 1,653 1,629 1,402 1,443 1,739 1,731
---------------------------------------------------------------------------
TOTAL SECURITIES $74,104 $72,075 $81,137 $81,816 $60,609 $61,310
==============================================================================
As of January 1, 1994 the Bank had classified all its Debt Securities as
"Available for Sale."
As of December 31, 1994 the Bank had no derivatives.
The Bank had invested $1,000,000 in a bond issued by a Sanitation district in
the County of Orange. The district invested the funds in the Orange County Pool
Fund which declared bankruptcy. The Bank has placed that bond on a nonaccrual
basis. The Bond is due to mature in May of 1995.
The following table sets forth the maturities of investment securities of the
Company at December 31, 1994 and the weighted average yields of such securities
(calculated available for sale on the basis of the cost and effective yields
weighted for the scheduled maturity of each security):
1995 1996-2000 2001-2005 OVER 2005
$ IN 000'S AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------- ----- ------- ----- ------ ----- ------ -----
U. S. GOVERNMENT
SECURITIES $21,873 4.47% $36,905 5.50% $ 0 0 $ 0 0
U.S. GOVERNMENT
AGENCIES OR
INSURED
OBLIGATIONS 0 0 7,241 5.04% 2,020 7.34% 0 0
STATE AND
POLITICAL
SUBDIVISIONS 876 5.04% 398 4.80% 0 0 0 0
OTHER 0 0 0 0 74 .55%
---------------------------------------------------------------------------
TOTAL $22,749 4.49% $44,544 5.41% $2,020 7.34% $74 .55%
===========================================================================
As of December 31, 1994 the Company had no derivatives.
DEPOSITS
--------
The Bank's major source of funds for lending and other investment purposes is
deposits. In addition to deposits, the Bank derives funds from principal and
interest repayments on loans, maturities and sales of investment securities, and
Federal funds sold.
The Bank's deposit strategy has been to emphasize business deposits, through
its four branch offices and by a network of couriers employed by the Bank. From
time to time retail deposits and time certificates of deposits have also been
gathered through listings in various national publications. Business demand
deposits earn credits for collected balances against which the Bank charges fees
for various products and services used by the customer. In some cases, the Bank
pays for data processing fees for business customers with significant excess
balances. The Bank has five business customers each of which maintains demand
deposit balances in excess of 1% of total deposits. The balances in these
accounts averaged an aggregate of $38.7 million and $47.7 million during 1994
and 1993, respectively, and totalled an aggregate of $37.3 million and $49.0
million, or 13.4% and 16.4% of total deposits, respectively, at December 31,
1994 and 1993.
Guidelines by federal regulatory agencies specify that time certificates of
deposit may be considered to be brokered if the rate on the deposit exceeds 75
basis points over (i) the average rate paid locally for certificates of deposit
of similar maturities or (ii) 120% of the rate for treasury bills and notes of
similar maturities. Time certificates of deposit generated through publication
of rates in national publications totaled an aggregate of $5,444,000 at December
31, 1994.
As of December 31, 1994, the Bank had no brokered deposits. Under the prompt
corrective action provisions of FDICIA, the Bank must obtain prior approval from
the FDIC in order to acquire or roll over brokered time certificates of deposit.
On January 31, 1994, the Bank completed the acquisition of approximately $12.5
million in deposits from a local Bank that decided to no longer be an insured
depository institution. The Bank paid no premium for these demand, savings and
time deposits and has retained most of the core deposits acquired.
The following table shows the average daily amount of deposits and average
interest rates paid for the periods indicated:
FOR THE YEAR FOR THE YEAR FOR THE YEAR
1994 1993 1992
$ IN 000'S DAILY AVERAGE DAILY AVERAGE DAILY AVERAGE
AVERAGE INTEREST AVERAGE INTEREST AVERAGE INTEREST
BALANCE RATE PAID BALANCE RATE PAID BALANCE RATE PAID
------ --------- ------- --------- ------- ---------
DEMAND DEPOSITS $101,022 $ 92,270 $ 82,144
MONEY MARKET AND 125,403
SAVING DEPOSITS 120,120 2.58% 120,600 2.84% 3.62%
TIME DEPOSITS LESS 37,354 4.23% 67,985 4.42% 66,912 5.70%
THAN $100,000
TIME DEPOSITS
$100,000 OR MORE 33,941 3.98% 34,888 3.89% 54,554 4.76%
------------------------------------------------------------------------------
TOTAL $292,437 $315,743 $329,013
==============================================================================
The following table shows the maturities and repricing data of time certificates
of deposit of $100,000 or more at December 31, 1994:
$ IN 000'S
----------
FIXED RATE MATURITIES
3 MONTHS OR LESS $ 4,042
OVER 3 THROUGH 6 MONTHS 653
OVER 6 THROUGH 12 MONTHS 2,938
OVER 12 MONTHS 1,117
-------
TOTAL FIXED 8,750
VARIABLE RATE 20,146
-------
TOTAL 28,896
=======
BORROWING ARRANGEMENTS
In December 1988, the Company obtained a $3,000,000 term loan from another
financial institution for the purpose of providing additional capital to the
Bank. The Credit Agreement for this loan was amended pursuant to a Second
Amendment to the credit agreement dated August 25, 1994. The loan, as amended,
bears interest at a fluctuating rate per annum equal to .75% in excess of the
lender's reference rate (8.50% at December 31, 1994). Interest is payable
monthly on the unpaid principal balance of the loan. Principal is to be repaid
on January 1, 1997. The Second Amendment waives all financial covenants
relating to the term loan. At December 31, 1994 and 1993, $2,351,000 remained
outstanding on the loan. The Second Amendment is supported by a Support
Agreement between a shareholder of the Company and the Company whereby the
shareholder has guaranteed the payment of the loan.
To compensate the shareholder for signing the Support Agreement, the Company
signed a Holding Company Support Agreement whereby the Company: (1) has paid
the shareholder a standby fee of $23,500, (2) will pay a standby fee equal to
one percent of the unpaid principal amount of the term loan on each anniversary
date of the closing date of the Holding Company Support Agreement and (3) will
issue to the shareholder on or prior to March 31, 1997 warrants to purchase
25,000 shares of common stock of the Company at an exercise price per share
equal to 80% of the book value per share of the Company on December 31, 1996.
The Bank maintains two lines of credit with outside financial institutions for
the purpose of purchasing Federal funds. The lines of credit bear interest at a
floating rate and provide for borrowing up to $8,000,000 and $2,000,000,
respectively. At December 31, 1994 and 1993, no amounts were outstanding on
these lines of credit.
Under an agreement with the Federal Home Loan Bank, the Bank may obtain an
extension of credit of up to 5% of total assets collateralized by real estate
loans. At December 31, 1994, the Bank had pledged loans amounting to $5,387,000
and had available credit of $2,694,000 based on 50% of the outstanding balance
of pledged loans. No amounts were outstanding on this line of credit at
December 31, 1994 and 1993.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The following table shows the components of the Company's liquidity at the
dates indicated:
AT DECEMBER 31,
---------------
$ IN 000'S 1994 1993 1992
---------- -------- -------- --------
CASH AND DUE FROM BANKS $21,315 $ 20,781 $ 35,471
FEDERAL FUNDS SOLD 2,000 6,000 19,000
INVESTMENT SECURITIES 72,075 81,137 60,609
------------------------------------
$95,390 $107,918 $115,080
RESTRICTED BALANCES 4,029 4,714 4,730
------------------------------------
TOTAL LIQUIDITY $91,361 $103,204 $110,350
====================================
RATIO OF LIQUIDITY TO TOTAL
ASSETS 30.39% 31.80% 29.60%
RESERVES HELD AT THE FEDERAL
RESERVE BANK $ 8,428 $ 8,028 $ 12,522
The principal sources of asset liquidity are balances due from banks, Federal
funds sold and short term investment securities. Secondary sources of liquidity
are loan repayments, maturing investments, and loans and investments that can be
used as collateral for other borrowings. The majority of the Company's loans
are short term and if paid in accordance with their terms, provide continuous
additional cash inflow. The following chart shows the distribution of loans by
their maturities and ratio to total loans and total assets as of December 31,
1994:
$ IN 000'S UNDER 1 OVER 5
---------- ------- ------
YEAR 1-5 YEARS YEARS TOTAL
---- --------- ----- -----
LOANS AND LEASES $83,962 $83,197 $34,486 $201,645
RATIO TO TOTAL
LOANS AND LEASES 41.64% 41.26% 17.10% 100.00%
RATIO TO TOTAL
ASSETS 27.93% 27.67% 11.47% 67.07%
Liability-based liquidity includes interest bearing and noninterest-bearing
deposits, largely from local businesses and professionals, time deposits from
financial institutions throughout the United States and obtained through
listings in national publications and Federal funds
purchased. From time to time the Bank has used brokered deposits as an
additional source of funds; however, under conditions of its formal
agreement (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, FORMAL AGREEMENT)
---------------- ----------------
and regulations issued by the Federal banking agencies (see ITEM 1. BUSINESS,
----------------
SUPERVISION AND REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT
-------------------------------------------------
ACT OF 1991, OTHER ITEMS, PASS THROUGH FDIC INSURANCE PROVISIONS), the Bank is
-----------
currently precluded from accepting or rolling over brokered deposits.
The Company maintains an Interest Rate Risk simulation model which enables
management to measure the Bank's Interest Rate Risk (IRR) exposure using
various assumptions and interest rate scenarios, and to incorporate alternative
strategies for the reduction of IRR exposure. The Bank measures its IRR using
several methods to provide a comprehensive view of its IRR from various
perspectives. These methods include analysis of repricing and maturity
mismatches, or gaps, between assets and liabilities, and analysis of the size
and sources of basis risk.
Gap analysis measures the difference between financial assets and financial
liabilities scheduled and expected to mature or reprice within a specified time
period. The gap is positive when repricing and maturing assets exceed repricing
and maturing liabilities, where as the gap is negative when repricing and
maturing liabilities exceed repricing and maturing assets. A positive or
negative cumulative gap indicates in a general way how the Bank's net interest
income should respond to interest rate fluctuations. A positive cumulative gap
for a period generally means that rising interest rates would be reflected
sooner in financial assets than in financial liabilities, thereby increasing net
interest income over that period. A negative cumulative gap for a period would
produce an increase in net interest income over that period if interest rates
declined.
The following maturity and interest rate sensitivity analysis summarizes the
asset and liability balances of the Company at December 31, 1994 on the basis of
rate adjustments due to occur within the periods indicated:
REPRICING OPPORTUNITIES
$ IN 000'S 3 MONTH 4 TO 12
OR LESS MONTHS 1 TO 5 YEARS OVER 5 YEARS TOTAL
-------- --------- ------------ ------------ -------
INTEREST EARNING
ASSETS $195,807 $28,675 $48,645 $ 2,593 $275,720
INTEREST- BEARING
LIABILITIES 157,138 18,741 5,128 0 181,007
--------------------------------------------------------------
CUMULATIVE INTEREST
SENSITIVITY GAP $ 38,669 $48,603 $92,120 $94,713
==============================================================
As of December 31, 1994 the Company had a positive gap of $94,713,000 with a
cumulative positive gap of $48,603,000 over one year period. The Board of
Directors has established limits on total net interest income exposure for a one
year time horizon based on 1% rate change. While the gap analysis is a useful
asset/liability management tool, it does not fully assess IRR. Gap analysis
does not address the effects of customer options (such as early withdrawal of
time deposits, withdrawal of deposits with no stated maturity, and options to
prepay loans) and Bank strategies (such as delaying increases in interest rates
paid on certain interest-bearing demand and money market deposit accounts) on
the Bank's net interest income. In addition, the gap analysis assumes no
changes in the spread relationships between market rates on interest-sensitive
financial instruments (basis risk), or in yield curve relationships. Therefore,
a gap analysis is only one tool with which to analyze IRR, and must be reviewed
in conjunction with other asset/liability management reports.
INTEREST RATES AND INTEREST RATE DIFFERENTIAL. The following tables set forth
----------------------------------------------
the average amounts outstanding for major categories of interest earning assets,
interest bearing liabilities, the average interest rates earned thereon and
interest income/expenses for the Bank as of and for the years ended:
DECEMBER 31, 1994 DECEMBER 31, 1993 VARIANCE
----------------------------------------------------------------------------------------------------------------
IN 000'S AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
ASSET/LIAB EXPENSE YIELD/COST ASSET/LIAB EXPENSE YIELD/COST ASSET/LIAB EXPENSE YIELD/COST
AMOUNT (%) AMOUNT (%) AMOUNT (%)
----------------------------------------------------------------------------------------------------------------
ASSETS
FEDERAL FUNDS SOLD $ 13,255 $ 501 3.78% $ 17,514 $ 477 2.72% ($4,259) $ 24 1.07%
INVESTMENT
SECURITIES 76,796 3,873 5.04% 70,224 3,261 4.64% 6,572 612 .40%
LOANS AND LEASES (1) 202,009 17,599 8.71% 224,978 18,775 8.35% (22,969) (1,176) .36%
---------------------------------------------------------------------------------------------------------------
TOTAL INT. EARNING
ASSETS 292,060 21,973 7.52% 312,716 22,513 7.20% ($20,656) ($ 540) .32%
--------------------------------------------------------------------------=====================================
DUE FROM BANKS
(NON-INT) 23,326 22,227
OTHER ASSETS 3,743 9,577
----------- --------------
TOTAL ASSETS (2) $319,129 $344,520
=========== ==============
LIABILITIES & EQUITY
SAVINGS DEPOSITS $120,120 3,103 2.58% $120,600 $ 3,430 2.84% ($ 480) ($ 327) (.26)%
TIME DEPOSITS 71,295 2,933 4.11% 102,873 4,360 4.24% (31,578) (1,427) (.13)%
SECURITIES SOLD UNDER
REPO 1,135 59 5.20% 1,615 62 3.84% (480) (3) 1.35%
CAPITAL NOTE 2,351 241 10.25% 2,837 234 8.25% (486) 7 2.05%
---------------------------------------------------------------------------------------------------------------
TOTAL INT. BEARING
LIAB. 194,901 6,336 3.25% 227,925 $ 8,086 3.55% ($33,024) ($1,750) (.30)%
-------------------------- -----------------------=====================================
DEMAND DEPOSITS 101,022 92,270
OTHER LIABILITIES 2,160 4,138
SHAREHOLDERS'
EQUITY (2) 21,046 20,187
----------- --------
TOTAL LIAB. &
SHAREHOLDERS'
EQUITY $319,129 $344,520
============ ========
NET YIELD ON INT EARN.
ASSETS $15,637 5.35% $14,427 4.61%
====================== =====================
(1) Average loans and leases include non-performing loans and leases, however,
income does not include foregone interest. In addition, loan fees have not been
included in interest income and in calculating the rate realized on loans and
leases.
(2) Average Assets and Average Equity do not include unrealized gains or losses
on Investment Securities.
DECEMBER 31, 1993 DECEMBER 31, 1992 VARIANCE
-------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
ASSET/LIAB INCOME/ YIELD/COST ASSET/LIAB INCOME/ YIELD/COST ASSET/LIAB INCOME/ YIELD/COST
AMOUNT EXPENSE (%) AMOUNT EXPENSE (%) AMOUNT EXPENSE (%)
--------------------------------------------------------------------------------------------------------------
ASSETS
FEDERAL FUNDS SOLD $ 17,514 $ 477 2.72% $ 13,990 $ 442 3.16% $ 3,524 $ 35 (.44)%
INVESTMENT SECURITIES 70,224 3,261 4.64% 44,518 2,836 6.37% 25,706 425 (1.73)%
LOANS AND LEASES (1) 224,978 18,775 8.35% 270,784 23,858 8.81% (45,806) (5,083) (.46)%
------------------------------------------------------------------------------------------------------------
TOTAL INT. EARNING
ASSETS 312,716 $22,513 7.20% 329,292 $27,136 8.24% ($16,576) ($4,623) (1.04)%
=================================
DUE FROM BANKS
(NON-INT) 22,227 21,379
OTHER ASSETS 9,577 6,813
--------- ----------
TOTAL ASSETS $344,520 $357,484
========= ==========
LIABILITIES & EQUITY
SAVINGS DEPOSITS $120,600 $ 3,430 2.84% $125,403 $ 4,552 3.63% ($ 4,803) ($1,122) (.79)%
TIME DEPOSITS 102,873 4,360 4.24% 121,463 6,412 5.28% (18,590) (2,052) (1.04)%
SECURITIES SOLD
UNDER REPO 1,615 62 3.84% 505 24 4.75% 1,110 38 (.91)%
CAPITAL NOTE 2,837 234 8.21% 3,000 243 8.10% (163) (9) .11 %
------------------------------------------------------------------------------------------------------------
TOTAL INT. BEARING
LIAB. 227,925 $ 8,086 3.55% 250,371 $11,231 4.49% ($22,446) ($3,145) (.94)%
----------------------- -----------------------=====================================
DEMAND DEPOSITS 92,270 82,144
OTHER LIABILITIES 4,138 2,468
SHAREHOLDERS' EQUITY 20,187 $ 22,501
--------- ------------
TOTAL LIAB. &
SHAREHOLDERS' EQUITY $344,520 $357,484
========== =============
NET YIELD ON INT EARN. $14,427 4.61% $15,905 4.83%
ASSETS
======================= =======================
(1) Average loans and leases include non-performing loans and leases, however,
income does not include foregone interest. In addition, loan fees have not been
included in interest income and in calculating the rate realized on loans and
leases.
INTEREST EARNED AND INTEREST INCURRED RESULTING FROM CHANGES IN VOLUME AND
--------------------------------------------------------------------------
CHANGES IN RATES. The following table sets forth, for the periods indicated, a
-----------------
summary of the changes in interest earned and interest incurred resulting from
changes in volume and changes in rates:
1994 COMPARED TO 1993 1993 COMPARED TO 1992
----------------------------------------------- --------------------------------------------------
----------------------------------------------------------------------------------------------------
OLD VOLUME OLD VOLUME
VOLUME VOLUME X CHANGE X VOLUME VOLUME X CHANGE X
CHANGE X RATE RATE NET CHANGE X RATE RATE NET
$ IN 000'S OLD RATE CHANGE CHANGE EFFECT OLD RATE CHANGE CHANGE EFFECT
---------- ----------------------------------------------------------------------------------------------------
INTEREST EARNED ON:
FEDERAL FUNDS SOLD ($ 116) $ 185 ($ 45) $ 24 $ 111 $ (60) ($ 16) $ 35
INVESTMENT SECURITIES 305 281 26 612 1,638 (769) (444) 425
LOANS (1,917) 825 (84) (1,176) (4,036) (1,259) 212 (5,083)
---------------------------------------------------------------------------------------------------
TOTAL INTEREST
EARNING ASSETS ($1,728) $ 1,291 ($ 103) ($ 540) ($2,287) ($2,088) ($248) ($4,623)
INTEREST PAID ON:
SAVINGS DEPOSITS (14) ($ 314) $ 1 ($ 327) (174) ($ 985) $ 37 ($1,122)
TIME DEPOSITS (1,338) (128) 39 (1,427) (981) (1,263) 193 (2,051)
SECURITIES SOLD
UNDER AGREEMENT TO
REPURCHASE (19) 22 (6) (3) 53 (5) (10) 38
NOTE PAYABLE (40) 58 (10) 8 (14) 4 0 (10)
---------------------------------------------------------------------------------------------------
TOTAL INTEREST
BEARING LIABILITIES ($1,411) ($ 362) $ 24 ($1,749) ($1,116) ($2,249) $ 220 ($3,145)
---------------------------------------------------------------------------------------------------
NET INTEREST
EARNINGS ($ 317) $ 1,653 ($ 127) $ 1,209 ($1,171) $ 161 ($468) ($1,478)
===================================================================================================
In calculating interest rates and volumes and related changes, non-performing
loans and leases have been included in loans and leases volumes; however,
foregone interest has been excluded. In addition, loan fees were not included
in interest income in calculating the rate realized on loans.
COMPETITION
The banking business in California generally, and in the Bank's service area in
particular, is highly competitive with respect to both loans and deposits and is
dominated by a relatively small number of major banks which have many offices
operating throughout wide geographic areas. In addition, there are numerous
other independent commercial banks within the Bank's primary service areas.
The primary factors in competing for deposits are interest rates, personalized
services, quality and range of financial services, convenience of office
locations and banking hours. The Bank competes for deposits and loans
principally with banks, savings and loan associations, thrift and loan
associations, credit unions, mortgage companies, insurance companies, other
lending institutions, money market and mutual funds and other investment
alternatives. Competition for loans comes primarily from other commercial
banks, savings institutions, mortgage banking firms, credit unions and other
financial intermediaries. Among the advantages that some of these institutions
have over the Bank is their ability to undertake extensive advertising campaigns
and to allocate their investment assets to areas of highest yield and demand.
Many of the major commercial banks operating in the Bank's service area offer
certain other services which are not offered directly by the Bank, such as
trust, investment and international banking services, and by virtue of their
greater total capitalization, such banks have substantially higher lending
limits than the Bank. In competing for deposits, the Bank is subject to certain
limitations not applicable to non-bank financial institutions.
SUPERVISION AND REGULATION
THE COMPANY
-----------
The Company is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "Act"), and is subject to supervision by the
Federal Reserve Board. As a bank holding company, the Company is required to
file with the Federal Reserve Board an annual report and such other additional
information as the Federal Reserve Board may require pursuant to the Act. The
Federal Reserve Board may also make examinations of the Company and each of its
subsidiaries. The costs of any examination by the Federal Reserve Bank are paid
by the Company.
The Federal Reserve Board has significant supervisory and regulatory authority
over the Company and its subsidiaries. The Federal Reserve Board requires the
Company to maintain certain levels of capital (see ITEM 1. BUSINESS, SUPERVISION
----------------
AND REGULATION, CAPITAL ADEQUACY GUIDELINES). The Federal Reserve Board also
---------------------------
has the authority to take enforcement action against any bank holding company
that commits any unsafe or unsound practice, or violates certain laws,
regulations or conditions imposed by the Federal Reserve Board in writing (see
ITEM 1. BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT INSURANCE
---------------- --------------------------
CORPORATION IMPROVEMENT ACT OF 1991 AND FORMAL AGREEMENT).
--------------------------------------------------------
The Act requires prior approval of the Federal Reserve Board for, among other
things, the acquisition by a bank holding company of direct or indirect
ownership or control of more than five percent of the voting shares, or
substantially all the assets, of any bank or for merger or consolidations by a
bank holding company with any other bank holding company. The Act also
prohibits the acquisition by a bank holding company or any of its subsidiaries
of voting shares or substantially all the assets of any bank located in a state
other than the state in which the operations of the bank holding company's bank
subsidiaries are principally conducted, unless the statutes of the state in
which the bank to be acquired is located expressly authorizes such an
acquisition. (See ITEM 1. BUSINESS, SUPERVISION AND REGULATION, MEMORANDUM
---------------- ----------
OF UNDERSTANDING).
----------------
With certain limited exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control of more than five percent of
the voting shares of any company which is not a bank or bank holding company and
from engaging directly or indirectly in any activity other than banking,
managing or controlling banks or furnishing services to or performing services
for its authorized subsidiaries. A bank holding company may, however, engage or
acquire an interest in a company that engages in activities which the Federal
Reserve Board has determined to be closely related to banking or managing or
controlling banks or properly incident thereto. In making such a determination,
the Federal Reserve Board is required to consider whether the performance of
such activities can reasonably be expected to increase competition, or produce
gains in efficiency, that outweigh possible adverse effects, such as undue
concentration of resources, decreased or unfair competition, conflicts of
interest, or unsound banking practices. The Federal Reserve Board is also
empowered to differentiate between activities commenced de-novo and activities
commenced by acquisition, in whole or in part, of a going concern.
Additional statutory provisions prohibit a bank holding company and any
subsidiary banks from engaging in certain tie-in arrangements in connection with
the extension of credit. Thus, a subsidiary bank may not extend credit, lease
or sell property, or furnish any services, or fix or vary the concentration for
any of the foregoing on the condition that: (i) the customer must obtain or
provide some additional credit, property or service from, or to, such bank other
than a loan, discount, deposit or trust service; (ii) the customer must obtain
or provide some additional credit, property or service from or to the Company or
any other subsidiary of the Company; (iii) the customer may not obtain some
other credit, property or service from competitors, except under reasonable
requirements to assure the soundness of credit extended.
The Federal Reserve Board generally prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded through borrowing or other
arrangements that might adversely affect a bank holding company's financial
position. The Federal Reserve Board's policy is that a bank holding company
should not continue its existing rate of cash dividends on its common stock
unless its net income is sufficient to fully fund each dividend and its
prospective rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition.
Transactions between the Company and its subsidiaries are subject to a number of
other restrictions. Federal Reserve Board policies forbid the payment by bank
subsidiaries of management fees which are unreasonable in amount or exceed the
fair market value of the services rendered (or, if no market exists, actual
costs plus a reasonable profit). Nor is the holding company allowed to transfer
to the Bank any nonperforming loans or other assets.
As a creditor and a financial institution, the Bank is subject to certain
regulations promulgated by the Federal Reserve Board, including, without
limitation: Regulation B (Equal Credit Opportunity), Regulation D (Reserves),
Regulation E (Electronic Funds Transfer Act), Regulation F (Interbank
Liabilities), Regulation Z (Truth in Lending), Regulation CC (Expedited Funds
Availability Act) and Regulation DD (Truth in Savings Act). As creditors on
loans secured by real property and as owners of real property, the Bank has
liability under various statutes and regulations applicable to property owners,
generally including statutes and regulations relating to the environmental
condition of the property.
THE BANK
--------
The Bank is a national banking association whose deposits are insured by the
Bank Insurance Fund ("BIF") as administered by the FDIC, up to the maximum legal
limits of the FDIC ($100,000), and is subject to regulation, supervision, and
regular examination by the Comptroller. The Bank is a member of the Federal
Reserve System, and as such is subject to certain provisions of the Federal
Reserve Board. The Bank is also subject to applicable provisions of California
law, insofar as they do not conflict with, or are not preempted by, federal law.
The regulations of these various agencies govern most aspects of the Bank's
business, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowing, dividends,
and locations of branch offices. California law exempts banks from the
California usury laws.
LEGISLATIVE AND REGULATORY CHANGES
----------------------------------
Over the past few years the volume and complexity of banking regulations and the
intensity of the regulatory examination process have increased dramatically.
Banking institutions are subject to closer scrutiny today than ever before.
This increased scrutiny is designed to reduce the number of failing institutions
and to require immediate corrective actions by troubled institutions. Many of
the recent statutory changes have been directed at giving the various bank
regulatory agencies increased enforcement powers to take "prompt corrective
actions" (see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT
---------------- ----------------
INSURANCE CORPORATION IMPROVEMENT ACT OF 1991) when an insured financial
---------------------------------------------
institution's capital falls below certain levels. In addition, more stringent
capital requirements have been imposed to provide more protection against
potential losses. Premiums for deposit insurance have increased to record
levels and are now based upon risk evaluations. While the Company and the Bank
have not directly measured the full impact and cost of compliance with these new
requirements, such compliance represents an ever increasing expense for the
Company and the Bank and requires a significant amount of staff and officer
time.
DIVIDEND LIMITATIONS
--------------------
On January 1, 1991, the Comptroller changed the interpretations of the dividend
regulations to simplify the calculation of a bank's dividend paying capacity and
make them more consistent with generally accepted accounting principles. The
dividend limit is based on retained "net profits" for the current year plus the
two previous years, less any required transfers to surplus or a fund for the
retirement of preferred stock. "Net profits" are defined as the net income as
reported in the bank's call report with no adjustments. The Formal Agreement
also prohibits the payment of any cash dividends by the Bank without the prior
written consent of the Comptroller or by the Company without prior notice to the
Federal Reserve Bank of San Francisco (see ITEM 1. BUSINESS, SUPERVISION AND
----------------
REGULATIONS, FORMAL AGREEMENT AND MEMORANDUM OF UNDERSTANDING). In addition, a
---------------- ---------------------------
national bank may not pay any dividends or make other capital distributions if
the capital distribution would cause the national bank to be undercapitalized,
with the exception of repurchases or redemptions of the national bank's shares
that are made in connection with the issuance of additional shares, or that will
impair the national bank's financial condition.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991.
-------------------------------------------------------------
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was enacted. Set forth below is a brief discussion of
certain portions of this law and implementing regulations that have been adopted
or proposed by the Federal Reserve Board, Comptroller and the FDIC
(collectively, the "federal banking agencies").
BIF RECAPITALIZATION. FDICIA provides the FDIC with three additional
sources of funds to protect deposits insured by the BIF administered by the
FDIC. The FDIC is authorized to borrow up to $30 billion from the U.S.
Treasury; borrow from the Federal Financing Bank up to 90% of the fair market
value of the assets of institutions acquired by the FDIC as receiver; and borrow
from financial intermediaries that are members of the BIF. Any borrowing not
repaid by asset sales are to be repaid through insurance premiums assessed to
member institutions. Such premiums must be sufficient to repay any borrowed
funds within 15 years and provide insurance fund reserves of $1.25 for each $100
of insured deposits.
IMPROVED EXAMINATIONS. All insured depository institutions must undergo a
full-scope, on-site examination by their appropriate federal banking agency at
least once every 12 months. A transition period allows for examination of
certain well capitalized and well managed institutions every 18 months until
December 31, 1993. The cost of examinations of insured depository institutions
and any affiliates may be assessed by the appropriate federal banking agency
against each institution or affiliate as it deems necessary or appropriate.
STANDARDS FOR SAFETY AND SOUNDNESS. FDICIA requires the federal banking
agencies to prescribe, by regulation, standards for all insured depository
institutions and depository institution holding companies relating to internal
control, loan documentation, credit underwriting, interest rate exposure and
asset growth. Standards must also be prescribed for classified loans, earnings
and the ratio of market value to book value for publicly traded shares. FDICIA
also requires the federal banking agencies to issue uniform regulations
prescribing standards for real estate lending that are to consider such factors
as the risk to the deposit insurance fund, the need for safe and sound operation
of insured depository institutions and the availability of credit.
Further, FDICIA requires the federal banking agencies to establish standards
prohibiting compensation, fees and benefit arrangements that are excessive or
could lead to financial loss. Under proposed regulations implementing the
safety and soundness standards, a national bank must maintain a ratio of
classified assets to total capital and ineligible allowances that is no greater
than 1.0. A minimum earnings standard is also included in the proposed
regulation requiring earnings sufficient to absorb losses with impairing
capital. Earnings would be sufficient under the proposed regulation if the
institution meets applicable capital requirements and would remain in capital
compliance if its net income or loss over the last four quarters of earnings
continue over the next four quarters of earnings. A national bank that fails to
meet either of these standards must submit a compliance plan.
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit collateralized by real estate. The policies must
address loan portfolio management, underwriting standards and loan-to-value
limits that do not exceed the supervisory limits prescribed by the regulations.
In December 1993, pursuant to the mandate of FDICIA, the federal banking
agencies issued an interagency policy statement regarding the allowance for loan
and lease losses("ALLL"). Insured depository institutions are required to
maintain a level of ALLL that is adequate to absorb "estimated credit losses"
associated with the loan and lease portfolio, including all binding commitments
to lend. "Estimated credit losses" are defined as an estimate of the current
amount of the loan and lease portfolio that is not likely to be collected given
the facts and circumstances as of the evaluation date. These estimated credit
losses should meet the criteria for accrual of a loss contingency set forth in
generally accepted accounting principles as stated in Statement on Financial
Accounting Standards No. 5 ("SFAS 5"). The policy statement describes the
responsibility of the board of directors and management to maintain the ALLL at
an adequate level and prescribes that the ALLL should be no less than the sum of
the following items:
(1) For loans and leases classified substandard or doubtful,whether
analyzed and provided individually or as part of pools, all
estimated credit losses over the remaining effective lives of
these loans.
(2) For components of the loan and lease portfolio not classified,
all estimated credit losses over the upcoming 12 months.
(3) Amounts for estimated losses from transfer risk on
international loans.
The board of directors and management are also responsible to ensure:
(1) the institution has an effective loan review system;
(2) loans or portions of loans are promptly charged off if
determined uncollectible; and
(3) the process for determining an adequate level for the ALLL
is based on a comprehensive, adequately documented and
consistently applied analysis of the loan and lease
portfolio.
The policy statement describes components of the portfolio which should be
reviewed and factors to consider in the estimation of credit losses.
Furthermore, the policy statement specifies the steps which will be followed by
examiners of the federal banking agencies in examining the adequacy of the ALLL
for individual institutions. These steps include analyzing an institution's
policies, practices and historical credit loss experience, and a further check
of the reasonableness of management's methodology by comparing the reported ALLL
(after deduction of all loans, or portions thereof, classified as loss) against
the sum of the following amounts:
(1) 50 percent of the portfolio that is classified doubtful;
(2) 15 percent of the portfolio that is classified substandard; and
(3) for the portions of the portfolio that have not been classified
(including those loans designated special mention), estimated credit
losses over the upcoming twelve months given the facts and circumstances
as of the evaluation date (based on the institutions's average annual
rate of net charge-offs experienced over the previous two or three years
on similar loans, adjusted for current conditions and trends).
The policy statement cautions that "the amount is neither a 'floor' nor a 'safe
harbor' level for an institution's ALLL. However, examiners will view a
shortfall relative to this amount as indicating a need to more closely review
management's analysis to determine whether it is reasonable and supported by the
weight of available evidence, and that all relevant factors have been
appropriately considered." The Bank's ALLL is less than that which would be
established under the policy statement guidelines.
PROMPT CORRECTIVE REGULATORY ACTION. FDICIA requires each federal banking
agency to take prompt corrective action to resolve the problems of insured
depository institutions that fall below one or more prescribed minimum capital
ratios. The purpose of this law is to resolve the problems of insured
depository institutions at the least possible long-term cost to the appropriate
deposit insurance fund.
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
(significantly exceeding the required minimum capital requirements), adequately
capitalized (meeting the required capital requirements), undercapitalized
(failing to meet any one of the capital requirements), significantly
undercapitalized (significantly below any one capital requirement) and
critically undercapitalized (failing to meet all capital requirements).
In September 1992, the federal banking agencies issued uniform final regulations
implementing the prompt corrective action provisions of FDICIA. Under the
regulations, an insured depository institution will be deemed to be:
. "well capitalized" if it (i) has total risk-based capital of 10% or
greater, Tier 1 risk-based capital of 6% or greater and a leverage capital
ratio of 5% or greater and (ii) is not subject to an order, written
agreement capital directive or prompt corrective action directive to meet
and maintain a specific capital level of any capital measure;
. "adequately capitalized" if it has total risk-based capital of 8% or
greater, Tier 1 risk-based capital of 4% or greater and a leverage capital
ratio of 4% or greater (or a leverage ratio of 3% or greater if the
institution is rated composite 1 under the applicable regulatory rating
system in its most recent report of examination);
. "undercapitalized" if it has total risk-based capital that is less than
8%, Tier 1 risk-based capital that is less than 5% or a leverage capital
ratio that is less than 4% (or a leverage capital ratio that is less than
3% if the institution is rated composite 1 under the applicable regulatory
rating system in its most recent report of examination);
. "significantly undercapitalized" if it has a total risk-based capital
that is less than 6%, Tier 1 risk-based capital that is less than 3% or a
leverage capital ratio that is less than 3%; and
. "critically undercapitalized " if it has a ratio of tangible equity to
total assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized may be reclassified to
the next lower capital category if the appropriate federal banking agency, after
notice and opportunity for hearing, (i) determines that the institution is in an
unsafe or unsound condition or (ii) deems the institution to be engaging in an
unsafe or unsound practice and not to have corrected the deficiency. At each
successive lower capital category, an insured depository institution is subject
to more restrictions and federal banking agencies are given less flexibility in
deciding to deal with it.
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 transactions the institutions would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (1)
specifies the steps the institution will take to become 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 institutions'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 corrective 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: (1) a forced sale of the 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, subject to certain grandfather provisions for those elected prior to
enactment of FDICIA; (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 270 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.
As of December 31, 1994, the Bank had a total risk-based capital of 12.07%, a
Tier 1 risk-based capital ratio of 10.82% and a leverage capital ratio of 7.47%.
Based solely upon these ratios, the Bank would be deemed to be well capitalized
as of December 31, 1994; however, because the Bank is subject to a written
agreement with the Comptroller and the Company with the Federal Reserve Bank,
the Bank and the Company are deemed to be adequately capitalized. ( see ITEM 1.
-------
BUSINESS, SUPERVISION AND REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION
-------- -------------------------------------
IMPROVEMENT ACT OF 1991, FORMAL AGREEMENT AND MEMORANDUM OF UNDERSTANDING). In
-----------------------
addition, under the prompt corrective action provision of FDICIA, a subsequent
reduction in the Bank's capital could cause it to fall within a lower capital
category and subject it to the mandatory and discretionary sanctions applicable
to the category.
OTHER ITEMS. FDICIA also, among other things, (i) limits the percentage of
interest paid on brokered deposits and limits the unrestricted use of such
deposits to only those institutions that are well capitalized; (ii) requires the
FDIC to charge insurance premiums based on the risk profile of each institution;
(iii) eliminates "pass through" deposit insurance for certain employee benefit
accounts unless the depository institution is well capitalized or, under certain
circumstances, adequately capitalized; (iv) prohibits insured state chartered
banks from engaging
as principal in any type of activity that is not permissible for a national bank
unless the FDIC permits such activity and the bank meets all of its regulatory
capital requirements; (v) directs the appropriate federal banking agency to
determine the amount of readily marketable purchased mortgage servicing rights
that may be included in calculating such institutions' tangible, core and risk-
based capital; and (vi) provides that, subject to certain limitations, any
federal savings association may acquire or be acquired by any insured depository
institution.
BROKERED DEPOSITS. FDICIA prohibits "undercapitalized" institutions from
accepting funds obtained, directly or indirectly, by or through a deposits
broker. Undercapitalized institutions also are prohibited from soliciting
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest on insured deposits in the institutions's normal
market areas, or in the market area in which the deposits would otherwise be
accepted.
"Adequately capitalized" institutions may accept brokered funds only if they
first obtain a waiver granted the FDIC. Adequately capitalized institutions
that solicit brokered deposits pursuant to a waiver granted by the FDIC may pay
a rate of interest on brokered funds that significantly exceeds the rate paid on
deposits of similar maturity in the institution's normal market area or the
"national rate" paid on deposits of comparable maturity for deposits accepted
outside the institution's normal market area. The term "deposit broker" also
includes any insured depository institution, or employee thereof, that solicits
deposits by offering rates of interest that are significantly higher than the
prevailing rates of interest offered by other insured depository institutions
having the same type of charter in the offering institution's normal market
area. The effect of this definition, and the other limits on brokered deposits,
is to preclude an institution that is only "adequately capitalized" from
offering rates of interest that are significantly more than local or national
rates.
PASS THROUGH FDIC INSURANCE PROVISIONS. As of December 19, 1992, pro rata, or
"pass through" deposit insurance is available for deposits attributable to
participants in or beneficiaries of certain employee benefit plans, only if the
institution in which the deposits are placed is permitted to accept brokered
deposits or qualifies for a second exception. Under the brokered deposits
exception, deposit insurance "passes through" to the participants or
beneficiaries (i.e., with coverage up to $100,000 per person) only if the
institution is well capitalized, or if the institution was adequately
capitalized with a waiver from the FDIC that allowed it to accept brokered
deposits. In the latter case, at the time the deposit was made the depositor
must receive a written statement from the institution that the deposit was
eligible for insurance coverage on a "pass through" basis. The second exception
is available for deposits placed in an institution that meets each applicable
capital standard set forth by the institution's appropriate Federal banking
agency. The exception is also subject to the requirement that the depositor be
given written notice, at the time the deposit is made that the deposit is
entitled to insurance or a pass-through basis. The Bank has obtained a waiver
from the FDIC under the first exception category.
RISK-BASED DEPOSIT INSURANCE PREMIUMS. As required by FDICIA, the FDIC adopted
a transitional risk-based assessment system for deposit insurance premiums which
became effective January 1, 1993. Under the transitional regulations, insured
depository institutions are required to pay insurance premiums within a range of
23 cents per $100 of deposits to 31 cents per $100 of deposits depending on
their risk classification. To determine the risk-based assessment for each
institution, the FDIC will categorize an institution as well-capitalized,
adequately capitalized or undercapitalized based on its capital ratios. A well
capitalized institution is one that has at least a 10% total risk-based capital
ratio, a 6% Tier 1 risk-based capital ratio and a 5% leverage capital ratio. An
adequately capitalized institution will have at least an 8% total risk-based
capital ratio, a 4% Tier 1 risk-based capital ratio and a 4% leverage capital
ratio. An undercapitalized institution will be one that does no meet either of
the above definitions. The FDIC will also assign each institution to one of
three subgroups based upon review by the institutions's primary federal or state
regulator, statistical analyses of financial statements and other information
relevant to evaluating the risk posed by the institution. As a result, the
assessment rates within each of three capital categories will be as follows
(expressed as cents per $100 of deposits):
SUPERVISORY SUBGROUP
--------------------
A B C
----- ----- ----
WELL CAPITALIZED 23 26 29
ADEQUATELY CAPITALIZED 26 29 30
UNDERCAPITALIZED 29 30 31
The transitional rules have now been made permanent. In February 1995 the FDIC
proposed to amend the schedule from a current range of 23 to 31 to 4 to 31. The
Bank currently pays deposit insurance to the FDIC at the rate of 29 cents per
$100 of deposits.
FORMAL AGREEMENT
----------------
An on-site examination of the Bank was conducted by the Comptroller as of July
31, 1991. As a result of that examination, the Comptroller requested the Bank
to take certain actions to improve the condition of the Bank, and the Bank
agreed, pursuant to a formal agreement entered into with the Comptroller on
April 8, 1992 (the "Formal Agreement"), to take such actions.
Under the terms of the Formal Agreement, the Bank agreed to (a) conduct studies
of various parts of its operations and develop written action plans and policies
designed to address any issues raised by those studies, (b) develop and
implement a program designed to reduce the Bank's level of criticized assets,
(c) implement an effective and ongoing loan review system, (d) establish a
program for maintaining an adequate allowance for loan and lease losses, (e)
develop and implement a program to improve the Bank's loan administration, (f)
update the Bank's real estate appraisal program and procedures, (g) develop a
program for the management of the Bank's other real estate owned (OREO), (h)
develop a capital program and maintain total capital at least equal to 9% of
risk-weighted assets, and Tier 1 capital at least equal to 6% of actual adjusted
total assets, (i) maintain liquidity at a level sufficient to sustain the Bank's
operations, and (j) develop a program for Board supervision over the Bank's
management team. The Formal Agreement also prohibits the payment of any cash
dividends by the Bank without the prior written consent of the Comptroller.
The Comptroller conducted another examination of the Bank as of July 31, 1992.
As a result of that examination, the Comptroller requested, and on November 27,
1992, management and the Board of Directors of the Bank agreed to certain
commitments to take specific actions to assure compliance with the Formal
Agreement. The Comptroller conducted its annual examinations as of August 31,
1993 and September 30, 1994. The Bank was found to be in full, substantial or
partial compliance with all terms and commitments under the Formal Agreement.
Management believes the Bank is now in substantial compliance with all the
terms of the Formal Agreement.
MEMORANDUM OF UNDERSTANDING
---------------------------
On May 27, 1993, the Company executed a Memorandum of Understanding
("memorandum") with the Federal Reserve Bank of San Francisco (the "Fed") in
which the Company agreed to submit a summary of actions to improve conditions in
the Bank, not declare cash dividends without prior notice to the Fed, and obtain
prior approval of changes in Directors or executive officers. Management of the
Company believes the Company is in substantial compliance with the Memorandum.
CAPITAL ADEQUACY GUIDELINES
---------------------------
The Federal Reserve Board, FDIC and Comptroller have issued guidelines to
implement the new risk-based capital requirements. The guidelines are intended
to establish a systematic analytical framework that makes regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, takes off-balance sheet items into account in assessing capital
adequacy and minimizes disincentives to holding liquid, low-risk assets. Under
these guidelines, assets and credit equivalent amounts of off-balance sheet
items, such as letters of credit and outstanding loan commitments, are assigned
to one of several risk categories, which range from 0% for risk-free assets,
such as cash and certain U.S. government securities, to 100% for relatively
high-risk assets, such as loans and investments in fixed assets, premises and
other real estate owned.
The guidelines included a transition period for implementing the risk-based
capital requirements to allow banking organizations, among other things, to
raise additional capital, if necessary, or restructure their asset mix to
achieve compliance. The transition period, which was in effect through the end
of 1992, required an institution to maintain a minimum ratio of qualifying total
capital to risk-weighted assets of 7.25%, of which at least 3.6% was required
to consist of Tier 1 capital. On and after December 31, 1992, the guidelines
require a minimum ratio of qualifying total capital to risk-weighted assets of
8%, of which at least 4% must consist of Tier 1 Capital. Higher risk-based
ratios are required to be considered well capitalized under the prompt
corrective action provisions of FDICIA (see ITEM 1. BUSINESS, SUPERVISION AND
----------------
REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991,
-------------------------------------------------------------
PROMPT CORRECTIVE ACTION).
A banking organization's qualifying capital consists of two components: Tier 1
capital (core capital) and Tier 2 capital (supplementary capital). Tier 1
capital consists primarily of common stock, related surplus and retained
earnings, qualifying noncumulative perpetual preferred stock (plus, for bank
holding companies, qualifying cumulative perpetual preferred stock an amount to
25% of Tier 1 capital) and minority interests in the equity accounts of
consolidated subsidiaries. Intangibles, such as goodwill, are generally
deducted from Tier 1 capital; however, purchased mortgage servicing rights and
purchased credit card relationships may be included, subject to certain
limitations. At least 50% of the banking organization's total regulatory
capital must consist of Tier 1 capital.
Tier 2 capital may consist of (i) the allowance for loan and lease losses in an
amount up to 1.25% of risk-weighted assets; (ii) cumulative perpetual preferred
stock and long-term preferred stock (which for bank holding companies must have
an original maturity of 20 years or more) and related surplus; (iii) hybrid
capital instruments (with characteristics of both debt and equity), perpetual
debt and mandatory convertible debt securities; and (iv) eligible term
subordinated debt and intermediate-term preferred stock with an original
maturity of five years or more, including related surplus, in an amount up to
50% of Tier 1 capital. The inclusion of the foregoing elements of Tier 2
capital is subject to certain requirements and limitations of the federal
banking authorities.
The federal banking authorities have also adopted a minimum ratio of Tier 1
capital to average total assets of 3% for the highest rated banks. This risk-
based leverage capital ratio is only a minimum and applies only to the highest
rated banks. Institutions experiencing or anticipating significant growth or
those with other than minimum risk profiles are expected to maintain capital
well above the minimum level. Furthermore, higher leverage capital ratios are
required to be considered well capitalized or adequately capitalized under the
prompt corrective action provisions of FDICIA (see ITEM 1. BUSINESS, SUPERVISION
----------------
AND REGULATION, FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991,
-------------------------------------------------------------
PROMPT CORRECTIVE ACTION). Thus, the effective minimum risk-based leverage
ratio, for all practical purposes, is at least 4% or 5%.
The federal banking authorities have issued a joint advance notice of proposed
rule making, in accordance with FDICIA, seeking public comment of methods to
take account of interest rate risk, concentrations of credit risk and the risks
of nontraditional activities in calculating risk-based capital. Although the
notice does not contain any agency proposals relating to concentration of credit
risk and risks of nontraditional activities, the notice includes a general
framework for taking account of interest rate risk. Under that framework,
institutions with interest rate risk exposure in excess of a certain threshold
would be required to hold capital proportionate to that excess risk. Exposures
would be measured in terms of the change in the present value of an
institution's assets minus the change in the present value of its liabilities
and off-balance sheet positions for an assumed 100 basis point parallel shift in
interest rate markets.
The federal banking agencies recently issued a statement advising that, for
regulatory purposes, federally supervised banks and savings associations should
report deferred tax assets in accordance with Statement of Financial Accounting
Standards Board No. 109 ("SFAS No. 109") beginning in 1993, although earlier
application was permitted subject to certain limitations. However, the federal
banking agencies have advised that they will place a limit on the amount of
deferred tax assets that is allowable in computing an institutions's regulatory
capital. Deferred tax assets that can be realized from taxes paid in prior
carry back years and from the future reversal of temporary differences would
generally not be limited. Deferred tax assets that can only be realized through
future taxable earnings, including the implementation of a tax planning
strategy, would be limited to regulatory capital purposes to the lesser of (i)
the amount that can be realized within one year of the quarter-end report date
or (ii) 10% of Tier 1 Capital. The amount of deferred taxes in excess of this
limit, if any, would be deducted from Tier 1 Capital and total assets in
regulatory capital calculations. The federal banking agencies have notified
institutions that their capital rules will be amended to reflect this change.
The Company has adopted SFAS No. 109 effective January 1, 1993. As a result of
the provisions of SFAS No. 109 the Company has established an allowance of
$837,000 against its tax asset of $2,452,000 as of December 31, 1994.
COMMUNITY REINVESTMENT ACT
--------------------------
The Community Reinvestment Act ("CRA") requires each national bank, as well as
other lenders, to identify the communities served by the national bank's offices
and to identify the types of credit the national bank is prepared to extend to
such communities. The CRA also requires the Comptroller to assess the
performance of the national bank in meeting the credit needs of its community
and to take such assessment into consideration in reviewing applications for
mergers, acquisitions and other transactions. An unsatisfactory CRA rating may
be the basis for denying such an application.
In connection with its assessment of CRA performance, the Comptroller assigns a
rating of "outstanding," "satisfactory," "needs to improve" or "substantial
noncompliance." Based on an examination conducted during May of 1993, the Bank
was rated Outstanding. The last examination was conducted in February of 1995
and the Bank expects to maintain the same rating.
ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors
for Impairment of a Loan" as amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures". Under the provisions
of SFAS 114, a loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. SFAS 114, as
amended, requires creditors to measure impairment of a loan based on the present
value of expected future cash flows discounted at the loan's effective interest
rate. If the measure of the impaired loan is less than the recorded investment
in the loan, a creditor will recognize an impairment by creating a valuation
allowance with a corresponding charge to bad debt expense. This statement also
applies to restructured loans and eliminates the requirement to classify loans
that are in-substance foreclosures as foreclosed assets except for loans where
the creditor has physical possession of the underlying collateral, but not legal
title. SFAS 114 must be adopted by the Company January 1, 1995. The Company
does not believe adoption of this statement will have a material impact on its
results of operations or financial position.
In October 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" ("SFAS No. 119").
SFAS No. 119 requires entities that hold or issue derivative financial
instruments for trading purposes to disclose related average fair value and net
trading gains or losses. For entities that hold or issue derivative financial
instruments for purposes other than trading, it requires disclosure about those
purposes and about how the instruments are reported in financial statements.
For entities that hold or issue derivative financial instruments and account for
them as hedges of anticipated transactions, it requires disclosure about the
anticipated transactions, the classes of derivative financial instruments used
to hedge those transactions, the amounts of hedging gains and losses deferred,
and the transactions or other events that result in recognition of the deferred
gains or losses in earnings, SFAS No. 119 also encourages the disclosure of
quantitative information about market risks of derivative financial instruments,
and also of other assets and liabilities, that is consistent with the way the
entity manages or adjusts risks and that is useful for comparing the results of
applying the entity's strategies to its objectives for holding or issuing the
derivative financial instruments. SFAS No. 119 applies to financial statements
issued for fiscal years ending after December 15, 1994. The Company does not
anticipate that the implementation of SFAS No. 119 will have a material impact
on its results of operations or financial position.
EMPLOYEES
----------
The Bank currently employs approximately 174 persons in varying capacities. The
Company does not have any full-time employees at this time. (See ITEM 11.
---------
EXECUTIVE COMPENSATION, for further information).
-----------------------
ITEM 2. PROPERTIES.
--------------------
On December 29, 1982, the Company entered into a sublease (the "Sublease") for
the premises covering approximately 5,735 square feet on the ground floor of a
building located at 3951 South Coast Plaza Drive, Santa Ana, California 92704.
The Sublease the ("old Sublease") had an initial term of 10 years, which expired
on January 31, 1993. The Sublease was amended effective February 1, 1993 for a
term of 24 months, terminating on January 31, 1995. It has further been amended
to expire on January 31, 1998. The rent for the premises at the end of the term
of the old Sublease was $2.61 per square foot per month. The rent under the
terms of the "new Sublease" is $1.38 per square foot per month. The Company has
assigned the Sublease to the Bank for the purpose of conducting banking
operations on the premises. The Company does not independently occupy any part
of the premises.
On May 4, 1988 the Bank entered into a lease expiring June 30, 2000 for the
branch located at 22831 Lake Forest Drive, El Toro, California. The El Toro
premises consist of approximately 6,672 square feet and the current monthly rent
is $1.64 per square foot.
On September 19, 1989 the Bank entered into a lease expiring September 18, 1993
for the Service Center located at 17252 Armstrong, Suite H, Irvine, California.
These premises consist of approximately 7,900 square feet. On August 26, 1994,
the Company revised and extended the lease for a period of twelve months,
expiring September 17, 1995, at the current monthly rent of $.67 per square
foot.
On October 4, 1989 the Bank entered into a lease expiring December 31, 1999 for
the Orange regional office located at 625 The City Drive, Orange, California.
These premises consist of approximately 8,257 square feet and the current
monthly rent is $2.01 per square foot.
On November 29, 1991 the Bank entered into a lease for a branch facility,
commercial loan department and escrow division space covering approximately
14,866 square feet on the ground floor and 14,103 square feet for its
headquarters office on the ninth floor of a building located at 4100 Newport
Place, Newport Beach, California 92660. The Lease has an initial term of 10
years. The current rent for the premises is $1.57 per square foot per month on
the ground floor and $1.55 per square foot per month for the ninth floor.
Pursuant to the Lease, the Bank has an option to lease additional space on the
ninth floor. The Bank is using the ground floor for banking operations and is
using the ninth floor for administrative offices.
All of the premises leased by the Company are used by the Bank and there are no
immediate plans to utilize any of the leased premises for any other purpose.
ITEM 3. LEGAL PROCEEDINGS.
---------------------------
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the
incurrence of the loss is probable. Because of the uncertainties and possible
costs related to legal proceedings, the Bank has accrued $143,000 for potential
future damages and legal fees. After taking into consideration information
furnished by counsel to the Company and the Bank as to the current status of
various remaining claims and legal proceedings to which the Company or the Bank
is a party, management of the Company and the Bank believe that the ultimate
aggregate liability represented thereby, if any, will not have a material
adverse effect on the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------------------
No matter was submitted to security holders during the fourth quarter of the
fiscal year ended December 31, 1994.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
--------------------------------------------------------------------------
MATTERS.
--------
As of January 31, 1995, there were approximately 306 shareholders of record of
the Company's common stock. No shares of the Company's preferred stock have
been issued or are outstanding.
Although there are at least four broker/dealers purporting to make a market in
the Company's common stock, there is limited trading activity in the Company's
common stock. No cash dividends have been paid on shares of the Company's
common stock since the formation of the Company, and the Company presently has
no intention to pay cash dividends in the foreseeable future.
The following table lists high and low bid prices of the Company's Common Stock
in the over the counter market. Prices represent quotations by dealers making a
market in the stock and reflect inter-dealer prices without adjustments for
mark-ups, mark-downs or commissions and may not necessarily represent actual
transactions. Trading in the Company's common stock is limited in volume and
may not be a reliable indicator of its market value.
1994 1993
----- -----
HIGH LOW HIGH LOW
----- ----- ----- -----
FIRST QUARTER $4.25 $4.25 $7.50 $6.50
SECOND QUARTER $4.75 $4.25 $6.50 $5.75
THIRD QUARTER $5.00 $4.63 $6.25 $5.25
FOURTH QUARTER $5.50 $4.63 $5.50 $4.00
ITEM 6. SELECTED FINANCIAL DATA.
---------------------------------
The following table should be read in conjunction with, and is qualified in its
entirety by, the Company's Consolidated Financial Statements and the notes
thereto contained in Item 8 of this Form 10-K.
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
$ IN 000'S 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
OPERATING REVENUE $ 24,849 $ 25,800 $ 30,912 $ 36,137 $ 35,838
INTEREST & FEE INCOME 22,721 23,642 28,861 34,378 34,116
NET INTEREST AND FEE
INCOME 16,385 15,556 17,630 18,291 17,054
NET INCOME (LOSS) 859 (2,815) 507 319 3,016
NET INCOME (LOSS) PER
SHARE *1 0.35 (1.14) 0.20 0.12 1.33
CASH DIVIDENDS DECLARED
PER SHARE 0 0 0 0 0
===================================================================================
AS OF DECEMBER 31,
-------------------
$ IN 000'S 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
TOTAL ASSETS $300,665 $324,550 $372,762 $368,159 $345,725
TOTAL DEPOSITS 277,389 299,726 343,137 341,607 317,201
TOTAL LIABILITIES 280,937 304,363 350,067 346,481 324,488
NET LOANS & LEASES 195,203 206,370 237,884 278,408 273,745
LONG TERM DEBT 2,351 2,351 3,000 3,000 3,000
TOTAL SHAREHOLDERS'
EQUITY 19,728 20,187 22,695 21,678 21,237
===================================================================================
*1 ADJUSTED FOR STOCK SPLITS IN 1990
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
--------------------------------------------------------------------------
FINANCIAL CONDITION.
--------------------
The purpose of this discussion is to provide additional information about the
Company's financial condition and results of operations which is not otherwise
apparent from the consolidated financial statements included in this annual
report. Since the banking subsidiary represents most of the Company's activity
and investment, the following discussion relates primarily to the financial
condition and operations of the Bank. It should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto contained
in Item 8 of this Form 10-K.
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
----------------------------------------------------
SUMMARY
The following chart shows comparative data for selected items of the financial
statements:
$ IN 000'S EXCEPT INCREASE INCREASE
EARNINGS PER SHARE DATA 1994 (DECREASE) 1993 (DECREASE) 1992
--------------------------- --------- ---------- --------- ---------- ---------
AVERAGE TOTAL ASSETS $319,129 $(25,391) $344,520 $(12,964) $357,484
(7.4)% (3.6)%
AVERAGE LOANS AND LEASES $202,009 $(22,969) $224,978 $(45,806) $270,784
(10.2)% (16.9)%
AVERAGE DEPOSITS $292,437 $(23,306) $315,743 $(13,267) $329,010
(7.4)% (4.0)%
NET INTEREST INCOME $ 16,385 $ 829 $ 15,556 $ (2,074) $ 17,630
5.3% (11.8)%
PROVISION FOR LOAN AND
LEASE LOSSES $ 3,365 $ (1,524) $ 4,889 $ 114 $ 4,775
(31.2)% 2.4%
Net Income (Loss) $ 859 3,674 $ (2,815) $ (3,322) $ 507
n/a n/a
Income (Loss) Per $ 0.35 $ 1.49 $ (1.14) $ (1.34) $ .20
Share n/a n/a
Return On Average Assets .27% 1.09% (.82)% (.96)% .14%
n/a n/a
Return on Average Equity 4.19% 17.14 (12.95)% (15.19)% 2.24%
(1) n/a n/a
Ratio of Average Equity 6.45% .14 6.31% (.02)% 6.33%
to Average Assets 2.20% (.32)%
Cash Dividends declared 0 n/a 0 n/a 0
(1) Average equity computed based on month end balances.
The decrease in average assets, average loans and average deposits from 1992
through 1994 reflects the recessionary economy in the country and Orange County
in particular, increased competition by mutual funds for deposit balances,
intentional runoff of higher cost time deposits and an emphasis by the Bank on
improving asset quality and collecting loans rather than on generating new
business. Net income decreased between 1992 and 1993 due to the continued
decrease in average loans and net interest income and a slight increase in the
provision for loan and lease losses. Net income increased between 1993 and 1994
due to reduced amount for provision for loan losses, nonperforming assets and
improved interest spreads.
Total deposits declined by $22,337,000 from $299,726,000 on December 31, 1993 to
$277,389,000 on December 31, 1994. The decline was due to the Company's policy
in 1994 to reduce its deposits acquired through National Publications listings
by not renewing such deposits upon maturities. This was done to offset reduced
loan demand and excess liquidity in investment securities.
RESULTS OF OPERATIONS
INCREASE INCREASE
$ IN 000'S 1994 (DECREASE) 1993 (DECREASE) 1992
---------- ------- --------- ------- --------- -------
Total Interest and Fee
Income $22,721 ($ 921) $23,642 ($5,219) $28,861
(3.90)% (18.08)%
TOTAL INTEREST EXPENSE 6,336 (1,750) 8,086 (3,145) 11,231
(21.64)% (28.0)%
-------------------------------------------------------------
NET INTEREST
INCOME BEFORE
PROVISION FOR
LOAN AND LEASE
LOSSES $16,385 $ 829 $15,556 ($2,074) $17,630
5.33 % (11.76)%
=============================================================
NET INTEREST AND
FEE INCOME
EARNED AS A
PERCENTAGE OF
AVERAGE INTEREST
EARNING ASSETS 5.61% 0.64 % 4.97% (0.38)% 5.35%
NET INTEREST INCOME BEFORE PROVISION FOR LOAN AND LEASE LOSSES.
---------------------------------------------------------------
The decrease in net interest income before provision for loan and lease losses
from 1992 to 1993 resulted from shrinking margins caused by a declining interest
rate environment, a decrease in average interest earning assets, a shift in
average interest earning assets from loans to investment securities and Federal
funds sold and an increase in nonaccrual loans. Net interest income increased in
1994 from 1993 as the interest spread improved due to rising interest rates and
average non-interest bearing deposits increased from $92,270,000 in 1993 to
$101,022,000 in 1994.
The net yield without the loan fees on interest earning assets increased to
5.61% in 1994 from 4.97% in 1993. As of December 31, 1994, the Company had a
total of $225,358,000 interest earnings assets that would reprice within one
year as compared to $175,879,000 interest bearing liabilities that would reprice
within the same period of time. The short term impact of any rise or decline in
interest rates would therefore be insignificant.
INCREASE INCREASE
-------- --------
$ IN 000's 1994 (DECREASE) 1993 (DECREASE) 1992
---------- --------- ---------- --------- ----------- ---------
$ 16,887 3,213 $ 13,674 3,230 $ 10,444
AVERAGE NONACCRUAL LOANS 23.5% 30.9%
INTEREST INCOME NOT 781
RECOGNIZED DURING THE
PERIOD ON NONACCRUAL 1,169
LOANS 951 (218) 388
(18.65)% 49.7%
INTEREST INCOME RECOGNIZED
DURING THE PERIOD ON
NONACCRUAL LOANS 20 (73) 93 10 83
(78.49)% 12.0%
AVERAGE LOANS AND LEASES
TO AVERAGE DEPOSITS
69.1% (2.2) 71.3% (11.0) 82.3%
(3.1)% (13.7)%
AVERAGE INTEREST EARNING
ASSETS $292,060 ($20,656) $312,716 ($16,576) $329,292
(6.6)% (5.0)%
During the three year period, loan production and average outstanding loans
declined as the Company focused on monitoring the performance of the outstanding
loans, identifying potential problems and collecting identified problem loans
and real estate owned. Demand for loans declined during the period as Southern
California became more enmeshed in recession. At the same time, the Company
refined its loan underwriting and approval process, seeking higher quality
credits which reduced the volume of loans meeting the tightened criteria.
AVERAGE Percent Percent Percent
BALANCES, of Interest of Interest of Interest
$ IN 000'S 1994 Total Rate 1993 Total Rate 1992 Total Rate
--------- ---- ----- ---- ---- ----- ---- ----- ----- ----
SAVINGS
DEPOSITS $120,120 41.08% 2.58% $120,600 38.20% 2.84% $125,403 38.11% 3.63%
TIME DEPOSITS 71,295 24.38% 4.11% 120,873 32.58% 4.24% 121,463 36.92% 5.28%
---------------------------------------------------------------------------------------------------
TOTAL INTEREST
BEARING
DEPOSITS 191,415 65.46% 3.15% 223,473 70.78% 3.49% 246,866 75.03% 4.44%
---------------------------------------------------------------------------------------------------
DEMAND DEPOSITS 101,022 34.54% N/A 92,270 29.22% N/A 82,144 24.97% N/A
---------------------------------------------------------------------------------------------------
TOTAL DEPOSITS $292,437 100.00% $315,743 100.00% $329,010 100.00%
====================================================================================================
Interest expense declined as interest rates fell and the balance of interest
bearing deposits fell in each year. In addition, during 1993, and continuing in
1994, the Company established a policy not to renew brokered certificates of
deposit and deposits gathered through listings in national publications listing
the rates offered on time deposits by a large number of banks around the
country. Although the rates paid on the certificates of deposit approximate the
rates paid by the Bank on its other certificates of deposit, the decline in
balances of these deposits caused a concurrent decline in interest expense.
PROVISION FOR LOAN AND LEASE LOSSES The provision for loan and lease losses
-----------------------------------
creates an allowance for estimated future loan and lease losses. When losses or
recoveries occur, they are charged against or credited to the allowance.
INCREASE INCREASE
---------- -----------
$ IN 000'S 1994 (DECREASE) 1993 (DECREASE) 1992
---------- ------ ---------- ------ ----------- ------
LOAN AND
LEASE
CHARGE-OFFS $6,082 $ 1,418 $4,664 ($1,770) $6,434
30.40 % (27.51)%
---------------------------------------------------
PROVISION FOR
LOAN AND
LEASE
LOSSES $3,365 ($1,524) $4,889 $ 114 $4,775
(31.17)% 2.39%
===================================================
Due to continued high levels of nonperforming and classified loans and lease
charge offs, substantial provisions for loan and lease losses have been
necessitated. The financial difficulties of certain of the Bank's borrowers
reflect the continuing recession and declining real estate market in Southern
California. In addition to provision for loan and lease losses the Company
incurred $2,164,000 in 1993 and $1,070,000 in 1994 in real estate owned
expenses. Those expenses included, property taxes, selling costs, writedowns and
losses on sale. The total real estate owned at December 31, 1993 amounted to
$2,289,000 and $2,676,000 at December 31, 1994. Those properties have already
been written down to their fair market values less estimated selling costs.
OTHER INCOME The following table sets forth information by category of other
------------
income and the changes in categories of other income between periods for the
periods indicated:
INCREASE INCREASE
---------- ----------
$ IN 000'S 1994 (DECREASE) 1993 (DECREASE) 1992
--------- ------ ---------- ------ ---------- ------
Escrow Fees $ 304 $ (100) $ 404 $ (38) $ 442
(24.8)% (8.6)%
Service Charges 969 (5) 974 (6) 980
(.5)% (.6)%
Securities Gains 6 6 0 (114) 114
n/a n/a
Other Income 849 69 780 265 515
8.8 % 51.5 %
-----------------------------------------------------
Total Other Income $2,128 ( 30) $2,158 143 $2,051
(1.4)% 7.1 %
=====================================================
The increase in other income from 1992 as compared to 1993 and 1994 is
principally the result of the increase in rental income on REO properties from
$4,000 in 1992 to $161,000 in 1993 and $130,000 in 1994 and the increase in net
master card merchant revenue from $79,000 in 1992 to $188,000 in 1993 and
$130,000 in 1994.
OTHER EXPENSE The following table sets forth information by category of other
-------------
expense and the changes in categories of other expense between periods for the
periods indicated:
INCREASE INCREASE
----------- ----------
$ IN 000'S 1994 (DECREASE) 1993 (DECREASE) 1992
---------- ------- ----------- ------- ---------- --------
Salaries and Employee Benefits $ 6,454 ($ 780) $ 7,234 $ 397 $ 6,837
(10.8)% 5.8 %
Occupancy, Furniture and
Equipment 2,008 (474) 2,482 117 2,365
(19.1)% 4.9 %
Customers' Data Processing Fee 173 (53) 226 (47) 294
(23.5)% (16.0)%
Legal Fees and Related Costs 660 426 1,086 582 504
(39.2)% 115.5 %
Regulatory Assessments 928 (28) 956 141 815
(2.9)% 17.3 %
Supplies 267 (18) 285 (49) 334
(6.3)% (14.9)%
Other Real Estate Owned
Expenses 1,070 (1,094) 2,164 1,556 608
(50.6)% 256.0 %
Other 2,185 23 2,162 88 2,074
1.1 % 4.2 %
--------------------------------------------------------
Total Other Expenses $13,745 $ 2,850 $16,595 $2,764 $13,831
17.17% 20.0 %
=========================================================
Salaries and benefits expense increased during 1993 as a result of additions to
staff related to the opening of a new headquarters office and branch office in
Newport Beach in June 1992, and additions to staff in the special assets
department in 1992 and 1993 to work out problem loans and dispose of other real
estate owned. Pursuant to management's plan to improve operating efficiency, in
November 1993, the Bank reduced staff by 20 personnel at an annualized savings
of salaries and benefits of approximately $700,000 and a one time cost of
approximately $50,000. Occupancy expense was relatively constant during the
period with the exception of the costs related to the new headquarters and
branch office.
The Bank pays for certain data processing fees of some its business customers
based on the net investable deposit balances those customers maintain with the
Bank. As interest rates declined during the three year period, customers earned
fewer credits which could be used to pay their data processing fees. In
addition, the total balances earning such credits declined as total deposits
declined during the period (see ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------------------------------------------------
RESULTS OF OPERATIONS AND FINANCIAL CONDITION, RESULTS OF OPERATIONS, OTHER
--------------------------------------------- -----
INCOME & ITEM 1 BUSINESS, BUSINESS OF THE BANK, DEPOSITS).
------ ---------------- --------
Legal fees, other real estate owned expenses (including losses on sale) and
other expenses have all remained high as a result of increases in delinquent
loans, nonperforming loans and other real estate owned. (see ITEM 1 BUSINESS,
----------------
BUSINESS OF THE BANK, LOANS, ALLOWANCE FOR LOAN AND LEASE LOSSES & ASSET
----- ----------------------------------- -----
QUALITY). Other real estate owned expenses included provisions for selling
-------
expenses of $243,000 and $108,000 in 1994 and 1993, respectively, and expenses
and losses on sales of other real estate owned of $827,000 and $2,056,000 in
1994 and 1993, respectively.
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. Because of the uncertainties and possible costs related to legal
proceedings, the Bank has accrued $143,000 for potential future damages and
legal fees. After taking into consideration information furnished by counsel to
the Company as to the current status of various remaining claims and legal
proceedings to which the Company or the Bank as a party, management of the
Company believes that the ultimate aggregate liability represented thereby, if
any, will not have a material adverse effect on the Company's consolidated
financial statements.
Regulatory assessments increased during the period as a result of an increase
in deposit insurance premiums by the FDIC. Although total deposits declined
significantly during the three years (see ITEM 1 BUSINESS, BUSINESS OF THE
----------------
BANK, DEPOSITS), the decline was more than offset by the increase in the deposit
--------
premium rate from $0.19 per $100 in deposits in 1991 to $0.23 per $100 in
deposits in 1992 to $0.29 per $100 in deposits in 1993 and 1994. Deposit
premium rate changes are effective July 1 of the year in which the change takes
place.
INCOME TAX EXPENSE
------------------
The following table shows the Company's income tax expense or benefit, related
effective tax expense or benefit rate for the periods indicated and the changes
between periods:
$ IN 000'S 1994 (DECREASE) 1993 (DECREASE) 1992
---------- ------- ----------- ------ ------------ ------
INCOME TAX EXPENSES
(BENEFIT) $ 544 $1,499 ($ 955) $(1,523) $ 568
N/A N/A
EFFECTIVE INCOME TAX
EXPENSE (BENEFIT) RATE 38.77% (25.33)% N/A 52.84%
The effective tax benefit rate for 1994 and 1993 reflects the requirements of
FASB's SFAS 109, adopted by the Company effective January 1, 1993, that limits
the amount of tax benefit a company can recognize based on certain criteria.
During 1992, the Company accounted for income taxes under the provisions of SFAS
96, which provisions were substantially similar to SFAS 109 but limited
recognition of the future benefit of temporary differences. (See footnote
number 10 to the accompanying consolidated financial statements).
FINANCIAL CONDITION
OVERVIEW
--------
The following table sets forth the book values and changes in book values of
selected assets and liabilities of the Company as of December 31, 1994, 1993 and
1992:
INCREASE INCREASE
---------- ----------
$ IN 000's 1994 (DECREASE) 1993 (DECREASE) 1992
---------- -------- ---------- ------- ---------- ------
Investment Securities $ 72,075 ($ 9,062) $ 81,137 $ 20,528 $ 60,609
(11.17)% 33.87%
Net Loans and Leases $195,203 ($11,167) $206,370 ($31,514) $237,884
(5.41)% (13.25)%
Other Real Estate Owned $ 2,676 $ 387 $ 2,289 ($ 9,799) $ 12,088
16.91 % (81.06)%
Total Assets $300,665 ($23,885) $324,550 ($48,212) $372,762
(7.36)% (12.95)%
Total Deposits $277,389 ($22,337) $299,726 ($43,411) $343,137
(7.45)% (12.65)%
Total Equity $ 19,728 ($ 459) $ 20,187 ($ 2,508) $ 22,695
(2.27)% (11.05)%
Investment securities increased and net loans decreased from 1992 to 1993 as
loan demand fell in response to the deteriorating economy and the Bank focused
its human and financial resources on identifying and working out problem loans
and other real estate owned obtained through foreclosure on properties
collateralizing loans. Other real estate owned decreased from 1992 as the Bank
applied significant resources to disposing of properties. Total assets and
total deposits decreased significantly from 1992 as the Bank decreased its
marketing efforts while concentrating on resolving asset quality issues. Total
equity declined between 1992 and 1993 as the Company experienced its first
annual operating loss as a result of losses on loans, losses on writedowns,
operations and sales of other real estate owned and declining net interest
income as interest rates fell.
During 1994 the Company continued its efforts on working out problem loans. The
proceeds from loan collections and maturing investment securities were used to
payoff time certificates of deposits acquired through listings on National
Publications resulting in a decline in investment securities, loans and deposits
from 1993 to 1994. The decline in equity was due to unrealized losses on
securities.
The primary sources of funds for the Bank's lending programs are local deposits,
loan payments and proceeds from maturity of investment securities.
INFLATION
---------
The impact of inflation on a financial institution is significantly different
from that exerted on an industrial concern, mainly because a financial
institution's assets and liabilities consist almost entirely of monetary items.
The relatively low portion of the Company's fixed assets to total assets reduces
both the potential of inflated earnings resulting from understated depreciation,
and the potential understatement of absolute asset values.
CAPITAL RESOURCES
-----------------
On December 31, 1990, new risk based capital requirements became effective.
Under the requirements, holding companies and banks are required currently to
maintain minimum ratios of total capital and "core" (Tier 1) capital to risk-
weighted assets(see ITEM 1. BUSINESS, SUPERVISION AND REGULATION, CAPITAL
---------------- -------
ADEQUACY GUIDELINES); however, under the terms of its formal agreement with the
-------------------
Comptroller, the Bank will be required to maintain capital in excess of this
minimum requirement (see ITEM 1 BUSINESS, SUPERVISION AND REGULATION, FORMAL
---------------- ------
REGULATORY AGREEMENT). The regulatory capital requirements, capital
--------------------
requirements under the formal agreement and the Bank and Company's actual
capital ratios are shown in the following table as of the dates indicated:
AT DECEMBER 31,
-------------------------------------------------------------------------------------------------------------
1994 1993
------------------------------------------------------- ---------------------------------------------------
EXCESS EXCESS
PER EXCESS TO PER EXCESS TO
MINIMUM FORMAL TO FORMAL MINIMUM FORMAL TO FORMAL
STATU- AGREE- STATU- AGREE- STATU- GREE- STATU- AGREE-
TORY MENT ACTUAL TORY MENT TORY MENT ACTUAL TORY MENT
------------------------------------------------------------------------------------------------------------
FOR THE BANK
------------
RISK-BASED
CAPITAL:
TIER 1 4.00% N/A 10.82% 6.82% N/A 4.00% N/A 9.47% 5.47% N/A
TOTAL RISK-BASED 8.00% 9.00% 12.07% 4.07% 3.07% 8.00% 9.00% 10.72% 2.72% 1.72%
TIER 1
LEVERAGE RATIO /1/ 4.00% 6.00% 7.47% 3.47% 1.47% 4.00% 6.00% 6.50% 2.50% .50%
FOR THE COMPANY
---------------
RISK-BASED CAPITAL:
TIER 1 4.00% n/a 10.00% 6.00% n/a 4.00% n/a 8.86% 4.46% n/a
TOTAL RISK-BASED 8.00% n/a 11.24% 3.24% n/a 8.00% n/a 10.11% 2.11% n/a
TIER 1
LEVERAGE RATIO 4.00% n/a 6.97% 2.97% n/a 4.00% n/a 6.08% 2.08% n/a
As of December 31, 1994 and 1993, the Bank and the Company were in compliance
with statutory risk-based capital requirements and the Bank was in compliance
with the more stringent capital requirements imposed by the Formal Agreement.
----------------
/1/ In some circumstances this minimum ratio may be 3%.
ITEM 8. FINANCIAL STATEMENTS.
------------------------------
California Commercial Bankshares and Subsidiaries
Index to Consolidated Financial Statements
Page Number
Independent Auditors' Report 53
Consolidated Balance Sheets,
December 31, 1994 and 1993 54
Consolidated Statements of Operations
For The Years Ended December 31,
1994, 1993 and 1992 56
Consolidated Statements of Shareholders'
Equity For The Years Ended December 31,
1994, 1993 and 1992 57
Consolidated Statements of Cash Flows
For The Years Ended December 31, 1994,
1993 and 1992 58
Notes to Consolidated Financial Statements
For The Years Ended December 31, 1994,
1993 and 1992 60
CALIFORNIA COMMERCIAL BANKSHARES
AND SUBSIDIARIES
----------------
Consolidated Financial Statements for the
Years Ended December 31, 1994, 1993 and
1992 and Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CALIFORNIA COMMERCIAL BANKSHARES:
We have audited the accompanying consolidated balance sheets of California
Commercial Bankshares (the Company) and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of California Commercial Bankshares
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, in 1994 the
Bank changed its method of accounting for investment securities.
FEBRUARY 9, 1995
LOS ANGELES, CALIFORNIA
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994 AND 1993
_____________________________________________________________________________________
ASSETS 1994 1993
______________________________________ ______________ ______________
CASH AND DUE FROM BANKS
Noninterest bearing (Note 3) $ 21,069,000 $ 20,781,000
Interest bearing 246,000
FEDERAL FUNDS SOLD 2,000,000 6,000,000
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS 23,315,000 26,781,000
INVESTMENT SECURITIES, at cost (estimated
fair value $81,816,000) (Note 4) 81,137,000
INVESTMENT SECURITIES available
for sale at estimated fair
value (Note 4) 72,075,000
LOANS AND INVESTMENT IN LEASES, net
(Notes 5 and 9) 195,203,000 206,370,000
ACCRUED INTEREST RECEIVABLE 2,846,000 2,487,000
PROPERTY - net (Note 6) 988,000 1,328,000
OTHER REAL ESTATE OWNED 2,676,000 2,289,000
OTHER ASSETS (Note 8) 3,562,000 4,158,000
-------------- --------------
TOTAL $ 300,665,000 $ 324,550,000
============== ==============
_____________________________________________________________________________________
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994 AND 1993
_____________________________________________________________________________________
LIABILITIES AND SHAREHOLDERS' EQUITY 1994 1993
__________________________________________ ______________ ______________
DEPOSITS:
Demand:
Noninterest-bearing $ 98,733,000 $ 96,252,000
Interest-bearing 79,695,000 75,399,000
Savings 40,504,000 42,822,000
Time certificates, $100,000 and over 28,896,000 33,026,000
Other time deposits 29,561,000 52,227,000
-------------- --------------
Total Deposits 277,389,000 299,726,000
INTEREST PAYABLE 149,000 140,000
NOTE PAYABLE (Note 7) 2,351,000 2,351,000
OTHER LIABILITIES (Note 8) 1,048,000 2,146,000
-------------- --------------
Total Liabilities 280,937,000 304,363,000
SHAREHOLDERS' EQUITY
(Notes 7, 8 and 13):
Preferred stock - no par value;
authorized, 1,000,000 shares;
outstanding, none
Common stock - no par value;
authorized, 10,000,000 shares;
issued and outstanding, 2,423,000
in 1994 and 1993 10,782,000 10,782,000
Paid-in capital 475,000 475,000
Retained earnings 9,789,000 8,930,000
Net unrealized loss on investment securities
available for sale, net of tax of $711,000 (1,318,000)
-------------- --------------
Total Shareholders' Equity 19,728,000 20,187,000
-------------- --------------
TOTAL $ 300,665,000 $ 324,550,000
============== ==============
_____________________________________________________________________________________
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
______________________________________________________________________________________________
1994 1993 1992
____________ ____________ ____________
INTEREST AND FEE INCOME:
Loans and leases, including fees $18,347,000 $19,904,000 $25,583,000
Investment securities 3,873,000 3,261,000 2,836,000
Federal funds sold 501,000 477,000 442,000
------------ ------------ -------------
Total Interest and Fee Income 22,721,000 23,642,000 28,861,000
------------ ------------ -------------
INTEREST EXPENSE:
Deposits 6,036,000 7,791,000 10,964,000
Securities sold under agreements
to repurchase 59,000 62,000 24,000
Note payable (Note 7) 241,000 233,000 243,000
------------ ------------ -------------
Total Interest Expense 6,336,000 8,086,000 11,231,000
------------ ------------ -------------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN AND LEASE LOSSES 16,385,000 15,556,000 17,630,000
PROVISION FOR LOAN AND LEASE LOSSES (Note 5) 3,365,000 4,889,000 4,775,000
------------ ------------ -------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN AND LEASE LOSSES 13,020,000 10,667,000 12,855,000
------------ ------------ -------------
OTHER INCOME:
Escrow fees 304,000 404,000 442,000
Service charges 969,000 974,000 980,000
Securities gains 6,000 114,000
Other income 849,000 780,000 515,000
------------ ------------ -------------
Total Other Income 2,128,000 2,158,000 2,051,000
------------ ------------ -------------
OTHER EXPENSES:
Salaries and employee benefits 6,454,000 7,234,000 6,837,000
Occupancy, furniture and equipment 2,008,000 2,482,000 2,365,000
Data processing for customers 173,000 226,000 294,000
Legal fees and related costs (Note 12) 660,000 1,086,000 504,000
Regulatory assessments 928,000 956,000 815,000
Supplies 267,000 285,000 334,000
Other real estate owned 1,070,000 2,164,000 608,000
Other 2,185,000 2,162,000 2,074,000
------------ ------------ -------------
Total Other Expenses 13,745,000 16,595,000 13,831,000
------------ ------------ -------------
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 1,403,000 (3,770,000) 1,075,000
INCOME TAX EXPENSE (BENEFIT) (Note 10) 544,000 (955,000) 568,000
------------ ------------ ------------
NET INCOME (LOSS) $859,000 ($2,815,000) $ 507,000
============ ============ ============
NET INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE $0.35 ($1.14) $0.20
============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 2,427,000 2,459,000 2,517,000
============ ============ ============
______________________________________________________________________________________________
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
-------------------------------------------------------------------------------
NET
UNREALIZED
LOSS ON
INVESTMENT
COMMON STOCK SECURITIES TOTAL
PAID-IN RETAINED AVAILABLE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS FOR SALE EQUITY
____________ _____________ ____________ ____________ ____________ ____________
BALANCE AT JANUARY 1, 1992 2,214,000 $10,277,000 $163,000 $11,238,000 $21,678,000
NET INCOME 507,000 507,000
STOCK OPTIONS EXERCISED (Note 8) 131,000 316,000 316,000
TAX BENEFIT OF STOCK OPTIONS
EXERCISED 194,000 194,000
--------------- ------------ -------------------------------------- ---------------
BALANCE AT DECEMBER 31, 1992 2,345,000 10,593,000 357,000 11,745,000 22,695,000
NET LOSS (2,815,000) (2,815,000)
STOCK OPTIONS EXERCISED (Note 8) 78,000 189,000 189,000
TAX BENEFIT OF STOCK OPTIONS
EXERCISED 118,000 118,000
--------------- ------------ -------------------------------------- ---------------
BALANCE AT DECEMBER 31, 1993 2,423,000 10,782,000 475,000 8,930,000 20,187,000
NET INCOME 859,000 859,000
NET UNREALIZED LOSS ON INVESTMENT
SECURITIES AVAILABLE FOR SALE ($1,318,000) (1,318,000)
--------------- ------------ -------------------------------------- ---------------
BALANCE AT DECEMBER 31, 1994 2,423,000 $10,782,000 $475,000 $9,789,000 ($1,318,000) $19,728,000
============ ============ ============ ============ ============ ============
-------------------------------------------------------------------------------
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
_____________________________________________________________________________________________________________
1994 1993 1992
_____________ _____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 859,000 $ 2,815,000) $ 507,000
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and amortization 580,000 610,000 700,000
Amortization of discounts and premimums
on investment securities
available for sale 795,000
Amortization of discounts and premimums
on investment securities 449,000 288,000
Provision for loan and lease losses 3,365,000 4,889,000 4,775,000
Provision for losses on other real estate owned 244,000 1,759,000 498,000
Deferred income taxes 621,000 18,000 149,000
Gain on sale of investment securities
available for sale (6,000)
Gain on sale of investment securities (114,000)
Loss (gain) on sale of other real estate owned 4,000 (167,000) (132,000)
(Gain) loss on sale of property (7,000) (7,000) 3,000
(Increase) decrease in accrued interest receivable (359,000) 121,000 161,000
Increase (decrease) in deferred loan fees 27,000 (153,000) 55,000
Decrease in unearned lease income (19,000) (384,000) (817,000)
Decrease (increase) in other assets 686,000 (714,000) (136,000)
Net decrease in interest payable
and other liabilities (1,156,000) (385,000) (316,000)
----------- -------------- ------------
Net cash from operating activities 5,634,000 3,221,000 5,621,000
----------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment
securities available for sale 19,350,000
Proceeds from sale of investment
securities available for sale 49,229,000
Purchase of investment securities
available for sale (62,335,000)
Proceeds from maturities of investment securities 168,418,000 17,167,000
Proceeds from sales of investment securities 9,163,000
Purchases of investment securities (189,395,000) (43,899,000)
Net (increase) decrease in loans and
investment in leases (505,000) 26,159,000 26,185,000
Recoveries of loans and investment in leases 1,156,000 743,000 805,000
Payments received on in-substance foreclosures 93,000 210,000 647,000
Purchases of property (251,000) (298,000) (740,000)
Proceeds from sale of property 18,000 7,000 90,000
Proceeds from sale of other real estate owned 6,872,000 9,616,000 906,000
Additions to other real estate owned (390,000)
----------- -------------- ------------
Net cash from investing activities 13,237,000 15,460,000 10,324,000
----------- -------------- ------------
_____________________________________________________________________________________________________________
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
___________________________________________________________________________________________________
1994 1993 1992
_____________ _____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits ($22,337,000) ($43,411,000) $ 1,530,000
(Decrease) increase in securities sold under
agreements to repurchase (2,500,000) 2,500,000
Proceeds from exercise of common stock options 189,000 316,000
Payments on note payable (649,000)
------------- ------------- -------------
Net cash from financing activities (22,337,000) (46,371,000) 4,346,000
------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,466,000) (27,690,000) 20,291,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,781,000 54,471,000 34,180,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $23,315,000 $26,781,000 $54,471,000
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the year for:
Interest $ 6,327,000 $ 8,222,000 $11,510,000
============= ============= =============
Income taxes $ 602,000 $ 745,000 $ 860,000
============= ============= =============
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING
ACTIVITIES:
Property acquired through foreclosure $ 7,143,000 $ 260,000 $ 9,587,000
============= ============= =============
Assumption of debt through foreclosure $ 67,000 $ 1,359,000 $ 66,000
============= ============= =============
Tax benefit for exercise of non-
qualified stock options $ 0 $ 118,000 $ 194,000
============= ============= =============
___________________________________________________________________________________________________
See notes to consolidated financial statements.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
--------------------------------------------------------------------------------
1. GENERAL
California Commercial Bankshares (the "Company") was incorporated on June 16,
1982 for the purpose of becoming a bank holding company. National Bank of
Southern California (the "Bank") commenced operations as a wholly-owned
subsidiary of the Company on January 10, 1983.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts of
-------------
the Company, the Bank and Venture Partners, Inc. All significant intercompany
balances and transactions have been eliminated.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Cash and cash equivalents for the
-------------------------------------
purpose of the consolidated statements of cash flows are defined as cash and due
from banks and Federal funds sold.
INVESTMENT SECURITIES - The Bank adopted Statement of Financial Accounting
---------------------
Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994. SFAS No. 115 requires the classification of
investments in debt and equity securities into three categories: held to
maturity, trading, and available for sale. Debt securities that the Bank has
the positive intent and ability to hold to maturity are classified as held to
maturity securities and reported at amortized cost. Debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. The Bank has no trading
securities. Debt and equity securities not classified as either held to
maturity securities or trading securities are classified as available for sale
securities and reported at fair value, with unrealized gains and losses excluded
from earnings and reported as a separate component of equity, net of deferred
taxes. As of January 1, 1994, the cumulative effect of the adoption of the new
statement was not material.
The Bank designates investment securities as held to maturity or available for
sale upon acquisition. Gain or loss on the sales of investment securities is
determined on the specific identification method. Premiums and discounts on
investment securities are amortized or accreted using the interest method over
the expected lives of the related securities.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
LOANS AND INVESTMENT IN LEASES - Loans and leases are carried at principal
------------------------------
amounts outstanding, net of deferred net loan origination fees, unearned lease
income and the allowance for loan and lease losses.
Nonaccrual loans are those for which management has discontinued accrual of
interest because (i) there exists reasonable doubt as to the full and timely
collection of either principal or interest or (ii) such loans have become
contractually past due ninety days with respect to principal or interest.
Interest accruals may be continued for loans that have become contractually past
due ninety days when such loans are well secured and in the process of
collection and, accordingly, management has determined such loans to be fully
collectible as to both principal and interest.
For this purpose, loans are considered well secured if they are collateralized
by property having a realizable value in excess of the amount of principal and
accrued interest outstanding or are guaranteed by a financially capable party.
Loans are considered to be in the process of collection if collection of the
loan is proceeding so that management reasonably expects repayment of the loan
or its restoration to a current status in the near future.
When a loan is placed on nonaccrual status, all interest previously accrued but
uncollected is reversed against current period operating results. Income on
such loans is then recognized only to the extent that cash is received and where
the ultimate collection of the carrying amount of the loan is probable, after
giving consideration to borrowers' current financial condition, historical
repayment performance and other factors. Accrual of interest is resumed only
when (i) principal and interest are brought fully current and (ii) such loans
are either considered, in management's judgement, to be fully collectible or
otherwise become well secured and in the process of collection.
Troubled debt restructured loans are those for which the Company has, for
reasons related to borrowers' financial difficulties, granted concessions to
borrowers (including reductions of either interest or principal) that it would
not otherwise consider, whether or not such loans are secured or guaranteed by
others.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
Troubled debt restructuring involving only a modification of terms is accounted
for prospectively from the time of restructuring. Accordingly, no gain or loss
is recorded at the time of such restructuring unless the recorded investment in
such loans exceeds the total future cash receipts specified by the new loan
terms.
LOAN ORIGINATION FEES - Loan origination fees, net of certain related direct
---------------------
incremental loan origination costs, are deferred and amortized to income over
the term of the loans using the effective interest method.
ALLOWANCE FOR LOAN AND LEASE LOSSES - The allowance for loan and lease losses is
-----------------------------------
based on an analysis of the loan and lease portfolio and reflects an amount
which, in management's judgment, is adequate to provide for potential loan and
lease losses after giving consideration to the loan and lease portfolio, current
economic conditions, past loan and lease loss experience and other factors that
deserve current recognition in estimating loan and lease losses. While
management uses the best information available to provide for possible losses,
future adjustments to the allowance may be necessary due to economic, operating,
regulatory or other conditions that may be beyond the Company's control.
In each reporting period, the allowance for loan and lease losses is increased
by provisions for losses charged against operations in that period and
recoveries of loans and leases previously charged off, and is reduced by charge-
offs of loans and leases recognized in that period.
OTHER REAL ESTATE OWNED - Other real estate owned, which represents real estate
-----------------------
acquired in settlement of loans, is carried at fair value less estimated selling
costs. Any subsequent operating expenses or income, reduction in estimated fair
values, or gains or losses on disposition of such properties are charged or
credited to current operations.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
PROPERTY - Property is stated at cost less accumulated depreciation and
--------
amortization. Depreciation and amortization are computed using the straight-
line basis over the estimated useful lives of the related assets (estimated to
be one to five years) or, if shorter, the term of the lease in the case of
leasehold improvements.
INCOME TAXES - In January 1993, the Company adopted Statement of Financial
------------
Accounting Standards No. 109, "Accounting for Income Taxes." The Company had
adopted the provisions of SFAS No. 96, "Accounting for Income Taxes," for fiscal
1992. Under SFAS No. 109, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts at each year-end based on
enacted tax laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. The 1992 consolidated
financial statements were not restated for the accounting change. The
cumulative effect of adoption of the new standard was not material.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE - Net income (loss) per
--------------------------------------------------------
common and common equivalent share is based on the weighted average number of
common and common equivalent shares (stock options) outstanding during the year.
RECLASSIFICATION - Certain items in the previous years' consolidated financial
----------------
statements have been reclassified to conform to the current year presentation.
3. CASH AND DUE FROM BANKS
The Bank is required to meet statutory reserve requirements. In part, the Bank
meets these requirements by maintaining a balance in a noninterest-bearing
account at a Federal Reserve Bank. During 1994 and 1993, the average balance in
this account was approximately $6,480,000 and $5,889,000, respectively.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
________________________________________________________________
4. INVESTMENT SECURITIES
Book value and market value of investment securities (in thousands of dollars)
are summarized as of December 31 as follows:
1994
----------------------------------
Estimated Gross
Amortized Fair Unrealized
Cost Value Gains Losses
----------------------------------
AVAILABLE FOR SALE:
U.S. Government
securities $60,099 $58,778 $ $(1,321)
U.S. Government agencies
or insured obligations 9,657 9,262 (395)
State political
subdivisions 1,509 1,274 (235)
Mortgage-backed securities--
U.S. agencies 1,186 1,132 (54)
Other securities 97 73 (24)
Federal Reserve Bank and
Federal Home Loan
Bank stocks 1,556 1,556
------- ------- ----- --------
Total $74,104 $72,075 $ $(2,029)
======= ======= ===== ========
1993
----------------------------------
Estimated Gross
Amortized Fair Unrealized
Cost Value Gains Losses
----------------------------------
U.S. Government
securities $59,420 $59,947 $533 $( 6)
U.S. Government agencies
or insured obligations 19,454 19,602 157 (9)
State political
subdivisions 619 618 3 (4)
Other securities 142 147 5
Federal Reserve Bank and
Federal Home Loan
Bank stocks 1,502 1,502
------- ------- ------ ------
Total $81,137 $81,816 $698 $(19)
======= ======= ====== ======
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
________________________________________________________________
The maturity distribution for investment securities available for sale at
December 31, 1994 is as follows (in thousands of dollars):
Estimated
Amortized Cost Fair Value
______________ ____________
One year or less $23,112 $22,749
Over one through five years 46,084 44,544
Over five years 2,166 2,094
------- -------
$71,362 $69,387
Mortgage-backed
securities 1,186 1,132
Federal Reserve Bank
and Federal Home
Loan Bank stocks 1,556 1,556
------- -------
Total $74,104 $72,075
======= =======
Proceeds from sales of investment securities available for sale were $49,229,000
for the year ended December 31, 1994. Gross realized gains were $12,000 and
gross realized losses were $6,000 from sales of investment securities available
for sale for the year ended December 31, 1994.
Proceeds from sales of investment securities was $9,163,000 for the year ended
December 31, 1992. Gross realized gains from the sales of investment securities
were $119,000 and gross realized losses from the sales of investment securities
were $5,000 for the year ended December 31, 1992.
The carrying value of investment securities pledged as required or permitted by
law amounted to $4,040,000 and $3,072,000 at December 31, 1994 and 1993,
respectively.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
________________________________________________________________
5. LOANS AND INVESTMENT IN LEASES
The loan portfolio and net investment in direct financing leases (in thousands
of dollars) at December 31 is summarized as follows:
1994 1993
__________ __________
Real estate:
Mortgage $ 66,102 $ 62,799
Equity lines 8,691 10,838
Construction 29,792 38,563
Commercial 82,600 86,887
Installment and other 10,845 11,290
-------- --------
198,030 210,377
Less:
Allowance for loan losses (5,572) (7,137)
Deferred loan origination fees - net (782) (755)
-------- --------
Loans - net 191,676 202,485
-------- --------
Total minimum lease payments
receivable 3,778 3,893
Estimated unguaranteed residual
value of leased property 381 639
-------- --------
4,159 4,532
Less:
Unearned lease income (544) (563)
Allowance for lease losses (88) (84)
-------- --------
Net investment in leases 3,527 3,885
-------- --------
Total $195,203 $206,370
======== ========
The Bank grants loans to customers throughout its primary market area of
Southern California. The Bank makes loans to borrowers from a number of
different industries, the largest of which, including undisbursed amounts, are
as follows at December 31 (in thousands of dollars) (see Note 11):
1994 1993
____________ ____________
Nonresidential construction $47,237 $51,391
Personal 26,699 31,937
Real estate agents/developers 32,584 31,340
Residential construction 27,242 31,722
Loans in the commercial loan portfolio are collateralized primarily by accounts
receivable and inventory.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
The allowance for loan and lease losses is an estimate involving both subjective
and objective factors and its measurement is inherently uncertain, pending the
outcome of future events.
Management's determination of the adequacy of the allowance is based on an
evaluation of the loan and lease portfolio, previous loan and lease loss
experience, current economic conditions, volume, growth and composition of the
loan and lease portfolio, the value of collateral and other relevant factors.
The ongoing economic downturn in Southern California continued to have an
adverse impact on the credit risk profile and performance of the Bank's loan and
lease portfolio in 1994. Management believes the level of the allowance as of
December 31, 1994 and 1993 is adequate to absorb losses inherent in the loan and
lease portfolio; however, additional deterioration of the economy in the Bank's
lending area could result in levels of loan and lease losses that could not be
reasonably predicted at that date.
A summary of the changes in the allowance for loan and lease losses (in
thousands of dollars) for the years ended December 31 follows:
1994 1993 1992
-------- -------- --------
LOANS:
BALANCE AT BEGINNING OF YEAR $ 7,137 $ 6,161 $ 6,982
RECOVERIES ON LOANS CHARGED OFF 1,104 731 802
PROVISION FOR LOAN LOSSES 3,365 4,789 4,685
LOANS CHARGED OFF (6,034) (4,544) (6,308)
-------- -------- --------
BALANCE AT END OF YEAR 5,572 7,137 6,161
-------- -------- --------
LEASES:
BALANCE AT BEGINNING OF YEAR 84 92 125
RECOVERIES ON LEASES CHARGED OFF 52 12 3
PROVISION FOR LEASE LOSSES 100 90
LEASES CHARGED OFF (48) (120) (126)
-------- -------- --------
BALANCE AT END OF YEAR 88 84 92
-------- -------- --------
TOTAL $ 5,660 $ 7,221 $ 6,253
======== ======== ========
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
Loans and leases on which the accrual of interest has been discontinued amounted
to $14,771,000 and $18,068,000 at December 31, 1994 and 1993, respectively. If
interest on those loans and leases had continued to accrue, the additional
income would have been $968,000 and $1,169,000 in 1994 and 1993, respectively.
The Bank has pledged real estate loans amounting to $5,387,000 as collateral for
a line of credit with the Federal Home Loan Bank (Note 7).
6. PROPERTY
Property (in thousands of dollars) at December 31 is summarized as
follows:
1994 1993
------- -------
FURNITURE, FIXTURES AND EQUIPMENT $ 3,687 $ 3,613
LEASEHOLD IMPROVEMENTS 1,364 1,358
------- -------
5,051 4,971
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION (4,063) (3,643)
------- -------
PROPERTY - NET $ 988 $ 1,328
======= =======
7. BORROWING ARRANGEMENTS
In December 1988, the Company obtained a $3,000,000 term loan from another
financial institution for the purpose of providing additional capital to the
Bank. The credit agreement for this loan was amended pursuant to a Second
Amendment to the credit agreement dated August 25, 1994. The loan, as amended,
bears interest at a fluctuating rate per annum equal to .75% in excess of the
lender's reference rate (8.50% at December 31, 1994). Interest is payable
monthly on the unpaid principal balance of the loan. Principal is to be repaid
on January 1, 1997. The Second Amendment waives all financial covenants
relating to the term loan. At December 31, 1994 and 1993, $2,351,000 remained
outstanding on the loan.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
The Second Amendment is supported by a Support Agreement between a shareholder
of the Company and the Company, whereby the shareholder has guaranteed the
payment of the loan.
To compensate the shareholder for signing the Support Agreement, the Company
signed a Holding Company Support Agreement whereby the Company: (1) has paid
the shareholder a standby fee of $23,500, (2) will pay a standby fee equal to
one percent of the unpaid principal amount of the term loan on each anniversary
date of the closing date of the Holding Company Support Agreement (3) will issue
to the shareholder on or prior to March 31, 1997 warrants to purchase 25,000
shares of common stock of the Company at an exercise price per share equal to
80% of the book value per share of the Company on December 31, 1996.
The Bank maintains two lines of credit with outside financial institutions for
the purpose of purchasing Federal funds. The lines of credit bear interest at a
floating rate and provide for borrowing up to $8,000,000 and $2,000,000,
respectively. At December 31, 1994 and 1993, no amounts were outstanding on
these lines of credit.
Under an agreement with the Federal Home Loan Bank, the Bank may obtain an
extension of credit of up to 5% of total assets collateralized by real estate
loans. At December 31, 1994, the Bank had pledged loans amounting to $5,387,000
and had available credit of $2,694,000 based on 50% of the outstanding balance
of pledged loans. No amounts were outstanding on this line of credit at
December 31, 1994 and 1993.
8. EMPLOYEE BENEFIT PLANS
The Company has a stock option plan that permits the granting of options to
directors, officers and employees to purchase, at the fair market value of the
common stock on the date of grant, up to 750,000 shares of the Company's common
stock. The outstanding options become exercisable over a period of ten years.
A summary of stock option transactions for each of the three years in the period
ended December 31 is as follows:
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
1994
OPTION
1994 1993 1992 PRICE
------- -------- ------- --------------
OPTIONS OUTSTANDING,
BEGINNING OF YEAR 229,446 367,496 544,196 $4.33 TO 13.00
OPTIONS EXERCISED (96,050) (172,500)
OPTIONS CANCELED (42,000) (4,200)
------- -------- --------- --------------
OPTIONS OUTSTANDING,
END OF YEAR 229,446 229,446 367,496 $4.33 TO 13.00
======= ======== ========= ==============
At December 31, 1994, options for 227,646 shares were exercisable.
During the year ended December 31, 1993 and 1992, 96,050 and 172,500 options
were exercised and paid for with cash of $189,000 and 18,050 shares of common
stock previously outstanding and $316,000 and 41,500 shares of common stock
previously outstanding. No options were exercised during 1994.
The Company also has stock option plans it uses as a means of compensating
directors for services performed. During the years ended December 31, 1994,
1993 and 1992 no options were granted, exercised or cancelled. At December 31,
1994, options for 16,000 shares were outstanding and exercisable.
The Company maintains a stock bonus plan that covers substantially all Company
employees. The plan provides for the issuance to participating employees of
share units in the plan, which entitles participants to distributions primarily
of common stock of the Company. Contributions to the plan are held in trust and
invested in common stock of the Company (which is purchased from third parties)
or other investments under the terms of the plan agreement.
Contributions are determined based on management's discretion. The Company's
contributions for 1994 and 1993 were $5,000 and $51,000, respectively. There
were no contributions in 1992.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
The Bank has a defined contribution plan, which meets the requirements of
Section 401(k) of the Internal Revenue Code and covers substantially all
employees. The Bank's contributions are determined as a percentage of each
participant's contribution. The amounts contributed to the plan by the Bank
were $88,000, $81,000 and $77,000 for 1994, 1993 and 1992, respectively.
In 1987, the Company purchased cost recovery life insurance with aggregate death
benefits in the amount of $2,473,000 on the lives of the senior management
participants. The Company is the sole owner and beneficiary of such policies,
which were purchased to fund the Company's obligation under separate deferred
compensation arrangements. The cash surrender values and obligation under
deferred compensation agreements at December 31, 1994 and 1993 of $1,167,000 and
$1,104,000, respectively, and $189,000 and $201,000, respectively, have been
included in other assets and in other liabilities, respectively, in the
accompanying consolidated balance sheets.
9. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain
directors, executive officers and the businesses with which they are associated.
All such loans and commitments to loans were made under terms that are
consistent with the Bank's normal lending policies.
The following is an analysis of the activity of all such loans for the years
ended December 31:
1994 1993
----------- ------------
OUTSTANDING BALANCE, BEGINNING OF YEAR $2,236,000 $ 2,906,000
CREDIT GRANTED, INCLUDING RENEWALS 761,000 801,000
REPAYMENTS (374,000) (1,471,000)
----------- ------------
OUTSTANDING BALANCE, END OF YEAR $2,623,000 $ 2,236,000
=========== ============
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
-------------------------------------------------------------------------------
10. INCOME TAXES
Income tax expense (benefit) for the years ended December 31 is as follows:
FEDERAL STATE TOTAL
----------- -------- -----------
1994:
CURRENT ($ 79,000) $ 2,000 ($ 77,000)
DEFERRED 621,000 621,000
---------- -------- ----------
TOTAL $ 542,000 $ 2,000 $ 544,000
---------- -------- ----------
1993:
CURRENT ($ 982,000) $ 9,000 ($ 973,000)
DEFERRED 18,000 18,000
---------- -------- ----------
TOTAL ($ 964,000) $ 9,000 ($ 955,000)
========== ======== ==========
1992:
CURRENT $ 319,000 $100,000 $ 419,000
DEFERRED (88,000) 237,000 149,000
---------- -------- ----------
TOTAL $ 231,000 $337,000 $ 568,000
========== ======== ==========
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
________________________________________________________________
Income tax expense (benefit) for the years ended December 31 (in thousands of
dollars) varies from the amounts computed by applying the statutory Federal
income tax rate as a result of the following factors:
1994 1993 1992
________________________ _______________________ ______________________
Federal income taxes
at statutory rate $491 35.0% ($1,320) (35.0%) $366 34.0%
State franchise
taxes - net of
Federal income
tax benefit 95 6.8 (270) (7.1%) 222 20.7
Unbenefited state net
operating losses 20 1.4 276 7.3%
Decrease in deferred
tax asset valuation
allowance - State (113) (8.1)
Increase in deferred
tax asset valuation
allowance - Federal 64 4.6 370 9.8
Other (13) (.9) (11) (.3) (20) (1.9)
-------- ------- --------- --------- ------- --------
Income tax expense
(benefit) $544 38.8% ($ 955) (25.3%) $568 52.8%
======== ======= ========= ========= ======= ========
The following tables show the components of the provision for deferred income
taxes as of December 31, 1992:
------------------------------------------------------------------------------
DEFERRED TAX
PROVISION
FEDERAL (BENEFIT)
------------------------------------------------------------------------------
Loan Loss Reserve $311,000
Depreciation (63,000)
Non-Accrual Interest Income (89,000)
Financial Accounting Lease Difference (73,000)
Self-Insurance Reserve 60,000
REO Reserves (239,000)
Federal Benefit of California Tax 96,000
Other (91,000)
------------------------------------------------------------------------------
Total Deferred Tax ($88,000)
------------------------------------------------------------------------------
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
_________________________________________________________________________________________________
-----------------------------------------------------------------
DEFERRED TAX
PROVISION
STATE (BENEFIT)
-----------------------------------------------------------------
Loan Loss Reserve $304,000
Depreciation (11,000)
Non-Accrual Interest Income (29,000)
Financial Accounting Lease Difference (71,000)
Self-Insurance Reserve 19,000
REO Reserves (77,000)
Other 102,000
-----------------------------------------------------------------
Total Deferred Tax $237,000
-----------------------------------------------------------------
The Company has recorded net deferred tax assets as of December 31 consisting
principally of the following:
------------------------------------------------------------------------------------------------
DEFERRED TAX YEAR OF DEFERRED TAX YEAR OF
1994 REVERSAL 1993 REVERSAL
------------------------------------------------------------------------------------------------
Deferred Tax Assets:
Loan Loss Reserve $1,373,000 1995 $2,303,000 1994-1999
Unrealized Loss on Investment
Securities 711,000 1995-2000
Depreciation 241,000 1995-2000 211,000 1994
Nonaccrual Interest Inccome 252,000 1995 169,000 1994
Self-Insurance Reserve 71,000 1995 168,000 1994
REO Reserves 104,000 1995 94,000 1994
Contingencies 50,000 1995 206,000 1994
Other 361,000 1995-1998 244,000 1994-1997
------------------------------------------------------------------------------------------------
Deferred Tax Assets 3,163,000 3,395,000
Valuation Allowance (837,000) (1,008,000)
------------------------------------------------------------------------------------------------
Deferred Tax Assets, Net of Allowance 2,326,000 2,387,000
------------------------------------------------------------------------------------------------
Deferred Tax Liability:
Financial Accounting Lease Difference (926,000) (1,077,000)
------------------------------------------------------------------------------------------------
Net Deferred Tax Assets $1,400,000 $1,310,000
================================================================================================
Deferred tax assets arising from deductible temporary differences are expected
to reverse in the years indicated above.
In the event the future consequences of differences between financial accounting
bases and the tax bases of the Company's assets and liabilities result in a
deferred tax asset, SFAS 109 requires an evaluation of the probability of being
able to realize the future benefits indicated by such asset. A valuation
allowance related to a deferred asset is recorded when it is more likely than
not that some portion or all of the deferred asset will not be recognized.
At December 31, 1994, the Company has a California state net loss carryforward
of $1,007,000 which expires primarily in 1998.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
11. COMMITMENTS AND OTHER MATTERS
OPERATING LEASES - At December 31, 1994, the Company and the Bank were obligated
under various noncancelable lease agreements, classified as operating leases,
primarily for the rental of office space. Certain leases for office space
contain provisions for renewal options of one or two five-year periods. Minimum
future rental payments under these lease agreements are summarized as follows:
1995 $ 944,000
1996 922,000
1997 950,000
1998 989,000
1999 1,013,000
THEREAFTER 1,768,000
----------
TOTAL $6,586,000
==========
Total rental expense was $1,072,000, $1,173,000 and $1,022,000 in 1994, 1993 and
1992, respectively.
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the consolidated
balance sheets. The Bank's 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 amount of those
instruments. At December 31, 1994 and 1993, the Bank had primarily variable
rate commitments to extend credit of $47,920,000, and $37,267,000,
respectively, and obligations under standby letters of credit of $1,629,000 and
$1,550,000, respectively.
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
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
future cash requirements. Standby letters of credit are conditional commitments
issued by the Bank to guarantee the performance of a customer to a third party.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for extending loan facilities to customers. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies but may include accounts receivable, inventory, property, plant and
equipment or real estate.
12. LEGAL PROCEEDINGS
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. After taking into consideration information furnished by counsel to
the Company or the Bank as to the current status of various claims and legal
proceedings to which the Company or the Bank is a party, management of the
Company or the Bank believes that the ultimate aggregate liability represented
thereby, if any, will not have a material adverse effect on the Company's
consolidated financial statements.
13. RISK-BASED CAPITAL STANDARDS AND OTHER REGULATORY MATTERS
On April 8, 1992, the Bank executed a Formal Agreement (the "Agreement") with
the Office of the Comptroller of the Currency (the "Comptroller") in which the
Bank agreed to take specific action with respect to classified assets and the
allowance for loan and lease losses, maintain specific minimum capital levels,
obtain prior approval of changes in Directors and executive officers, strengthen
controls over loan administration and real estate loan appraisals, improve
liquidity management, submit a three-year capital program and obtain prior
written approval from the Comptroller before dividends may be declared.
Management believes that the Bank is in substantial compliance with all terms of
the Agreement.
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
On May 27, 1993, the Company executed a Memorandum of Understanding (the
"memorandum") with the Federal Reserve Bank of San Francisco (the "Fed") under
which the Company submitted a summary plan of action to improve conditions in
the Bank, cannot declare cash dividends without prior notice to the Fed, and
must obtain prior approval of changes in Directors or executive officers.
Management of the Company believes the Company is in substantial compliance with
the terms of the memorandum.
Risk-based capital guidelines require that the Company and the Bank maintain a
minimum total capital of 8% of risk-weighted assets. Further, at least 4% of the
required capital must be "core" (Tier 1) capital. Leverage capital guidelines
require, generally, that the Company and the Bank maintain a minimum ratio of
(Tier 1) capital to total assets of 4%. The Agreement requires the Bank to
maintain a minimum ratio of total capital to risk-weighted assets of 9% and a
minimum ratio of core capital to adjusted total assets of 6%. At December 31,
1994, the Company's total capital to risk-weighted assets and core capital to
risk weighted assets were 11.24% and 10.00%, respectively. At December 31, 1994,
the Bank's total capital to risk-weighted assets and core capital to risk
weighted assets were 12.07% and 10.82%, respectively. At December 31, 1994, the
Company's and the Bank's leverage ratios were 6.97% and 7.47%, respectively. At
December 31, 1994, the Bank was in compliance with the capital requirements set
forth in the Agreement.
Under Federal and California laws and regulations, the Company and the Bank are
subject to restrictions related to the payment of dividends and the transfer of
funds from the Bank to the Company through intercompany loans and advances.
14. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
Balance sheets as of December 31:
ASSETS
------ 1993 1994
----------- -----------
CASH $ 489,000 $ 561,000
OTHER REAL ESTATE OWNED 88,000 88,000
INVESTMENTS IN SUBSIDIARIES 21,350,000 21,643,000
OTHER ASSETS 157,000 256,000
----------- -----------
TOTAL $22,084,000 $22,548,000
=========== ===========
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
------------------------------------
1994 1993
----------- ----------
NOTE PAYABLE $ 2,351,000 $ 2,351,000
OTHER LIABILITIES 5,000 10,000
TOTAL SHAREHOLDERS' EQUITY 19,728,000 20,187,000
----------- -----------
TOTAL $22,084,000 $22,548,000
=========== ===========
Statements of operations for the years ended December 31:
1994 1993 1992
-------- -------- ---------
INCOME:
INTEREST $ 13,000 $ 18,000 $ 6,000
---------- ----------- --------
TOTAL INCOME 13,000 18,000 6,000
---------- ----------- --------
EXPENSES:
INTEREST 241,000 233,000 243,000
OTHER EXPENSES 27,000 23,000 41,000
---------- ----------- --------
TOTAL EXPENSES 268,000 256,000 284,000
---------- ----------- --------
LOSS BEFORE INCOME TAX EXPENSE
(BENEFIT) AND EQUITY IN INCOME,
(LOSS) OF SUBSIDIARIES (255,000) (238,000) (278,000)
INCOME TAX EXPENSE (BENEFIT) (89,000) (81,000) 24,000
---------- ----------- --------
LOSS BEFORE EQUITY IN
INCOME (LOSS) OF SUBSIDIARIES (166,000) (157,000) (302,000)
EQUITY IN INCOME (LOSS) OF
SUBSIDIARIES 1,025,000 (2,658,000) 809,000
---------- ----------- --------
NET INCOME (LOSS) $ 859,000 ($2,815,000) $507,000
========== =========== ========
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
_________________________________________________
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Continued)
_________________________________________________________________________________________
Statements of cash flows for the years ended December 31:
1994 1993 1992
___________ ___________ ___________
Cash flows from operating activities:
Net income (loss) $ 859,000 ($2,815,000) $507,000
Adjustments to reconcile net income (loss)
to net cash from operating
activities:
Equity in loss (income) of subsidiaries
from operations (1,025,000) 2,658,000 (809,000)
Decrease in other assets 99,000 167,000 23,000
(Decrease) increase in other liabilities (5,000) (9,000) 19,000
Net cash from operating activities (72,000) 1,000 (260,000)
---------- ---------- --------
Cash flows from investing activities:
Increase in other real estate owned (15,000)
Proceeds from sale of other real estate owned 681,000
---------- ---------- --------
Net cash from investing activities 681,000 (15,000)
---------- ---------- --------
Cash flows from financing activities:
Proceeds from exercise of common stock options 189,000 316,000
Payments on note payable (649,000)
---------- ---------- --------
Net cash from financing activities (460,000) 316,000
---------- ---------- --------
Net (decrease) increase in cash (72,000) 222,000 41,000
Cash at beginning of year 561,000 339,000 298,000
---------- ---------- --------
Cash at end of year $ 489,000 $ 561,000 $339,000
========== ========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 241,000 $ 233,000 $243,000
========== ========== ========
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING
ACTIVITY -
Tax benefit for exercise of non-qualified
stock options $ $ 118,000 $194,000
========== ========== ========
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
15. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Value of Financial Instruments," a summary of the
estimated fair value of the Company's consolidated financial instruments as of
December 31, 1994 and 1993 is presented below. The estimated fair value amounts
have been determined by management using available market information and
appropriate valuation methodologies. However, assumptions are necessary to
interpret market data to develop the estimates of fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use of different
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
DECEMBER 31, 1994
---------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
ASSETS:
CASH AND DUE FROM BANKS $ 21,315,000 $ 21,315,000
FEDERAL FUNDS SOLD 2,000,000 2,000,000
INVESTMENT SECURITIES 72,075,000 72,075,000
LOANS AND INVESTMENT IN LEASES, NET 156,247,000 154,814,000
LIABILITIES:
SAVINGS AND DEMAND DEPOSITS 218,932,000 218,932,000
TIME DEPOSITS 58,457,000 58,352,000
NOTE PAYABLE 2,351,000 2,351,000
DECEMBER 31, 1993
---------------------------
CARRYING ESTIMATED
VALUE FAIR VALUE
ASSETS:
CASH AND DUE FROM BANKS $ 20,781,000 $ 20,781,000
FEDERAL FUNDS SOLD 6,000,000 6,000,000
INVESTMENT SECURITIES 81,137,000 81,816,000
LOANS AND INVESTMENT IN LEASES, NET 162,900,000 163,318,000
LIABILITIES:
SAVINGS AND DEMAND DEPOSITS 214,473,000 214,473,000
TIME DEPOSITS 85,253,000 85,098,000
NOTE PAYABLE 2,351,000 2,351,000
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
The carrying value of cash and due from banks, Federal funds sold, savings and
demand deposits, note payable and commitments is a reasonable estimate of the
fair value. The fair value of investment securities is based on quoted market
prices.
The fair value of loans and investment in leases is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings and for the same remaining maturities.
The fair value of classified loans with a carrying value of approximately
$38,956,000 and $43,470,000 as of December 31, 1994 and 1993, respectively, was
not estimated because it is not practical to reasonably assess the credit
adjustment that would be applied in the market place for such loans. These
classified loans, which are primarily real estate or construction loans, have a
weighted average interest rate ranging from 9.50% to 13.50% and from 7.79% to
11.50% as of December 31, 1994 and 1993, respectively, and are due at various
dates through the year 2017.
The fair value of time deposit accounts is the amount payable on demand at
December 31, 1994. The fair value of term deposit accounts is estimated using
the rates currently offered for deposits of similar remaining maturities.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1994 and 1993. 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 consolidated financial statements since that date and, therefore,
current estimates of fair value may differ significantly from amounts presented
herein.
16. ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
on Financial Accounting Standards No. 114 ("SFAS 114"), "Accounting by Creditors
for Impairment of a Loan" as amended by SFAS 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures". Under the provisions
of SFAS 114, a loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms
81
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (CONTINUED)
--------------------------------------------------------------------------------
of the loan agreement. SFAS 114, as amended, requires creditors to measure
impairment of a loan based on the present value of expected future cash flows
discounted at the loan's effective interest rate. If the measure of the
impaired loan is less than the recorded investment in the loan, a creditor will
recognize an impairment by creating a valuation allowance with a corresponding
charge to bad debt expense. This statement also applies to restructured loans
and eliminates the requirement to classify loans that are in-substance
foreclosures as foreclosed assets except for loans where the creditor has
physical possession of the underlying collateral, but not legal title. SFAS 114
must be adopted by the Company January 1, 1995. The Company does not believe
adoption of this statement will have a material impact on its results of
operations or financial position.
82
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
------------------------------------------------------------------------------
DISCLOSURE.
-----------
Not Applicable.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
-------------------------------------------------------------
The following lists information regarding all directors and executive officers
of the Company.
PHILLIP L. BUSH, 58 years of age, has been a Director and Secretary of the
Company since 1982. Mr. Bush has been a practicing attorney with the firm of
Bush, Bush and Larsen, in Fountain Valley, California since 1967. Mr. Bush's
practice is primarily litigation of personal injury matters. He also has
practiced in the areas of real estate development and syndication, and business
enterprise organization and formation.
MICHAEL J. GERTNER, 55 years of age, has been a Director of the Company since
1982. Mr. Gertner is a partner in the law firm of Michael Avey Gertner, a
professional corporation in Newport Beach, California. He is licensed to
practice law in both California and New York. Mr. Gertner is also a Certified
Public Accountant and specializes in the areas of taxation, estate planning and
estate administration.
JAMES W. HAMILTON, 62 years of age, has been a Director of the Company since
1982. Mr. Hamilton is Senior Counsel to the law firm of Paul, Hastings,
Janofsky & Walker of which he has been a partner from 1965 until 1993. His
office is in the firm's Costa Mesa facility. He specializes in securities and
corporate law.
FARRELL G. HINKLE, DDS, MSD, 52 years of age, has been a Director of the Company
since 1982. Dr. Hinkle is an Orthodontist with offices in Newport Beach and
Santa Ana. He has been practicing Orthodontics since 1973. He has a degree in
Mathematics and graduated from the UCLA School of Dentistry as a Regents Scholar
in 1971. He also earned a Certificate in Orthodontics and a Masters Degree from
the University of Washington in 1973.
WILLIAM H. JACOBY, 56 years of age, has been a Director, and the President and
Chief Executive Officer of the Company since 1982 and is also Chairman of the
Board and Chief Executive Officer of the Bank. Mr. Jacoby began his banking
career in 1960 with First Interstate Bank of California. In 1979 Mr. Jacoby
joined Westlands Bank and served in various positions until joining the Company
in June 1982 during its organizational period.
ROBERT L. MCKAY, 64 years of age, is a private investor in Orange County,
California, where he oversees his investments in Venture Capital for business
and real estate. From 1966 to 1981 Mr. McKay was President of Taco Bell, Inc.
83
MARK H. STUENKEL, 42 years of age, is, and since November 1982 has been,
Exectutive Vice President of the Company. He is, and since December 1988 has
been President of the Bank. He was previously Executive Vice President of the
Bank since 1982. Mr. Stuenkel was made a Director of the Company in 1987. He
started his banking career in 1974 and prior to joining the Bank held various
positions with Security Pacific National Bank.
DANNIE M. HAYES, 53 years of age, is, and also has been since May 1993,
Executive Vice Presient and Senior Credit Officer of the Bank. Mr. Hayes began
his banking career in 1963 and prior to joining the Company held various senior
positions with Security Pacific National Bank and City National Bank.
ABDUL S. MEMON, 49 years of age, is, and since 1983 has been, Chief Financial
Officer and Assistant Secretary of the Company and Senior Vice President,
Cashier, Controller and Assistant Secretary of the Bank. Mr. Memon began his
banking career in 1973 and prior to joining the Company held various senior
positions with Westlands Bank.
Effective February 1991, the director's fee paid to non-employee Directors has
been $1,000 per meeting attended and the fee for attending committee meetings
has been $375 per meeting attended. No fee is paid to employee directors.
In lieu of the usual cash director's fee paid to the non-employee Directors,
certain non-employee directors (who elect to participate) entered into
discounted stock option agreements granting such directors the right to purchase
all or a part of an aggregate of 900 shares of the Company's Common Stock at an
exercise price equal to the sum of $1.00 per share plus an adjustment for Board
of Directors' meetings which were missed by the non-employee Directors
throughout 1991. The exercise price to be paid for the shares and the number of
shares subject to option were based upon fair market value of the Company's
Common Stock as determined by the Board of Directors on the date of grant as
compared with the cash fees the directors would otherwise receive. The purpose
of granting the discounted stock options to the non-employee directors is to
conserve the Bank's cash for utilization in its business and to provide an
opportunity for the directors to increase their personal interest in the
Company's long-term success and profitability. Mr. Hinkle, a non-employee
director, participated in the plan during 1991. None of the non-employee
directors participated in the plan since 1992.
There is no family relationship between any of the officers or directors of the
Company and no legal proceedings have been brought against officers with respect
to the performance of their duties for the Bank.
ITEM 11. EXECUTIVE COMPENSATION.
---------------------------------
(A) SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth information for the fiscal
year ended December 31, 1994 concerning all plan and non-plan compensation
awarded to, earned by, or paid to (i) the Company's Chief Executive Officer
("CEO") at the end of such fiscal year, regardless of compensation level, and
(ii) the Company's four most highly compensated executive officers other than
the CEO who were serving as executive officers at the end of such fiscal year
and whose compensation exceeded $100,000, if any.
84
SUMMARY COMPENSATION TABLE
--------------------------
Long Term Compensation
---------------------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Name Annual Restricted
and Compen- Stock Options/ LTIP Other
Principal sation Awards(s) SARs Payouts Compen-
Position Year Salary($) Bonus($) ($)** ($) (#) ($) sation($)
---------------------------------------------------------------------------------------------------------------------------------
William 1994 190,000 22,000 4,000 0 0 0 0
H. Jacoby 1993 190,000 0 3,000 0 0 0 0
CEO 1992 190,000 0 3,000 0 0 0 0
Mark H. 1994 137,000 16,000 2,000 0 0 0 0
Stuenkel 1993 137,000 0 2,000 0 0 0 0
EVP 1992 146,000 * 0 3,000 0 0 0 0
Dannie 1994 100,000 5,000 2,000
M. Hayes
----------------------
# - Number of units
$ - Dollar amount
* Includes vacation pay of $9,000.
** Amounts reported represent Company's matching contribution to the 401-K
Plan. None of the named officers had other annual compensation in excess of
$50,000 or 10% of the total annual salary and bonus reported for any of the last
three fiscal years.
The following letter footnotes contain information which relate to the
corresponding lettered columns in the above table:
(c) The dollar value of base salary (cash and non-cash) earned by the named
executive officer.
(d) The dollar value of bonus (cash and non-cash) earned by the named executive
officer during the fiscal year covered, even if deferred at the election of the
executive officer.
(e) The dollar value of other annual compensation not properly categorized as
salary or bonus; including (i) perquisites and other personal benefits,
securities or property unless the aggregate amount of such compensation is the
lesser of either $50,000 or 10% of the total annual salary and bonus reported
for the named executive officer in columns (c) and (d); (ii) above-market or
preferential earnings on restricted stock, options, stock appreciation rights
("SARs") or deferred compensation paid during the fiscal year or payable during
that period but deferred at the election of the named executive officer, (iii)
earnings on long-term incentive plan("LTIP") compensation paid during the fiscal
year or payable during that period but deferred at the election of the named
executive officer; (iv) amounts reimbursed during the fiscal year for the
payment of taxes; and (v) the dollar value of the difference between the price
paid by a named executive officer for any security of the Company or its
subsidiaries purchased from the Company or its
85
subsidiaries (through deferral of salary or bonus, or otherwise), and the
fair market value of such security at the date of purchase, unless that
discount is available generally, either to all security holders or to all
salaried employees of the company.
(b) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS TABLES
-------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
The following table discloses grants of stock options and stock appreciation
rights ("SARs") to the named executive officers during the year ended December
31, 1994. Multiple grants are aggregated only if they have the same terms, such
as exercise price and expiration dates. The table also discloses information
related to the potential realizable value of the awards at assumed annual rates
of stock price appreciation (5% and 10%) compounded annually over the
option/SAR term.
OPTIONS/SAR GRANTS FOR THE YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation Alternative to
for Option (f) and (g):
Individual Grants Term Grant Date Value*
---------------------------------------------------- ---------------------- ------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of
Total
Options/
SARs
Options/ Granted to Grant
SARs Employees Exercise Expir- Date
Granted in Fiscal or Base ation Present
Name (#) Year Price($/Sh) Date 5%($) 10%($) Value($)
-------- ------- ----------- ----------- ------ ----- ------ --------
William
H. Jacoby 0 N/A N/A N/A N/A N/A N/A
CEO
Mark H.
Stuenkel 0 N/A N/A N/A N/A N/A N/A
EVP
* As an alternative to disclosing the potential realizable value, the
registrant may opt to disclose the fair value of the option/SAR at the grant
date using a financial formula such as the Black-Scholes model (or some other
method as long as the methodology and significant assumptions are disclosed).
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End option/SAR Values
The following table describes the aggregate option/SAR exercised during fiscal
year ended December 31, 1994 and unexercised options/SARs for each named
executive officer at the end of such fiscal year:
86
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
----------------------------
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End(#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
-----------------------------------------------------------------------------------
William H. Jacoby NONE N/A 34,455/0 0 / 0
Mark H. Stuenkel NONE N/A 62,250/0 0 / 0
During the fiscal year ended December 31, 1994, the Company did not reprice any
options or SARs held by a named executive officer or otherwise reduce the terms
of exercise. No options or SARs held by any executive officer over the last ten
years have been repriced or modified.
(C) LONG-TERM INCENTIVE PLAN ('LTIP") AWARDS TABLE
---------------------------------------------------
The following table describes awards to the named executive officers under long-
term incentive plans ("LTIP") during the fiscal year ended December 31, 1994, of
items such as phantom stock, restricted stock units, dividend equivlants, and
performance shares or units. The disclosures encompass plans that are "stock-
based" where the benefits are a function of market price movements, as well as
plans prescribing performance criteria other than or in addition to market
price. For the latter type of plan, the table discloses the estimated payouts
realizable in relation to the performance targets (threshold, target, and
maximum).
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation Threshold Target Maximum
Name Rights(#) of Payout ($ or #) ($ or #) ($ or #)
-------------------------------------------------------------------------
William
H. Jacoby NONE N/A N/A N/A N/A
CEO
Mark H.
Stuenkel NONE N/A N/A N/A N/A
EVP
87
(D) DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE
-------------------------------------------------
Although the Company has no defined benefit plan or actuarial plan, the Company
has entered into certain executive salary continuation agreements with Messrs.
Jacoby, Stuenkel and Memon. Please see "(F) Employment Contracts and
Termination of Employment and Change-in Control Arrangements".
(E) COMPENSATION OF DIRECTORS
------------------------------
Since February 1991, the director's fee paid to non-employee directors of the
Bank has been $1,000 per board meeting attended and $375 per Committee meeting
attended. The total amounts of director's fees paid and accrued by the Bank
during the fiscal years ended December 31, 1994, 1993 and 1992 were $130,000,
$147,000 and $166,000, respectively. No director's fees are paid by the
Company.
(F) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN CONTROL
-----------------------------------------------------------------------------
ARRANGEMENTS
------------
In 1988, the Bank entered into Executive Salary Continuation Agreements with
Messrs. Jacoby, Stuenkel and Memon. Pursuant to the agreements, each executive
receives benefits upon his retirement or upon termination of service with the
Bank prior to retirement unless such executive's employment with the Bank is
terminated prior to retirement either (i) voluntarily by the executive other
than for "Good Reason" (as defined in the agreements) or (ii) by the Bank for
"Cause" (also defined in the agreements), in which case no benefits or payments
are paid pursuant to the agreements. The agreements also provide each executive
with benefits (to the extent such benefits are vested at the time) if his
employment is terminated by the Bank prior to the executive's retirement for any
reason other than the executives's death, disability, for Cause or is terminated
by the executive for Good Reason. With the exception of Mr. Jacoby whose
benefits vest at the rate of ten percent (10%) per year for each year of
employment that he has been employed by the Bank, benefits vest under the
agreements at the rate of ten percent (10%) per year for each year that the
executive has been employed by the Bank commencing as of January 1, 1988, up to
a maximum of 100%.
Under the agreements, the executives shall receive the following yearly sums for
a period of fifteen (15) years after either their retirement from the Bank or
upon their death: Mr. Jacoby, $70,000; Mr. Stuenkel, $55,000; and Mr. Memon,
$20,000. If one of the executives' employment with the Bank is terminated
because of disability prior to retirement, such executive (or his/her Estate)
shall be entitled to receive the above benefits upon retirement or death or in
lieu thereof, to elect to receive a disability benefit in an amount equal to
the present value of such executive's retirement benefits under the agreement.
88
Each agreement also has provisions which become effective upon the occurrence of
a "Change in Control" (as defined therein) of the Company or the Bank. In such
event, the agreements become employment agreements with three-year terms for Mr.
Jacoby and Mr. Stuenkel and employment agreements with eighteen month terms for
Mr. Memon. The agreements also provide for the executives' compensation to
increase annually. The executives shall also continue to receive all non-cash
forms of compensation and benefits which they received prior to the Change in
Control for such three year term. Under the agreements, a Change in Control is
deemed to have occurred if (a) any person (other than the Company's directors as
of the date of the agreements) becomes the beneficial owner of more than 40% of
the Company's outstanding Common Stock (exclusive of shares held in the
Company's treasury or by the Company's subsidiaries) which such stock shall have
been acquired after the date of the agreements pursuant to a tender offer,
exchange offer or series of purchases or other acquisitions, or any combination
of such transactions; (b) there is a change in the Company's or the Bank's Board
of Directors at any time within two years after any tender offer, exchange
offer, merger, consolidation, sale of assets or contested election or any
combination of those transactions (the "transaction") so that persons who are
directors of the Company or the Bank immediately before the first transaction
cease to constitute a majority of the Board of Directors of the Company or the
Bank any corporation which may be the successor to the Company of the Bank in
any such transaction; or (c) the Company sells, transfers or otherwise disposes
of substantially all of its assets and properties including the stock of the
Bank or the Company shall cause the Bank to sell, transfer or otherwise dispose
of substantially all of the Bank's assets and properties.
If after a Change in Control one of the executives shall either terminate
his/her employment for a Good Reason or be terminated by the Bank for any reason
other than Cause, then the Bank shall pay such executive the cash compensation
during his/her remaining term (but in the case of Messrs. Jacoby and Stuenkel
such payments shall not be less than two times the executives' annual cash
compensation and in the case of Mr. Memon, not less than one times the
executives' annual cash compensation). Moreover, all employee benefits plans
and programs in which the executives are entitled to participate shall continue
for the remainder of the executives' terms and the executives shall continue to
receive the retirement, death and disability benefits under the agreements.
DISCOUNTED STOCK OPTION AGREEMENT
In January 1988, the Company granted William H. Jacoby an option to purchase
1,980 shares of the Company's Common Stock pursuant to a Discounted Stock Option
Agreement. The option was granted to Mr. Jacoby in consideration of his past
performance as an officer of the Company. The option to purchase shares granted
to Mr. Jacoby was intended to be the equivalent at its inception to a $24,500
bonus. As a result, the option price to be paid upon exercise for the shares is
only $1.00; such price being determined by the difference between the exercise
price and the fair market value of the Company's Common Stock as determined by
the Board of Directors on the date of grant. Subject to the conditions set
forth in the Agreement, the option may be exercised in whole or in part at any
time.
89
STOCK OPTION PLAN
The Company had a Stock Option Plan (the "Plan") for its directors, officers and
full time employees. The Company's Board of Directors administered the Plan and
decide to whom and upon what terms options shall be granted. Subject to
adjustment by reason of stock splits or similar capital adjustments, the plan
provided for the granting of nonstatutory stock options as well as incentive
stock options to purchase an aggregate of 750,000 shares of the Company's Common
Stock. The purpose of the Plan was to compensate certain of the organizers of
the Company and the Bank, and to provide incentives to key employees to remain
in the employ of the Company and the Bank.
Options were not transferable under the Plan other than by will or by the laws
of descent and distribution and during the participant's lifetime were
exercisable only by the participant. The option price per share for options
granted under the Plan had to be at least 100% of the fair market value of the
Common Stock on the date any such options were granted, except that in the case
of a shareholder owning more than 10% of the total combined voting power of all
classes of the outstanding stock of the Company, the option price for incentive
stock options had to be a least 110% of the fair market value on the date of
grant. Upon expiration or termination of any outstanding options, shares
remaining unexercised became available for grant under the Plan.
As of December 31, 1994, options to purchase 229,446 shares of Common Stock were
outstanding at prices ranging from $4.33 to $13.00 per share. No options were
exercised during 1994.
STOCK BONUS PLAN
Effective January 1, 1986, the Company adopted a Stock Bonus Plan (the "Stock
Bonus Plan") and established a related trust. Subject to certain eligibility
requirements for time of service, all of the Company's employees participate in
the Stock Bonus Plan. The Stock Bonus Plan is a tax-credit employee stock
ownership plan and is administered by the Board of Directors or the Chief
Executive Officer. The amount of the Company's contributions of cash or
securities of the Company to the Stock Bonus Plan is determined by the Board of
Directors (or the Chief Executive Officer). Subject to certain limitations,
such contributions are allocated to each participant's account in proportion to
such participant's compensation earned during the applicable Stock Bonus Plan
year. Allocations to a participant's account vest in accordance with the
schedules set forth in the Stock Bonus Plan. Distributions to participants are
made at participants' death, retirement, disability, or termination of
employment. Participants are not permitted to make voluntary contributions to
the Stock Bonus Plan and the Stock Bonus Plan may not make loans to
participants. Any cash amounts contributed to the Stock Bonus Plan will be used
primarily to purchase securities issued by the Company. The Company contributed
$15,000 to the Stock Bonus Plan for 1994. Of such allocations Mr. Jacoby, Mr.
Stuenkel and Mr. Hayes received less than $1,000 each.
90
401-K PLAN
Effective February 1, 1989 the Company established a 401-K Plan which enables
employees to defer a portion of their wages tax free subject to limitations
established by the Internal Revenue Service. All the employees at the
completion of certain eligibility requirements for time of service can elect to
participate in the plan. Under the plan, the Company may make matching
contributions to the plan up to stated limits. Such contributions are determined
by the Board of Directors at the beginning of the year. The vesting of such
contributions to the employees is based on the time of service since the
effective date of the plan.
(G) ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION IN COMPENSATION DECISION.
Not Applicable.
(H) BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.
It is the duty of the Compensation Committee to administer the Company's
compensation program and various incentive plans, including its stock option
plan and its annual bonus plan. In addition, the Committee reviews compensation
levels of members of management, evaluates the performance of management,
considers management succession and related matters. The Committee reviews with
the Board in detail all aspects of compensation for senior officers.
The Committee has reviewed the compensation for each of the five highest paid
officers for 1994 and has reported to the Board that in the Committee's opinion,
the compensation of all officers is reasonable in view of the Company's
consolidated performance and the contribution of those officers to that
performance. In doing so, the Committee takes into account how compensation
compares to compensation paid by competing companies as well as the Company's
performance and economic conditions in the Company's service area. Members of
the Committee also review compensation surveys provided by the State Banking
Department and others.
Officers' individual salaries for 1994, were established relative to the mid
point for salaries paid to officers of comparable companies, taking into
consideration the length of service in the position and other factors. The
performance award under the incentive plan took into consideration the Company's
performance and the individual's performance and impact in a turnaround of the
Company's financial results despite a very difficult year in banking and the
Southern California economy.
91
The Company has an Officer Incentive Program to motivate and compensate officers
for their individual performance as well as to encourage a spirit of cooperation
and teamwork to achieve the maximum performance for the Company as a whole. The
Incentive Program is established prior to the beginning of each year by the
Board of Directors after it reviews a recommendation from the Compensation
Committee. The Directors establish a goal for pretax income for the Company at
the start of the year based upon their evaluation of the local economy, a
desired performance goal, and any special circumstances that effect projected
income. Officers participating in the Incentive Program are those officers who
are expected to have a direct impact upon the net income of the Bank.
Additionally each officer is assigned a specific goal such as the amount of
deposits, loans, or other requirements of their position. A determination is
then made by the committee at the end of the year regarding whether the Bank has
met its threshold goal and whether the individuals have met their specific
goals. An Incentive award is then granted to officers who have met their goal
based upon their level of performance combined with that of the Bank. The
Incentive Plan for executive officers was based primarily on the goal of
achieving specific net income and asset quality goals. The established goals
were achieved and resulted in the award of an incentive payment of $22,000 to
Mr. Jacoby, $16,000 to Mr. Stuenkel and $5,000 to Mr. Hayes for the year ended
December 31, 1994.
During 1994, there were no stock option grants to any of the senior officers of
the Company.
No member of the Committee is a former or current officer or employee of the
Company or any of its subsidiaries.
This report was completed by the Compensation Committee as of January 15, 1995.
The members of the Compensation Committee filing this report are Phillip L.
Bush, Michael J. Gertner, James W. Hamilton and Robert L. McKay.
(I) PERFORMANCE GRAPH.
The performance graph below compares the five-year cumulative total return on
the Company's Common Stock, assuming reinvestment of dividends, with the total
returns on the Standard & Poor's 500 Stock Composite Index (S&P 500) and the
Montgomery Securities' Western Bank Monitor (Southern California Proxy), a peer
------------------------------------------------
group index compiled by Montgomery Securities, consisting of the Company and the
following other southern California banks: ValliCorp, Mid-State Bank, Santa
Barbara Bancorp, CU Bancorp, Foothill Independent, City National Corporation,
GBC Bancorp, Imperial Bancorp, Santa Monica Bank, Home Interstate Bancorp,
Landmark Bancorp, CVB Financial Corp, Eldorado Bancorp, Riverside National Bank
and Peninsula Bank of San Diego. The Company selected the Western Bank Monitor
--------------------
(Southern California Proxy) because it provides a representative sample of
---------------------------
southern California community banks. This index should be available on a
continuing basis.
Please see the graph on the following page.
92
California Commerical Stock Price Performance
[PLOT POINTS TO COME]
93
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------------------------------------------------------------------------
The shares of the Company's Common Stock constitute the only class of voting
securities of the Company. As of March 13, 1995 there were 2,425,000 shares of
common stock outstanding and entitled to vote. As of March 13, 1995, there were
approximately 306 shareholders of record.
Set forth in the table on the following page is certain information regarding
persons who according to the Company's records own more than five percent of the
voting securities of the Company as of March 13, 1995, each director of the
Company and all directors and officers of the Company as a group.
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF BENEFICIAL OF
CLASS OWNER OWNERSHIP(1) CLASS
Common Stock *Phillip L. Bush 113,137 (2) 4.9%
(no par value) 10061 Talbert Ave.
Fountain Valley, CA 92708
Common Stock *Michael J. Gertner 45,342 (3) 1.9%
(no par value) 4340 Campus Drive Ste. 100
Newport Beach, CA 92660
Common Stock *James W. Hamilton 73,244 (3) 3.0%
(no par value) 695 Town Center Drive
Costa Mesa, CA 92626
Common Stock *Farrell G. Hinkle 104,637 (4) 4.3%
(no par value) 2740 South Bristol
Santa Ana, CA 92704
Common Stock *William H. Jacoby 209,996 (5) 8.5%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock *Robert McKay 528,503 21.8%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock *Mark H. Stuenkel 47,902 (6) 1.9%
(no par value) 4100 Newport Place
Newport Beach, CA 92660
Common Stock All Directors and 1,205,113 (7) 45.8%
(no par value) Officers as a Group
(19 in Number)
Common Stock Randall Rose & Co. 180,008 7.4%
(no par value) 635 Madison Ave.
New York, NY 1022
* Director of the Company
94
ITEM 12. (CONTINUED)
(1) Except as otherwise indicated, each of the persons
named in the table has sole power to vote and dispose
of his shares of the Company's Common Stock, subject
to community property laws where applicable.
(2) Includes 15,000 shares of the Company's Common
Stock which may be purchased on the exercise of stock
options.
(3) Includes 18,447 shares of the Company's Common
Stock which may be purchased on the exercise of stock
options.
(4) Includes 4,347 shares of the Company's Common
Stock which may be purchased on the exercise of stock
options.
(5) Includes 34,455 shares of the Company's Common
Stock which may be purchased on the exercise of stock
options.
(6) Includes 38,250 shares of the Company's Common
Stock which may be purchased on the exercise of stock
options.
(7) Includes an aggregate of 205,446 shares of the
Company's Common Stock which may be purchased on the
exercise of stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
---------------------------------------------------------
The Bank has had, and expects to have in the future, banking transactions in the
ordinary course of its business with directors, principal shareholders and their
associates on the same terms, including interest rates and collateral securing
loans, as those prevailing at the time for comparable transactions with
unaffiliated persons, and which do not involve more than a normal risk of
collectibility, nor present other unfavorable features.
Please refer to Note 7 (Borrowing Arrangements) of Item 8 (Financial Statements)
regarding the Support Agreement between and director/shareholder, Robert L.
McKay, and the Company, and the related compensations paid currently or which
will be paid in the future by the Company.
95
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
---------------------------------------------------------------------------
(A) (1) FINANCIAL STATEMENTS.
Financial statements and schedules of the registrant are
listed in the index to Consolidated Financial Statements
contained under Part II Item 8. Financial Statements and
Supplementary Data of this report.
(2) FINANCIAL STATEMENT SCHEDULES.
All Financial statement schedules are omitted either
because the conditions under which they are required are not
applicable or because the information is included in the
Financial Statements.
(3) EXHIBITS:
(3) (A) Articles of Incorporation of California
Commercial Bankshares as amended. (Incorporated by
reference from Company's Form 10-K filed on March 31, 1990).
(3) (B) By-Laws of California Commercial Bankshares, as
amended. (Incorporated by reference from the Company's Form 10-
K filed on March 31, 1989.)
(10) (A) Office Sublease between First California
Associates and the Company (Incorporated by reference from the
Company's Form 10-K filed on March 31, 1983).
(10) (B) Form of Incentive Stock Option Agreement
(Incorporated by reference from the Company's Form 10-K filed on
March 31, 1983).
(10) (C) Form of Non-Statutory Stock Option Agreement
(Incorporated by reference from the Company's Form 10-K filed on
March 31, 1983).
(10) (D) First Amendments to Sublease between First
California Associates and the Bank (Incorporated by
reference from the Company's Form 10-K filed on March 31, 1984).
(10) (E) The Company's Stock Bonus Plan (Incorporated by
reference from the Company's Form 10-K filed on March 31, 1986).
96
(10) (F) Amendments to Office Sublease between First
California Associates and the Company (Incorporated by
reference from the Company's Form 10-K filed March 31, 1986).
(10) (G) Form of Discounted Stock Option Agreement
(Incorporated by reference from the Company's Form 10-K filed
March 31, 1987).
(10) (H) Executive Salary Continuation Agreement between
National Bank of Southern California and William H. Jacoby.
(Incorporated by reference from the Company's Form 10-K filed
March 31, 1989).
(10) (I) Executive Salary Continuation Agreements between
National Bank of Southern California and Mark H.
Stuenkel. (Incorporated by reference from the Company's
Form 10-K filed March 31, 1987).
(10) (J) Executive Salary Continuation Agreement between
National Bank of Southern California and Abdul S. Memon.
(Incorporated by reference from the Company's Form 10-K filed
March 31, 1987).
(10) (K) Executive Salary Continuation Agreement between
National Bank of Southern California and Barbara J. Morales.
(Incorporated by reference from the Company's Form 10-K filed
March 31, 1987).
(10) (L) 401-K Plan. (Incorporated by reference from the
Company's Form 10-K filed March 31, 1989).
(10) (M) Lease for the premises on branch located at
22831 Lake Forest Drive, El Toro, Ca. (Incorporated by
reference from the Company's Form 10-K filed March 31, 1989).
(10) (N) Lease for the premises on branch located at 625
The City Drive, Orange, Ca. (Incorporated by reference from
Company's Form 10-K filed on March 31, 1990).
(10) (O) Lease for the property on branch located at
17252 Armstrong Ave., Irvine, Ca. (Incorporated by
reference from Company's Form 10-K filed on March 31, 1990).
(10) (P) 1982 Stock Option Plan, as amended.
(Incorporated by reference from Company form 10-K filed on March
31, 1991).
(10) (Q) Lease for the property located at 4100 Newport
Place, Newport Beach, Ca. (Incorporated by reference from
Company's Form 10-K filed on March 31, 1992).
97
(10) (r) Credit Agreement dated 12/21/1988 with Security
Pacific National Bank. (Incroporated by reference from
Company's Form 10-K filed on March 31, 1994).
(10) (s) First amendment to Credit Agreement dated March
1993 with Bank of America National Trust & Savings
Association. (Incorporated by reference from Company's
Form 10-K filed on March 31, 1994).
(10) (t) Second amendment to Credit Agreement dated
August 24, 1994 with Bank of America National Trust &
Savings Association.
(10) (u) Support Agreement dated September 27, 1994 with
Robert L. McKay.
(10) (v) Holding Company Support Agreement dated October
1, 1994 with Robert L. McKay.
(22) Subsidiaries of the Company
(24) Independent Auditors' Consent.
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
No report on Form 8-K were filed by the Company
during the last quarter of 1992.
(c) Exhibits Filed.
The following exhibits are filed with this 10-K
(10) (t) Second amendment to Credit Agreement dated
August 24, 1994 with Bank of America National Trust &
Savings Association.
(10) (u) Support Agreement dated September 27, 1994 with
Robert L. McKay.
(10) (v) Holding Company Support Agreement dated October
1, 1994 with Robert L. McKay.
(22) Subsidiaries of the Company.
(24) Independent Auditors' Consent.
(27) Financial Data Schedule.
(d) Financial Statement Schedules.
Please see paragraph (a)(2) above in this Item 14.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CALIFORNIA COMMERCIAL BANKSHARES
BY: William H. Jacoby MARCH 24, 1994
-----------------------------
WILLIAM H. JACOBY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Phillip L. Bush MARCH 24, 1994
----------------------------------
PHILLIP L. BUSH
DIRECTOR/SECRETARY
Michael J. Gertner MARCH 24, 1994
----------------------------------
MICHAEL J. GERTNER
DIRECTOR/TREASURER
James W. Hamilton MARCH 24, 1994
----------------------------------
JAMES W. HAMILTON
DIRECTOR
Farrell G. Hinkle MARCH 24, 1994
----------------------------------
FARRELL G. HINKLE
DIRECTOR
William H. Jacoby MARCH 24, 1994
----------------------------------
WILLIAM H. JACOBY
DIRECTOR/PRESIDENT, C.E.O.
Robert L. McKay MARCH 24, 1994
----------------------------------
ROBERT L. MCKAY
DIRECTOR/CHAIRMAN OF THE BOARD
Mark H. Stuenkel MARCH 24, 1994
---------------------------------
MARK H. STUENKEL
EXECUTIVE VICE PRESIDENT
Abdul S. Memon MARCH 24, 1994
----------------------------------
ABDUL S. MEMON
PRINCIPAL FINANCIAL & ACCOUNTING OFFICER
99
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Four copies of the following will be furnished to the Securities and Exchange
Commission when sent to the registrant's security holders:
(1) Registrant's annual report to security holders covering the registrant's
last fiscal year; and (2) the registrant's proxy statement and the form of proxy
which will be sent to the registrant's security holders with respect to the next
annual meeting of security holders.
No such reports or proxy materials have yet been sent to the registrant's
security holders.
100
CALIFORNIA COMMERCIAL BANKSHARES
EXHIBIT INDEX
EXHIBIT NUMBER PAGE NUMBER
(10) (t) Second amendment to Credit Agreement dated
August 24, 1994 with Bank of America
National Trust & Savings Association. 102
(10) (u) Support Agreement dated September 27, 1994
with Robert L. McKay. 111
(10) (v) Holding Company Support Agreement dated
October 1, 1994 with Robert L. McKay. 114
(21) Subsidiaries of the Company. 142
(23) Independent Auditor's Consent. 144
(27) Financial Data Schedule. 146
101