SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001.
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-25418 .
CENTRAL COAST BANCORP
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 77-0367061
---------- ----------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
301 Main Street, Salinas, California 93901
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(Address of principal executive offices) (Zip code)
(831) 422-6642
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(Registrant's telephone number,
including area code)
not applicable
--------------
(Former name, former address and former fiscal year, if changed since
last report.)
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 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
No par value Common Stock - 7,204,720 shares outstanding at July 30, 2001 .
Page 1 of 45
The Index to the Exhibits is located at Page 25
1
PART 1-FINANCIAL INFORMATION
Item 1.FINANCIAL STATEMENTS:
CENTRAL COAST BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
June 30, December 31,
(In thousands, except per share data) 2001 2000
---- ----
Assets
Cash and due from banks $ 51,817 $ 51,411
Federal funds sold 29,324 23,081
------------ ------------
Total cash and equivalents 81,141 74,492
Available-for-sale securities(amortized cost of $151 at 151,225 152,276
June 30, 2001 and $154 at December 31, 2000)
Loans:
Commercial 163,288 171,631
Real estate-construction 81,864 57,780
Real estate-other 248,991 234,890
Consumer 14,915 9,840
Deferred loan fees, net (960) (746)
------------ ------------
Total loans 508,098 473,395
Allowance for loan losses (9,509) (9,371)
------------ ------------
Net Loans 498,589 464,024
------------ ------------
Premises and equipment, net 3,219 3,735
Accrued interest receivable and other assets 11,962 12,166
------------ ------------
Total assets $ 746,136 $ 706,693
============ ============
Liabilities and Shareholders' Equity
Deposits:
Demand, noninterest bearing $ 181,355 $ 207,002
Demand, interest bearing 101,011 88,285
Savings 135,907 110,204
Time 254,474 227,719
------------ ------------
Total Deposits 672,747 633,210
Accrued interest payable and other liabilities 11,337 13,629
------------ ------------
Total liabilities 684,084 646,839
------------ ------------
Commitments and contingencies (Note 2)
Shareholders' Equity:
Preferred stock-no par value; authorized
1,000,000 shares; no shares issued
Common stock - no par value; authorized 25,000,000 shares;
issued and outstanding: 7,201,625 shares at June 30, 2001
and 6,721,998 shares at December 31, 2000 51,757 44,472
Shares held in deferred compensation trust (299,048 at June 30, 2001
and 271,862 at December 31, 2000), net of deferred obligation - -
Retained earnings 10,425 16,444
Accumulated other comprehensive loss - net of taxes
of $139 at June 30, 2001 and $738 at December 31, 2000 (130) (1,062)
------------ ------------
Shareholders' equity 62,052 59,854
------------ ------------
Total liabilities and shareholders' equity $ 746,136 $ 706,693
============ ============
See Notes to Consolidated Condensed Financial Statements
2
CENTRAL COAST BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
(In thousands, except per share data) 2001 2000 2001 2000
---- ---- ---- ----
Interest Income
Loans (including fees) $ 10,709 $ 10,150 $ 21,734 $ 19,363
Investment securities 2,122 2,197 4,325 4,433
Other 113 271 305 387
--------------- -------------- ----------------- -----------------
Total interest income 12,944 12,618 26,364 24,183
--------------- -------------- ----------------- -----------------
Interest Expense
Interest on deposits 4,729 4,365 9,562 8,279
Other 94 72 187 220
--------------- -------------- ----------------- -----------------
Total interest expense 4,823 4,437 9,749 8,499
--------------- -------------- ----------------- -----------------
Net Interest Income 8,121 8,181 16,615 15,684
Provision for Loan Losses 75 800 195 1,326
--------------- -------------- ----------------- -----------------
Net Interest Income after
Provision for Loan Losses 8,046 7,381 16,420 14,358
--------------- -------------- ----------------- -----------------
Noninterest Income 775 631 1,425 1,177
--------------- -------------- ----------------- -----------------
Noninterest Expenses
Salaries and benefits 2,869 2,467 5,871 4,847
Occupancy 385 345 822 678
Furniture and equipment 456 412 911 800
Other 1,066 1,112 2,111 2,131
--------------- -------------- ----------------- -----------------
Total noninterest expenses 4,776 4,336 9,715 8,456
--------------- -------------- ----------------- -----------------
Income Before Income Taxes 4,045 3,676 8,130 7,079
Provision for Income Taxes 1,522 1,433 3,048 2,760
--------------- -------------- ----------------- -----------------
Net Income $ 2,523 $ 2,243 $ 5,082 $ 4,319
=============== ============== ================= =================
Basic Earnings per Share $ 0.35 $ 0.29 $ 0.70 $ 0.55
Diluted Earnings per Share $ 0.33 $ 0.28 $ 0.66 $ 0.54
See Notes to Consolidated Condensed Financial Statements
3
CENTRAL COAST BANCORP AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six months ended June 30, 2001 2000
---- ----
Cash Flows from Operations:
Net income $ 5,082 $ 4,319
Reconciliation of net income to net cash provided
by operating activities:
Provision for loan losses 195 1,326
Net gain on sale of investments (3)
Net loss on sale of fixed assets 1 18
Depreciation 690 592
Amortization and accretion 193 102
Decrease (increase) in accrued interest receivable and other assets (523) 544
Increase (decrease) in accrued interest payable and other liabilities (2,144) 528
Increase in deferred loan fees 214 8
---------------- --------------
Net cash provided by operations 3,705 7,437
---------------- --------------
Cash Flows from Investing Activities:
Purchases of investment securities (88,520) (10,209)
Proceeds from maturities of investment securities 38,223 7,884
Proceeds from sale of investment securities 52,817 -
Net increase in loans (34,974) (30,388)
Purchases of premises and equipment (175) (571)
---------------- --------------
Net cash used in investing activities (32,629) (33,284)
---------------- --------------
Cash Flows from Financing Activities:
Net increase in deposit accounts 39,537 65,762
Net decrease in short-term borrowings - (12,662)
Net decrease in long-term borrowings (148) (138)
Proceeds from issuance of stock 67 58
Shares repurchased (3,883) (2,654)
---------------- --------------
Net cash provided by financing activities 35,573 50,366
---------------- --------------
Net increase in cash and equivalents 6,649 24,519
Cash and equivalents, beginning of period 74,492 39,959
---------------- --------------
Cash and equivalents, end of period $ 81,141 $ 64,478
================ ==============
Other Cash Flow Information:
Interest paid $ 9,642 $ 8,109
Income taxes paid 4,737 3,410
See Notes to Consolidated Condensed Financial Statements
4
CENTRAL COAST BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 2001 (Unaudited)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of Management, the unaudited consolidated condensed
financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly Central
Coast Bancorp's (the "Company's") consolidated financial position at
June 30, 2001 and December 31, 2000, the results of operations for the
three and six month periods ended June 30, 2001 and 2000 and cash
flows for the six month periods ended June 30, 2001 and 2000.
Certain disclosures normally presented in the notes to the financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been omitted. These
interim consolidated condensed financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's 2000 Annual Report to Shareholders.
The results of operations for the three and six month periods ended
June 30, 2001 and 2000 may not necessarily be indicative of the
operating results for the full year.
In preparing such financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly
from those estimates. Material estimates that are particularly
susceptible to significant changes in the near term relate to the
determination of the allowance for loan losses and the carrying value
of other real estate owned. Management uses information provided by
an independent loan review service in connection with the
determination of the allowance for loan losses.
Management has determined that since all of the commercial banking
products and services offered by the Company are available in each
branch of the Community Bank of Central California, its bank
subsidiary (the "Bank"), all branches are located within the same
economic environment and management does not allocate resources based
on the performance of different lending or transaction activities, it
is appropriate to aggregate the Bank branches and report them as a
single operating segment.
2. COMMITMENTS AND CONTINGENCIES
In the normal course of business there are outstanding various
commitments to extend credit which are not reflected in the financial
statements, including loan commitments of approximately $175,572,000
and standby letters of credit of $3,451,000 at June 30, 2001.
However, all such commitments will not necessarily culminate in actual
extensions of credit by the Company during 2001.
Approximately $44,141,000 of loan commitments outstanding at June 30,
2001 are for real estate construction loans and are expected to fund
within the next twelve months. The remaining commitments primarily
relate to revolving lines of credit or other commercial loans, and
many of these are expected to expire without being drawn upon.
Therefore, the total commitments do not necessarily represent future
cash requirements. Each potential borrower and the necessary
collateral are evaluated on an individual basis. Collateral varies,
but may include real property, bank deposits, debt or equity
securities or business assets.
Stand-by letters of credit are commitments written to guarantee the
performance of a customer to a third party. These guarantees are
issued primarily relating to purchases of inventory by commercial
customers and are typically short-term in nature. Credit risk is
similar to that involved in extending loan commitments to customers
and accordingly, evaluation and collateral requirements similar to
those for loan commitments are used. Virtually all such commitments
are collateralized.
5
3. EARNINGS PER SHARE COMPUTATION
Basic earnings per share is computed by dividing net income by the
weighted average common shares outstanding for the period (7,220,000
and 7,288,000 for the three and six month periods ended June 30, 2001,
and 7,664,000 and 7,720,000 for the three and six month periods ended
June 30, 2000). Diluted earnings per share reflect the potential
dilution that could occur if outstanding stock options were
exercised. Diluted earnings per share is computed by dividing net
income by the weighted average common shares outstanding for the
period plus the dilutive effect of options (348,000 and 324,000 for
the three and six month periods ended June 30, 2001 and 211,000 and
214,000 for the three and six month periods ended June 30, 2000).
4. COMPREHENSIVE EARNINGS
Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2001 2000 2001 2000
---- ---- ---- ----
Net Earnings $ 2,523 $ 2,243 $ 5,082 $ 4,319
Other comprehensive income (loss)- Net unrealized
gain (loss) on available-for-sale securities (316) 216 934 160
Reclassification adjustment for gains included in
income, net of taxes of $2 and $1
for the three and six month periods ended
June 30, 2001 (3) - (2) -
-------------- -------------- ------------- --------------
Total comprehensive earnings $ 2,204 $ 2,459 $ 6,014 $ 4,479
============== ============== ============= ==============
5. STOCK DIVIDEND
On January 29, 2001, the Board of Directors declared a ten percent
stock dividend, which was distributed on February 28, 2001, to
shareholders of record as of February 14, 2001. All share and per
share data have been retroactively adjusted to reflect the stock
dividend.
6. STOCK REPRUCHASE PLAN
The Board of Directors authorized stock repurchase programs under
which repurchases will be made from time to time by the Company in the
open market, or in block purchases, or in privately negotiated
transactions, in compliance with Securities and Exchange Commission
rules. As of June 30, 2001, approximately 272,608 shares are remaining
under the program.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In addition to the historical information contained herein, this
report on Form 10-Q contains certain forward-looking statements. The
reader of this report should understand that all such forward-looking
statements are subject to various uncertainties and risks that could
affect their outcome. The Company's actual results could differ
materially from those suggested by such forward-looking statements.
Changes to such risks and uncertainties, which could impact future
financial performance, include, among others, (1) competitive
pressures in the banking industry; (2) changes in the interest rate
environment; (3) general economic conditions, nationally, regionally
and in operating market areas, including a decline in real estate
values in the Company's market areas; (4) changes in the regulatory
environment; (5) changes in business conditions and inflation; (6)
changes in securities markets; (7) data processing compliance
problems; (8) the California power crisis; (9) variances in the actual
versus projected growth in assets, return on assets, loan losses,
expenses, rates charged on loans and earned on securities investments,
rates paid on deposits, and fee and other noninterest income earned,
as well as other factors. This entire report should be read to put
such forward-looking statements in context. To gain a more complete
understanding of the uncertainties and risks involved in the Company's
business this report should be read in conjunction with Central Coast
Bancorp's annual report on Form 10-K for the year ended December 31,
2000.
Within the Management's Discussion and Analysis, interest income, net
interest income, net interest margin and the efficiency ratio are
presented on a fully taxable equivalent basis (FTE).
Business Organization
- ---------------------
Central Coast Bancorp (the "Company") is a California corporation
organized in 1994, and is the parent company for Community Bank of
Central California, a state-chartered bank, headquartered in Salinas,
California (the "Bank"). Other than its investment in the Bank, the
Company currently conducts no other significant business activities,
although it is authorized to engage in a variety of activities which
are deemed closely related to the business of banking upon prior
approval of the Board of Governors of the Federal Reserve System (the
"FRB"), the Company's principal federal regulator.
The Bank offers a full range of commercial banking services, including
a diverse range of traditional banking products and services to
individuals, merchants, small and medium-sized businesses,
professionals and agribusiness enterprises located in the counties of
Monterey, San Benito and Santa Cruz, which are in the central coastal
area of California.
Overview
- --------
For the second quarter 2001, Central Coast Bancorp reported diluted
earnings per share of $0.33, a 17.9% increase over the $0.28 reported
in the year earlier period. Net income for the quarter ended June 30,
2001 was $2,523,000, which is a 12.5% increase over the $2,243,000
reported for the same period of 2000. The return on equity (ROE) and
the return on assets (ROA) for the second quarter 2001 were 16.7% and
1.44% as compared to 16.5% and 1.45% for the same period in 2000.
7
Net income for the six months ended June 30, 2001 and 2000 was
$5,082,000 and $4,319,000 with diluted earnings per share of $.66 and
$.54, respectively. For the first six months of 2001 ROE was 16.8%
and ROA was 1.48% as compared to 16.0% and 1.42% for the same period
in 2000. The earnings per share for the 2000 periods have been
adjusted for the 10% stock dividend distributed in February 2001.
At June 30, 2001, the Company had assets totaling $746,136,000, a
quarter end record. On a year over year basis, internal growth has
generated an increase in assets of $97,319,000 (15.0%); an increase in
loans of $82,025,000 (19.3%); and an increase in deposits of
$88,796,000 (15.2%). Deposit balances at June 30, 2001 included
$10,000,000 of State of California certificates of deposit versus
$40,000,000 at June 30, 2000. This difference of $30,000,000
represents additional growth in the Company's core customer base.
Central Coast Bancorp ended the second quarter of 2001 with a Tier 1
capital ratio of 10.6% and a total risk-based capital ratio of 11.9%
versus 11.8% and 13.1%, respectively, at the end of the second quarter
of 2000.
The following table provides a summary of the major elements of income
and expense for the periods indicated.
Condensed Comparative Income Statement
Percentage Percentage
Three Months Ended Change Six Months Ended Change
June 30, Increase June 30, Increase
(In thousands, except percentages) 2001 2000 (Decrease) 2001 2000 (Decrease)
---- ---- ---------- ---- ---- ----------
Interest Income (1) $ 13,225 $ 12,815 3% $ 26,903 $ 24,575 9%
Interest Expense 4,822 4,437 9% 9,749 8,499 15%
---------- ---------- ---------- --------- --------- ---------
Net interest income 8,403 8,378 0% 17,154 16,076 7%
Provision for Loan Losses 75 800 -91% 195 1,326 -85%
---------- ---------- ---------- --------- --------- ---------
Net interest income after
provision for loan losses 8,328 7,578 10% 16,959 14,750 15%
Noninterest Income 775 631 23% 1,425 1,177 21%
Noninterest Expense 4,776 4,336 10% 9,715 8,456 15%
---------- ---------- ---------- --------- --------- ---------
Income before income taxes 4,327 3,873 12% 8,669 7,471 16%
Provision for Income Taxes 1,522 1,433 6% 3,048 2,760 10%
Tax Equivalent Adjustment 282 197 43% 539 392 38%
---------- ---------- ---------- --------- --------- ---------
Net income $ 2,523 $ 2,243 12% $ 5,082 $4,319 18%
========== ========== ========== ========= ========= =========
1) Interest on tax-free securities is reported on tax equivalent basis.
Net interest income / net interest margin
- -----------------------------------------
Net interest income, the difference between interest earned on loans
and investments and interest paid on deposits and other borrowings, is
the principal component of the Bank's earnings. Net interest margin
is net interest income expressed as a percentage of average earning
assets.
Net interest income for the second quarter of 2001 was $8,403,000,
which was an increase of $25,000 over the second quarter of 2000. The
interest income component was up $410,000 (3.2%). Average loan
balances were $73,101,000 (17.8%) higher in the second quarter of 2001
versus the year earlier period. This volume difference added
$1,808,000 to interest income. Since the beginning of 2001, there
have been six prime rate decreases totaling 275 basis points as a
result of actions taken by the Federal Reserve Board. Due to the
lower rates and the mix between fixed and variable rate loans in the
portfolio, the average loan yield for the second quarter of 2001 was
106 basis points lower than the average yield in the year earlier
quarter. The lower loan yield decreased interest income by
$1,249,000. The average balance of investment securities in the
second quarter of 2001 was higher by $4,419,000 (3.0%) over the second
quarter of 2000. Average balances for Federal funds sold for these
two periods decreased $5,809,000 to $10,978,000. Interest income for
the investing activities decreased $149,000 on a period over period
basis.
8
Interest expense was $385,000 (8.7%) higher in the second quarter of
2001 versus the prior year period. Average balances of
interest-bearing liabilities were higher by $51,360,000 (12.1%), which
added $588,000 to interest expense. Average rates paid on
interest-bearing liabilities were down 14 basis points on a quarter
over quarter basis. The lower rates decreased interest expense by
$203,000.
The net interest margin for the second quarter of 2001 was 5.20% as
compared to 5.85% in the year earlier period. As compared to the net
interest margin for the first quarter 2001, the second quarter's net
interest margin was down 49 basis points. As the Bank's loan assets
reprice more quickly than do its deposit liabilities, a declining rate
environment puts downward pressure on the net interest margin. As 125
basis points of the 2001 decreases were made throughout the second
quarter, the full effect of these rate cuts will be reflected in the
net interest margin for the third quarter 2001.
For the six-month period ending June 30, 2001, net interest income
increased $1,078,000 (6.7%) over the first six months of 2000. The
interest income component increased $2,328,000 to $26,903,000.
Average balances of earning assets were $72,918,000 (12.9%) higher in
the first six months of 2001 than the same period in 2000. The
average balance of loans was $72,580,000 higher, which accounted for
$3,498,000 of the increase in interest income. The average yield
received on loans in the first six months of 2001 was 46 basis points
lower than the 9.72% received in the year earlier period. The lower
yield on loans decreased interest income by $1,127,000. The average
balances of investment securities and Federal funds sold in the first
six months of 2001 were basically flat to the year earlier period.
Interest income for these investing activities decreased $43,000 on a
period over period basis because of lower rates. In the first half of
2000, the prime interest rate was raised three times for a total of
100 basis points. In the first half of 2001 interest rates were
lowered six times for a total of 275 basis points. The blended effect
of these changes has resulted in a 24 basis point decrease in average
rates received on earning assets in the first half of 2001 versus the
yields earned in the same period of 2000.
Interest expense for the six-month period increased $1,250,000 (14.7%)
from the expense in the same 2000 period. Volume increases in
deposits added $1,160,000 of interest expense. Overall average rates
paid on interest-bearing liabilities in the first six months of 2001
increased 13 basis points to 4.26% from the same period in 2000. The
interest expense increase attributable to the higher rates was
$116,000. Lower volume in borrowings in 2001 decreased interest
expense $26,000.
Net interest margin for the first six months of 2001 was 5.44% versus
5.74% in the year earlier period.
The first two following tables provide a summary of the components of
net interest income and the changes within the components for the
periods indicated. The second two tables set forth a summary of the
changes in interest income and interest expense from changes in
average asset and liability balances (volume) and changes in average
interest rates.
9
(Unaudited)
Three months ended June 30 ,
(Taxable Equivalent Basis) 2001 2000
Avg. Avg. Avg. Avg.
(In thousands, except percentages) Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
Assets:
Earning Assets
Loans (1) (2) $ 484,536 $ 10,709 8.86% $ 411,435 $10,150 9.92%
Taxable investments 102,866 1,558 6.08% 112,353 1,805 6.46%
Tax-exempt securities (tax equiv. basis) 49,706 845 6.81% 35,800 588 6.61%
Federal funds sold 10,978 113 4.13% 16,787 272 6.52%
------------ ----------- ------------ ------------
Total Earning Assets 648,086 $ 13,225 8.18% 576,375 $12,815 8.94%
----------- ------------
Cash & due from banks 42,500 38,201
Other assets (4) 14,249 7,615
------------ ------------
$ 704,835 $ 622,191
============ ============
Liabilities & Shareholders' Equity:
Interest bearing liabilities:
Demand deposits $ 98,440 $ 332 1.35% $97,755 $ 392 1.61%
Savings 123,679 984 3.19% 99,037 856 3.48%
Time deposits 245,628 3,412 5.57% 221,695 3,117 5.65%
Other borrowings 6,581 94 5.73% 4,481 72 6.46%
------------ ----------- ------------ ------------
Total interest bearing liabilities 474,328 4,822 4.08% 422,968 4,437 4.22%
----------- ------------
Demand deposits 163,370 139,707
Other Liabilities 6,183 5,028
------------ ------------
Total Liabilities 643,881 567,703
Shareholders' Equity 60,954 54,488
------------ ------------
$ 704,835 $ 622,191
============ ============
Net interest income & margin (3) $ 8,403 5.20% $ 8,378 5.85%
=========== ========= ============ =========
- ---------------------------------------------------------------------------------------------------------------------------
(1) Loan interest income includes fee income of $347,000 and $238,000 for the three month periods
ended June 30, 2001 and 2000, respectively.
(2) Includes the average allowance for loan losses of $9,455,000 and $6,422,000 and average deferred
loan fees of $966,000 and $738,000 for the three months ended June 30, 2001 and 2000, respectively.
(3) Net interest margin is computed by dividing net interest income by the total average earning assets.
(4) Includes the unrealized loss on available-for-sale securities.
10
(Unaudited)
Six months ended June 30 ,
(Taxable Equivalent Basis) 2001 2000
Avg. Avg. Avg. Avg.
(In thousands, except percentages) Balance Interest Yield Balance Interest Yield
------- -------- ----- ------- -------- -----
Assets:
Earning Assets
Loans (1) (2) $473,106 $21,734 9.26% $400,526 $19,363 9.72%
Taxable investments 103,173 3,247 6.35% 114,387 3,650 6.42%
Tax-exempt securities (tax equiv. basis) 47,697 1,617 6.84% 35,813 1,175 6.60%
Federal funds sold 12,229 305 5.03% 12,561 387 6.20%
------------ ---------- ------------ -----------
Total Earning Assets 636,205 $26,903 8.53% 563,287 $24,575 8.77%
---------- -----------
Cash & due from banks 42,089 37,704
Other assets (4) 14,552 7,829
------------ ------------
$692,846 $608,820
============ ============
Liabilities & Shareholders' Equity:
Interest bearing liabilities:
Demand deposits $93,543 $ 660 1.42% $97,221 $ 797 1.65%
Savings 122,253 2,069 3.41% 100,620 1,731 3.46%
Time deposits 239,380 6,833 5.76% 209,445 5,751 5.52%
Other borrowings 6,147 187 6.13% 6,976 220 6.34%
------------ ---------- ------------ -----------
Total interest bearing liabilities 461,323 9,749 4.26% 414,262 8,499 4.13%
---------- -----------
Demand deposits 163,521 135,172
Other Liabilities 6,952 5,192
------------ ------------
Total Liabilities 631,796 554,626
Shareholders' Equity 61,050 54,194
------------ ------------
$692,846 $608,820
============ ============
Net interest income & margin (3) $17,154 5.44% $16,076 5.74%
========== ======== =========== ========
- ----------------------------------------------------------------------------------------------------------------------------
(1) Loan interest income includes fee income of $679,000 and $474,000 for the six month
periods ended June 30, 2001 and 2000, respectively
(2) Includes the average allowance for loan losses of $9,434,000 and $6,110,000 and average deferred
loan fees of $921,000 and $712,000 for the six months ended June 30, 2001 and 2000, respectively.
(3) Net interest margin is computed by dividing net interest income by the total average earning assets.
(4) Includes the unrealized loss on available-for-sale securities.
11
Volume/Rate Analysis
(in thousands) Three Months Ended June 30, 2001 over 2000
Increase (decrease) due to change in:
Net
Interest-earning assets: Volume Rate (5) Change
------ -------- ------
Net Loans (1)(2) $ 1,808 $(1,249) $ 559
Taxable investment securities (153) (94) (247)
Tax exempt investment securities (4) 229 28 257
Federal funds sold (94) (65) (159)
------------- ------------- -------------
Total 1,790 (1,380) 410
------------- ------------- -------------
Interest-bearing liabilities:
Demand deposits 3 (63) (60)
Savings deposits 214 (86) 128
Time deposits 337 (42) 295
Other borrowings 34 (12) 22
------------- ------------- -------------
Total 588 (203) 385
------------- ------------- -------------
Interest differential $ 1,202 $(1,177) $ 25
============= ============= =============
(1) The average balance of non-accruing loans is immaterial as a percentage of
total loans and, as such, has been included in net loans.
(2) Loan fees of $347,000 and $238,000 for the quarters ended June 30, 2001 and 2000, respectively have
been included in the interest income computation.
(3) Includes taxable-equivalent adjustments that relate to income on certain securities that is exempt from
federal income taxes. The effective federal statutory tax rate was 34% for 2001 and 2000.
(4) The rate / volume variance has been included in the rate variance.
12
Volume/Rate Analysis
(in thousands) Six Months Ended June 30, 2001 over 2000
Increase (decrease) due to change in:
Net
Interest-earning assets: Volume Rate (5) Change
------ -------- ------
Net Loans (1)(3) $ 3,498 $(1,127) $ 2,371
Taxable investment securities (357) (46) (403)
Tax exempt investment securities (4) 389 53 442
Federal funds sold (10) (72) (82)
------------- ------------- -------------
Total 3,520 (1,192) 2,328
------------- ------------- -------------
Interest-bearing liabilities:
Demand deposits (30) (107) (137)
Savings deposits 371 (33) 338
Time deposits 819 263 1,082
Other borrowings (26) (7) (33)
------------- ------------- -------------
Total 1,134 116 1,250
------------- ------------- -------------
Interest differential $ 2,386 $(1,308) $ 1,078
============= ============= =============
(1) The average balance of non-accruing loans is immaterial as a percentage of total loans and, as such,
has been included in net loans.
(2) Loan fees of $347,000 and $238,000 for the quarters ended June 30, 2001 and 2000, respectively, have
been included in the interest income computation.
(3) Loan fees of $679,000 and $474,000 for the six months ended June 30, 2001 and 2000, respectively, have
been included in the interest income computation.
(4) Includes taxable-equivalent adjustments that relate to income on certain securities that is exempt from
federal income taxes. The effective federal statutory tax rate was 34% for 2001 and 2000.
(5) The rate / volume variance has been included in the rate variance.
Provision for Loan Losses
- -------------------------
The Bank provided $75,000 for loan losses in the second quarter of
2001 as compared to $800,000 in the second quarter of 2000. For the
six-month period ended June 30, 2001, the Bank provided $195,000
versus $1,326,000 in the year earlier period. Due to loan growth,
changing portfolio mix and prevailing local economic conditions in
2000, the Bank modified its factors used in determining its allowance
for loan losses. These changes resulted in higher loan loss
provisions than had been required previously. The provision for loan
losses that has been recorded in 2001 has been based on factors and
methodologies consistent with those used in 2000. The ratios of the
allowance for loan losses to total loans at each quarter end were
1.87% and 1.65%, respectively.
Noninterest Income
- ------------------
Noninterest income consists primarily of service charges on deposit
accounts and fees for miscellaneous services. Noninterest income
totaled $775,000 in the second quarter of 2001, which was up $144,000
(22.8%) over the same period in 2000. Service charges on deposit
accounts were up $45,000 due to volume increases. Commissions on
mortgage originations were up $75,000 (175.7%) as refinance activity
continued to be very active. Other increases were generally due to
higher business volumes.
13
For the first six-months of 2001, noninterest income was $1,425,000
versus $1,177,000 in the same period last year. Service charges on
deposits were up $110,000 (13.9%) due to higher volumes. Other fees
were $135,000 (48.2%) higher in the first half of 2001. Most of this
increase was due to the significantly higher volume of mortgage
originations. As the interest rates decreased during the first half
of 2001, the activity in residential mortgage lending picked up
significantly.
Noninterest Expense
- -------------------
Noninterest expenses increased $440,000 (10.1%) to a total of
$4,776,000 in the second quarter of 2001 versus second quarter 2000.
Salary and employee benefits increased $402,000 (16.3%) because of
additional staff due to the two new branches opened in 2000, internal
growth, higher benefit costs, and normal salary increases. On a
quarter over quarter basis, premises and fixed asset expenses were
higher by $84,000 (11.1%). Costs of the two new branches, the
California energy shortage and higher business volume contributed to
the increase. Other expenses for the second quarter of 2001 were
$1,066,000 down from $1,112,000 in the prior year quarter. Management
has implemented expense control measures in view of the weaker economy
and lower interest rates. The efficiency ratio for the two quarters
was 52.0% and 48.1%, respectively.
Noninterest expenses for the six-month period ending June 30, 2001
were $9,715,000 versus $8,456,000 for the same period in 2000.
Salaries and benefits increased $1,024,000 (21.1%) due to the same
factors discussed in the previous paragraph. Premises and fixed asset
expenses were up $255,000 (17.3%) due to the items as detailed in the
previous paragraph. Other expenses decreased $20,000 (0.9%). The
efficiency ratio for the first six-months of 2001 was 52.3% as
compared to 49.0% in the same period of 2000.
Provision for Income Taxes
- --------------------------
The effective tax rate for the second quarter and first six-months of
2001 was 37.6% and 37.5, respectively, versus 39.0% for both periods
of 2000. The estimated tax rates in 2001 are lower as tax exempt
loans and investment securities are a higher percentage of income.
Securities
- ----------
At June 30, 2001, available-for-sale securities had a market value of
$151,225,000 with an amortized cost basis of $151,494,000. The
unrealized loss of $269,000 at June 30, 2001 represented a decrease of
$545,000 from the unrealized gain of $276,000 at March 31, 2001. The
unrealized loss was the result of the changes in the yield curve and
market spreads in the securities markets in the second quarter.
Loans
- -----
Ending loan balances at June 30, 2001 were $508,098,000, which was an
increase of $34,703,000 (7.3%) from year-end 2000 balances and
$82,025,000 (19.3%) from June 30, 2000 balances. All categories of
loans were higher on a year over year basis. Real estate construction
has been particularly strong with growth of $44,435,000 (118.7%) over
June 30, 2000 balances. The construction projects cover a broad
spectrum of economic activity in the Bank's market including the
tourism industry, agricultural industry, other commercial enterprises
as well as residential construction. Loan demand has remained brisk
into the third quarter, however, the continuing effects of the general
economy on loan demand are uncertain.
Nonperforming Assets
- --------------------
Non-performing assets are comprised of loans delinquent 90 days or
more with respect to interest or principal, loans for which the
accrual of interest has been discontinued, and other real estate which
has been acquired through foreclosure and is awaiting disposition.
Unless well secured and in the process of collection, loans are placed
on nonaccrual status when a loan becomes 90 days past due as to
interest or principal, when the payment of interest or principal in
accordance with the contractual terms of the loan becomes uncertain or
when a portion of the principal balance has been charged off. When a
loan is placed on nonaccrual status, the accrued and unpaid interest
receivable is reversed and the loan is accounted for on the cash or
cost recovery method thereafter, until qualifying for return to
accrual status. Generally, a loan may be returned to accrual status
14
when all delinquent interest and principal become current in
accordance with the terms of the loan agreement and remaining
principal is considered collectible or when the loan is both well
secured and in the process of collection.
Real estate and other assets acquired in satisfaction of indebtedness
are recorded at the lower of estimated fair market value net of
anticipated selling costs or the recorded loan amount, and any
difference between this and the amount is treated as a loan loss.
Costs of maintaining other real estate owned and gains or losses on
the subsequent sale are reflected in current earnings.
The following is a summary of nonperforming assets:
(In thousands, except percentages) June 30, December 31,
2001 2000
------------------- ------------------
Past due 90 days or more and still accruing :
Real estate $ 3,055 $ 10
Commercial 721 215
Consumer and other 1 5
------------------- ------------------
3,777 230
------------------- ------------------
Nonaccrual:
Real estate 101 -
Commercial 109 329
Consumer and other 15 -
------------------- ------------------
225 329
------------------- ------------------
Total nonperforming assets $ 4,002 $ 559
=================== ==================
Allowance for loan losses as a percentage of nonperforming loans 238% 1676%
Nonperforming loans to total loans 0.79% 0.12%
Nonperforming loans increased $3,527,000 during the second quarter of
2001. A single loan accounted for 80% of the increase. Subsequent to
quarter end, a payment was received on that loan, which brought the
loan under 90 days past due. Management is closely monitoring these
past due loans and is actively pursuing collection of them. At
quarter end, the nonperforming assets were 0.54% of total assets and
0.79% of total loans. This compared to 0.07% and 0.10% at March 31,
2001.
At June 30, 2001, the recorded investment in loans that are considered
impaired under SFAS No. 114 was $1,347,000 of which $45,000 are
included in nonaccrual loans above. Valuation allowances were computed
on all impaired loans and totled $366,000 based on the estimated fair
value of the collateral. At December 31, 2000, the recorded investment
in loans considered impaired was $1,691,000, including $215,000 of
nonaccrual loans above and $1,010,000 of restructured loans performing
in compliance with modified terms. Management is not aware of any
potential problem loans, other than the impaired loans disclosed
above, which were accruing and current at June 30, 2001, where serious
doubt exists as to the ability of the borrower to comply with the
present repayment terms.
Credit Risk and Allowance for Loan Losses
- -----------------------------------------
The Company assesses and manages credit risk on an ongoing basis
through stringent credit review and approval policies, extensive
internal monitoring and established formal lending policies.
Additionally, the Company contracts with an outside loan review
consultant to periodically grade new loans and to review the existing
loan portfolio. Management believes its ability to identify and
assess risk and return characteristics of the Company's loan portfolio
is critical for profitability and growth. Management strives to
continue the historically low level of credit losses by continuing its
emphasis on credit quality in the loan approval process, active credit
administration and regular monitoring. With this in mind, management
has designed and implemented a comprehensive loan review and grading
system that functions to continually assess the credit risk inherent
in the loan portfolio.
15
Ultimately, credit quality may be influenced by underlying trends in
economic and business cycles. The Company's business is concentrated
in Monterey, San Benito and Santa Cruz counties in California. These
counties are heavily dependent on agriculture and tourism industries
as their main economic base. As a result, the Company lends money to
individuals and companies dependent upon these two industries. In
addition, the Company has significant extensions of credit and
commitments to extend credit which are secured by real estate. At
June 30, 2001, the Company had outstanding real estate and real estate
construction loans totaling approximately $330,855,000, which
represented 65% of the loan portfolio. Although management believes
the concentration to have no more than the normal risk of
collectibility, a substantial decline in the economy in general, or a
decline in real estate values in the Company's primary market areas in
particular, could have an adverse impact on the collectibility of
these loans. Adverse economic conditions could require an increase in
the provision for loan and lease losses which in turn could adversely
affect the Company's future prospects, results of operations,
profitability and stock price.
The allowance for loan losses reflects management's judgement as to
the level considered adequate to absorb probable losses inherent in
the loan portfolio. The allowance is increased by provisions charged
to expense and reduced by loan charge-offs net of recoveries.
Management determines an appropriate provision based upon information
currently available to analyze loan loss potential, including (1) the
loan portfolio balance in the period; (2) a comprehensive grading and
review of new and existing loans outstanding; (3) actual previous
charge-offs; and, (4) changes in economic conditions.
In determining the provision for estimated losses related to specific
major loans, management evaluates its allowance on an individual loan
basis, including an analysis of the creditworthiness, cash flows and
financial status of the borrower, and the condition and the estimated
value of the collateral. Specific valuation allowances for secured
loans are determined by the excess of recorded investment in the loan
over the fair market value or net realizable value where appropriate,
of the collateral. In determining overall general valuation
allowances to be maintained and the loan loss allowance ratio,
management evaluates many factors including prevailing and forecasted
economic conditions, regular reviews of the quality of loans, industry
experience, historical loss experience, composition and geographic
concentrations of the loan portfolio, the borrowers' ability to repay
and repayment performance and estimated collateral values.
Management believes that the allowance for loan losses at June 30,
2001 is adequate, based on information currently available. However,
no prediction of the ultimate level of loans charged off in future
years can be made with any certainty.
16
The following table summarizes activity in the allowance for loan
losses for the periods indicated:
Three months ended June 30, Six months ended June 30,
(In thousands, except percentages) 2001 2000 2001 2000
---- ---- ---- ----
Beginning balance $ 9,427 $ 6,136 $ 9,371 $ 5,596
Provision charged to expense 75 800 195 1,326
Loans charged off (17) (3) (104) (19)
Recoveries 24 85 47 115
-------------- ------------- ------------- -------------
Ending balance $ 9,509 $ 7,018 $ 9,509 $ 7,018
============== ============= ============= =============
Ending loan portfolio $508,098 $426,073
============= =============
Allowance for loan losses as percentage of
ending loan portfolio 1.87% 1.65%
Liquidity
- ---------
Liquidity management refers to the Company's ability to provide funds
on an ongoing basis to meet fluctuations in deposit levels as well as
the credit needs and requirements of its clients. Both assets and
liabilities contribute to the Company's liquidity position. Federal
funds lines, short-term investments and securities, and loan
repayments contribute to liquidity, along with deposit increases,
while loan funding and deposit withdrawals decrease liquidity. The
Bank assesses the likelihood of projected funding requirements by
reviewing historical funding patterns, current and forecasted economic
conditions and individual client funding needs. Commitments to fund
loans and outstanding standby letters of credit at June 30, 2001 were
approximately $175,572,000 and $3,451,000, respectively. Such loans
relate primarily to revolving lines of credit and other commercial
loans, and to real estate construction loans.
The Company's sources of liquidity consist of overnight funds sold to
correspondent banks, unpledged short-term marketable investments, and
salable SBA loans. On June 30, 2001 consolidated liquid assets
totaled $135.5 million or 18.2% of total assets as compared to $140.0
million or 19.8% of total consolidated assets on December 31, 2000.
In addition to liquid assets, the Bank maintains lines of credit with
correspondent banks for up to $80,000,000 available on a short-term
basis. Informal agreements are also in place with various other banks
to purchase participations in loans, if necessary. The Company serves
primarily a business and professional customer base and, as such, its
deposit base is susceptible to economic fluctuations. Accordingly,
management strives to maintain a balanced position of liquid assets to
volatile and cyclical deposits.
Capital Resources
- -----------------
The Company's total shareholders' equity was $62,052,000 at June 30,
2001 compared to $59,854,000 at December 31, 2000.
The Company and the Bank are subject to regulations issued by the
Board of Governors and the FDIC which require maintenance of a certain
level of capital. Under the regulations, capital requirements are
based upon the composition of an institution's asset base and the risk
factors assigned to those assets. The guidelines characterize an
institution's capital as being "Tier 1" capital (defined to be
principally shareholders' equity less intangible assets) and "Tier 2"
capital (defined to be principally the allowance for loan losses,
limited to one and one-fourth percent of gross risk weighted assets).
The guidelines require the Company and the Bank to maintain a
risk-based capital target ratio of 8%, one-half or more of which
should be in the form of Tier 1 capital.
17
The following table shows the Company's actual capital amounts and
ratios at June 30, 2001 and December 31, 2000 as well as the minimum
capital ratios for capital adequacy under the regulatory framework:
For Capital
Actual Adequacy Purpose:
Company Amount Ratio Amount Ratio
- ------- ------ ----- ------ -----
As of June 30, 2001:
- -------------------
Total Capital (to Risk Weighted Assets): 68,702,000 11.9% 46,110,232 8.0%
Tier 1 Capital (to Risk Weighted Assets): 61,498,000 10.6% 23,055,000 4.0%
Tier 1 Capital (to Average Assets): 61,498,000 8.7% 28,193,000 4.0%
As of December 31, 2000:
- ------------------------
Total Capital (to Risk Weighted Assets): 66,892,000 12.3% 43,490,000 8.0%
Tier 1 Capital (to Risk Weighted Assets): 60,098,000 11.1% 21,745,000 4.0%
Tier 1 Capital (to Average Assets): 60,098,000 9.1% 26,344,000 4.0%
For Capital
Actual Adequacy Purpose:
Community Bank Amount Ratio Amount Ratio
- -------------- ------ ----- ------ -----
As of June 30, 2001:
- --------------------
Total Capital (to Risk Weighted Assets): 66,563,000 11.6% 45,925,000 8.0%
Tier 1 Capital (to Risk Weighted Assets): 59,358,000 10.3% 22,962,000 4.0%
Tier 1 Capital (to Average Assets): 59,358,000 8.5% 28,109,000 4.0%
As of December 31, 2000:
- ------------------------
Total Capital (to Risk Weighted Assets): 63,866,000 11.8% 43,273,000 8.0%
Tier 1 Capital (to Risk Weighted Assets): 57,073,000 10.6% 21,637,000 4.0%
Tier 1 Capital (to Average Assets): 57,073,000 8.7% 26,251,000 4.0%
Item 3. MARKET RISK MANAGEMENT
Overview
- --------
The goal for managing the assets and liabilities of the Bank is to
maximize shareholder value and earnings while maintaining a high
quality balance sheet without exposing the Bank to undue interest rate
risk. The Board of Directors has overall responsibility for the
Company's interest rate risk management policies. The Bank has an
Asset and Liability Management Committee (ALCO) which establishes and
monitors guidelines to control the sensitivity of earnings to changes
in interest rates.
Asset/Liability Management
- --------------------------
Activities involved in asset/liability management include but are not
limited to lending, accepting and placing deposits, investing in
securities and issuing debt. Interest rate risk is the primary market
risk associated with asset/liability management. Sensitivity of
earnings to interest rate changes arises when yields on assets change
in a different time period or in a different amount from that of
interest costs on liabilities. To mitigate interest rate risk, the
structure of the balance sheet is managed with the goal that movements
of interest rates on assets and liabilities are correlated and
contribute to earnings even in periods of volatile interest rates.
The asset/liability management policy sets limits on the acceptable
amount of variance in net interest margin and market value of equity
under changing interest environments. The Bank uses simulation models
to forecast earnings, net interest margin and market value of equity.
18
Simulation of earnings is the primary tool used to measure the
sensitivity of earnings to interest rate changes. Using computer
modeling techniques, the Company is able to estimate the potential
impact of changing interest rates on earnings. A balance sheet
forecast is prepared using inputs of actual loan, securities and
interest bearing liabilities (i.e. deposits/borrowings) positions as
the beginning base. The forecast balance sheet is processed against
three interest rate scenarios. The scenarios include a 200 basis
point rising rate forecast, a flat rate forecast and a 200 basis point
falling rate forecast which take place within a one year time frame.
The net interest income is measured during the first year of the rate
changes and in the year following the rate changes. Based on a
forecast using May 31, 2001 balances and measuring against a flat rate
environment, in a one-year horizon an increase in interest rates of
200 basis points would result in an increase of $2,869,000 in net
interest income. Conversely, a 200 basis point decrease would result
in a decrease of $3,451,000 in net interest income.
The simulations of earnings do not incorporate any management actions,
which might moderate the negative consequences of interest rate
deviations. Therefore, they do not reflect likely actual results, but
serve as conservative estimates of interest rate risk. The risk
profile of the Bank has not changed materially from that at year-end
2000.
OTHER MATTERS
California Power Crisis
- -----------------------
The State of California is presently experiencing serious
periodic electric power shortages. It is uncertain whether or when
these shortages will be discontinued. However, conservation efforts
and unanticipated cooler weather conditions through the end of the
second quarter of 2001 have resulted in lower demand for electricity
throughout California. California has initiated action to supplement
conservation efforts including acceleration of the approval process
for development of new energy production facilities and entering into
long-term energy contracts for the supply of electricity. Despite
these efforts and the fact that during the second quarter of 2001,
wholesale prices for electricity supplied to California declined and
electricity in excess of current needs was available for sale to other
states, it is currently anticipated that an increase in demand for
electricity and concomitant power shortages will occur during the
months of August and September if customary weather patterns prevail
resulting in higher temperatures and greater reliance upon air
conditioning in certain regions of California. The Company and its
subsidiaries could be materially and adversely affected either
directly or indirectly by a severe electric power shortage if such a
shortage caused any of its critical data processing or computer
systems and related equipment to fail, or if the local infrastructure
systems such as telephone systems should fail, or the Company's and
its subsidiaries' significant vendors, suppliers, service providers,
customers, borrowers, or depositors are adversely impacted by their
internal systems or those of their respective customers or suppliers.
Material increases in the expenses related to electric power
consumption and the related increase in operating expense could also
have an adverse effect on the Company's future results of operations.
Accounting Pronouncements
- -------------------------
The Financial Standards Accounting Board ("FASB") adopted Statement of
Financial Accounting Standards No. 141, "Business Combinations"
covering elimination of pooling accounting treatment in business
combinations and financial accounting and reporting for acquired
goodwill and other intangible assets at acquisition. SFAS No. 141
supersedes APB Opinion No. 16, "Business Combinations" and SFAS No.
38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises" and is effective for transactions initiated after June
30, 2001. Under SFAS No. 141, all mergers and business combinations
initiated after the effective date must be accounted for as "purchase"
transactions. A merger or business combination was considered
initiated if the major terms of the transaction, including the
exchange or conversion ratio, were publicly announced or otherwise
disclosed to shareholders of the combining companies prior to the
effective date. Goodwill in any merger or business combination which
is not initiated prior to the effective date will be recognized as an
asset in the financial statements, measured as the excess of the cost
of an acquired entity over the net of the amounts assigned to
identifiable assets acquired and liabilities assumed, and then tested
for impairment to assess losses and expensed against earnings only in
19
the periods in which the recorded value of goodwill exceeded its
implied fair value. The FASB concurrently adopted SFAS No. 142,
"Goodwill and Other Intangible Assets" to address financial accounting
and reporting for acquired goodwill and other intangible assets at
acquisition in transactions other than business combinations covered
by SFAS No. 141, and the accounting treatment of goodwill and other
intangible assets after acquisition and initial recognition in the
financial statements. SFAS No. 142 supersedes APB Opinion No. 17,
"Intangible Assets" and is required to be applied at the beginning of
an entity's fiscal year to all goodwill and other intangible assets
recognized in its financial statements at that date, for fiscal years
beginning after December 15, 2001. It is not certain what effect SFAS
No. 141 and SFAS No. 142 may have upon the pace of business
combinations in the banking industry in general or upon prospects of
any merger or business combination opportunities involving the Company
in the future.
20
PART II - OTHER INFORMATION
Item 1. Legal proceedings.
None.
Item 2. Changes in securities.
None.
Item 3. Defaults upon senior securities.
None.
Item 4. Submission of matters to a vote of security holders.
THE FOLLOWING ARE THE VOTING RESULTS OF THE REGISTRANTS'S ANNUAL
MEETING OF THE SHAREHOLDERS HELD ON JUNE 11, 2001:
PROPOSAL NO. 1
- ------------------------------
AMENDMENT OF THE ARTICLES AND BYLAWS TO PROVIDE FOR
THE CLASSIFICATION OF THE BOARD OF DIRECTORS.
FOR 3,776,209 AGAINST 195,046 ABSTAIN 32,749
PROPOSAL NO. 2
- ------------------------------
AMENDMENT OF THE ARTICLES AND BYLAWS TO ELIMINATE CUMULATIVE
VOTING IN THE ELECTION OF DIRECTORS.
FOR 3,886,116 AGAINST 71,917 ABSTAIN 45,971
PROPOSAL NO. 3
- ------------------------------
ELECTION OF DIRECTORS
AFFIRMATIVE
NOMINEE VOTES
- ---------- ----------
C. EDWARD BOUTONNET (Class 3) 5,572,727
BRADFORD G. CRANDALL (Class 3) 5,572,753
ALFRED P. GLOVER (Class 1) 5,578,777
MICHAEL T. LAPSYS (Class 2) 5,578,711
DUNCAN L. McCARTER (Class 2) 5,572,753
ROBERT M. MRAULE, D.D.S., M.D. (Class 3) 5,578,711
LOUIS A. SOUZA (Class 1) 5,578,711
MOSE E. THOMAS, JR. (Class 1) 5,572,753
NICK VENTIMIGLIA (Class 2) 5,577,743
21
PROPOSAL NO.4
- ------------------------------
APPROVAL OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 2001 FISCAL YEAR.
FOR 5,579,984 AGAINST 6,723 ABSTAIN 21,426
Item 5. Other information.
None.
Item 6. Exhibits and reports on Form 8-K.
(a) Exhibits
(2.1) Agreement and Plan of Reorganization and Merger by and
between Central Coast Bancorp, CCB Merger Company and
Cypress Coast Bank dated as of December 5, 1995,
incorporated by reference from Exhibit 99.1 to Form 8-K
filed with the Commission on December 7, 1995.
(3.1) Articles of Incorporation, as amended.
(3.2) Bylaws, as amended.
(4.1) Specimen form of Central Coast Bancorp stock certificate
incorporated by reference from the Registrant's 1994
Annual Report on Form 10-K filed with the Commission on
March 31, 1995.
(10.1) Lease agreement dated December 12, 1994, related to 301
Main Street, Salinas, California incorporated by
reference from the Registrant's 1994 Annual Report on
Form 10-K filed with the Commission on March 31, 1995.
(10.2) King City Branch Lease incorporated by reference from
Exhibit 10.3 to Registration Statement on Form S-4, No.
33-76972, filed with the Commission on March 28, 1994.
(10.3) Amendment to King City Branch Lease incorporated
by reference from Exhibit 10.4 to Registration Statement
on Form S-4, No. 33-76972, filed with the Commission on
March 28, 1994.
*(10.4)1982 Stock Option Plan, as amended, incorporated by
reference from Exhibit 4.2 to Registration Statement on
Form S-8, No. 33-89948, filed with the Commission on
March 3, 1995.
*(10.5)Form of Nonstatutory Stock Option Agreement under
the 1982 Stock Option Plan incorporated by reference from
Exhibit 4.6 to Registration Statement on Form S-8, No.
33-89948, filed with the Commission on March 3, 1995.
*(10.6)Form of Incentive Stock Option Agreement under
the 1982 Stock Option Plan incorporated by reference from
Exhibit 4.7 to Registration Statement on Form S-8, No.
33-89948, filed with the Commission on March 3, 1995.
*(10.7)1994 Stock Option Plan incorporated by reference
from Exhibit 4.1 to Registration Statement on Form S-8,
No. 33-89948, filed with the Commission on March 3, 1995.
22
*(10.8)Form of Nonstatutory Stock Option Agreement under
the 1994 Stock Option Plan incorporated by reference from
Exhibit 4.3 to Registration Statement on Form S-8, No.
33-89948, filed with Commission on March 3, 1995.
*(10.9)Form of Incentive Stock Option Agreement under
the 1994 Stock Option Plan incorporated by reference from
Exhibit 4.4 to Registration Statement on Form S-8, No.
33-89948, filed with the Commission on March 3, 1995.
*(10.10) Form of Director Nonstatutory Stock Option
Agreement under the 1994 Stock Option Plan incorporated
by reference from Exhibit 4.5 to Registration Statement
on Form S-8, No. 33-89948, filed with the Commission on
March 3, 1995.
*(10.11) Form of Bank of Salinas Indemnification Agreement
for directors and executive officers incorporated by
reference from Exhibit 10.9 to Amendment No. 1 to
Registration Statement on Form S-4, No. 33-76972, filed
with the Commission on April 15, 1994.
*(10.12) 401(k) Pension and Profit Sharing Plan Summary
Plan Description incorporated by reference from Exhibit
10.8 to Registration Statement on Form S-4, No. 33-76972,
filed with the Commission on March 28, 1994.
*(10.13) Form of Employment Agreement incorporated by
reference from Exhibit 10.13 to the Company's 1996 Annual
Report on Form 10-K filed with the Commission on March
31, 1997.
*(10.14) Form of Executive Salary Continuation Agreement
incorporated by reference from Exhibit 10.14 to the
Company's 1996 Annual Report on Form 10-K filed with the
Commission on March 31, 1997.
*(10.15) 1994 Stock Option Plan, as amended, incorporated
by reference from Exhibit A to the Proxy Statement filed
with the Commission on September 3, 1996 in connection
with Registrant's 1996 Annual Shareholders' Meeting held
on September 23, 1996.
*(10.16) Form of Indemnification Agreement, incorporated
by reference from Exhibit D to the Proxy Statement filed
with the Commission on September 3, 1996 in connection
with Registrant's 1996 Annual Shareholders' Meeting held
on September 23, 1996.
(10.17) Purchase and Assumption Agreement for
the Acquisition of Wells Fargo Bank Branches incorporated
by reference from Exhibit 10.17 to Registrant's 1996
Annual Report on Form 10-K filed with the Commission on
March 31, 1997.
(21.1) The Registrant's only subsidiary is its
wholly-owned subsidiary, Community Bank of Central
California.
*Denotes management contracts, compensatory plans or arrangements.
(b) Reports on Form 8-K - A current report on Form 8-K was filed
with the Commission on June 18, 2001 to report the results of the
shareholder vote on amending the Company's articles and bylaws,
the election of directors and approval of the independent
auditors. The results of the vote are reported in Item 4 above.
23
SIGNATURES
- ------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
July 30, 2001 CENTRAL COAST BANCORP
By:/s/ ROBERT M STANBERRY
--------------------------
Robert M. Stanberry
(Chief Financial Officer,Principal
Financial and Accounting Officer)
24
EXHIBIT INDEX
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Articles of Incorporation 26
3.2 Bylaws 29
25