SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CENTRAL VALLEY COMMUNITY BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 77-0539125
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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600 POLLASKY AVENUE, CLOVIS, CALIFORNIA 93612
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
CLOVIS COMMUNITY BANK 1992 STOCK OPTION PLAN
(Full Title of the Plan)
DANIEL J. DOYLE, PRESIDENT AND CHIEF EXECUTIVE OFFICER
600 POLLASKY AVENUE, CLOVIS, CALIFORNIA 93612
(NAME AND ADDRESS OF AGENT FOR SERVICE)
(559) 298-1775
(TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
STEVEN M. PLEVIN, ESQ.
LILLICK & CHARLES LLP
TWO EMBARCADERO CENTER, SUITE 2700, SAN FRANCISCO, CALIFORNIA 94111
(415) 984-8200
CALCULATION OF REGISTRATION FEE
=========================== ======================== ======================== ======================== ========================
Title of Each Class Of Amount To Be Proposed Maximum Proposed Maximum Amount of
Securities To Be Registered(a) Offering Price Per Aggregate Offering Registration Fee
Registered Share(b) Price(b)
--------------------------- ------------------------ ------------------------ ------------------------ -------------------------
Common stock 195,200 Shares $15.93 $3,109,466 $820.90
(No Par Value)
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PART I
INFORMATION REQUIRED IN THE PROSPECTUS
ITEM 1. PLAN INFORMATION.
The Registrant, Central Valley Community Bancorp, will send or give the documents containing the information specified in this Item 1. to each participant as specified by Rule 428(b)(1). In accordance with the rules and regulations of the Securities and Exchange Commission and the instructions to Form S-8, Registrant is not filing such documents with the Securities and Exchange Commission either as part of this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 of the Securities Act.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION.
The Registrant will send or give the documents containing the information specified in Item 2 to each participant as specified by Rule 428(b)(1). In accordance with the rules and regulations of the Securities and Exchange Commission and the instructions to Form S-8, Registrant is not filing such documents with the Securities and Exchange Commission either as part of this Registration Statement or as prospectuses or prospectus supplements pursuant to Rule 424 of the Securities Act.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE.
Central Valley Community Bancorp ("Central Valley") hereby incorporates by reference the document listed below. All documents subsequently filed by the Registrant pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") prior to the filing of a post-effective amendment which indicates that all securities offered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference herein and to be a part hereof from the date of filing of such documents.
(a) Registrant's Current Report on Form 8-K, filed with the Securities & Exchange Commission on November 16, 2000.
Any statement contained herein or in any document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that another statement contained herein or in any other document subsequently filed, which also is incorporated by reference herein, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement.
ITEM 4. DESCRIPTION OF SECURITIES.
Although Registrant's common stock is registered under Section 12(g) of the Exchange Act, there is no document, as listed in Item 3(c) of Form S-8 describing Registrant's common stock. Accordingly, a description of Registrant's common stock follows:
GENERAL
Central Valley currently has an authorized capitalization of 20,000,000 shares of common stock and 10,000,000 shares of preferred stock. Of these authorized capital shares, 1,303,459 shares of common stock and no shares of preferred stock are currently issued and outstanding. An additional 195,200 shares of Central Valley's common stock is reserved for issuance upon the exercise of outstanding options granted under the Clovis Community Bank 1992 Stock Option Plan. Those stock options were converted, on a share-for-share basis, into options to purchase shares of Central Valley's common stock pursuant to that certain Plan of Reorganization and Merger Agreement by and among Central Valley, Clovis Community Bank and Clovis Merger Co., a California corporation and wholly-owned subsidiary of Central Valley, dated as of April 14, 2000, and pursuant to which Clovis Community Bank became a wholly-owned subsidiary of Central Valley as of November 15, 2000. An additional 195,837 shares of Central Valley's common stock will be reserved for issuance pursuant to the Central Valley Community Bancorp 2000 Stock Option Plan, to be adopted as soon as practicable.
COMMON STOCK
The balance of Central Valley's authorized common stock will be available to be issued when and as the Board of Directors of Central Valley determines it advisable to do so. Common shares could be issued for the purpose of raising additional capital, in connection with acquisitions or formation of other businesses, or for other appropriate purposes. The Board of Directors of Central Valley has the authority to issue common shares to the extent of the present number of authorized unissued shares, without obtaining the approval of existing holders of common shares. If additional shares of Central Valley's Common Stock were to be issued, the existing holders of Central Valley shares would own a proportionately smaller portion of the total number of issued and outstanding common shares.
DIVIDEND RIGHTS
The shareholders of Central Valley are entitled to receive dividends when and as declared by its Board of Directors out of funds legally available, subject to the restrictions set forth in the California General Corporation Law. The Corporation Law provides that a corporation may make a distribution to its shareholders if the corporation's retained earnings equal at least the amount of the proposed distribution. The Corporation Law further provides that, in the event that sufficient retained earnings are not available for the proposed distribution, a corporation may nevertheless make a distribution to its shareholders if it meets two conditions, which generally stated are as follows:
- the corporation's assets equal at least 1 1/4 times its liabilities, and
- the corporation's current assets equal at least its current liabilities or, if the average of the corporation's earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of the corporation's interest expense for such fiscal years, then the corporation's current assets must equal at least 1 1/4 times its current liabilities.
It is contemplated that Central Valley will pay cash and stock dividends subject to the restrictions on payment of cash dividends as described above, the earnings of Central Valley, management's assessment of future capital needs, and other factors. Initially, the funds for payment of dividends and expenses of Central Valley are expected to be obtained from dividends paid by its wholly-owned subsidiary, Clovis Community Bank.
VOTING RIGHTS
All voting rights with respect to Central Valley are vested in the holders of Central Valley's common stock.
Holders of Central Valley common stock are entitled to one vote for each share held except that in the election of directors each shareholder has cumulative voting rights and is entitled to as many votes as shall equal the number of shares held by such shareholder multiplied by the number of directors to be elected and such shareholder may cast all his or her votes for a single candidate or distribute such votes among any or all of the candidates he or she chooses. However, no shareholder shall be entitled to cumulate votes (in other words, cast for any candidate a number of votes greater than the number of shares of stock held by such shareholder) unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination.
PREEMPTIVE RIGHTS
Shareholders of Central Valley common stock have no preemptive rights. There are no conversion rights, redemption rights or sinking fund provisions.
LIQUIDATION RIGHTS
Upon liquidation of Central Valley the holders of Central Valley's common stock have the right to receive their pro rata portion of the assets of the Company distributable to shareholders. This is subject, however, to the preferential rights, if any, of the holders of any outstanding senior securities. Presently there are no senior securities outstanding.
PREFERRED STOCK
Central Valley is authorized to issue 10,000,000 shares of preferred stock. The Board of Directors has the authority to establish preferred stock in one or more series and to fix the dividend rights (including sinking fund provisions), redemption price or prices, and liquidation preferences, and the number of shares constituting any series or the designation of such series. Holders of preferred stock will not be held individually responsible, as such holders, for any debts, contracts or engagements of Central Valley, and will not be liable for assessments to correct impairments of the contributed capital of Central Valley. Holders of preferred stock, when and if issued, may become senior to holders of common stock as to dividend, voting, liquidation or other rights. The Board of Directors has no present intention to issue shares of preferred stock.
CENTRAL VALLEY ARTICLES OF INCORPORATION
Central Valley's Articles of Incorporation incorporate provisions which may have the effect of delaying, deferring or preventing a change in control of Central Valley in certain circumstances. Specifically, Central Valley 's Articles of Incorporation provide that the shareholder vote required to approve a Business Combination (as described below) shall be at least 80% of Central Valley 's outstanding shares of voting stock, voting together as a single class. A Business Combination means:
- any merger of Central Valley with or into any other corporation, person or
other entity which is the beneficial owner, directly or indirectly, of 5%
or more of the total voting power of the outstanding voting securities of
Central Valley; or
- any sale, lease, exchange or other disposition (in one transaction or
series of related transactions) of all or substantially all of the assets
of Central Valley to any other corporation, person or other entity which
is the beneficial owner, directly or indirectly, of 5% or more of the
total voting power of the outstanding voting securities of Central Valley;
or
- any sale, lease, exchange or other disposition (in one transaction or a
series of related transactions) to Central Valley or any subsidiary of
Central Valley of any assets in exchange for voting securities (or
securities convertible into or exchangeable for voting securities, or
options, warrants or rights to purchase voting securities or securities
convertible into or exchangeable for voting securities) constituting 5% or
more of the outstanding securities of Central Valley after such exchange
by any other corporation, person or entity which is the beneficial owner,
directly or indirectly, of 5% or more of the total voting power of the
outstanding voting securities of Central Valley; or
- any reclassification of securities, recapitalization or other transaction
designed to decrease the number of holders of Central Valley's voting
securities remaining after any other corporation, person or other entity
has acquired 5% or more of the total voting power of the outstanding
voting securities of Central Valley.
RESTRICTIONS ON RESALES BY AFFILIATES
Central Valley's common stock issuable in this offering has been registered under the Securities Act of 1933, as amended, but this registration does not cover resales of shares acquired by any Central Valley shareholder who is deemed to be an "affiliate" of Central Valley, that is one who directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with Central Valley. Affiliates may not sell the shares except pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
Not Applicable.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317 of the California Corporations Code authorizes a court to award, or a corporation's board of Directors to grant, indemnity to directors, officers, employees and other agents of the corporation in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933 as amended.
Article VI. of the Articles of Incorporation of Central Valley provides for indemnification of agents including directors, officers and employees, through bylaws, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code. Article V. of Central Valley's Articles of Incorporation further provides for the elimination of director liability for monetary damages to the maximum extent allowed by California law.
Section 48 of Central Valley's Bylaws provides that Central Valley shall indemnify its "agents", as defined in Section 317 of the California Corporations Code, to the full extent permitted by said Section, as amended from time to time, or as permitted by any successor statute to said Section.
Central Valley maintains insurance covering its directors, officers and employees against any liability asserted against any of them and incurred by any of them, whether or not Central Valley would have the power to indemnify them against such liability under the provisions of applicable law or the provisions of Central Valley 's Bylaws.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not Applicable.
ITEM 8. EXHIBITS.
5.1 Opinion re: Legality
13 Clovis Community Bank 1999 Annual Report to Shareholders
23.1 Consent of Counsel is included with the opinion re legality as Exhibit
5.1 to the Registration Statement.
23.2 Consent of Perry-Smith LLP
24.1 Power of attorney
99.1 Clovis Community Bank 1992 Stock Option Plan
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ITEM 9. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement; provided,
however, that paragraphs (1)(i) and (1)(ii) do not apply if the Registration
Statement is on Form S-3 or Form S-8 and the information required to be included
in a post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Clovis, California, on November 15, 2000.
CENTRAL VALLEY COMMUNITY BANCORP
/s/ Daniel J. Doyle , -------------------------------- Daniel J. Doyle, President & CEO |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
/s/ Daniel J. Doyle , Director, Principal Executive November 15, 2000 --------------------------------------- Officer Daniel J. Doyle * David E. Cook , Director November 15, 2000 --------------------------------------- David E. Cook * Sidney B. Cox , Director November 15, 2000 --------------------------------------- Sidney B. Cox * Daniel N. Cunningham , Director November 15, 2000 --------------------------------------- Daniel N. Cunningham * Steven D. McDonald , Director November 15, 2000 --------------------------------------- Steven D. McDonald * Louis McMurray , Director November 15, 2000 --------------------------------------- Louis McMurray * Wanda Lee Rogers , Director November 15, 2000 --------------------------------------- Wanda Lee Rogers * William S. Smittcamp , Director November 15, 2000 --------------------------------------- William S. Smittcamp * Yoshito Takahashi , Director November 15, 2000 --------------------------------------- Yoshito Takahashi * Joseph B. Weirick , Director November 15, 2000 --------------------------------------- Joseph B. Weirick * Gayle Graham , Principal Accounting Officer November 15, 2000 --------------------------------------- and Principal Financial Officer Gayle Graham |
* By: /s/ Daniel J. Doyle
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Daniel J. Doyle, as ATTORNEY-IN-FACT.
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EXHIBIT INDEX
Exhibit
Number Description
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5.1 Opinion re: Legality
13 Clovis Community Bank 1999 Annual Report to Shareholders
23.1 Consent of Counsel is included with the opinion re legality as Exhibit
5.1 to the Registration Statement.
23.2 Consent of Perry-Smith LLP
24.1 Power of attorney
99.1 Clovis Community Bank 1992 Stock Option Plan
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EXHIBIT 5.1
OPINION RE: LEGALITY
Lillick & Charles LLP Attorneys at Law Two Embarcadero Center San Francisco, CA 94111-3996 (415) 984-8200
November 17, 2000
Central Valley Community Bancorp
600 Pollasky Avenue
Clovis, California 93612
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-8 filed by Central Valley Community Bancorp ("Central Valley") with the Securities and Exchange Commission in connection with the registration under the Securities Act of 1933, as amended, of 195,200 shares of Central Valley Common Stock, no par value, (the "Shares") to be issued in connection with the grant and exercise of options under the Clovis Community Bank 1992 Stock Option Plan (the "Stock Option Plan"):
We are of the opinion that the Shares have been duly authorized and, when issued in accordance with the Stock Option Plan, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement, and any amendments thereto, and the use of our name under the caption "Legal Matters" in the Registration Statement, and any amendments thereto, and in the Prospectus included therein.
Very truly yours,
/s/ Lillick & Charles LLP LILLICK & CHARLES LLP |
CLOVIS COMMUNITY BANK
1999 ANNUAL REPORT TO SHAREHOLDERS
A Legacy of Pride - A Future of Promise
As we reflect on the first twenty years of Clovis Community Bank, many successes and milestones come to mind. And many familiar faces come to mind too. Some faces we've served since the day we opened in 1980. Others have only recently become customers of the Bank. But they are all greeted by name and always with a smile. That level of personal service is the greatest legacy of our first twenty years.
We are also excited about our future. As more people are drawn to Clovis Community Bank by our uniquely personal approach to banking, we are growing to meet their financial needs. As always, we continue to enhance not only our local accessibility but also our complete line of support and loyalty we have enjoyed and look forward to ensuring that Clovis Community Bank's next twenty years are as richly satisfying and successful as our first twenty.
To Our Shareholders:
The past year saw a return to profitability and was the Bank's best year in earnings since 1995. While this financial performance can and should be improved upon in the future, it is proof positive that the Bank's past financial and structural problems have been addressed.
Clovest Proves Costly, But Its Now Discontinued We have made significant progress in the discontinuance of Clovest Corporation, the Bank's real estate investment subsidiary. All projects were completed and sold during 1999 except one residential lot development. These reductions accounted for approximately $6 million in reduction of assets and liabilities during the past year.
[PHOTOGRAPH - DANIEL J. DOYLE, PRESIDENT AND CEO]
New Systems will Protect the Bank Against Risk Charge-offs and additions to the allowance for loan and lease losses were significant for the year. An analysis of the loans shows that they were all underwritten in previous years, before new credit processes and structures were put in place. We are confident that proper systems and measurement tools are now in place to monitor the Bank's risk in an accurate and timely fashion.
[PHOTOGRAPH - DANIEL CUNNINGHAM, CHAIRMAN OF THE BOARD]
Experienced New Management Team In Place During 1999, changes were made to supplement and support the Bank's leadership with the additions to the five key senior management team members, bringing over 125 combined years of banking experience to the organization. By adding a Manager of Retail and Consumer Banking, a Manager of Commercial and Business Banking and Manager of Credit Administration/Senior Credit Officer, we have enabled the Bank to more effectively meet the needs of every segment of our clientele.
[PHOTOGRAPH - WANDA L. ROGERS, ROGERS HELICOPTERS, INC.]
Bank Prevents Bite of "Y2K Bug"
There were, of course, significant efforts and financial resources invested in
preparing for the year 2000, or Y2K. The planning, testing, new equipment,
communication and hard work paid off. No negative impact occurred in the Bank's
systems or service. We offer our deepest appreciation to our customers and
shareholders for the confidence they displayed in our Bank during this time of
national uncertainty.
[PHOTOGRAPH - DAVID E. COOK, RETIRED]
Modest Improvements In Local Economy Are Encouraging The economy in our local market did show some improvement, as unemployment finally fell to single digits during part of the year. The Central Valley as a whole is still behind the growth experienced in other parts of California. However, long-term growth is considered to be positive for the Central Valley Region.
[PHOTOGRAPH - SID COX, COX COMMUNICATIONS]
Bank Capitalizes on 20-Year Record of Unchanged Strength & Stability The financial service industry continued to experience changes with mergers, acquisitions and new regulations being effected nationally. In order to capitalize on these changes, which generally are seen negatively by banking customers, our advertising message focused on the fact that Clovis Community Bank was preparing to enter its 20th year in business and remained the only bank in the market that had not been acquired, changed its name or gone out of business in the last twenty years. We combined the message with an invitation to use our SwitchKit, which was mailed to targeted businesses and consumers to encourage them to switch to Clovis Community Bank.
New Products Reflect Input From Bank Customers While we are organized by customer segments and not products, and while we attribute our success to our exceptional team of employees and shareholders, we are committed to continuing to ask our customers what we can do to meet their needs. By listening to them, we added our new Debit/Check Card, QuickLoan, QuickLine and QuickLease; received SBA Preferred Lender status; and added our Bank@Work program for individuals who are employed by our business customers. In addition, we installed a Marketing Customer Information System (MCIF) to assist us in monitoring the growth of the Bank by product segment and allowing us to better understand our customer's needs.
Bank Staff Sharpens Its Sales Focus
To effectively meet the needs of our customers, in an increasingly competitive
environment, the Bank spent considerable time in recruiting new sales-oriented
employees, providing training, developing incentive programs, and implementing a
new needs-based sales culture throughout the Bank.
[PHOTOGRAPH - STEVEN D. MCDONALD, MCDONALD PROPERTIES]
Stock Price Consistent With National Trend One area of disappointment to us all is the Bank's stock price decline in 1999. The market did not reward us for our progress or our return to profitability. Overall, the financial services industry was not "in favor" during this year, as evidenced by the significant decline in the value of nearly all bank stocks during 1999. Some of this was due to increased rates by the Federal Reserve, concerns about Y2K and fear that bank profits would decline. Some was due to concerns that if the economy began a recession, bank loans might deteriorate. And in some cases, the market was more interested in high-tech stocks. In our case, we have limited amounts of stock sales, our stock price can be greatly affected by small sales of shares which generally can take place through Internet trading or discount brokerage firms.
[PHOTOGRAPH - LOUIS MCMURRAY, CHARLES MCMURRAY COMPANY]
Quality Employees Are Key to Continued Success As we look to the year 2000 and beyond, we are excited about the opportunities for our Bank. Our Mission Statement and strategic plan clearly express our goal of providing long-term shareholder value and meeting the needs of our community. Our key focus in 2000 is to improve earnings and continue to improve asset quality. In order to broaden our competitive advantage, we will continue to provide local decision-making and employees empowered to deliver personal and professional customer solutions. The Clovis Community Bank advantage is that our employees, our products, and our entire organization is focused on meeting customer needs. We strongly believe customer satisfaction and shareholder value all rest on the quality of our team.
[PHOTOGRAPH - WILLIAM SMITTCAMP, WAWONA FROZEN FOODS]
New Services & Offices Planned for 2000
As we have listened to our customers, we feel now is the appropriate time to
offer Internet Banking. This project is underway and expected to be available
for all customers at the end of the second quarter. Likewise, responding to an
opportunity created by another merger in our local market, we will be opening a
new branch in the prestigious Fig Garden Village shopping center early in the
second quarter. This allows us to serve our existing customers in this popular
area, while expanding into one of our strategic business niches: the
professional market. Additionally, we will be opening a Commercial Banking
Center in the fast-growing River Park business district. This Center will be
staffed with key professional bankers. In order to accommodate this move, we
will integrate one of our three In-Store banking offices into the River Park
facility thus creating a full-service office. We will relocate and close one of
our in-store branches to accommodate these changes.
[PHOTOGRAPH - HOSHITO TAKEHASHI, INVESTMENTS]
Looking Ahead To Continued Success In The New Millennium A new and very experienced management team, combined with our outstanding new and existing employees, have created a solid foundation upon which the Bank can continue our record of service, stability and satisfaction. As we reflect
on the past 20 years, we appreciate your patience and support during those times. And as we look ahead to growing and building our organization for the next 20 years, we are committed to earning your business and rewarding your confidence every day.
[PHOTOGRAPH - JOSEPH WEIRICK, INVESTMENTS]
/s/ DANIEL N. CUNNINGHAM /s/ DANIEL J. DOYLE ---------------------------------- ---------------------------------------- Daniel N. Cunningham Daniel J. Doyle Chairman of the Board President and Chief Executive Officer |
Mission Statement
As a Full-Service Community Bank We Are Committed To:
- Providing the full range of financial products and services required by our
customers.
- Contributing to the quality of life throughout the Central Valley
communities we serve.
- Providing superior customer service to be delivered in a highly
professional, but very personal, manner that promotes trust and confidence.
- Maintaining a positive work environment for our team members.
- Continuing to maximize shareholder value.
Being the Best we can be!
Business
Clovis Community Bank is a California State chartered bank with deposit accounts insured by the Federal Deposit Insurance Corporation.
The Bank commenced operations on January 10, 1980 and currently operates full-service offices in Clovis, Fresno, Shaver Lake and Prather. Three of the offices are in-store facilities in Save Mart Supermarkets offering extended hours, including Saturday and Sunday hours, for the benefit of our customers. The Bank has increased the products and services offered to consumers and has provided emphasis on needs-based selling within the branch environment. Internet banking is expected to be provided to customers at the end of the second quarter of 2000.
The Bank operates a Real Estate Office where all real estate related transactions are processed, including residential and commercial interim construction loans, and all types of single family residential loans. The Bank also has an SBA Lending Department to complement its commercial banking services. In addition, the Bank expects to open a seventh branch at Fig Garden Village in Fresno during the second quarter of 2000. An additional commercial banking center is also expected to open in the second quarter in the River Park area of Fresno while closing one of the In-Store offices.
Clovis Community Bank has built a reputation for quality, efficient banking service based on personalized relationship banking for businesses, individuals and professionals. The business sector has been a primary area of growth within the Bank as its reputation as a lender and provider of business banking services has expanded. This sector is further serviced by courier service for commercial/business customers in the surrounding industrial area.
Account services include checking, savings, money market accounts and time certificates of deposit. Loan services include commercial/business loans, consumer loans, MasterCard and Visa credit cards and all types of real estate loans.
The Bank maintains state of the art data processing and information systems, 24-hour customer access to account information, deposit and withdrawal history, loan history, interest earned or paid and the ability to transfer funds via touch-tone phone through "BANKLINE". Automated teller machines are available at all six offices.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND 1998
1999 1998
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ASSETS
Cash and due from banks $ 14,087,796 $ 10,801,115
Federal funds sold 8,921,000 10,440,000
Available-for-sale investment securities (Note 2) 54,170,377 56,452,484
Held-to-maturity investment securities (market value of
$7,721,617 in 1998) (Note 2) 7,228,017
Loans, less allowance for credit losses of $2,236,342 in 1999
and $2,949,171 in 1998 (Notes 3, 13 and 17) 79,017,405 71,693,223
Equipment leased to others, net (Note 4) 2,437,118 2,357,235
Bank premises and equipment, net (Notes 5 and 13) 1,507,638 1,736,035
Other real estate, net of a valuation allowance of $36,305 in
1999 and $593,668 in 1998 (Note 6) 48,148 712,813
Investments in real estate, net of a valuation allowance of
$938,757 in 1999 and $901,641 in 1998 (Note 7) 502,321 7,251,222
Accrued interest receivable and other assets
(Notes 8, 11 and 16) 6,311,152 6,415,904
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$ 167,002,955 $ 175,088,048
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LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 34,965,565 $ 35,750,459
Interest bearing (Note 9) 114,181,818 116,255,868
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Total deposits 149,147,383 152,006,327
Notes payable (Notes 4 and 10) 250,366 5,972,423
Accrued interest payable and other liabilities (Note 16) 1,789,694 1,934,763
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Total liabilities 151,187,443 159,913,513
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Commitments and contingencies (Notes 12 and 13)
Shareholders' equity (Note 14):
Common stock, no par value; 2,812,500 shares
authorized, 1,303,459 and 1,169,067 shares issued
and outstanding in 1999 and 1998, respectively 6,465,236 3,913,798
Retained earnings 9,737,276 11,367,237
Accumulated other comprehensive loss (Notes 2 and 18) (387,000) (106,500)
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15,815,512 15,174,535
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$ 167,002,955 $ 175,088,048
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THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Interest income:
Interest and fees on loans $ 7,719,899 $ 8,671,527 $ 10,492,240
Interest on Federal funds sold 327,409 530,348 453,064
Interest on deposits in banks 15,054 10,650 17,485
Interest and dividends on investment
securities:
Taxable 2,824,774 2,242,488 1,055,744
Exempt from Federal income
taxes 466,222 457,113 460,300
------------ ------------ ------------
Total interest income 11,353,358 11,912,126 12,478,833
------------ ------------ ------------
Interest expense:
Interest on deposits (Note 9) 3,296,176 3,976,883 3,943,115
Other (Note 10) 48,217 79,556 45,420
------------ ------------ ------------
Total interest expense 3,344,393 4,056,439 3,988,535
------------ ------------ ------------
Net interest income before
provision for credit losses 8,008,965 7,855,687 8,490,298
Provision for credit losses (Note 3) 1,270,000 1,721,566 2,346,000
------------ ------------ ------------
Net interest income after
provision for credit losses 6,738,965 6,134,121 6,144,298
------------ ------------ ------------
Non-interest income:
Service charges 1,012,076 932,936 852,620
Rentals from equipment leased
to others 1,273,629 1,057,349 1,055,004
Loan placement fees 215,306 259,578 216,261
Net realized losses on sales of
investment securities (Note 2) (47,629) (8,656)
Other income 543,269 426,991 498,902
------------ ------------ ------------
Total non-interest income 2,996,651 2,676,854 2,614,131
------------ ------------ ------------
|
(CONTINUED)
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Non-interest expenses:
Salaries and employee benefits
(Notes 3 and 16) $ 3,853,412 $ 3,727,856 $ 3,102,309
Occupancy and equipment (Notes 5
and 13) 640,091 621,002 745,605
Depreciation and provision for losses
on equipment leased to others (Note 4) 1,080,410 914,620 858,009
Other expense (Note 15) 3,237,204 3,486,749 3,041,314
------------ ------------ ------------
Total non-interest expenses 8,811,117 8,750,227 7,747,237
------------ ------------ ------------
Income from continuing oper-
ations before income taxes 924,499 60,748 1,011,192
Income tax expense (benefit) (Note 11) 207,700 (149,000) 239,800
------------ ------------ ------------
Net income from continuing
operations 716,799 209,748 771,392
------------ ------------ ------------
Discontinued operations (Note 7):
Gain (loss) from operations of Clovest
less applicable income tax expense
(benefit) of $800, $(422,000) and
$(146,300) for the years ended
December 31, 1999, 1998 and 1997,
respectively 1,194 (601,967) (209,211)
------------ ------------ ------------
Net income (loss) $ 717,993 $ (392,219) $ 562,181
============ ============ ============
Basic earnings per share from
continuing operations (Note 14) $ .56 $ .17 $ .63
============ ============ ============
Diluted earnings per share from
continuing operations (Note 14) $ .55 $ .16 $ .59
============ ============ ============
Basic earnings (loss) per share (Note 14) $ .56 $ (.31) $ .46
============ ============ ============
Diluted earnings (loss) per share (Note 14) $ .55 $ (.30) $ .43
============ ============ ============
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCK OTHER
----------------------- RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME(LOSS) EQUITY INCOME(LOSS)
---------- ----------- ------------ ------------- ------------ -------------
Balance, January 1, 1997 1,101,990 $ 3,114,159 $ 11,642,533 $ 39,926 $ 14,796,618
Comprehensive income (Note 18):
Net income 562,181 562,181 $ 562,181
Other comprehensive income, net of tax:
Unrealized gains on available-for-sale
investment securities 149,674 149,674 149,674
----------
Total comprehensive income $ 711,855
==========
Cash dividend $.40 per share (445,258) (445,258)
Stock options exercised and related tax
benefit (Note 14) 11,160 132,389 132,389
---------- ----------- ------------ ---------- ------------
Balance, December 31, 1997 1,113,150 3,246,548 11,759,456 189,600 15,195,604
Comprehensive loss (Note 18):
Net loss (392,219) (392,219) $ (392,219)
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (296,100) (296,100) (296,100)
----------
Total comprehensive loss $ (688,319)
==========
Stock options exercised and related tax
benefit (Note 14) 55,917 667,250 667,250
---------- ----------- ------------ ---------- ------------
Balance, December 31, 1998 1,169,067 3,913,798 11,367,237 (106,500) 15,174,535
---------- ----------- ------------ ---------- ------------
|
(CONTINUED)
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
ACCUMULATED
COMMON STOCK OTHER
----------------------- RETAINED COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME(LOSS) EQUITY INCOME(LOSS)
---------- ----------- ------------ ------------- ------------ -------------
Balance, December 31, 1998 1,169,067 $ 3,913,798 $ 11,367,237 $ (106,500) $ 15,174,535
Comprehensive income (Note 18):
Net income 717,993 717,993 $ 717,993
Other comprehensive loss, net of tax:
Unrealized losses on available-for-sale
investment securities (Note 2) (280,500) (280,500) (280,500)
----------
Total comprehensive income $ 437,493
==========
Common stock dividend - 10% 117,217 2,344,340 (2,344,340)
Common stock dividend - fractional shares (3,614) (3,614)
Stock options exercised and related tax
benefit (Note 14) 17,175 207,098 207,098
---------- ----------- ------------ ---------- ------------
Balance, December 31, 1999 1,303,459 $ 6,465,236 $ 9,737,276 $ (387,000) $ 15,815,512
========== =========== ============ ========== ============
Disclosure of reclassification amount, net
of taxes:
Unrealized holding losses arising during 1999 $ (309,077)
Reclassification adjustment for net losses
included in net income 28,577
----------
Net unrealized losses on available-for-sale
investment securities $ (280,500)
==========
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 717,993 $ (392,219) $ 562,181
Adjustments to reconcile net income (loss) to net
cash provided by operating activities from
continuing operations:
Net (income) loss from discontinued operations (1,194) 601,967 209,211
Provision for credit losses 1,270,000 1,721,566 2,346,000
Provision for losses on other real estate 39,126 217,000 157,959
Gain on sale of equipment leased to others (43,165) (22,869) (49,244)
Net decrease in deferred loan fees (149,983) (88,393) (156,029)
Depreciation, accretion and amortization, net 2,231,647 1,808,431 1,726,147
Net realized losses on sales of available-for-sale
investment securities 47,629 8,656
(Gain) loss on sale of equipment (12,309) 4,413 16,050
Gain on sale of other real estate (86,473) (102,483)
Reduction in carrying value of bank premises
and equipment 161,612 175,500
Net (increase) decrease in accrued interest
receivable and other assets (376,680) 1,069,504 400,544
Net (decrease) increase in accrued interest
payable and other liabilities (125,241) 82,270 (559,995)
Deferred income tax expense (benefit) 645,000 (1,095,000) (683,000)
------------ ------------ ------------
Net cash provided by operating activities of
continuing operations 4,317,962 3,979,687 3,978,480
------------ ------------ ------------
Cash flows from investing activities:
Purchases of available-for-sale investment securities (28,359,004) (39,509,404) (12,628,833)
Proceeds from sale of available-for-sale investment
securities 11,773,416 8,578,882
Proceeds from principal repayments of available-for-
sale investment securities 12,706,547 7,706,916 1,707,519
Proceeds from called and matured available-for-sale
investment securities 12,041,812
Proceeds from matured held-to-maturity investment
securities 155,000 185,000
Net (increase) decrease in loans (8,794,798) 14,918,119 (1,965,265)
Purchases of premises and equipment (260,380) (196,252) (644,290)
Proceeds from sale of equipment 6,000 8,000
Proceeds from sale of other real estate 1,062,611 899,752 252,345
Purchase of equipment leased to others (1,818,117) (866,522) (839,106)
Proceeds from sale of equipment leased to others 852,932 176,132 861,259
------------ ------------ ------------
Net cash used in investing activities of
continuing operations (788,981) (16,716,259) (4,484,489)
------------ ------------ ------------
|
(CONTINUED)
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand, interest-bearing and
savings deposits $ 3,802,731 $ 11,717,800 $ 5,527,862
Net (decrease) increase in time deposits (6,661,675) (2,567,275) 7,273,009
Payments on notes payable for equipment leased to
others (761,949) (468,991) (534,993)
Dividends paid on common stock (445,258)
Cash paid for fractional shares (3,614)
Proceeds from exercise of stock options 143,093 206,232 76,326
Net decrease in Federal funds purchased (1,500,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities
of continuing operations (3,481,414) 8,887,766 10,396,946
------------ ------------ ------------
Cash provided by discontinued operations 1,720,114 3,322,219 416,983
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 1,767,681 (526,587) 10,307,920
Cash and cash equivalents at beginning of year 21,241,115 21,767,70 11,459,782
------------ ------------ ------------
Cash and cash equivalents at end of year $ 23,008,796 $ 21,241,115 $ 21,767,702
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the year for:
Interest expense $ 3,411,303 $ 4,106,864 $ 3,910,180
Income taxes $ (448,261) $ 436,895 $ 431,928
Non-cash investing activities:
Real estate acquired through foreclosure, net of
valuation allowances $ 490,205 $ 706,049 $ 24,026
Receivable recorded from Small Business
Administration in connection with foreclosed
property $ 139,606
Net change in unrealized (loss) gain on available-
for-sale investment securities $ (470,900) $ (470,100) $ 237,625
Transfer of held-to-maturity investment securities
to available-for-sale investment securities $ 7,228,017
Non-cash financing activities:
Purchase of equipment leased to others through
issuance of notes payable $ 132,363 $ 767,360 $ 650,792
|
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE FINANCIAL STATEMENTS.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Clovis Community Bank (the "Bank") operates six branches in Clovis, north Fresno, and northeast Fresno County, California. The Bank?s primary source of revenue is providing loans to customers who are predominately small and middle-market businesses and middle-income individuals. Another significant source of revenue includes arrangements to lease computer equipment to various entities located throughout the United States. In addition, the Bank engaged in real estate development activities through its subsidiary, Clovest Corporation (Clovest). Such real estate development activities consisted primarily of the acquisition, development and sale of residential homes, homesite lots and senior citizen housing in the Fresno and Clovis areas through various partnerships and limited liability companies (LLCs) in which Clovest is a general partner or manager. As discussed in Note 7, on July 15, 1998, the Clovest Board of Directors adopted a plan to discontinue the operations of Clovest. The accounting and reporting policies of Clovis Community Bank and subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry.
Certain reclassifications have been made to prior years' balances to conform to classifications used in 1999.
BASIS OF PRESENTATION
The consolidated financial statements include the Bank and its wholly-owned subsidiaries, Clovest and Clovis Securities Corporation (currently inactive). The operating results of Clovest are reflected as discontinued operations for all periods presented. All significant intercompany accounts and transactions are eliminated.
INVESTMENT SECURITIES
Investments are classified into the following categories:
- Available-for-sale securities, reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of taxes, as accumulated other comprehensive income (loss) within shareholders' equity.
- Held-to-maturity securities, which management has the positive intent and ability to hold to maturity, reported at amortized cost, adjusted for the accretion of discounts and amortization of premiums.
Management determines the appropriate classification of its investments at the time of purchase and may only change the classification in certain limited circumstances. All transfers between categories are accounted for at fair value.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (SFAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which was subsequently amended by SFAS 137 to delay the effective date. Upon adoption, SFAS 133 allows the transfer of held-to-maturity investment securities into the available-for-sale category without calling into question an entity's intent to hold other debt securities to maturity in the future. The Bank adopted SFAS 133 as of April 1, 1999. No derivative instruments were held and, accordingly, there is no transition adjustment reported in these financial statements. However, all held-to-maturity investment securities were transferred to the available-for-sale category and the unrealized holding gain at the date of transfer was included in accumulated other comprehensive income.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENT SECURITIES (Continued)
Gains or losses on the sale of investment securities are computed on the specific identification method. Interest earned on investment securities is reported in interest income, net of applicable adjustments for accretion of discounts and amortization of premiums. In addition, unrealized losses that are other than temporary are recognized in earnings for all investments.
LOANS
Loans are stated at principal balances outstanding. Interest is accrued daily based upon outstanding loan balances. However, when, in the opinion of management, loans are considered impaired and the future collectibility of interest and principal is in serious doubt, a loan is placed on nonaccrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against income. Payments received are applied to reduce principal to the extent necessary to ensure collection. Subsequent payments on these loans, or payments received on nonaccrual loans for which the ultimate collectibility of principal is not in doubt, are applied first to earned but unpaid interest and then to principal.
An impaired loan is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical matter, at the loan's observable market price or the fair value of collateral if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due (including both principal and interest) in accordance with the contractual terms of the loan agreement.
Substantially all loan origination fees, commitment fees, direct loan origination costs and purchase premiums and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained to provide for losses related to impaired loans and other losses that can be expected to occur in the normal course of business. The determination of the allowance is based on estimates made by management, to include consideration of the character of the loan portfolio, specifically identified problem loans, potential losses inherent in the portfolio taken as a whole and economic conditions in the Bank's service area. These estimates are particularly susceptible to changes in the economic environment and market conditions. The allowance is established through a provision for credit losses which is charged to expense. Management considers the allowance for credit losses adequate to cover losses inherent in the loan portfolio.
EQUIPMENT LEASED TO OTHERS
The Bank enters into leasing arrangements through certain leasing brokers to lease computer equipment to various entities. Computer equipment leased to others under operating leases is depreciated on a straight-line basis over the lease term to an estimated residual value. Related rental income is recorded when earned.
The Bank maintains an allowance for residual losses based upon management's assessment of various factors affecting residual values. Management considers the allowance for residual losses adequate to cover any potential losses in the lease portfolio.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER REAL ESTATE
Other real estate includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property is charged against the allowance for credit losses. A valuation allowance for losses on other real estate is maintained to provide for temporary declines in value. The allowance is established through a provision for losses on other real estate and is included in other expenses. Subsequent gains or losses on sales or writedowns resulting from permanent impairments are recorded in other income or expense as incurred.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are carried at cost. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets. The useful lives of Bank premises are estimated to be between twenty and forty years. The useful lives of improvements to Bank premises, furniture, fixtures and equipment are estimated to be three to fifteen years. Leasehold improvements are amortized over the life of the asset or the term of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.
The Bank evaluates premises and equipment for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable. Based upon these evaluations, the Bank recorded an adjustment to the carrying value of certain long-lived assets in 1999 and 1998 (Note 5).
REAL ESTATE INVESTMENTS
Real estate held for investment is held in the Bank's subsidiary, Clovest, and is recorded at the lower of cost or net realizable value through the use of a valuation allowance. The allowance is established through a provision for losses on real estate investments which is included in losses from discontinued operations. Interest and other carrying charges related to property held for development are capitalized during the construction period. Capitalization of interest ceases when the qualifying asset is substantially complete and ready for sale or when activities related to development are completed.
Revenue recognition on the disposition of real estate is dependent upon the transaction meeting certain criteria relating to the nature of the property sold and the terms of the sale. Under certain circumstances, revenue recognition may be deferred until these criteria are met.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial statement and tax basis of existing assets and liabilities. On the balance sheet, net deferred tax assets are included in accrued interest receivable and other assets.
CASH EQUIVALENTS
For the purpose of the statement of cash flows, the Bank considers cash and due from banks and Federal funds sold to be cash equivalents. Generally, Federal funds are sold for one-day periods.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
Stock options are accounted for under the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Bank's stock at the date of grant over the exercise price. However, if the fair value of stock-based compensation computed under a fair value based method, as prescribed in Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, is material to the financial statements, pro forma net income and earnings per share are disclosed as if the fair value method had been applied.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (EPS), which excludes dilution, is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock which shares in the earnings of the Bank. All data with respect to computing earnings per share is retroactively adjusted to reflect stock dividends and the treasury stock method is applied to determine the dilutive effect of stock options in computing diluted EPS.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
2. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at December 31, 1999 and 1998 consisted of the following:
AVAILABLE-FOR-SALE:
1999
----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
U.S. Treasury
securities $ 1,018,614 $ (14,500) $1,004,114
U.S. Government
agencies 4,989,841 (117,300) 4,872,541
Obligations of states
and political sub-
divisions 9,771,247 $ 159,200 (144,500) 9,785,947
U.S. Government
agencies collateral-
ized by mortgage
obligations 37,211,067 85,500 (596,200) 36,700,367
Federal Home Loan
Mortgage Corpora-
tion non-cumulative
preferred stock 1,012,189 (12,200) 999,989
Federal Home Loan
Bank stock 495,800 495,800
Other securities 311,619 311,619
------------- ------------- ------------- -------------
$ 54,810,377 $ 244,700 $ (884,700) $ 54,170,377
============= ============= ============= =============
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
AVAILABLE-FOR-SALE: (CONTINUED)
1998
----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
U.S. Treasury
securities $ 500,681 $ 3,000 $ 503,681
U.S. Government
agencies 17,740,958 34,100 $ (29,300) 17,745,758
Obligations of states
and political sub-
divisions 1,492,547 91,100 1,583,647
U.S. Government
agencies collateral-
ized by mortgage
obligations 36,387,398 213,600 (481,600) 36,119,398
Federal Home Loan
Mortgage Corpora-
tion non-cumulative
preferred stock 500,000 500,000
------------- ------------- ------------- -------------
$ 56,621,584 $ 341,800 $ (510,900) $ 56,452,484
============= ============= ============= =============
|
Net unrealized losses on available-for-sale investment securities totaling $640,000 and $169,100 are recorded net of $253,000 and $62,600 in tax benefits as accumulated other comprehensive loss within shareholders' equity at December 31, 1999 and 1998, respectively.
Proceeds and gross realized gains and losses from the sale of available-for-sale investment securities totaled $11,773,416, $31,285 and $78,914, respectively, for the year ended December 31, 1999. There were no sales of available-for-sale investment securities for the year ended December 31, 1998. Proceeds and gross realized gains and losses from the sale of available-for-sale investment securities totaled $8,578,882, $36,915 and $45,571, respectively, for the year ended December 31, 1997.
HELD-TO-MATURITY:
1998
----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------- ------------- ------------- -------------
Obligations of states
and political sub-
divisions $ 7,228,017 $ 493,600 $ - $ 7,721,617
================= ================== ================== ==================
|
On April 1, 1999, all securities were transferred from the held-to-maturity category to the available-for-sale category in accordance with the provisions of SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, issued by the Financial Accounting Standards Board. The amortized cost and market value of the transferred securities on the date of the transfer were $7,064,000 and $7,535,000, respectively. Accordingly, unrealized gains of $471,000 were recorded, net of $174,000 in tax liabilities, as accumulated other comprehensive income within shareholders' equity. There were no transfers of held-to-maturity investment securities during 1998 or 1997.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of investment securities at December 31, 1999 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.
AVAILABLE-FOR-SALE
---------------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------- -------------
Within one year
After one year through five years $ 4,636,216 $ 4,549,472
After five years through ten years 3,568,023 3,489,494
After ten years 7,575,463 7,623,636
------------- -------------
15,779,702 15,662,602
U.S. Government guaranteed mortgage-
related securities 37,211,067 36,700,367
Federal Home Loan Mortgage Corporation
non-cumulative preferred stock 1,012,189 999,989
Federal Home Loan Bank stock 495,800 495,800
Other securities 311,619 311,619
------------- -------------
$ 54,810,377 $ 54,170,377
============= =============
|
Investment securities with amortized costs totaling $16,445,084 and $12,702,470 and market values totaling $16,279,426 and $13,036,770 were pledged to secure public deposits and other contractual obligations at December 31, 1999 and 1998, respectively.
3. LOANS
Outstanding loans are summarized as follows:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Commercial $ 40,634,532 $ 35,994,782
Real estate 25,543,743 25,070,678
Real estate - construction 8,253,535 5,712,137
Agricultural 609,613 1,466,751
Installment 5,917,822 6,031,185
Other 545,191 767,533
------------- -------------
81,504,436 75,043,066
Deferred loan fees, net (250,689) (400,672)
Allowance for credit losses (2,236,342) (2,949,171)
------------- -------------
$ 79,017,405 $ 71,693,223
============= =============
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. LOANS (CONTINUED)
Changes in the allowance for credit losses were as follows:
1999 1998 1997
------------ ------------ ------------
Balance, beginning of year $ 2,949,171 $ 2,600,015 $ 1,599,138
Provision charged to operations 1,270,000 1,721,566 2,346,000
Losses charged to the allowance (2,532,540) (1,622,705) (1,416,230)
Recoveries 549,711 250,295 71,107
------------ ------------ ------------
Balance, end of year $ 2,236,342 $ 2,949,171 $ 2,600,015
============ ============ ============
|
The recorded investment in loans that were considered to be impaired totaled $3,274,953 and $4,323,408 at December 31, 1999 and 1998, respectively. The related allowance for credit losses on these impaired loans at December 31, 1999 and 1998 was $614,000 and $609,500, respectively. The average recorded investment in impaired loans during 1999, 1998 and 1997 was $4,212,000, $2,034,852 and $1,498,717, respectively. Interest income on impaired loans is recognized on a cash basis and totaled $229,000 and $83,000 for the years ended December 31, 1999 and 1998, respectively. Interest collected on impaired loans for the year ended December 31, 1997 was not material.
At December 31, 1999 and 1998, nonaccrual loans totaled $3,617,536 and $4,032,632, respectively. Interest foregone on nonaccrual loans totaled $126,021, $196,226 and $92,258 for the years ended December 31, 1999, 1998 and 1997, respectively.
Salaries and employee benefits totaling $58,069, $74,126 and $125,890 have been deferred as loan origination costs for the years ended December 31, 1999, 1998 and 1997, respectively.
4. EQUIPMENT LEASED TO OTHERS
The Bank is a lessor of computer equipment under operating leases. Included in notes payable are obligations to other financial institutions of $250,366 and $879,952 at December 31, 1999 and 1998, respectively, which were used to partially finance purchases of equipment leased to others (see Note 10).
Equipment leased to others consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Computer equipment $ 3,897,397 $ 3,790,258
Accumulated depreciation (1,421,430) (1,394,174)
Allowance for residual losses (38,849) (38,849)
------------- -------------
$ 2,437,118 $ 2,357,235
============= =============
|
Depreciation totaled $1,080,410, $914,620 and $858,009 for the years ended December 31, 1999, 1998 and 1997, respectively. There has been no change in the allowance for residual losses for the years ended December 31, 1999, 1998 and 1997.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
4. EQUIPMENT LEASED TO OTHERS (CONTINUED)
Minimum future rentals on noncancelable operating leases are as follows:
YEAR ENDING
DECEMBER 31,
------------
2000 $ 1,083,149
2001 683,507
2002 154,005
------------
$ 1,920,661
============
|
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Land $ 250,000 $ 250,000
Buildings and improvements 933,941 933,176
Furniture, fixtures and equipment 1,915,536 2,120,624
Leasehold improvements 516,043 671,322
------------- -------------
3,615,520 3,975,122
Less accumulated depreciation
and amortization (2,107,882) (2,239,087)
------------- -------------
$ 1,507,638 $ 1,736,035
============= =============
|
Depreciation and amortization included in occupancy and equipment expense totaled $333,474, $343,909 and $423,787 for the years ended December 31, 1999, 1998 and 1997, respectively.
In December 1999 and 1998, management determined that the carrying amount of certain leasehold improvements was not fully recoverable. Accordingly, the Bank reduced the carrying value to $7,637 and $8,000, respectively, through a charge to other expenses totaling $161,612 and $175,500, respectively, to reflect the impairment.
6. OTHER REAL ESTATE
Other real estate, net of the related valuation allowance, totaled $48,148 and $712,813 at December 31, 1999 and 1998, respectively.
Changes in the valuation allowance for other real estate were as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
----------- ------------ -----------
Balance, beginning of year $ 593,668 $ 479,151 $ 359,147
Provision charged to operations 39,126 217,000 157,959
Losses charged to the allowance (596,489) (102,483) (37,955)
----------- ------------ -----------
Balance, end of year $ 36,305 $ 593,668 $ 479,151
=========== ============ ===========
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. DISCONTINUED OPERATIONS
On January 23, 1996, the FDIC issued an order approving the Bank's application to continue to engage in real estate development, through Clovest, subject to certain conditions relating to the maintenance of capital (see Note 14) and the reduction in the level of real estate investment to less than 30% of Tier 1 capital by January 2001. Management believes that Clovest is in substantial compliance with the outlined conditions at December 31, 1999.
Clovest did not enter into any new real estate investments in 1999 and 1998, and, on July 15, 1998 (the measurement date), the Board of Directors approved the discontinuation of Clovest's operations. At the measurement date, management estimated the net realizable value of each asset and established a plan of disposition. The plan of disposition calls for the expedient but judicious sale of assets. Management anticipates no further losses will be incurred in connection with the disposition of the remaining assets in Clovest.
Summarized below is condensed consolidated financial information for Clovest included as discontinued operations in the Bank's consolidated financial statements before elimination of intercompany accounts:
Condensed Balance Sheet:
1999 1998
----------- -----------
Assets:
Cash $ 113,831 $ 135,762
Real estate held for sale, net of valuation
allowance of $938,757 in 1999 and
$901,641 in 1998 502,321 7,251,222
Other assets 87,806 95,377
----------- -----------
Total assets $ 703,958 $ 7,482,361
=========== ===========
Liabilities and shareholder's deficit:
Liabilities:
Advances from the Bank, net of allocated tax
benefit of $602,083 in 1999 and $527,083
in 1998 $ 922,877 $ 2,323,463
Notes payable to the Bank 58,310
Notes payable to third parties (Note 10) 5,092,471
Other liabilities 112,992 189,089
----------- -----------
Total liabilities 1,035,869 7,763,333
Minority interest, net of allowance for
uncollectible amounts of $396,396 in
1999 and $382,000 in 1998 (24,934) (87,425)
Shareholder's deficit (306,977) (193,547)
----------- -----------
Total liabilities and shareholder's deficit $ 703,958 $ 7,482,361
=========== ===========
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
7. DISCONTINUED OPERATIONS (CONTINUED)
Condensed Statement of Operations:
1999 1998 1997
------------- ------------ ------------
Income (loss) from operations of real estate
investments $ 201,030 $ (397,628) $ (187,030)
Interest income 17,398 209,063 270,402
Provisions to reduce carrying value of
minority interests and real estate under
development, net of recoveries (51,512) (598,572) (389,589)
Interest paid to Bank (190,424) (386,507)
Other expenses, net (202,883) (435,546) (132,509)
------------- ------------ ------------
(226,391) (1,609,190) (438,726)
Minority interest in loss from investments
in real estate 37,961 198,715 83,217
------------- ------------ ------------
Loss before income tax benefit $ (188,430) $ (1,410,475) $ (355,509)
============ ============ ============
|
At December 31, 1999, Clovest's interests are comprised primarily of a single family development of twenty-seven contiguous five acre parcels. Clovest sold its interest in a senior citizens' apartment building in 1999. Operating losses from the measurement date to December 31, 1999 and 1998 totaled approximately $788,000 and $600,000, respectively. Asset dispositions subsequent to the measurement date totaled $7,412,000 and $663,000 at December 31, 1999 and 1998, respectively. At December 31, 1999, Clovest has no commitments to fund further development of its remaining projects.
8. ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS
Accrued interest receivable and other assets consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Accrued interest receivable $ 841,158 $ 1,020,860
Receivable from minority interests in real estate
investments (Note 7) 24,934 87,425
Net deferred tax assets (Note 11) 2,584,000 3,039,000
Cash surrender value of life insurance (Note 16) 1,582,138 1,510,522
Intangibles 9,084 24,249
Prepaid expenses 108,623 118,104
Taxes receivable 537,772 485,529
Other 623,443 130,215
------------- -------------
$ 6,311,152 $ 6,415,904
============= =============
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. DEPOSITS
Interest-bearing deposits consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Savings $ 12,586,038 $ 13,223,993
Money market 24,411,789 27,150,116
NOW accounts 32,153,482 24,189,575
Time, $100,000 or more 13,182,399 17,657,112
Time, under $100,000 31,848,110 34,035,072
------------- -------------
$ 114,181,818 $ 116,255,868
============= =============
|
Aggregate annual maturities of time deposits are as follows:
YEAR ENDING
DECEMBER 31,
------------
2000 $ 37,346,057
2001 7,287,537
2002 396,915
-------------
$ 45,030,509
=============
|
Interest expense recognized on interest-bearing deposits consisted of the following:
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
----------- ------------ -----------
Savings $ 266,603 $ 286,127 $ 303,796
Money market 647,800 582,930 590,495
NOW accounts 211,071 292,600 305,509
Time, $100,000 or more 551,293 816,149 833,141
Time, under $100,000 1,619,409 1,999,077 1,910,174
----------- ------------ -----------
$ 3,296,176 $ 3,976,883 $ 3,943,115
=========== ============ ===========
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. NOTES PAYABLE AND SHORT-TERM BORROWING ARRANGEMENTS
NOTES PAYABLE
Notes payable consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Notes payable in connection with subsidiary investments
in real estate:
Construction loan payable to a financial institution
secured by land and improvements, variable
interest rate, interest due monthly, remaining
interest and principal paid April 1999. $ 5,080,000
Other 12,471
-------------
5,092,471
Notes payable in connection with equipment leases:
Note payable to a financial institution secured by
computer equipment, interest at 6.28% fixed,
paid December 1999. 504,097
Note payable to a financial institution secured by
computer equipment, interest at 5.65% fixed, due
in installments through April 2001. $ 94,849
Note payable to a financial institution secured by
computer equipment, interest at 6.88% fixed, due
in installments through August 2000. 155,517 375,855
------------- -------------
$ 250,366 $ 5,972,423
============= =============
|
SHORT-TERM BORROWING ARRANGEMENTS
The Bank has unsecured lines of credit with its correspondent banks which, in the aggregate, amounted to $4,900,000 at December 31, 1999 and 1998, at interest rates which vary with market conditions. The Bank also had a line of credit with the Federal Reserve Bank of San Francisco at December 31, 1999 and 1998 which bears interest at the prevailing discount rate collateralized by $10,043,000 and $1,500,000, respectively, in investment securities. The amount of the credit line varies according to the Bank's deposit base and other factors. At December 31, 1999 and 1998, the Bank had no outstanding borrowings under these lines of credit.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. INCOME TAXES
The expense (benefit) for income taxes for continuing operations for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
FEDERAL STATE TOTAL
------------ ------------ ------------
1999
Current $ (422,100) $ (15,200) $ (437,300)
Deferred $ 579,000 66,000 645,000
------------ ------------ ------------
Income tax expense $ 156,900 $ 50,800 $ 207,700
============ ============ ============
1998
Current $ 267,000 $ 22,000 $ 289,000
Deferred (368,000) (70,000) (438,000)
------------ ------------ ------------
Income tax benefit $ (101,000) $ (48,000) $ (149,000)
============ ============ ============
1997
Current $ 435,800 $ 185,000 $ 620,800
Deferred (278,000) (103,000) (381,000)
------------ ------------ ------------
Income tax expense $ 157,800 $ 82,000 $ 239,800
============ ============ ============
|
Deferred tax assets (liabilities) consisted of the following:
DECEMBER 31,
---------------------------------
1999 1998
------------- -------------
Deferred tax assets:
Allowance for credit losses $ 687,000 $ 1,112,000
Net operating loss 823,000 913,000
Other reserves 632,000 859,000
Other accruals 117,000 152,000
Deferred compensation 388,000 371,000
Unrealized loss on available-for-sale
investment securities 253,000 63,000
------------- -------------
Total deferred tax assets 2,900,000 3,470,000
------------- -------------
Deferred tax liabilities:
Bank premises and equipment (93,000) (183,000)
Future liability of State deferred tax asset (214,000) (236,000)
Consolidated partnership and LLC book
and tax differences (9,000) (12,000)
------------- -------------
Total deferred tax liabilities (316,000) (431,000)
------------- -------------
Net deferred tax assets $ 2,584,000 $ 3,039,000
============= =============
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. INCOME TAXES (CONTINUED)
The Bank had the following Federal and State net operating loss carryforward at December 31, 1999:
NET OPERATING
LOSS EXPIRATION
CARRYFORWARD DATE
-------------- -----------
Federal $ 919,000 2018
1,124,000 2019
--------------
$ 2,043,000
==============
State $ 768,000 2003
387,000 2004
--------------
$ 1,155,000
==============
|
The expense (benefit) for income taxes for continuing operations differs from amounts computed by applying the statutory Federal income tax rates to operating income from continuing operations before income taxes. The significant items comprising these differences for the years ended December 31, 1999, 1998 and 1997 consisted of the following:
1999 1998 1997
------------- ------------ ------------
Federal income tax expense, at
statutory rate 34.0 % 34.0 % 34.0 %
State franchise tax expense (benefit),
net of Federal tax effect 2.5 % (63.4)% 3.2 %
Tax exempt income (15.9)% (220.1)% (16.8)%
Other 1.9 % 4.2 % .2 %
------------- ------------ ------------
Total income tax expense
(benefit) for continuing
operations 22.5 % (245.3)% 20.6 %
============= ============ ============
|
12. TERMINATION OF REGULATORY ORDERS
On February 10 and March 10, 1999, the Bank was notified by the Federal Deposit Insurance Corporation (FDIC) and California Department of Financial Institutions (DFI), respectively, that regulatory orders (Orders) to address certain concerns arising out of a 1997 joint examination had been terminated. Under the Orders, the Bank was required to (i) retain qualified management, (ii) maintain Tier 1 capital equal to or exceeding 7.5% of total assets, (iii) reduce classified assets to defined amounts and maintain a fully funded allowance for credit losses, (iv) reduce the concentration in real estate assets and obtain prior approval before making any additional real estate investments, (v) revise, adopt and implement lending and internal control policies, (vi) formulate a strategic plan which addressed improving the earnings of the Bank, (vii) develop and adopt a Year 2000 Plan and (viii) obtain written consent of the FDIC and DFI prior to paying cash dividends.
On February 17, 1999, the Board of Directors of the Bank adopted a resolution to, among other things, maintain a ratio of Tier 1 capital to total assets of at least 7% and to obtain the written consent of the FDIC and the DFI prior to paying any cash dividends. Additionally, the Board resolved to provide supplementary quarterly status reporting to the FDIC and DFI until notification was received from the FDIC and DFI that such reporting was no longer required. On December 31, 1999, the FDIC and DFI did notify the Bank that the conditions required by the resolution had been achieved and supplemental reporting was no longer required. Accordingly, the Board intends to rescind the February 17, 1999 resolution.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES
LEASES
The Bank leases certain of its branch facilities and administrative offices under noncancelable operating leases. Rental expense included in occupancy and equipment and other expense totaled $161,653, $174,783 and $170,128 for the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease payments on noncancelable operating leases which expire in years through 2005 are as follows:
YEAR ENDING
DECEMBER 31,
------------------
2000 $ 189,569
2001 128,290
2002 123,566
2003 120,192
2004 105,076
Thereafter 105,076
------------------
$ 771,769
==================
|
The Bank has an option to renew its Shaver Lake office lease for two five-year terms after the initial lease ends May 31, 2002. Additionally, the Bank has an option to renew its real estate office lease for two five-year terms after the initial lease ends August 29, 2005.
FEDERAL RESERVE REQUIREMENTS
Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits. The average amount of such reserve balances required at December 31, 1999 and 1998 was $25,000 and $1,149,000, respectively.
CORRESPONDENT BANKING AGREEMENTS
The Bank maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Uninsured deposits totaled $1,605,244 at December 31, 1999.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments consist of commitments to extend credit and letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.
The Bank's exposure to credit loss in the event of nonperformance by the other party for commitments to extend credit and letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and letters of credit as it does for loans included on the balance sheet.
The following financial instruments represent off-balance-sheet credit risk:
DECEMBER 31,
----------------------------------
1999 1998
--------------- ---------------
Commitments to extend credit $ 41,929,933 $ 34,532,711
Letters of credit $ 592,000 $ 1,018,000
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (Continued)
Commitments to extend credit consist primarily of unfunded single-family residential and commercial real estate construction loans and commercial revolving lines of credit. Construction loans are established under standard underwriting guidelines and policies and are secured by deeds of trust, with disbursements made over the course of construction. Commercial revolving lines of credit have a high degree of industry diversification. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are generally secured and are issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.
At December 31, 1999, commercial loan commitments represent approximately 67% of total commitments and are generally secured. Real estate loan commitments represent 16% of total commitments and are generally secured by property with a loan-to-value ratio not to exceed 80%. Consumer loan commitments represent the remaining 17% of total commitments and are generally unsecured. In addition, the majority of the Bank's loan commitments have variable interest rates.
CONCENTRATIONS OF CREDIT RISK
The Bank's business activity is with customers located primarily within Fresno County. Although the Bank has a diversified loan portfolio, a significant portion of its customers' ability to repay loans is dependent upon the real estate market and various economic factors within the Bank's service area. Generally, loans are secured by various forms of collateral. The Bank's loan policy requires sufficient collateral be obtained as necessary to meet the Bank's relative risk criteria for each borrower. The Bank's collateral consists primarily of real estate, accounts receivable, inventory, and other financial instruments.
CONTINGENCIES
The Bank is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the financial position or results of operations of the Bank.
14. SHAREHOLDERS' EQUITY
REGULATORY CAPITAL
The Bank is subject to certain regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC). Failure to meet these minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Each of these components is defined in the regulations. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
REGULATORY CAPITAL (Continued)
Notifications from the FDIC as of June 30, 1999, 1998 and 1997 categorized the Bank as well- capitalized under the regulatory framework for prompt corrective action. The Bank's capital ratios are detailed below.
1999 1998 1997
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ----- ------------ ------- ----------- --------
TIER 1 LEVERAGE RATIO
Clovis Community Bank $ 14,413,000 8.8% $ 13,329,000 8.0% $ 14,975,000 9.4%
Minimum requirement for "Well-
Capitalized" institution $ 8,192,000 5.0% $ 8,320,000 5.0% $ 7,947,000 5.0%
Minimum regulatory requirement $ 6,554,000 4.0% $ 6,656,000 4.0% $ 6,358,000 4.0%
TIER 1 RISK-BASED CAPITAL RATIO
Clovis Community Bank $ 14,413,000 14.2% $ 13,329,000 12.8% $ 14,975,000 12.3%
Minimum requirement for "Well-
Capitalized" institution $ 6,078,000 6.0% $ 6,257,000 6.0% $ 7,278,000 6.0%
Minimum regulatory requirement$ $ 4,052,000 4.0% $ 4,171,000 4.0% $ 4,852,000 4.0%
TOTAL RISK-BASED CAPITAL RATIO
Clovis Community Bank $ 15,690,000 15.5% $ 14,653,000 14.1% $ 16,502,000 13.6%
Minimum requirement for "Well-
Capitalized" institution $ 10,130,000 10.0% $ 10,428,000 10.0% $ 12,129,000 10.0%
Minimum regulatory requirement$ $ 8,104,000 8.0% $ 8,342,000 8.0% $ 9,703,000 8.0%
|
As discussed in Note 7, one of the conditions to continue real estate activities specified that the Bank's capital level after the deduction of all real estate investments (as defined in the FDIC's approval of the Bank's application to continue to engage in real estate development activities) must equal or exceed the levels required for a well-capitalized institution. As of December 31, 1999 and 1998, the Bank exceeded the levels required for a well-capitalized institution after deduction of all its real estate investments. As of December 31, 1997, the Bank exceeded the Tier 1 capital to risk-weighted assets and Tier 1 capital to average assets required levels for a well-capitalized institution after deduction of all its real estate investments, but did not meet the required level for total capital to risk-weighted assets after deduction of all real estate investments (as defined). The Bank's ratios under this additional requirement are shown on the following page.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
REGULATORY CAPITAL (Continued)
1999 1998 1997
----------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------- ------- ------------ ------- ----------- --------
TIER 1 LEVERAGE RATIO
Clovis Community Bank $ 13,797,000 8.5% $ 10,851,000 6.6% $ 8,082,000 5.3%
Minimum requirement for "Well-
Capitalized" institution $ 8,161,000 5.0% $ 8,196,000 5.0% $ 7,617,000 5.0%
TIER 1 RISK-BASED CAPITAL RATIO
Clovis Community Bank $ 13,797,000 13.7% $ 10,851,000 10.7% $ 8,082,000 7.0%
Minimum requirement for "Well-
Capitalized" institution $ 6,041,000 6.0% $ 6,108,000 6.0% $ 6,882,000 6.0%
TOTAL RISK-BASED CAPITAL RATIO
Clovis Community Bank $ 15,074,000 15.0% $ 12,175,000 12.0% $ 9,609,000 8.4%
Minimum requirement for "Well-
Capitalized" institution $ 10,071,000 10.0% $ 10,180,000 10.0% $11,469,000 10.0%
|
DIVIDENDS
All per share data has been restated to reflect the 10% stock dividend declared May 19, 1999 to shareholders of record on June 15, 1999 and paid on July 15, 1999. No dividends were paid during 1998 and cash dividends to common shareholders in the amount of $445,258 were paid during 1997.
The California Financial Code restricts the total dividend payment of any bank in any calendar year to the lesser of (1) the bank's retained earnings or (2) the bank's net income for its last three fiscal years, less distributions made to stockholders during the same three-year period. At December 31, 1999, retained earnings of $439,083 were free of such restrictions.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
EARNINGS (LOSS) PER SHARE
A reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations is as follows:
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
------------------ ------------------ ------------------
Basic Earnings (Loss) Per Share:
Income from continuing operations $ 716,799 $ 209,748 $ 771,392
Income (loss) from discontinued
operations 1,194 (601,967) (209,211)
------------- --------------- -------------
Net income (loss) available to common
shareholders $ 717,993 $ (392,219) $ 562,181
============= ============= =============
Weighted average shares outstanding 1,292,345 1,248,425 1,223,847
============== ============== =============
Basic earnings (loss) per share from:
Continuing operations $ .56 $ .17 $ .63
Discontinued operations (.48) (.17)
------------- --------------- -------------
Net income (loss) $ .56 $ (.31) $ .46
============= =============== =============
Diluted Earnings (Loss) Per Share:
Income from continuing operations $ 716,799 $ 209,748 $ 771,392
Income (loss) from discontinued
operations 1,194 (601,967) (209,211)
-------------- ------------- ---------------
Net income (loss) available to common
shareholders $ 717,993 $ (392,219) $ 562,181
============= ============= ================
Weighted average shares outstanding 1,292,345 1,248,425 123,847
Effect of dilutive stock options 15,365 65,929 79,787
------------- --------------- -------------
Weighted average shares of common
stock and common stock equivalents 1,307,710 1,314,354 1,303,634
============= ============== ===============
Diluted earnings (loss) per share from:
Continuing operations $ .55 $ .16 $ .59
Discontinued operations (.46) (.16)
------------- --------------- -------------
Net income (loss) $ .55 $ (.30) $ .43
=========== =========== ===========
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
During 1980 and 1992, the Bank established Stock Option Plans for which 376,916 shares are reserved for issuance to employees and directors under incentive and nonstatutory agreements. The plans require that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the option price must be paid in full at the time it is exercised. The options under the plans expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. The vesting period is determined by the Board of Directors and is generally over five years. Outstanding options under the 1980 plan are exercisable until their expiration; however, no new options will be granted under that plan.
The Bank has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no compensation expense has been recognized under its stock option plan. There were 30,000 options granted during 1999 and 65,175 options granted during 1998. Had compensation cost for the plan been determined based on the fair value at grant date for awards in 1999 and 1998 consistent with the provisions of SFAS No. 123, the Bank's net earnings (loss) and earnings (loss) per share for the years ended December 31, 1999 and 1998 would have been reduced to the pro forma amounts indicated on the following page. Pro forma adjustments to the Bank's net earnings (loss) and earnings (loss) per share are disclosed during the years in which the options become vested.
1999 1998
------------------ ------------------
Net earnings from continuing operations - as reported $ 716,799 $ 209,748
Net earnings from continuing operations - pro forma $ 647,372 $ 186,837
Basic earnings per share from continuing operations -
as reported $ .56 $ .17
Basic earnings per share from continuing operations -
pro forma $ .50 $ .16
Diluted earnings per share from continuing operations -
as reported $ .55 $ .16
Diluted earnings per share from continuing operations -
pro-forma $ .49 $ .16
Net income (loss) - as reported $ 717,993 $ (392,219)
Net income (loss) - pro forma $ 648,564 $ (415,130)
Basic earnings (loss) per share - as reported $ .56 $ (.31)
Basic earnings (loss) per share - pro forma $ .50 $ (.37)
Diluted earnings (loss) per share - as reported $ .55 $ (.30)
Diluted earnings (loss) per share - pro forma $ .49 $ (.35)
|
The fair value of each option is estimated on the date of grant using an option-pricing model with the following assumptions:
1999 1998
------------------ ------------------
Dividend yield N/A N/A
Expected volatility 55.23 to 65.85% 23.82 to 34.21%
Risk-free interest rate 5.50 to 6.00% 5.70%
Expected option life 10 years 5 to 10 years
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
14. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS (Continued)
A summary of the combined Plan activity adjusted to give effect to stock dividends follows:
1999 1998 1997
------------------------ ------------------------ -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- --------- --------- --------- -----------
Options outstanding,
beginning of year 128,422 $ 16.31 124,755 $ 7.06 137,031 $ 6.98
Options granted 30,000 $ 18.38 65,175 $ 21.79
Options exercised (17,666) $ 7.94 (61,508) $ 3.35 (12,276) $ 6.17
Options canceled (15,456) $ 18.39
--------- --------- ----------
Options outstanding,
end of year 125,300 $ 17.70 128,422 $ 16.31 124,755 $ 7.06
========= ========= ==========
Options exercisable,
end of year 59,965 $ 14.51 71,277 $ 11.96 122,775 $ 6.87
========= ========= ==========
Weighted average fair
value of options
granted during the
year $ 7.85 $ 8.10
|
A summary of options outstanding at December 31, 1999 follows:
NUMBER OF WEIGHTED NUMBER OF
OPTIONS AVERAGE OPTIONS
OUTSTANDING REMAINING EXERCISABLE
DECEMBER 31, CONTRACTUAL DECEMBER 31,
RANGE OF EXERCISE PRICES 1999 LIFE 1999
------------------------ --------------- --------------- ----------------
$ 7.27 17,731 2 years 17,731
$ 10.00 6,598 3 years 6,598
$ 15.50 5,000 10 years
$ 16.36 13,196 4 years 13,196
$ 18.18 5,500 9 years 5,500
$ 18.64 3,080 5 years 3,080
$ 19.00 11,000 9 years
$ 19.55 5,500 9 years
$ 21.59 22,000 8 years 4,400
$ 21.82 17,820 3 years 5,445
$ 21.82 13,200 8 years 2,640
$ 22.27 4,675 8 years 1,375
------------ -------------
125,300 59,965
============ =============
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
15. OTHER EXPENSES
Other expenses consisted of the following:
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
Amortization of goodwill ............. $ 213,470
Legal fees ........................... $ 201,560 $ 376,153 241,842
Data processing ...................... 695,119 745,443 703,197
Advertising .......................... 373,249 382,060 181,160
Provision for other real estate losses
and related expenses ............. 56,178 267,694 242,411
Regulatory assessments ............... 200,405 202,563 47,878
Audit and accounting fees ............ 163,300 212,428 140,143
Consulting fees ...................... 52,524 166,611 28,870
Other expenses ....................... 1,494,869 1,133,797 1,242,343
---------- ---------- ----------
$3,237,204 $3,486,749 $3,041,314
========== ========== ==========
|
16. EMPLOYEE BENEFITS
401(k) PROFIT SHARING PLAN
The Bank has established a 401(k) plan covering substantially all employees who have completed a six-month period in which they are credited with at least 1,000 hours of service. Participants are eligible to receive employer contributions after completion of two years of service. Bank contributions are determined at the discretion of the Board of Directors. Participants are automatically vested 100% in all employer contributions. The Bank contributed $60,000 to the plan in 1999. There were no Bank contributions to the plan in 1998 and 1997.
DEFERRED COMPENSATION PLAN
The Bank has a nonqualified Deferred Compensation Plan which provides directors and a former key executive with an unfunded, deferred compensation program. Under the plan, eligible participants may elect to defer some or all of their current compensation. Deferred amounts earn interest at an annual rate determined by the Board of Directors (8.5% at December 31, 1999). At December 31, 1999 and 1998, the total net deferrals included in other liabilities were $863,467 and $827,461, respectively.
In connection with the implementation of the above plan, single premium universal life insurance policies on the life of each participant were purchased by the Bank, which is beneficiary and owner of the policies. The cash surrender value of the policies totaled $1,582,138 and $1,510,522 at December 31, 1999 and 1998, respectively, and is included in accrued interest receivable and other assets on the balance sheet. The current annual tax-free interest rates on these policies is 4.6%.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
17. LOANS TO RELATED PARTIES
During the normal course of business, the Bank enters into loans with related parties, including executive officers and directors. These loans are made with substantially the same terms, including rates and collateral, as loans to unrelated parties. The following is a summary of the aggregate activity involving related party borrowers:
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998
----------- -----------
Balance, beginning of year ................ $ 29,000 $ 29,000
Disbursements ......................... 723,000 80,000
Amounts repaid ........................ (442,000) (80,000)
----------- -----------
Balance, end of year ...................... $ 310,000 $ 29,000
=========== ===========
Undisbursed commitments to related parties,
end of year ........................... $ 1,890,000 $ 2,420,000
=========== ===========
|
18. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is a more inclusive financial reporting
methodology that includes disclosure of other comprehensive income
(loss) that historically has not been recognized in the calculation of
net income (loss). Unrealized gains and losses on the Bank's
available-for-sale investment securities are included in other
comprehensive income (loss). Total comprehensive income (loss) and the
components of accumulated other comprehensive income (loss) are
presented in the Statement of Changes in Shareholders' Equity.
At December 31, 1999, 1998 and 1997, the Bank held securities classified as available-for-sale which had unrealized gains or losses as follows:
TAX
BEFORE BENEFIT AFTER
TAX (EXPENSE) TAX
--------------- --------------- ----------------
FOR THE YEAR ENDED DECEMBER 31, 1999
Other comprehensive loss:
Unrealized holding losses $ (518,529) $ 209,452 $ (309,077)
Reclassification adjustment for net
losses included in net income (47,629) 19,052 (28,577)
--------------- --------------- ----------------
Total other comprehensive income $ (470,900) $ 190,400 $ (280,500)
================ =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1998
Other comprehensive loss:
Unrealized holding losses $ (470,100) $ 174,000 $ (296,100)
================ =============== ================
FOR THE YEAR ENDED DECEMBER 31, 1997
Other comprehensive income:
Unrealized holding gains $ 237,625 $ (87,951) $ 149,674
=============== =============== ================
|
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures include estimated fair values for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Bank's entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.
Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.
The following methods and assumptions were used by the Bank to estimate the fair value of its financial instruments at December 31, 1999 and 1998:
CASH AND CASH EQUIVALENTS: For cash and cash equivalents, the carrying amount is estimated to be fair value.
INVESTMENT SECURITIES: For investment securities, fair values are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided by brokers.
LOANS: For variable-rate loans that reprice frequently with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness. The carrying amount of accrued interest receivable approximates its fair value.
CASH SURRENDER VALUE OF LIFE INSURANCE POLICIES: The fair value of life insurance policies are based on cash surrender values at each reporting date as provided by the insurers.
NOTES PAYABLE: The fair values of fixed-rate notes payable are estimated by discounting their future cash flows using rates at each reporting date for similar instruments. The carrying amount of variable rate notes payable approximates their fair value.
DEPOSITS: The fair values for demand deposits are, by definition, equal to the amount payable on demand at the reporting date represented by their carrying amount. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis using interest rates being offered at each reporting date by the Bank for certificates with similar remaining maturities. The carrying amount of accrued interest payable approximates its fair value.
CLOVIS COMMUNITY BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
19. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT: Commitments to extend credit are primarily for adjustable rate loans. For these commitments, there are no differences between the committed amounts and their fair values. Commitments to fund fixed rate loans and letters of credit are at rates which approximate fair value at each reporting date.
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------------- --------------- --------------- ---------------
Financial assets:
Cash and due from banks $ 14,087,796 $ 14,087,796 $ 10,801,115 $ 10,801,115
Federal funds sold 8,921,000 8,921,000 10,440,000 10,440,000
Investment securities 54,170,377 54,170,377 63,680,501 64,174,101
Loans 79,017,405 77,574,000 71,693,223 72,007,000
Cash surrender value life
insurance policies 1,582,138 1,582,138 1,510,522 1,510,522
Accrued interest receivable 841,158 841,158 1,020,860 1,020,860
-------------- --------------- --------------- ---------------
$ 158,619,874 $ 157,176,469 $ 159,146,221 $ 159,953,598
============= ================ ================ ================
Financial liabilities:
Deposits $ 149,147,383 $ 149,022,000 $ 152,006,327 $ 152,119,000
Notes payable 250,366 241,000 5,972,423 5,960,000
Accrued interest payable 267,147 267,147 334,057 334,057
-------------- --------------- --------------- ---------------
$ 149,664,896 $ 149,530,147 $ 158,312,807 $ 158,413,057
============= ================ ================ ================
Off-balance-sheet financial
instruments:
Commitments to extend credit $ 41,929,933 $ 41,929,933 $ 34,532,711 $ 34,532,711
Standby letters of credit 592,000 592,000 1,018,000 1,018,000
-------------- ---------------- ---------------- ---------------
$ 42,521,933 $ 42,521,933 $ 35,550,711 $ 35,550,711
============= ================ ================ ================
|
INDEPENDENT AUDITOR'S REPORT
The Shareholders
and Board of Directors
Clovis Community Bank
and Subsidiaries
We have audited the accompanying consolidated balance sheet of Clovis Community Bank and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Clovis Community Bank and subsidiaries as of December 31, 1999 and 1998 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Perry-Smith LLP
Sacramento, California
February 3, 2000
|
Selected Financial Data
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
CONTINUING OPERATIONS FOR THE YEAR: 1999 1998 1997 1996 1995
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
Total interest income $ 11,353 $ 11,912 $ 12,479 $ 11,502 $ 10,111
Total interest expense 3,344 4,056 3,989 3,608 3,294
------------ ------------ ------------ ----------- ------------
Net interest income before provision for credit 8,009 7,856 8,490 7,894 6,817
losses
Provision for credit losses (1,270) (1,722) (2,346) (541) (60)
Non-interest income 2,997 2,677 2,614 2,586 2,643
------------ ------------ ------------ ----------- ------------
9,736 8,811 8,758 9,939 9,400
------------ ------------ ------------ ----------- ------------
Non-interest expense 8,811 8,750 7,747 8,165 7,568
------------ ------------ ------------ ----------- ------------
Income from continuing operations before income taxes 925 61 1,011 1,774 1,832
------------ ------------ ------------ ----------- ------------
Income tax (benefit) expense 208 (149) 240 562 616
Net income from continuing operations $ 717 $ 210 $ 771 $ 1,212 $ 1,216
============ ============ ============ =========== ============
Basic earnings per share from continuing operations $ 0.56 $ 0.17 $ 0.63 $ 1.00 $ 1.02
============ ============ ============ =========== ============
Diluted earnings per share from continuing operations $ 0.54 $ 0.16 $ 0.59 $ 0.94 $ 0.95
============ ============ ============ =========== ============
Cash dividends declared per common share $ - $ - $ 0.40 $ 0.36 $ 0.30
============ ============ ============ =========== ============
DECEMBER 31
(IN THOUSANDS)
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
BALANCES AT END OF YEAR: 1999 1998 1997 1996 1995
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
Investment securities, Federal funds sold and other
deposits $ 63,191 $ 74,243 $ 44,260 $ 30,893 $ 37,073
Net loans 79,017 71,693 88,951 89,199 73,778
Total deposits 149,147 152,006 142,856 130,055 117,199
Total assets 167,003 175,088 165,854 153,989 134,589
Shareholders' equity 15,816 15,175 15,196 14,797 15,624
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
AVERAGE BALANCES: 1999 1998 1997 1996 1995
------------------------------------------------------ ------------ ------------ ------------ ----------- ------------
Investment securities, Federal funds sold and other
deposits $ 68,284 $ 55,152 $ 34,125 $ 36,248 $ 32,341
Net loans 74,695 81,053 95,666 83,668 72,178
Total deposits 147,855 143,297 136,215 122,428 107,138
Total assets 165,926 161,730 154,629 140,938 123,664
Shareholders' equity 15,694 15,185 14,996 15,211 14,732
Earning assets 141,258 136,516 130,098 120,266 105,661
|
Management's Discussion and Analysis of Financial Condition and Results of Operations
December 31, 1999 and 1998
Management's discussion and analysis should be read in conjunction with the Bank's audited Consolidated Financial Statements, including the Notes thereto, at pages 4 through 35 herein.
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS, SUCH AS STATEMENTS REGARDING THE BANK'S CURRENT BUSINESS STRATEGY AND THE BANK'S PLANS FOR FUTURE DEVELOPMENT AND OPERATIONS, ARE BASED UPON CURRENT EXPECTATIONS. THESE STATEMENTS ARE FORWARD-LOOKING IN NATURE AND INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DESCRIBED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND INCLUDE, AMONG OTHER THINGS, (1) SIGNIFICANT INCREASES IN COMPETITIVE PRESSURE IN THE BANKING INDUSTRY; (2) CHANGES IN THE INTEREST RATE ENVIRONMENT RESULTING IN REDUCED MARGINS; (3) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR REGIONALLY, ARE LESS FAVORABLE THAN EXPECTED, RESULTING IN, AMONG OTHER THINGS, A DETERIORATION IN CREDIT QUALITY; (4) CHANGES IN THE REGULATORY ENVIRONMENT; (5) FLUCTUATIONS IN THE REAL ESTATE MARKET; (6) CHANGES IN BUSINESS CONDITIONS AND INFLATION; AND (7) CHANGES IN SECURITIES MARKETS. THEREFORE, THE INFORMATION SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS SHOULD BE CAREFULLY CONSIDERED WHEN EVALUATING THE BUSINESS PROSPECTS OF THE BANK.
OVERVIEW:
The Bank had net income after income from discontinued operations of $718,000 for the 1999 fiscal year compared to a net loss after loss from discontinued operations of $392,000 for the 1998 fiscal year. The Bank had net income before income from discontinued operations of $717,000 for 1999 compared to net income before loss from discontinued operations of $210,000 for 1998. The primary contributors to net income during 1999 were a $320,000 increase in non-interest income, a $452,000 decrease in the provision for credit losses, and a $603,000 decrease in loss from discontinued operations, which were partially offset by a $357,000 increase in tax expense.
Income from continuing operations before income taxes was $924,000 for 1999 compared to $61,000 for 1998. Income from the discontinued operations of Clovest before tax expense (benefit) was $2,000 for 1999 compared to a loss of $1,024,000 for 1998. Income from operations of Clovest after tax expense (benefit) was $1,000 for 1999 compared to a loss of $602,000 for 1998.
Average earning assets for 1999 were $141,258,000 compared to $136,516,000 for 1998. A major contributor to the increase in average earning assets was the $4,558,000 increase in average deposits and the liquidation of certain partnerships and Limited Liability Companies ("LLCs") of Clovest which were non-earning assets. Average non-earning assets of the Bank represented by its interest in Clovest were $1,380,000 for 1999 compared to $4,170,000 for 1998, a decrease of $2,790,000, or 66.9%.
The Bank's net interest margin decreased 8 basis points to 5.67% for 1999 from 5.75% for 1998. The decrease can be attributed to lower yields on investment securities and loans which were partially offset by lower rates on interest bearing deposits. Total average loans (excluding non-accrual loans), which yielded 10.58% during 1999, decreased by $8,390,000 compared to 1998 when the effective yield was 10.66%. The decrease in loans necessitated placing earning assets in lower yielding investments. The average investments (including interest bearing deposits with other banks and Federal funds sold) yielded 5.32% during 1999 compared to 5.87% in1998. The Bank's emphasis in 1999 continued to be on increased loan volume and improved loan quality. With that process well underway, the Bank has positioned itself to direct its resources at rebuilding its core lending business.
As discussed under "Discontinued Operations", Note 7 "Notes to Consolidated Financial Statements", page 20, in July 1998 the Bank announced its decision to discontinue operations of its real estate investment subsidiary, Clovest. The Bank's investment in real estate at December 31, 1999 was $502,000 compared to $7,251,000 at December 31, 1998, a $6,749,000 decrease. The investment in real estate has been classified as non-earning assets for the purposes of computing net interest margin.
Several major management changes occurred during the periods under review. During the first half of 1998, the President and Chief Executive Officer announced his retirement. A new President and Chief Executive Officer was appointed as of June 1,1998 and, in August 1998, a new position of Credit Review Manager was established. In the first quarter of 1999, a position of Manager, Retail and Consumer Banking was created with job responsibilities which will move the focus of the Bank to a customer retention and needs-based sales environment. Additionally, in the fourth quarter of 1999, the responsibilities and duties of the former senior credit officer position were restructured to reflect the Bank's strategic plan. In the past, the senior credit officer
position was two-fold: business development and credit quality/credit processing. As a result of the restructuring, the position of Manager, Commercial and Business Banking, was created to focus on the Bank's business growth and the position of Chief Credit Officer was created to continue to focus on credit quality.
The cornerstone of a community bank is its branch system. While other financial institutions have been closing, merging, and reducing offices, the Bank has adopted a strategic plan to expand into areas where the demographics for small business and future population growth appear favorable.
The many mergers and acquisitions which occurred in 1999 and 1998 have resulted in numerous opportunities to bring new business and experienced personnel to the Bank. One of the first responsibilities of the new Manager, Commercial and Business Banking will be to establish a loan production office in the Northeast section of Fresno in the first quarter of 2000, and to focus on those opportunities. Additionally, the Manager of Retail and Consumer Banking will be opening a new branch in Northwest Fresno in an established upscale shopping center. Both facilities will provide the Bank with an opportunity to expand its loan and deposit base; however, based on past experience, management expects that these new offices may initially have a negative impact on earnings until the volume of business grows to cover overhead expenses.
The Bank's market focus for loans continues to concentrate on medium to small commercial business. These loans offer diversification as to industries and types of business, with no limiting material exposure in any industry concentrations. The Bank offers both fixed and floating interest rates and obtains collateral in the form of real estate, deposit accounts, and accounts receivable, but looks to business cash flow as its primary source of repayment. Although the Bank believes that it has achieved significant diversity within its portfolio, the Bank is susceptible to general real estate economic trends. As of December 31, 1999, the Bank had a concentration of real estate loans representing approximately 41.5% of total loans. Although management believes such concentrations have no more than the normal risk of collectibility of real estate related loans, a substantial decline in real estate values could have an adverse impact on collectibility, increase the level of real estate-related non-performing loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on the financial condition of the Bank. No one borrower had aggregate credit commitments exceeding 5.6% of the loan portfolio at December 31, 1999.
During 1999, the Bank developed and introduced several new products such as Quick Business Line, Quick Lease Line, Quick Business Loan, and Home Equity Line. In 1998, a Small Business Administration Lending Department (SBA) was established. In 1999, loan processing and loan documentation was streamlined with the introduction of credit scoring, and additional loan support personnel were added. In addition, extensive sales and referral training for all customer contact personnel was implemented.
Average assets during 1999 were $165,926,000 compared to $161,730,000 for 1998, an increase of $4,196,000, or 2.6%. Return on average assets (ROA) and return on average equity (ROE) for the periods under review are reflected in the following table.
-------------------------------------------------------------------------- --------------------- ---------------------
FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------------- --------------------- ---------------------
ROA after gain (loss) from discontinued operations 0.43% (0.24%)
-------------------------------------------------------------------------- --------------------- ---------------------
ROE after gain (loss) from discontinued operations 4.63% (2.58%)
-------------------------------------------------------------------------- --------------------- ---------------------
ROA before gain (loss) from discontinued operations 0.43% 0.13%
-------------------------------------------------------------------------- --------------------- ---------------------
ROE before gain (loss) from discontinued operations 4.63% 1.38%
-------------------------------------------------------------------------- --------------------- ---------------------
|
RESULTS OF OPERATIONS
Net income for 1999 was $718,000 compared to a net loss of $392,000 in
1998, a $1,110,000 increase. The increase in net income in 1999 resulted from an
increase in non-interest income, a decrease in interest expense, income instead
of loss from discontinued operations, and a decrease in loan loss provision,
which were partially offset by a decrease in interest income and an increase in
non-interest expense.
.
Net interest income is the Bank's primary source of revenue. Net
interest income is the difference between the interest income received on
interest-earning assets and the interest expense paid on interest-bearing
liabilities. Net interest income is primarily affected by two factors, the
volume and mix of interest-earning assets and interest-bearing liabilities and
the interest rates earned on those assets and paid on the liabilities.
Interest income from loans decreased 11.0%, or $952,000, in the year ended 1999 as average total loan volumes
declined 7.5% to $77,234,000 for 1999 compared to $83,483,000 for 1998. Loan demand in the Central Valley has become highly competitive in both rates and fees with major banks as well as other community banks vying for loan demand. The $6,249,000 reduction in average loan volume can also be attributed to the Bank's efforts in 1999 to refine the lending process and improve the quality of the loan portfolio. Significant progress has been made in the Bank's SBA lending with average SBA loan volumes increasing to $2,987,000 for 1999 compared to $1,338,000 for 1998, a 112.2% increase. The Bank has been active in the SBA market since its inception and in 1998 established a distinct SBA Lending Department. The Bank anticipates receiving its SBA Preferred Lender status during the first half of 2000. This status would allow the Bank to compete more effectively with other SBA lenders and provide more expedient responses to credit requests.
A significant portion of the Bank's loan portfolio utilizes prime rate as a reference point in pricing its loans. The West Coast prime rate averaged 8.00% in 1999 and 8.30% in 1998 compared to the effective yields on the Bank's loans (excluding non-accrual loans) in 1999 of 10.58% and 10.66% for 1998.
Average non-accrual loans for 1999 were $4,260,000 compared to $2,119,000 in average non-accrual loans for 1998. At December 31, 1999, the Bank had $3,618,000 in non-accrual loans compared to $4,033,000 at December 1998. Two real estate commercial borrowing relationships represented 90.4% of the total non-accrual loans at December 31, 1999. The ratio of non-accrual loans to total loans was 4.5% at December 31, 1999 compared to 5.4% at December 31, 1998.
The designation of a loan as non-accrual for financial reporting purposes does not relieve the borrower of its obligation to pay interest. Accordingly, the Bank may ultimately recover all or a portion of the interest due on these non-accrual loans. A non-accrual loan returns to accrual status when the loan becomes contractually current and future collectibility of amounts due is reasonably assured.
The investment policy of the Bank is established by the Board of Directors and implemented by the Asset/Liability Committee. It is designed primarily to provide and maintain liquidity, to enable the Bank to meet its pledging requirements for public money and borrowing arrangements, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement the Bank's lending activities.
Investments typically have yields lower than loans. Interest income from investment securities, Federal funds sold, and interest-bearing deposits in other banks increased 12.1% in 1999 compared to 1998. Average investment securities and interest-bearing deposits in other banks increased 36.3%, or $16,390,000, to $61,492,000 for 1999 compared to $45,102,000 for 1998. Average federal funds sold decreased $3,258,000 in the periods under review. The increase in investment volume is a direct result of the $6,249,000 decrease in average loan volume, a $4,558,000 increase in average deposit volume and the $2,790,000 average reduction in Clovest real estate projects. The effective yield on the investment portfolio and other interest bearing deposits for 1999 was 5.38% compared to 6.00% in 1998. The effective yield on Federal funds sold averaged 4.81% in 1999 compared to 5.27% during 1998. As discussed above, the focus of the lending staff is now concentrated on business development to return the loan volumes to their prior levels which may reduce the investment portfolio in the future.
In an effort to increase yields without accepting unreasonable risk, a significant portion of the new investment purchases has been in high quality mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs). These securities typically provide a higher yield than U.S. Treasuries, government agencies, and municipal investments. The Bank held $37,138,000, or 68.1%, of the total investment portfolio in MBS and CMOs with an average weighted yield of 7.5% at December 31, 1999 compared to $36,387,000, or 64.3% of the total investment portfolio at December 31, 1998, with an average weighted yield of 8.0%. In comparison, the Bank held $4,990,000 in agency securities with an average weighted yield of 5.6% at December 31, 1999 and $17,742,000 in agency securities with an average weighted yield of 6.0% at December 31, 1998.
Management's review of investments before purchase includes an analysis of how the security will perform under several interest rate scenarios to evaluate whether investments are consistent with the Bank's investment policy. The policy addresses issues of average life, duration, prohibited investments, and prohibited practices. The Bank recognizes the interest rate risk and prepayment risks associated with MBS and CMOs. In a declining rate environment, prepayments from MBS and CMOs would be expected to increase and the expected life of the investment would be expected to shorten. Conversely, if interest rates increase, prepayments would be expected to decline and the average life of the MBS and CMOs would be expected to extend. The Bank has purchased certain of these investments which are meant to perform well in an increasing rate environment and others that are meant to perform well in a declining rate environment, with the ultimate goal of a balanced portfolio. At December 31, 1999, the Bank's market risk was moderately higher in an increasing rate environment versus a declining rate environment. With an immediate rate increase of 200 basis points the estimated decrease in the market value of the Bank's investment portfolio would be $3,962,000. Conversely, with an immediate rate decrease of 200 basis points, the estimated increase in the market value of the Bank's investment portfolio would be$3,516,000. While an immediate shock of 200 basis points is highly unlikely, the Bank uses those increments to measure its interest rate risk in accordance with regulatory requirements.
The Bank offers a variety of deposit accounts having a range of interest rates and terms. The Bank's deposits consist of savings, demand deposits, and certificate of deposit accounts. The flow of deposits is influenced significantly by general economic conditions, changes in the money market and prevailing interest rates and competition. The Bank's deposits are obtained primarily from the geographic area in which its offices are located. The Bank relies primarily on customer service and long-standing relationships with customers to attract and retain these deposits. The Bank does not use brokered deposits, and based on historical experience, management believes it will continue to retain a large portion of its time deposit accounts at maturity.
Interest expense in 1999 was $3,344,000 compared to $4,056,000 in 1998. This $712,000 or 17.6% decrease can be attributed to lower interest rates in the first half of 1999 as well as an increase in non-interest bearing deposits as a percentage of total deposits. Average non-interest bearing deposits for 1999 were $35,212,000 or 23.8% of average deposits compared to $31,548,000 or 22.0% of average deposits for 1998, an 11.6% increase. This level of increase is not expected to continue as rates increased twice in the third quarter of 1999 and again in February 2000. Continued increases in rates would provide more incentive for depositors to return to interest bearing accounts. Likewise, as rates increase earnings rates on deposit accounts may increase, providing more income to offset services used; therefore, less non-interest bearing deposit balances would be required.
Net interest income before provision for credit losses at December 31, 1999 was $8,009,000, an increase of $153,000, or 2.0%, from the $7,856,000 reported at December 31, 1998. The increase in net interest income can be mainly attributed to the decrease in interest expense.
The Bank provides for possible credit losses by a charge to operating income based upon the composition of the loan portfolio, past levels of delinquencies, losses and non-performing assets, economic and environmental conditions and other factors which, in management's judgment, deserve recognition in estimating loan losses. Loans are charged off when they are considered uncollectible or of such little value that continuance as an active earning bank asset is not warranted.
The establishment of an adequate credit allowance is based on both an accurate risk rating system and loan portfolio management tools. Management has established initial responsibility for the accuracy of credit risk grades with the individual credit officer. The grading is then submitted to the Chief Credit Officer (CCO) who then reviews for accuracy. The risk grading and reserve allocation is analyzed periodically by a third party credit reviewer and by various regulatory agencies.
The CCO sets the specific reserve for all adversely risk-graded credits monthly. This process includes the utilization of loan delinquency reports, classified asset reports, and portfolio concentration reports to assist in accurately assessing credit risk and establishing appropriate reserves. Reserves are also allocated to all credits that are not adversely graded. Use of historical loss experience within the portfolio along with peer bank loss experience determines the level of reserves held.
The allowance for credit losses is reviewed at least quarterly by the Directors' Audit Committee and by the Board of Directors. Reserves are allocated to loan portfolio segments using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors. The Bank has adopted the specific reserve approach to allocate reserves to each adversely graded asset, as well as to each impaired asset for the purpose of estimating potential loss exposure. Although the allowance for credit losses is allocated to various portfolio segments, it is general in nature and available for the loan portfolio in its entirety. Additions may be required based on the results of a contractual independent loan portfolio examination, a regulatory agency examination, or the Bank's own internal review process. Additions are also required when, in management's judgment, the reserve does not properly reflect the potential loss exposure.
Managing credits identified through the risk evaluation methodology includes developing a business strategy with the customer to mitigate Bank losses. Management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary. The provision for credit losses was $1,270,000 in 1999 compared to $1,722,000 during 1998. The 1999 provision reflects management's evaluation of continued deterioration in four borrowing relationships.
The ratio of net credit losses to average total loans outstanding was 2.57% in 1999 compared to 1.64% in 1998. Net charge-offs for 1999 were $1,983,000 compared to $1,372,000 for 1998. The charge-offs in 1999 primarily related to four commercial credit relationships. In 1999, charge-offs of $2,533,000 occurred in which $2,406,000 were primarily in the commercial loan area compared to charge-offs totaling $1,623,000 in 1998 of which $1,216,000 were in the commercial loan area. Offsetting these charge-offs were $550,000 in recoveries in 1999 compared to $250,000 in recoveries for 1998. Recoveries were mainly attributable to the commercial loan area. The Bank had no restructured loans or loans past due 90 days or more at December 31, 1999. For information regarding impaired loans, refer to Notes 1,3, "Notes to Consolidated Financial Statements" at page 12.
The allowance for credit losses was $2,236,000 at December 31, 1999, or 2.74% of total loans, compared to $2,949,000, or 3.93% of total loans, at December 31, 1998. Based on information currently available, management believes that the allowance for credit losses is adequate to absorb potential risks in the portfolio. However, no assurance can be given that the Bank may not sustain charge-offs which are in excess of the allowance in any given period.
Net interest income after the provision for credit losses increased $605,000, or 9.9%, in 1999 to $6,739,000 from $6,134,000 in 1998.
Non-interest income increased $320,000, or 12.0%, to $2,997,000 in 1999 from $2,677,000 in 1998. Non-interest income includes fees, charges and other income, as well as any gain or loss on securities transactions. Increases in 1999 reflect increases in service charges, rentals from equipment leased to others, and other non-interest income, which were partially offset by decreases in loan placement fees and loss on investments sold.
Service charge income increased $79,000, or 8.5%, in 1999 compared to 1998. A new fee structure implemented in the first half of 1999 and additional deposit account growth associated with the increase in average deposit volumes contributed to the increase.
Rentals from equipment leased to others increased $217,000, or 20.5%, from 1998 to 1999. Offsetting this increase in income is the related increase in depreciation on equipment leased to others reflected in non-interest expenses. Average equipment leased to others increased $252,000, or 10.3%, to $2,697,000 for 1999 from $2,445,000 for 1998. See Note 4 "Notes to Consolidated Financial Statement", page 17 for details.
The Bank earns loan placement fees from the brokerage of single-family residential mortgage loans. Loan placement fees decreased $45,000, or 17.3%, to $215,000 for 1999 compared to $260,000 for 1998. Increased interest rates during the fourth quarter may have affected purchases and refinancing in the single-family residential market. Opportunities for refinancing are becoming more difficult for new homeowners as the rate environment for the past two years has been relatively low.
Net realized losses on sales of investment securities were $48,000 for 1999. The majority of the loss reflects the replacement of lower yielding investments with higher yielding investments which resulted in an immediate loss at the time of sale.
Other non-interest income increased $116,000, or 27.2% to $543,000 in 1999 from $427,000 in 1998. The primary contributors to the increase in 1999 were the recovery on the sale of one other real estate owned (OREO) asset, new fee income-generating charges and income generated through the sale of non-deposit investment products through Investment Centers of America. These increases can be partially attributed to the Bank's overall emphasis on promoting a cross-selling culture and rewarding all employees for referrals. Other increases reflect interest received on income tax refunds for prior years as well as a prior year's operating loss recovery.
Non-interest expense for 1999 increased by $61,000, or 0.7%, compared to 1998. The major component of the increase was depreciation on equipment leased to others partially offset by decreases in the provision for other real estate, legal fees, auditing and accounting fees and other non-interest expenses.
Depreciation on equipment leased to others increased $165,000, or 18.0% which was offset by an increase in rental income from equipment leased to others discussed above.
Other expense decreased $250,000, or 7.2%, to $3,237,000 in 1999 from $3,487,000 in 1998. Major components of the decrease were auditing and accounting fees, consulting fees which can be attributed to the resolution of regulatory issues, and the decrease in legal fees which reflects refunded legal expenses related to on-going litigation involving Clovest and one of its partnerships. Other contributors were a decrease in OREO valuation expenditures on a property which was sold in 1999. Refer to Note 15, "Notes to Consolidated Financial Statement" at page 32 for detail. Offsetting these decreases was the $361,000 increase in other non-interest expenses.
Other non-interest expenses were $1,495,000 for 1999 compared to $1,134,000 for 1998. Major contributors were increases in repossession expense of $20,000, education/training of $14,000, deposit expenses of $15,000, operating losses of $27,000, deferred compensation expense of $42,000, credit card expense of $12,000, and computer software expense of $29,000.
Income tax expense was $208,000 for 1999 compared to a tax benefit of $149,000 for 1998. Income from continuing operations after income taxes was $717,000 for 1999 compared to $210,000 for 1998.
Income from discontinued operations net of income taxes, which reflects income from the operations of Clovest, was
$1,000 for 1999 compared to a loss after tax benefits of $602,000 for 1998. Clovest has been successful in the dissolution of the majority of its partnerships and LLCs. See "Discontinued Operations", Note 7, "Notes to Consolidated Financial Statements", at page 19.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and rates. The Bank's market risk arises primarily from interest rate risk inherent in loan and deposit functions. Management actively monitors and manages this interest rate risk exposure.
Fluctuations in market interest rates expose the Bank to potential gains and losses. The primary objective of asset/liability management is to manage the balance between rate sensitive assets and rate sensitive liabilities being repriced in any given period in order to maximize net interest income during periods of fluctuating interest rates.
Rate sensitive assets are those which contain a provision to periodically adjust the interest rate (for example, a loan in which prime rate determines the basis of the rate charged on outstanding balances). Those assets include certain commercial, real estate mortgage and construction loans and certain investment securities, Federal funds sold and time deposits in other financial institutions. Rate sensitive liabilities are those which provide for periodic changes in interest rate and include interest bearing transaction accounts, money market accounts and time certificates of deposit. Analysis has shown that because of time and volume influences, the repricing of assets and liabilities is not tied directly to the timing of changes in market interest rates. If repricing assets exceed repricing liabilities in a time period, the Bank would be considered "asset sensitive" and have a "positive gap". Conversely, if repricing liabilities exceed repricing assets in a time period the Bank would be considered "liability sensitive" and have a "negative gap."
Managing interest rate risk is important to the Bank as its net interest margin can be affected by the repricing of assets and liabilities. Management uses several different tools to monitor its interest rate risk. One measure of exposure to interest rate risk is gap analysis. Additionally, the Bank utilizes an asset/liability model program which provides a detailed quarterly analysis of the Bank's financial reports, to include a ratio analysis of liquidity, equity, strategic free capital, volatile liability coverage, and maturity of the investment portfolio. In addition, a trend analysis is generated which provides a projection of the Bank's asset and liability sensitivity position over a one-year period. Exposure to interest rate changes is calculated within the program to ascertain interest rate risk in actual dollar exposure resulting from incremental changes in market interest rates. The incremental changes are generally referred to as "shocks". These "shocks" measure the effect of sudden and significant rate changes on the Bank's interest income. Because assets may not reprice in the same way as liabilities, adjustments to the model are made to reflect these differences. For example, the time between when the Bank changes its rate on deposits may lag behind the time the Bank changes the rate it charges on loans. Additionally, the interest rate change may not be in the same proportion for assets and liabilities. Interest rates on deposits may not decrease in the same proportion as a decrease in interest rates charged on loans. Conversely, interest rates on deposits may not be increased in the same proportion as rates charged on loans.
The following table sets forth the distribution of repricing opportunities of interest-earning assets and interest-bearing liabilities, the interest rate sensitivity "gap" (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap and the cumulative gap as a percentage of total interest-earning assets as of December 31, 1999. The table also sets forth the time periods during which interest-earning assets and interest-bearing liabilities will mature or may reprice in accordance with their contractual terms. The interest rate relationships between the repriceable assets and repriceable liabilities are not necessarily constant. The table should, therefore, be used only as a guide as to the possible affect changes in interest rates might have on the net interest margin of the Bank.
Additionally, the table reflects actual maturity of MBS and CMO securities which are inconsistent with the average life of the securities due to prepayments and normal paydowns. The inherent weakness in gap analysis is that it does not consider the cash flow generated by MBS and CMO security investments throughout the holding of the security and assumes that the total amount of the security will mature at the stated maturity date. As stated previously, MBS and CMOs totaled $37,138,000 at December 31, 1999 with a market value of $36, 627,000. The average life table below reflects the expected average life of the MBS and CMO portfolio based on current paydown levels.
OVER THREE OVER ONE
NEXT DAY TO MONTHS THROUGH YEAR THROUGH OVER FIVE
(DOLLARS IN THOUSANDS) THREE MONTHS TWELVE MONTHS FIVE YEARS YEARS TOTAL
------------------------------------------------------------------------
Assets:
Federal funds sold $8,921 $ -0- $ -0- $ -0- $ 8,921
Taxable investment securities* 1,820 -0- 9,395 40,891 52,106
Non-taxable investment securities* -0- -0- -0- 2,704 2,704
Loans 44,454 5,396 20,728 10,927 81,505
---------- ----------- --------- --------- --------
Total interest-earning assets $ 55,195 $ 5,396 $ 30,123 $54,523 $145,237
========== =========== ========= ========= ========
Liabilities:
Savings deposits $ 69,152 $ -0- $ -0- $ -0- $ 69,152
Time deposits 22,913 17,441 4,676 -0- 45,030
Notes Payable 155 95 250
----------- --------- --------- --------
Total interest-bearing liabilities $ 92,065 $ 17,596 $ 4,771 $ -0- $114,432
---------- ----------- --------- --------- --------
Net (interest-bearing liabilities) interest-earning $(36,870) $ (12,200) $25,352 $54,523 $ 30,805
assets
Cumulative net(interest-bearing liabilities) interest-
earning assets ("GAP") $(36,870) $ (49,070) (23,718) $30,805
========== =========== ========= =========
Cumulative GAP as a percentage of total interest-
Earning assets (25.39%) (33.79%) (16.33%) 21.21%
========== =========== ========= =========
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SCHEDULE OF AVERAGE LIFE OF MBS AND CMOS AT DECEMBER 31, 1999.*
---------------------------------- --------------- ------------------ ----------------------- --------------- -------------------
OVER THREE
NEXT DAY TO MONTHS THROUGH OVER ONE YEAR THROUGH OVER FIVE
(DOLLARS IN THOUSANDS) THREE MONTHS TWELVE MONTHS FIVE YEARS YEARS TOTAL MBS AND CMOS
---------------------------------- --------------- ------------------ ----------------------- --------------- -------------------
At December 31, 1999 $684,000 $2,051,000 $31,375,000 $3,028,000 $37,138,000
---------------------------------- --------------- ------------------ ----------------------- --------------- -------------------
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*Stated at Book Value.
The table indicates that the Bank is liability sensitive in the next day through 5 year periods and becomes asset sensitive in the more than five year period.
The following table sets forth the distribution of the expected maturities of interest-earning assets and interest-bearing liabilities as of December 31, 1999 as well as the fair value of these instruments. Expected maturities are based on contractual agreements. Savings accounts and interest-bearing transaction accounts, which have no stated maturity, are included in the 2000 maturity category.
(Dollars in thousands) 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
----------- ---------- ---------- ---------- -------- ---------- --------- ----------
Federal funds sold $8,921 $8,921 $ 8,921
Weighted average rate 4.63% 4.63%
Investment securities (1) 411 $1,473 $4,112 $1,248 $ 3,995 $43,571 54,810 54,170
Weighted average rate 4.63% 6.25% 6.59% 5.41% 5.99% 7.00% 6.84%
Fixed rate loans 8,070 4,344 2,784 2,267 4,204 21,333 43,002 41,558
Weighted average rate 9.97% 9.97% 9.90 9.76% 8.92% 8.90% 9.32%
Variable rate loans (2) 21,728 1,712 444 402 297 13,919 38,502 38,502
Weighted average rate 9.87% 10.36% 9.68% 10.53% 10.55% 9.77% 9.86%
----------- ---------- ---------- ---------- -------- ---------- --------- ----------
Total interest-bearing assets
$39,130 $7,529 $7,340 $3,917 $8,496 $78,823 $145,235 $143,151
=========== ========== ========== ========== ======== ========== ========= ==========
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Savings deposits(3) $69,152 $69,152 $69,152
Weighted average rate 1.63% 1,63%
Time deposits 37,346 $7,287 $397 45,030 44,905
Weighted average rate 4.69% 4.89% 4.96% 4.82%
----------- ---------- ---------- ---------- -------- ---------- --------- ----------
Notes Payable 155 95 250 240
=== == === ===
Weighted average rate 6.88% 5.65% 6.40%
=========== ========== =========
Total interest-bearing liabilities
$106,653 $7,382 $397 $-0- $-0- $-0- $114,432 $114,297
=========== ========== ========== ========== ======== ========== ========= ==========
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TERMINATION OF REGULATORY ORDERS
During 1998, the Bank was subject to regulatory orders issued by the FDIC and DFI which addressed certain matters that arose out of a joint examination of the Bank. The Orders were terminated during the first quarter of 1999 after less than one year and were replaced by a Board Resolution adopted by the Board of Directors. The Board Resolution was rescinded February 16, 2000.
LIQUIDITY MANAGEMENT
The object of liquidity management is to maintain cashflow adequate to fund the Bank's operations and to meet obligations and other commitments on a timely and cost effective basis. Management accomplishes this objective through the selection of asset and liability maturity mixes that it believes will meet the Bank's needs.
Liquidity is provided by the Bank's core deposit base, shareholders' equity, and reductions in assets which can be immediately converted to cash at minimal cost. Liquid assets, which consist of cash, deposits in other financial institutions, Federal funds sold and available for sale investment securities, averaged $61,465,000 for 1999, or 37.0% of average assets compared to $69,005,000 or 42.8% of average assets for 1998. The ratio of average liquid assets to average demand deposits was 174.6% for 1999 as compared to 242.1% in 1998. Year 2000 liquidity issues significantly affected the decreases in the liquidity ratios. The Bank committed $10,519,000 in securities as collateral for the Federal Reserve Discount Window availability in the event of the need for immediate liquidity due to Year 2000 issues. Decreases in the loan and deposit volumes also affected the Bank's liquidity ratios. The Bank's loan to deposit ratio at December 31, 1999 was 54.5% compared to 49.1% at December 31, 1998.
The Bank adopted SFAS 133, Accounting for Derivative Instruments and Hedging Activities, early and used the opportunity to re-classify its held -to- maturity investment portfolio into available for sale. On April 1, 1999, the Bank transferred all held- to- maturity securities to its available- for- sale classification. For information regarding the transfer of held-to-maturity securities, refer to Note 1 and 2 "Notes to Consolidated Financial Statements, page 14.
Unpledged investment securities may also provide liquidity. At December 31, 1999, $37,891,000 in unpledged securities were available as collateral for borrowing. Additionally, maturing loans provide liquidity. At December 31, 1999, approximately $7,537,000 in loans were scheduled to mature within the next ninety days.
The Bank has unsecured lines of credit with its correspondent banks in the amount of $5,900,000 at interest rates which are tied to changes in the Federal funds and Federal Reserve discount rates. The Bank also has a line of credit with the Federal Reserve Bank of San Francisco collateralized by $10,043,000 in securities that bears interest at the prevailing discount rate. As discussed above, the unusually high volume of collateral pledged to the Federal Reserve Bank was due to Year 2000. The amount of the credit line varies according to the Bank's deposit base and other factors. At December 31, 1999, and 1998, the Bank had no outstanding balances on these credit lines.
Year 2000 Data Processing Issues
Clovis Community Bank previously recognized the material nature of the business issues surrounding computer processing of dates into and beyond the Year 2000 and began taking corrective action as required pursuant to the interagency statements issued by the Federal Financial Institutions Examination Council. Management believes the Bank has completed all of the activities within its control to ensure that the Bank's systems are Year 2000 compliant. The Bank has not experienced any interruptions to normal operations due to the start of the Year 2000.
Clovis Community Bank's Year 2000 readiness costs were approximately $100,000. The Bank does not currently expect to incur any additional costs to address Year 2000 issues.
As of February 29, 2000, the Bank has not experienced any material disruptions of its internal computer systems or software applications and has not experienced any problems with the computer systems or software applications of its third party vendors, suppliers or service providers. The Bank will continue to monitor these third parties to determine the impact, if any, on its business and the actions it must take, if any, in the event of non-compliance by any of these third parties. Based upon the Bank's assessment of compliance by third parties, there appears to be no material business risk posed by any such non-compliance.
Although Clovis Community Bank's Year 2000 rollover did not present any material business disruptions, there are some remaining Year 2000 related risks, including risks due to the fact that the Year 2000 is a leap year. Management believes that appropriate actions have been taken to address these remaining Year 2000 issues and contingency plans are in place to minimize the financial impact to the Bank. Management, however, cannot be certain that Year 2000 issues affecting its customers, suppliers or service providers will not have a material adverse impact on the Bank.
Stock Price Information
The Bank's common stock is not listed on any exchange nor is it listed with NASDAQ. Trading of the Bank's common stock has been limited in volume with transactions coordinated between buyer and seller utilizing brokers to accommodate activity. Bid and asked prices for the Bank's common stock are quoted weekly in "the Fresno Bee" and the "pink sheet" (National Daily Quotation Service). They can also be found on the internet under the symbol CVIC.
The Bank paid a 10% stock dividend in 1999 and no dividend was paid in 1998. Unless the prior approval of the California Commissioner of Financial Institutions is obtained, cash dividends are limited to the lesser of the Bank's retained earnings or undistributed net income for the last three years. As of March 15, 2000 the Bank had 422 shareholders of record.
BID QUOTATIONS OF
THE BANK'S COMMON STOCK
----------------------------------- ------------------ -------------------
QUARTER ENDED LOW BID HIGH BID
----------------------------------- ------------------ -------------------
March 31, 1998 $ 24.00 $ 25.00
June 30, 1998 24.50 25.50
September 30, 1998 23.00 25.00
December 31, 1998 23.75 24.25
March 31, 1999 21.50 23.00
June 30, 1999 20.00 21.00
September 30, 1999 16.00 17.50
December 31, 1999 15.00 16.00
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BOARD OF DIRECTORS AND OFFICERS
DIRECTORS: OFFICERS:
Daniel N. Cunningham, Chairman of the Board Daniel J. Doyle
Vice President and Director President and Chief Executive Officer
Quinn Properties
Gayle Graham
Senior Vice President, Cashier
David E. Cook, Secretary Gary Quisenberry
Retired Senior Vice President, Commercial and Business Banking
Sidney B. Cox Carol Simpson
Owner Senior Vice President, Consumer and Retail Banking
Cox Communications
Daniel J. Doyle Thomas L. Sommer
President and CEO Senior Vice President, Chief Credit Officer
Clovis Community Bank
Steven D. McDonald Stan Davis
President Vice President, Branch Manager
McDonald Properties, Inc.
Louis McMurray Bob E. Florence
President Vice President, Business Development
Charles McMurray Co.
Wanda L. Rogers Steve Freeland
Rogers Helicopters, Inc. Vice President, Special Assets Officer
William Smittcamp Frank Gallegos
Owner Vice President, Manager SBA Department
Wawona Frozen Foods
Yoshito Takahashi Barbara Gillmore
Investments Vice President, Human Resources
Joseph B. Weirick, Treasurer Ken Herron
Investments Vice President, Commercial Loan Officer
Independent Auditors Bernie Kraus
Perry-Smith & Co., LLP, Sacramento, CA Vice President, Commercial Loan Officer
Randy Kammerer
Vice President, Commercial Loan Officer
COUNSEL
Lillick & Charles LLP, San Francisc, CA Derrell G. Lejeune
Vice President, Commercial Loan Officer
Debbie Long
Vice President, Manager Real Estate Division
Rona Melkus
Vice President, Controller
Don Mendenhall
Vice President, Commercial Loan Officer
Steve Morales
Vice President, Manager Information Services
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Teresa Palsgaard Vice President, Development Officer
JoAnn Price Vice President, Commercial Banking Officer
Locally Owned and Independent since 1980
Clovis Main Office
600 Pollasky Avenue
Clovis, CA 93612
(209) 298-1775
Fig Garden Office
726 West Shaw Avenue
Fresno, CA 93710
(559) 221-2760
River Park Commercial Banking Center
8843 North Fresno Street
Fresno, CA 93720
Foothill Office
29430 Auberry Road
Prather, CA 93651
(209) 855-4100
Shaver Lake Office
Highway 168
Shaver Lake, CA 93664
(209) 8421-7200
SAVE MART IN-STORE OFFICES:
CHAMPLAIN & PERRIN
Fresno, CA 93720
(209) 434-8944
CLOVIS & HENDON
Clovis, CA 93612
(209) 323-2200
FIRST & NEES
Fresno, CA 93720
(209) 447-3350
Real Estate Office
795 Pollasky Avenue, Suite 101
Clovis, CA 93612
(209) 297-6644
EXHIBIT 23.2
CONSENT OF PERRY-SMITH LLP
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in the registration statement on Form S-8 of Central Valley Community Bancorp of our report dated February 3, 2000, relating to the consolidated balance sheet of Clovis Community Bank as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for the three years in the period ended December 31, 1999.
/s/ Perry-Smith LLP
Sacramento, California
November 17, 2000
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EXHIBIT 24.1
POWER OF ATTORNEY
EXHIBIT 24.1
POWER OF ATTORNEY
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes Daniel J. Doyle or Gayle Graham and either of them, as attorney-in-fact, to sign in his or her behalf, individually and in each capacity stated below, and to file this Registration Statement on Form S-8 and all amendments and/or supplements to this Registration Statement on Form S-8.
/s/ Daniel J. Doyle , Director, Principal Executive November 15, 2000 --------------------------------------- Officer Daniel J. Doyle /s/ David E. Cook , Director November 15, 2000 --------------------------------------- David E. Cook /s/ Sidney B. Cox , Director November 15, 2000 --------------------------------------- Sidney B. Cox /s/ Daniel N. Cunningham , Director November 15, 2000 --------------------------------------- Daniel N. Cunningham /s/Steven D. McDonald , Director November 15, 2000 --------------------------------------- Steven D. McDonald /s/ Louis McMurray , Director November 15, 2000 --------------------------------------- Louis McMurray /s/ Wanda Lee Rogers , Director November 15, 2000 --------------------------------------- Wanda Lee Rogers /s/ William S. Smittcamp , Director November 15, 2000 --------------------------------------- William S. Smittcamp /s/ Yoshito Takahashi , Director November 15, 2000 --------------------------------------- Yoshito Takahashi /s/ Joseph B. Weirick , Director November 15, 2000 --------------------------------------- Joseph B. Weirick /s/ Gayle Graham , Principal Accounting Officer November 15, 2000 --------------------------------------- and Principal Financial Officer Gayle Graham |
CLOVIS COMMUNITY BANK
1992 STOCK OPTION PLAN
1. PURPOSE
The purpose of the Clovis Community Bank 1992 Stock Option Plan (hereinafter the "Plan") is to provide a means whereby directors and certain employees of Clovis Community Bank (hereinafter the "Bank") may be given an opportunity to purchase shares of the Common Stock of the Bank (hereinafter the "Common Stock"). The Plan is intended to advance the interests of the Bank by encouraging stock ownership on the part of directors and employees, by enabling the Bank to secure and retain the services of highly qualified persons and by providing directors and employees with an additional incentive to make every effort to enhance the success of the Bank.
2. STOCK SUBJECT TO OPTION
Subject to adjustment as provided in Section 4(g) hereof, options may be granted by the Bank from time to time to purchase an aggregate of Three-Hundred Seventy-Four Thousand Four-Hundred Twelve (374,412) shares of the Bank's authorized but unissued Common Stock (the "Shares"). One-Hundred Thirty-Eight Thousand Two-Hundred Fifty (138,250) out of the Three-Hundred Seventy-Four Thousand Four-Hundred Twelve (374,412) Shares reserved for issuance under the Plan shall be reserved for issuance to nonemployee directors of the Bank in accordance with Section 4(a) hereof.
If any option granted under the Plan shall terminate for any reason or expire before such option is exercised in full, the shares previously reserved for issuance upon exercise of such option shall again become available for grant pursuant to the Plan.
3. PARTICIPANTS
Participants in the Plan shall be those directors, key full-time salaried employees and officers of the Bank to whom options may be granted from time to time by the Board of Directors or the Committee.
4. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time prior to the termination of the Plan to
officers and key full-time salaried employees of the Bank who, in the judgment
of the Board of Directors or the Stock Option Committee (as provided in Section
5, the "Committee"), contribute to the successful conduct of the operation of
the Bank through their judgment, interest, ability and special efforts and to
non-employee directors of the Bank; provided, however, that: (i) an eligible
officer or employee shall not participate in the granting of his or her own
option; (ii) the aggregate initial fair market value (determined as of the times
the options are granted) of the stock that may be acquired by any one officer or
employee pursuant to all incentive stock options granted under the Plan that are
exercisable for the first time during any one calendar year (taking into account
all incentive stock options under any stock option plans of the Bank, any of its
affiliates, and any predecessor of any such corporation) shall not exceed
$100,000; and (iii) except in the case of termination by death or disability or
cause, as set forth in Section 4(d) below, in the case of an incentive stock
option the granted option must be exercised by the optionee no later than three
(3) months after any termination of employment or status as an officer with the
Bank and said employment or status as an officer must have been continuous since
the granting of the option; and (iv) the total number of shares subject to
options granted to any one optionee, at any one time, shall not exceed ten
percent (10%) of the then issued and outstanding shares of Common Stock of the
Bank. In addition, options granted pursuant to the Plan shall be subject to the
following terms and conditions:
(a) NON-EMPLOYEE DIRECTOR PARTICIPANTS. Fifty-Seven Thousand (57,000) out of the Eighty-Four Thousand Four Hundred Twenty-Nine (84,429) Shares of the Bank's Common Stock reserved for issuance under the Plan shall be reserved for issuance and granted to each non-employee director of the Bank (a "Director") as follows:
(i) Each Director who has previously received the grant of an option or options to purchase Six Thousand Eight Hundred Seventy-Five (6,875) shares of Common Stock under any prior stock option plan of the Bank (a "Previous Grant") as of the date of adoption of the Plan by the Board of Directors of the Bank (the "Commencement Date") shall be entitled to a grant of an option to purchase One Thousand One Hundred Twenty-Five (1,125) Shares, which option shall be granted within six (6) months of the Commencement Date, but shall not be exercisable until approval of the Plan by the shareholders of the Bank and satisfaction of the vesting period as provided in Section 4(a)(viii) hereof.
(ii) Each Director who has not received a Previous Grant and has served as a Director of the Bank continuously for one (1) year or more on the Commencement Date shall be entitled to a grant of an option to purchase Two Thousand Six Hundred Sixty-Six (2,666) Shares for each such full year of service completed as of the Commencement Date (an "Initial Grant"), which option shall be granted within six (6) months of the Commencement Date, but shall not be exercisable until approval of the Plan by the shareholders of the Bank and satisfaction of the vesting period as provided in Article 4(a)(viii) hereof.
(iii) On each anniversary date of the Commencement Date (the "Anniversary Date"), each Director who has been a Director continuously for the preceding year and who has not previously received one or more grants of options to purchase a total of Eight Thousand (8,000) Shares (including any Previous Grant) shall be entitled to a grant of an option
to purchase Two Thousand Six Hundred Sixty-Six (2,666) Shares (an "Annual Grant"), which option shall be granted within six (6) months of the Anniversary Date. Notwithstanding the foregoing, the maximum number of Shares for which options may be granted under the Plan to any Director (together with any Previous Grant to such Director) shall be Eight Thousand (8,000) Shares.
(iv) The Committee shall determine the exact date on which options are to be granted (the "Date of Grant") within the six-month period following the Commencement Date and within the six-month period following each Anniversary Date, during the term of the Plan. All options required by this Section 4(a) of the Plan to be granted in any one (1) year shall be granted on a single date within each of said six-month periods.
(v) In the event a Director who is entitled to an Initial Grant or Annual Grant on the Commencement Date or Anniversary Date, respectively, ceases to be a Director for any reason other than by reason of death of said Director prior to the Date of Grant, such Director shall not be entitled to receive such Initial Grant or Annual Grant.
(vi) In the event of the death, prior to the Date of Grant, of a Director who is entitled to an Initial Grant or Annual Grant on the Commencement Date or Anniversary Date, respectively, the personal representative of said Director shall be entitled to receive the Initial Grant or Annual Grant to which said Director was entitled on such Commencement Date or Anniversary Date.
(vii) No proration of an Annual Grant shall be made to any Director based on a partial year of service as a Director.
(viii) With respect to each option granted under this Section 4(a), each Director shall agree to remain as a Director of the Bank and to render his or her services for a period of at
least six (6) months from the respective Date of Grant, but such agreement shall not impose upon the Bank any obligation to retain the optionee as Director for any period. No option granted under this Section 4(a) may be exercised by any optionee unless and until the optionee has served continuously as a Director of the Bank for a period of six (6) months from the Date of Grant of such option (the "Vesting Period"), except as set forth in Sections 4(d) and 4(g) hereof. Upon the expiration of six (6) months from each respective Date of Grant, each option shall become immediately exercisable in full.
(b) OPTION PRICE. The purchase price under each option shall be one hundred percent (100%) of the fair market value of the Shares subject thereto on the date the option is granted, as such value is determined by the Board of Directors or the Committee. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2. If, however, an employee owns stock of the Bank possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank, the option price of any incentive stock option granted to such optionee shall be not less than 110 percent (110%) of such fair market value at the time such option is granted.
(c) DURATION AND EXERCISE OF OPTIONS. Except for options granted pursuant to Section 4(a) hereof which shall vest as provided in Section 4(a) hereof, each option shall vest in such manner and be exercisable for a term up to, but not exceeding, ten (10) years from the date the option is granted as the Board of Directors or the Committee shall determine in its sole discretion; provided also, however, that the Board of Directors or the Committee may, in its sole discretion, accelerate the time of exercise of any option. If an employee owns stock of the Bank possessing more than ten percent (10%) of the total combined voting power of all classes of
stock of the Bank, any incentive stock option shall vest in such manner and at such time up to but not exceeding five (5) years from the date the option is granted. The termination of the Plan shall not alter the maximum duration, the vesting provisions, or any other term or condition of any option granted prior to the termination of the Plan.
With respect to incentive stock options granted to a participant under the Plan in any calendar year, the Bank may grant a participant incentive stock options to purchase Shares having more than $100,000 in initial aggregate fair market value (determined at the times the options are granted), subject to the $100,000 limitation set forth in this paragraph applicable to each year in which such options become first exercisable. The optionee may exercise, during a calendar year, an incentive stock option only to the extent that the aggregate initial fair market value of the Shares that may be acquired pursuant to the option (or portion thereof) and all other incentive stock options granted after 1986 that are first exercisable by the optionee during the calendar year does not exceed $100,000 (taking into account all incentive stock options granted under any stock option plan of the Bank or any affiliate of the Bank, or any predecessor of any such corporation). If permitted under regulations promulgated by the Treasury Department or by a ruling of the Internal Revenue Service, the optionee may choose, among the options granted under the Plan that are otherwise first exercisable by the optionee in a calendar year, those options the optionee wishes to exercise subject to the $100,000 limitation. If such a choice is not permitted (as determined by the Board of Directors or the Committee, in its sole discretion), the optionee may exercise an incentive stock option in a calendar year, either in whole or in part, only if the aggregate initial fair market value of the shares that the optionee may acquire under incentive stock options that were granted after 1986 prior to the first mentioned option and which become first exercisable in such year (without regard to the $100,000 limitation) does not exceed
$100,000. If an optionee does not exercise an incentive stock option (or portion thereof) that is first exercisable in a calendar year under the $100,000 limitation, the optionee may exercise that option (or portion thereof) in subsequent years without regard to the $100,000 limitation.
To the extent the right to purchase Shares has vested under a
participant's stock option agreement, options may be exercised from time to time
by delivering payment in full at the option price for the number of Shares being
purchased in cash, or by certified check, official bank check, or the equivalent
thereof acceptable to the Bank together with written notice to the Secretary of
the Bank identifying the option or portion thereof being exercised and
specifying the number of Shares for which payment is being tendered. The Bank
shall deliver to the optionee, which delivery shall be not less than fifteen
(15) days and not more than thirty (30) days after the giving of such notice
unless an earlier or later date shall be mutually agreed upon, without state
transfer or issue tax to the optionee (or other person entitled to exercise the
option) at the principal office of the Bank, or such other place as shall be
mutually acceptable, a certificate or certificates for such Shares dated the
date the options were validly exercised; provided, however, that the time of
such delivery may be postponed by the Bank for such period as may be required
for it with reasonable diligence to comply with any requirements of law. If an
option covers incentive and nonstatutory stock options, separate stock
certificates will be issued, one or more for incentive stock options and one or
more for the nonstatutory stock options.
(d) TERMINATION OF EMPLOYMENT OR OFFICER OR DIRECTOR STATUS. Upon the termination of an optionee's status as an employee or officer or director of the Bank, his or her rights to exercise an option then held shall be only as follows:
(i) DEATH OR DISABILITY: If an optionee's employment or status as an officer or director is terminated by death or disability, such optionee or such optionee's qualified
representative (in the event of the optionee's mental disability) or the optionee's estate (in the event of the optionee's death) shall have the right for a period of twelve (12) months following the date of such death or disability to exercise the option to the extent the optionee was entitled to exercise such option on the date of the optionee's death or disability, provided the actual date of exercise is in no event after the expiration of the term of the option.
An optionee's "estate" shall mean the optionee's legal representative or any person who acquires the right to exercise an option by reason of the optionee's death.
(ii) CAUSE: If an employee or officer is determined by the Board of Directors to have committed an act of embezzlement, fraud, dishonesty, breach of fiduciary duty to the Bank, or to have deliberately disregarded the rules of the Bank which resulted in loss, damage or injury to the Bank, or if an optionee makes any unauthorized disclosure of any of the secrets or confidential information of the Bank, induces any client or customer of the Bank to break any contract with the Bank or induces any principal for whom the Bank acts as agent to terminate such agency relation, or engages in any conduct which constitutes unfair competition with the Bank, or if an optionee is removed from any office directorship of the Bank by the Federal Deposit Insurance Corporation or any other regulatory agency or if a director optionee is removed as a director of the Bank pursuant to California Corporations Code Section 302 or Section 304, neither the optionee nor the optionee's estate shall be entitled to exercise any option with respect to any Shares whatsoever after termination of employment or officer or director status, whether or not after termination of employment or officer or director status, the optionee may receive payment from the Bank for vacation pay, for services rendered prior to termination, for services for the day on which termination occurred, for salary in lieu of notice, or for other benefits. In making such determination, the Board of Directors shall act fairly and shall give the
optionee an opportunity to appear and be heard at a hearing before the full Board of Directors and present evidence on the optionee's behalf. For the purpose of this paragraph, termination of employment or officer or director status shall be deemed to occur when the Bank dispatches notice or advice to the optionee that the optionee's employment or status as an officer or director is terminated and not at the time of the optionee's receipt thereof.
(iii) OTHER REASONS: If an optionee's employment or status as an
officer or director is terminated for any reason other than those mentioned
above under "Death or Disability" and "Cause", the optionee may, with respect to
incentive stock options, within three (3) months following such termination,
and, with respect to nonstatutory stock options, within three (3) months and one
(1) day following such termination, exercise the option to the extent such
option was exercisable by the optionee on the date of termination of the
optionee's employment or status as an officer or director, provided the date of
exercise is in no event after the expiration of the term of the option.
(iv) EXTENSION OF GRACE PERIOD:If an optionee's employment or status as an officer or director is terminated for any reason other than those mentioned above under "Death or Disability" and "Cause" and the optionee dies or becomes disabled, with respect to incentive stock options, during the three (3) months following such termination, and, with respect to nonstatutory stock options, within three (3) months and one (1) day following such termination, such optionee or such optionee's qualified representative (in the event of the optionee's mental disability) or the optionee's estate (in the event of the optionee's death) shall have the right for a period of twelve (12) months following the date of such death or disability to exercise the option to the extent the optionee was entitled to exercise such option on the date of the optionee's death
or disability, provided the actual date of exercise is in no event after the expiration of the term of the option.
(e) TRANSFERABILITY OF OPTION. No option shall be transferable other
than by will or the laws of descent and distribution and shall be exercisable during the optionee's lifetime only by the optionee.
(f) OTHER TERMS AND CONDITIONS. Options may also contain such other provisions, which shall not be inconsistent with any of the foregoing terms, as the Board of Directors or the Committee shall deem appropriate. No option, however, nor anything contained in the Plan, shall confer upon any optionee any right to continue in the employ or in the status as an officer of the Bank, nor limit in any way the right of the Bank to terminate an optionee's employment or status as an officer at any time.
(g) ADJUSTMENT OR CHANGES IN COMMON STOCK. In the event the shares of Common Stock of the Bank, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Bank or of another corporation (whether by reason of reorganization, merger, consolidation, recapitalization, reclassification, split-up, combination of shares, or otherwise), or if the number of shares of Common Stock of the Bank shall be increased through the payment of a stock dividend, the Board of Directors shall substitute for or add to each share of Common Stock of the Bank theretofore appropriated or thereafter subject or which may become subject to an option under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of Common Stock of the Bank shall be so changed, or for which each share shall be exchanged, or to which each such share shall be entitled, as the case may be. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or
portions thereof then unexercised, shall be exercisable, so that any optionee's proportionate interest in the Bank by reason of his or her rights under unexercised portions of such options shall be maintained as before the occurrence of such event. Such adjustment in outstanding options shall be made without change in the total price of the unexercised portion of the option and with a corresponding adjustment in the option price per share.
In the event of sale, dissolution or liquidation of the Bank or a merger
or consolidation in which the Bank is not the surviving or resulting
corporation, the Board of Directors may, in its discretion, provide for the
assumption by the surviving or resulting corporation of every option outstanding
hereunder on its terms and conditions, both as to the number of shares and
otherwise; provided, however, that, if the Board of Directors does not provide
for such assumption, the Board of Directors shall have the power to cause the
termination of every option outstanding hereunder, except that the surviving or
resulting corporation may, in its discretion, tender an option or options to
purchase its shares on its terms and conditions, both as to the number of shares
and otherwise; provided, further, that in all events the optionee shall have the
right immediately prior to such sale, dissolution, liquidation, or merger or
consolidation in which the Bank is not the surviving or resulting corporation to
notification thereof as soon as practicable and, thereafter, to exercise the
optionee's option to purchase Shares subject thereto to the extent of any
unexercised portion of the option, regardless of the vesting provisions of
Section 4(b) hereof. This right of exercise shall be conditioned upon the
execution of a final plan of dissolution or liquidation or a definitive
agreement of merger or consolidation.
In the event of an offer by any person or entity to all shareholders of the Bank to purchase any or all shares of Common Stock of the Bank (or shares of stock or other securities which shall be substituted for such shares or to which such shares shall be adjusted as provided in Section
4(g) hereof), any optionee under this Plan shall have the right upon the commencement of such offer to exercise the option and purchase shares subject thereto to the extent of any unexercised or unvested portion of such option.
No right to purchase fractional shares shall result from any adjustment in options pursuant to this Section 4(g). In case of any such adjustment, the shares subject to the option shall be rounded down to the nearest whole share. Notice of any adjustment shall be given by the Bank to each holder of an option which was in fact so adjusted and such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of the Plan.
To the extent the foregoing adjustments relate to stock or securities of the Bank, such adjustments shall be made by the Board of Directors or the Committee, whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Section 4(g), an optionee shall have no rights by reason of any of the following events: (1) subdivision or consolidation of shares of stock of any class; (2) payment of any stock dividend; (3) any other increase or decrease in the number of shares of stock of any class; (4) any dissolution, liquidation, merger, consolidation, spin-off of assets or stock of another corporation. Any issue by the Bank of shares of stock of any class, or securities convertible into shares of any class, shall not affect the number or price of shares of Common Stock subject to the option, and no adjustment by reason thereof shall be made.
The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Bank to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.
(h) RIGHTS AS A SHAREHOLDER. The optionee shall have no rights as a shareholder with respect to any Shares until the date of issuance of a stock certificate for such Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date of such issuance, except as provided in Section 4(g) hereof.
(i) WITHHOLDING. The Bank shall have the right upon the exercise of an option to deduct any sums required to be withheld under federal, state or local tax laws or regulations. The Bank may condition the issuance of Shares upon exercise of any option upon the payment by the optionee of any sums required to be withheld under applicable laws or regulations.
5. ADMINISTRATION
The Plan shall be administered by a Stock Option Committee (the "Committee") which shall consist of all members of the Board of Directors of the Bank except those directors who are full-time, salaried, key employees of the Bank. The Bank shall effect the grant of options under the Plan by execution of instruments in writing in a form approved by the Committee. Subject to the express terms and conditions of the Plan and the terms of any option outstanding under the Plan, the Committee shall have full power to construe the Plan and the terms of any option granted under the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan or such options and to make all other determinations necessary or advisable for the Plan's administration, including, without limitation, the power to (i) determine which persons meet the requirements of Section 3 hereof for selection as participants of the Plan; (ii) except as provided in Section 4(a) hereof, determine to which of the eligible persons, if any, options shall be granted under the Plan; (iii) establish the terms and conditions required or permitted to be included in every option agreement or any amendments thereto, including whether options to be granted thereunder shall be incentive stock options or non-statutory stock options; (iv) except as provided
in Section 4(a) hereof, specify the number of shares to be covered by each option; (v) in the event a particular option is to be an incentive stock option, determine and incorporate such terms and provisions, as well as amendments thereto, as shall be required in the judgment of the Committee, so as to provide for or conform such option to any change in any law, regulation, ruling or interpretation applicable thereto; and (vi) make all other determinations deemed necessary or advisable for administering the Plan. The Committee's determination on the foregoing matters shall be conclusive.
6. EFFECTIVE DATE AND TERMINATION OF PLAN
(a) The Plan shall become effective only upon adoption by the Board of Directors. The exercise of any options granted pursuant to the Plan shall be conditioned upon approval of the Plan by the holders of a majority of all of the shares of Common Stock of the Bank represented and voting at a meeting of shareholders of the Bank to which the Plan is submitted for approval, by the holders of a majority of the disinterested shares represented and voting at such meeting and upon satisfaction of any other conditions to such exercise as may be imposed by the Superintendent of Banks, State of California.
(b) Unless the Plan shall have been terminated by action of the Board of Directors prior thereto, it shall terminate ten (10) years after the earlier of its adoption by the Board of Directors or approval by the shareholders. The termination of the Plan shall not alter the maximum term, the vesting provisions or other terms or conditions of any option granted prior to termination of the Plan.
7. AMENDMENTS
The Board of Directors of the Bank may from time to time, with the approval of the Superintendent of Banks of the State of California, alter or amend the Plan or alter or amend any
and all agreements evidencing options granted thereunder; however, in no event may the Bank alter any outstanding option agreement to the detriment of the optionee without his or her consent.
8. USE OF PROCEEDS
The proceeds from the sale of Common Stock pursuant to the exercise of options will be used for the Bank's general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION
The granting of an option hereunder shall impose no obligation upon the optionee to exercise such option.
10. SECURITIES LAWS
No shares of Common Stock shall be issued upon the exercise of any option under the Plan unless and until the Bank has complied with any then applicable requirements of statute or regulation applicable to such issuance. The Bank shall diligently endeavor to comply with all applicable securities laws before any options are granted hereunder and before any shares of Common Stock are issued pursuant to the exercise of such options.