As filed with the Securities and Exchange Commission on May 25, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRST NORTHERN COMMUNITY BANCORP
(Exact name of registrant as specified in its charter)
California 68-0450397
--------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
195 N. First Street
Dixon, California 95620
-------------------------------- -------------------------------
(Address of Principal (Zip Code)
Executive Offices)
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Copy to:
OWEN J. ONSUM
President and Chief Executive Officer RODNEY R. PECK, ESQ.
First Northern Community Bancorp Pillsbury Madison & Sutro LLP
195 N. First Street 50 Fremont Street
Dixon, California 95620 San Francisco, CA 94105
(707) 678-4422 (415) 983-1000
------------------------------------------ ------------------------------
(Name, address and telephone number,
including area code, of agent for service)
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The Registration Statement shall become effective upon filing in accordance with Rule 462 under the Securities Act of 1933.
INTRODUCTORY STATEMENT NOT FORMING PART OF REGISTRATION STATEMENT
First Northern Community Bancorp ("Registrant") files this Registration Statement on Form S-8 relating to an aggregate of 1,325,066 shares of Common Stock of the Registrant (the "Shares"). The Shares to be registered hereunder are issuable by the Registrant pursuant to options or obligations to issue shares assumed by the Registrant pursuant to an Agreement and Plan of Reorganization, dated as of March 21, 2000 (the "Agreement"), among the Registrant, FNCB Merger Corp. and First Northern Bank of Dixon (the "Bank"). Such options or obligations were originally granted under (i) the First Northern Bank of Dixon 1997 Stock Option Plan, (ii) the Amended and Restated First Northern Bank of Dixon Outside Directors 1997 Nonstatutory Stock Option Plan (collectively, the "Plans"), and (iii) the First Northern Bank of Dixon 1997 Employee Stock Purchase Plan, each as amended to date. Pursuant to the Agreement, FNCB Merger Corp., a wholly owned subsidiary of the Registrant, will be merged (the "Merger") with and into the Bank and the Bank will become a wholly-owned subsidiary of the Registrant. Options to purchase First Northern Bank of Dixon Common Stock granted under the Plans and outstanding immediately prior to the completion of the Merger shall become options to purchase the Common Stock of the Registrant at the effective time of the Merger and any obligations to issue shares of the Common Stock of First Northern Bank of Dixon under the First Northern Bank of Dixon 1997 Employee Stock Purchase Plan shall become obligations to issue shares of the Common Stock of the Registrant.
PART I
The document(s) containing the information specified in Part I of Form S-8 will be provided to participants as specified by Rule 428(b)(1) of the Securities Act of 1933, as amended (the "Securities Act"). These documents and the documents incorporated herein by reference pursuant to Item 3 of Part II of this Registration Statement, taken together, constitute a prospectus that meets the requirements of Section 10(a) of the Securities Act (the "Prospectus").
PART II
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, 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 in this Registration Statement and to
be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Registration Statement to the extent that a statement contained herein or
in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Registration Statement.
Not applicable.
Not applicable.
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 (the "Act").
Article 8 of the Registrant's Articles of Incorporation (Exhibit 3(i) hereto) provides for indemnification of directors of the Registrant to the extent permitted by Section 317(b) and (c) of the California Corporations Code. In addition, Article 8 authorizes the Registrant to indemnify agents (as defined in Section 317 of the California Corporations Code), through bylaw provisions, agreements, votes of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, to the fullest extent permissible under California law.
Section 52 of the Registrant's Bylaws (Exhibit 3(ii) hereto) provides for indemnification of directors and officers in excess of indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the applicable limits set forth in Section 204 of the California Corporations Code and subject further to any express prohibitions in Section 317 of the California Corporations Code or any determination by a court of competent jurisdiction that any indemnification provided under Section 52 of the Bylaws is unlawful. Section 47 of the Registrant's Bylaws, as amended, also provides that the Registrant may maintain insurance (to the extent reasonably available) to protect itself and any director, officer, employee or agent against any expense, liability or loss.
Not applicable.
Item 8. Exhibits.
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Exhibit
Number Exhibit
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3(i) Registrant's Articles of Incorporation
3(ii) Registrant's Bylaws
4.1 First Northern Community Bancorp 2000 Stock Option Plan
4.2 First Northern Community Bancorp 2000 Stock Option Plan forms
"Incentive Stock Option Agreement" and "Notice of Exercise of
Stock Option."
4.3 First Northern Community Bancorp Outside Directors 2000
Nonstatutory Stock Option Plan
4.4 First Northern Community Bancorp Outside Directors 2000
Nonstatutory Stock Option Plan Forms "Nonstatutory Stock Option
Agreement" and "Notice of Exercise of Stock Option."
4.5 First Northern Community Bancorp 2000 Employee Stock Purchase Plan
4.6 First Northern Community Bancorp 2000 Employee Stock Purchase Plan
Forms "Participation Agreement" and "Notice of Withdrawal."
5.1 Opinion of Pillsbury Madison & Sutro LLP
23.1 Consent of KPMG LLP, Independent Accountants
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Powers of Attorney
99.1 The Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999 filed with the FDIC
99.2 The Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2000 filed with the FDIC
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(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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective 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 (a)(1)(i) and (a)(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 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 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.
(c) 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 certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8, and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Dixon, State of California, on May 23, 2000.
FIRST NORTHERN COMMUNITY BANCORP
Signature Title
--------- -----
/s/ Owen J. Onsum President, Chief Executive Officer and
--------------------------------- Director (Principal Executive Officer)
Owen J. Onsum
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INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Numbered Page
------- ------- -------------
3(i) Registrant's Articles of Incorporation 14
3(ii) Registrant's Bylaws 21
4.1 First Northern Community Bancorp 2000 Stock Option Plan 48
4.2 First Northern Community Bancorp 2000 Stock Option Plan forms "Incentive
Stock Option Agreement" and "Notice of Exercise of Stock Option." 61
4.3 First Northern Community Bancorp Outside Directors 2000 Nonstatutory Stock
Option Plan 69
4.4 First Northern Community Bancorp Outside Directors 2000 Nonstatutory Stock
Option Plan Forms "Nonstatutory Stock Option Agreement" and "Notice of
Exercise of Stock Option." 81
4.5 First Northern Community Bancorp 2000 Employee Stock Purchase Plan 88
4.6 First Northern Community Bancorp 2000 Employee Stock Purchase Plan Forms
"Participation Agreement" and "Notice of Withdrawal." 98
5.1 Opinion of Pillsbury Madison & Sutro LLP 103
23.1 Consent of KPMG LLP, Independent Accountants 105
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1). 103
24.1 Powers of Attorney 107
99.1 The Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed with the FDIC 110
99.2 The Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000 filed with the FDIC 183
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ARTICLES OF INCORPORATION
OF
FIRST NORTHERN COMMUNITY BANCORP
ARTICLE 1
The name of the corporation is First Northern Community Bancorp.
ARTICLE 2
The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.
ARTICLE 3
The name in the State of California of the corporation's initial agent for service of process is:
CT Corporation System
ARTICLE 4
The corporation is authorized to issue one class of shares to be designated Common Stock ("Common Stock"). Such shares shall be without par value. The total number of shares of Common Stock the corporation shall have authority to issue is eight million (8,000,000).
ARTICLE 5
Except as specified hereinbelow, each holder of Common Stock of the corporation shall have full preemptive rights, as defined by law, to subscribe for or purchase such holder's proportionate share of any Common Stock that may be offered for sale or sold at any time by the corporation. The Board of Directors shall have the power to prescribe a reasonable period of time within which the preemptive rights to subscribe to the new shares of Common Stock must be exercised. The foregoing right shall not apply to the sale or issuance by the corporation of additional shares of Common Stock (i) in connection with the acquisition by the corporation of another entity or business segment of any such entity by merger, purchase of all or substantially all the assets or other type of acquisition transaction; (ii) pursuant to any stock option, stock purchase or other stock plan, agreement or arrangement previously approved by the corporation's shareholders; (iii) in a public offering provided that the terms of the offering include a requirement that if the offering is over-subscribed, shares will be allocated on a pro rata basis based on actual paid subscriptions received by the corporation.
ARTICLE 6
6.1 In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in Section 6.2 of this Article 6, any "Business Combination" (as hereinafter defined), which shall be consummated at a time when there shall exist an "Interested Shareholder" (as hereinafter defined), shall require the affirmative vote of the holders of at least sixty-six and two thirds percent (66 2/3%) of the then outstanding shares of Common Stock of this corporation entitled to vote. Such affirmative vote shall be required notwithstanding the fact that no vote may be required or that a lesser percentage may be specified by law or otherwise.
In addition to the higher vote requirement, except as otherwise expressly provided in Section 6.2 of this Article 6, prior to effecting any such Business Combination all of the following conditions shall have been met:
6.1.1 The aggregate amount of the cash and the "Fair Market Value" (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of the Common Stock in such Business Combination shall be at least equal to the higher of the following:
6.1.1.1 (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of the Common Stock acquired by it (a) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (b) in the transaction in which it became an Interested Shareholder, if within two years of the Announcement Date, whichever is higher; and
6.1.1.2 the Fair Market Value per share of the Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder the ("Determination Date"), if within two years of the Announcement Date, whichever is higher.
6.1.2 The consideration to be received by holders of the Common Stock shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of the Common Stock . The price determined in accordance with Section 6.1.1 shall be subject to appropriate adjustment in the event of any stock dividend, stock split, combination of shares or similar event.
6.1.3 After such shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination and except to the extent that the corporation may be prohibited by law from making a distribution to shareholders: (1) there shall have been (a) no reduction in the annual rate of dividends paid on the Common Stock of this corporation (except as necessary to reflect any subdivision of the Common Stock), except as approved by at least sixty-six and two-thirds percent (66 2/3%) of the "Disinterested Directors" (as hereinafter defined), and (b) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number or outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by at least sixty-six and two-thirds percent (66 2/3%) of the Disinterested Directors; and (3) such Interested Shareholder shall
have not become the beneficial owner of any additional shares of stock of this corporation except as part of the transaction which results in such shareholder becoming an Interested Shareholder within the two-year period prior to such consummation.
6.1.4 After such shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by this corporation or any "Subsidiary" (as hereinafter defined), whether in anticipation of or in connection with such Business Combination or otherwise.
6.1.5 A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all holders of the Common Stock of this corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions).
6.2 The provisions of Section 6.1 of this Article 6 shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Articles of Incorporation, if the Business Combination shall have been approved by at least sixty-six and two-thirds percent (66 2/3%) of the Disinterested Directors; or, if either
6.2.1 there is pending any proceeding or other action by the Federal Deposit Insurance Corporation pursuant to ss. 1818(a) or ss. 1823(c) of Title 12 of the United States Code in connection with any of the banking subsidiaries of the corporation; or
6.2.2 there is outstanding any order of the Commissioner of Financial Institutions of the State of California pursuant to California Financial Code ss.ss. 3100-3132 or ss.ss. 3180-3187 against any banking subsidiary of the corporation,
or any other provision of similar purpose as hereinafter adopted and as the same may be amended at a future time.
6.3 For the purposes of this Article 6 the following definitions apply:
6.3.1 A "person" means any individual, firm, corporation or other entity.
6.3.2 "Interested Shareholder" means any person (other than this corporation or any Subsidiary) who or which:
6.3.2.1 is the beneficial owner, directly or indirectly, of ten percent (10%) or more of the issued and outstanding stock of this corporation; or
6.3.2.2 is an "Affiliate" of this corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of ten percent (10%) or more of the issued and outstanding stock of this corporation; or
6.3.2.3 is an assignee of or has otherwise succeeded to any shares of stock of this Corporation which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.
6.3.3 A person shall be a "beneficial owner" of stock of this corporation:
6.3.3.1 which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or
6.3.3.2 which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or
6.3.3.3 which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of stock of this corporation.
6.3.4 "Business Combination" shall include:
6.3.4.1 any merger or consolidation of the corporation or any Subsidiary with (i) any Interested Shareholder or (ii) any other corporation or other business entity (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate of an Interested Shareholder; or
6.3.4.2 any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value of ten percent (10%) or more of the total value of the assets of the corporation reflected in the most recent balance sheet of the corporation; or
6.3.4.3 the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of twenty percent (20%) of shareholders' equity or more; or
6.3.4.4 the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by or on behalf of any Interested Shareholder or any Affiliate of any Interested Shareholder; except that this provision shall not limit the right of the shareholders to elect voluntarily to wind up or dissolve the corporation by the vote of shareholders holding shares of stock representing fifty percent (50%) or more of the stock then entitled to vote in the election of directors; or
6.3.4.5 any reclassification of the corporation's securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving any Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate beneficial ownership of any Interested Shareholder or any Affiliate of any Interested Shareholder in the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary.
6.3.5 "Affiliate," and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 2000.
6.3.6 "Disinterested Director" means any member of the Board of Directors who is unaffiliated with the Interested Shareholder and was a member of the Board of Directors prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Disinterested Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board of Directors.
6.3.7 "Fair Market Value" means as to the stock of this corporation the fair market value on the date in question of a share of such stock as determined by the Board of Directors in good faith; and in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board of Directors in good faith.
6.3.8 "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by this corporation; provided, however, that for purposes of the definition of Interested Shareholder, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned directly or indirectly by this corporation.
In the event of any Business Combination in which this corporation survives, the phrase "other consideration to be received" as used in Section 6.1 of this Article 6 shall include the shares of stock of this corporation retained by the holders of such shares.
6.4 A majority of the directors shall have the power and duty to determine for the purposes of this Article 6, on the basis of information known to them after reasonable inquiry, (A) whether a person is an Interested Shareholder, (B) the number of shares of stock of this corporation beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another, or (D) whether the assets which are the subject of any Business Combination constitute substantially all assets of this corporation. A majority of the directors shall have the further power to interpret all of the terms and provisions of this Article 6.
6.5 Nothing contained in this Article 6 shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law.
6.6 Notwithstanding any other provisions of these Articles of Incorporation or the By-laws (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By-laws) the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding stock of this corporation shall be required to amend, repeal or adopt any provisions inconsistent with this Article 6.
ARTICLE 7
The Board of Directors, when evaluating any offer of another party to (a) make a tender or exchange offer for any Equity Security (as defined hereinafter) of the corporation, (b) merge or consolidate the corporation with another corporation, or (c) purchase, lease, or otherwise acquire all or substantially all of the property of the corporation, shall in connection with the exercise of its judgment in determining what is in the best interests of the corporation and its shareholders consider all of the following factors and any other factors it deems relevant: (i) the social and economic effects on the employees, shareholders, customers, suppliers, and other constituents of the corporation and its subsidiaries and on the communities in which the corporation or its subsidiaries operate or are located, including, without limitation, the availability of credit and other banking services to the communities served by the corporation; (ii) whether the proposed transaction might violate federal or state laws; and (iii) not only the consideration being offered in the proposed transaction in relation to the then current market price for or book value of the outstanding Common Stock of the corporation, but also to the market price for or book value of the Common Stock of the corporation over a period of years and the corporation's future value as an independent entity. For purposes of this Article 7, "Equity Security" shall have the meaning ascribed to such term in Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect on January 1, 2000.
ARTICLE 8
The liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The corporation is authorized to provide indemnification of agents (as defined in section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors, or otherwise, to the fullest extent permissible under California law. Any amendment, repeal or modification of any provision of this Article 8 shall not adversely affect any right or protection of an agent of the corporation existing at the time of such amendment, repeal or modification.
Dated: February 3, 2000.
/S/ Owen J. Onsum
----------------------------------------
Owen J. Onsum, Incorporator
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BYLAWS OF
FIRST NORTHERN COMMUNITY BANCORP
I OFFICES.................................................................1
1. Principal Office...............................................1
2. Other Offices..................................................1
II MEETINGS OF SHAREHOLDERS................................................1
3. Place of Meetings..............................................1
4. Annual Meetings................................................1
5. Special Meetings...............................................1
6. Notice of Shareholders'Meeting.................................2
7. Manner of Giving Notice........................................2
8. Affidavit of Notice............................................3
9. Quorum.........................................................4
10. Adjourned Meeting..............................................4
11. Voting Generally...............................................4
12. Cumulative Voting for Directors................................4
13. Waiver of Notice or Consent by
Absent Shareholders............................................5
14. Shareholder Action by Written Consent without a
Meeting........................................................5
15. Notice of Action Taken by Written Consent without
a Meeting......................................................6
16. Record Dates for Shareholder Notice, Voting, and Giving
Consents.......................................................6
17. Proxies........................................................6
18. Inspectors of Election.........................................7
III DIRECTORS...............................................................8
19. Powers.........................................................8
20. Number and Qualification of Directors..........................8
21. Nomination of Directors........................................9
22. Vacancies.....................................................10
23. Resignation...................................................11
24. Place of Meetings and Meetings by Telephone...................11
25. Annual Meetings...............................................11
26. Other Regular Meetings........................................11
27. Special Meetings..............................................12
28. Notice of Special Meetings....................................12
29. Quorum........................................................12
30. Waiver of Notice..............................................12
31. Adjournment...................................................13
32. Notice of Adjournment.........................................13
33. Action without Meeting........................................13
34. Fees and Compensation of Directors............................13
IV COMMITTEES.............................................................13
35. Committees of Directors.......................................13
36. Meetings and Action of Committees.............................14
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V OFFICERS...............................................................14
37. Officers......................................................14
38. Election of Officers..........................................14
39. Subordinate Officers..........................................15
40. Removal and Resignation of Officers...........................15
41. Vacancies in Offices..........................................15
42. Chairman of the Board.........................................15
43. President.....................................................15
44. Vice Presidents...............................................16
45. Secretary.....................................................16
46. Chief Financial Officer.......................................16
VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS.....17
47. Agents, Proceedings and Expenses..............................17
48. Actions Other Than by the Corporation.........................17
49. Actions by the Corporation....................................17
50. Successful Defense by Agent...................................18
51. Required Approval.............................................18
52. Advance of Expenses...........................................18
53. Other Contractual Rights......................................19
54. Limitations...................................................19
55. Insurance.....................................................19
56. Fiduciaries of Corporate Employee Benefit Plans...............19
VII RECORDS AND REPORTS....................................................19
57. Maintenance and Inspection of Share Register..................19
58. Maintenance and Inspection of Bylaws..........................20
59. Maintenance and Inspection of Other Corporate Records.........20
60. Inspection by Directors.......................................20
61. Annual Report to Shareholders.................................20
62. Financial Statements..........................................21
63. Annual Statement of General Information.......................21
VIII GENERAL CORPORATE MATTERS..............................................22
64. Record Date for Purposes Other Than Notice and Voting.........22
65. Checks, Drafts, Evidences of Indebtedness.....................22
66. Corporate Contracts and Instruments, Execution Of.............22
67. Certificate for Shares........................................22
68. Lost Certificates.............................................23
69. Representation of Shares of Other Corporations................23
70. Construction and Definitions..................................23
IX AMENDMENTS.............................................................23
71. Amendment by Shareholders.....................................23
72. Amendment by Directors........................................23
BYLAWS OF
FIRST NORTHERN COMMUNITY BANCORP
I
OFFICES
The Board of Directors shall fix the location of the principal executive office of this Corporation at any place which is within Solano County, State of California.
The Board of Directors may at any time establish branch offices at any place or places where the Corporation is qualified to do business.
II
MEETINGS OF SHAREHOLDERS
Meetings of shareholders shall be held at any place within or outside Solano County, but within the State of California, designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of this Corporation.
The annual meeting of the shareholders shall be held each year on a date and at a time designated by the Board of Directors. The date designated by the Board of Directors shall be within five months after the end of this Corporation's fiscal year and within 15 months after the last annual meeting.
A special meeting of the shareholders may be called at any time by the Board of Directors, or by the Chairman of the Board, or by the President, or by one or more shareholders holding shares in the aggregate entitled to cast no less than 10% of the votes at the meeting. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the time of the meeting and the general nature of the business proposed to be transacted. The request shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to one or more of the Chairman of the Board, the President, any vice president, or the Secretary of this Corporation. The officer receiving the request shall cause notice to be given promptly to the shareholders entitled to vote, in accordance with the provisions of sections 6 and 7 of these Bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this section shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the Board of Directors may be held.
All notices of meetings of shareholders shall be sent or otherwise given in accordance with section 7 of these Bylaws not less than 10 nor more than 60 days before the date and hour of the meeting. The notice shall specify the place, date and time of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted, or (ii) in the case of the annual meeting, those matters which the Board of Directors, at the time of giving the notice, intends to present for action by the shareholders. The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees whom, at the time of the notice, management intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has direct or indirect financial interest, pursuant to section 310 of the California Corporations Code (the "Code"), (ii) an amendment of the Articles of Incorporation of this Corporation, pursuant to section 902 of the Code, (iii) a reorganization of this Corporation, pursuant to section 1201 of the Code, (iv) a voluntary dissolution of this Corporation, pursuant to section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to section 2007 of the Code, the notice shall also state the general nature of that proposal.
Notice of any meeting of shareholders shall be given either personally or by first-class mail or telegraphic or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the books of this Corporation or given by the shareholder to the Corporation for the purpose of notice. If no such address appears on the Corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class mail or telegraphic or other written communication to the Corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of this Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, all future notices or reports shall be deemed to have been duly given without further mailing if these shall be available to the shareholder on written demand of the shareholder at the principal executive office of this Corporation for a period of one year from the date of the giving of the notice or report.
An affidavit of the mailing or other means of giving any notice of any shareholders' meeting shall be executed by the Secretary, assistant secretary, or any transfer agent of this Corporation giving the notice, and shall be filed and maintained in the records of this Corporation.
At any annual meeting of shareholders only such business shall be conducted
as shall have been properly brought before the meeting. To be properly brought
before an annual meeting, business must be (i) specified in the notice of
meeting (or any supplement thereto) given by, or at the direction of, the Board
of Directors, (ii) otherwise properly brought before the meeting by, or at the
direction of, the chairman of the meeting, or (iii) otherwise properly brought
before the meeting by a shareholder entitled to vote at such meeting. For
business to be properly brought before a meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary of
the Corporation and must have been a shareholder of record at the time such
notice is given. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 70 days nor more than 90 days prior to the first anniversary date of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed by
more than 70 days, from such anniversary date, notice by the shareholder to be
timely must be so delivered or mailed and received not earlier than 90 days
prior to such annual meeting and not later than the close of business on the
later of the 70 days prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
shareholder's notice to the Secretary shall set forth (i) as to each matter the
shareholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, and (ii) as to the shareholder giving the notice
(a) the name and record address of the shareholder, (b) the class and the number
of shares of capital stock of the Corporation which are beneficially owned by
the shareholder, (c) any material interest of the shareholder in such business
and (d) whether the shareholder intends or is part of a group which intends to
solicit proxies from other shareholders in support of such proposal and if part
of a group, the names and addresses of such group members. No business shall be
conducted at an annual meeting of shareholders unless proposed in accordance
with the procedures set forth herein. The chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the foregoing procedure
and such business shall not be transacted. To the extent this section 9. shall
be deemed by the Board of Directors or the United States Securities and Exchange
Commission or any applicable bank regulatory authority, or finally adjudged by a
court of competent jurisdiction, to be inconsistent with the right of
shareholders to request inclusion of a proposal in the Corporation's proxy
statement pursuant to Rule 14a-8 promulgated under the Securities Exchange Act
of 1934, as amended, such rule shall prevail.
The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken, other than adjournment, is approved by at least a majority of the shares required to constitute a quorum.
Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy, but in the absence of a quorum, no other business may be transacted at that meeting, except as provided in section 10 of these Bylaws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at a meeting at which the adjournment is taken, unless a new record date for the adjourned meeting is fixed, or unless the adjournment is for more than 45 days from the date set for the original meeting, in which case the Board of Directors shall set a new record date. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of sections 6 and 7 of these Bylaws. At any adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting.
The shareholders entitled to vote at any meeting shall be determined in accordance with the provisions of section 17 of these Bylaws subject to the provisions of sections 702 to 704, inclusive, of the Code, which relate to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership or subject to a voting trust. In the discretion of the chairman of the meeting, the shareholders vote may be by voice vote or by ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the voting has begun. On any matter other than elections of directors, any shareholder may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or vote them against the proposal, but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any manner, other than the election of directors, shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by Code or by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be elected, no shareholder shall be entitled to cumulate votes, that is, to cast for any one or more candidates a number of votes greater than the number of the shareholder's shares, unless the candidates' names have been
placed in nomination prior to commencement of the voting and a shareholder has given notice prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among all of the candidates, as the shareholder thinks fit. The candidates receiving the highest number of votes, up to the number of directors to be elected, shall be elected.
The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to a holding of the meeting, or an approval of the minutes. The waiver of notice or consent need not specify either the business to be transacted or the purpose of any annual or special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the last sentence of section 6 of these Bylaws, the waiver or consent shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of that meeting, except when the person objects, at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice of the meeting if that objection is expressly made at the meeting.
Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted, provided that the Board of Directors of this Corporation, by resolution, shall have previously approved any such action. In the case of election of directors, a consent otherwise conforming to the requirements of the preceding sentence shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors; provided, however, that a director may be elected at any time to fill a vacancy on the Board of Directors that has not been filled by the directors and that was not created by the removal of a director by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be filed with the Secretary of this Corporation and shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares or a personal representative of the shareholder or their respective proxy holders, may revoke the consent by a writing received by the Secretary of this Corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been solicited in writing, and if the unanimous written consent of all such shareholders shall not have been received, the Secretary of this Corporation shall give prompt notice of the corporate action approved by the shareholders without a meeting. This notice shall be given in the manner specified in section 7 of these Bylaws. In the case of approval of (i) contracts or transactions in which a director has a direct or indirect financial interest, pursuant to section 310 of the Code, (ii) indemnification of agents of this Corporation, pursuant to section 317 of the Code, (iii) a reorganization of this Corporation, pursuant to section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to section 2007 of the Code, the notice shall be given at least 10 days before the consummation of any action authorized by that approval.
For purposes of determining the shareholders entitled to notice of any meeting or to vote or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall be not more than 60 days, nor less than 10 days, before the date of any such meeting nor more than 60 days before any such action without a meeting, and in this event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of this Corporation after the record date, except as otherwise provided in the Articles of Incorporation or in the Code. If the Board of Directors does not fix a record date:
(a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day preceding the day on which the meeting is held.
(b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board of Directors has been taken, shall be the day on which the first written consent is given, or (ii) when prior action of the Board of Directors has been taken, shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to that action, or the 60th day before the date of such other action, whichever is later.
Every person entitled to vote for directors or on any other matter shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of this Corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy, whether by manual signature, typewriting, telegraphic transmission, or otherwise, by the shareholder or the shareholder's attorney in fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) revoked by the person executing it, before the vote pursuant to that proxy, by a writing delivered to the Corporation stating that the proxy is revoked, or by a subsequent
proxy executed by, or attendance at the meeting and voting in person by, the person executing the proxy; or (ii) written notice of the death or incapacity of the maker of that proxy is received by the Corporation before the vote pursuant to that proxy is counted; provided, however that no proxy shall be valid after the expiration of 11 months from the date of the proxy, unless otherwise provided in the proxy. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of sections 705(e) and 705(f) of the Code.
Before any meeting of shareholders, the Board of Directors may appoint any persons other than nominees for office to act as inspectors of election at the meeting or its adjournment. If no inspectors of election are so appointed, the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one or three. If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of a majority of shares or their proxies present at the meeting shall determine whether one or three inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. These inspectors shall:
(a) Determine the number of shares of outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine the result; and
(f) Do any other acts that may be proper to conduct the election or vote with fairness to all shareholders.
The date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of shareholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of shareholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business
for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on attendance at or participation in the meeting to shareholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine, (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof, and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure.
III
DIRECTORS
Subject to the provisions of the Code and any limitations in the Articles of Incorporation and these Bylaws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of this Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the directors.
The number of directors of this Corporation shall not be less than seven
nor more than 13. The exact number of directors shall be fixed from time to
time, within the limits specified in this Section 22 of these Bylaws, (i) by a
resolution duly adopted by the Board of Directors; or (ii) by a bylaw or
amendment thereof duly adopted by the vote of a majority of the shares entitled
to vote represented at a duly held meeting at which a quorum is present, or by
the written consent of the holders of a majority of the outstanding shares
entitled to vote; or (iii) by approval of the shareholders (as defined in
Section 153 of the Code). The indefinite number of directors may be changed by a
duly adopted amendment to the Articles of Incorporation and this bylaw adopted
by the vote of a majority of the shares entitled to vote represented at a duly
held meeting at which a quorum is present, or by the written consent of the
holders of a majority of the outstanding shares entitled to vote, provided that
no amendment may change the stated maximum number of authorized directors to a
number greater than two times the stated minimum number of directors minus one;
and, further, no amendment shall change the minimum number of directors to be
less than five nor the maximum number to be more than 25 directors. Subject to
the foregoing provisions for changing the number of directors, the exact number
of directors of this Corporation has been fixed at 11. Each director of this
Corporation must hold in his or her individual name at least 350 shares of the
common stock of this Corporation within one year following the date of election.
No person shall be a member of the Board of Directors (a) who has not been a
resident for a period of at least two years immediately prior to his or her
election of a county in which any subsidiary of this Corporation maintains a
office unless the election of such person shall be approved by the affirmative
vote of at least two-thirds (2/3's) of the members of the Board of Directors of
this Corporation then in office, or (b) who owns, together with his or her
family residing with him or her, directly or indirectly, more than one percent
of the outstanding shares of any banking corporation, affiliate or subsidiary
thereof, bank holding company, industrial loan company, savings bank or
association or finance company,
other than this Corporation or any affiliate or subsidiary of this Corporation, or (c) who is a director, officer, employee, agent, nominee, or attorney of any banking corporation, affiliate, or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than this Corporation or any affiliate or subsidiary of this Corporation, or (d) who has or is the nominee of anyone who has any contract, arrangement or understanding with any banking corporation, or affiliate or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than this Corporation or any affiliate or subsidiary of this Corporation, or with any officer, director, employee, agent, nominee, attorney or other representative of such covered entity, that he or she will reveal or in any way utilize information obtained as a director of this Corporation or that he or she will, directly or indirectly, attempt to effect or encourage any action of this Corporation.
Nominations for election to the Board of Directors may be made by the Board
of Directors or by any shareholder of any outstanding class of capital stock of
the Corporation entitled to vote for the election of directors. Nominations,
other than those made by the Board of Directors shall be made in writing and
shall be delivered or mailed to the President of the Corporation not less than
30 days nor more than 60 days prior to any meeting of shareholders called for
the election of directors, provided, however, that if less than 21 days' notice
of the meeting is given to shareholders, such nomination shall be mailed or
delivered to the President of the Corporation not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed. Such notification shall contain the following information as to each
proposed nominee and as to each person, acting alone or in conjunction with one
or more other persons, in making such nomination or in organizing, directing or
financing such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence address and business address of each proposed
nominee and each such person and the date as of which such nominee commenced
residency at such residence address; (b) the principal occupation or employment,
the name, type of business and address of the organization or other entity in
which such employment is carried on of each proposed nominee and of each such
person; (c) if the proposed nominee is an attorney, a statement as to whether or
not either he or she or any firm with whom he or she has a relationship as
partner, associate, of counsel, employee, or otherwise, acts as legal counsel
for any banking corporation, affiliate or subsidiary thereof, bank holding
company, industrial loan company, savings bank or association or finance
company, other than this Corporation or any affiliate or subsidiary of this
Corporation; (d) a statement as to each proposed nominee and a statement as to
each such person stating whether the nominee or person concerned has been a
participant in any proxy contest within the past ten years, and, if so, the
statement shall indicate the principals involved, the subject matter of the
contest, the outcome thereof, and the relationship of the nominee or person to
the principals; (e) the amount of stock of the Corporation owned beneficially,
directly or indirectly, by each proposed nominee or by members of his or her
family residing with him or her and the names of the registered owners thereof;
(f) the amount of stock of the Corporation owned of record but not beneficially
by each proposed nominee or by members of his or her family residing with him or
her and by each such person or by members of his or her family residing with him
or her and the names of the beneficial owners thereof; (g) if any shares
specified in (e) or (f) above were acquired in the last two years, a statement
of the dates of acquisition and amounts acquired on each date; (h) a statement
showing the extent of any borrowings to purchase shares of the
Corporation specified in (e) or (f) above acquired within the preceding two years, and if funds were borrowed otherwise than pursuant to a margin account or bank loan in the regular course of business of a bank, the material provisions of such borrowings and the names of the lenders; (i) the details of any contract, arrangement or understanding relating to the securities of the Corporation, to which each proposed nominee or to which each such person is a party, such as joint venture or option arrangements, puts or calls, guaranties against loss, or guaranties of profit or arrangements as to the division of losses or profits or with respect to the giving or withholding of proxies, and the name or names of the persons with whom such contracts, arrangements or understandings exist; (j) the details of any contract, arrangement, or understanding to which each proposed nominee or to which such person is a party with any banking corporation, affiliate or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than this Corporation or any affiliate or subsidiary of this Corporation, or with any officer, director, employee, agent, nominee, attorney, or other representative of such covered entity; (k) a description of any arrangement or understanding of each proposed nominee and of each such person with any person regarding future employment or with respect to any future transaction to which the Corporation will or may be a party; (l) a statement as to each proposed nominee and a statement as to each such person as to whether or not the nominee or person concerned will bear any part of the expense incurred in any proxy solicitation, and, if so, the amount thereof; (m) a statement as to each proposed nominee and a statement as to each such person describing any conviction for a felony that occurred during the preceding ten years involving the unlawful possession, conversion or appropriation of money or other property, or the payment of taxes; (n) the total number of shares that will be voted for each proposed nominee; (o) the amount of stock, if any, owned, directly or indirectly, by each proposed nominee or by members of his or her family residing with him or her, in any banking corporation, affiliate or subsidiary thereof, bank holding company, industrial loan company, savings bank or association or finance company, other than this Corporation or any affiliate or subsidiary of this Corporation; and (p) the identity of any banking corporation, affiliate or subsidiary thereof, or bank holding company or industrial loan company, savings bank or association or finance company, other than this Corporation or any affiliate or subsidiary of this Corporation, as to which such nominee or any other such person serves as a director, officer, employee, agent, consultant, advisor, nominee or attorney, together with a description of such relationship.
The chairman of the meeting may, in his or her discretion, determine and declare to the meeting that a nomination not made in accordance with the foregoing procedure shall be disregarded. The Directors shall be elected at each annual meeting of the shareholders to hold office until the next annual meeting or until the director has reached the mandatory retirement age of 65 years (or, if approved by the Board of Directors by resolution, at the adjournment of the first meeting of the Board of Directors following his or her 65th birthday), died, resigned or been removed, whichever occurs first.
Vacancies in the Board of Directors may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, except that a vacancy
created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the vote of a majority of the shares entitled to vote represented at a meeting at which a quorum is present, or by the written consent of holders of all of the outstanding shares entitled to vote. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. A vacancy or vacancies in the Board of Directors shall be deemed to exist in the event of a director's 65th birthday, death, resignation, or removal, or if the Board of Directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, or if the authorized number of directors is increased, or if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be voted for at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent and not involving a vacancy created by removal shall require the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective on giving written notice to the Chairman of the Board, the President, the Secretary, or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires.
Regular meetings of the Board of Directors may be held at any place within the State of California that has been designated from time to time by resolution of the Board of Directors. In the absence of such a designation, regular meetings shall be held at the principal executive office of this Corporation. Special meetings of the Board of Directors shall be held at any place within the State of California that has been designated in the notice of the meeting or, if not stated in the notice or there is no notice, at the principal executive office of this Corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another, and all such directors shall be deemed to be present in person at the meeting.
Within 30 days after each annual meeting of shareholders, the Board of Directors shall hold a regular meeting for the purpose of organization and the transaction of other business. Notice of this meeting shall not be required.
Other regular meetings of the Board of Directors shall be held without call at such time as shall from time to time be fixed by the Board of Directors. Such regular meetings may be held without notice.
Special meetings of the Board of Directors for any purpose may be called at any time by the Chairman of the Board or the President or the Secretary.
Notice of the time and place of special meetings shall be delivered personally or by telephone (including a voice messaging system or other system or technology designed to record and communicate messages), electronic mail or other electronic means to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of this Corporation. In case the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. In case the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone (including voice messaging or other system or technology), electronic mail or other electronic means or to the telegraph company at least 24 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone (including voice messaging or other system or technology), electronic mail or other electronic means may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting nor the place if the meeting is to be held at the principal executive office of this Corporation.
A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in section 34 of these Bylaws. Every act or decision done or made by a majority of the directors present at a meeting held at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of section 310 of the Code as to approval of contracts or transactions in which a director has a direct or indirect material financial interest, section 311 of the Code as to appointment of committees, and section 317(e) of the Code as to indemnification of directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be as valid as though had at a meeting held after regular call and notice if a quorum is present and if, either before or after the meeting, each of the directors not present signs a written waiver of notice, a consent to holding the meeting or an approval of the minutes. The waiver of notice or consent need not specify the purpose of the meeting. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Notice of the meeting shall also be deemed given to any director who attends the meeting without protesting before or at its commencement the lack of notice to that director.
A majority of the directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for more than 24 hours, in which case notice of the time and place shall be given before the time of the adjourned meeting in the manner specified in section 31 of these Bylaws, to the directors who were not present at the time of the adjournment.
Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board of Directors shall individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors.
Directors and members of committees may receive such compensation for their services, and such reimbursement of expenses, as may be fixed by the Board of Directors. This section shall not be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation for those services.
IV
COMMITTEES
The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two or more directors, to serve at the pleasure of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any committee, to the extent provided in the resolution of the Board of Directors, shall have all the authority of the Board of Directors, except with respect to:
(a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the Board of Directors or on any committee;
(c) the fixing of compensation of the directors for serving on the Board of Directors or on any committee;
(d) the amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) the amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of this Corporation, except at a rate or in a periodic amount or within a price range determined by the Board of Directors;
(g) the appointment of any other committees of the Board of Directors or the members of these committees; or
(h) the taking of any other action which cannot, by statute, be done without approval of the Board of Directors.
Meetings and action of committees shall be governed by and held and taken in accordance with the provisions of section 27 of these Bylaws as to place of meetings, section 29 of these Bylaws as to regular meetings, section 30 of these Bylaws as to special meetings, section 31 of these Bylaws as to notice of special meetings, section 32 of these Bylaws as to quorum, section 33 of these Bylaws as to waiver of notice, section 34 of these Bylaws as to adjournment, and section 36 of these Bylaws as to action without a meeting, with such changes in the context of those sections as are necessary to substitute the committee and its members for the Board of Directors and its members, except that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee; special meetings of committees may also be called by resolution of the Board of Directors; and notice of special meetings of committees shall also be given to all alternate members who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.
V
OFFICERS
The officers of this Corporation shall be a President, a Secretary, a Chief Financial Officer and a Chairman of the Board. The Corporation may also have, at the discretion of the Board of Directors, a Vice Chairman, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of section 42 of these Bylaws. Any number of offices may be held by the same person.
The officers of this Corporation, except such officers as may be appointed in accordance with the provisions of sections 42 or 44 of these Bylaws, shall be chosen by the Board of
Directors and each shall serve at the pleasure of the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.
The Board of Directors may appoint, and may empower the President to appoint, such other officers as the business of this Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as are provided in the Bylaws or as the Board of Directors may from time to time determine.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting of the Board of Directors, or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of this Corporation under any contract to which the officer is a party.
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office.
The Chairman of the Board shall, if present, preside at meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him or her by the Board of Directors or prescribed by the Bylaws.
In the absence or disability of the Chairman, the Vice Chairman, if any, shall perform all the duties of the Chairman of the Board. The Vice Chairman shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, the President shall be the chief executive officer of this Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and the officers of this Corporation. The President shall preside at all meetings of the shareholders and, in the absence of the Chairman of the Board, at all meetings of the Board of Directors. The President shall have the general duties of management usually
vested in the office of the President of a Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.
In the absence or disability of the President, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or the Bylaws, and the President, or the Chairman of the Board.
The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and shareholders, with the time and place of holding, whether regular or special and, if special, how authorized, the notice given, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings. The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of this Corporation's transfer agent or registrar, as determined by the resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required by the Bylaws or by law to be given, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by the Bylaws, the President or the Chairman of the Board.
The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of this Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of this Corporation with such depositaries as may be designated by the Board of Directors. The Chief Financial officer shall disburse the funds of this Corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of this Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws, the President or the Chairman of the Board.
VI
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
For the purposes of the following eight sections, "agent" means any person who is or was a director, officer, employee, or other agent of this Corporation, or is or was serving at the request of this Corporation as a director, officer, employee or agent of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation which was a predecessor corporation of this Corporation or of another enterprise at the request of such predecessor corporation; "proceeding" means any threatened, pending or completed action or proceeding, whether civil, criminal, administrative, or investigative; and "expenses" includes, without limitation, attorneys' fees and any expenses of establishing a right to indemnification under this Article VI.
This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any proceeding, other than an action by or in the right of this Corporation, by reason of the fact that the person is or was an agent of this Corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if that person acted in good faith and in a manner reasonably believed to be in the best interests of this Corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner reasonably believed to be in the best interests of this Corporation or that the person had reasonable cause to believe that the conduct was unlawful.
This Corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action by or in the right of this Corporation to procure a judgment in its favor by reason of the fact that that person is or was an agent of this Corporation, against expenses actually and reasonably incurred in connection with the defense or settlement of that action if that person acted in good faith, in a manner believed to be in the best interests of this Corporation and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances. No indemnification shall be made under this section:
(a) in respect of any claim, issue, or matter as to which that person shall have been adjudged to be liable to this Corporation in the performance of duty to this Corporation, unless and only to the extent that the court in which that action was brought shall determine upon
application that, in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for the expenses which the court shall determine; or
(b) of amounts paid in settling or otherwise disposing of a threatened or pending action, with or without court approval; or
(c) of expenses incurred in defending a threatened or pending action which is settled or otherwise disposed of without court approval.
To the extent that an agent of this Corporation has been successful on the merits in defense of any proceeding referred to in sections 52 or 53 of these Bylaws, or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually and reasonably incurred by the agent in connection therewith.
Except as provided in section 54 of these Bylaws, indemnification shall be made by this Corporation only if authorized in the specific case on a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable standard of conduct set forth in sections 52 or 53 of these Bylaws by:
(a) a majority vote of a quorum consisting of directors who are not parties to the proceeding;
(b) approval by the affirmative vote of a majority of the shares of this Corporation entitled to vote represented at a duly held meeting at which a quorum is present or by the written consent of holders of a majority of the outstanding shares entitled to vote. For this purpose, the shares owned by the person to be indemnified shall not be considered outstanding or entitled to vote thereon; or
(c) the court in which the proceeding is or was pending on application made by this Corporation or the agent or the attorney or other person rendering services in connection with the defense, whether or not such application by the agent, attorney, or other person is opposed by this Corporation.
Expenses incurred by any agent in defending any proceeding for which indemnification is required by this Article VI shall be advanced by this Corporation before the final disposition of the proceeding on receipt of an undertaking by or on behalf of the agent to repay that amount unless it shall ultimately be determined that the agent is entitled to be indemnified under this Article VI.
Nothing contained herein shall affect any right to indemnification to which persons other than directors and officers of this Corporation or any subsidiary hereof may be entitled by contract or otherwise.
No indemnification or advance shall be made, except as provided in section 54 or section 55(c), in any circumstance where it appears:
(a) that it would be inconsistent with a provision of the articles, a resolution of the shareholders, or an agreement in effect at the time of the accrual of the alleged cause of action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or
(b) that it would be inconsistent with any condition expressly imposed by a court in approving a settlement.
The Board of Directors of this Corporation may purchase and maintain insurance on behalf of any agent of this Corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this Corporation would have the power to indemnify the agent against that liability under the provisions of this section.
The foregoing indemnification provisions do not apply to any proceeding against any trustee, investment manager, or other fiduciary of an employee benefit plan in that person's capacity as such, even though that person may also be an agent of this Corporation as above. Nothing contained herein shall limit any right to indemnification to which such a trustee, investment manager, or other fiduciary may be entitled by contract or otherwise, which shall be enforceable to the extent permitted by applicable law.
VII
RECORDS AND REPORTS
The Corporation shall keep at its principal executive office, or at the office of its transfer agent or registrar, if either be appointed, a record of its shareholders, giving names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of this Corporation holding at least five percent in the aggregate of the outstanding voting shares of this Corporation may (i) inspect and copy the records of shareholders' names and addresses and shareholdings during usual business hours on five days
prior written demand on the Corporation, and (ii) obtain, on written demand and on the tender of the usual charges for such list, a list of the shareholders' names and addresses who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record dates for which that list has been compiled or as of a date specified by the shareholder after the date of demand. This list shall be made available to any such shareholder on or before the later of five days after the demand is received, or the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. Any inspection and copying under this section may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand.
The Corporation shall keep at its principal executive office the original or a copy of the Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours.
The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and any committee or committees of the Board of Directors shall be kept at such place or places designated by the Board of Directors or, in the absence of such designation, at the principal executive office of this Corporation. The minutes shall be kept in written form and the accounting books and records shall be kept in either written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney, and shall include the right to copy and make extracts. No such right of inspection shall extend to any confidential information relating to the depositors, borrowers or other customers of this Corporation or other information which the Corporation may not disclose under applicable law or lawful agreements with third parties.
Every director shall have the absolute right at any reasonable time to inspect all books, records and documents of every kind and the physical properties of this Corporation. This inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts of documents.
The Board of Directors shall cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year adopted by the Corporation. This report shall be sent at least 15 days before the annual meeting of shareholders to be held during the next
fiscal year and in the manner specified for giving notice to shareholders of this Corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of changes in financial position for the fiscal year, accompanied by any report of independent accountants or, if there is no such report, the certificate of an authorized officer of this Corporation that the statements were prepared without audit from the books and records of this Corporation.
A copy of any annual financial statement and any income statement of this Corporation for each quarterly period of each fiscal year, and any accompanying balance sheet of this Corporation as of the end of each such period, that has been prepared by the Corporation shall be kept in the principal executive office of this Corporation for 12 months and each such statement shall be exhibited at all reasonable times to any shareholder demanding an examination of any such statement or a copy shall be mailed to any such shareholder. If a shareholder or shareholders holding at least five percent of the outstanding shares of any class of stock of this Corporation makes a written request to the Corporation for an income statement of this Corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than 30 days before the date of the request, and a balance sheet of this Corporation as of the end of that period, the Chief Financial Officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within 30 days after the receipt of the request. If the Corporation has not sent to the shareholders its annual report for the last fiscal year, this report shall likewise be delivered or mailed to the shareholder or shareholders within 30 days after the request. The Corporation shall also, on the written request of any shareholder, mail to the shareholder a copy of the last annual, semi-annual, or quarterly income statement which it has prepared, and a balance sheet as of the end of that period. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of any independent accountants engaged by the Corporation or the certificate of an authorized officer of this Corporation that the financial statements were prepared without audit from the books and records of this Corporation.
The Corporation shall each year file with the Secretary of the State of California, on the prescribed form, a statement setting forth the authorized number of directors, the names and complete business or residence addresses of all incumbent directors, the number of vacancies on the Board of Directors, if any, the names and complete business or residence addresses of the chief executive officer, Secretary, and Chief Financial Officer, the street address of its principal executive office or principal business office in this state, and the general type of business constituting the principal business activity of this Corporation, together with a designation of the agent of this Corporation for the purpose of service of process, all in compliance with section 1502 of the Code.
VIII
GENERAL CORPORATE MATTERS
For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other action, other than action by shareholders by written consent without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 days before any such action, and in that case only shareholders of record on the date so fixed are entitled to receive the dividend, distribution or allotment of rights or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of this Corporation after the record date as fixed, except as otherwise provided in the Code. If the Board of Directors does not fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the applicable resolution or the 60th day before the date of that action, whichever is later.
All checks, drafts, or other orders for payment of money, notes, or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as, from time to time, shall be determined by resolution of the Board of Directors.
The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of this Corporation and this authority may be general or confined to specific instances; and, unless so authorized or ratified by the Board of Directors, or within the agency power of an officer, no officer, agent, or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
A certificate or certificates for shares of the capital stock of this Corporation shall be issued to each shareholder when any of these shares are fully paid. All certificates shall be signed in the name of this Corporation by the Chairman of the Board, or the President or vice president, and by the Chief Financial Officer or the Secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed on a certificate shall have ceased to be that officer, transfer agent, or registrar before that certificate is issued, it may be issued by the Corporation with the same effect as if that person were an officer, transfer agent, or registrar at the date of issue.
Except as provided in this section, no new certificates for shares shall be issued to replace an old certificate unless the latter is surrendered to the Corporation and cancelled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen, or destroyed, authorize the issuance of a replacement certificate on such terms and conditions as the Board of Directors may require, including provision for indemnification of this Corporation secured by a bond or other adequate security sufficient to protect the Corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate.
The Chairman of the Board, the President, the Chief Financial Officer or any other person authorized by resolution of the Board of Directors or by any of the foregoing designated officers, is authorized to vote on behalf of this Corporation any and all shares of any other corporation or corporations, foreign or domestic, standing in the name of this Corporation. The authority granted to these officers to vote or represent on behalf of this Corporation any and all shares held by the Corporation in any other corporation or corporations may be exercised by any of these officers in person or by any person authorized to do so by a proxy duly executed by these officers.
Unless the context requires otherwise, the general provisions, rules of construction and definitions in the Code shall govern the construction of these Bylaws.
IX
AMENDMENTS
New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote.
Subject to the rights of the shareholders as provided in section 75 of these Bylaws, Bylaws may be adopted, amended, or repealed by the Board of Directors; provided, however, that the Board of Directors may adopt a bylaw or amendment of a bylaw changing the authorized number of directors only for the purpose of fixing the exact number of directors within the limits specified in the Articles of Incorporation or in section 22 of these Bylaws.
FIRST NORTHERN COMMUNITY BANCORP
2000 STOCK OPTION PLAN
TABLE OF CONTENTS
-----------------
Page
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SECTION 1. ESTABLISHMENT AND PURPOSE.................................1
SECTION 2. DEFINITIONS...............................................1
(a) "Board of Directors.......................................1
(b) "Change in Control........................................1
(c) "Code.....................................................2
(d) "Committee................................................2
(e) "Company..................................................2
(f) "Employee.................................................2
(g) "Exchange Act.............................................2
(h) "Exercise Price...........................................2
(i) "Fair Market Value........................................2
(j) "ISO......................................................2
(k) "Nonstatutory Option......................................2
(l) "Option...................................................3
(m) "Optionee.................................................3
(n) "Outside Director.........................................3
(o) "Plan.....................................................3
(p) "Service..................................................3
(q) "Share....................................................3
(r) "Stock....................................................3
(s) "Stock Option Agreement...................................3
(t) "Subsidiary...............................................3
(u) "Total and Permanent Disability...........................3
SECTION 3. ADMINISTRATION............................................3
(a) Committee Procedures......................................3
(b) Committee Responsibilities................................3
SECTION 4. ELIGIBILITY...............................................5
(a) General Rule..............................................5
(b) Limitation On Grants......................................5
(c) Ten-Percent Shareholders..................................5
(d) Attribution Rules.........................................5
(e) Outstanding Stock.........................................5
SECTION 5. STOCK SUBJECT TO PLAN.....................................5
(a) Basic Limitation..........................................5
(b) Additional Shares.........................................5
SECTION 6. TERMS AND CONDITIONS OF OPTIONS...........................5
(a) Stock Option Agreement....................................5
(b) Number of Shares..........................................6
(c) Exercise Price............................................6
(d) Withholding Taxes.........................................6
-i-
-50-
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(e) Exercisability and Term...................................6
(f) Nontransferability........................................6
(g) Exercise of Options Upon Termination of Service...........6
(h) No Rights as a Stockholder................................7
(i) Modification, Extension and Renewal of Options............7
(j) Restrictions on Transfer of Shares........................7
SECTION 7. PAYMENT FOR SHARES........................................7
(a) General Rule..............................................7
(b) Surrender of Stock........................................7
SECTION 8. ADJUSTMENT OF SHARES......................................7
(a) General...................................................7
(b) Reorganizations...........................................7
(c) Reservation of Rights.....................................8
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS.........................8
SECTION 10. NO EMPLOYMENT RIGHTS......................................8
SECTION 11. DURATION AND AMENDMENTS...................................8
(a) Term of the Plan..........................................8
(b) Right to Amend or Terminate the Plan......................8
(c) Effect of Amendment or Termination........................9
SECTION 12. EXECUTION.................................................9
|
FIRST NORTHERN COMMUNITY BANCORP
2000 STOCK OPTION PLAN
This Plan was established by First Northern Bank of Dixon (the "Bank") in 1997 Pursuant to an Agreement and Plan of Reorganization, as of May 19, 2000, the Bank became a wholly owned subsidiary of First Northern Community Bancorp (the "Company") and the Company assumed sponsorship of the Plan. The Company hereby amends and restates the Plan to become the sponsor of the Plan and to offer selected key employees of the Company and its subsidiaries an opportunity to acquire a proprietary interest in the success of the Company and to increase such interest, by purchasing shares of the Company's common stock. The Plan provides for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Code section 422.
(i) Approval by the shareholders of the Company of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if either:
(A) The Company is not the continuing or surviving entity; or
(B) More than 50% of the combined voting power of the Company's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization;
(ii) A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either:
(A) Had been directors of the Company 24 months prior to such change; or
(B) Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or
(iii) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company.
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
(iv) To determine when Options are to be granted under the Plan;
(v) To select the Optionees;
(vi) To determine the number of Shares to be made subject to each Option;
(vii) To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price, the vesting or duration of the Option (including accelerating the vesting of the Option), to determine whether such Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the Stock Option Agreement relating to such Option;
(viii) To amend any outstanding Stock Option Agreement, subject to applicable legal restrictions and to the consent of the Optionee who entered into such agreement;
(ix) To prescribe the consideration for the grant of each Option under the Plan and to determine the sufficiency of such consideration;
(x) To determine the disposition of each Option under the Plan in accordance with any domestic relations order in the event of an Optionee's divorce or dissolution of marriage;
(xi) To determine whether Options under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an acquired business;
(xii) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Stock Option Agreement; and
(xiii) To take any other actions deemed necessary or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Options under the Plan to persons subject to Section 16 of the Exchange Act. All decisions, interpretations and other actions of the Committee shall be final and binding on all Optionees and all persons deriving their rights from an Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan or any Option to acquire Shares under the Plan.
the payment of a cash settlement equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price, in all cases without the Optionees' consent.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the Company's securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable.
No provision of the Plan, nor any Option granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee. The Company and its Subsidiaries reserve the right to terminate any person's Service at any time and for any reason.
To record the adoption of the Plan by the Board of Directors, the Company has caused its authorized officer to execute the same as of May 18, 2000.
FIRST NORTHERN COMMUNITY BANCORP
By /s/ Owen J. Onsum -------------------------------- Its President -------------------------------- |
FIRST NORTHERN COMMUNITY BANCORP
2000 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Annual Vesting Over Four Years
First Northern Community Bancorp, a California corporation (the "Company"), hereby grants an Option to purchase Shares of its common stock to the Optionee named below. The terms and conditions of the Option are set forth in this cover sheet, in the attachment and in the Company's 2000 Stock Option Plan (the "Plan").
Date of Option Grant: _________________________
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option:
Vesting Start Date: _________________________________
By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also enclosed.
Title:
FIRST NORTHERN COMMUNITY BANCORP
2000 STOCK OPTION PLAN
INCENTIVE STOCK OPTION AGREEMENT
Annual Vesting Over Four Years
Incentive Stock This Option is intended to be an incentive stock Option
Option under section 422 of the Code and will be interpreted
accordingly.
Vesting and This Option may be exercised to the extent that Shares have
Exercise been vested. Beginning on the Vesting Start Date, you will
be twenty percent (20%) vested in the Shares granted under
this Option. Thereafter, the Shares under this Option will
vest annually at a rate of 20 percent (20%) per year. All
of the Shares shall be fully vested on the fourth
anniversary of the Vesting Start Date as shown on the cover
sheet. No additional Shares will vest after your Service has
terminated for any reason. "Service" means your service as
employee, consultant or advisor of the Company or an
affiliated company.
Notwithstanding of the vesting schedule set forth above,
in the event of a Change in Control of the Company during
the period you remain in Service, all of the Shares which
are unvested as of the effective date of such Change in
Control shall immediately become vested. For the purposes
hereof, a "Change in Control" shall have the meaning set
forth in Section 2(b) of the Plan.
Term This Option will expire in any event at the close of
business at Company headquarters on the tenth anniversary
of the Date of Grant, as shown on the cover sheet. (It will
expire earlier if your Service terminates, as described
below.)
Regular If your Service terminates for any reason except death,
Termination Total and Permanent Disability, or for cause then this
Option will expire at the close of business at Company
headquarters on the 90th day after your termination
date. During that 90-day period you may exercise the vested
portion of this Option.
Termination for If your Service terminates for cause, as determined by the
Cause Committee, then this Option will expire upon your
termination of Service.
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Death In the event of your death while in Service, then this
Option will expire at the close of business at Company
headquarters on the date which is one year after the date
of death. During that one-year period, your estate or heirs
may exercise the vested portion of this Option.
Total and If your Service terminates because of your Total
Permanent and Permanent Disability, then this Option will expire
Disability at the close of business at Company headquarters on the
date which is one year after your termination date. During
that one-year period you may exercise the vested portion of
this Option.
"Total and Permanent Disability" means that you are unable
to work as determined in accordance with the Company's Long
Term Disability Plan.
Leaves of Absence For purposes of this Option, your Service does not terminate
when you go on a bona fide leave of absence that was
approved by the Company in writing, if the terms of the
leave provide for continued service crediting, or when
continued service crediting is required by applicable law.
However, for purposes of determining whether this Option is
entitled to ISO status, your Service will be treated as
terminating 90 days after you went on leave, unless your
right to return to active work is guaranteed by law or by a
contract. Your Service terminates in any event when the
approved leave ends unless you immediately return to active
work.
The Company determines which leaves count for this purpose,
and when your Service terminates for all purposes under the
Plan.
Restrictions on The Company will not permit you to exercise this Option
Exercise if the issuance of Shares at that time would violate any
law or regulation.
Notice of Exercise When you wish to exercise this Option, you must notify the
Company by filing the proper "Notice of Exercise" form
attached hereto. Your notice must specify how many Shares
you wish to purchase. Your notice must also specify how
your Shares should be registered (in your name only or in
your and your spouse's names as community property or as
joint tenants with right of survivorship). The notice will
be effective when it is received by the Company.
If someone else wants to exercise this Option after your
death, that person must prove to the Company's satisfaction
that he or she is entitled to do so.
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Periods of Any other provision of this Agreement notwithstanding,
Nonexercisability the Company shall have the right to designate one or more
periods of time, each of which shall not exceed 180 days in
length, during which this Option shall not be exercisable
if the Company determines (in its sole discretion) that
such limitation on exercise could in any way facilitate any
issuance of securities by the Company, facilitate the
registration or qualification of any securities by the
Company under applicable law, or facilitate the perfection
of any exemption from the registration or qualification
requirements under any applicable law for the issuance or
transfer of any securities. Such limitation on exercise
shall not alter the vesting schedule set forth in this
Agreement other than to limit the periods during which this
Option shall be exercisable.
Form of Payment When you submit your notice of exercise, you must include
payment of the Option price for the Shares you are
purchasing. Payment may be made in one (or a combination)
of the following forms:
o Your personal check, a cashier's check or a money order.
o Shares which have already been owned by you for any time
period specified by the Committee and which are
surrendered to the Company. The value of the Shares,
determined as of the effective date of the Option
exercise, will be applied to the Option price.
Withholding Taxes To the extent that any withholding or other taxes may be due
as a result of the Option exercise or the sale of shares
acquired upon exercise of this Option and the sale of the
shares, you will not be allowed to exercise this Option
unless you make acceptable arrangements to pay such
withholding or other taxes.
Restrictions on By signing this Agreement, you agree not to sell any
Resale Option Shares at a time when applicable laws, regulations
or Company or underwriter trading policies prohibit a sale.
In connection with any underwritten public offering by the
Company of its equity securities, you agree not to sell,
make any short sale of, loan, hypothecate, pledge, grant
any Option for the purchase of, or otherwise dispose or
transfer for value or agree to engage in any of the
foregoing transactions with respect to any shares without
the prior written consent of the Company or its
underwriters, for such period of time after the effective
date of such registration statement as may be requested
by the Company or such underwriters.
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In order to enforce the provisions of this paragraph, the
Company may impose stop-transfer instructions with respect
to the shares until the end of the applicable stand-off
period.
Transfer of Option Prior to your death, only you may exercise this Option. You
cannot transfer or assign this Option. For instance, you
may not sell this Option or use it as security for a loan.
If you attempt to do any of these things, this Option will
immediately become invalid. You may, however, dispose of
this Option in your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is the Company
obligated to recognize such individual's interest in this
Option in any other way.
Retention Rights Neither this Option nor this Agreement give you the right
to be retained by the Company (or any subsidiaries) in any
capacity. The Company (and any subsidiaries) reserve the
right to terminate your Service at any time and for any
reason.
Shareholder Rights You, or your estate or heirs, have no rights as a
shareholder of the Company until a certificate for the
Option Shares has been issued. No adjustments are made for
dividends or other rights if the applicable record date
occurs before your stock certificate is issued, except as
described in the Plan.
Adjustments In the event of a stock split, a stock dividend or a
similar change in the Company stock, the number of Shares
covered by this Option and the exercise price per share may
be adjusted pursuant to the Plan. This Option shall be
subject to the terms of the agreement of merger,
liquidation or reorganization in the event the Company is
subject to such corporate activity.
Applicable Law This Agreement will be interpreted and enforced under the
laws of the State of California.
The Plan and Other The text of the Plan is incorporated in this Agreement
Agreements by reference. Certain capitalized terms used in this
Agreement are defined in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company regarding this
Option. Any prior agreements, commitments or negotiations
concerning this Option are superseded.
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By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.
NOTICE OF EXERCISE OF STOCK OPTION
First Northern Community Bancorp
195 N. First Street
Dixon, CA 95620
Attn: Corporate Secretary
Dear Sir or Madam:
Pursuant to the Stock Option Agreement dated ________ ___, ____ (the "Stock Option Agreement"), between First Northern Community Bancorp, a California corporation (the "Company"), and the undersigned, I hereby elect to purchase _____________ shares of the common stock of the Company (the "Shares"), at the price of $__________ per Share. My check in the amount of $______________ is enclosed. The Shares are to be issued in _____ certificate(s) and registered in the name(s) of:
The undersigned understands there may be tax consequences as a result of the purchase or disposition of the Shares. To the extent that an amount is required to be withheld for any taxes that may be due as a result of this exercise, I will comply with the Company's requirements with respect to the payment of such withholding. The undersigned represents that he has consulted with any tax consultants he deems advisable in connection with the purchase or disposition of the Shares and the Undersigned is not relying on the Company for any tax advice.
The undersigned acknowledges that he has received, read and understood the Stock Option Agreement and agrees to abide by and be bound by their terms and conditions.
Dated: ________________, 20___
FIRST NORTHERN COMMUNITY BANCORP OUTSIDE DIRECTORS
2000 NONSTATUTORY STOCK OPTION PLAN
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. ESTABLISHMENT AND PURPOSE....................................1
SECTION 2. DEFINITIONS..................................................1
(a) "Board of Directors..........................................1
(b) "Change in Control...........................................1
(c) "Code........................................................2
(d) "Committee...................................................2
(e) "Company.....................................................2
(f) "Exchange Act................................................2
(g) "Exercise Price..............................................2
(h) "Fair Market Value...........................................2
(i) "Nonstatutory Option.........................................2
(j) "Option......................................................2
(k) "Optionee....................................................2
(l) "Outside Director............................................3
(m) "Plan........................................................3
(n) "Service.....................................................3
(o) "Share.......................................................3
(p) "Stock.......................................................3
(q) "Stock Option Agreement......................................3
(r) "Subsidiary..................................................3
(s) "Total and Permanent Disability..............................3
SECTION 3. ADMINISTRATION...............................................3
(a) Committee Procedures.........................................3
(b) Committee Responsibilities...................................3
SECTION 4. ELIGIBILITY..................................................4
(a) General Rule.................................................4
(b) Automatic Grant of Options...................................4
SECTION 5. STOCK SUBJECT TO PLAN........................................5
(a) Basic Limitation.............................................5
(b) Additional Shares............................................5
SECTION 6. TERMS AND CONDITIONS OF OPTIONS..............................6
(a) Stock Option Agreement.......................................6
(b) Number of Shares.............................................6
(c) Exercise Price...............................................6
(d) Withholding Taxes............................................6
(e) Nontransferability...........................................6
(f) Exercise of Options Upon Termination of Service..............6
(g) No Rights as a Stockholder...................................6
(h) Restrictions on Transfer of Shares...........................7
SECTION 7. PAYMENT FOR SHARES...........................................7
-i-
-71-
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SECTION 8. ADJUSTMENT OF SHARES.........................................7
(a) General......................................................7
(b) Reorganizations..............................................7
(c) Reservation of Rights........................................7
SECTION 9. LEGAL AND REGULATORY REQUIREMENTS............................7
SECTION 10. DURATION AND AMENDMENTS......................................8
(a) Term of the Plan.............................................8
(b) Right to Amend or Terminate the Plan.........................8
(c) Effect of Amendment or Termination...........................8
SECTION 11. EXECUTION....................................................8
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FIRST NORTHERN COMMUNITY BANCORP OUTSIDE DIRECTORS
2000 NONSTATUTORY STOCK OPTION PLAN
This Plan was established by First Northern Bank of Dixon (the "Bank"). Pursuant to an Agreement and Plan of Reorganization, as of May 19, 2000, the Bank became a wholly owned subsidiary of First Northern Community Bancorp (the "Company") and the Company assumed sponsorship of the Plan. The Company hereby amends and restates the Plan to become the sponsor of the Plan and to offer Outside Directors an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company's Common Stock. The Plan provides for the grant of Nonstatutory Options to purchase Shares.
(i) Approval by the shareholders of the Company of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if either:
(A) The Company is not the continuing or surviving entity; or
(B) More than 50% of the combined voting power of the Company's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization;
(ii) A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either:
(A) Had been directors of the Company 24 months prior to such change; or
(B) Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were still in office at the time of the election or nomination; or
(iii) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company.
corporation.
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
(iv) To determine the eligibility of Optionees;
(v) Subject to Section 4(b), to prescribe the terms and conditions of each Option and to specify the provisions of the Stock Option Agreement relating to such Option;
(vi) Subject to Section 4(b), to amend any outstanding Stock Option Agreement, subject to applicable legal restrictions and to the consent of the Optionee who entered into such agreement;
(vii) To determine the disposition of each Option under the Plan in accordance with any domestic relations order in the event of an Optionee's divorce or dissolution of marriage;
(viii) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Stock Option Agreement; and
(ix) Subject to Section 4(b), to take any other actions deemed necessary or advisable for the administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate. All decisions, interpretations and other actions of the Committee shall be final and binding on all Optionees and all persons deriving their rights from an Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan or any Option to acquire Shares under the Plan.
(i) Each Outside Director who is appointed or initially elected, or reelected at the Company's annual shareholders meeting shall automatically be granted an Option to purchase 7,011 Shares (subject to adjustment under Section 8).
(ii) All Options may be exercised to the extent that Shares have been vested. All Shares shall vest as follows: Twenty percent (20%) shall be vested on the date of grant. Thereafter, the Shares will vest annually at a rate of 20 percent (20%) per year. All of the Shares shall be fully vested on the fourth anniversary of the date of grant. No additional Shares will vest after the Optionee's Service has terminated for any reason.
(iii) Notwithstanding anything to the contrary in Section 4(b)(ii), all Options granted to an Outside Director under Section 4(b)(i) shall become fully vested and exercisable upon a Change in Control.
(iv) The Exercise Price under all Options granted to an Outside Director under this Section 4(b) shall be equal to one hundred percent (100%) of the Fair Market Value of a Share on the date of grant.
(v) All Options granted to an Outside Director under this Section 4(b) shall terminate on the earlier of:
(A) The fifth anniversary of the date of grant;
(B) The date which is one-year after the termination of the Optionee's Service by reason of Total and Permanent Disability or death, provided that during the one-year period following termination of Service the Option shall be exercisable as to the vested portion thereof;
(C) Immediately upon the termination of the Optionee's Service in the event of the conviction of the Optionee of a felony, or a finding by a court that the Optionee engaged in a fraudulent or dishonest act or a gross abuse of authority regarding the Company; or
(D) The date ninety (90) days after the termination of the Optionee's service as an Outside Director for any other reason, provided that during the 90-day period following termination of Service the Option shall be exercisable as to the vested portion thereof.
The entire Exercise Price shall be payable in lawful money of the United States of America at the time when Options are exercised.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on
which the Company's securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency which the Company determines is necessary or advisable.
To record the adoption of the Plan by the Board of Directors, the Company has caused its authorized officer to execute the same as of May 18, 2000.
FIRST NORTHERN COMMUNITY BANCORP
By: /s/ Owen J. Onsum
-----------------------------------
Its: President
-----------------------------------
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FIRST NORTHERN COMMUNITY BANCORP
OUTSIDE DIRECTORS 2000 NONSTATUTORY STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Annual Vesting Over Four Years
First Northern Community Bancorp, a California corporation (the "Company"), hereby grants an Option to purchase Shares of its common stock to the Optionee named below. The terms and conditions of the Option are set forth in this cover sheet, in the attachment and in the Company's Outside Directors 2000 Nonstatutory Stock Option Plan (the "Plan").
Date of Option Grant: ____________________
Optionee's Social Security Number: _____-____-_____
Number of Shares of Common Stock Covered by Option: __________________________
Price per Share: $____________________________________________________________
Vesting Start Date: ____________________________
By signing this cover sheet, you agree to all of the terms and conditions described in the attached Agreement and in the Plan, a copy of which is also enclosed.
FIRST NORTHERN COMMUNITY BANCORP
OUTSIDE DIRECTORS 2000 NONSTATUTORY STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
Annual Vesting Over Four Years
Nonstatutory Stock This Option is not intended to be an incentive stock
Option option under Section 422 of the Code and will be
interpreted accordingly.
Vesting and This Option may be exercised to the extent that Shares have
Exercise been vested. Beginning on the Vesting Start Date, you will
be twenty percent (20%) vested in the Shares granted under
this Option. Thereafter, the Shares under this Option will
vest annually at a rate of 20 percent (20%) per year. All
of the Shares shall be fully vested on the fourth
anniversary of the Vesting Start Date as shown on the cover
sheet. No additional Shares will vest after your Service
has terminated for any reason. "Service" means your service
as an outside director of the Company or an affiliated
entity.
"Shares" means the shares of Common Stock covered by this
Option as adjusted pursuant to Section 8 of the Plan.
Notwithstanding the vesting schedule set forth above, in
the event of a Change in Control during the period you
remain in Service, all of the Shares which are unvested as
of the effective date of such Change in Control shall
immediately become vested. For the purposes hereof, "Change
in Control" shall have the meaning set forth in Section
2(c) of the Plan.
Term This Option will expire in any event at the close of
business at Company headquarters on the fifth anniversary
of the Date of Grant, as shown on the cover sheet. (It will
expire earlier if your Service terminates, as described
below.)
Regular If your Service terminates for any reason except death or
Termination Total and Permanent Disability, then this Option will
expire at the close of business at Company headquarters on
the 90th day after your termination date. During that
90-day period, you may exercise the vested portion of this
Option.
Other Terminations If your Service terminates following your conviction
of Service of a felony, or a finding by a court that you engaged in a
fraudulent or dishonest act or a gross abuse of authority
regarding the Company then this Option will expire upon
your termination of Service.
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Death In the event of your death while in Service, then this
Option will expire at the close of business at Company
headquarters on the date which is one year after the date
of death. During that one-year period, your estate or heirs
may exercise the vested portion of this Option as of the
termination of Service.
Total and If your Service terminates because of your Total
Permanent and Permanent Disability, then this Option will expire at
Disability the close of business at Company headquarters on the date
which is one year after your termination date. During that
one-year period, you may exercise the vested portion of
this Option as of the termination of Service.
"Total and Permanent Disability" means that you are unable
to serve on the Board of Directors due to a disability
which shall be determined in accordance with the Company's
Long Term Disability Plan.
Restrictions on The Company will not permit you to exercise this Option
Exercise if the issuance of Shares at that time would violate any
law or regulation.
Notice of Exercise When you wish to exercise this Option, you must notify the
Company by filing the proper "Notice of Exercise" form
attached hereto. Your notice must specify how many Shares
you wish to purchase. Your notice must also specify how
your Shares should be registered (in your name only or in
your and your spouse's names as community property or as
joint tenants with right of survivorship). The notice will
be effective when it is received by the Company.
If someone else wants to exercise this Option after your
death, that person must prove to the Company's satisfaction
that he or she is entitled to do so.
Periods of
Nonexercisability Any other provision of this Agreement notwithstanding, the
Company shall have the right to designate one or more
periods of time, each of which shall not exceed 180 days in
length, during which this Option shall not be exercisable
if the Company determines (in its sole discretion) that
such limitation on exercise could in any way facilitate any
offering and/or issuance of securities by the Company,
facilitate the registration or qualification of any
securities by the Company under the applicable laws, or
facilitate the perfection of any exemption from the
registration or qualification requirements of any applicable
securities laws for the issuance or transfer of any
securities. Such limitation on exercise shall not alter the
vesting schedule set forth in this Agreement other than to
limit the periods during which this Option shall be
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exercisable.
Form of Payment When you submit your notice of exercise, you must include
payment of the Option price for the Shares you are
purchasing. Payment may be made in one (or a combination)
of the following forms:
o Your personal check, a cashier's check or a money order.
Withholding Taxes You will not be allowed to exercise this Option unless you
make acceptable arrangements to pay any withholding or
other taxes that may be due as a result of the Option
exercise.
Restrictions on By signing this Agreement, you agree not to sell any
Resale Shares at a time when applicable laws, regulations or
Company or underwriter trading policies prohibit a sale. In
connection with any underwritten public offering by the
Company of its equity securities, you agree not to sell,
make any short sale of, loan, hypothecate, pledge, grant
any Option for the purchase of, or otherwise dispose or
transfer for value or agree to engage in any of the
foregoing transactions with respect to any Shares without
the prior written consent of the Company or its
underwriters, for such period of time after the effective
date of such registration statement as may be requested by
the Company or such underwriters.
In order to enforce the provisions of this paragraph, the
Company may impose stop-transfer instructions with respect
to the Shares until the end of the applicable stand-off
period.
Transfer of Option Prior to your death, only you may exercise this Option. You
cannot transfer or assign this Option. For instance, you
may not sell this Option or use it as security for a loan.
If you attempt to do any of these things, this Option will
immediately become invalid. You may, however, dispose
of this Option in your will.
Regardless of any marital property settlement agreement,
the Company is not obligated to honor a notice of exercise
from your spouse or former spouse, nor is the Company
obligated to recognize such individual's interest in this
Option in any other way.
Shareholder Rights You, or your estate or heirs, have no rights as a
shareholder of the Company until a certificate for the
Shares has been issued. No adjustments are made for
dividends or other rights if the applicable record date
occurs before your share certificate is issued, except as
described in the Plan.
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Adjustments In the event of a stock split, a stock dividend or a
similar change in the Company's Common Stock, the number of
Shares covered by this Option and the exercise price per
share may be adjusted pursuant to the Plan. This Option
shall be subject to the terms of the agreement of merger,
liquidation or reorganization in the event the Company is
subject to such corporate activity.
Applicable Law This Agreement will be interpreted and enforced under the
laws of the State of California.
The Plan and The text of the Plan is incorporated in this
Other Agreements Agreement by reference. Certain capitalized terms used in
this Agreement and not otherwise defined herein are defined
in the Plan.
This Agreement and the Plan constitute the entire
understanding between you and the Company regarding this
Option. Any prior agreements, commitments or negotiations
concerning this Option are superseded.
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By signing the cover sheet of this Agreement, you agree to all of the terms and conditions described above and in the Plan.
NOTICE OF EXERCISE OF STOCK OPTION
First Northern Community Bancorp
195 N. First Street
Dixon, CA 95620
Attn: Corporate Secretary
Dear Sir or Madam:
Pursuant to the Stock Option Agreement dated ____________________, ____ (the "Stock Option Agreement"), between First Northern Community Bancorp, a California corporation (the "Company"), and the undersigned, I hereby elect to purchase _____________ shares of the common stock of the Company (the "Shares"), at the price of $__________ per Share. My check in the amount of $______________ is enclosed. The Shares are to be issued in _____ certificate(s) and registered in the name(s) of:
The undersigned understands there may be tax consequences as a result of the purchase or disposition of the Shares. To the extent that an amount is required to be withheld for any taxes that may be due as a result of this exercise, I will comply with the Company's requirements with respect to the payment of such withholding. The undersigned represents that he has consulted with any tax consultants he deems advisable in connection with the purchase or disposition of the Shares and the Undersigned is not relying on the Company for any tax advice.
The undersigned acknowledges that he has received, read and understood
the Stock Option Agreement and agrees to abide by and be bound by its terms and
conditions.
Dated: ________________, 20___
FIRST NORTHERN COMMUNITY BANCORP
2000 EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
-----------------
Page
----
Section 1. Establishment of the Plan......................................1
Section 2. Definitions....................................................1
Section 3. Duration; Shares Authorized....................................2
Section 4. Administration.................................................2
Section 5. Eligibility and Participation..................................3
Section 6. Participation Periods..........................................3
Section 7. Purchase Price.................................................3
Section 8. Employee Contributions.........................................3
Section 9. Plan Accounts; Purchase of Shares..............................4
Section 10. Withdrawal From the Plan.......................................5
Section 11. Effect of Termination of Employment or Death...................5
Section 12. Rights Not Transferable........................................5
Section 13. Recapitalization, Etc..........................................5
Section 14. Limitation on Stock Ownership..................................6
Section 15. No Rights as an Employee.......................................6
Section 16. Rights as a Stockholder........................................6
Section 17. Use of Funds...................................................6
Section 18. Amendment or Termination of the Plan...........................7
Section 19. Governing Law..................................................7
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FIRST NORTHERN COMMUNITY BANCORP
2000 EMPLOYEE STOCK PURCHASE PLAN
This Plan was first established by First Northern Bank of Dixon (the "Bank"). Pursuant to an Agreement and Plan of Reorganization, as of May 19, 2000, the Bank became a wholly owned subsidiary of First Northern Community Bancorp (the "Company") and the Company assumed sponsorship of the Plan. The Company hereby amends and restates the Plan to assume sponsorship of the Plan and to provide Eligible Employees with an opportunity to purchase the Company's common stock so that they may increase their proprietary interest in the success of the Company. The Plan, which provides for the purchase of stock through payroll withholding, is intended to qualify under Section 423 of the Code.
(a) "Board of Directors" or "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Company" means First Northern Community Bancorp, a California corporation.
(d) "Compensation" means the base compensation paid to a Participant during a Participation Period in cash or in kind including overtime, commissions and shift differential. Incentive compensation, other bonuses and other forms of compensation for work outside the regular work schedule are excluded.
(e) "Date of Participation" means the first day of a Participation Period.
(f) "Eligible Employee" means any Employee of a Participating Company (i) who has been continually employed for at least ninety (90) days prior to the commencement of a Participation Period, and (ii) who is an Employee at the commencement of a Participation Period. In addition, an Employee who is an officer and who is a highly compensated employee within the meaning of section 414(q) of the Code may be excluded from participation in the Plan.
(g) "Employee" means any common-law employee of a Participating Company.
(h) "Fair Market Value" shall mean (i) the closing price of a share of Stock on the principal exchange which the shares are trading on the first trading day immediately preceding the date on which the Fair Market Value is determined, or (ii) if the shares are not traded on an exchange but are quoted on the Nasdaq National Market or a successor quotation system, the closing price on the Nasdaq National Market or such successor quotation system on the first trading day immediately preceding the date on which the Fair Market Value is determined, or (iii) if the shares are not traded on an exchange or quoted on the Nasdaq National Market or a successor quotation system, the fair market value of a share as determined by the Plan Administrator in good faith. Such determination shall be conclusive and binding on all persons.
(i) "Participant" means an Eligible Employee who elects to participate in the Plan, as provided in Section 5 hereof.
(j) "Participating Company" means the Company, First Northern Bank of Dixon and such present or future Subsidiaries of the Company as the Board of Directors shall from time to time designate.
(k) "Participation Period" means a period during which contributions may be
made toward the purchase of Stock under the Plan, as determined pursuant to
Section 6.
(l) "Plan Account" means the account established for each Participant pursuant to Section 9(a).
(m) "Purchase Price" means the price at which Participants may purchase Stock under Section 5 of the Plan, as determined pursuant to Section 7.
(n) "Stock" means the common stock of the Company.
(o) "Subsidiary" means a subsidiary corporation as defined in Section 424 of the Code.
The Plan shall terminate automatically on February 27, 2007 and may be terminated on any earlier date pursuant to Section 18 below. The maximum aggregate number of shares which may be offered under the Plan shall be 568,248 shares of Stock, subject to adjustment as provided in Section 13 hereof.
(a) The Plan shall be administered by a Plan Administrator appointed by the Board of Directors. The interpretation and construction by the Plan Administrator of any provision of the Plan or of any right to purchase stock qualified hereunder shall be conclusive and binding on all persons.
(b) No member of the Board or the Plan Administrator shall be liable for any action or determination made in good faith with respect to the Plan or the right to purchase Stock hereunder. The Plan Administrator shall be indemnified by the Company against the reasonable expenses, including attorney's fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which he or she may be a party by reason of any action taken or failure to act under or in connection with the Plan or any stock purchased thereunder, and against all amounts paid by him or her in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by him or her in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that the Plan Administrator is liable for negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of any such action, suit
or proceeding, the Plan Administrator shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same.
(c) All costs and expenses incurred in administering the Plan shall be paid by the Company. The Board or the Plan Administrator may request advice for assistance or employ such other persons as are necessary for proper administration of the Plan.
(a) Any person who qualifies or will qualify as an Eligible Employee on the Date of Participation with respect to a Participation Period may elect to participate in the Plan for such Participation Period. An Eligible Employee may elect to participate by executing the participation agreement prescribed for such purpose by the Plan Administrator. The participation agreement shall be filed with the Plan Administrator no later than the deadline stated on the participation agreement, and if none is stated, then no later than the first day of the Participation Period. The Eligible Employee shall designate on the participation agreement the amount, of his or her Compensation which he or she elects to have withheld for the purchase of Stock in the manner specified by the Plan Administrator; provided that the amount may not be greater than ten percent (10%) of the Participant's Compensation.
(b) By enrolling in the Plan, a Participant shall be deemed to have elected to purchase the maximum number of whole shares of Stock which can be purchased with the amount of the Participant's Compensation which is withheld during the Participation Period.
(c) Once enrolled, a Participant will continue to participate in the Plan for each succeeding Participation Period until he or she terminates participation or ceases to qualify as an Eligible Employee. A Participant who withdraws from the Plan in accordance with Section 10 may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Section 5(a).
The Plan shall be implemented by one or more Participation Periods of not more than twenty-seven (27) months each. The Board of Directors, or a committee to which the Board has delegated its authority, shall determine the commencement date and duration of each Participation Period.
The Purchase Price for each share of Stock shall be the lesser of (i) eighty-five percent (85%) of the Fair Market Value of such share on the last trading day before the Date of Participation or (ii) eighty-five percent (85%) of the Fair Market Value of such share on the last trading day during the Participation Period.
A Participant may purchase shares of Stock solely by means of payroll
deductions. Payroll deductions, as designated by the Participant pursuant to
Section 5(a), shall commence
with the first paycheck issued during the Participation Period and shall be deducted from each paycheck throughout the Participation Period. If a Participant desires to decrease the rate of payroll withholding during the Participation Period, he or she may do so, if permitted by the Plan Administrator, one time during a Participation Period by filing a new participation agreement with the Plan Administrator. Such decrease will be effective as of the first day of the second payroll period which begins following the receipt of the new participation agreement. If a Participant desires to increase the rate of payroll withholding, he or she may do so effective for the next Participation Period by filing a new participation agreement with the Plan Administrator on or before the date specified by the Plan Administrator, and if none is stated, then no later than the first day of the Participation Period for which such change is to be effective.
(a) The Company will maintain a Plan Account on its books in the name of each Participant. At the close of each pay period, the amount deducted from the Participant's Compensation will be credited to the Participant's Plan Account.
(b) As of the last day of each Participation Period, the amount then in the
Participant's Plan Account will be divided by the Purchase Price, and the number
of whole shares which results (subject to the limitations described in Sections
5(b), 9(c) and 14) shall be purchased from the Company with the funds in the
Participant's Plan Account. Share certificates representing the number of shares
of Stock so purchased shall be delivered to the Plan Administrator pursuant to a
participation agreement between each Participant and the Company and subject to
the conditions described therein which may include a requirement that shares of
Stock be held and not sold for certain time periods.
(c) In the event that the aggregate number of shares which all Participants elect to purchase during a Participation Period shall exceed the number of shares remaining available for issuance under the Plan, then the number of shares to which each Participant shall become entitled shall be determined by multiplying the number of shares available for issuance by a fraction the numerator of which is the sum of the number of shares the Participant has elected to purchase pursuant to Section 5, and the denominator of which is the sum of the number of shares which all employees have elected to purchase pursuant to Section 5. Any cash amount remaining in the Participant's Plan Account under these circumstances shall be refunded to the Participant.
(d) Any amount remaining in the Participant's Plan Account caused by a surplus due to fractional shares after deducting the amount of the Purchase Price for the number of whole shares issued to the Participant shall be carried over in the Participant's Plan Account for the succeeding Participation Period, without interest. Any amount remaining in the Participant's Plan Account caused by anything other than a surplus due to fractional shares shall be refunded to the Participant in cash, without interest.
(e) As soon as practicable following the end of each Participation Period, the Company shall deliver to each Participant a Plan Account statement setting forth the amount of payroll deductions, the purchase price, the number of shares purchased and the remaining cash balance, if any.
A Participant may elect to withdraw from participation under the Plan at
any time up to the last day of a Participation Period by filing the prescribed
form with the Plan Administrator. As soon as practicable after a withdrawal,
payroll deductions shall cease and all amounts credited to the Participant's
Plan Account will be refunded in cash, without interest. A Participant who has
withdrawn from the Plan shall not be a Participant in future Participation
Periods, unless he or she again enrolls in accordance with the provisions of
Section 5.
(a) Termination of employment as an Eligible Employee for any reason,
including death, shall be treated as an automatic withdrawal from the Plan under
Section 10. A transfer from one Participating Company to another shall not be
treated as a termination of employment.
(b) A Participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the Participant's Account under the Plan in the event of such Participant's death subsequent to the purchase of shares but prior to delivery to him of such shares and cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's Account under the Plan in the event of such Participant's death prior to the last day of a Participation Period.
(c) Such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant in the absence of a valid designation of a beneficiary who is living at the time of such Participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the Participant; or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant; or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. Section 12. Rights Not Transferable.
The rights or interests of any Participant in the Plan, or in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or by any other manner other than as permitted by the Code or by will or the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than as permitted by the Code or by will or the laws of descent and distribution, such act shall be treated as an automatic withdrawal under Section 10.
(a) The aggregate number of shares of Stock offered under the Plan, the number and price of shares which any Participant has elected to purchase pursuant to Section 5 and the maximum number of shares which a Participant may elect to purchase under the Plan in any Participation Period shall be proportionately adjusted for any increase or decrease in the number of issued shares of Stock resulting from a subdivision or consolidation of shares or any other
capital adjustment, the payment of a stock dividend, or other increase or decrease in such shares effected without receipt of consideration by the Company.
(b) In the event of a dissolution or liquidation of the Company, or a merger or consolidation to which the Company is a constituent corporation, this Plan shall terminate, unless the plan of merger, consolidation or reorganization provides otherwise, and all amounts which each Participant has paid towards the Purchase Price of Stock hereunder shall be refunded, without interest.
(c) The Plan shall in no event be construed to restrict in any way the Company's right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.
Notwithstanding any provision herein to the contrary, no Participant shall
be permitted to elect to participate in the Plan (i) if such Participant,
immediately after his or her election to participate, would own stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or any parent or Subsidiary of the Company, or
(ii) if under the terms of the Plan the rights of the Employee to purchase Stock
under this Plan and all other qualified employee stock purchase plans of the
Company or its Subsidiaries would accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of the Fair Market Value of such Stock (determined at
the time such right is granted) for each calendar year for which such right is
outstanding at any time. For purposes of this Section 14, ownership of stock
shall be determined by the attribution rules of Section 424(d) of the Code, and
Participants shall be considered to own any stock which they have a right to
purchase under this or any other stock plan.
Nothing in the Plan shall be construed to give any person the right to remain in the employ of a Participating Company. Each Participating Company reserves the right to terminate the employment of any person at any time and for any reason.
A Participant shall have no rights as a stockholder with respect to any shares he or she may have a right to purchase under the Plan until the date of issuance of a stock certificate pursuant to Section 9(b), subject to the stockholders approval of the adoption of the Plan.
All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions in separate accounts.
The Board of Directors shall have the right to amend, modify or terminate the Plan at any time without notice. An amendment of the Plan shall be subject to stockholder approval only to the extent required by applicable laws, regulations or rules.
The Plan shall be governed by, and construed and interpreted in accordance with, the laws of the State of California.
To record the adoption of the Plan by the Board of Directors, effective as of May 18, 2000, and subject to stockholder approval, the Company has caused its authorized officer to execute the same on May 18, 2000.
First Northern Community Bancorp
By /s/ Owen J. Onsum ---------------------------------------- Its President ---------------------------------------- |
FIRST NORTHERN COMMUNITY BANCORP
2000 EMPLOYEE STOCK PURCHASE PLAN
PARTICIPATION AGREEMENT
_____ Original Application Enrollment Date: _________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________________ hereby elects to participate in the First Northern Community Bancorp 2000 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Participation Agreement and the Employee Stock Purchase Plan.
2. I understand that the initial Participation Period will commence on and end on ------------------ ------------------.
3. I hereby authorize payroll deductions, as follows, from paycheck(s) (not to exceed 10% of compensation) during the Participation Period in accordance with the Employee Stock Purchase Plan.
$_________ from first paycheck of the month (not to exceed 10% of compensation).
$_________ from second paycheck of the month (not to exceed 10% of compensation).
4. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable purchase price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from a Participation Period, any accumulated payroll deductions will be used to automatically exercise my option.
5. I have received a copy of the complete "First Northern Community Bancorp 2000 Employee Stock Purchase Plan." I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan.
6. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of:
-----------------------------------------------------.
7. I understand that if I dispose of any shares received by me pursuant to the Employee Stock Purchase Plan within 2 years after the Enrollment Date (the first day of the Participation Period during which I purchased such shares), I will be treated for federal income tax purposes as having received (i) ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased over the price which I paid for the shares and (ii) capital gain (loss) at the time of such disposition in an amount equal to the difference between the fair market value of the shares on the date of disposition and their fair market value on the date such shares were purchased. I hereby agree to notify the Company in writing within 30 days after the date of any such disposition and I will make adequate provision for federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year holding period, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Participation Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
8. I understand and agree that shares purchased pursuant to the Employee Stock Purchase Plan may not be sold or transferred by me (except for transfers resulting from my death) for a one-year period following the purchase of the shares and, that during this one-year period, the shares will be held for my account by the Plan Administrator.
9. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Participation Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan.
10. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan:
NAME: (Please print)
NAME: (Please print)
I UNDERSTAND THAT THIS PARTICIPATION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE PARTICIPATION PERIODS UNLESS TERMINATED BY ME IN ACCORDANCE WITH THE EMPLOYEE STOCK PURCHASE PLAN.
Dated:
------------------- --------------------------------------------
Signature of Employee
|
FIRST NORTHERN COMMUNITY BANCORP
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the First Northern Community Bancorp 2000 Employee Stock Purchase Plan (the "Plan") during the Participation Period which began on ________________, 20__ (the "Period Commencement") hereby notifies the Company that he or she hereby withdraws from the Plan. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Participation Period. The undersigned understands and agrees that his or her right to purchase shares for such Participation Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Participation Period and the undersigned shall be eligible to participate in succeeding Participation Periods only by delivering to the Company a new Participation Agreement.
Name and Address of Participant
Signature
EXHIBIT 5.1
Law Offices of
PILLSBURY MADISON & SUTRO LLP
50 Fremont Street
San Francisco, CA 94104
Telephone (415) 983-1000
Telecopier (415) 983-1200
May 23, 2000
First Northern Community Bancorp
195 N. First Street
Dixon, CA 95620
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-8 (the "Registration Statement") to be filed by First Northern Community Bancorp, a California corporation (the "Registrant"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to 1,325,066 shares of Common Stock of the Registrant (the "Shares") issuable upon the exercise of options originally granted by First Northern Bank of Dixon (the "Bank") or issued pursuant to the First Northern Bank of Dixon 1997 Employee Stock Purchase Plan (the "Purchase Plan"). The Shares to be registered hereunder are issuable by the Registrant pursuant to obligations or options assumed by the Registrant pursuant to an Agreement and Plan of Reorganization, dated as of March 21, 2000, among the Registrant and Bank. Such options and shares were originally granted under (i) the First Northern Bank of Dixon 1997 Stock Option Plan, and (ii) the Amended and Restated First Northern Bank of Dixon Outside Directors 1997 Nonstatutory Option Plan, each as amended to date (collectively, the "Plans"). We advise you that, in our opinion, such Shares, when granted pursuant to the Plans or when issued and sold in accordance with the Purchase Plan and, where applicable, with option agreements duly authorized under the Plans and in accordance with the Registration Statement, will be legally issued, fully paid and nonassessable.
This opinion letter is rendered as of the date first written above and we disclaim any obligation to advise you of facts, circumstances, events or developments which hereafter may be brought to our attention and which may alter, affect or modify the opinion expressed herein. Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Registrant, the Plans or the Shares.
We hereby consent to the filing of this opinion with the Securities and Exchange Commission as Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP |
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
First Northern Community Bancorp:
We consent to incorporation by reference in the registration statement on Form S-8 of First Northern Community Bancorp of our report dated January 21, 2000, relating to the balance sheets of First Northern Bank of Dixon as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999, annual report on Form 10-K of First Northern Bank of Dixon filed with the Federal Deposit Insurance Corporation.
KPMG LLP
Sacramento, California
May 22, 2000
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Owen J. Onsum and Louise A. Walker, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or his substitute or substitutes may lawfully do or cause to be done by virtue hereof.
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:
Signature Title Date
--------- ----- ----
/s/ Owen J. Onsum President, Chief Executive Officer and May 18, 2000
---------------------------------------------- Director (Principal Executive Officer)
Owen J. Onsum
/s/ Louise A. Walker Chief Financial Officer (Principal May 18, 2000
---------------------------------------------- Financial and Accounting Officer)
Louise A. Walker
/s/ Lori J. Aldrete Director May 18, 2000
----------------------------------------------
Lori J. Aldrete
/s/ Frank J. Andrews, Jr. Director May 18, 2000
----------------------------------------------
Frank J. Andrews, Jr.
/s/ John C. Carbahal Director May 18, 2000
----------------------------------------------
John C. Carbahal
/s/ Gregory DuPratt Director May 18, 2000
----------------------------------------------
Gregory DuPratt
/s/ John F. Hamel Director May 18, 2000
----------------------------------------------
John F. Hamel
/s/ Diane P. Hamlyn Director May 18, 2000
----------------------------------------------
Diane P. Hamlyn
-108-
|
Signature Title Date
--------- ----- ----
/s/ William H. Jones, Jr. Director May 18, 2000
----------------------------------------------
William H. Jones, Jr.
/s/ David W. Schulze Director May 18, 2000
----------------------------------------------
David W. Schulze
/s/ Thomas S. Wallace Director May 18, 2000
----------------------------------------------
Thomas S. Wallace
/s/ Foy S. McNaughton Director May 18, 2000
----------------------------------------------
Foy S. McNaughton
|
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D. C. 20549
Form 10-K
(Mark One)
For the fiscal year ended December 31, 1999 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _________ FDIC Certificate No. 03440
First Northern Bank of Dixon
(Exact name of Bank as specified in its charter)
California 94-0475380
[State or other jurisdiction [I.R.S. Employer Identification No.]
of incorporation or organization]
195 North First Street
Dixon, California 95620
[Address of principal executive offices] [Zip Code]
|
Bank's telephone number, including area code: (707) 678-3041
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the Bank (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Bank was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Bank's knowledge, in definitive proxy or information statements incorporated by reference to Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of the Bank was approximately $43,927,620 as of February 29, 2000, based upon the sale price on the OTC Bulletin Board reported for such date. This calculation does not reflect a determination that certain persons are affiliates of the Bank for any other purpose.
3,082,640 shares of the Bank's common stock, no par value, were outstanding at February 29, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors), 11, 12, and 13 of Part III incorporate by reference information from the Bank's Proxy Statement to be filed with the Federal Deposit Insurance Corporation in connection with the solicitation of proxies for the Bank's 2000 Annual Meeting of Shareholders.
ITEM 1 BUSINESS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are subject
to the "safe harbor" created by those sections. Forward-looking statements
include the information concerning possible or assumed future results of
operations of the Bank set forth under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Forward-looking
statements also include statements in which words such as "expect,"
"anticipate," "intend," "plan," "believe," estimate," "consider," or similar
expressions are used. These forward-looking statements involve certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties include, but are
not limited to, the risks discussed under "Risk Factors That May Affect Results"
on pages 10 through 14 herein and other risk factors discussed elsewhere in this
Report.
Unless otherwise indicated, all information herein has been adjusted to give effect to a two-for-one stock split affected by the Bank in September 1998.
First Northern Bank of Dixon ("First Northern" or the "Bank") was established in 1910 under State Charter as Northern Solano Bank, and opened for business on February 1st of that year. On January 2, 1912, the First National Bank of Dixon was established under a Federal Charter, and until 1955, the two entities operated side by side under the same roof and with the same management. In an effort to increase efficiency of operation, reduce operating expense, and improve lending capacity, the two banks were consolidated on April 8, 1955, with the First National Bank of Dixon as the surviving entity.
In order to reduce reserve requirements and operate with higher lending limits, on January 1, 1980, the Federal Charter was relinquished in favor of a State Charter, and the Bank's name was changed to First Northern Bank of Dixon.
First Northern Bank of Dixon engages in the general commercial banking business in Solano and Yolo Counties, and parts of Sacramento County.
The Bank's Administrative Offices are located in Dixon. Also located in Dixon are the Data Processing/Central Operations Department and the Central Loan Department.
The Bank has seven (7) full service Branches. Three are located in the Solano County cities of Dixon, Fairfield, and Vacaville. The remaining four Branches are located in the Yolo County cities of Winters, Davis, West Sacramento and Woodland. In addition, the Bank has a Real Estate Department in Davis which deals solely in residential mortgages and construction loans, a Real Estate Loan Office in El Dorado Hills, El Dorado County, and an SBA Loan Office in Sacramento, Sacramento County.
First Northern is in the commercial banking business, which includes accepting demand, interest bearing transaction, savings, and time deposits, and making commercial, consumer, and real estate related loans. It also offers installment note collection, issues cashier's checks and money orders, sells travelers' checks, rents safe deposit boxes, and provides other customary banking services. The Bank is a member of the Federal Deposit Insurance Corporation ("FDIC") and each depositor's account is insured up to $100,000.
First Northern also offers a complete range of alternative investment products and services. The Bank offers these services through Select Capital Corporation, an independent broker/dealer and a member of NASD and SIPC; and Select Advisors, Inc., a registered investment advisor. All investments and/or financial services offered by the representatives of Select Capital Corporation and Select Advisors, Inc. are not insured by the FDIC.
The Bank offers limited international banking services and is looking into providing trust services through an affiliation.
The operating policy of the Bank since inception has emphasized serving the banking needs of individuals and small-to medium-sized businesses. In Dixon, this has included businesses involved in crop and livestock production. The economy of the Dixon area was primarily dependent upon agricultural related sources of income and most employment opportunities were also related to agriculture.
Agriculture continued to be a significant factor in the Bank's business after the opening of the first Branch Office in Winters in 1970. A significant step was taken in 1976 to reduce the Bank's dependence on agriculture with the opening of the Davis Branch.
The Davis economy is supported significantly by the University of California, Davis. In 1981, a depository Branch was opened in South Davis, and was consolidated into the main Davis Branch in 1986.
In 1983, the West Sacramento Branch was opened. The West Sacramento economy is built around transportation and distribution related business. This addition to the Bank's market area has further reduced the Bank's dependence on agriculture.
In order to accommodate the demand of the Bank's customers for long-term residential real estate loans, a Real Estate Loan Office was opened in 1983. This office is centrally located in Davis, and has enabled the Bank to access the secondary real estate market.
The Vacaville Branch was opened in 1985. Vacaville is a rapidly growing community with a diverse economic base including state prison (Department of Corrections), food processing, distribution, shopping centers (Factory Outlet Stores), medical, and other varied industries.
In 1994, the Fairfield Branch was opened. Fairfield has also been a rapidly growing community bounded by Vacaville on the east. Its diverse economic base includes military (Travis AFB), food processing (Anheuser-Busch plant), retail (Solano Mall), manufacturing, medical, and agriculture. Fairfield is the county seat for Solano County.
A Real Estate Loan Production Office was opened in El Dorado Hills, in April of 1996, to serve the growing mortgage loan demand in the foothills area north of Sacramento.
A Small Business Administration (SBA) Loan Department was opened in April of 1997 in Sacramento to serve the small business and industrial loan demand throughout the Bank's entire market area.
In June of 1997, the Bank's seventh Branch was opened in Woodland, the County Seat of Yolo County. Woodland is an expanding and diversified 10.5 square mile city with an economy dominated by agribusiness, retail services, and an expanding industrial sector.
Through this period of change and diversification, the Bank's policy, which emphasizes serving the banking needs of individuals and small-to medium-sized businesses, has not changed. The Bank takes real estate, crop proceeds, securities, savings and time deposits, automobiles, and equipment as collateral for loans.
Most of the Bank's deposits are attracted from the market of northern and central Solano County and southern and central Yolo County. The Bank is not dependent on any single person or entity for its deposits. The loss of any one or more of the Bank's depositors would not have a material adverse effect on the business of the Bank.
As of February 29, 2000, the Bank employed a total of 195 people: 77 officers, including four principal officers, plus 45 full-time and 73 part-time employees.
First Northern has historically experienced seasonal swings in both deposit and loan volumes due primarily to the agricultural economy. Deposits have typically hit lows in February or March and peaked in November or December. Loans typically peaked in the late spring and hit lows in the fall as crops are harvested and sold. More recent experience shows the same deposit and loan swings, since the real estate and agricultural economies tend to follow the same seasonal cycle.
The Effect of Government Policy on Banking
The earnings and growth of the Bank are affected not only by local market area factors and general economic conditions, but also by government monetary and fiscal policies. For example, the Board of Governors of the Federal Reserve System ("FRB") influences the supply of money through its open market operations in U.S. Government securities and adjustments to the discount rates applicable to borrowings by depository institutions and others. Such actions influence the growth of loans, investments and deposits and also affect interest rates charged on loans and paid on deposits. The nature and impact of future changes in such policies on the business and earnings of the Bank cannot be predicted. Additionally, state and federal tax policies can impact banking organizations.
As a consequence of the extensive regulation of commercial banking activities in the United States, the business of the Bank is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Any change in applicable laws or regulations may have a material adverse effect on the business and prospects of the Bank.
Bank Regulation and Supervision
The Bank is subject to regulation, supervision and regular examination by the California Department of Financial Institutions ("DFI") and the Federal Deposit Insurance Corporation (the "FDIC"). The regulations of these agencies affect most aspects of the Bank's business and prescribe permissible types of loans and investments, the amount of required reserves, requirements for branch offices, the permissible scope of the Bank's activities and various other requirements. While the Bank is not a member of the FRB, it is also subject to certain regulations of the FRB dealing primarily with check clearing activities, establishment of banking reserves, Truth-in-Lending (Regulation Z), Truth-in-Savings (Regulation DD), and Equal Credit Opportunity (Regulation B).
Under California law, the Bank is subject to various restrictions on, and requirements regarding, its operations and administration including the maintenance of branch offices and automated teller machines, capital and reserve requirements, deposits and borrowings, stockholder rights and duties, and investment and lending activities. Whenever it appears that the contributed capital of a California bank is impaired, the California Commissioner of Financial Institutions ("Commissioner") shall order the bank to correct such impairment. If a bank is unable to correct the impairment, such bank is required to levy and collect an assessment upon its common shares. If such assessment becomes delinquent, such common shares are to be sold by the bank.
California law permits a state chartered bank to invest in the stock and securities of other corporations, subject to a state chartered bank receiving either general authorization or, depending on the amount of the proposed investment, specific authorization from the Commissioner. Federal banking laws, however, impose limitations on the activities and equity investments of state chartered, federally insured banks. The FDIC rules on investments prohibit a state bank from acquiring an equity investment of a type, or in an amount, not permissible for a national bank. Non-permissible investments must have been divested by state banks no later than December 19, 1996. FDIC rules also prohibit a state bank from engaging as a principal in any activity that is not permissible for a national bank, unless the bank is adequately capitalized and the FDIC approves the activity after determining that such activity does not pose a significant risk to the deposit insurance fund. The FDIC rules on activities generally permit subsidiaries of banks, without prior specific FDIC authorization, to engage in those activities that have been approved by the FRB for bank holding companies because such activities are so closely related to banking to be a proper incident thereto. Other activities generally require specific FDIC prior approval, and the FDIC may impose additional restrictions on such activities on a case-by-case basis in approving applications to engage in otherwise impermissible activities.
Capital Standards
The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the balance sheet as assets and transactions, such as letters of credit and recourse arrangements, which are recorded as off-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. government securities, to 100% for assets with relatively higher credit risk, such as certain loans.
In determining the capital level the Bank is required to maintain, the federal banking agencies do not, in all respects, follow generally accepted accounting principles ("GAAP") and have special rules which have the effect of reducing the amount of capital that will be recognized for purposes of determining the capital adequacy of the Bank.
A banking organization's risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance-sheet items. The regulators measure risk-adjusted assets and off-balance-sheet items against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of common stock, retained earnings, noncumulative perpetual preferred stock, other types of qualifying preferred stock and minority interests in certain subsidiaries, less most other intangible assets and other adjustments. Net unrealized losses on available-for-sale equity securities with readily determinable fair value must be deducted in determining Tier 1 capital. Additionally, as of April 1, 1995, for Tier 1 capital purposes, deferred tax assets that can only be realized if an institution earns sufficient taxable income in the future will be limited to the amount that the institution is expected to realize within one year, or ten percent of Tier 1 capital, whichever is less. Tier 2 capital may consist of a limited amount of the allowance for possible loan and lease losses, term preferred stock and other types of preferred stock not qualifying as Tier 1 capital, term subordinated debt and certain other instruments with some characteristics of equity. The inclusion of elements of Tier 2 capital are subject to certain other requirements and limitations of the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance-sheet items of 8%, and a minimum ratio of Tier 1 capital to adjusted average risk-adjusted assets and off-balance-sheet items of 4%.
On October 1, 1998, the FDIC adopted two rules governing minimum capital levels that FDIC-supervised banks must maintain against the risks to which they are exposed. The first rule makes risk-based capital standards consistent for two types of credit enhancements (i.e., recourse arrangements and direct credit substitutes) and requires different amounts of capital for different risk positions in asset securitization transactions. The second rule permits limited amounts of unrealized gains on debt and equity securities to be recognized for risk-based capital purposes as of September 1, 1998. The FDIC rules also provide that a qualifying institution that sells small business loans and leases with recourse must hold capital only against the amount of recourse retained. In general, a qualifying institution is one that is well-capitalized under the FDIC's prompt corrective action rules. The amount of recourse that can receive the preferential capital treatment cannot exceed 15% of the institution's total risk-based capital.
In addition to the risked-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to adjusted average total assets, referred to as the leverage capital ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets must be 3%. It is improbable; however, that an institution with a 3% leverage ratio would receive the highest rating by the regulators since a strong capital position is a significant part of the regulators' rating. For all banking organizations not rated in the highest category, the minimum leverage ratio must be at least 100 to 200 basis points above the 3% minimum. Thus, the effective minimum leverage ratio, for all practical purposes, must be at least 4% or 5%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios.
As of December 31, 1999, the Bank's capital ratios exceeded applicable regulatory requirements. The following tables present the capital ratios for the Bank, compared to the standards for well-capitalized depository institutions, as of December 31, 1999 (amounts in thousands except percentage amounts).
Well Minimum
Actual Capitalized Capital
Ratio Requirement
------------------------------------ ------------ -----------
Capital Ratio
------- -----
Leverage................................... $32,421 8.67% 5.0% 4.0%
Tier 1 Risk-Based.......................... 32,421 13.63% 6.0% 4.0%
Total Risk-Based........................... 35,454 14.91% 10.0% 8.0%
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The federal banking agencies must take into consideration concentrations of credit risk and risks from non-traditional activities, as well as an institution's ability to manage those risks, when determining the adequacy of an institution's capital. This evaluation will be made as a part of the institution's regular safety and soundness examination. The federal banking agencies must also consider interest rate risk (when the interest rate sensitivity of an institution's assets does not match the sensitivity of its liabilities or its off-balance-sheet position) in evaluation of a bank's capital adequacy.
Prompt Corrective Action and Other Enforcement Mechanisms
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires each federal banking agency to take prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The law required each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
Under the prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified in the following categories based on the capital measures indicated below:
"Well capitalized" "Adequately capitalized" ---------------- ---------------------- Total risk-based capital of 10%; Total risk-based capital of 8%; Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and Leverage ratio of 5%. Leverage ratio of 4%. "Undercapitalized" "Significantly undercapitalized" ---------------- ------------------------------ Total risk-based capital less than 8%; Total risk-based capital less than 6%; Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or Leverage ratio less than 4%. Leverage ratio less than 3%. "Critically undercapitalized" Tangible equity to total assets less than 2%. |
An institution that, based upon its capital levels, is classified as "well capitalized," "adequately capitalized" or "undercapitalized" may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants such treatment. At each successive lower capital category, an insured depository institution is subject to more restrictions.
In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the imposition of a conservator or receiver, the issuance of a cease-and-desist order that can be judicially enforced, the termination of insurance of deposits (in the case of a depository institution), the imposition of civil money penalties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the issuance of removal and prohibition orders against institution-affiliated parties and the enforcement of such actions through injunctions or restraining orders based upon
a judicial determination that the agency would be harmed if such equitable relief was not granted.
Safety and Soundness Standards
FDICIA also implemented certain specific restrictions on transactions and required federal banking regulators to adopt overall safety and soundness standards for depository institutions related to internal control, loan underwriting and documentation and asset growth. Among other things, FDICIA limits the interest rates paid on deposits by undercapitalized institutions, restricts the use of brokered deposits, limits the aggregate extensions of credit by a depository institution to an executive officer, director, principal shareholder or related interest, and reduces deposit insurance coverage for deposits offered by undercapitalized institutions for deposits by certain employee benefits accounts.
The federal banking agencies may require an institution to submit to an acceptable compliance plan as well as have the flexibility to pursue other more appropriate or effective courses of action given the specific circumstances and severity of an institution's noncompliance with one or more standards.
Restrictions on Dividends and Other Distributions
The power of the board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending upon the earnings, financial condition and cash needs of the institution, as well as general business conditions. FDICIA prohibits insured depository institutions from paying management fees to any controlling persons or, with certain limited exceptions, making capital distributions, including dividends, if, after such transaction, the institution would be undercapitalized.
The federal banking agencies also have authority to prohibit a depository institution from engaging in business practices which are considered to be unsafe or unsound, possibly including payment of dividends or other payments under certain circumstances even if such payments are not expressly prohibited by statute.
In addition to the restrictions imposed under federal law, banks chartered under California law generally may only pay cash dividends to the extent such payments do not exceed the lesser of retained earnings of the bank or the bank's net income for its last three fiscal years (less any distributions to shareholders during such period). In the event a bank desires to pay cash dividends in excess of such amount, the bank may pay a cash dividend with the prior approval of the Commissioner in an amount not exceeding the greatest of the bank's retained earnings, the bank's net income for its last fiscal year, or the bank's net income for its current fiscal year.
Premiums for Deposit Insurance and Assessments for Examinations
FDICIA established several mechanisms to increase funds to protect deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC. The FDIC is authorized to borrow up to $30 billion from the United States Treasury; up to 90% of the fair market value of assets of institutions acquired by the FDIC as receiver from the Federal Financing Bank; and from depository institutions that are members of the BIF. Any borrowings not repaid by asset sales are to be repaid through insurance premiums assessed to member institutions. Such premiums must be sufficient to repay any borrowed funds within 15 years and provide insurance fund reserves of $1.25 for each $100 of insured deposits. FDICIA also provides authority for special assessments against insured deposits. No assurance can be given at this time as to what the future level of premiums will be.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act ("CRA") activities. The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of their local communities, including low and moderate-income neighborhoods. In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities.
Recently Enacted Legislation
On November 12, 1999 President Clinton signed into law the Gramm-Leach-Bliley Act, or the Financial Services Act of 1999 (the "FSA") which becomes effective March 11, 2000. The FSA repeals provisions of the Glass-Steagall Act, which had prohibited commercial banks and securities firms from affiliating with each other and engaging in each other's businesses. Thus, many of the barriers prohibiting affiliations between commercial banks and securities firms have been eliminated.
The Bank Holding Company Act of 1956, as amended (the "BHCA"), is also amended by the FSA, to allow new "financial holding companies" ("FHC") to offer banking, insurance, securities and other financial products to consumers. Specifically, the FSA amends section 4 of the BHCA in order to provide for a framework for the engagement in new financial activities. Bank holding companies ("BHC") may elect to become a financial holding company if all its subsidiary depository institutions are well-capitalized and well-managed. If these requirements are met, a BHC may file a certification to that effect with the FRB and declare that it chooses to become a FHC. After the certification and declaration is filed, the FHC may engage either de novo or through an acquisition in any activity that has been determined by the FRB to be financial in nature or incidental to such financial activity. BHCs may engage in financial activities without prior notice to the FRB if those activities qualify under the BHCA. However, notice must be given to the FRB within 30 days after a FHC has commenced one or more of the financial activities.
Under the FSA, FDIC-insured state banks, subject to various requirements (and national banks) are permitted to engage through "financial subsidiaries" in certain financial activities permissible for affiliates of FHCs. However, to be able to engage in such activities the state bank must also be well-capitalized and well-managed and receive at least a "satisfactory" rating in its most recent Community Reinvestment Act examination.
The Bank cannot be certain of the effect of the foregoing recently enacted legislation on its business, although there is likely to be consolidation among financial services institutions and increased competition for the Bank.
Pending Legislation and Regulations
Certain pending legislative proposals include bills to let banks pay interest on business checking accounts, to cap consumer liability for stolen debit cards, and to give judges the authority to force high-income borrowers to repay their debts rather than cancel them through bankruptcy.
Quantitative and Qualitative Disclosures About Market Risk
While there are several varieties of market risk, the market risk material to the Bank is interest rate risk. Within the context of interest rate risk, market risk is the risk of loss due to changes in market interest rates that have an adverse effect on net interest income, earnings, capital or the fair value of financial instruments. Exposure to this type of risk is a regular part of a financial institution's operations. The fundamental activities of making loans, purchasing investment securities, and accepting deposits inherently involve exposure to interest rate risk. The Bank monitors the repricing differences between assets and liabilities on a regular basis and estimates exposure to net interest income, net income, and capital based upon assumed changes in the market yield curve. The following tables summarize the expected maturity, principal repayment and fair value of the financial instruments that are sensitive to changes in interest rates:
Interest Rate Sensitivity Analysis at December 31, 1999
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Expected Maturity/Repricing/Principal Payment
In Thousands Within 1 1 Year to 3 Years to After 5 Total Fair
Year 3 Years 5 Years Years Balance Value
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Interest-Sensitive Assets:
Federal funds sold 37,300 - - - 37,300 37,300
Average interest rate 5.50% - - - 5.50%
Fixed rate investments 16,520 33,811 30,866 54,255 135,452 135,452
Average interest rate 6.20% 6.40% 6.40% 6.14% 6.27%
Fixed rate loans (1) 5,833 2,539 64 45,575 54,011 49,930
Average interest rate 8.38% 10.80% 10.80% 7.47% 7.73%
Floating rate loans (2) 83,524 14,739 - - 98,263 98,698
Average interest rate 9.89% 10.01% - - 9.91%
Loans held for sale - 10,657 - - 10,657 10,667
Average interest rate - 7.80% - - 7.80%
Interest-Sensitive Liabilities:
NOW account deposits (2) 10,261 9,072 7,256 9,695 36,284 36,284
Average interest rate 1.35% 1.35% 1.35% 1.35% 1.35%
Money market deposits (2) 15,800 13,166 13,166 10,540 52,672 52,672
Average interest rate 2.20% 2.20% 2.20% 2.20% 2.20%
Savings deposits (2) 17,446 9,970 12,462 9,967 49,845 49,845
Average interest rate 2.50% 2.50% 2.50% 2.50% 2.50%
Certificates of deposit 103,916 6,251 537 - 110,704 110,404
Average interest rate 4.53% 4.94% 4.47% - 4.55%
Interest-Sensitive Off-Balance Sheet
Items:
Commitments to lend - - - - 76,101 571
Standby letters of credit - - - - 3,600 36
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Interest Rate Sensitivity Analysis at December 31, 1998
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Expected Maturity/Repricing/Principal Payment
In Thousands Within 1 1 Year to 3 Years to After 5 Total Fair
Year 3 Years 5 Years Years Balance Value
-----------------------------------------------------------------------------------------------------------------------------------
Interest-Sensitive Assets:
Federal funds sold 25,400 - - - 25,400 25,400
Average interest rate 4.75% - - - 4.75%
Fixed rate investments 19,924 36,004 16,135 55,486 127,549 127,549
Average interest rate 6.22% 5.95% 5.95% 6.51% 6.09%
Fixed rate loans (1) 9,739 1,608 69 11,722 23,138 23,003
Average interest rate 8.54% 10.42 10.42% 8.62% 8.72%
Floating rate loans (2) 91,630 7,870 - - 99,500 103,368
Average interest rate 9.05% 8.96% - - 9.04%
Loans held for sale - 29,021 - - 29,021 29,596
Average interest rate - 7.03% - - 7.03%
Interest-Sensitive Liabilities:
NOW account deposits (2) 10,261 9,072 7,256 9,695 36,394 36,394
Average interest rate 1.35% 1.35% 1.35% 1.35% 1.35%
Money market deposits (2) 15,800 13,166 13,166 10,540 43,942 43,942
Average interest rate 2.22% 2.22% 2.22% 2.22% 2.22%
Savings deposits (2) 17,446 9,970 12,462 9,967 41,844 41,844
Average interest rate 2.75% 2.75% 2.75% 2.75% 2.75%
Certificates of deposit 103,808 5,251 850 - 109,909 110,410
-121-
Average interest rate 4.79% 5.10% 4.92% - 4.81%
Interest-Sensitive Off-Balance Sheet
Items:
Commitments to lend 63,853 479
Standby letters of credit 713 7
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(1) Based upon contractual maturity dates and interest rate repricing.
(2) NOW, money market and savings deposits do not carry contractual maturity
dates. The actual maturities of NOW, money market, and savings deposits could
vary substantially if future prepayments differ from the Bank's historical
experience.
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The Bank controls interest rate risk by matching assets and liabilities. One tool used to ensure market rate return is variable rate loans. Loans totaling $89,357,000 or 54.84% of the total loan portfolio (including loans held for sale) are subject to repricing within one year. Loan maturities in the after five-year category increased to $45,575,000 at December 31, 1999 from $11,722,000 at December 31, 1998. The reason for this increase was due, for the most part, to transfers effective July 1, 1999 and October 1, 1999 of $25,567,000 and $3,656,000, respectively, from held for sale loans to held to maturity loans.
The Bank is required by FASB 115 to mark to market the Available for Sale investments at the end of each quarter. Mark to market resulted in a negative capital entry of $3,7658,000 as reflected on the December 31, 1999 balance sheet. Mark to market impact on capital on December 31, 1998 was a positive $1,835,000. These entries were the result of fluctuating interest rates.
Risk Factors That May Affect Results
This Report includes forward-looking statements within the meaning of the Exchange Act. These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning possible or assumed future results of operations of the Bank set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider" or similar expressions are used. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions, including the risks discussed below and elsewhere in this Report. The Bank's actual future results and shareholder values may differ materially from those anticipated and expressed in these forward-looking statements. Many of the factors that will determine these results and values, including those below, are beyond the Bank's ability to control or predict.
Lending Risks Associated with Commercial Banking Activities
The Bank's business strategy is to focus on commercial business loans (which includes agricultural loans), construction loans and commercial and multi-family real estate loans. The principal factors affecting the Bank's risk of loss in connection with commercial business loans include the borrower's ability to manage its business affairs and cash flows, general economic conditions and, with respect to agricultural loans, weather and climate conditions. Loans secured by commercial real estate are generally larger and involve a greater degree of credit and transaction risk than residential mortgage (one to four family) loans. Because payments on loans secured by commercial and multi-family real estate properties are often dependent on successful operation or management of the underlying properties, repayment of such loans may be subject to a greater extent to the then prevailing conditions in the real estate market or the economy. Real estate construction financing is generally considered to involve a higher degree of credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's value at completion of construction or development compared to the estimated cost (including interest) of construction. If the estimate of value proves to be inaccurate, the Bank may be confronted with a project which, when completed, has a value which is insufficient to assure full repayment of the construction loan.
Although the Bank manages lending risks through its underwriting and credit administration policies, no assurance can be given that such risks would not materialize, in which event the Bank's financial condition, results of operations, cash flows and business prospects could be materially adversely affected.
Dependence on Real Estate
At December 31, 1999, approximately 61% of the Bank's loans were secured by real estate. The value of the Bank's real estate collateral has been, and could in the future continue to be, adversely affected by any economic recession and any resulting adverse impact on the real estate market in Northern California such as that experienced during the early years of this decade. See "-Economic Conditions and Geographic Concentration."
The Bank's primary lending focus has historically been commercial (including agricultural), construction and real estate mortgage. At December 31, 1999, real estate mortgage and construction loans comprised approximately 26% and 21%, respectively, of the total loans in the Bank's portfolio. At December 31, 1999, all of the Bank's real estate mortgage and construction loans and approximately 33% of its commercial loans were secured fully or in part by deeds of trust on underlying real estate. The Bank's dependence on real estate increases the risk of loss in both the Bank's loan portfolio and its holdings of other real estate owned if economic conditions in Northern California deteriorate in the future. Deterioration of the real estate market in Northern California would have a material adverse effect on the Bank's business, financial condition and results of operations. See "-Economic Conditions and Geographic Concentration."
Interest Rate Risk
The income of the Bank depends to a great extent on "interest rate differentials" and the resulting net interest margins (i.e., the difference between the interest rates earned on the Bank's interest-earning assets such as loans and investment securities, and the interest rates paid on the Bank's interest-bearing liabilities such as deposits and borrowings). These rates are highly sensitive to many factors which are beyond the Bank's control, including general economic conditions and the policies of various governmental and regulatory agencies, in particular, the FRB. The Bank is generally adversely affected by declining interest rates. In addition, changes in monetary policy, including changes in interest rates, influence the origination of loans, the purchase of investments and the generation of deposits and affect the rates received on loans and investment securities and paid on deposits, which could have a material adverse effect on the Bank's business, financial condition and results of operations. See "Quantitative and Qualitative Disclosure About Market Risk."
Potential Volatility of Deposits
At December 31, 1999, 13% of the dollar value of the Bank's total deposits was represented by time certificates of deposit in excess of $100,000. As such, these deposits are considered volatile and could be subject to withdrawal. Withdrawal of a material amount of such deposits would adversely impact the Bank's liquidity, profitability, business prospects, results of operations and cash flows.
Dividends
The ability of the Bank to pay cash dividends in the future depends on the Bank's profitability, growth and capital needs. In addition, the California Financial Code restricts the ability of the Bank to pay dividends. No assurance can be given that the Bank will pay any dividends in the future or, if paid, such dividends will not be discontinued. See "-Supervision and Regulation-Restrictions on Dividends and Other Distributions."
Competition
In California generally, and in the Bank's primary market area specifically, major banks dominate the commercial banking industry. By virtue of their larger capital bases, such institutions have substantially greater lending limits than those of the Bank. In obtaining deposits and making loans, the Bank competes with these larger commercial banks and other financial institutions, such as savings and loan associations and credit unions, which offer many services which traditionally were offered only by banks. In addition, the Bank competes with other institutions such as money market funds, brokerage firms, and even retail stores seeking to penetrate the financial services market. During periods of declining interest rates, competitors with lower costs of capital may solicit the Bank's customers to refinance their loans. Furthermore, during periods of economic slowdown or recession, the Bank's borrowers may face financial difficulties and be more receptive to offers from the Bank's competitors to refinance their loans. No assurance can be given that the Bank will be able to compete with these lenders. See "-Competition."
Government Regulation and Legislation
The Bank is subject to extensive state and federal regulation, supervision and legislation which govern almost all aspects of the operations of the Bank. The business of the Bank is particularly susceptible to being affected by the enactment of federal and state legislation which may have the effect of increasing or decreasing the cost of doing business, modifying permissible activities or enhancing the competitive position of other financial institutions. Such laws are subject to change from time to time and are primarily intended for the protection of consumers, depositors and the deposit insurance funds and not for the protection of shareholders of the Bank. The Bank cannot predict what effect any presently contemplated or future changes in the laws or regulations or their interpretations would have on the business and prospects of the Bank, but it could be material and adverse. See "-Supervision and Regulation."
Economic Conditions and Geographic Concentration
The Bank's operations are located and concentrated primarily in Northern California, particularly the counties of Placer, Sacramento, Solano and Yolo, and are likely to remain so for the foreseeable future. At December 31, 1999, approximately 61% of the Bank's loan portfolio consisted of real estate related loans, all of which were related to collateral located in Northern California. The performance of these loans may be adversely affected by changes in California's economic and business conditions. A deterioration in economic conditions could have a material adverse effect on the quality of the Bank's loan portfolio and the demand for its products and services. In addition, during periods of economic slowdown or recession, the Bank may experience a decline in collateral values and an increase in delinquencies and defaults. A decline in collateral values and an increase in delinquencies and defaults increase the possibility and severity of losses. California real estate is also subject to certain natural disasters, such as earthquakes, floods and mud slides, which are typically not covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters may make it difficult or impossible for borrowers to repay loans made by the Bank. The occurrence of adverse economic conditions or natural disasters in California could have a material adverse effect on the Bank's financial condition, results of operations, cash flows and business prospects.
Reliance on Key Employees and Others
The Bank is dependent upon the continued services of its key employees, including Owen J. Onsum, President and Chief Executive Officer, Robert M. Walker, Senior Vice President and Branch Administrator, Donald J. Fish, Senior Vice President and Senior Credit Officer, and Louise A. Walker, Senior Vice President and Cashier. The loss of the services of any such employee, or the failure of the Bank to attract and retain other qualified personnel, could have a material adverse effect on the Bank's business, financial condition and results of operations.
Adequacy of Allowance for Loan and Other Real Estate Losses
The Bank's allowance for estimated losses on loans was approximately $7.8 million, or 4.6% of total loans, and 1,476% of total nonperforming loans at December 31, 1999. Material future additions to the allowance for estimated losses on loans may be necessary if material adverse changes in economic conditions occur and the performance of the Bank's loan portfolio deteriorates. In addition, future additions to the Bank's allowance for losses on other real estate owned may also be required in order to reflect changes in the markets for real estate in which the Bank's other real estate owned is located and other factors which may result in adjustments which are necessary to ensure that the Bank's foreclosed assets are carried at the lower of cost or fair value, less estimated costs to dispose of the properties. Moreover, the FDIC and the DFI, as an integral part of their examination process, periodically review the Bank's allowance for estimated losses on loans and the carrying value of its assets. Increases in the provisions for estimated losses on loans and foreclosed assets would adversely affect the Bank's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Summary of Loan Loss Experience."
Shares Eligible for Future Sale
As of February 29, 2000, the Bank had 3,082,640 shares of Common Stock outstanding, all of which are eligible for sale in the public market without restriction. Future sales of substantial amounts of the Bank's Common Stock, or the perception that such sales could occur, could have a material adverse effect on the market price of the Common Stock. In addition, options to acquire up to six percent of the outstanding shares of Common Stock at exercise prices ranging from $11.11 to $13.51 have been issued to directors and certain employees of the Bank under the Bank's 1997 Stock Option Plan and Outside Directors 1997 Nonstatutory Stock Option Plan, and options to acquire up to an additional 17% of the outstanding shares of Common Stock are reserved for issuance under such plans. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Bank's Common Stock. See "Market for the Bank's Common Stock and Related Stockholder Matters."
Absence of Public Market; Volatility in Stock Price
There currently is no active trading market for the Bank's Common Stock. No assurance can be given that an active public trading market will develop or that, if developed, it will be sustained. As a result of the lack of a trading market, the market price of the Bank's Common Stock may experience fluctuations that are unrelated to the operating performance of the Bank. In particular, the price of the Bank's Common Stock may be affected by general market price movements as well as developments specifically related to the financial services sector, including interest rate movements, quarterly variations, or changes in financial estimates by securities analysts and a significant reduction in the price of the stock of another participant in the financial services industry.
Technology and Computer Systems
Advances and changes in technology can significantly impact the business and operations of the Bank. The Bank faces many challenges including the increased demand for providing computer access to bank accounts and the systems to perform banking transactions electronically. The Bank's merchant processing services require the use of advanced computer hardware and software technology and rapidly changing customer and regulatory requirements. The Bank's ability to compete depends on its ability to continue to adapt its technology on a timely and cost-effective basis to meet these requirements. In addition, the Bank's business and operations are susceptible to negative impacts from computer system failures, communication and energy disruption and unethical individuals with the technological ability to cause disruptions or failures of the Bank's data processing systems.
Many computer programs were designed and developed utilizing only two digits in the date field, thereby creating the inability to recognize the year 2000 or years thereafter. This year 2000 issue creates risks for the Bank from unforeseen or unanticipated problems in its internal computer systems as well as from computer systems of the Federal Reserve Bank of San Francisco, correspondent banks, customers and vendors. Failures of these systems or untimely corrections could have a material adverse impact on the Bank's ability to conduct its business and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Year 2000."
Environmental Risks
The Bank, in its ordinary course of business, acquires real property securing loans that are in default, and there is a risk that hazardous substances or waste, contaminants or pollutants could exist on such properties. The Bank may be required to remove or remediate such substances from the affected properties at its expense, and the cost of such removal or remediation may substantially exceed the value of the affected properties or the loans secured by such properties. Furthermore, the Bank may not have adequate remedies against the prior owners or other responsible parties to recover its costs. Finally, the Bank may find it difficult or impossible to sell the affected properties either prior to or following any such removal. In addition, the Bank may be considered liable for environmental liabilities in connection with its borrowers' properties, if, among other things, it participates in the management of its borrowers' operations. The occurrence of such an event could have a material adverse effect on the Bank's business, financial condition, results of operations and cash flows.
Dilution
As of February 29, 2000, the Bank had outstanding options to purchase an aggregate of 196,665 shares of Common Stock at exercise prices ranging from $11.11 to $13.51 per share, or a weighted average exercise price per share of $13.11. To the extent such options are exercised, shareholders of the Bank will experience dilution. See "Market for the Bank's Common Stock and Related Stockholder Matters."
Competition
In the past, an independent bank's principal competitors for deposits and loans have been other banks (particularly major banks), savings and loan associations and credit unions. To a lesser extent, competition was also provided by thrift and loans, mortgage brokerage companies and insurance companies. Other institutions, such as brokerage houses, mutual fund companies, credit card companies, and even retail establishments have offered new investment vehicles which also compete with banks for deposit business. The direction of federal legislation in recent years seems to favor competition between different types of financial institutions and to foster new entrants into the financial services market. The enactment of the FSA is the latest evidence of this trend, and it is anticipated that this trend will continue as financial services institutions combine to take advantage of the FSA's elimination of the barriers against such affiliations.
In order to compete with major financial institutions and other competitors in its primary service areas, the Bank relies upon the experience of its executive and senior officers in serving business clients, and upon its specialized services, local promotional activities and the personal contacts made by its officers, directors, and employees.
For customers whose loan demand exceeds the Bank's legal lending limit, the Bank may arrange for such loans on a participation basis with correspondent banks. The seasonal swings discussed earlier have, in the past, had some impact on the Bank's liquidity. The management of investment maturities, sale of loan participations, federal fund borrowings, qualification for funds under the Federal Reserve Bank's seasonal credit program, and the ability to sell mortgages in the secondary market have allowed the Bank to satisfactorily manage its liquidity.
The enactment of the Interstate Banking and Branching Act in 1994 and the California Interstate Banking and Branching Act of 1995 have increased competition within California. It is believed that the recent enactment of the FSA will further increase competition within California. Moreover, regulatory reform, as well as other changes in federal and California law will also affect competition. While the impact of these changes, and of other proposed changes, cannot be predicted with certainty, it is clear that the business of banking in California will remain highly competitive.
ITEM 2 - PROPERTIES
Dixon Branch - Consists of a two-story building with approximately 16,600 square feet of space situated in the central business district in the city of Dixon in northern Solano County. This property is owned by the Bank with no encumbrances.
Vacaville Branch - Approximately 5,000 square feet of space situated in a shopping center in the city of Vacaville in north central Solano County. The property is subject to a lease expiring in December 2005. The term of the lease is fifteen years with options to extend this lease for an additional nineteen years.
Fairfield Branch - Approximately 3,800 square feet of space situated in an office complex in the city of Fairfield in western Solano County. Property is subject to a lease expiring in December 2001.
Operations Center - Consists of a one-story building with approximately 33,500 square feet of space situated in the central business district in the city of Dixon in northern Solano County. The property is owned by the Bank with no encumbrances.
Future Bank Site - Vacant lot situated in the city of Dixon in northern Solano County. The property is owned by the Bank with no encumbrances.
Winters Branch - Consists of a two-story building with approximately 2,800 square feet of space situated in the central business district in the city of Winters in southern Yolo County. The property is owned by the Bank with no encumbrances.
Davis Branch - Approximately 5,000 square feet of space situated in the central business district in the city of Davis in southern Yolo County. The property is subject to a lease expiring in March 2004.
Real Estate Department - Approximately 2,200 square feet of space situated in the central business district in the city of Davis in southern Yolo County. The property is subject to a month-to-month lease.
West Sacramento Branch - Consists of a one-story building with approximately 5,000 square feet of space situated in the Port of Sacramento industrial park in the city of West Sacramento in southern Yolo County. The property is owned by the Bank with no encumbrances.
Woodland Branch - Approximately 3,800 square feet of space situated in the central business district in the city of Woodland in central Yolo County. The property is subject to a lease expiring in April 2002. The Bank has options to extend this lease an additional fifteen years.
El Dorado Hills Loan Production Office - Approximately 800 square feet of space situated in an office complex in the city of El Dorado Hills in El Dorado County. The property is subject to a month-to-month lease.
SBA Loan Production Office - Approximately 800 square feet of space situated in the central business district, in an office complex, in the city of Sacramento in Sacramento County. Property is subject to a lease expiring in April 2000. The term of the lease is one year.
ITEM 3 - LEGAL PROCEEDINGS
The Bank is not a party to or the subject of, nor is any of the property of the Bank the subject of any material pending legal proceedings, other than ordinary routine litigation incidental to the Bank's business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOATE OF SECURITY HOLDERS
Not Applicable.
ITEM 5 - MARKET FOR THE BANK'S COMMON STOCK AND RELATED STOCK HOLDER MATTERS
The Bank's common stock is not listed on any exchange, nor is it included on NASDAQ. However, trades may be reported on the OTC Bulletin Board under the symbol "FDIX". The Bank is aware that Hoefer & Arnett, Inc., Sutro & Co. and PaineWebber, Inc. all make a market in the Bank's common stock. Management is aware that there are also private transactions in the Bank's common stock although the data set forth below may not reflect all such transactions.
The following table summarizes the range of sales prices of the Bank's Common Stock for each quarter during the last two fiscal years and is based on information provided by Hoefer & Arnett, Inc. The quotations reflect the price that would be received by the seller without retail mark-up, mark-down or commissions and may not have represented actual transactions:
QUARTER/YEAR HIGH LOW ------------ ---- --- 4th Quarter 1999 $14.00 $13.50 3rd Quarter 1999 $14.50 $13.25 2nd Quarter 1999 $14.00 $12.75 1st Quarter 1999 $13.50 $11.75 4th Quarter 1998* $15.00 $13.00 3rd Quarter 1998 $30.50 $26.00 2nd Quarter 1998 $29.38 $27.63 1st Quarter 1998 $30.00 $27.68 |
* On September 30, 1998, the Board of Directors authorized a two-for-one stock split of the Bank's common stock in which each share of the Bank's stock was converted into two shares.
As of February 29, 2000, there were approximately 868 holders of record of the Bank's common stock, no par value, which is the only class of equity securities authorized or issued.
In the last two years the Bank has declared the following stock dividends:
Shareholder Dividend Date Record Date Percentage Payable ----------- ---------- ------- February 26, 1999 5% March 31, 1999 February 27, 1998 5% March 31, 1998 |
The Bank has not paid a cash dividend in the past five years and does not expect to pay a cash dividend in the foreseeable future.
There are regulatory limitations on cash dividends that may be paid by the Bank under state and federal laws. See "Supervision and Regulation - Restrictions on Dividends and Other Distributions."
ITEM 6 - SELECTED FINANCIAL DATA
The selected consolidated financial data below have been derived from the Bank's audited financial statements. The selected consolidated financial data set forth below as of December 31, 1996, and 1995 have been derived from the Bank's historical financial statements not included in this Report. The financial information for 1999, 1998 and 1997 should be read in conjunction "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is in Part I (Item 7) of this Report and with the Bank's audited financial statements and the notes thereto, which are included in Part II (Item 8) of this Report.
Summary of Operations for the year ended December 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Interest Income
and Loan Fees $ 25,916,802 $ 24,308,654 $ 22,021,809 $ 20,797,132 $ 21,396,091
Interest Expense (7,835,726) (8,497,727) (8,100,283) (7,431,902) (6,914,349)
--------------- --------------- --------------- ---------------- ---------------
Net Interest Income 18,081,076 15,810,927 13,921,526 13,365,230 14,481,742
Recovery of (Provision for)
Loan Losses 800,000 (760,000) (2,115,500) (8,331,900) (2,820,700)
--------------- --------------- --------------- ---------------- ---------------
Net Interest Income after
Recovery of (Provision for)
Loan Losses 18,881,076 15,050,927 11,806,026 5,033,330 11,661,042
Other Operating Income 1,963,997 1,971,965 1,718,789 1,759,424 1,339,779
Other Operating Expense (14,640,645) (12,797,185) (11,369,002) (12,233,188) (10,658,175)
--------------- --------------- --------------- ---------------- ---------------
Earnings (Loss) before Taxes 6,204,428 4,225,707 2,155,813 (5,440,434) 2,342,646
(Provision) Benefit for Taxes (2,121,443) (1,224,864) (426,144) 2,703,100 (467,421)
--------------- --------------- --------------- ---------------- ---------------
Net Earnings (Loss) $ 4,082,985 $ 3,000,843 $ 1,729,669 $ (2,737,334) $ 1,875,225
=============== =============== =============== ================ ===============
Basic Earnings
(Loss) Per Share * $1.25 $0.92 $0.53 ($0.84) $0.57
=============== =============== =============== ================ ===============
Diluted Earnings
(Loss) Per Share * $1.24 $0.91 $0.53 ($0.84) $0.57
=============== =============== =============== ================ ===============
Total Assets $ 370,990,606 $ 343,308,775 $ 305,935,629 $ 264,620,686 $ 258,154,994
=============== =============== =============== ================ ===============
Weighted Average Shares of Common
Stock outstanding Used for Basic
Earnings Per Share Computation 3,276,362 3,276,230 3,267,942 3,267,942 3,267,942
=============== =============== =============== ================ ===============
Weighted Average Shares of Common
Stock outstanding Used for
Diluted Earnings Per Share
Computation 3,289,199 3,284,258 3,272,006 3,267,942 3,267,942
=============== =============== =============== ================ ===============
Return on Average Total Assets 1.16% 0.96% 0.62% (1.05%) 0.76%
Net Earnings/Average Equity 12.83% 10.49% 6.70% (9.71%) 6.96%
Net Earnings/Average Deposits 1.29% 1.06% 0.69% (1.19%) 0.85%
Average Loans/Average 51.04% 49.12% 55.98% 66.85% 68.60%
Average Equity to Average
Total Assets 9.08% 9.18% 9.18% 10.78% 10.87%
-----------------------------------------------------------------------------------------------------------------------------------
-131-
* Earnings per share have been restated as required by the Bank's adoption of SFAS No. 128, Earnings Per Share, which replaces
APB Opinion 15, Earnings Per Share.
|
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the "safe harbor" created by those sections. Forward-looking statements include the information concerning possible or assumed future results of operations of the Bank set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," estimate," "consider," or similar expressions are used. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include, but are not limited to, the risks discussed under "Risk Factors That May Affect Results" on pages 10 through 15 herein other risk factors discussed elsewhere in this Report.
The following statistical information and discussion should be read in conjunction with the Selected Financial Data included in Part I (Item 6) and the audited financial statements and accompanying notes included in Part II (Item 8) of this Annual Report on Form 10-K.
The following table summarizes the distribution, by amount (in thousands of dollars) and percentage, of the daily average assets, liabilities, and shareholders' equity of the Bank for 1999, 1998 and 1997. Average balances have been computed using daily balances. Tax exempt income is not shown on a tax equivalent basis.
1999 1998 1997
---------------------------- ---------------------------- ---------------------------
Average Average Average
Balance Percent Balance Percent Balance Percent
----------- ------------- ------------ ------------ ------------ ------------
ASSETS
------
Cash and Due From Banks $ 18,115 5.17% $ 16,514 5.30% $ 14,011 4.99%
Investment Securities:
U.S. Government Securities 32,904 9.38% 33,389 10.71% 27,829 9.91%
Obligations of States &
Political
Subdivisions 66,096 18.84% 61,351 19.68% 45,458 16.18%
Other Securities 27,179 7.75% 18,851 6.05% 6,773 2.41%
Federal Funds Sold 30,198 8.61% 30,719 9.85% 29,033 10.34%
Loans 1 161,246 45.97% 139,467 44.73% 141,036 50.21%
Other Assets 15,000 4.28% 11,522 3.70% 16,736 5.96%
----------- ------------- ------------ ------------ ------------ --------------
Total Assets $ 350,738 100.00% $ 311,813 100.00% $ 280,876 100.00%
=========== ============= ============ ============ ============ ==============
LIABILITIES &
-------------
SHAREHOLDERS' EQUITY
--------------------
Deposits:
Demand $ 77,663 22.14% $ 64,957 20.83% $ 52,920 18.84%
Interest-Bearing Transaction
Deposits 35,620 10.16% 31,259 10.03% 24,133 8.59%
Savings & MMDAs 93,058 26.53% 78,816 25.28% 72,592 25.85%
Time Certificates 109,581 31.24% 108,873 34.92% 102,315 36.43%
Borrowed Funds 1,020 0.29% 1,006 0.32% 1,139 0.41%
Other Liabilities 1,962 0.56% (1,712) -0.55% 1,979 0.71%
Shareholders' Equity 31,834 9.08% 28,614 9.18% 25,798 9.19%
----------- ------------- ------------ ------------ ------------ --------------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $ 350,738 100.00% $ 311,813 100.00% $ 280,876 100.00%
=========== ============= ============ ============ ============ =============
------------------------------------------------------------------------------------------------------------------------------------
1. Average Balances for Loans include nonaccrual loans and are net of the
allowance for loan losses.
|
1999 1998 1997
------------------------------- ---------------------------- -----------------------------
Yields Yields Yields
Interest Earned/ Interest Earned/ Interest Earned/
Average Income/ Rates Average Income/ Rates Average Income/ Rates
Assets Balance Expense Paid Balance Expense Paid Balance Expense Paid
------
--------- ---------- ------ --------- ------- ------- --------- -------- ------
Securities:
U.S. Government $ 32,904 $ 1,942 5.90% $ 33,389 $ 1,993 5.97% $ 27,829 $ 1,746 6.27%
Obligations of
States and
Political
Subdivisions(1) 66,096 4,128 6.25% 61,351 3,915 6.38% 45,458 3,014 6.63%
Other Securities 27,179 1,630 6.00% 18,851 1,133 6.01% 6,773 428 6.32%
--------- ---------- ------ --------- ------- ------- --------- -------- ------
Total Investment 126,179 7,700 6.10% 113,591 7,041 6.20% 80,060 5,188 6.48%
Securities
Federal Funds Sold 30,198 1,498 4.96% 30,719 1,636 5.33% 29,033 1,570 5.41%
Loans(2) 161,246 14,787 9.17% 139,467 13,518 9.69% 141,036 13,845 9.82%
Loan Fees - 1,932 1.20% - 2,114 1.52% - 1,419 1.01%
--------- ---------- ------ --------- ------- ------- --------- -------- ------
Total Loans, Including
Loan Fees 161,246 16,719 10.37% 139,467 15,632 11.21% 141,036 15,264 10.82%
--------- ---------- ------ --------- ------- ------- --------- -------- ------
Total Earning Assets 317,623 $ 25,917 8.16% 283,777 $ 24,309 8.57% 250,129 $ 22,022 8.80%
========== ====== ======= ======= ======== ======
Cash and Due
from Banks 18,115 16,514 14,011
Premises and
Equipment 6,215 6,481 6,361
Interest Receivable
and Other Assets 8,785 5,041 10,375
--------- --------- ---------
Total Assets $ 350,738 $ 311,813 $ 280,876
========= ========= =========
------------------------------------------------------------------------------------------------------------------------------------
(1) Interest income and yields on tax exempt securities are not presented on a
tax equivalent basis.
(2) Average Balances for Loans include nonaccrual loans and are net of the
allowance for loan losses, but nonaccrued interest thereon is excluded.
|
1999 1998 1997
----------------------------- ---------------------------- ----------------------------
Yields Yields Yields
Interest Earned/ Interest Earned/ Interest Earned/
Liabilities and Average Income/ Rates Average Income/ Rates Average Income/ Rates
Shareholders' Equity Balance Expense Paid Balance Expense Paid Balance Expense Paid
-------------------- ------- ------- ----- ------- ------- ----- ------- ------- ----
Interest-Bearing Deposits:
Interest-Bearing
Transaction $ 35,620 $ 526 1.48% $ 31,259 $ 597 1.91% $ 24,133 $ 486 2.01%
Deposits
Savings & MMDAs 93,058 2,347 2.52% 78,816 2,236 2.84% 72,592 2,064 2.84%
Time Certificates 109,581 4,915 4.49% 108,873 5,604 5.15% 102,315 5,500 5.38%
--------- ------- ------- --------- -------- ------ --------- ------- -------
Total Interest-Bearing
Deposits 238,259 7,788 3.27% 218,948 8,437 3.85% 199,040 8,050 4.04%
Borrowed Funds 1,020 48 4.71% 1,006 61 6.06% 1,139 50 4.39%
--------- ------- ------- --------- -------- ------ --------- ------- -------
Total Interest-Bearing
Deposits and Funds 239,279 7,836 3.27% 219,954 8,498 3.86% 200,179 8,100 4.05%
Demand Deposits 77,663 - - 64,957 - - 52,920 - -
--------- ------- ------- --------- -------- ------ --------- ------- -------
Total Deposits and
Borrowed Funds 316,942 $ 7,836 2.47% 284,911 $ 8,498 2.98% 253,099 $ 8,100 3.20%
--------- ======= ======= --------- ======== ====== --------- ======= =======
Accrued Interest and
Other Liabilities 1,962 (1,712) 1,979
Shareholders' Equity 31,834 28,614 25,798
--------- --------- ---------
Total Liabilities and
Shareholders' Equity $ 350,738 $ 311,813 $ 280,876
========= ========= =========
Net Interest Income and
Net Interest Margin(1) $ 18,081 5.69% $ 15,811 5.57% $ 13,922 5.57%
======= ======== =======
Net Interest Spread(2) 4.89% 4.71% 4.75%
-------------------------------------------------------------------------------------------------------------------------------
(1) Net interest margin is computed by dividing net interest income by total
average interest-earning assets.
(2) Net interest spread represents the average yield earned on interest-earning
assets less the average rate paid on interest-bearing liabilities.
|
Following is an analysis of changes in interest income and expense (in thousands of dollars) for 1999 over 1998 and 1998 over 1997. Changes not solely due to rate or volume have been allocated proportionately to rate and volume.
1999 Over 1998 1998 Over 1997
-------------------------------------- -------------------------------------
Volume Rate Change Volume Rate Change
Increase (Decrease) in
Interest Income:
Loans & Banker's
Acceptances $ 1,933 $ (664) $ 1,269 $ (149) $ (178) $ (327)
Investment Securities 772 (113) 659 2,066 (213) 1,853
Federal Funds Sold (27) (111) (138) 88 (22) 66
Loan Fees (182) - (182) 695 - 695
---------- --------- ---------- ---------- --------- ---------
$ 2,496 $ (888) $ 1,608 $ 2,700 $ (413) $ 2,287
========== ========= ========== ========== ========= =========
Increase (Decrease) in
Interest Expense:
Deposits:
Interest-Bearing
Transaction Deposits $ 116 $ (187) $ (71) $ 133 $ (22) $ 111
Savings & MMDAs 295 (184) 111 172 - 172
Time Certificates 36 (725) (689) 311 (207) 104
Borrowed Funds 1 (14) (13) (5) 16 11
---------- --------- ---------- ---------- --------- ---------
$ 448 $ (1,110) $ (662) $ 611 $ (213) $ 398
========== ========= ========== ========== ========= =========
Increase (Decrease) in
Net Interest Income: $ 2,048 $ 222 $ 2,270 $ 2,089 $ (200) $ 1,889
========== ========= ========== ========== ========= =========
|
The mix of investment securities at December 31, for the previous three fiscal years is as follows (amounts in thousands of dollars):
1999 1998 1997
--------------- -------------- ---------------
Investment securities available for sale:
U.S. Treasury Securities $ 14,986 28,646 26,614
Securities of U.S. Government
Agencies and Corporations 20,867 8,254 4,844
Obligations of State &
Political Subdivisions 65,950 66,945 -
Mortgage Backed Securities 9,995 9,707 1,032
Other Bonds, Notes and
Debentures 23,654 13,997 8,663
Investment securities held to maturity:
Obligations of State &
Political Subdivisions - - 60,141
--------------- -------------- ---------------
Total Investments $ 135,452 127,549 101,294
=============== ============== ===============
|
Maturities of Investment Securities
The following table is a summary of the relative maturities (in thousands of dollars) and yields of the Bank's investment securities as of December 31, 1999. The yields on tax exempt securities are not shown on a tax equivalent basis.
After One But After Five But
Within One Year Within Five Years Within Ten Years
--------------------------- ----------------------------- -----------------------
Security Amount Yield Amount Yield Amount Yield
-------- ------ ----- ------ ----- ------ -----
U.S. Treasury Securities $ 6,510 5.89% $ 8,476 6.06% $ - -
Securities of U.S. Government
Agencies and Corporations 995 5.64% 15,029 5.94% 4,843 5.92%
Obligations of State &
Political Subdivisions 4,810 7.00% 21,512 6.85% 26,362 6.05%
Mortgage Backed Securities 2,205 5.27% 3,312 6.58% 2,056 6.85%
Other Bonds, Notes and
Debentures 2,000 6.60% 16,348 6.37% 3,129 7.20%
-------------- ---------- --------------- ---------- ------------ --------
TOTAL $ 16,520 6.20% $ 64,677 6.40% $ 36,390 6.18%
============== ========== =============== ========== ============ ========
After Ten Years Total
--------------------------- -----------------------------
Security Amount Yield Amount Yield
-------- ------ ----- ------ -----
U.S. Treasury Securities $ - - $ 14,986 5.99%
Securities of U.S. Government
Agencies and Corporations - - 20,867 5.92%
Obligations of State &
Political Subdivisions 13,266 5.90% 65,950 6.35%
Mortgage Backed Securities 2,422 6.37% 9,995 6.30%
-138-
Other Bonds, Notes and
Debentures 2,177 6.68% 23,654 6.53%
-------------- ---------- --------------- ----------
TOTAL $ 17,865 6.06% $ 135,452 6.27%
============== ========== =============== ==========
|
The Bank holds no investment securities of a single issuer which had an aggregate book value which exceeded ten percent of stockholder's equity at December 31, 1999.
The mix of loans, net of deferred origination fees and allowance for loan losses at December 31, for the previous five fiscal years is as follows (amount in thousands of dollars) includes loans held for sale:
December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- ------------------------------- -----------------------------
Balance Percent Balance Percent Balance Percent
-------------- -------------- ------------- -------------- ------------- -------------
Commercial $ 57,799 35.5% $ 42,659 28.1% $ 43,885 34.5%
Agricultural 21,951 13.5% 21,709 14.3% 21,612 17.0%
Real Estate Mortgage 42,796 26.3% 41,458 27.3% 24,450 19.3%
Real Estate Construction 34,235 21.0% 40,059 26.4% 30,628 24.1%
Personal 6,150 3.7% 5,774 3.9% 6,429 5.1%
-------------- -------------- ------------- -------------- ------------- -------------
TOTAL $ 162,931 100.0% $ 151,659 100.0% $ 127,004 100.0%
============== ============== ============= ============== ============= =============
|
1996 1995
-------------------------------- -------------------------------
Balance Percent Balance Percent
-------------- -------------- ------------- --------------
Commercial $ 68,249 47.1% $ 70,825 47.9%
Agricultural 24,453 16.9% 27,599 18.7%
Real Estate Mortgage 22,638 15.7% 16,900 11.4%
Real Estate Construction 22,979 15.9% 25,890 17.5%
Personal 6,311 4.4% 6,726 4.5%
-------------- -------------- ------------- --------------
TOTAL $ 144,630 100.0% $ 147,940 100.0%
============== ============== ============= ==============
|
Commercial loans are primarily for financing the needs of a diverse group of businesses located in the Bank's market area. The Bank also makes loans to individuals for investment purposes. Most of these loans are substantially short-term and secured by various types of collateral. Real estate construction loans are generally for financing the construction of single family residential homes for well-qualified individuals and builders. These loans are secured by real estate and have short maturities.
As shown in the comparative figures for loan mix during 1999, the amount of commercial loans and real estate mortgage loans has increased and the amount of real estate construction loans has decreased. Total loans increased in 1998 compared to 1997 as a result of increases in real estate mortgage and real estate construction loans, which were partially offset by decreases in commercial and personal loans.
Loan maturities of the loan portfolio at December 31, 1999 are as follows
(amounts in thousands of dollars):
Fixed Variable
Maturing Rate Rate Total
---------------------------------------- ---------------- ---------------- ----------------
Within one year $ 6,154 $ 88,740 $ 94,894
After one year through five years 13,400 15,121 28,521
After five years 48,128 - 48,128
---------------- ---------------- ----------------
Total $ 67,682 $ 103,861 $ 171,543
================ ================ ================
-140-
|
It is the Bank's policy to recognize interest income on an accrual basis. Accrual of interest is suspended when a loan has been in default as to principal or interest for 90 days, unless well secured by collateral believed by management to have a fair market value that at least equals the book value of the loan plus accrued interest receivable and in the process of collection. Real estate acquired through foreclosure is written down to its estimated fair market value at the time of acquisition and is carried as a nonearning asset until sold. Any write-down at the time of acquisition is charged against the allowance for loan losses; subsequent write-downs or gains or losses upon disposition are credited or charged to noninterest income/expense. The Bank has made no foreign loans.
The following table shows the aggregate amounts of assets (in thousands of dollars) in each category at December 31, for the years indicated:
1999 1998 1997 1996 1995
-------------- -------------- ------------- ------------- --------------
Nonaccrual Loans $ 528 $ 1,702 $ 2,064 $ 5,085 $ 7,004
90 Days Past Due But Still Accruing 2 330 983 535 42
-------------- -------------- ------------- ------------- --------------
Total Nonperforming Loans 530 2,032 3,047 5,620 7,046
Other Real Estate Owned, Net - 906 1,821 1,698 5,318
-------------- -------------- ------------- ------------- --------------
Total Nonperforming Assets $ 530 $ 2,938 $ 4,868 $ 7,318 $ 12,364
============== ============== ============= ============= ==============
Performing Restructured Loans $ - $ - $ - $ 1,257 $ 1,819
============== ============== ============= ============= ==============
|
If interest on nonaccrual loans had been accrued, such income would have approximated $32,000, $133,000, and $199,000 during the years ended December 31, 1999, 1998 and 1997, respectively. Income actually recognized for these loans approximated $50,000, $64,000 and $115,000 for the years ended December 31,1999, 1998 and 1997, respectively.
There was a $2,408,000 decrease in nonperforming assets for 1999 over 1998. At December 31, 1999, nonperforming assets included four nonaccrual agricultural loans totaling $451,000 and one nonaccrual commercial loan totaling $77,000. Additional nonperforming assets included one loan past due more than 90 days totaling $2,000. There were no Other Real Estate Owned ("OREO") properties at December 31, 1999.
In addition to the nonperforming assets described above, the Bank's Branch Managers each month submit to the Loan Committee of the Board of Directors a report detailing the status of classified loans and those loans that are past due over sixty days. Also included in the report are those loans that are not necessarily past due, but the branch manager is aware of problems with these loans which may result in a loss.
In addition, the Monthly Allowance for Loan Loss Analysis Report is prepared based on Problem Loan/Possible Loss Reports, internal loan grading, regulatory classifications and loan review classifications and is reviewed by the Management Loan Committee of the Bank. The report, dated December 31, 1999, was reviewed by the Management Loan Committee of the Bank on February 1, 2000. This report included any nonperforming loan reported in the table on the previous page, if that loan continued to be considered a problem loan or had some potential for loss. A total of twenty-seven loans with an aggregate balance of $5,059,000 was reported. Ten of the twenty-seven loans with an aggregate balance of $690,000 were deemed by management to be fully collectable. Seventeen of the loans totaling $4,369,000 may have some loss potential which management believes is sufficiently covered by the Bank's existing loan loss reserve (Allowance for Loan Losses). The ratio of the Allowance for Loan Losses to total loans at December 31, 1999 was 4.56%.
The Allowance for Loan Losses is maintained at a level believed by management to be adequate to provide for losses that can be reasonably anticipated. The allowance is increased by provisions charged to operating expense and reduced by net charge-offs. The Bank makes credit reviews of the loan portfolio and considers current economic conditions, loan loss experience, and other factors in determining the adequacy of the reserve balance. The allowance for loan losses is based on estimates and actual losses may vary from current estimates.
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -------------
Balance at Beginning of Period $ 8,144 $ 7,356 $ 8,403 $ 4,308 $ 2,553
(Recovery of) Provision for Loan Losses (800) 760 2,116 8,332 2,821
Loans Charged-Off:
Commercial (106) (635) (2,634) (844) (1,496)
Real Estate Mortgage (40) (47) (968) (3,634) (6)
Real Estate Construction - - - - -
Installment Loans to Individuals (11) (100) (24) (38) (74)
----------- ----------- ----------- ----------- -------------
Total Charged-Off (157) (782) (3,626) (4,516) (1,576)
----------- ----------- ----------- ----------- -------------
Recoveries:
Commercial 171 786 127 263 500
Real Estate Mortgage 438 6 330 7 -
Real Estate Construction - - - - -
Installment Loans to Individuals 29 18 6 9 10
----------- ----------- ----------- ----------- -------------
Total Recoveries 638 810 463 279 510
----------- ----------- ----------- ----------- -------------
Net Recoveries (Charge-Offs) 481 28 (3,163) (4,237) (1,066)
Balance at End of Period $ 7,825 $ 8,144 $ 7,356 $ 8,403 $ 4,308
=========== =========== =========== =========== =============
Ratio of Net Recoveries (Charge-Offs)
During the period to Average Loans
Outstanding During the Period 0.30% 0.02% (2.24%) (2.75%) (0.71%)
=========== =========== =========== =========== =============
|
The Allowance for Loan Losses (the "Reserve") has been established as a general reserve available to absorb possible future losses throughout the Loan Portfolio. The following table is an allocation of the Reserve balance on the dates indicated (amounts in thousands of dollars):
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
Allocation of Loans as a % Allocation of Loans as a % Allocation of Loans as a %
Reserve Balance of Total Loans Reserve Balance of Total Loans Reserve Balance of Total Loans
------------------------------- ---------------- --------------- ---------------- ------------
Loan Type:
Commercial $ 3,233 48.95% $ 3,697 42.45% $ 3,418 51.56%
Real Estate Mortgage 3,272 26.27% 3,083 27.33% 2,695 19.25%
Real Estate Construction - 21.01% - 26.41% - 24.12%
Installment 146 3.69% 142 3.61% 140 4.79%
Other Loans - 0.08% - 0.20% - 0.28%
Unallocated 1,174 - 1,222 - 1,103 -
-------- ----------- --------- ---------- -------- ----------
Total $ 7,825 100.00% $ 8,144 100.00% $ 7,356 100.00%
======== =========== ========= ========== ======== ==========
|
December 31, 1996 December 31, 1995
----------------- -----------------
Allocation of Loans as a % Allocation of Loans as a %
Reserve Balance of Total Loans Reserve Balance of Total Loans
------------------------------ ---------------- --------------
Loan Type:
Commercial $ 3,356 64.10% $ 3,262 66.53%
Real Estate Mortgage 3,474 15.65% 56 11.42%
Real Estate Construction - 15.89% 4 17.50%
Installment 313 4.23% 340 4.39%
Other Loans - 0.13% - 0.16%
Unallocated 1,260 - 646 -
-------- ----------- --------- ---------
Total $ 8,403 100.00% $ 4,308 100.00%
======== =========== ========= =========
|
The Bank believes that any breakdown or allocation of the Reserve into loan categories lends an appearance of exactness which does not exist, because the Reserve is available for all loans. The Reserve breakdown shown above is computed taking actual experience into consideration but should not be interpreted as an indication of the specific amount of actual charge-offs that may ultimately occur.
The following table sets forth the average amount and the average rate paid on each of the listed deposit categories (amounts in thousands of dollars):
1999 1998 1997
------------------------- ------------------------- --------------------------
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate
------------ ----------- ----------- ---------- ----------- -----------
Deposit Type:
Noninterest-Bearing Demand $ 77,663 - $ 64,957 - $ 52,290 -
Interest-Bearing Demand (NOW) $ 35,620 1.48% $ 31,259 1.91% $ 24,133 2.01%
Savings and MMDAs $ 93,058 2.52% $ 78,816 2.84% $ 75,592 2.84%
Time $ 109,581 4.49% $ 108,873 5.15% $ 102,315 5.38%
|
The following table sets forth by time remaining to maturity the Bank's time deposits in the amount of $100,000 or more (in thousands of dollars) as of December 31, 1999:
1999
-----------
Three months or less $ 21,663
Over three months through twelve months 19,872
Over twelve months 1,691
-----------
Total $ 43,226
===========
|
The following table shows key financial ratios for the years indicated:
1999 1998 1997 1996 1995
---------- ---------- ---------- ----------- -----------
Return on Average Total Assets 1.16% 0.96% 0.62% (1.05%) 0.76%
Return on Average Shareholders' Equity 12.83% 10.49% 6.70% (9.71%) 6.96%
Dividend Payout Ratio - - - - -
Average Equity to Average Total Assets 9.08% 9.18% 9.18% 10.78% 10.87%
---------------------------------------------------------------------------------------------------------------------------------
1. No Cash Dividends Paid
|
The Bank had no short-term borrowings at December 31, 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net income for the year ended December 31, 1999, was $4,083,000, representing an increase of $1,082,000, or 36% over net income of $3,001,000 for the year ended December 31, 1998. The increase in net income is principally attributable to a $2,270,100 increase in net interest income and a $1,560,000 decrease in the provision for loan losses, which increases were partially offset by a $896,000 increase in salaries and employee benefits expenses, a $340,000 increase in occupancy and equipment expenses and a $666,000 increase in other expense.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net income for the year ended December 31, 1998, was $3,001,000, representing an increase of $1,271,000, or 57% over net income of $1,730,000 for the year ended December 31, 1997. The increase in net income is principally attributable to a $1,889,000 increase in net interest income and a $1,356,000 decrease in the provision for loan losses, which increases were partially offset by a $1,431,000 increase in salaries and employee benefits expenses and a $178,000 increase in occupancy and equipment expenses.
Net interest income is the excess of interest and fees earned on the Bank's loans, investment securities, federal funds sold and banker's acceptances over the interest expense paid on deposits, mortgage notes and other borrowed funds. It is primarily affected by the yields on the Bank's interest-earning assets and loan fees and interest-bearing liabilities outstanding during the period. The $2,270,000 increase in the Bank's net interest income in 1999 from 1998, and the $1,889,000 increase in 1998 from 1997 were due to the combined effects of rates, volume and mix of loans and deposits. The "Analysis of Changes in Interest Income and Interest Expense" set forth on Page 24 of this Annual Report on Form 10-K identifies the effects of rate and volume. Another significant factor that contributed to the increase in net interest income was the earning asset to total asset ratio. This ratio was 90.6% in 1999, 91.0% in 1998 and 89.1% in 1997.
Interest income on loans (including loan fees) was $16,719,000 for 1999, representing an increase of approximately $1,087,000, or 7.0% from $15,632,000 for 1998. This compared to an increase in 1998 of approximately $368,000 or 2.4% more than loan interest income earned in 1997. The increased interest income on loans in 1999 over 1998 was the result of a decrease of approximately $182,000 in loan fees, which was partially offset by a 15.62% increase in loan volume and a .52% decrease in loan interest rates. As noted, loan fee comparisons were impacted by a net increase in deferred loan fees of $37,000 in 1998 and a net increase in deferred loan fees of $204,000 in 1999.
Average outstanding federal funds sold fluctuated slightly during this period, ranging from $29,033,000 in 1997 to $30,719,000 in 1998 and $30,198,000 in 1999 (at year end 1999 federal funds sold were $37,300,000). Federal funds are used primarily as a short term investment to provide liquidity for funding of loan commitments or to accommodate seasonal deposit fluctuations. Interest rates on federal funds sold in 1999 generally provided lower yields, compared to investment securities rates, than in 1998. This rate spread between federal funds and investment securities went from (1.07%) in 1997 to (0.87%) in 1998 and to (1.14%) in 1999.
The average total level of investment securities increased $12,588,000 from 1998 to 1999 with increases in all categories. The level of securities interest income attributable to investment securities increased from $7,041,000 for 1998 to $7,700,000 for 1999, primarily because of the larger volume of investments. The Bank's strategy for this period has emphasized the use of the investment portfolio to maintain the Bank's overall level of income in an expected environment of stable to increasing loan demand. The Bank continues to reinvest maturing securities to provide future liquidity and to attempt to maximize the rate of return considering the current yield curve.
The average total level of investment securities increased $33,531,000 from 1997 to 1998, with increases in all categories. The level of securities interest income attributable to investment securities increased from $5,188,000 for 1997 to $7,041,000 for 1998, primarily because of the larger volume of investments.
Total interest expense decreased from $8,498,000 in 1998 to $7,836,000 in 1999, and increased to $8,498,000 in 1998 from $8,100,000 in 1997, representing a 7.8% decrease in 1999 over 1998 and a 5.0% increase in 1998 over 1997. The decrease in total interest expense from 1998 to 1999 is primarily due to a decrease in interest rates in 1999, which was partially offset by an increase in deposits. The increase in total interest expense from 1997 to 1998 was primarily due to an increase in deposits in 1998, which was partially offset by a decrease in interest rates paid on deposits. Changes in interest expense resulted primarily from changes in rates and volume of total deposits, and changes in the mix of deposits. The mix of deposits for the previous three years is as follows (amounts are in thousands of dollars):
1999 1998 1997
------------------------- --------------------------- --------------------------
Average Average Average
Balance Percent Balance Percent Balance Percent
----------- ---------- ----------- ---------- ----------- ---------
Noninterest-Bearing Demand $ 77,663 24.5% $ 64,957 22.9% $ 52,920 21.0%
Interest-Bearing Demand (NOW) 35,620 11.3% 31,259 11.0% 24,133 9.6%
Savings and MMDAs 93,058 29.5% 78,816 27.8% 72,592 28.8%
Time 109,581 34.7% 108,873 38.3% 102,315 40.6%
----------- ---------- ----------- ---------- ----------- ---------
Total $ 315,922 100.0% $ 283,905 100.0% $ 251,960 100.0%
=========== ========== =========== ========== =========== =========
===================================================================================================================================
|
The period from 1997 to 1999 has been characterized by fluctuating interest rates. Loan rates and deposit rates both increased in 1997, while loan rates and deposit rates both decreased in 1998 and 1999. The net spread between the rate for total earning assets and the rate for total deposits and borrowed funds decreased 4 basis points in the period from 1997 to 1998 and increased 18 basis points in the period from 1998 to 1999.
The Bank's net interest margin (net interest income divided by average earning assets) was 5.69% in 1999, 5.57% in 1998 and 5.57% in 1997.
The provision for loan losses is established by charges to earnings based on management's overall evaluation of the collectibility of the loan portfolio. Based on this evaluation the provision for loan losses was adjusted in 1999. The provision for loan losses decreased from $760,000 in 1998 to ($800,000) in 1999, primarily as a result of an adjustment made because of improved market conditions and loan quality in the Bank's loan portfolio. The amount of loans charged-off decreased in 1999 to $157,000 from $782,000 in 1998 and recoveries decreased to $638,000 in 1999 from $810,000 in 1998. The ratio of the allowance for loan losses to total loans at December 31, 1999 was 4.56%. The ratio of the allowance for loan losses to total nonaccrual loans and loans past due 90 days or more at December 31, 1999 was 1,476.4% compared to 400.8% at December 31, 1998.
The provision for loan losses decreased from $2,115,000 in 1997 to $760,000 in 1998, primarily as a result of decreased problem assets. The amount of loans charged-off decreased in 1998 to $782,000 from $3,626,000 in 1997, and recoveries increased to $810,000 in 1998 from $463,000 in 1997. The ratio of the allowance for loan losses to total loans at December 31, 1998 was 5.08%. The ratio of the allowance for loan losses to total nonaccrual loans and loans past due 90 days or more at December 31, 1998 was 400.8% compared to 241.4% at December 31, 1997.
Other income consisted primarily of service charges on deposit accounts. Service charges on deposit accounts increased $59,000 in 1999 over 1998, and decreased $96,000 in 1998 over 1997. The decrease in 1998 was due, for the most part, to decreased nonsufficient funds and overdraft fees.
The Bank sold investment securities at gains of $62,000 in 1999, $49,000 in 1998, and $13,000 in 1997.
Other operating expenses consist of salaries and employee benefits, occupancy and equipment expense and other operating expenses. Other operating expenses increased from $12,797,000 in 1998 to $14,641,000 in 1999, and increased from $11,369,000 in 1997 to $12,797,000 in 1998, representing an increase of $1,844,000, or 14.4% in 1999 over 1998, and an increase of $1,428,000, or 12.6% in 1998 over 1997. As detailed below, the increases in other operating expenses from 1998 to 1999 was primarily attributable to a combination of increases in salaries and employee benefits; occupancy and equipment; and other miscellaneous expenses. The increase in other operating expenses from 1997 to 1998 was primarily the result of the opening of the Woodland Branch and the SBA Department.
Following is an analysis of the increase or decrease in the components of other operating expenses (amounts are in thousands of dollars):
1999 over 1998 1998 over 1997
------------------------------- ---------------------------------
Amount Percent Amount Percent
---------- ----------- ---------- -----------
Salaries and Employee Benefits $ 896 11.7% $ 1,431 23.0%
Occupancy and Equipment 341 17.1% 178 9.8%
Data Processing 88 25.1% 51 17.1%
Stationery and Supplies 29 8.9% 12 3.8%
Advertising (90) (24.5%) 73 24.7%
Directors Fees (7) (5.9%) (13) (9.8%)
Other Real Estate Owned (78) (100.0%) (113) (59.2%)
Other Expense 665 35.2% (191) (9.2%)
---------- ----------- ---------- -----------
Total 1,844 14.4% 1,428 12.6%
========== =========== ========== ===========
|
In 1999, salaries and employee benefits increased $896,000 to $8,562,000 from $7,666,000 for 1998. This increase was due, for the most part, to increases in number of employees, commissions paid for real estate loans and increases in profit sharing distributions and incentive compensation. Occupancy and equipment expense increased $341,000 to $2,341,000 in 1999 from $2,000,000 for 1998. This increase was due to charges to depreciation for obsolete computer hardware and software. The increases in other miscellaneous expenses were due to increased consulting fees, in-house training and a credit to miscellaneous expense, in 1998, to reverse items expensed in 1996 for litigation contingencies.
In 1998, salaries and employee benefits increased $1,431,000 to $7,666,000 from $6,235,000 for 1997. This increase was due, for the most part, to the opening of the Woodland Branch and the SBA department during the second half of 1997 and increased real estate mortgage referral fees, profit sharing distributions and incentive compensation. Occupancy and equipment expense increased $178,000 to $2,000,000 in 1998 from $1,822,000 for 1997. This increase was also due to the opening of the Woodland Branch and the SBA Department during the second half of 1997. Also, in 1998, other real estate owned (OREO) expense decreased $113,000 to $78,000 from $191,000 for in 1997. This decrease was due, for the most part, to decreases in OREO properties. OREO reserves totaled $-0- and $1,930,000 at December 31, 1998 and 1997, respectively. Other expenses decreased $203,000 to $1,779,000 in 1998, from $1,983,000 for 1997. This decrease was primarily due to a reduction in legal expenses.
The provision for income taxes is primarily affected by the tax rate, the level of earnings before taxes and the amount of tax shelter provided by nontaxable earnings. In 1999, taxes increased $896,000 to $2,121,000 from $1,225,000 for 1998. In 1998, taxes increased $799,000 to $1,225,000 from 426,000 for 1997. The effective tax rate was 34%, 29% and 20% for the years ended December 31, 1999, 1998 and 1997, respectively. Nontaxable municipal bond income was $1,447,000, $1,689,000 and $1,533,000 for the years ended December 31, 1999, 1998, and 1997, respectively.
The Bank needs to maintain appropriate liquidity and adequate capital. Liquidity is measured by various ratios, the most common of which is the ratio of loans to deposits. This ratio was 48.5% on December 31, 1999, 49.0% on December 31, 1998, and 46.0% on December 31, 1997.
As discussed in Part 1(Item 1) of this Annual Report of Form 10-K, the Bank does experience seasonal swings in deposits which impact liquidity. Management has adjusted to this seasonal swing by scheduling investment maturities and developing seasonal credit arrangements with the Federal Reserve Bank and Federal Fund lines of credit with correspondent banks. In addition, the ability of the Bank's real estate department to originate and sell loans into the secondary market has provided another tool for the management of liquidity.
The capital of the Bank historically has been maintained at a level that is in excess of regulatory guidelines. The policy of annual stock dividends has allowed the Bank to, over time, match capital and asset growth through retained earnings and a managed program of geographic growth.
The 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 Financial Institutions Examination Council. Management believes the Bank has completed all of the activities within their control to ensure that the Bank's systems are Year 2000 compliant.
The Bank's Year 2000 readiness costs were approximately $400,000. The Bank does not currently expect to apply any further funds to address Year 2000 issues.
The Bank has not experienced any material disruptions of internal computer systems for software applications due to the start of the Year 2000 nor has it experienced any problems with the computer systems or software applications of their third party vendors, suppliers or service providers. The Bank will continue to monitor these third parties to determine the impact, if any, on the business of the Bank and the actions either must take, if any, in the event of non-compliance by any of these third parties. Based on the Bank's assessment of compliance by third parties there does not appear to be any material business risk posed by any such non-compliance.
Although the Bank's Year 2000 rollover did not present any material business disruption, there are some remaining Year 2000 related risks. 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 customers, suppliers or service providers of the Bank will not have a material adverse impact on the Bank.
Financial Statements and Financial Statement Schedules Filed:
Independent Auditor's Report Page 35
Balance Sheets as of December 31, 1999 and Page 36
Statements of Operations for years ended December 31, 1999, 1998, and Page 37
Statements of Stockholders' Equity and Comprehensive Income for years ended
December 31, 1999, 1998, and 1997 Page 38
Statements of Cash Flows for years ended December 31, 1999, 1998, and 1997 Page 39
Notes to Financial Statements Page 40-60
|
Schedules not included:
Schedule I - Securities: See Investment Portfolio (page 25)
Schedule II - Loans to Officers, Directors, Principal Security Holders, and any
Associates of the Foregoing Persons: See Note 9 of Notes to Financial Statements (page
Schedule III - Loans: See Note 4 of Notes to Financial Statements (page 46).
Schedule IV - Bank Premises and Equipment: See Note 5 of Notes to Financial Statements (page 47)
Schedule V - Investments in, Income From Dividends, and Equity in Earnings or Losses of Subsidiaries and Associated Companies: Not Applicable
Schedule VI - Allowance for Possible Loan Losses: See Note 4 of Notes to Financial Statements (page 47).
LOGO
400 Capitol Mail Telephone 916 448 4700 Sacramento, CA 95814 Fax 916 554 1199
Independent Auditors' Report
The Board of Directors
First Northern Bank of Dixon:
We have audited the accompanying balance sheets of First Northern Bank of Dixon as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Northern Bank of Dixon as of December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles.
/s/ KPMG LLP
January 21, 2000
|
LOGO
FIRST NORTHERN BANK OF DIXON
Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
----------------------- ------------------------
Cash and due from banks $ 19,806,022 23,784,700
Federal funds sold 37,300,000 25,400,000
Investment securities - available for sale 135,451,683 127,549,279
Loans, net 152,273,772 122,637,549
Loans held for sale 10,656,803 29,020,827
Premises and equipment, net 6,031,711 6,373,621
Other assets 9,470,615 8,542,799
----------------------- ------------------------
Total assets $ 370,990,606 343,308,775
======================= ========================
Liabilities and Stockholders' Equity
Deposits:
Demand $ 86,123,941 77,214,242
Interest-bearing transaction deposits 36,284,409 36,393,544
Savings and MMDAs 102,517,387 85,786,486
Time, under $100,000 67,478,374 68,462,027
Time, $100,000 and over 43,225,823 41,446,791
----------------------- ------------------------
Total deposits 335,629,934 309,303,090
Accrued interest payable and other liabilities 3,287,969 2,222,023
----------------------- ------------------------
Total liabilities 338,917,903 311,525,113
----------------------- ------------------------
Stockholders' Equity:
Common stock, no par value; 8,000,000 shares authorized; 3,092,273 shares
issued and outstanding in 1999; 2,943,874 shares issued and outstanding
in 1998 23,322,001 21,260,388
Additional paid-in capital 976,850 976,850
Retained earnings 9,513,151 7,490,878
Accumulated other comprehensive (loss) income, net (1,739,299) 2,055,546
----------------------- ------------------------
Total stockholders' equity 32,072,703 31,783,662
----------------------- ------------------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 370,990,606 343,308,775
======================= ========================
|
See accompanying notes to financial statements.
FIRST NORTHERN BANK OF DIXON
Statements of Operations
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
----------------- ------------------ ------------------
Interest income:
Interest and fees on loans $ 16,719,346 15,631,647 15,264,220
Federal funds sold 1,497,961 1,635,539 1,570,062
Investment securities:
Taxable 6,252,576 5,352,643 3,654,975
Nontaxable 1,446,919 1,688,825 1,532,552
----------------- ------------------ ------------------
Total interest income 25,916,802 24,308,654 22,021,809
Interest expense:
Time deposits $100,000 and over 2,146,492 2,301,017 2,141,673
Other deposits 5,641,060 6,135,881 5,908,977
Other borrowings 48,174 60,829 49,633
----------------- ------------------ ------------------
Total interest expense 7,835,726 8,497,727 8,100,283
----------------- ------------------ ------------------
Net interest income 18,081,076 15,810,927 13,921,526
Provision for (recovery of) loan losses (800,000) 760,000 2,115,500
----------------- ------------------ ------------------
Net interest income after provision for
(recovery of) loan losses 18,881,076 15,050,927 11,806,026
Other operating income:
Service charges on deposit accounts 1,154,148 1,094,758 1,190,798
Net realized gains on held-to-maturity securities -- 73,355 13,300
Net realized gains (losses) on available-for-sale securities 61,533 (24,056) --
Other income 748,316 827,908 514,691
----------------- ------------------ ------------------
Total other operating income 1,963,997 1,971,965 1,718,789
----------------- ------------------ ------------------
Other operating expenses:
Salaries and employee benefits 8,561,921 7,666,086 6,234,743
Occupancy and equipment 2,340,653 2,000,316 1,821,941
Data processing 438,379 350,112 298,542
Stationery and supplies 355,907 326,573 314,577
Advertising 277,756 368,480 295,423
Directors fees 111,800 119,200 131,800
Other real estate owned -- 77,717 191,160
Other 2,554,229 1,888,701 2,080,816
----------------- ------------------ ------------------
Total other operating expenses 14,640,645 12,797,185 11,369,002
----------------- ------------------ ------------------
Income before income tax expense 6,204,428 4,225,707 2,155,813
Provision for income tax expense 2,121,443 1,224,864 426,144
----------------- ------------------ ------------------
Net income $ 4,082,985 3,000,843 1,729,669
================= ================== ==================
Basic income per share $ 1.25 0.92 0.53
================= ================== ==================
Diluted income per share $ 1.24 0.91 0.53
================= ================== ==================
|
See accompanying notes to financial statements.
FIRST NORTHERN BANK OF DIXON
Statements of Stockholders' Equity and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
Accumulated
Additional Other
Common Stock Comprehensive Paid-in Retained Comprehensive
Description Shares Amounts Income Capital Earnings (Loss)Income Total
----------- ----------- ----------- ------------ ----------- ----------- ----------------------
Balance at December 31, 1996 2,688,474 $ 17,848,671 976,850 6,079,140 68,252 24,972,913
Comprehensive income:
Net income $ 1,729,669 1,729,669 1,729,669
------------
Other comprehensive income:
Unrealized holding gains arising during the current
period, net of tax effect of $92,039 138,057
------------
Total other comprehensive income 138,057 138,057 138,057
------------
Comprehensive income $ 1,867,726
============
4% stock dividend 106,790 1,281,480 (1,281,480) --
Stock options exercised 1,200 14,700 14,700
Cash in lieu of fractional shares (8,987) (8,987)
--------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1997 2,796,464 19,144,851 976,850 6,518,342 206,309 26,846,352
Comprehensive income:
Net income $ 3,000,843 3,000,843 3,000,843
------------
Other comprehensive income:
Unrealized holding gains arising during the current
period, net of tax effect of $1,223,203 1,834,803
Reclassification adjustment due to losses realized,
net of tax effect of $9,622 14,434
------------
Total other comprehensive income, net
of tax effect of $1,232,825 1,849,237 1,849,237 1,849,237
------------
Comprehensive income $ 4,850,080
============
5% stock dividend 139,122 2,017,269 (2,017,269) --
Cash in lieu of fractional shares (11,038) (11,038)
Stock options exercised 1,200 14,700 14,700
Common shares issued 7,088 83,568 83,568
----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1998 2,943,874 21,260,388 976,850 7,490,878 2,055,546 31,783,662
Comprehensive income:
Net income $ 4,082,985 4,082,985 4,082,985
------------
Other comprehensive income:
Unrealized holding losses arising during the current
period, net of tax effect of $2,505,283 (3,757,925)
Reclassification adjustment due to gains realized,
net of tax effect of $24,613 (36,920)
------------
Total other comprehensive income, net
of tax effect of $2,529,896 (3,794,845) (3,794,845) (3,794,845)
------------
Comprehensive income $ 288,140
============
5% stock dividend 146,820 2,055,480 (2,055,480) --
Cash in lieu of fractional shares (5,232) (5,232)
Common shares issued 7,725 89,104 89,104
Stock repurchase and retirement (6,146) (82,971) (82,971)
----------- ----------- ----------- ----------- ----------- -----------
-153-
Balance at December 31, 1999 3,092,273 $ 23,322,001 976,850 9,513,151 (1,739,299) 32,072,703
=========== =========== =========== =========== =========== ==========
|
FIRST NORTHERN BANK OF DIXON
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------------ ------------------ ---------------
Cash flows from operating activities:
Net income $ 4,082,985 3,000,843 1,729,669
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for (recovery of) loan losses (800,000) 760,000 2,115,500
Depreciation 1,085,770 863,978 777,390
Accretion and amortization, net 291,654 317,987 48,231
Net realized gains on held-to-maturity securities -- (73,355) (13,300)
Net realized (gains) losses on available-for-sale securities (61,533) 24,056 --
Gain on sale of OREO (90,878) (180,594) --
Provision for deferred income taxes 601,306 436,897 521,033
Proceeds from sales of loans held for sale 54,550,621 45,519,795 30,409,688
Originations and purchases of loans held for sale (65,409,597) (65,453,411) (36,196,899)
Increase in deferred loan origination fees 204,054 36,623 11,652
(Increase) decrease in accrued interest
receivable and other assets 95,140 (423,372) 1,466,040
(Decrease) increase in accrued interest payable and other
liabilities 1,065,946 (1,037,392) 569,014
------------------ ------------------ ---------------
Net cash provided by operating activities (4,384,532) (16,207,945) 1,438,018
------------------ ------------------ ---------------
Cash flows from investing activities:
Proceeds from maturities of available for sale securities 19,289,989 13,587,080 11,580,000
Proceeds from sales of available for sale securities 7,103,751 -- --
Purchase of available for sale securities (40,851,006) (36,324,461) (24,272,805)
Proceeds from maturities of held-to-maturity securities -- 5,130,535 4,029,901
Purchase of held-to-maturity securities -- (5,834,931) (25,598,009)
Net (increase) decrease in loans 182,723 (6,711,726) 19,823,989
Purchases of bank premises and equipment, net (743,860) (912,261) (551,683)
Proceeds from sale of other real estate owned 996,512 2,290,536 1,339,021
------------------ ------------------ ---------------
Net cash used in investing activities (14,021,891) (28,775,228) (13,649,586)
------------------ ------------------ ---------------
Cash flows from financing activities:
Net increase in deposits 26,326,844 33,473,228 38,872,490
Cash dividends paid in lieu of fractional shares (5,232) (11,038) (8,987)
Common stock issued 89,104 98,268 14,700
Repurchase of common stock (82,971) -- --
------------------ ------------------ ---------------
Net cash provided by financing activities 26,327,745 33,560,458 38,878,203
------------------ ------------------ ---------------
Net change in cash and cash equivalents 7,921,322 (11,422,715) 26,666,635
Cash and cash equivalents at beginning of year 49,184,700 60,607,415 33,940,780
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 57,106,022 49,184,700 60,607,415
================== ================== ===============
|
See accompanying notes to financial statements.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Accounting Policies
First Northern Bank of Dixon (the Bank) is a California state chartered bank. The accounting and reporting policies of the Bank conform with generally accepted accounting principles and general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenue and expenses for the period. Actual results could differ from those estimates applied in the preparation of the accompanying financial statements. A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.
(a) Cash Equivalents
For purposes of the statement of cash flows, the Bank considers due from banks, federal funds sold for one-day periods and short-term bankers acceptances to be cash equivalents.
(b) Investment Securities
Investment securities consist of U.S. Treasury securities, U.S. Agency securities, obligations of states and political subdivisions, obligations of U.S. Corporations, mortgage backed securities and other securities. At the time of purchase of a security the Bank designates the security as held-to-maturity or available-for-sale, based on its investment objectives, operational needs and intent to hold. The Bank does not purchase securities with the intent to engage in trading activity.
Held-to-maturity securities are recorded at amortized cost, adjusted for amortization or accretion of premiums or discounts. Available- for-sale securities are recorded at fair value with unrealized holding gains and losses, net of the related tax effect, reported as a separate component of stockholders' equity until realized.
A decline in the market value of any available-for-sale or held-to- maturity security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment of a new cost basis for the security. No such declines have occurred.
Premiums and discounts are amortized or accreted over the life of the related held-to-maturity or available-for-sale security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to- maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold.
The Bank adopted Statement of Financial Accounting Standards (SFAS) No.133, "Accounting for Derivative Instruments and Hedging Activity," effective October 1, 1998. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, inch ding certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Bank does not hold any derivatives at December 31, 1999.
Under SFAS No. 133, a one-time transfer of held-to-maturity securities to available-for-sale or held-for-sale is permitted. During the year ended December 31, 1998, the Bank transferred $60,890,726 of held-to-maturity securities to available-for-sale and as a result recorded a cumulative increase of $2,853,904 in unrealized gains, which is a component of accumulated other comprehensive income.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31,1999, 1998 and 1997
(c) Loans
Loans are reported at the principal amount outstanding, net of deferred loan fees and the allowance for loan losses. 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 according to the contractual terms of the loan agreement, including scheduled interest payments. For a loan that has been restructured, the contractual terms of the loan agreement refer to the contractual terms specified by the original loan agreement, not the contractual terms specified by the restructuring agreement. An impaired loan is measured based upon the present value of future cash flows discounted at the loan's effective rate, the loan's observable market price, or the fair value of collateral if the loan is collateral dependent. Interest on impaired loans is recognized on a cash basis. If the measurement of the impaired loan is less than the recorded investment in the loan, an impairment is recognized by a charge to the allowance for loan loss.
Unearned discount on installment loans is recognized as income over the terms of the loans by the interest method. Interest on other loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding.
Loan fees net of certain direct costs of origination, which represent an adjustment to interest yield are deferred and amortized over the contractual term of the loan using the interest method.
Loans on which the accrual of interest has been discontinued are designated as nonaccrual loans. Accrual of interest on loans is discontinued either when reasonable doubt exists as to the full and timely collection of interest or principal or when a loan becomes contractually past due by ninety days or more with respect to interest or principal. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest. Restructured loans are loans on which concessions in terms have been granted because of the borrowers' financial difficulties. Interest is generally accrued on such loans in accordance with the new terms.
(d) Loans Held for Sale
Loans originated and held for sale are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income.
(e) Allowance for Loan Losses
The allowance for loan losses is established through a provision charged to expense. Loans are charged off against the allowance for loan losses when management believes that the collectibility of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb losses inherent in existing loans, standby letters of credit, overdrafts and commitments to extend credit based on evaluations of collectibility and prior loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, loan concentrations, specific problem loans, commitments, and current and anticipated economic conditions that may affect the borrowers' ability to pay. While management uses these evaluations to recognize the provision for loan losses, future provisions may be necessary based on changes in the factors used in the evaluations.
Material estimates relating to the determination of the allowance for loan losses are particularly susceptible to significant change in the near term. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, the Federal Deposit Insurance Corporation (FDIC), as an integral part of its examination process, periodically reviews the Bank's allowance for loan losses. The FDIC may require the Bank to recognize additions to the allowance based on their judgment about information available to them at the time of their examination.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(f) Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed substantially by the straight-line method over the estimated useful lives of the related assets. Leasehold improvements are depreciated over the estimated useful lives of the improvements or the terms of the related leases, whichever is shorter. The useful lives used in computing deprecation are as follows:
Buildings and improvements 15 to 50 years Furniture and equipment 3 to 10 years
(g) Other Real Estate Owned
Other real estate acquired by foreclosure, is carried at the lower of the recorded investment in the property or its fair value less estimated selling costs. Prior to foreclosure, the value of the underlying loan is written down to the fair value of the real estate to be acquired by a charge to the allowance for loan losses, if necessary. Fair value of other real estate owned is generally determined based on an appraisal of the property. Any subsequent operating expenses or income, reduction in estimated values and gains or losses on disposition of such properties are included in other operating expenses.
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.
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
(i) Gain or Loss on Sale of Loans and Servicing Rights
Servicing assets and other retained interests in transferred assets are measured by allocating the previous carrying amount of the transferred assets between the assets sold, if any and retained interests, if any, based on their relative fair value at the date of transfer. Servicing assets and liabilities are amortized in proportion to and over the period of estimated net servicing income or loss and assessed for asset impairment or increased obligation based on fair value. Fair values are estimated using discounted cash flows based on a current market interest rate.
The Bank recognizes a gain and a related asset for the fair value of the rights to service loans for others when loans are sold. In accordance with SFAS No. 125, the fair value of the servicing assets is estimated based upon the present value of the estimated expected future cash flows. The Bank measures the impairment of the servicing asset based on the difference between the carrying amount of the servicing asset and its current fair value. As of December 31, 1999 and 1998, there was no impairment in mortgage servicing asset.
A sale is recognized when the transaction closes and the proceeds are other than beneficial interest in the assets sold. A gain or loss is recognized to the extent that the sales proceeds and the fair value of the servicing asset exceed or are less than the book value of the loan. Additionally, a normal cost for servicing the loan is considered in the determination of the gain or loss.
When servicing rights are sold, a gain or loss is recognized at the closing date to the extent that the sales proceeds, less costs to complete the sale, exceed or are less than the carrying value of the servicing rights held.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(j) Income Taxes
The Bank accounts for income taxes under the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(k) Stock Option Plan
The Bank accounts for stock-based compensation using the intrinsic value method, under which compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price.
(l) Earnings Per Share (EPS)
Basic EPS includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of an entity.
(m) Comprehensive Income
Components of comprehensive income are net income and all other non-owner changes in equity. The Bank has chosen to disclose comprehensive income in the statement of stockholders' equity and comprehensive income, in which the components of comprehensive income are displayed net of income taxes.
(n) Year 2000
For the year ended December 31, 1999, the Bank bad expended $175,000 on the Year 2000 project which included $74,000 of staff salaries that were shifted to Year 2000 project, $69,000 for system upgrades or replacements, $16,000 for customer communications, and $16,000 for lawyer and consultant fees and other miscellaneous costs.
(2) Cash and Due From Banks
The Bank is required to maintain reserves with the Federal Reserve Bank based on a percentage of deposit liabilities. Aggregate reserves of $0 and $6,767,000 were required at December 31, 1999 and 1998, respectively. The Bank has met its average reserve requirements during 1999 and 1998 and the minimum required balance at December 31, 1999 and 1998.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(3) Investment Securities
The amortized cost and estimated market values of investments in debt and equity securities at December 31, 1999 are summarized as follows:
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
------------------ ------------------ ------------- -------------
Investment securities available
for sale:
U.S. Treasury securities $ 15,007,037 29,708 (50,895) 14,985,850
Securities of U.S.
government agencies
and corporations 21,529,693 - (662,663) 20,867,030
Obligations of U.S.
corporations 22,008,003 4,366 (535,027) 21,477,342
Obligations of states and
political subdivisions 67,460,149 466,866 (1,976,821) 65,950,194
Mortgage backed
securities 10,168,828 125 (174,486) 9,994,467
------------------ ------------------ ------------- -------------
Total debt securities 136,173,710 501,065 (3,399,892) 133,274,883
Other securities 2,176,800 - 2,176,800
------------------ ------------------ ------------- -------------
$ 138,350,510 501,065 (3,399,892) 135,451,683
================== ================== ============= ==============
|
During the year ended December 31, 1999, the Bank became a member of the Federal Home Loan Bank (FHLB). To become a member, the Bank had to purchase FHLB stock which is carried at cost and had a balance of $1,066,800 as of December 31, 1999.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(3) Investment Securities
The amortized cost and estimated market values of investments in debt securities at December 31, 1998 are summarized as follows:
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-------------------- --------------- ----------- ----------------
Investment securities available
for sale:
U.S. Treasury securities $ 28,103,062 542,943 - 28,646,005
Securities of U.S.
government agencies
and corporations 8,183,401 70,473 - 8,253,874
Obligations of U.S.
corporations 12,698,444 241,899 (2,778) 12,937,565
Obligations of states and
political subdivisions 64,322,726 2,696,813 (75,003) 66,944,536
Mortgage backed
securities 9,755,732 18,857 (67,290) 9,707,299
-------------------- --------------- ----------- ----------------
Total debt securities 123,063,365 3,570,985 (145,071) 126,489,279
Other securities 1,060,000 - - 1,060,000
-------------------- --------------- ----------- ----------------
$ 124,123,365 3,570,985 (145,071) 127,549,279
==================== =============== =========== ================
|
The amortized cost and estimated market value of debt securities at December 31, 1999 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
--------------------- -------------------
Due in one year or less $ 16,517,106 16,519,844
Due after one year through five years 65,525,353 64,676,453
Due five years through ten years 37,604,005 36,390,057
Due after ten years 18,704,046 17,865,329
--------------------- ------------------
Total debt and equity securities $ 138,350,510 135,451,683
===================== ==================
|
Investment securities carried at $17,464,268 and $13,655,752 at December 31, 1999 and 1998, respectively, were pledged to secure public deposits or for other purposes as required or permitted by law.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(4) Loans
The composition of the Bank's loan portfolio at December 31, is as
follows:
1999 1998
--------------- ----------------
Commercial 83,970,454 68,069,088
Real estate:
Mortgage 34,404,344 14,818,975
Construction 36,044,291 42,363,493
Installment 6,327,989 5,794,366
Other loans 139,182 319,256
--------------- ----------------
160,886,260 131,365,178
Allowance for loan losses (7,825,255) (8,144,450)
Net deferred origination fees (787,233) (583,179)
--------------- ----------------
Loans, net $ 152,273,772 122,637,549
=============== ================
|
The Bank's customers are primarily located in Solano and Yolo Counties. As of December 31, 1999, approximately 22% of the Bank's loans are for real estate construction. Additionally 21% of the Bank's loans are mortgage type loans which are secured by both commercial and residential real estate. Approximately 52% of the Bank's loans are for general commercial uses including professional, retail, agricultural and small businesses. Generally, real estate loans are secured by real and commercial property and other loans are secured by funds on deposit, business or personal assets. Repayment is generally expected from the proceeds of the sales of property for real estate construction loans, and from cash flows of the borrower for other loans. The Bank's access to this collateral is through foreclosure and/or judicial procedures. The Bank's exposure to credit loss if the real estate or other security proved to be of no value is the outstanding loan balance.
Loans which were sold and were being serviced by the Bank totaled approximately $54,550,621 and $45,519,795 at December 31,1999 and 1998, respectively. The Bank's servicing assets related to sold loans were immaterial at December 31, 1999 and 1998.
Effective July 1, and October 1, 1999, the Bank transferred $25,567,000 and $3,656,000, respectively, held for sale portfolio to their loans held to maturity portfolio.
Nonaccrual loans totaled approximately $528,000, $1,702,000 and $2,064,000 at December 31, 1999, 1998 and 1997, respectively. If interest on these nonaccrual loans had been accrued, such income would have approximated $32,000, $133,000 and $199,000 during the years ended December 31, 1999, 1998 and 1997, respectively.
The Bank did not restructure any loans in 1999 or 1998.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
Impaired loans are loans for which it is probable that the Bank will not be able to collect all amounts due. Impaired loans totaled approximately $528,000 and $1,702,000 at December 31, 1999 and 1998, respectively, and had valuation allowances of $141,000 and $347,000 at December 31, 1999 and 1998, respectively. The average outstanding balance of impaired loans was $1,131,000, $2,139,000 and $5,385,000, on which $50,000, $64,000 and $115,000 of interest income was recognized for the years ended December 31, 1999, 1998 and 1997, respectively.
Loans in the amount of $1,145,852 and $1,341,300 at December 31, 1999 and 1998, respectively, were pledged to secure potential borrowings from the Federal Reserve Bank.
Changes in the allowance for loan losses for the years ended December 3 1, are summarized as follows:
1999 1998 1997
------------- ------------ -------------
Balance, beginning of year $ 8,144,450 7,355,536 8,403,253
Provision (recovery credited)
charged to operations (800,000) 760,000 2,115,500
Loans charged-off (156,945) (782,399) (3,625,674)
Recoveries of loans
previously charged-off 637,750 811,313 462,457
------------- ------------ -------------
Balance, end of year $7,825,255 8,144,450 7,355,536
============= ============ =============
(5) Premises and Equipment
|
Premises and equipment consist of the following at December 31:
1999 1998
-------------- ---------------
Land $ 1,394,455 1,370,455
Buildings 4,527,074 4,274,175
Furniture and equipment 7,840,540 7,681,763
Leasehold improvements 567,194 557,123
--------------- ---------------
14,329,263 13,883,516
Less accumulated depreciation 8,297,552 7,509,895
--------------- ---------------
$ 6,031,711 6,373,621
=============== ===============
|
Depreciation expense included in occupancy and equipment expense, is $1,085,770, $863,978 and $777,390 for the years ended December 31, 1999, 1998 and 1997, respectively.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(6) Other Assets
Other assets consisted of the following at December 31:
1999 1998
------------ ---------------
Accrued interest $ 3,582,710 3,317,056
Other real estate owned, net - 905,634
Software, net of amortization 429,331 373,846
Prepaid and other 1,714,306 2,130,585
Deferred tax assets, net 3,744,268 1,815,678
------------ ---------------
$ 9,470,615 8,542,799
============ ===============
|
The Bank amortizes capitalized software costs on a straight-line basis using a useful life from three to five years.
Changes in the allowance for losses on other real estate owned at December 31 are summarized as follows:
1999 1998 1997
----------- ------------- -------------
Balance, beginning of year $ -- 1,929,992 2,651,622
Provision charged to operations -- -- --
Charge-offs, net of recoveries -- (1,929,992) (721,630)
----------- ------------- -------------
Balance, end of year $ -- -- 1,929,992
=========== ============= =============
|
(7) Income Taxes
The provision for income tax expense consists of the following for the years ended December 31
1999 1998 1997
---------------- -------------- -------------
Current:
Federal $ 1,017,760 514,831 (56,866)
State 502,377 273,136 (38,023)
---------------- -------------- -------------
1,520,137 787,967 (94,889)
---------------- -------------- -------------
Deferred:
Federal 456,893 277,736 249,320
State 144,413 159,161 271,713
---------------- -------------- -------------
601,306 436,897 521,033
---------------- -------------- -------------
$ 2,121,443 1,224,864 426,144
================ ============== =============
|
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1999 and 1998 consist of:
1999 1998
----------------- -------------
Deferred tax assets:
Allowance for loan losses $ 2,196,918 2,747,637
Allowance for write-downs of other real estate
owned - 31,923
Deferred compensation 105,509 119,208
Alternative minimum tax carryover 695,603 978,079
Current state franchise taxes 178,228 92,866
Other - 144,674
Investment securities unrealized losses 1,159,531 -
----------------- -------------
Deferred tax assets 4,335,789 4,114,387
Less valuation allowance - (192,000)
----------------- -------------
Total deferred tax assets 4,335,789 3,922,387
Deferred tax liabilities:
Fixed assets 276,986 371,798
State franchise taxes 190,713 285,712
Other 123,822 78,834
Investment securities unrealized gains - 1,370,365
----------------- -------------
Total deferred tax liabilities 591,521 2,106,709
----------------- -------------
Net deferred tax assets $ 3,744,268 1,815,678
================= ============
|
The valuation allowance for deferred tax assets decreased by $192,000 in 1999. The reduction was the result of net changes in temporary differences, improved operating results in 1999 and projected operating results in 2000. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Bank will realize the benefits of these deductible differences.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
A reconciliation of income taxes computed at the federal statutory rate of 34% and the provision for income taxes is as follows:
1999 1998 1997
------------- ------------- --------------
Income tax expense at statutory rates $ 2,109,506 1,436,740 732,976
Reduction for tax exempt interest (475,051) (548,693) (484,308)
State franchise tax, net of federal
income tax benefit 426,881 285,316 154,235
Change in beginning of year valuation.
allowance (192,000) - -
Other 252,107 51,501 23,241
------------- ------------- --------------
$ 2,121,443 1,224,864 426,144
============= ============= ==============
|
(8) Outstanding Shares and Earnings Per Share
On September 30, 1998, the Board of Directors authorized a two-for-one stock split of the Bank's common stock in which each share of the Bank's common stock was converted into two shares. Consequently, all related information in this report has been restated to reflect the effect of the stock split.
On January 20, 2000, the Board of Directors of the Bank declared a 6% stock dividend payable as of March 31, 2000. All income per share amounts have been adjusted to give retroactive effect to the stock dividend.
Earnings Per Share (EPS)
Basic and diluted earnings per share for the years ended December 31, 1999, 1998 and 1997 were computed as follows:
1999 1998 1997
----------- ------------ -----------
Basic earnings per share:
Net income $ 4,082,985 3,000,843 1,729,669
----------- ------------ -----------
Weighted average common shares
outstanding 3,276,362 3,276,230 3,267,942
----------- ------------ -----------
Basic EPS $ 1.25 0.92 0.53
=========== ============ ===========
Diluted earnings per share:
Net income $ 4,082,985 3,000,843 1,729,669
----------- ------------ -----------
Denominator:
Weighted average common stock
outstanding 3,276,362 3,276,230 3,267,942
Weighted average options
outstanding 12,837 8,028 4,064
----------- ------------ -----------
3,289,199 3,284,258 3,272,006
----------- ------------ -----------
Diluted EPS $ 1.24 0.91 0.53
=========== ============ ============
|
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(9) Related Party Transactions
The Bank, in the ordinary course of business, has loan and deposit transactions with directors and executive officers. In management's opinion, these transactions were on substantially the same terms as comparable transactions with other customers of the Bank. The amount of such deposits totaled approximately $918,000 and $938,000 at December 31, 1999 and 1998, respectively.
The following is an analysis of the activity of loans to executive officers and directors for the years ended December 31:
1999 1998 1997
----------- ------------ ------------
Outstanding balance, beginning of year $ 586,000 2,100,000 4,388,000
Credit granted 341,000 377,000 1,886,000
Repayments (639,000) (1,891,000) (4,174,000)
----------- ------------ ------------
Outstanding balance, end of year $ 288,000 586,000 2,100,000
=========== ============ ============
|
(10) Profit Sharing Plan
The Bank maintains a profit sharing plan for the benefit of its employees. Employees who have completed 12 months and 1,000 hours of service are eligible. Under the terms of this plan, a portion of the Bank's profits, as determined by the Board of Directors, will be set aside and maintained in a trust fund for the benefit of qualified employees. Contributions to the plan, included in salaries and employee benefits in the statements of income, were $653,915, $579,197 and $123,122 in 1999, 1998 and 1997, respectively.
(11) Stock Compensation Plans
At December 31, 1999, the Bank has three stock-based compensation plans, which are described below. Had compensation cost for the Bank's three stock-based compensation plans been determined consistent with the fair value method, the Bank's net income and income per share would have been reduced to pro forma amounts indicated below:
Net income:
As reported $ 4,082,985 3,000,843 1,729,669
=========== =========== ===========
Pro forma under SFAS No. 123 $ 3,906,110 2,854,677 1,636,746
=========== =========== ===========
Basic earnings per share:
As reported $ 1.25 0.92 0.53
=========== =========== ===========
Pro forma under SFAS No. 123 $ 1.19 0.87 0.50
=========== =========== ===========
Diluted earnings per share:
As reported $ 1.24 0.91 0.53
=========== =========== ===========
Pro forma under SFAS No. 123 $ 1.19 0.87 0.50
=========== =========== ===========
|
Fixed Stock Option Plans
The Bank has two fixed option plans. Under the 1997 Employee Stock Option Plan, the Bank may grant options to an employee for an amount up to 25,000 shares of common stock each year. There arc 551,250 shares authorized under the plan. The plan will terminate February 27, 2007. The Compensation Committee of the Board of Directors is authorized to prescribe the terms and conditions of each option, including exercise price, vestings or duration of the option.
Under the 1997 Outside Directors Nonstatutory Stock Option Plan, the Bank may grant options to an outside director for an amount up to 6,615 shares of common stock. There are 165,375 shares authorized under the Plan. The Plan will terminate February 27, 2007. The exercise price of each option equals the market price of the Bank's stock on the date of grant, and an option's maximum term is five years. Options vest at the rate of 20% per year beginning on the grant date. Other than a grant of 6,615 shares to a
-167
new director, any future grants require shareholder approval.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The weighted average fair value at date of grant for options granted during
years ended December 31, 1999, 1998 and 1997, was $6.66, $4.36 and $4.78
per share, respectively. The fair value of each option grant was estimated
on the date of the grant using Black-Scholes option-pricing model with the
following assumptions:
1999 1998 1997
----------- ----------- -----------
Expected dividend yield 0.0% 0.0% 0.0%
Expected volatility 23.00% 22.89% 15.26%
Risk-free interest rate 6.39% 4,73% 5.42%
Expected term in years 10 5.5 3
|
Stock option activity for the outside directors stock option plan and the employee stock option plan during the periods indicated is as follows:
Outside Directors Employee Stock
Stock Option Plan Option Plan
-------------------------------- ----------------------------------
Weighted- Weighted
Number of Average Number of Average
Shares Exercise Price Shares Exercise Price
-------------- ----------------- --------------- ------------------
Balance at December 31, 1996 - $ - - $ -
Granted 72,765 11.11 39,690 12.70
Exercised (1,323) 11.11 - -
Forfeited (5,292) 11.11 - -
Expired - - - -
----------- --------------- ------------ ---------------
Balance at December 31, 1997 66,150 11.11 39,690 12.70
Granted - - 64,050 13.51
Exercised (1,323) 11.11 - -
Forfeited - - -
Expired - - - -
----------- --------------- ------------ ---------------
Balance at December 31, 1998 64,827 11.11 103,740 13.19
Granted - - 33,390 12.86
Exercised - -
Forfeited (5,292) 11.11 - -
Expired - - -
----------- --------------- ------------ ---------------
Balance at December 31, 1999 59,535 $ 11.11 137,130 $ 13.11
=========== =============== ============ ================
|
At December 31, 1999, the range of exercise prices and weighted-average remaining contractual life of all outstanding options was $11.11 - $13.51 and 5.43 years, respectively.
Options exercisable as of December 31 were 91,833 shares in 1999, 45,160 shares in 1998 and 19,200 shares in 1997, at a weighted-average exercise price of $12.32, 12.57 and $12.91, respectively.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
Employee Stock Purchase Plan
Under the 1997 Employee Stock Purchase Plan, the Bank is authorized to issue to an eligible employee shares of common stock. There are 551,250 shares authorized under the plan. The plan will terminate February 27, 2007. An eligible employee is one who has been continually employed for at least ninety (90) days prior to commencement of a participation period. Under the terms of the Plan, employees can choose to have up to 10 percent of their compensation withheld to purchase the Bank's common stock each participation period. The purchase price of the stock is 85 percent of the lower of the fair market value on the last trading day before the Date of Participation or the fair market value on the last trading day during the participation period. Approximately 50 percent of eligible employees are participating in the Plan in the current participation period, which began November 24, 1999. At the end of the participation period, which began November 24, 1998 and ended November 23, 1999, there were $89,622 in contributions, and 7,725 shares were purchased at $11.53 totaling $89,104.
(12) Commitments and Contingencies
The Bank is obligated for rental payments under certain operating lease agreements, some of which contain renewal options. Total rental expense for all leases included in net occupancy and equipment expense amounted to approximately $464,403, $471,251 and $407,206 for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, the future minimum payments under noncancelable operating leases with initial or remaining terms in excess of one year are as follows:
Year Ended
December 31:
------------
2000 $ 274,375
2001 295,160
2002 251,155
2003 194,340
2004 158,380
Thereafter 140,400
-----------------
$ 1,313,810
=================
|
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999,1998 and 1997
At December 31, 1999, the aggregate maturities for time deposits are as follows:
Year Ended
December 31:
------------
2000 $ 103,915,893
2001 5,038,751
2002 1,212,769
2003 414,693
2004 122,091
----------------
$ 110,704,197
================
|
The Bank is subject to various legal proceedings in the normal course of its business. In the opinion of management, after having consulted with legal counsel, the outcome of the legal proceedings should not have a material effect on the financial condition or results of operations of the Bank.
(13) 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 to meet the financing needs of its customers. These financial instruments include commitments to extend credit in the form of loans or through standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Financial instruments whose contract amounts represent credit risk at December 31, 1999 are as follows:
Undisbursed loan commitments $ 76,100,895
Standby letters of credit 3,600,611
---------------
$ 79,701,506
===============
|
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inve itory, property, plant and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments 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 loan facilities to customers.
Commitments to extend credit and standby letters of credit bear similar credit risk characteristics as outstanding loans. As of December 31, 1999, the Bank has no off-balance sheet derivatives requiring additional disclosure.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(14) Capital Adequacy and Restriction on Dividends
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate 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. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below).
First, a bank must meet a minimum Tier I Capital ratio (as defined in the regulations) ranging from 3% to 5% based upon the bank's CAMELS (capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk) rating.
Second, a bank must meet minimum Total Risk-Based Capital to risk-weighted assets ratio of 8%. Riskbased capital and asset guidelines vary from Tier I capital guidelines by redefining the components of capital, categorizing assets into different risk classes, and including certain off-balance sheet items in the calculation of the capital ratio. The effect of the risk-based capital guidelines is that banks with high exposure will be required to raise additional capital while institutions with low risk exposure could, with the concurrence of regulatory authorities, be permitted to operate with lower capital ratios. In addition, a bank must meet minimum Tier I Capital to average assets ratio.
Management believes, as of December 31, 1999, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 1999, the most recent notification from the Federal Deposit Insurance Corporation (FDIC) categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must meet the minimum ratios as set forth above. There are no conditions or events since that notification that management believes have changed the institution's category.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The Bank's actual capital amounts and ratios as of December 31, 1999 are as follows:
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes: Action Provisions:
-------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ------- ------- ------
Total Risk-Based Capital (to
Risk Weighted Assets) $ 35,454,000 14.9% $ 19,027,000 8.0% $ 23,784,000 10.0%
Tier I Capital (to Risk
Weighted Assets) 32,421,000 13.6% 9,514,000 4.0% 14,270,000 6.0%
Tier I Capital (to Average
Assets) 32,421,000 8.7% 14,962,000 4.0% 18,703,000 5.0%
|
The Bank's actual capital amounts and ratios as of December 31, 1998 are as follows:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------------- -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total Risk-Based Capital (to
Risk Weighted Assets) $ 32,300,000 16.0% $ 16,159,000 8.0% $ 20,199,000 10.0%
Tier I Capital (to Risk
Weighted Assets) 29,706,000 14.7% 8,079,000 4.0% 12,119,000 6.0%
Tier I Capital (to Average
Assets) 29,706,000 8.9% 13,374,000 4.0% 16,717,000 5.0%
|
Cash dividends are restricted under California state banking laws to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(15) Fair Values of Financial Instruments
The following methods and assumptions were used by the Bank in estimating its fair value disclosures for financial instruments:
Cash and cash equivalents
The carrying amounts reported in the balance sheet for cash and short-term instruments are a reasonable estimate of fair value.
Investment securities
Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans receivable
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
Commitments to extend credit and standby letters of credit
The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligation with the counterparties at the reporting date.
Deposit liabilities
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings, and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest payable approximates its fair value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Bank's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Bank's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax liabilities, property, plant, equipment and goodwill. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in may of the estimates.
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The estimated fair values of the Bank's financial instruments are approximately as follows:
1999
-----------------------------------
Carrying Fair
Amount Value
Financial assets:
Cash and federal funds sold 57,106,000 57,106,000
Investment securities 135,452,000 135,452,000
Loans:
Fixed rate:
Commercial and construction 11,187,000 10,818,000
Mortgage 40,485,000 37,017,000
Consumer 5,353,000 5,109,000
--------------- ------------
Total fixed rate 57,025,000 52,944,000
Variable rate 103,861,000 104,296,000
Less allowance for loan losses (7,825,000) (7,825,000)
Net deferred origination fees (787,000) (787,000)
--------------- ------------
Net loans $ 152,274,000 148,628,000
=============== ============
Loans hold for sale $ 10,657,000 10,667,000
=============== ============
Financial liabilities:
Deposits:
Demand $ 224,926,000 224,926,000
Certificate of deposits 110,704,000 110,404,000
--------------- ------------
Total deposits $ 335,630,000 335,330,000
=============== ============
|
Contract Carrying Fair
Amount Amount Value
-------------- -------------- ------------
Unrecognized financial instruments:
Commitments to extend credit $ 76,101,000 -- 571,000
=============== ========= =========
Standby letters of credit $ 3,600,000 -- 36,000
=============== ========= =========
|
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The estimated fair values of the Bank's financial instruments are approximately as follows:
1998
---------------------------------------
Carrying Fair
Amount Value
---------------------------------------
Financial assets:
Cash and federal funds sold $ 49,185,000 49,185,000
================ ===========
Investment securities $ 127,549,000 127,549,000
================ ===========
Loans:
Fixed rate:
Commercial and construction $ 17,426,000 17,275,000
Mortgage 2,676,000 2,691,000
Consumer 4,683,000 4,684,000
--------------- -----------
Total fixed rate 24,785,000 24,650,000
Variable rate 106,580,000 103,368,000
Less allowance for loan losses (8)44,000) (8,144,000)
Net deferred origination fees (583,000) (583,000)
--------------- -----------
Net loans $ 122,638,000 119,291,000
================ ===========
Loans held for sale $ 29,021,000 29,596,000
================ ===========
Financial liabilities:
Deposits:
Demand $ 199,394,000 199,394,000
Certificate of deposits 109,909,000 110,410,000
--------------- -----------
Total deposits $ 309,303,000 309,804,000
================ ===========
|
Contract Carrying Fair
Amount Amount Value
--------------- ------------- --------------
Unrecognized financial instruments:
Commitments to extend credit $ 63,853,000 -- 479,000
=============== ============= ==============
Standby letters of credit $ 713,000 -- 7,000
=============== ============= ==============
|
FIRST NORTHERN BANK OF DIXON
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(16) Supplemental Statements of Cash Flows Information
Supplemental disclosures to the Statements of Cash Flows for the years ended December 31, are as follows:
1999 1998 1997
---------- ---------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 7,923,311 8,436,720 7,996,605
============= =========== ============
Income taxes $ 1,779,000 1,705,100 34,000
============= =========== ============
Supplemental disclosure of noncash investing and
financing activities:
Loans transferred to other real estate -- 1,194,758 1,461,935
============= =========== ============
Stock dividend distributed $ 2,055,480 2,017,269 1,281,480
============= =========== ============
Loans held for sale transferred to loans $ 29,223,000 -- --
============= =========== ============
|
(17) Subsequent Event
On January 6, 2000, the Board of Directors of the Bank approved the creation of a bank holding company to be called "First Northern Community Bancorp" to be effected through a corporate reorganization in which the Bank will become a wholly-owned subsidiary of First Northern Community Bancorp.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE BANK
(a) Directors of the Bank
The information called for by this item with respect to director information is incorporated herein by reference from the sections of the Bank's proxy statement for the 2000 Annual Meeting of Shareholders entitled "Security Ownership of Management" and "Nomination and Election of Directors".
(b) Principal Officers of the Bank
Name of Officer/Position Held Age* Position Held Since
----------------------------- --- -------------------
Owen J. Onsum / President, CEO 55 01/01/97
Robert M. Walker / Sr. VP, Branch Administrator 49 09/01/91
Donald J. Fish / Sr. VP, Senior Credit Officer 60 01/06/97
Louise A. Walker / Sr. VP, Cashier 39 01/01/97
* as of February 29, 2000.
|
Owen J. Onsum is President and Chief Executive Officer of the Bank. Prior to that appointment on January 1 1997, Mr. Onsum served as the Bank's Executive Vice President for 15 years.
Robert M. Walker is Senior Vice President and Branch Administrator of the Bank. Prior to that appointment on September 1, 1991, Mr. Walker was a Branch Manger at the Bank's West Sacramento Branch.
Donald J. Fish is Senior Vice President and Senior Credit Officer of the Bank. Prior to that appointment on January 6, 1997, Mr. Fish was Executive Vice President and Senior Credit Officer with Valliwide Bank for ten years.
Louise A. Walker is Senior Vice President and Cashier of the Bank. Prior to that appointment on January 1, 1997, Mrs. Walker was the Bank's Vice President and Cashier for eight years.
None of the principal officers was selected pursuant to any arrangement or understanding other than with the directors and officers of the Bank acting in their capacities as such.
(c) Family Relationships and Involvement in certain Legal Proceedings.
NONE
ITEM 11 - EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference herein to the sections of the Bank's proxy statement for the 2000 Annual Meeting of Shareholders entitled "Nomination and Election of Directors" and "Executive Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference from the sections of the Bank's proxy statement for the 2000 Annual Meeting of Shareholders entitled "Security Ownership of Management" and "Nomination and Election of Directors".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference from the sections of the Bank's proxy statement for the 2000 Annual Meeting of Shareholders entitled "Report of Compensation Committee of the Board of Directors on Executive Compensation" "Indebtedness of Management," "Indebtedness of Certain Directors" and "Transactions with Management."
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) Financial Statements and Financial Statement Schedules filed:
Reference is made to the Index to Financial Statements under Item 8 in
Part II of this Form 10-K
(B) Reports on Form 8-K:
The Bank did not file any reports on Form 8-K during the last quarter of the year ended December 31,1999.
(C) Exhibits:
The following is a list of all exhibits filed as part of this Annual Report on Form 10-K.
Exhibit
Number Exhibit
------- -------
3.1(1) Articles of Incorporation of the Bank, as amended.
3.2(2) Certificate of Amendment to Articles of Incorporation.
3.3(3) By-laws of the Bank, as amended.
4.1(4) Form of Common Stock Certificate
10.1(5) First Northern Bank of Dixon 1997 Stock Option Plan.
10.2(6) Amended and Restated First Northern Bank of Dixon Outside Directors 1997 Nonstatutory
Stock Option Plan.
10.3(5) First Northern Bank of Dixon 1997 Employee Stock Purchase Plan.
10.4(4) First Northern Bank of Dixon 1997 Stock Option Plan Forms "Incentive Stock Option Agreement." and
"Notice of Exercise of Stock Option"
10.5(4) First Northern Bank of Dixon Amended and Restated Outside Directors 1997 Nonstatutory
Stock Option Plan Forms "Nonstatutory Stock Option Agreement" and "Notice of Exercise of
Stock Option"
10.6(4) First Northern Bank of Dixon 1997 Employee Stock Purchase Plan Forms "Participation Agreement" and
"Notice of Withdrawal"
11 Statement of Computation of Per Share Earnings (See Page 43 of this Form 10-K)
21(7) Subsidiaries of the Bank
24 Power of Attorney (See Page 64) of this Form 10-K)
-------------------------------------------------------------------------------------------------------------------------
1. Filed with the Bank's Annual Report on Form F-1 for the fiscal
year ended December 31, 1986.
2. Filed with the Bank's Annual Report on Form F-2 for the fiscal year ended
December 31, 1989.
3. Filed with the Bank's Annual Report on Form F-2 for the fiscal year ended
December 31, 1993.
4. Filed with the Bank's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
5. Filed with the Bank's definitive proxy statement for the 1997 Annual
Meeting of Shareholders.
6. Filed with the Bank's definitive proxy statement for the Special Meeting of
Shareholders held on September 11, 1997.
7. Filed with the Bank's Annual Report on Form F-2 for the fiscal year ended
December 31, 1996.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Bank has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 16, 2000.
FIRST NORTHERN BANK OF DIXON
By: /s/ Owen J. Onsum
----------------------------
Owen J. Onsum
President/Chief Executive Officer/Director
(Principal Executive Officer)
|
POWER OF ATTORNEY
KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes a
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Bank and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Owen J. Onsum President/Chief Executive Officer 3/16/00
-------------------------------------------------------- ------------------
Owen J. Onsum (Principal Executive Officer) and Director
/s/ Louise A. Walker Senior Vice President/Cashier 3/16/00
-------------------------------------------------------- ------------------
Louise A. Walker (Principal Financial Officer)
/s/ Stanley R. Bean Vice President/Controller 3/16/00
-------------------------------------------------------- ------------------
Stanley R. Bean
/s/ Lori J. Aldrete Director 3/16/00
-------------------------------------------------------- ------------------
Lori J. Aldrete
/s/ Frank J. Andrews, Jr. Director 3/16/00
-------------------------------------------------------- ------------------
Frank J. Andrews, Jr.
/s/ John M. Carbahal Director 3/16/00
-------------------------------------------------------- ------------------
John M. Carbahal
/s/ Gregory DuPratt Director 3/16/00
-------------------------------------------------------- ------------------
Gregory DuPratt
/s/ John F. Hamel Director 3/16/00
-------------------------------------------------------- ------------------
John F. Hamel
/s/ Diane P. Hamlyn Director 3/16/00
-------------------------------------------------------- ------------------
Diane P. Hamlyn
/s/ William H. Jones, Jr. Director 3/16/00
-------------------------------------------------------- ------------------
William H. Jones, Jr.
-181-
/s/ Foy S. McNaughton Director 3/16/00
-------------------------------------------------------- ------------------
Foy S. McNaughton
/s/ David W. Schulze Director 3/16/00
-------------------------------------------------------- ------------------
David W. Schulze
/s/ Thomas S. Wallace Director 3/16/00
-------------------------------------------------------- ------------------
Thomas S. Wallace
|
ACT OF 1934
For the quarterly period ended March 31, 2000 OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the transition period from ________ to ________ FDIC Certificate No. 03440
First Northern Bank of Dixon
(Exact name of Bank as specified in its charter)
California 94-0475380
[State of Incorporation] [I.R.S. Employer Identification No.]
195 North First Street
Dixon, California 95620
[Address of principal executive offices] [Zip Code]
|
Bank's telephone number, including area code: (707) 678-3041
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
3,244,733 shares of the Bank's common stock, no par value, were outstanding at March 31, 2000.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONDENSED BALANCE SHEETS
ASSETS
March 31, 2000 December 31,
1999
Cash and due from banks $ 19,094,306 $ 19,806,022
Federal funds sold 32,500,000 37,300,000
Investment securities - available for sale 133,881,543 135,451,683
Loans, net of allowance for loan losses of
$7,518,015 at March 31, 2000 and
$7,825,255 at December 31, 1999 166,657,107 162,930,575
Premises and equipment, net 6,229,731 6,031,711
Accrued interest receivable and other assets 9,384,884 9,470,615
---------------- ----------------
TOTAL ASSETS $ 367,747,571 $ 370,990,606
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand $ 85,347,492 $ 86,123,941
Interest-bearing transaction deposits 36,579,999 36,284,409
Savings & MMDA's 100,126,179 102,517,387
Time 110,554,144 110,704,197
---------------- ----------------
Total deposits 332,607,814 335,629,934
Accrued interest payable and other liabilities 2,647,780 3,287,969
---------------- ----------------
TOTAL LIABILITIES 335,255,594 338,917,903
Stockholders' equity
Common stock, no par value; 4,000,000 shares authorized;
3,244,733 shares issued and outstanding in 2000
and 3,092,273 shares issued and outstanding in 1999 25,387,922 23,322,001
Capital surplus 976,850 976,850
Retained earnings 8,115,531 9,513,151
Accumulated other comprehensive loss (1,988,326) (1,739,299)
---------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 32,491,977 32,072,703
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 367,747,571 $ 370,990,606
================ ================
See notes to unaudited condensed financial statements.
|
UNAUDITED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three months Three months
Ended ended
March 31, 2000 March 31, 1999
Interest Income
Loans $ 3,980,532 $ 3,694,337
Federal funds sold 521,091 277,584
Investment securities
Taxable 1,849,941 1,484,988
Non-taxable 287,882 370,998
------------------ ------------------
Total interest income 6,639,446 5,827,907
Interest Expense
Deposits 2,086,673 1,893,263
Other borrowings 14,488 9,048
------------------ ------------------
Total interest expense 2,101,161 1,902,311
------------------ ------------------
Net interest income 4,538,285 3,925,596
------------------ ------------------
Provision for loan losses - 75,000
Net interest income after
provision for loan losses 4,538,285 3,850,596
------------------ ------------------
Other operating income
Service charges on deposit accounts 293,705 261,761
Gains on securities transactions 10,300 20,496
Other income 352,855 410,296
------------------ ------------------
Total other operating income 656,860 692,553
------------------ ------------------
Other operating expenses
Salaries and employee benefits 2,138,646 2,067,218
Occupancy and equipment 500,040 498,520
Data processing 100,806 97,252
Stationery and supplies 145,063 99,113
Advertising 69,853 44,695
Other Real Estate Expense - 39,705
Other 694,485 647,618
------------------ ------------------
Total other operating expense 3,648,893 3,494,121
------------------ ------------------
Income before income tax expense 1,546,252 1,049,028
Provision for income tax expense 423,812 320,600
------------------ ------------------
Net income $ 1,122,440 $ 728,428
Other Comprehensive Income:
Unrealized loss on available for sale
securities, net of tax effect (249,027) (624,411)
Total Comprehensive Income $ 873,413 $ 104,017
================== ==================
Basic Income per share $ 0.34 $ 0.22
================== ==================
Diluted Income per share $ 0.34 $ 0.22
================== ==================
See notes to unaudited condensed financial statements.
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UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
Three months Three months
Ended ended
March 31, 2000 March 31, 1999
-------------- --------------
Operating Activities
Net Income $ 1,122,440 $ 728,428
Adjustments to reconcile net income to net Cash provided by operating
activities:
Depreciation 199,208 221,610
Provision for loan losses - 75,000
Decrease in accrued interest receivable and other assets 85,731 523,337
(Decrease) increase in accrued interest payable and other liabilities (640,189) 158,289
Net cash provided by operating activities 767,190 1,706,664
Investing Activities
Net decrease in investment securities 1,321,113 2,685,174
Net increase in loans (3,726,532) (487,343)
Purchases of premises and equipment, net (397,228) (107,002)
Net cash (used in) provided by investing activities (2,802,647) 2,090,829
Financing Activities
Net decrease in deposits (3,022,120) (12,366,962)
Cash dividends paid in lieu of fractional shares (5,811) (5,232)
Repurchase of stock (448,328) -
Net cash used in financing activities (3,476,259) (12,372,194)
Net change in cash and cash equivalents (5,511,716) (8,574,701)
Cash and cash equivalents at beginning of period 57,106,022 49,184,700
Cash and cash equivalents at end of period $ 51,594,306 $ 40,609,999
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Supplemental disclosures of cash flow information:
------------------------------------------------------------------------------------------------------------------------------------
Cash paid during the period for:
Interest $ 2,101,161 $ 1,902,311
Income Taxes $ - $ -
------------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of noncash investing and financing activities:
Loans transferred to other real estate $ - $ -
Stock dividend distributed $ 2,514,249 $ 2,055,480
------------------------------------------------------------------------------------------------------------------------------------
See notes to unaudited condensed financial statements.
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NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
March 31, 2000 and December 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations for any interim period are not necessarily indicative of results expected for the full year. These condensed financial statements should be read in conjunction with the financial statements and notes thereto contained in the Bank's Annual Report to shareholders and Form 10-K for the year ended December 31, 1999.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation.
3. OUTSTANDING SHARES AND EARNINGS PER SHARE
On January 20, 2000, the Board of Directors of the Bank declared a 6% stock dividend payable as of March 31, 2000. All income per share amounts have been adjusted to give retroactive effect to the stock dividend.
Earnings Per Share (EPS)
Basic and diluted earnings per share for the three month periods ending March 31, 2000 and March 31, 1999 were computed as follows:
Three months
ended March 31
2000 1999
-----------------------------------------------------------------------------
Basic earnings per share:
Net income $ 1,122,440 $ 728,428
-----------------------------------------------------------------------------
Weighted average common shares
outstanding 3,265,549 3,275,226
-----------------------------------------------------------------------------
Basic EPS $ 0.34 $ 0.22
=============================================================================
Diluted earnings per share:
Net income $ 1,122,440 $ 728,428
-----------------------------------------------------------------------------
Denominator:
Weighted average common shares
outstanding 3,265,549 3,275,226
Incremental shares due to dilutive
stock options 22,056 5,007
-----------------------------------------------------------------------------
3,287,605 3,280,233
---------------------------------------------------------------------------
Diluted EPS $ 0.34 $ 0.22
=============================================================================
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4. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at levels considered adequate by management to provide for possible loan losses. The allowance is based on management's assessment of various factors affecting the loan portfolio, including problem loans, business conditions and loss experience, and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses during the three months ended March 31, 2000 and 1999 and for the year ended December 31, 1999 were as follows:
Three months ended Year ended
March 31, December 31,
2000 1999 1999
------------- ------------ -----------------
Balance, beginning of period $ 7,825,255 $ 8,144,450 $ 8,144,450
Provision for (recovery of) loan losses - 75,000 (800,000)
Loan charge-offs (323,157) (82) (156,945)
Loan recoveries 15,917 38,111 637,750
------------- ------------ -----------------
Balance, end of period $ 7,518,015 $ 8,257,479 $ 7,825,255
============= ============ =================
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5. SUBSEQUENT EVENT
On April 27, 2000, at the Annual Meeting of Shareholders, the shareholders of the Bank approved the creation of a bank holding company to be called "First Northern Community Bancorp" to be effected through a corporate reorganization in which the Bank will become a wholly-owned subsidiary of First Northern Community Bancorp.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the significant changes in the Unaudited Condensed Balance Sheets and of the significant changes in income and expenses reported in the Unaudited Condensed Statements of Income and Comprehensive Income for the three month periods ended March 31, 2000 and 1999.
SUMMARY
The Bank recorded net income of $1,122,000 for the three month period ended March 31, 2000, representing an increase of $394,000 or 54.1% over $728,000 for the same period in 1999.
The increase in net income over the three month period ended March 31, 2000 as compared to the same period a year ago, resulted primarily from an increase in net interest income combined with decreases in the provision for loan losses and other real estate expense which were partially offset by increases in salaries and benefits, stationery and supplies, advertising, and other miscellaneous expense and a decrease in other income.
On January 20, 2000, the Board of Directors of the Bank declared a 6% stock dividend payable as of March 31, 2000. All income per share amounts have been adjusted to give retroactive effect to the stock dividend.
CHANGES IN FINANCIAL CONDITION
The asset side of the Unaudited Condensed Balance Sheet showed a $712,000 decrease in cash and due from banks, a $4,800,000 decrease in fed funds sold, a $1,570,000 decrease in investment securities, a $3,727,000 increase in loans and a $86,000 decrease in accrued interest receivable and other assets from December 31, 1999 to March 31, 2000. The reason for the decrease in cash and due from banks was due, for the most part, to decreases in cash and the Federal Reserve Bank due from account combined with an increase in items in the process of collection. The decrease in fed funds sold was due, for the most part, to a decrease in deposits and funding of new loans. The decrease in investment securities was due to maturities and calls, the proceeds of which were used to fund new loans. The increase in loans was, for the most part, in real estate loans.
The liabilities side of the Unaudited Condensed Balance Sheet showed a decrease in total deposits of $3,022,000 compared to year-end 1999 deposit totals. The decrease in deposits was due, for the most part, to lower demand, savings and money market deposit totals. The decrease in deposits is consistent with historical trends which reflect a seasonal decline in deposits during the first quarter that is typically associated with the local agricultural industry.
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Other liabilities decreased $640,000 from December 31, 1999 to March 31, 2000.
The decrease in other liabilities was due, for the most part, to decreases in
accrued expenses.
CHANGES IN RESULTS OF OPERATIONS
Interest Income
Interest income on loans for the three month period ended March 31, 2000 is up 7.8% over the same period for 1999, from $3,694,000 to $3,981,000. The increase over the three month period ended March 31, 2000 as compared to the same period a year ago, was due to an increase in average loans combined with a .62% increase in loan yields.
Interest income on securities for the three month period ended March 31, 2000 is up 15.19% over the same period for 1999, from $1,856,000 to $2,138,000. The increases are due to an increase in average securities over the three month period ended March 31, 2000, as compared to the same period a year ago, combined with a .53% increase in securities yields.
Interest income on fed funds sold for the three month period ended March 31, 2000 is up 87.7% over the same period for 1999 from $278,000 to $521,000. The increase in fed funds income over the three month period ended March 31, 2000 was due, for the most part, to increases in average fed funds sold combined with increases in fed funds rates.
Interest Expense
Interest expense on deposits was up 10.2% for the three month period ending March 31, 2000 over the same period in 1999 from $1,893,000 to $2,087,000. The increased interest expense over the three month period ended March 31, 2000 was due to higher deposit rates combined with increased average deposits.
Provision for Loan Losses
The provision for loan losses was down for the three month period ending March 31, 2000 over the same period in 1999 from $75,000 to $-0-. The decrease over the three month period ended March 31, 2000 was due to a zero provision for that period due to improved market conditions and loan quality in the Bank's loan portfolio. The March 31, 2000 allowance for loan losses of approximately $7,500,000 is 4.3% of total loans compared to $7,800,000 or 4.6% of total loans at December 31, 1999.
Other Operating Income
Other operating income was down 5.2% for the three month period ended March 31, 2000 over the same period in 1999. This decrease was primarily due to a decrease in gains on sales of loans and gains on securities transactions, which was partially offset by increased service charges on deposit accounts, gains on sales of OREO properties and debit card fees.
Other Operating Expense
Total other operating expense was up 4.4% for the three month period ending March 31, 2000 over the same period in 1999 from $3,494,000 to $3,649,000. The main reason for this increase was a combination of: increases in salaries & benefits; advertising; and other miscellaneous expenses. The increase in salaries & benefits was due to increases in the number of employees and increases in profit sharing and incentive compensation provisions due to increased income which was partially offset by decreases in commissions for real estate loans. The increase in advertising was due, for the most part, to timing differences. The increases in other miscellaneous expenses were due to increased dues, legal fees, accounting and audit fees and consulting fees.
Asset Quality
The Bank manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans and delinquencies, with particular attention to portfolio dynamics and mix. The Bank strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values, and to maintain an adequate allowance for loan losses at all times.
It is generally the Bank's policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected.
Non-accrual loans amounted to $834,000 at March 31, 2000, and were comprised of four commercial loans one consumer loan and two agricultural loans. At December 31, 1999, non-accrual loans amounted to $528,000 and were comprised of four agricultural loans, and one commercial loan. At March 31, 1999, non-accrual loans amounted to $1,706,000 and were comprised of one non-farm non-residential mortgage loans, one commercial loan, one agricultural loan, and two residential mortgage loans.
At March 31, 2000, the Bank had loans 90 days past due and still accruing totaling $47,000. Such loans amounted to $2,000 at December 31, 1999 and $-0- at
March 31, 1999.
At March 31, 2000, the Bank did not have any OREO properties. OREO's amounted to $-0- at December 31, 1999 and $906,000 at March 31, 1999.
Liquidity and Capital Resources
To be able to serve our market area, the Bank must maintain proper liquidity and adequate capital. Liquidity is measured by various ratios, with the most common being the ratio of loans to deposits. This ratio was 52.4% on March 31, 2000. In addition, on March 31, 2000 the Bank had the following short term investments: $32,500,000 in fed funds sold; $14,000,000 in securities due within one year; and $57,000,000 in securities due in one to five years.
To meet unanticipated funding requirements, the Bank maintains short term lines of credit with other banks totaling $14,700,000.
Capital adequacy is generally measured by comparing the total of equity capital and reserve for loan losses to total assets. On December 31, 1999 this ratio was 10.75% and on March 31, 2000 it was 10.88%. These figures are well above the levels currently considered adequate by bank regulators.
Year 2000 Compliance
The 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 Financial Institutions Examination Council. Management believes the Bank has completed all of the activities within their control to ensure that the Bank's systems are Year 2000 compliant.
The Bank's Year 2000 readiness costs were approximately $400,000. The Bank does not currently expect to apply any further funds to address Year 2000 issues.
The Bank has not experienced any material disruptions of internal computer systems for software applications due to the start of the Year 2000 nor has it experienced any problems with the computer systems or software applications of their third party vendors, suppliers or service providers. The Bank will continue to monitor these third parties to determine the impact, if any, on the business of the Bank and the actions either must take, if any, in the event of non-compliance by any of these third parties. Based on the Bank's assessment of compliance by third parties there does not appear to be any material business risk posed by any such non-compliance.
Although the Bank's Year 2000 rollover did not present any material business disruption, there are some remaining Year 2000 related risks. 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 customers, suppliers or service providers of the Bank will not have a material adverse impact on the Bank.
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the quantitative and qualitative disclosures about market risks as of March 31, 2000 from that presented in the Bank's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
PART II - OTHER INFORMATION AND SIGNATURES
ITEM 1.
Legal Proceedings
Not Applicable.
ITEM 2.
Changes in Securities
Not Applicable.
ITEM 3.
Defaults upon Senior Securities
Not Applicable.
ITEM 4.
Submission of Matters to a Vote of Security Holders
Not Applicable.
ITEM 5.
Other Information
Not Applicable.
ITEM 6.
Exhibits and Reports on Form 8 - K.
There were no Reports on Form 8-K.
SIGNATURES
FIRST NORTHERN BANK OF DIXON
Date: 5/12/00 By: /s/ Stanley R. Bean
----------------- ---------------------------------
Stanley R. Bean, Vice President/
Controller
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