-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Zuzs3kGbg1znbCZ8xAeJ14WzPxiBha7ZtbuvzP5MH4kXfCDCaR4tVmW4YdoodcVT gx3d/KrfnTxGsRc0VjykVg== 0000950109-94-002356.txt : 19941228 0000950109-94-002356.hdr.sgml : 19941228 ACCESSION NUMBER: 0000950109-94-002356 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19941219 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19941220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTAMERICA BANCORPORATION CENTRAL INDEX KEY: 0000311094 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 942156203 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09383 FILM NUMBER: 94565496 BUSINESS ADDRESS: STREET 1: 1108 FIFTH AVE CITY: SAN RAFAEL STATE: CA ZIP: 94901 BUSINESS PHONE: 4152578000 MAIL ADDRESS: STREET 1: 1108 FIFTH AVENUE CITY: SAN RAFAEL STATE: CA ZIP: 94901 FORMER COMPANY: FORMER CONFORMED NAME: INDEPENDENT BANKSHARES CORP DATE OF NAME CHANGE: 19830801 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: December 19, 1994 Westamerica Bancorporation - - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 1-9383 94-2156203 - - ----------------------------- ------------------------- ------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 1108 Fifth Avenue, San Rafael, California 94901 - - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415)257-8000 ------------- Not Applicable - - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) Item 5. Other Events. This Current Report on Form 8-K contains selected information concerning CapitolBank Sacramento, a California state-chartered bank ("Capitol"). This information is supplied in connection with the proposed acquisition of Capitol (the "Merger") by registrant Westamerica Bancorporation ("Westamerica"). Westamerica will file a Registration Statement on Form S-4 (the "Registration Statement") under the Securities Act of 1933 relating to the shares of Westamerica common stock to be issued in connection with the Merger, and such Registration Statement will incorporate by reference the information contained herein. Capitol is subject to the informational requirements of the Securities Exchange Act of 1934 as administered by the Federal Deposit Insurance Corporation (the "FDIC") and, in accordance therewith, files reports, proxy statements and other information with the FDIC, to which reference is made for detailed financial and other information regarding Capitol. Such reports, proxy statements and other information can be inspected and copies obtained from the Registration and Disclosure Section of the FDIC, 1776 F Street N.W., Room 643, Washington, D.C. 20459, at prescribed rates. These documents may also be inspected at the Federal Reserve Bank of San Francisco, 101 Market Street, San Francisco, California 94105. Although Westamerica has no reason to believe the information concerning Capitol included herein is not reliable, it has not verified either its accuracy or its completeness. Westamerica does not warrant that there have not occurred events, not yet publicly disclosed by Capitol, which would affect either the accuracy or the completeness of the information concerning Capitol included herein. Westamerica has no affiliation with Capitol other than the proposed acquisition of Capitol by Westamerica pursuant to an Agreement and Plan of Reorganization, dated as of November 17, 1994. The FDIC does not approve or disapprove or pass upon the accuracy or the adequacy of reports, proxy statements or other information filed with it. Item 7. Financial Statements and Exhibits. (c) Exhibits. Listed below are the exhibits filed as part of this Current Report on Form 8-K and in accordance with the provisions of Item 601 of Regulation S-K: 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Arthur Andersen LLP. 99.1 Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on December 31, 1975. 99.2 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on January 12, 1977. 99.3 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on May 17, 1977. 99.4 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on May 19, 1978. 99.5 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on October 14, 1983. 99.6 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on February 10, 1989. 99.7 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on September 28, 1989. 99.8 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on March 12, 1992. 99.9 Bylaws of CapitolBank Sacramento as presently in effect. 99.10 Annual Report on Form F-2 of CapitolBank Sacramento for the fiscal year ended December 31, 1993. 99.11 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended March 31, 1994. 99.12 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended June 30, 1994. 99.13 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended September 30, 1994. 99.14 Proxy Statement of CapitolBank Sacramento, dated May 25, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Westamerica Bancorporation Date: December 19, 1994 /s/ Dennis R. Hansen ------------------------------------ Dennis R. Hansen Senior Vice President and Controller Exhibit Number Description of Exhibit - - ------- ---------------------- 23.1 Consent of KPMG Peat Marwick LLP. 23.2 Consent of Arthur Andersen LLP. 99.1 Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on December 31, 1975. 99.2 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on January 12, 1977. 99.3 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on May 17, 1977. 99.4 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on May 19, 1978. 99.5 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on October 14, 1983. 99.6 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on February 10, 1989. 99.7 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on September 28, 1989. 99.8 Certificate of Amendment of Articles of Incorporation of CapitolBank Sacramento as filed with the Secretary of State of the State of California on March 12, 1992. 99.9 Bylaws of CapitolBank Sacramento as presently in effect. 99.10 Annual Report on Form F-2 of CapitolBank Sacramento for the fiscal year ended December 31, 1993. 99.11 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended March 31, 1994. 99.12 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended June 30, 1994. 99.13 Quarterly Report on Form F-4 of CapitolBank Sacramento for the quarter ended September 30, 1994. 99.14 Proxy Statement of CapitolBank Sacramento, dated May 25, 1994. EX-23.1 2 CONSENT OF KPMG PEAT MARWICK LLP. Exhibit 23.1 [LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE] The Board of Directors CapitolBank Sacramento: The audit referred to in our report dated February 25, 1994 included the related financial statement schedules as of December 31, 1993 and for the year then ended included in the Form 8-K. These financial statement schedules are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statement schedules based on our audit. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the use of our report included herein. /s/ KPMG Peat Marwick LLP Sacramento, California December 19, 1994 EX-23.2 3 CONSENT OF ARTHUR ANDERSEN LLP. EXHIBIT 23.2 ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use in this Form 8-K of our reports dated February 19, 1993, on the financial statements of Capitol Bank Sacramento. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1992, or performed any audit procedures subsequent to the date of our report. /s/ Arthur Andersen LLP Sacramento, California December 19, 1994 EX-99.1 4 ARTICLES OF INCORPORATION (CAPITOLBANK) EXHIBIT 99.1 ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, have this day voluntarily associated ourselves together for the purpose of forming a corporation under the laws of the State of California, and we do hereby certify: ARTICLE I --------- NAME ---- That the name of the corporation is: CAPITOL BANK OF COMMERCE. ARTICLE II ---------- PURPOSES -------- The purposes for which this corporation is formed are: A. The specific business in which the corporation is primarily to engage is the business of banking. B. Commercial Bank. To engage in, conduct and transact the business of a --------------- commercial bank as defined and provided for in the Banking Law of the State of California, and to assume all the duties and to have, exercise, enjoy and possess all the functions, rights, powers, franchises and privileges which a commercial bank may now or hereafter be authorized or empowered -1- by the Banking Law or any other law of the State of California to assume, have, exercise, enjoy or possess. C. Safe Deposit Department. To engage in and conduct a safe deposit ----------------------- department, and in the conducting of such safe deposit department to store and hold for others securities and other personal property and to maintain vaults, safes and receptacles for the storage, safe depositing and safe keeping of securities and other personal property, and to rent and hire such safes and receptacles to others upon such terms and conditions as the corporation may deem advisable. D. Branches. To establish, maintain and conduct branches as and in the -------- manner authorized by law or as or in any manner that may be authorized or permitted by law hereafter. E. General. And generally to do any and all acts and things that a ------- commercial bank organized under the laws of the State of California may lawfully do. ARTICLE III ----------- PRINCIPAL OFFICE ---------------- The County in the State of California where the principal office for the transaction of business of this corporation is to be located in the County of Sacramento. ARTICLE IV ---------- CAPITAL ------- That the total number of shares of this corporation shall be 600,000 shares of common stock of $6.25 par value per share -2- for an aggregate value of $3,750,000; that all of said shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors, and as may be permitted by law. The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purpose of restoring an impairment or reduction of capital in the manner provided by the Banking Law of the State of California. ARTICLE V --------- DIRECTORS --------- That the number of directors of said corporation shall be eleven (11), and that the names and addresses of the persons who are appointed to act as the First Directors of this corporation are as follows:
NAME ADDRESS ---- ------- CARLTON Z. ADAMS 1712 Woodacre Court Carmichael, CA 95608 CARROLL E. BROCK 7739 Bloom Way Citrus Heights, CA 95610 CHARLES C. CHATFIELD 9000 Oak Avenue Orangevale, CA 95662 WILLIAM H. COLLARD 75 Breckenwood Way Sacramento, CA 95825 MORTON L. FRIEDMAN 1620 McLaren Drive Carmichael, CA 95608
-3- JOHN E. KIPP, JR. 363 Mt. View Drive Folsom, CA 95630 EDWARD L. LAMMERDING 2308 West LaLoma Drive Rancho Cordova, CA 95670 FRANK C. RAMOS 1501 Acorn Court West Sacramento, CA 95691 TOM TAKEHARA 4250 Guildford Court Sacramento, CA 95825 FOREST L. TAYLOR 2301 West LaLoma Drive Rancho Cordova, CA 95670 HOWARD M. TURNER 2768 13th Street Sacramento, CA 95818
That the number of directors may be changed by a By-Law duly adopted by the shareholders, specifying the number of directors. IN WITNESS WHEREOF, we, as incorporators, and named hereinabove as directors, have hereunto set our hands and seals as such incorporators and directors in the County of Sacramento, State of California, this 22nd day of December, 1975. /s/ Carlton Z. Adams ------------------------------ Carlton Z. Adams /s/ Carroll E. Brock ------------------------------ Carroll E. Brock /s/ Charles C. Chatfield ------------------------------ Charles C. Chatfield /s/ William H. Collard ------------------------------ William H. Collard -4- /s/ Morton L. Friedman ------------------------------ Morton L. Friedman /s/ John E. Kipp, Jr. ------------------------------ John E. Kipp, Jr. /s/ Edward L. Lammerding ------------------------------ Edward L. Lammerding /s/ Frank C. Ramos ------------------------------ Frank C. Ramos /s/ Tom Takehara ------------------------------ Tom Takehara /s/ Forest L. Taylor ------------------------------ Forest L. Taylor /s/ Howard M. Turner ------------------------------ Howard M. Turner STATE OF CALIFORNIA COUNTY OF SACRAMENTO On this 22nd day of December 1975, before me, the undersigned, a Notary Public in and for the State of California, residing therein, duly commissioned and sworn, personally appeared CARLTON Z. ADAMS, CARROLL E. BROCK, CHARLES C. CHATFIELD, WILLIAM H. COLLARD, MORTON L. FRIEDMAN, JOHN E. KIPP, JR., EDWARD L. LAMMERDING, FRANK C. RAMOS, TOM TAKEHARA, FOREST L. TAYLOR, and HOWARD M. TURNER, known to me to be the -5- persons whose names are subscribed to the foregoing ARTICLES OF INCORPORATION, as incorporators, who are also named therein as Directors, and they duly acknowledge to me that they executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my seal at Sacramento, California, the day and year first above written. /s/ Catherine E. LaShells ------------------------------ [NOTARIAL SEAL] -6- EX-99.2 5 CERTIFICATE OF AMENDMENT EXHIBIT 99.2 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE EDWARD L. LAMMERDING and PENNY TYLER certify: That they are the President and Secretary, respectively, of CAPITOL BANK OF COMMERCE, a California corporation. That at a meeting of the Board of Directors of the corporation duly held at 525 Downtown Plaza, Sacramento, on December 1, 1976, the following resolution was adopted: WHEREAS, it is deemed to be in the best interests of this corporation and its shareholders that its Articles of Incorporation be amended as hereinafter provided: RESOLVED, that Article II, PURPOSES, of the Articles of Incorporation is hereby amended to add Paragraph F. TRUST DEPARTMENT, which shall read as follows: F. TRUST DEPARTMENT. To engage in, conduct and transact the business ---------------- of a trust company as defined and provided for in the Banking Law of the State of California, and to assume all the duties and to have, exercise, enjoy and possess all the functions, rights, powers, franchises and privileges which a trust company may now have or hereafter be authorized or empowered by the Banking Law or any other law of the State of California to assume, have, exercise, enjoy or possess. That the shareholders have adopted said amendment by a resolution at a meeting held at Sacramento, California, on December 1, 1976; and that the wording of the amended articles, as set forth in the shareholders' resolution, is the same as that set forth above. -1- That the number of shares which voted affirmatively for the adoption of said resolution is 345,900 and that the total number of shares entitled to vote on said amendment is 400,000. Dated: December 6, 1976. /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding, President /s/ Penny Tyler ------------------------------- Penny Tyler, Secretary VERIFICATION ------------ Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are of his own knowledge true and correct. Executed at Sacramento, California, on December 6, 1976. /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding, President /s/ Penny Tyler ------------------------------- Penny Tyler, Secretary -2- EX-99.3 6 CERTIFICATE OF AMENDMENT EXHIBIT 99.3 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE EDWARD L. LAMMERDING and PENNY TYLER certify: That they are the President and Secretary, respectively, of CAPITOL BANK OF COMMERCE, a California corporation. That at a meeting of the Board of Directors of the corporation duly held at 525 Downtown Plaza, Sacramento, on January 19, 1977, the following resolution was adopted: WHEREAS, the authorized number of shares of this corporation is 600,000, of which 400,000 shares are presently issued and outstanding; and WHEREAS, the present par value of the common stock of this corporation is $6.25 per share; and WHEREAS, it is deemed to be in the best interests of this corporation and its shareholders that Article IV of the Articles of Incorporation be amended to increase the authorized number of shares to 2,000,000, to reduce the par value of such common stock to $3.125 per share, and to split each of the issued and outstanding shares of common stock into two shares of common stock; NOW, THEREFORE, BE IT RESOLVED, that Article IV of the Articles of Incorporation, which reads as follows: That the total number of shares of this corporation shall be 600,000 shares of common stock of $6.25 par value per share for an aggregate value of $3,750,000; that all of said shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors, and as may be permitted by law. -1- The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purpose of restoring an impairment or reduction of capital in the manner provided by the Banking Law of the State of California. shall be and is hereby amended as follows: That the total number of shares of this corporation shall be 2,000,000 shares of common stock of $3.125 par value per share for an aggregate value of $6,250,000; that all of said shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors and as may be permitted by law. The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purposes of restoring an impairment or reduction of capital in the manner provided by the Banking Law of the State of California. Upon the amendment of this Article IV to read as hereinabove set forth, each outstanding share of a par value of $6.25 is split up and converted into two shares of a par value of $3.125 each. RESOLVED FURTHER, that the aforesaid amendments and stock split are subject to and shall only become effective on: 1. Obtaining shareholders approval; 2. Obtaining the necessary and proper authorization pursuant to application filed with the Superintendent of Banks of the State of California; 3. Filing with the Secretary of State of California the necessary certificate of amendment of the Articles of Incorporation of this corporation and filing a copy certified by the Secretary of State with the county clerk as required by law. -2- RESOLVED FURTHER, that each of the officers of this corporation is authorized and directed to take such further actions and to execute and deliver such further documents as shall be necessary to affect said stock split, said qualification, and said amendment to the Articles of Incorporation. That the shareholders have adopted said amendment by a resolution at a meeting held at Sacramento, California, on April 27, 1977; and that the wording of the amended articles, as set forth in the shareholders' resolution, is the same as that set forth above. That the number of shares which voted affirmatively for the adoption of said resolution is 331,680, and that the total number of shares entitled to vote on said amendment is 400,000. Dated: May 9th, 1977 /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding, President /s/ Penny Tyler ------------------------------- Penny Tyler, Secretary VERIFICATION ------------ Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are of his/her own knowledge are true and correct. Executed at Sacramento, California, on May 9th, 1977. /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding /s/ Penny Tyler ------------------------------- Penny Tyler -3- EX-99.4 7 CERTIFICATE OF AMENDMENT EXHIBIT 99.4 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE EDWARD L. LAMMERDING and PENNY TYLER certify: That they are the President and Secretary, respectively, of CAPITOL BANK OF COMMERCE, a California corporation. That at a meeting of the Board of Directors of the corporation duly held at 324 Capitol Mall, Sacramento, on February 15, 1978, the following resolution was adopted: WHEREAS, the authorized number of shares of this corporation is 2,000,000, of which 801,600 shares are presently issued and outstanding; WHEREAS, the present par value of the common stock of this corporation is $3.125 per share; and WHEREAS, it is deemed to be in the best interests of this corporation and its shareholders that Article IV of the Articles of Incorporation be amended to reduce the par value of the common stock to $1.5625 per share and to split each of the issued and outstanding shares of common stock into two shares of common stock. NOW, THEREFORE, BE IT RESOLVED, that Article IV of the Articles of Incorporation, which reads as follows: That the total number of shares of this corporation shall be 2,000,000 shares of common stock of $3.125 par value per share for an aggregate value of $6,250,000; that all of said shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors, and as may be permitted by law. The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of -1- the Superintendent of Banks of the State of California for the purpose of restoring an impairment or reduction of capital in the manner provided by the Banking Law of the State of California. Upon the amendment of Article IV to read as hereinabove set forth, each outstanding share of a par value of $6.25 is split up and converted into two shares of par value of $3.125 each. shall be and is hereby amended as follows: That the total number of shares of this corporation shall be 2,000,000 shares of common stock of $1.5625 par value per share for an aggregate value of $3,125,000.00; that all of said shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as shall be determined by the Board of Directors, and as may be permitted by law. The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purpose of restoring an impairment or reduction of capital in the manner provided by the Banking Law of the State of California. Upon the amendment of Article IV to read as hereinabove set forth, each outstanding share of a par value of $3.125 is split up and converted into two shares of par value of $1.5625 each. RESOLVED FURTHER, that the aforesaid amendment and stock split are subject to and shall only become effective on: 1. Obtaining shareholders approval; 2. Obtaining the necessary and proper authorization pursuant to application filed with the Superintendent of Banks of the State of California; 3. Filing with the Secretary of State of California the necessary certificate of amendment of the Articles of Incorporation of this corporation. RESOLVED FURTHER, that each of the officers of this corporation is authorized and directed to take such further actions and to execute and deliver such further documents as shall be necessary to effect said stock split, said qualification, and said amendment to the Articles of Incorporation of this corporation. -2- That the shareholders have adopted said amendment by a resolution at a meeting held at Sacramento, California, on April 26, 1978, and that the wording of the amended Articles, as set forth in the shareholders' resolution, is the same as that set forth above. That the number of shares which voted affirmatively for the adoption of said resolution is 669,755, and that the total number of shares entitled to vote on said amendment is 807,100. Dated: May 17, 1978 /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding, President /s/ Penny Tyler ------------------------------- Penny Tyler, Secretary VERIFICATION ------------ Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are of his/her own knowledge true and correct. Executed at Sacramento, California, on May 17, 1978. /s/ Edward L. Lammerding ------------------------------- Edward L. Lammerding /s/ Penny Tyler ------------------------------- Penny Tyler -3- EX-99.5 8 CERTIFICATE OF AMENDMENT EXHIBIT 99.5 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE GEORGE J. MACKO and PENNY TYLER certify as follows: 1. That they are the President and Secretary, respectively of Capitol Bank of Commerce. 2. Article IV of the Articles of Incorporation of said Corporation shall be amended to read as follows: ARTICLE IV That the total number of shares of this Corporation shall be 10,000,000 shares of common stock of $1.5625 par value per share for an aggregate value of $15,625,000; that all of such shares shall be common stock and shall have full voting rights, one vote to each such share, and that from time to time the common stock may be increased, according to law, and may be issued in such amounts and proportions as may be determined by the Board of Directors, and as may be permitted by law. The common stock of this Corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purpose of restoring an impairment of contributed capital in the manner and to the extent provided in Division 1 of the Financial Code of the State of California. 3. The amendment has been approved by the Board of Directors of Capitol Bank of Commerce. 4. The amendment has been approved by the required vote of the shareholders in accordance with Section 902 and 903 of the California Corporations Code. The Corporation has only one class of shares. Each share is entitled to one vote. The Corporation has 1,789,821 shares outstanding and, hence, the -1- total number of shares entitled to vote with respect to the amendment was 1,789,921. The number of shares voting in favor of the amendment executed the vote required, in that the affirmative vote of a majority, that is, more than fifty percent (50%) of the outstanding shares was required for approval of the amendment and the amendment was approved by the affirmative vote of 1,167,554 shares, or slightly more than sixty-five percent (65%) of the outstanding shares. /s/ George J. Macko ------------------------------ GEORGE J. MACKO /s/ Penny Tyler ------------------------------ PENNY TYLER -2- Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing Certificate are true and correct of their own knowledge and that this declaration was executed on the 26th day of August, 1983, at Sacramento, California. /s/ George J. Macko ------------------------------ GEORGE J. MACKO /s/ Penny Tyler ------------------------------ PENNY TYLER -3- EX-99.6 9 CERTIFICATE OF AMENDMENT EXHIBIT 99.6 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOL BANK OF COMMERCE a California corporation Michael F. Burkart and James M. McGann certify that: 1. They are the duly elected and acting President and Secretary, respectively, of CAPITOL BANK OF COMMERCE, a California corporation. 2. The articles of incorporation shall be amended by adding another Article V and Article VI to read as follows: "ARTICLE V. DIRECTOR LIABILITY The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE VI. INDEMNIFICATION OF CORPORATE AGENTS The Board of Directors of the corporation may by bylaw, agreement or otherwise provide for the indemnification of agents for breach of duty to the corporation and its shareholders to the fullest extent permissible under California law." 3. The foregoing amendment has been duly approved by the Board of Directors of said corporation. 4. The foregoing amendment has been duly approved by the required vote of shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is four million, eighty thousand, three hundred, two (4,080,302). The number of shares voting in favor -1- of said amendment equaled or exceeded the vote required. The percentage vote required was more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: FEB. 1, 1989 /s/ Michael F. Burkart ----------------------------- President /s/ James M. McGann ----------------------------- Secretary -2- EX-99.7 10 CERTIFICATE OF AMENDMENT EXHIBIT 99.7 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION Michael F. Burkart and James McGann certify that: 1. They are the president and secretary, respectively, of Capitol Bank of Commerce. 2. Article I of the articles of incorporation is amended to read as follows: "ARTICLE I. ---------- NAME ---- That the name of this corporation is: "CapitolBank Sacramento." 3. The foregoing amendment of articles of incorporation has been duly approved by the board of directors. 4. The foregoing amendment of articles of incorporation has been duly approved by the required vote of the shareholders in accordance with Section 902 of the Corporations Code. The total number of outstanding shares of the corporation is 4,080,302. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required is more than 50%. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in the certificate are true and correct of our own knowledge. Date: 9/26/89 /s/ Michael F. Burkhart -------------------------------- Michael F. Burkart, President /s/ James M. McGann -------------------------------- James M. McGann, Secretary -1- EX-99.8 11 CERTIFICATE OF AMENDMENT EXHIBIT 99.8 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF CAPITOLBANK SACRAMENTO J. Al Wickland, Jr. and James M. McGann certify that: 1. They are the Chairman of the Board and the Secretary, respectively, of CapitolBank Sacramento, a California corporation. 2. The Articles of Incorporation are amended to read in full: ARTICLE I --------- Name ---- That the name of this corporation is: "CapitolBank Sacramento." ARTICLE II ---------- PURPOSES -------- The purpose of this corporation is to engage in commercial banking business and trust business and any other lawful activities which are not, by applicable laws or regulations, prohibited to a commercial bank authorized to engage in trust business. ARTICLE III ----------- CAPITAL ------- The corporation is authorized to issue 10,000,000 shares of common stock of one class. The common stock of this corporation shall be subject to assessment by the Board of Directors upon order of the Superintendent of Banks of the State of California for the purpose of restoring an impairment of contributed capital in the manner and to the extent provided in Division 1 of the Financial Code of the State of California. -1- ARTICLE IV ---------- DIRECTOR LIABILITY ------------------ The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE V --------- INDEMNIFICATION OF CORPORATE AGENTS ----------------------------------- The Board of Directors of the corporation may by bylaw, agreement or otherwise provide for the indemnification of agents for breach of duty to the corporation and its shareholders to the fullest extent permissible under California law. ARTICLE VI ---------- ELECTION TO BE GOVERNED BY THE GENERAL CORPORATION LAW ------------------------------------------------------ The corporation elects to be governed by all of the provisions of the General Corporation Law (as added to the California Corporations Code effective January 1, 1977, and as subsequently amended) not otherwise applicable to this corporation under Chapter 23 of said General Corporation Law." 3. The amendment herein set forth has been duly approved by the Board of Directors. 4. The amendment herein set forth only adds the statement relating to the General Corporation Law as in effect on January 1, 1977 and makes no other change in the articles except as authorized by Section 2302 of the Corporations Code and does not alter the authorized number of directors. Dated: FEB 21, 1992. /s/ J. Al Wickland, Jr. ------------------------------ J. Al Wickland, Jr. Chairman of the Board /s/ James M. McGann ------------------------------ James M. McGann, Secretary -2- We further declare under penalty of perjury under the laws of the State of California that we have read the foregoing certificate and know the contents thereof and that the same is true of our own knowledge. Dated: FEB 21, 1992. /s/ J. Al Wickland, Jr. ------------------------------ J. Al Wickland, Jr. /s/ James M. McGann ------------------------------ James M. McGann [SEAL OF CAPITALBANK SACRAMENTO] -3- EX-99.9 12 BYLAWS OF CAPITOLBANK EXHIBIT 99.9 BYLAWS OF CAPITOLBANK SACRAMENTO (A California Banking Corporation)
TABLE OF CONTENTS ----------------- Page(s) ------- ARTICLE I Offices................................................... 1 Section 1. Principal Office............................... 1 Section 2. Other Offices.................................. 1 ARTICLE II Meetings of Shareholders.................................. 1 Section 3. Place of Meetings.............................. 1 Section 4. Annual Meetings................................ 1 Section 5. Special Meetings............................... 2 Section 6. Notice of Shareholders' Meetings............... 2 Section 7. Quorum......................................... 3 Section 8. Adjourned Meeting.............................. 3 Section 9. Waiver or Consent by Shareholders.............. 3 Section 10. Action Without Meeting......................... 4 Section 11. Voting Rights; Cumulative Voting............... 4 Section 12. Proxies........................................ 5 Section 13. Voting by Joint Holders or Proxies............. 6 Section 14. Inspectors of Election......................... 6 ARTICLE III Directors; Management..................................... 7 Section 15. Powers......................................... 7 Section 16. Number and Qualification of Directors.......... 7 Section 17. Election and Term of Office.................... 8 Section 18. Removal of Directors........................... 8 Section 19. Vacancies...................................... 8 Section 20. Place of Meetings.............................. 9 Section 21. Organizational Meetings........................ 9 Section 22. Other Regular Meetings......................... 9 Section 23. Special Meetings............................... 10 Section 24. Quorum......................................... 10 Section 25. Contents of Notice and Waiver of Notice........ 10 Section 26. Adjournment.................................... 11 Section 27. Notice of Adjournment.......................... 11 Section 28. Telephone Participation........................ 11 Section 29. Action Without Meeting......................... 11 Section 30. Fees and Compensation.......................... 11 Section 31. Meetings Called by Superintendent.............. 11 ARTICLE IV Officers.................................................. 12 Section 32. Officers....................................... 12 Section 33. Election....................................... 12 Section 34. Subordinate Officers........................... 12 Section 35. Removal and Resignation........................ 13 Section 36. Vacancies...................................... 13 Section 37. Chairman of the Board; Vice-Chairman of the Board...................................... 13
i TABLE OF CONTENTS -----------------
Page(s) ------- Section 38. President...................................... 13 Section 39. Vice Presidents................................ 14 Section 40. Secretary...................................... 14 Section 41. Chief Financial Officer; Cashier............... 15 ARTICLE V General Corporate Matters................................. 15 Section 42. Record Date and Closing of Stockbooks.......... 15 Section 43. Corporate Records and Inspection by Shareholders and Directors..................... 16 Section 44. Checks, Drafts, Evidences of Indebtedness...... 16 Section 45. Corporate Contracts and Instruments; How Executed.................................. 17 Section 46. Stock Certificates............................. 17 Section 47. Lost Certificates.............................. 17 Section 48. Reports to Shareholders........................ 17 Section 49. Indemnity of Officers, Directors, etc.......... 18 ARTICLE VI Amendments................................................ 23 Section 50. Amendments by Shareholders..................... 23 Section 51. Amendment by Directors......................... 24 Section 52. Effective Date................................. 24 ARTICLE VII Committees of the Board of Directors...................... 24 Section 53. Committees of the Board of Directors........... 24
ii BYLAWS OF CAPITOLBANK SACRAMENTO (A California Banking Corporation) ARTICLE I Offices ------- Section 1. Principal Office. The principal executive office in the --------- ---------------- State of California for the transaction of the business of the corporation (called the principal office) shall be 300 Capitol Mall, Sacramento, California, in the County of Sacramento. Subject to authorization therefor by the Superintendent of Banks, State of California, the Board of Directors shall have the authority from time to time to change the principal office from one location to another within the State by amending this Section 1 of the Bylaws. Section 2. Other Offices. Upon authorization therefor by the --------- ------------- Superintendent of Banks, State of California, one or more branches or other subordinate offices may at any time be fixed and located by the Board of Directors at such place or places within the State of California as it deems appropriate. ARTICLE II Meetings of Shareholders ------------------------ Section 3. Place of Meetings. Meetings of the shareholders shall be --------- ----------------- held at any place within the State of California that may be designated in writing by the Board of Directors in accordance with these Bylaws. If no such designation is made, the meetings shall be held at the principal office of the corporation. Section 4. Annual Meetings. All annual meetings of shareholders --------- --------------- shall be held on such dates, at such times and at such locations as shall be designated by the Board of Directors. At the annual meeting the shareholders shall elect a Board of Directors, consider reports of the affairs of the corporation, and transact such other business as may properly be brought before the meeting. 1 Section 5. Special Meetings. Special meetings of the shareholders, --------- ---------------- for any purpose or purposes whatsoever, may be called at any time by the Board of Directors, Chairman of the Board of Directors, the President, or by holders of shares entitled to cast not less than 10 percent (10%) of the votes at the meeting. Section 6. Notice of Shareholders' Meetings. Whenever shareholders --------- -------------------------------- are required or permitted to take any action at a meeting, a written notice of the meeting shall be given not less than 10 (or, if sent by third class mail, 30) nor more than 60 days before the date of the meeting to each shareholder entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (1) in the case of a special meeting, the general nature of the business to be transacted, and no other business may be transacted, or (2) in the case of the annual meeting, those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but subject to the provisions of Section 601(f) of the California Corporations Code, any proper matter may be presented at the meeting for such action. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by management for election. Notice of a shareholders' meeting shall be given either personally or by first-class mail (or, if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the California Corporations Code) on the record date for the shareholders meeting, notice may be sent third-class mail as provided in Sections 601(a) and 601(b) of the California Corporations Code) or other means of written communication, addressed to the shareholder at the address of such shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice; or if no such address appears or is given, at the place where the principal office of the corporation is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by other means of written communication. If any notice addressed to the shareholder at the address of such shareholder appearing on the books of the 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 such address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the principal office of 2 the corporation for a period of one year from the date of the giving of the notice to all other shareholders. Upon request in writing to the Chairman of the Board of Directors, President, Vice President or Secretary by any person entitled to call a special meeting of shareholders, the officer forthwith shall cause notice to be given to the shareholders entitled to vote that a meeting will be held at a 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. Section 7. Quorum. The presence at any meeting, in person or by --------- ------ proxy, of the persons entitled to vote a majority of the voting shares of the corporation shall constitute a quorum for the transaction of business. Shareholders present at a valid meeting at which a quorum is initially 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 persons voting more than 25 percent of the voting shares. Section 8. Adjourned Meeting. Any annual or special shareholders --------- ----------------- meeting may be adjourned from time to time, even though a quorum is not present, by vote of the holders of a majority of the voting shares present at the meeting either in person or by proxy, provided that in the absence of a quorum, no other business may be transacted at the meeting except as provided in Section 7 of these Bylaws. Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. Waiver or Consent by Shareholders. The transactions of --------- --------------------------------- any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a 3 waiver of notice of and presence at such 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 required by Section 6 of these Bylaws or Section 601(f) of the California Corporations Code to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as provided in Section 601(f) of the California Corporations Code. Section 10. Action Without 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, shall be signed by the holders of outstanding shares having not less than the minimum number of affirmative votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted, except that unanimous written consent shall be required for election of directors, subject to the provisions of Section 19 of these Bylaws. Unless the consents of all shareholders entitled to vote have been solicited or received in writing, notice shall be given to non-consenting shareholders to the extent required by Section 603(b) of the California Corporations Code. Any shareholder giving written consent, or the shareholder's proxyholders, or a transferee of the shares or a personal representative of the shareholder or their respective proxyholders, may revoke the consent by a writing received by the corporation prior to the time that written consents of the number of shares required to authorize the proposed action have been filed with the Secretary of the corporation, but may not do so thereafter. Such revocation is effective upon its receipt by the Secretary of the corporation. Section 11. Voting Rights; Cumulative Voting. Only persons in whose ---------- -------------------------------- names shares entitled to vote stand on the stock records of the corporation at the close of business on the record date fixed by the Board of Directors as provided in Section 42 of these Bylaws for the determination of shareholders of record shall be entitled to notice of and to vote at such meeting of shareholders. If no record date is fixed, 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 4 day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the 60th day prior to the date of such other action, whichever is later. Except as provided in the next following sentence and except as may be otherwise provided in the Articles of Incorporation, each shareholder entitled to vote shall be entitled to one vote for each share held on each matter submitted to a vote of shareholders. In the election of directors, each such shareholder complying with the following paragraph may cumulate such shareholder's votes 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 the shareholder's shares are normally entitled, or distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes, in favor of any candidate or candidates unless such candidate's or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, such fact shall be announced to all shareholders and proxies present, who may then cumulate their votes for candidates in nomination. In any election of directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, are elected. Voting may be by voice or ballot, provided that any election of directors must be by ballot upon the demand of any shareholder made at the meeting and before the voting begins. Section 12. Proxies. Every person entitled to vote shares may ---------- ------- authorize another person or persons to act by proxy with respect to such shares. All proxies must be in writing and must be signed by the shareholder confirming the proxy or his attorney-in-fact. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy continues in full force and effect until revoked by the 5 person executing it prior to the vote pursuant thereto, except as otherwise provided in Section 705 of the California Corporations Code. Such revocation may be effected by a writing delivered to the corporation stating that the proxy is revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting, by attendance at such meeting and voting in person by the person executing the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. Section 13. Voting by Joint Holders or Proxies. Shares or proxies ---------- ---------------------------------- standing in the names of two or more persons shall be voted or represented in accordance with the vote or consent of the majority of such persons. If only one of such persons is present in person or by proxy, that person shall have the right to vote all such shares, and all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum. This section shall apply to the voting of shares by two or more administrators, executors, trustees or other fiduciaries, or joint proxy holders, unless the instrument or order of court appointing them shall otherwise direct. Section 14. Inspectors of Election. In advance of any meeting of ---------- ---------------------- shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one or three inspectors are to be appointed. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. The inspectors of election shall determine the number of shares 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, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. 6 ARTICLE III Directors; Management --------------------- Section 15. Powers. Subject to any provisions of the Articles of ---------- ------ Incorporation, of the Bylaws and of law limiting the powers of the Board of Directors or reserving powers to the shareholders, the Board of Directors shall, directly or by delegation, manage the business and affairs of the corporation and exercise all corporate powers permitted by law. Section 16. Number and Qualification of Directors. ---------- ------------------------------------- (a) The authorized number of directors shall not be less than seven (7) nor more than thirteen (13), unless and until changed by an amendment to this Section 16(a) approved by the shareholders pursuant to Section 50 of these Bylaws. The exact number of directors within the range provided in this Section 16(a) shall be fixed by a resolution adopted by the Board of Directors, and unless and until a resolution fixing a different number is adopted by the Board of Directors, the exact number of directors shall be seven (7). (b) Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any stockholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations (other than nominations 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 21 days nor more than 60 days prior to any meeting of stockholders called for the election of directors; provided however, that if less than 21 days notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further, that if notice of such meeting is sent by third-class mail as permitted by Section 6 of these Bylaws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded and upon the Chairman's instructions, the inspectors of election 7 can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which Directors are to be elected. Section 17. Election and Term of Office. The directors shall be ---------- --------------------------- elected annually by the shareholders at the annual meeting of the shareholders; provided, that if for any reason, said annual meeting or an adjournment thereof is not held or the directors are not elected thereat, then the directors may be elected at any special meeting of the shareholders called and held for that purpose. The term of office of the directors shall, except as provided in Section 18 of these Bylaws, begin immediately after their election and shall continue until their respective successors are elected and qualified. Each director upon taking office shall make an oath or affirmation as required by Section 682 of the Financial Code of the State of California, and each such oath, subscribed by the director and certified by the officer before whom it is taken, shall be immediately filed with the California Superintendent of Banks. Section 18. Removal of Directors. A director may be removed from ---------- -------------------- office by the Board of Directors if he is declared of unsound mind by the order of court or convicted of a felony. Any or all of the directors may be removed from office without cause by a vote of shareholders holding a majority of the outstanding shares entitled to vote at an election of directors; however, unless the entire Board of Directors is removed, an individual director shall not be removed if the votes cast against removal, or not consenting in writing to such removal, would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast, or, if such action is taken by written consent, all shares entitled to vote were voted, and the entire number of directors authorized at the time of the director's most recent election were then being elected. A director may also be removed from office by the Superior Court of the county in which the principal office is located, at the suit of shareholders holding at least ten percent (10%) of the number of outstanding shares of any class, in case of fraudulent or dishonest acts or gross abuse of authority or discretion with reference to the corporation, in the manner provided by law. No reduction of the authorized number of directors shall have the effect of removing any director before his term of office expires. Section 19. Vacancies. A vacancy or vacancies on the Board of ---------- --------- Directors shall exist on the death, resignation, or removal of any director, or if the authorized number of directors 8 is increased or the shareholders fail to elect the full authorized number of directors. Except for a vacancy created by the removal of a director which may only be filled by approval of the shareholders, vacancies on the Board of Directors may be filled by approval of the Board of Directors or, if the number of directors then in office is less than a quorum, by the unanimous written consent of the directors then in office, the affirmative vote of a majority of the remaining directors then in office, or by a sole remaining director. Each director so elected shall hold office until his successor is elected at an annual or special shareholders' meeting. The shareholders may elect a director at any time to fill any vacancy not filled by the directors. Any such election by written consent, other than to fill a vacancy created by removal, requires the consent of a majority of the outstanding shares entitled to vote. An election by written consent to fill a vacancy created by removal requires the unanimous consent of all shareholders entitled to vote. Any director may resign effective upon giving written notice to the Chairman of the Board of Directors, the President, the Secretary or the Board of Directors of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Section 20. Place of Meetings. Regular and special meetings of the ---------- ----------------- Board of Directors shall be held at any place within the State of California that is designated by resolution of the Board or, either before or after the meeting, consented to in writing by all the Board members. If the place of a regular or special meeting is not fixed by resolution or written consents of the Board, it shall be held at the corporation's principal office. Section 21. Organizational Meetings. Immediately following each ---------- ----------------------- annual shareholders' meeting, the Board of Directors shall hold an organizational meeting at a date and time adopted by the Board of Directors by resolution to organize, elect officers, and transact other business. Notice of this meeting shall not be required. Section 22. Other Regular Meetings. Other regular meetings of the ---------- ---------------------- Board of Directors shall be held at such time and place as the Board of Directors by resolution shall determine, but not less than once each calendar quarter. Notice of these regular meetings shall not be required. 9 Section 23. Special Meetings. Special meetings of the Board of ---------- ---------------- Directors for any purpose may be called at any time by the Chairman of the Board of Directors, the President or any two directors. Special meetings of the Board shall be held upon four days' notice by mail or 48 hours' notice delivered personally, by telephone, telegraph or facsimile. If notice is by telephone, it shall be complete when the person calling the meeting believes in good faith that the notified person has heard and acknowledged the notice. If the notice is by mail or telegraph, it shall be complete when deposited in the United States mail or delivered to the telegraph office at the place where the corporation's principal office is located, charges prepaid and addressed to the notified person at such person's address appearing on the corporate records or, if it is not on these records or is not readily ascertainable, at the place where the regular Board meeting is held. If the notice is sent by facsimile, it shall be complete when the facsimile transmission equipment used to send the notice indicates that the transmission has been received by the facsimile equipment designated for receipt of such transmissions by the director to whom the notice is sent. Section 24. Quorum. A majority of the authorized number of directors ---------- ------ shall constitute a quorum for the transaction of business, except to adjourn a meeting under Section 26 of these Bylaws. Every act done or decision made by a majority of the directors present at a meeting at which a quorum is present shall be regarded as the act of the Board of Directors, unless the vote of a greater number is required by law, the Articles of Incorporation, or these Bylaws. 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 a majority of the required quorum for such meeting. Section 25. Contents of Notice and Waiver of Notice. Neither the ---------- --------------------------------------- business to be transacted at, nor the purpose of, any regular or special Board meeting need be specified in the notice or waiver of notice of the meeting. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, either before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to said director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. 10 Section 26. Adjournment. A majority of the directors present, ---------- ----------- whether or not a quorum is present, may adjourn any meeting to another time and place. Section 27. Notice of Adjournment. Notice of the time and place of ---------- --------------------- holding an adjourned meeting need not be given to absent directors if the time and place are fixed at the meeting being adjourned, except that if the meeting is adjourned for more than 24 hours such notice shall be given prior to the adjourned meeting to the directors who were not present at the time of the adjournment. Section 28. Telephone Participation. Members of the Board may ---------- ----------------------- participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meetings can hear one another. Such participation constitutes presence in person at such meeting. Section 29. Action Without Meeting. The Board of Directors may take ---------- ---------------------- any action without a meeting that may be required or permitted to be taken by the Board at a meeting, if all members of the Board individually or collectively consent in writing to the action. The written consent or consents shall be filed in the minutes of the proceedings of the Board of Directors. Such action by written consent shall have the same effect as an unanimous vote of directors. Section 30. Fees and Compensation. Directors and members of ---------- --------------------- committees shall receive neither compensation for their services nor reimbursement for their expenses unless these payments are fixed by resolution of the Board. Section 31. Meetings Called by Superintendent. ---------- --------------------------------- (a) The Superintendent of Banks, State of California may call a meeting of the Board of Directors of this corporation pursuant to Section 684 of the California Financial Code. (b) A meeting of the Board called by the Superintendent shall be held upon 4 days notice by mail or 24 hours notice delivered personally or by telephone or telegraph. Such notice shall be given by the Superintendent or, if the Superintendent so orders, by an officer of the corporation. (c) A meeting of the Board called by the Superintendent shall be held at such place within this state as may be designated by the Superintendent and specified in the notice of such meeting. 11 (d) The expenses of a meeting of the Board called by the Superintendent shall be paid by the corporation. ARTICLE IV Officers -------- Section 32. Officers. The officers of the corporation shall be a ---------- -------- President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board (a Chairman and a Vice-Chairman shall each be chosen from the Board of Directors), one or more Vice Presidents, one or more Assistant Secretaries, a Cashier, one or more Assistant Cashiers or Chief Financial Officers, and any other officers who may be appointed under Section 34 of these Bylaws. Any two or more offices, except those of President and Secretary, may be held by the same person. Any officer of the corporation may be excluded by resolution of the Board of Directors or by a provision of these Bylaws from participation, other than in the capacity of a director, in major policymaking functions of the corporation. Each officer and employee of the corporation shall give bond of suitable amount with security to be approved by the Board of Directors, conditioned on the honest and faithful discharge of his duties as such officer or employee. At the discretion of the Board, such bonds may be schedule or blanket form and the premiums shall be paid by the corporation. The amount of such bonds, the form of coverage, and the name of the company providing the surety therefor shall be reviewed annually by the Board of Directors. Action shall be taken by the Board at that time approving the amount of the bond to be provided by each officer and employee of the corporation for the ensuing year. Section 33. Election. The officers of the corporation, except those ---------- -------- appointed under Section 34 of these Bylaws, shall be chosen annually by the Board of Directors, and each shall hold his office until he resigns or is removed or otherwise disqualified to serve, or his successor is elected and qualified. Section 34. Subordinate Officers. The Board of Directors may ---------- -------------------- appoint, and may authorize the President to appoint, any other officers that the business of the corporation may require, each of whom shall hold office for the period, have the authority, and perform the duties specified in the Bylaws or by the Board of Directors. 12 Section 35. Removal and Resignation. Any officer may be removed with ---------- ----------------------- or without cause either, by the Board of Directors at any regular or special directors' meeting or, except for an officer chosen by the Board, by any officer on whom the power of removal may be conferred by the Board. Any officer may resign at any time by giving written notice to the Chairman of the Board, the Board of Directors, the President or the Secretary of the corporation. An officer's resignation shall take effect when it is received or at any later time specified in the resignation. Unless the resignation specifies otherwise, its acceptance by the corporation shall not be necessary to make it effective. Section 36. Vacancies. A vacancy in any office because of death, ---------- --------- resignation, removal, disqualification, or any other cause shall be filled in the manner prescribed in the Bylaws for regular appointments to the office. Section 37. Chairman of the Board; Vice-Chairman of the Board. The ---------- ------------------------------------------------- Board of Directors may in its discretion elect a Chairman of the Board, who shall preside at all meetings of the Board of Directors at which the Chairman is present and shall exercise and perform any other powers and duties assigned to the Chairman by the Board or prescribed by the Bylaws. The Board of Directors may in its discretion also elect a Vice-Chairman of the Board, who shall preside at all meetings of the Board of Directors in the absence of the Chairman of the Board and shall exercise and perform any other powers and duties assigned to the Vice-Chairman by the Board or prescribed by the Bylaws. The positions of Chairman of the Board and Vice-Chairman of the Board shall be deemed not to be executive officers of the corporation and the Chairman of the Board and Vice-Chairman of the Board shall be excluded from participation, other than in the capacity of directors, in major policymaking functions of the corporation. Section 38. President. Subject to any supervisory powers that may be ---------- --------- given by the Board of Directors or the Bylaws to the Chairman of the Board, the President shall be the corporation's chief executive officer and shall, subject to the control of the Board of Directors, have general supervision, direction, and control over the corporation's business and officers. The President shall preside, as Chairman at all shareholders' meetings and at all directors' meetings not presided over by the Chairman of the Board, the Vice-Chairman of the Board, in the absence of the Chairman, or such other member of the Board as has been designated by the Board of Directors, in the absence of the Chairman and the Vice-Chairman. 13 The President shall have the general powers and duties of management usually vested in a corporation's president; shall have any other powers and duties that are prescribed by the Board of Directors or these Bylaws; and shall be primarily responsible for carrying out all orders and resolutions of the Board of Directors. Section 39. Vice Presidents. If the President is absent or is unable ---------- --------------- or refuses to act, the Vice Presidents in order of their rank as fixed by the Board of Directors or, if not ranked, the 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 on, the President. Each Vice President shall have any other duties that are prescribed for said Vice President by the Board of Directors or the Bylaws. Section 40. Secretary. The Secretary shall keep or cause to be kept, ---------- --------- and be available at the principal office and any other place that the Board of Directors specifies, a book of minutes of all directors' and shareholders' meetings. The minutes of each meeting shall state the time and place that it was held, whether it was regular or special; if a special meeting, how it was authorized, the notice given, the names of those present or represented at shareholders' meetings, and the proceedings of the meetings. A similar minute book shall be kept for each committee of the Board. The Secretary shall keep, or cause to be kept, at the principal office or at the office of the corporation's transfer agent, a share register, or duplicate share register, showing the shareholders' names and addresses, the number and classes of shares held by each, the number and date of each certificate issued for these shares, and the number and date of cancellation of each certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all directors' and shareholders' meetings required to be given under these Bylaws or by law, shall keep the corporate seal in safe custody, and shall have any other powers and perform any other duties that are prescribed by the Board of Directors or these Bylaws. The Secretary shall be deemed not to be an executive officer of the corporation and the Secretary shall be excluded from participation, other than in the capacity of director if the Secretary is also a director, in major policymaking functions of the corporation. 14 Section 41. Chief Financial Officer; Cashier. The Chief Financial ---------- -------------------------------- Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the corporation's properties and business transactions, 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 have any other powers and perform any other duties that are prescribed by the Board of Directors. The Cashier, if one has been appointed by the Board, shall deposit all money and other valuables in the name and to the credit of the corporation with the depositories designated by the Board of Directors. The Cashier shall disburse the corporation's funds as ordered by the Board of Directors; shall render to the President and directors, whenever they request it, an account of all his transactions as Cashier. The Cashier shall have any other powers and perform any other duties that are prescribed by the Board of Directors. If required by the Board of Directors, the Cashier and Chief Financial Officer shall each give the corporation a bond in the amount and with the surety or sureties specified by the Board for faithful performance of the duties of that person's office and for restoration to the corporation of all its books, papers, vouchers, money, and other property of every kind in that person's possession or under that person's control on that person's death, resignation, retirement, or removal from office. ARTICLE V General Corporate Matters ------------------------- Section 42. Record Date and Closing of Stockbooks. The Board of ---------- ------------------------------------- Directors may fix a time in the future as a record date for determining shareholders entitled to notice of and to vote at any shareholders' meeting; to receive any dividend, distribution, or allotment of rights; or to exercise rights in respect of any other lawful action, including change, conversion, or exchange of shares. The record date shall not, however, be more than 60 nor less than 10 days prior to the date of such meeting nor more than 60 days prior to any other action. If a record date is fixed for a particular meeting or event, only shareholders of record on that date are entitled to notice and to vote and 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 the corporation after the record date. 15 A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board fixes a new record date for the adjourned meeting, but the Board shall fix a new record date if the meeting is adjourned for more than 45 days. Section 43. Corporate Records and Inspection by Shareholders and ---------- ---------------------------------------------------- Directors. Books and records of account and minutes of the proceedings of the - - --------- shareholders, Board, and committees of the Board shall be kept available for inspection at the principal office of the corporation. A record of the shareholders, giving the names and addresses of all shareholders and the number and class of shares held by each, shall be kept available for inspection,at the principal office or at the office of the corporation's transfer agent or registrar. A shareholder or shareholders holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation shall have an absolute right to do either or both of the following: (1) inspect and copy the record of shareholders' names and addresses and shareholdings during usual business hours upon five business days prior written demand upon the corporation, or (2) obtain from the transfer agent for the corporation, upon five business days prior written demand and upon the tender of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), 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 date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to such holder's interests as a shareholder or holder of a voting trust certificate. Inspection and copying may be made in person or by agent or attorney. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and its subsidiary corporations, domestic or foreign. Such inspection by a director may be made in person or by agent or attorney and includes the right to copy and make extracts. Section 44. Checks, Drafts, Evidences of Indebtedness. All checks, ---------- ----------------------------------------- drafts, or other orders for payment of money, notes, and all mortgages, or other evidences of indebtedness, issued in the name of or payable to the corporation, and all assignments and 16 endorsements of the foregoing, shall be signed or endorsed by the person or persons and in the manner specified by the Board of Directors. Section 45. Corporate Contracts and Instruments; How Executed. ---------- -------------------------------------------------- Except as otherwise provided in the Bylaws, officers, agents, or employees must be authorized by the Board of Directors to enter into any contract or execute any instrument in the corporation's name and on its behalf. This authority may be general or confined to specific instances. Section 46. Stock Certificates. One or more certificates for shares ---------- ------------------ of the corporation's capital stock shall be issued to each shareholder for any of such shareholder's shares that are fully paid. The corporate seal or its facsimile may be fixed on certificates. All certificates shall be signed by the Chairman of the Board, President, or a Vice President and the Secretary, Treasurer, or an Assistant Secretary. Any or all of the signatures on the certificate may be facsimile signatures. Section 47. Lost Certificates. No new share certificate that ---------- ----------------- replaces an old one shall be issued unless the old one is surrendered and canceled at the same time; provided, however, that if any share certificate is lost, stolen, mutilated, or destroyed, the Board of Directors may authorize issuance of a new certificate replacing the old one on any terms and conditions, including a reasonable arrangement for indemnification of the corporation, that the Board may specify. Section 48. Reports to Shareholders. The requirement for the annual ---------- ----------------------- report to shareholders referred to in Section 1501(a) of the California Corporations Code is hereby expressly waived so long as there are less than 100 holders of record of the corporation's shares. The Board of Directors shall cause to be sent to the shareholders such annual or other periodic reports as they consider appropriate or as otherwise required by law. In the event the corporation has 100 or more holders of its shares, an annual report complying with Section 1501(a) and, when applicable, Section 1501(b) of the California Corporations Code, except as limited by Section 689 of the California Financial Code, shall be sent to the shareholders not later than 120 days after the close of the fiscal year and at least 15 days prior to the annual meeting of shareholders to be held during the next fiscal year. If no annual report for the last fiscal year has been sent to shareholders, the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the 17 request within 30 days thereafter the financial statements referred to in Section 1501(a) for such year. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month, or nine-month period of the current fiscal year ended more than 30 days prior to the date of the request and a balance sheet of the corporation as of the end of such period and, in addition, if no annual report for the last fiscal year has been sent to shareholders, the statements referred to in Section 1501(a) of the California Corporations Code for the last fiscal year. The statement shall be delivered or mailed to the person making the request within 30 days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for 12 months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. The income statements and balance sheets referred to shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. Section 49. Indemnity of Officers, Directors, etc. ---------- ------------------------------------- A. Action, Etc. Other than by Right of the Corporation. The --------------------------------------------------- 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 the corporation to procure a judgment in its favor) by reason of the fact that such person is or was an Agent of the corporation, against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with such proceeding if such person acted in good faith and in a manner such person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of such person 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 which the person reasonably believed to be in the best interests of the corporation or, that the person had reasonable cause to believe that the person's conduct was unlawful. B. Action, Etc., By or in the Right of the Corporation. The --------------------------------------------------- corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or 18 completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was an Agent of the corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such action if such person acted in good faith, in a manner such person believed to be in the best interests of the corporation and its shareholders; except that no indemnification shall be made under this subsection 49B for any of the following: (1) In respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation in the performance of such person's duty to the corporation and its shareholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for the expenses which such court shall determine; (2) Of amounts paid in settling or otherwise disposing of a pending action without court approval; or (3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. C. Determination of Right of Indemnification. Any indemnification ----------------------------------------- under subsections 49A and 49B shall be made by the corporation only if authorized in the specific case, upon a determination that indemnification of the Agent is proper in the circumstances because that Agent has met the applicable standard of conduct set forth above in subsections 49A and 49B by any of the following: (1) A majority vote of a quorum consisting of directors who are not parties to such proceeding; (2) If such a quorum of directors is not obtainable, by independent legal counsel in a written opinion; (3) Approval of the shareholders by the affirmative 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 shareholders as provided in Section 10, with the shares owned by the person to be indemnified not being entitled to vote thereon; or 19 (4) The court in which such proceeding is or was pending upon application made by the corporation or its Agent or 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 the corporation. D. Advances of Expenses. Expenses (including attorneys' fees), -------------------- costs, and charges incurred in defending any proceeding shall be advanced by the corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the Agent to repay such amount unless it shall be determined ultimately that the Agent is entitled to be indemnified as authorized in this Section 49. E. Indemnification Against Expenses of Successful Party. ---------------------------------------------------- Notwithstanding the other provisions of this Section 49, to the extent that an Agent has been successful on the merits in a defense of any proceeding, claim, issue or matter referred to in subsections 49A and 49B, such Agent shall be indemnified against all expenses actually and reasonably incurred by the Agent in connection therewith. F. Right of Agent to Indemnification Upon Application; Procedure Upon ------------------------------------------------------------------ Application. Any indemnification provided for in subsections 49A, 49B, or 49E - - ----------- shall be made no later than ninety (90) days after the corporation is given notice of request by Agent, provided that such request is made after final adjudication, dismissal, or settlement unless an appeal is filed, in which case the request is made after the appeal is resolved (hereafter referred to as "Final Disposition"). Upon such notice, if a quorum of directors who were not parties to the action, suit or proceeding giving rise to indemnification is obtainable, the corporation shall within two (2) weeks call a Board of Directors' meeting to be held within four (4) weeks of such notice, to make a determination as to whether the Agent has met the applicable standard of conduct. Otherwise, if a quorum consisting of directors who were not parties in the relevant action, suit, or proceeding is not obtainable, the corporation shall retain (at the corporation's expense) independent legal counsel chosen either jointly by the corporation and Agent or else by corporation counsel within two (2) weeks, to make such determination. If (1) at such Board of Directors' meeting, such a quorum is not obtained or, if obtained, refuses to make such determination, or (2) if such legal counsel is not so retained or, if retained, does not make such determination within four (4) weeks, then the Board of Directors shall cause a shareholders' meeting to be held within four (4) weeks to make such a determination. 20 If notice of a request for payment of a claim under these Bylaws, under any statute, under any provision of any agreement with the corporation, or under the corporation's Articles of Incorporation providing for indemnification or advance of expenses has been given to the corporation by Agent, and such claim is not paid in full by the corporation within ninety (90) days of the later occurring of the giving of such notice and Final Disposition in the case of indemnification, and twenty (20) days of the giving of such notice in the case of advance of expenses, then Agent may, but need not, at any time thereafter bring an action against the corporation to receive the unpaid amount of the claim or the expense advance and, if successful Agent shall also be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit, or proceeding in advance of its Final Disposition) that Agent has not met the standards of conduct which make it permissible under applicable law for the corporation to indemnify Agent for the amount claimed, and Agent shall be entitled to receive interim payment of expenses pursuant to subsection 49D unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its shareholders) to have made a determination that indemnification of Agent is proper in the circumstances because Agent has met the applicable standard of conduct required by applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that Agent has not met such applicable standard of conduct, shall create a presumption that the Agent has or has not met the applicable standard of conduct. G. Other Rights and Remedies. The indemnification provided by this ------------------------- Section 49 shall not be deemed exclusive of, and shall not affect, any other rights to which an Agent seeking indemnification may be entitled under any law, other provision of these Bylaws, the corporation's Articles of Incorporation, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person. H. Insurance. The corporation may purchase and maintain insurance on --------- behalf of any person who is or was an Agent against any liability asserted against such person and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to 21 indemnify such person against such liability under the provisions of this Section 49. I. Optional Means of Assuring Payment. Upon request by an Agent ---------------------------------- certifying that the Agent has reasonable grounds to believe the Agent may be made a party to a proceeding for which the Agent may be entitled to be indemnified under this Section 49, the corporation may but is not required to create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such sums as may become necessary to effect indemnification as provided herein. J. Savings Clause. If this Section 49 or any portion thereof shall -------------- be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each Agent as to expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement with respect to any action, suit, proceeding, or investigation, whether civil, criminal or administrative, and whether internal or external, including a grand jury proceeding and an action or suit brought by or in the right of the corporation, to the fullest extent permitted by any applicable portion of this Section 49 that shall not have been invalidated, or by any other applicable law. K. Definition of Agent. For the purposes of this Section 49, "Agent" ------------------- means any person who is or was a director, officer, employee or other agent of the corporation, or is or was serving at the request of the 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 the 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. L. Indemnification under Section 204(a)(11) of the California ---------------------------------------------------------- Corporations Code. Subject to the provisions of California Corporations Code - - ----------------- Section 204(a)(11) and any other applicable law, notwithstanding any other provisions of these Bylaws, the following shall apply to the indemnification of Agents under these Bylaws: (1) The corporation shall indemnify a person pursuant to this subsection 49L if the corporation would be 22 required to indemnify such person pursuant to subsections 49A or 49B if in subsections 49A and 49B the phrase "in a manner such person reasonably believed to be in the best interests of the corporation" is replaced with the phrase "in a manner such person did not believe to be contrary to the best interests of the corporation." If pursuant to subsections 49C and 49F the person making the subsection 49A and/or 49B conduct standard determination determines that such standard has not been satisfied, such person shall also determine whether this subsection 49L(1) conduct standard has been satisfied; (2) There shall be a presumption that the Agent met the applicable standard of conduct required to be met in subsection 49C for indemnification of the Agent, rebuttable by clear and convincing evidence to the contrary; (3) The corporation shall have the burden of proving that the Agent did not meet the applicable standard of conduct in subsection 49C; (4) In addition to the methods provided for in subsection 49C, a determination that indemnification is proper in the circumstances because that Agent met the applicable standard of conduct may also be made by the arbitrator in any arbitration proceeding in which such matter is or was pending; (5) Unless otherwise agreed to in writing between an Agent and the corporation in any specific case, indemnification may be made under subsection 49B for amounts paid in settling or otherwise disposing of a pending action without court approval. ARTICLE VI Amendments ---------- Section 50. Amendments by Shareholders. New Bylaws may be adopted or ---------- -------------------------- these Bylaws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote. A Bylaw specifying or changing a fixed number of directors or the maximum or minimum number of directors or changing from a fixed to a variable board or vice 23 versa may only be adopted by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote. Section 51. Amendment by Directors. Subject to the right of ---------- ---------------------- shareholders under the preceding Section 50 of these Bylaws, Bylaws may be adopted, amended, or repealed by the Board of Directors. If a Bylaw adopted by the shareholders provides for an indefinite number of directors within specified limits, the directors may fix the exact number of directors within those limits by a resolution adopted by the Board of Directors. Section 52. Effective Date. These Bylaws and any amendment hereto ---------- -------------- shall become effective only when approved by the California Superintendent of Banks and when a copy thereof certified by the Secretary or Assistant Secretary of the corporation has been filed with the Superintendent. ARTICLE VII Committees of the Board of Directors ------------------------------------ Section 53. Committees of the Board of Directors. 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, including, but not limited to, an Executive Committee. The Board of Directors may, except as hereinafter limited, delegate to the Executive Committee any of the powers and authorities of the Board of Directors. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. The Board of Directors shall designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors shall have all the authority of the Board, except with respect to: (1) The approval of any action for which shareholder approval is also required. (2) The filling of vacancies on the Board or in any committee. 24 (3) The fixing of compensation of the directors for serving on the Board or on any committee. (4) The amendment or repeal of Bylaws or the adoption of new Bylaws. (5) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable. (6) A distribution to the shareholders of the corporation as defined in Section 166 of the California Corporations Code, except at a rate or in a periodic amount or within a price range determined by the Board. (7) The appointment of other committees of the Board or the members thereof. The Board of Directors shall designate a chairman for each committee who shall have the sole power to call any committee meeting other than a meeting set by the Board. Except as otherwise established by the Board of Directors, Article III of these Bylaws shall apply to committees of the Board and action by such committees, mutatis mutandis. ------- -------- 25 CERTIFICATE OF SECRETARY I, the undersigned, certify that: 1. I am the duly elected and acting Secretary of CapitolBank Sacramento, a California banking corporation; and 2. The foregoing Bylaws, consisting of twenty-seven (27) pages, including the cover page and the index pages, are the Bylaws of this corporation as duly adopted by the Board of Directors on August 19, 1992. IN WITNESS WHEREOF, I have subscribed my name and affixed the seal of this corporation on August 25, 1992. /s/ Katherine G. Hrundas ------------------------------ Katherine G. Hrundas, Secretary [SEAL] 26 EX-99.10 13 FORM F-2 (ANNUAL REPORT) EXHIBIT 99.10 FORM F-2 ANNUAL REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 FDIC Certificate No. 22260-7 CAPITOLBANK SACRAMENTO ---------------------------------------------------------- (Exact name of bank as specified in its charter) State of California -------------------------------------------------------------------- (State or other jurisdiction of incorporation or organization) 94-2319513 --------------------------------------- (IRS Employer Identification No.) 300 Capitol Mall Sacramento, California 95814 ----------------------------------------------------- (Address of principal office, including zip code) Bank's telephone number, including area code (916) 449-8300 Securities registered under Section 12(b) of the Act: None ------------------------------- Securities registered under Section 12(g) of the Act: Common Stock, par value $1.5625 per share ------------------------------------------------- (Title of Class) -i- Indicate by check mark whether the Bank (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 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 -------- -------- The aggregate market value of voting stock held by non-affiliates as of April 15, 1994: Number of shares of the Bank's common stock outstanding as of April 15, 1994: 4,080,302 Indicate by check mark if disclosure of delinquent filers pursuant to item 10 is not contained herein, and will not be contained, to the best of Bank's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form F-2 or any amendment of this Form F-2. [_] -ii- TABLE OF CONTENTS
Page No. -------- ITEM 1. Business.......................................................... 1 ITEM 2. Properties........................................................ 13 ITEM 3. Legal Matters..................................................... 13 ITEM 4. Security Ownership of Certain Beneficial Owners and Management.... 13 ITEM 5. Market for the Bank's Common Stock and Related Security Holder Matters........................................................... 15 ITEM 6. Selected Financial Data........................................... 15 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 16 ITEM 8. Financial Statements and Supplementary Data....................... 23 ITEM 9. Directors and Principal Officers of the Bank...................... 51 ITEM 10. Management Compensation and Transactions.......................... 54 ITEM 11. Exhibits, Financial Statement Schedules and Reports on Form F-3... 59
-iii- ITEM 1. BUSINESS -------- General - - ------- CAPITOLBANK SACRAMENTO was incorporated under the laws of the State of California on December 31, 1975, and was licensed by the California State Banking Department and commenced operations as a California state-chartered bank on April 22, 1976. The Bank's securities consist of one class of common stock having a par value of $1.5625 per share. As of December 31, 1993, there were 4,080,302 shares outstanding; these shares were held by 1,073 shareholders of record. The Bank is an insured bank under the Federal Deposit Insurance Act, up to applicable limits thereof. Like many state-chartered banks of its size in California, it is not a member of the Federal Reserve System. As of December 31, 1993, the Bank employed 77 full time equivalent (F.T.E.) persons. The Bank is engaged in substantially all of the business operations customarily conducted by independent commercial banks in California. These operations include the acceptance of checking and savings deposits, and the making of commercial, real estate, home improvement, consumer, and other installment and term loans. Inventory and accounts receivable financing, fixture and equipment financing, and short-term operating loans are also provided. Consumer loans include loans for automobiles, and other personal needs. The Bank also offers a full service Trust department, safe deposit, night depository, wire transfers, and other customary bank services to its customers. The two areas in which the Bank has directed a substantial portion of its lending activities are (i) commercial loans; and (ii) real estate loans (including construction and land development loans). As of December 31, 1993, these two categories accounted for approximately 28% and 68%, respectively, of the Bank's loan portfolio. The Bank offers trust services through its Trust and Investment Department. As of December 31, 1993, the Trust and Investment Department had trust assets under management totaling $178,018,000. The Bank's deposits are attracted primarily from individuals and small and medium-sized businesses. As of December 31, 1993, the Bank had a total of approximately 1,437 accounts representing approximately $28.7 million in total non-interest bearing demand deposits, with an average balance of approximately $19,972 each; approximately 3,274 accounts representing approximately $82.6 million in money markets and total time and savings deposits for individuals and corporations, with an average balance of approximately $25,229 each. Approximately $8.3 million of the deposits held by the Bank, as of December 31, 1993, were in the form of certificates of deposit in denominations of $100,000 or greater. The Bank holds no patents or licenses (other than licenses required by appropriate bank regulatory agencies), franchises, or concessions. For a complete statement of all subsidiaries of the Bank and the functions performed by each, see Exhibit 9, "List of Subsidiaries of the Bank." Section 751.3 of the California Financial Code expressly permits real estate investment and development on the part of state-chartered commercial banks, subject to certain limitations. -1- The major limitation imposed by Section 751.3 is that the total of all investments, loans, and guarantees by a commercial bank in real estate development activities shall not exceed ten percent (10%) of the total assets of the Bank. Section 751.3 was amended in 1984 to permit direct investment in real estate projects by the Bank (rather than requiring that such investments be accomplished through stock ownership in a subsidiary corporation). As amended, Section 751.3 further required that a bank's general plan of real estate investment and development activities shall be given prior approval of the California Superintendent of Banks. The following are brief descriptions of each continuing development project in which the Bank has a continuing investment under the authority of Section 751.3: (i) Capitol Commerce Development Corp. VI. This wholly owned subsidiary owns ------------------------------------- the following: (a) Bank Certificates of deposit of -0-. (b) Investment in real estate joint venture at -0-. (ii) Capitol Commerce Development Corp. VII. This wholly owned subsidiary owns -------------------------------------- the following: (a) Bank Certificates of deposit valued at $298,000. (b) Investment in a real estate joint venture valued at -0-. The Bank has a continuing investment under the authority of Section 772 as follows: Commerce Corporation. This wholly owned subsidiary owns the following: -------------------- (a) Bank certificates of deposit valued at -0-. The Bank has not expended a material amount of funds for research activities relating to the development of new services or the improvement of existing banking services during the last two fiscal years; however, the officers and employees of the Bank are engaged continually in marketing activities, including the evaluation and development of new services, to enable the Bank to retain and improve its competitive position in its service area. The cost to the Bank for these marketing activities cannot, however, be calculated with any degree of certainty. Other than real estate investment and development activities in projects as permitted under Financial Code Section 751.3, the Bank has no present plans regarding new lines of business requiring the investment of a material amount of total assets. Most of the Bank's business originates from within Sacramento County, California. All banking services offered to customers are located at the main office of the Bank. There are no branch operations, and the Bank does not have any application pending to add a branch office. The Bank's business is not seasonal. There has been no material effect upon the Bank's capital expenditures, earnings, or competitive position as a result of federal, state or local environmental regulation. Competition - - ----------- The banking business in California generally, and in the market area served by the Bank, is highly competitive. The Bank competes for loans and deposits principally with other commercial banks, including many which are much larger than the Bank, savings and loan associations, finance companies, -2- thrift and loans, credit unions, mortgage companies, insurance companies, other financial institutions, and money market funds. In recent years, money market funds, which are not regulated by banking agencies, have played an increasingly important role in the competition for funds. As a result of interest rate deregulation in recent years, there is also increased competition among banks, savings and loan associations, and credit unions for loans and deposits (see "Effect of Economic Conditions, Governmental Policies, and Recent Legislation"). In addition, other entities (both governmental and private industry) seeking to raise capital through the issuance and sale of debt or equity securities and instruments provide competition for the Bank in the acquisition of deposits. The Bank's primary service area consists of Sacramento and the surrounding areas of Sacramento County, California. In recent years, United States banks domiciled outside of California and foreign banks have established or purchased facilities to compete for business in the market served by the Bank. Beginning in 1991, state legislation allows non-California state chartered banks the opportunity to establish branch offices in California if the laws of the state in which such banks are chartered also allow branch banking by California- chartered banks. Such reciprocity may result in the establishment of branch offices in California by various major banking institutions, principally those chartered under the laws of the State of New York. Management is unable to predict the extent to which this might affect competition within the Bank's primary service area, although it is anticipated such competition could be significant. Many of the Bank's competitors have significantly greater assets, capital resources and higher lending limits and offer certain services not directly provided by the Bank, including international banking. In order to compete with other financial institutions in its primary service area, the Bank relies principally upon personal contact by its officers, directors, employees and shareholders, specialized services, local promotional activities, and advertising. For customers whose loan demands exceed the Bank's lending limit, the Bank has attempted in the past, and will continue in the future, to arrange for such loans on a participation basis with other financial institutions. The Bank also assists customers requiring other services not offered by the Bank in obtaining such services from its correspondent banks. Supervision and Regulation - - -------------------------- As a California state-chartered bank whose accounts are insured by the FDIC, the Bank is subject to regulation, supervision, and regular examination by the California Superintendent of Banks ("the Superintendent") and by the FDIC. In addition, while the Bank is not a member of the Federal Reserve System, it is subject to regulation by the Board of Governors of the Federal Reserve System ("BGFRS"). The regulations of these agencies govern most aspects of the Bank's business, including periodic reports, capital ratios, investments, loans, certain check-clearing activities, branching, acquisitions, reserves against deposits and numerous other areas. Effect of Economic Conditions, Governmental Policies and Recent Legislation - - --------------------------------------------------------------------------- Banking is a business which depends on interest rate differentials. In general, the differences between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on loans extended to its customers and on securities held in its investment portfolio comprise the major portion of a bank's earnings. Thus, the earnings and growth of the Bank are subject to the influence of economic conditions generally, both domestic and foreign. The nature and timing of changes in general economic conditions and their impact on the Bank are subject to the nature and length of the condition -3- which are difficult to predict. In addition to the influence of general economic conditions, the earnings of the Bank are affected by the fiscal and monetary policies of the federal government and its various agencies, particularly the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"). The Federal Reserve Board regulates reserve requirements of depository institutions, the discount rate on borrowings by depository institutions, and interest rates paid on the deposits of such institutions. The Federal Reserve Board generally regulates the money supply and prevailing interest rates through the purchase and sale of United States government securities in the open market. The policies influence the growth of the bank loans, investments, and deposits and also affect the interest rates charged on loans and paid on deposits. These activities, correspondingly, have a material effect on bank earnings. The nature and impact of future changes in monetary policies are not predictable. Capital Adequacy of the Bank - - ---------------------------- The FDIC, BGFRS and Office of the Comptroller of the Currency ("OCC") recently adopted regulations implementing risk-based capital guidelines for certain state-chartered banks which are not members of the Federal Reserve System ("non- member bank") and regulated by the FDIC such as the Bank, member banks regulated by the BGFRS and national banks regulated by the OCC, and their parent bank holding corporations and subsidiaries. Under the guidelines for banks, both assets as reported on the balance sheet and certain off-balance sheet items are assigned to risk categories. Each category has an assigned risk weight. Capital ratios are calculated by dividing an institution's qualifying total capital base by its risk-weighted assets. The guidelines characterize an institution's capital as being "Tier 1" capital (consisting of common shareholders' equity, noncumulative perpetual preferred stock, and minority interests in consolidated subsidiaries) and "Tier 2" capital (consisting of cumulative perpetual preferred stock, auction rate preferred stock, mandatory convertible debt, the allowance for loan and lease losses, term subordinated debt and limited-life preferred stock) to supplement Tier 1 capital. Effective December 31, 1992, a state non-member bank such as the Bank and other financial institutions subject to the guidelines were required to maintain a total risk-based capital ratio of 8 percent (of which 4 percent should be in the form of Tier 1 capital). Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk weighted categories requiring less capital allocation than the 8 percent ratio. For example, cash and government securities are assigned to a 0 percent risk weighted category; most home mortgage loans are assigned to a 50 percent risk- weighted category requiring a 4 percent capital allocation; and commercial loans are assigned to a 100 percent risk weighted category requiring an 8 percent capital allocation. As of December 31, 1993, the Bank's total risk-based capital ratio was approximately 12.48 percent. At the time the FDIC, BGFRS and OCC announced the new risk-based capital guidelines, such agencies announced plans to develop minimum leverage ratios for bank holding companies and banks. Effective September 7, 1990, the BGFRS adopted a minimum leverage ratio of 3 percent Tier 1 capital to total assets (the "leverage ratio") based upon the definition of Tier 1 capital for year-end 1993. The leverage ratio is intended to limit the ability of banking organizations to leverage their equity capital base by increasing assets and liabilities without increasing capital proportionately. The leverage ratio constitutes a minimum ratio for well-run banking organizations under BGFRS standards and organizations experiencing or anticipating significant growth or failing to meet such BGFRS standards will be required to maintain a minimum leverage ratio ranging from 100 to 200 basis points in excess of the 3 percent leverage ratio. The OCC adopted the leverage ratio effective December 31, 1990. The FDIC adopted a minimum leverage ratio on February 28, 1991, which became effective April 10, 1991. The FDIC -4- proposal established (i) a 3 percent Tier 1 minimum capital leverage ratio for highly-rated banks (those with a composite so-called CAMEL rating of 1 and not experiencing or anticipating significant growth); and (ii) a 4 percent Tier 1 minimum capital leverage ratio for all other banks, as a supplement to the risk- based capital guidelines. It is not possible to predict precisely what effect the risk-based capital guidelines and the minimum capital leverage ratio will have upon the Bank in the future. However, a relatively large percentage of the Bank's assets are assigned to less than 100 percent risk weighted categories and the leverage limitations are no more restrictive than previously applicable capital requirements. Consequently, the Bank does not presently expect compliance with the risk-based capital guidelines and minimum capital leverage ratio to have a materially adverse effect upon the business of the Bank. Dividends - - --------- The California Financial Code provides that a bank may not make a cash distribution to its shareholders in excess of the lesser of the following: (i) the bank's retained earnings, or (ii) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank to its shareholders during such a period. However, a bank, with the prior approval of the Superintendent, may make a distribution to its shareholders of an amount not to exceed the greater of (i) a bank's retained earnings, (ii) its net income for its last fiscal year, or (iii) its net income for the current fiscal year. In the event that the Superintendent determines that the shareholders' equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Superintendent may order a bank to refrain from making such a proposed distribution. The FDIC may similarly restrict the payment of dividends if such payment would be deemed unsafe or unsold or if after the payment of such dividends, the Bank would be included in one of the "undercapitalized" categories for capital adequacy purposes pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991. The Bank has not paid cash or stock dividends in the past several years and has no intention of doing so in the immediate foreseeable future. Whether or not stock dividends or any cash dividends will be paid in the future will be determined by the Board of Directors after consideration of various factors. The Bank's profitability and regulatory capital ratios in addition to other financial conditions will be key factors considered by the Board of Directors in making such determinations regarding the payment of dividends by the Bank. Recent Changes in the Law--FDICIA - - --------------------------------- On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). The FDICIA substantially revises banking regulations, certain aspects of the Federal Deposit Insurance Act and establishes a framework for determination of capital adequacy of financial institutions, among other matters. Under the FDICIA, financial institutions are placed into five capital adequacy categories as follows: (1) well capitalized, (2) adequately capitalized, (3) undercapitalized, (4) significantly undercapitalized, and (5) critically undercapitalized. The FDICIA authorized the BGFRS, OCC and FDIC to establish limits below which financial institutions will be deemed critically undercapitalized, provided that such limits cannot be less than two percent (2%) of the ratio of tangible equity to total assets or sixty-five percent (65%) of the minimum leverage ratio established by regulation. Financial institutions classified as undercapitalized or below are subject to limitations including restrictions related to (i) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) capital -5- distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires the BGFRS, OCC and FDIC to initiate corrective action regarding financial institutions which fail to meet minimum capital requirements. Such action may result in orders to augment capital such as through sale of voting stock, reduction in total assets, and restrictions related to correspondent bank deposits. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or conservator unless the financial institution submits an adequate capitalization plan. The FDIC, BGFRS and OCC adopted regulations effective on December 19, 1992, implementing a system of prompt corrective action pursuant to Section 38 of the Federal Deposit Insurance Act and Section 131 of the FDICIA. The regulations establish the five capital categories described above with the following characteristics: (1) "Well capitalized"--consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized"--consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized"--consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized"--consisting of institutions with a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized"--consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%. The regulations establish procedures for classification of financial institutions within the capital categories, filing and reviewing capital restoration plans required under the regulations and procedures for issuance of directives by the appropriate regulatory agency, among other matters. The regulations impose restrictions upon all institutions to refrain from certain actions which would cause an institution to be classified within any one of the three "undercapitalized" categories, such as declaration of dividends or other capital distributions or payment of management fees, if following the distribution or payment the institution would be classified within one of the "undercapitalized" categories. In addition, institutions which are classified in one of the three "undercapitalized" categories are subject to certain mandatory and discretionary supervisory actions. Mandatory supervisory actions include (1) increased monitoring and review by the appropriate federal banking agency; (2) implementation of a capital restoration plan; (3) total asset growth restrictions; and (4) limitation upon acquisitions, branch expansion, and new business activities without prior approval of the appropriate federal banking agency. Discretionary supervisory actions may include (l) requirements to augment capital; (2) restrictions upon affiliate transactions; (3) restrictions upon deposit gathering activities and interest rates paid; (4) replacement of senior executive officers and directors; (5) restrictions upon activities of the institution and its affiliates; (6) requiring divestiture or sale of the institution; and (7) any other supervisory action that the appropriate federal banking agency determines is necessary to further the purposes of the regulations. Further, the federal banking agencies may not accept a capital restoration plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. In addition, for a capital restoration plan to be acceptable, the depository institution's parent holding company must guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company under the guaranty is limited to the lesser of (i) an amount equal to 5 percent of the depository institution's total assets at the time it became undercapitalized, and (ii) the amount that is necessary (or would have -6- been necessary) to bring the institution into compliance with all capital standards applicable with respect to such institution as of the time it fails to comply with the plan. If a depository institution fails to submit an acceptable plan, it is treated as if it were "significantly undercapitalized." FDICIA also restricts the solicitation and acceptance of and interest rates payable on brokered deposits by insured depository institutions that are not "well capitalized." An "undercapitalized" institution is not allowed to solicit deposits by offering rates of interest that are significantly higher than the prevailing rates of interest on insured deposits in the particular institution's normal market areas or in the market areas in which such deposits would otherwise be accepted. Any institution which is classified as "critically undercapitalized" must be placed in conservatorship or receivership within 90 days of such determination unless it is also determined that some other course of action would better serve the purposes of the regulations. Critically undercapitalized institutions are also prohibited from making (but not accruing) any payment of principal or interest on subordinated debt without the prior approval of the FDIC and the FDIC must prohibit a critically undercapitalized institution from taking certain other actions without its prior approval, including (1) entering into any material transaction other than in the usual course of business, including investment expansion, acquisition, sale of assets or other similar actions; (2) extending credit for any highly leveraged transaction; (3) amending articles or bylaws unless required to do so to comply with any law, regulation or order; (4) making any material change in accounting methods; (5) engaging in certain affiliate transactions; (6) paying excessive compensation or bonuses; and (7) paying interest on new or renewed liabilities at rates which would increase the weighted average costs of funds beyond prevailing rates in the institution's normal market areas. The capital ratio requirements for the "adequately capitalized" category generally are the same as the existing minimum risk-based capital ratios applicable to the Bank. It is not possible to predict what effect the new prompt corrective action regulation will have upon the Bank or the banking industry taken as a whole. The Bank's total and Tier 1 risk-based capital ratios currently exceed the regulatory minimum capital ratios and the Bank does not anticipate the implementation of the FDICIA will have a material adverse effect upon the results of operations of the Bank. The strength of the Bank's capital position is evidenced by the table below:
December 31, ---------------------- 1993 1992 1991 ------ ------ ------ Ratio Description - - ----------------- Leverage Ratio CapitolBank Sacramento 7.54% 7.05% 7.79% Minimum requirement for "Well- Capitalized institution" 5.00% 5.00% Minimum regulatory requirement 4.00% 4.00% 4.00%
-7-
December 31, ---------------------- 1993 1992 1991 ------ ------ ------ Tier I Risk-Based Capital Ratio CapitolBank Sacramento 11.65% 13.33% 12.64% Minimum requirement for "Well- Capitalized institution" 6.00% 6.00% Minimum regulatory requirement 4.00% 4.00% 3.60% Total Risk-Based Capital Ratio CapitolBank Sacramento 12.90% 14.58% 13.97% Minimum requirement for "Well- Capitalized institution" 10.00% 10.00% Minimum regulatory requirement 8.00% 8.00% 7.25%
Under the FDIC's risk-based capital regulations, balance sheet assets and certain off-balance sheet commitments are weighted by risk and compared to capital. The decrease in the Bank's Tier I and Total Risk-Based Capital ratios at December 31, 1993 compared to 1992 was primarily due to an $11.9 million (18.4%) increase in gross loans at December 31, 1993 as compared to 1992. Accordingly, total risk-weighted assets increased $11.9 million (17.7%) from $79.0 million at December 31, 1993 compared to $67.1 million at December 31, 1992. The FDIC adopted a regulation pursuant to Section 302(a) of the FDICIA, effective on November 2, 1992, amending its regulations on insurance assessments to, among other matters, adopt a recapitalization schedule for the Bank Insurance Fund and establish a risk-based insurance assessment system to replace the uniform assessment rate system formerly applicable to insured financial institution members of the Bank Insurance Fund. The regulation requires that each insured institution be assigned to one of three capital groups and one of three supervisory subgroups within each capital group, based upon financial data reported by each institution in its Report of Income and Condition, as well as supervisory evaluations by the institution's primary federal regulatory agency. The three capital groups have the following characteristics: (1) "Well capitalized"--consisting of institutions having a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier 1 leverage ratio of 5% or greater; (2) "Adequately capitalized"-- consisting of institutions that are not "well capitalized," but have a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and a Tier 1 leverage ratio of 4% or greater; and (3) "Undercapitalized"--consisting of institutions that do not qualify as either "well capitalized" or "adequately capitalized." The three supervisory subgroups have the following characteristics: (A) Subgroup "A"--consisting of financially sound institutions with only a few minor weaknesses; (B) Subgroup "B"-- consisting of institutions that demonstrate weaknesses which, if not corrected, could result in significant deterioration of the institution and increased risk of loss to the Bank Insurance Fund; and (C) Subgroup "C"--consisting of institutions that pose a substantial probability of loss to the Bank Insurance Fund unless effective corrective action is taken. The annual assessment rate for each insured institution continued at the rate of 0.23% per $100 of deposits through year-end December 31, 1992. Commencing January 1, 1993, the assessment rate is -8- based upon a risk assessment schedule with rates ranging from 0.23% to 0.31% per $100 of deposits utilizing the capital group and supervisory subgroup analysis as follows:
Supervisory Subgroup ---------------------------------------- Capital Group A B C ------------- 1 .23 .26 .29 2 .26 .29 .30 3 .29 .30 .31
On June 25, 1993, the FDIC adopted a permanent risk-based insurance assessment system which retained the transitional system without substantial modification. Based upon the new risk assessment rate system and the Bank's current level of deposits, the Bank estimates that its annual non-interest expense for assessments will not materially increase during 1994. Under FDICIA, the federal banking agencies have adopted regulations which require institutions to establish and maintain comprehensive written real estate policies which address certain lending considerations, including loan-to-value limits, loan administrative policies, portfolio diversification standards, and documentation, approval and reporting requirements. FDICIA further generally prohibits an insured state bank from engaging as principal in any activity that is impermissible for a national bank, absent FDIC determination that the activity would not pose a significant risk to the Bank Insurance Fund, and that the bank is, and will continue to be, within applicable capital standards. Similar restrictions apply to subsidiaries of insured state banks. The Bank does not currently intend to engage in any activities which would be restricted or prohibited under FDICIA. As required by FDICIA, the federal banking agencies have solicited comments on a proposed method of incorporating an interest rate risk component into the current risk-based capital guidelines, with the goal of ensuring that institutions with high levels of interest rate risk have sufficient capital to cover their exposures. Interest rate risk is the risk that changes in market interest rates might adversely affect a bank's financial condition. Under the proposal, interest rate risk exposures would be quantified by weighing assets, liabilities and off-balance sheet items by risk factors which approximate sensitivity to interest rate fluctuations. Institutions identified as having an interest rate risk exposure greater than a defined threshold would be required to allocate additional capital to support this higher risk. Higher individual capital allocations could be required by the bank regulators based on supervisory concerns. The federal banking agencies have also asked for comments on certain safety and soundness standards required to be prescribed under FDICIA, in order to assist such agencies in the development of proposed rules. Such standards would apply to insured depository institutions and depository institution holding companies in a number of areas, including (a) operational and managerial standards, (b) asset quality, earnings and stock valuation, and (c) employee compensation. FIRREA. The Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") was enacted on August 9, 1989. FIRREA provided for a major restructuring of the federal regulatory framework applicable to depository institutions and their parent bank holding companies. Among other things, and subject to applicable phase-in provisions, FIRREA contains provisions which (i) established two separate financial industry insurance funds, both administered by the FDIC--the Bank Insurance -9- Fund and the Savings Association Insurance Fund; (ii) abolished the Federal Home Loan Bank Board and Federal Savings and Loan Insurance Corporation and created the Office of Thrift Supervision as an office of the Treasury Department, with responsibility for examination and supervision of the savings and loan industry; (iii) increased the insurance premiums paid by FDIC-insured institutions; (iv) permitted bank holding companies to acquire healthy savings and loan associations; (v) expanded, enhanced and clarified federal banking agencies' enforcement authority over the operations of all insured depository institutions and increased the civil and criminal penalties that may be imposed in connection with violations of laws and regulations; (vi) curtailed investments and certain other activities of state-chartered savings and loan associations; and (vii) increased the capital requirements of savings and loan associations. At the same time, the FDIC was given enhanced power over both savings institutions and banks with regard to deposit insurance, conservatorships and receiverships. The deposits of the Bank are insured by the Bank Insurance Fund. FIRREA provides that the Bank Insurance Fund and the Savings Association Insurance Fund are to be maintained separately and restricts proposed conversions from one fund to another. FIRREA's civil enforcement provisions apply to any "institution-affiliated party," which includes not only directors, officers, employees, agents and persons participating in the conduct of the affairs of a financial institution, but also attorneys, appraisers, and accountants, as well as other independent contractors, who participate in a law or regulation violation, any breach of fiduciary duty or any unsafe or unsound practice that causes (or is likely to cause) more than a minimum financial loss to, or a significant adverse effect on, a financial institution. FIRREA also prohibits an insured depository institution from entering into a contract with any person to provide goods, products or services to the financial institution that would jeopardize the institution's safety or soundness. FIRREA details the powers that can be exercised by the FDIC as conservator or receiver. The powers are designed to allow the FDIC to take the actions needed to resolve the problems posed by a financial institution in default. For example, when acting as a conservator or receiver, the FDIC is expressly given the power to operate the institution, conduct all of the institution's business, and perform all of the functions of the institution in its own name. FIRREA also permits access for commercial banks to Federal Home Loan Bank advances, alters the former procedures for obtaining advances and mandates the use of certain Federal Home Loan Bank funds for community investment and affordable housing programs. California Law. In 1988, Proposition 103 was adopted by California voters. - - -------------- Proposition 103 authorized California state-chartered banks to engage in insurance agency and insurance brokerage activities. As a result of Proposition 103, the Superintendent, in conjunction with the California Department of Insurance, adopted procedures for permitting state-chartered banks to apply for licenses to engage in insurance activities. The Bank has not sought a license to engage in such insurance activities to date. California law authorizes California banks (a) to provide real estate appraisal services, management consulting and advice services, electronic data processing services, and (b) to acquire and hold voting stock of one or more corporations, the activities of which are primarily investment in real estate. Additionally, California state-chartered banks and savings and loan associations are authorized to organize, sponsor or operate or render investment advice to an investment company or to underwrite, distribute or sell securities of any investment company which has qualified to sell securities in California. -10- Regulations of the Superintendent adopted to implement the provisions of Section 772 of the California Financial Code authorize California state-chartered banks to invest in the capital stock, obligations or other securities of corporations not acting as insurance companies, insurance agents or insurance brokers. The regulations delineate the type of investments which may be made, establish procedures for administrative approval of certain investments and for the examination of a corporation which a bank is deemed to control as a result of an investment pursuant to Section 772, and include rules relating to pre-1983 investments. Competitive Equality Banking Act. In 1987, the Competitive Equality Banking Act - - -------------------------------- was enacted, which affected almost all sectors of the financial services industry. This legislation included among other things: (i) the imposition of certain restrictions on transactions between banks and their affiliates; (ii) limitations on the time banks may hold certain deposits prior to making the deposited funds available for withdrawal and provision for the payment of interest on such funds deposited in interest-bearing accounts; (iii) a requirement that any adjustable rate mortgage loan originated after December 8, 1989 and secured by a lien on a one-to-four family dwelling include a limitation on the maximum rate which interest may accrue on the principal balance during the term of such loan; (iv) the expansion of the FDIC's authority in arranging supervisory interstate acquisitions and acquisitions of failing banks; (v) the renewal of emergency acquisition authorities; (vi) the exemption of assessment income of federal banking agencies from budget restrictions imposed by the Office of Management and Budget and from the budget balancing requirements of the Gramm-Rudman-Hollings Act; and (vii) the application of the Glass-Steagall Act to state-chartered banks, prohibiting affiliations with companies principally engaged in securities activities. Interstate Banking Legislation. In 1986 and 1987, legislation was enacted in - - ------------------------------ California permitting out-of-state bank holding companies to acquire banks in California after July 1987, if the holding company conducted its principal operations in Alaska, Arizona, Colorado, Hawaii, Idaho, Nevada, New Mexico, Oregon, Texas, Utah or Washington. Generally, such acquisitions are subject to the approval of the BGFRS and the Superintendent and require the existence of reciprocal interstate legislation in the state in which the operations of the bank holding company are conducted. The interstate banking authorization became applicable to other out-of-state bank holding companies on January 1, 1991. The United States Congress has periodically considered legislation which could result in interstate banking and further deregulation of banks and other financial institutions. Such legislation could result in the relaxation or elimination of geographic restrictions on banks and bank holding companies and could place the Bank in more direct competition with other financial institutions, including mutual funds, securities brokerage firms, investment banking firms and other entities. The effect of this legislation on the Bank cannot be determined at this time. Accounting Pronouncements - - ------------------------- In December 1991, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments ("SFAS 107"). SFAS 107 requires entities such as the Bank to disclose, either in the body of their financial statements or in the accompanying notes, the "fair value" of financial instruments for which it is "practicable to estimate that value." Most deposit and loan instruments issued by financial institutions are subject to SFAS 107, and its effect on the Bank is to require financial statements disclosure, in addition to their carrying value, of the fair value of most of the assets and liabilities of the Bank. Excepted from the -11- disclosure requirement, among other types of instruments, are most employee benefit plan obligations, insurance contracts, leases, warranties, minority and equity interests in consolidated subsidiaries, and other investments accounted for under the equity method. The Bank has included the disclosure required by SFAS 107 in footnote 14 to its financial statements for the year ended December 31, 1993, copies of which are included in this report. The disclosure requirements contained in SFAS 107 could adversely affect the market price of the Bank's Common Stock and its ability to raise funds in the financial markets. In February 1992, FASB issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), which established new financial accounting and reporting standards for the effects of income taxes that result from an enterprise's activities during the current and preceding years. The new standard requires an asset and liability approach for financial accounting and reporting for income taxes, replacing the income statement approach inherent in the current income tax accounting standard. In 1993, the Bank adopted SFAS 109. Adoption of the provisions of SFAS 109 had no material impact on the Bank's financial position or results of operations. In November 1992, FASB issued Statement of Financial Accounting Standards No. 112, Accounting for Postemployment Benefits ("SFAS 112"), which requires the accrual of postemployment benefits, such as the continuation of health care benefits and life insurance coverage. SFAS 112 is effective for fiscal years beginning after December 15, 1993. The Bank does not currently offer postemployment benefits to its employees and therefore the implementation of SFAS 112 is not applicable to the Bank. In May 1993, FASB issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan. This statement, which becomes effective in the first quarter of 1995, requires the Bank to measure impaired loans based upon the present value of expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan's observable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is impaired when, based upon current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The Bank has not completed the analysis necessary to determine the impact, if any, of this statement on its financial position or results of operations. In May 1993, FASB issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. This statement, which becomes effective in the first quarter of 1994, requires the Bank to classify investment securities into one of three categories at acquisition: held-to-maturity, trading or available-for-sale. Investments in debt securities shall be classified as held-to-maturity and measured at amortized cost only if the Bank has the positive intent and ability to hold such securities to maturity. All other investments in debt and equity securities that have readily determinable fair values shall be classified as either trading securities, which are bought and held principally for the purpose of selling them in the near term and are carried at market value with a corresponding recognition of the unrealized holding gain or loss in results of operations, or as available-for-sale securities, which are all other securities and are carried at market value with a corresponding recognition of the unrealized holding gain or loss as a net amount in a separate component of stockholders' equity until realized. The Bank adopted this statement as of January 1, 1994. If the provisions of this statement would have been applied as of December 31, 1993, stockholders' equity would have been increased by approximately $220,000. -12- ITEM 2. PROPERTIES ---------- The Bank currently maintains one banking office. This facility is located at the Capitol Bank Center, 300 Capitol Mall, Sacramento, California. Commencing February 1, 1985, the Bank entered into a lease with Capitol Mall Venture to house the Bank's main office. Under this lease, as substantially amended, the Bank obtained 32,809 net rentable square feet at a monthly lease cost, commencing November 1, 1985, of $83,000, subject to annual adjustments and certain property maintenance costs. The lease is for an initial term of fifteen years with options to extend the lease for a total of fifteen additional years. Under the terms of the lease, the Bank occupied a portion of the first, second and third floors of the eighteen story Capitol Bank Center. The Bank has sublet the second and third floors of the Bank. During 1993 the Bank collected $190,054 in rental payments pursuant to sublease agreements with unrelated third parties. On March 1, 1991, the Bank leased auxiliary administrative office space in an office building located at 3410 Industrial Boulevard, West Sacramento, California. The Bank leases 7,200 square feet of space for its Finance, Trust Operations, Data Processing, Human Resources, Note and Courier Service Departments under a lease agreement which terminates September 30, 1996. The Bank received six months free of rent. The base rent is $5,063.10, subject to adjustments of four percent (4%) per annum. ITEM 3. LEGAL MATTERS ------------- The Bank is involved in litigation of a routine nature which is being handled and defended in the ordinary course of the Bank's business. In the opinion of management, the resolution of this litigation will have no material impact on the Bank's financial position. ITEM 4. SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The following table sets forth certain information regarding shareholders who own beneficially more than five percent (5%) of the outstanding common stock of the Bank (the only class outstanding) as of December 31, 1993.
Amount and Nature Percent of Name and Address of Beneficial Outstanding of Beneficial Owner Shares Shares - - ------------------------------------------------------------- J. Al Wickland, Jr. 839,254/(1)/ 20.6% 3640 American River Drive Sacramento, CA 95853
__________ (1) Mr. Wickland, Chairman of the Board, holds sole voting and investment power to all of his shares. -13- The following table sets forth certain information with regard to the ownership, as of December 31, 1993, of the common stock of the Bank (the only class outstanding) by all directors individually, and all directors and principal officers of the Bank, as a group.
Common Stock Position(s) Beneficially Owned Name Age Held on 12/31/93(1) - - -------------------------------------------------------------------------------- Louis G. Fifer 45 Director 500 .01% Thomas J. Hammer, Jr. 61 Director 1,500 .03% Thomas T. Jenkins 50 Director 1,000 .02% Thomas E. King(2) 50 Director 20,801 0.51% Carolyn G. Reid 55 Director 3,000 .07% J. Al Wickland, Jr. 73 Chairman of the Board 839,254 20.50% John A. Wickland, III 49 Director 180,705 4.40% All directors and executive officers of the Bank as a group (10 persons)(3)(4) 1,052,166 25.79%
- - ---------- (1) Unless otherwise indicated, each of the above Directors holds either sole voting and investment power as to all shares owned or shares voting and investment power with his spouse as to the shares owned. (2) Includes 20,401 shares which may be acquired under stock options exercisable within 60 days of December 31, 1993. Mr. King will cease being the President and Chief Executive Officer and a Director of the Bank, effective April 15, 1994. For information regarding Mr. King's cessation of employment, see "Item 10." (3) As used in this proxy statement, the term "officer" or "principal officer" means a Chairman of the Board of Directors, Vice Chairman of the Board, President, Executive Vice Presidents, Senior Vice Presidents, Corporate Secretary, Vice President, and any other person who participates in major policy-making functions of the Bank. (4) Includes 24,801 shares which may be acquired under stock options exercisable within 60 days of December 31, 1993. -14- ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY HOLDER -------------------------------------------------------------- MATTERS ------- During 1993, the Bank's common stock was not listed on any stock exchange or on NASDAQ. The primary market makers for the Bank's common stock are Kidder Peabody & Co., Inc and Hoefer & Arnett, Inc. There were eighteen trades which occurred in 1993, ranging in price from a high of $2.25 to a low of $1.50. There were forty trades which occurred in 1992. The price ranged from a high of $2.50 to a low of $2.00. During 1993 and 1992, the Bank declared no dividends on its stock. Under California banking laws, it may not pay cash dividends without prior approval until such time as the deficit in undivided profits is restored and there are sufficient earnings to cover the dividend. As of December 31, 1993, there were approximately 1,073 holders of the Bank's common stock. ITEM 6. SELECTED FINANCIAL DATA -----------------------
Years Ended December 31, 1993 1992 1991 1990 1989 - - ----------------------------------------------------------------------------------------------------------- Total interest income $ 8,950,842 $ 9,125,106 $ 12,488,049 $ 13,289,560 $ 11,362,711 Total interest expense 2,671,141 3,281,012 5,337,012 6,453,069 5,609,110 ------------ ------------ ------------ ------------ ------------ Net interest income 6,279,701 5,844,094 7,151,037 6,836,491 5,753,601 Provision for loan losses 436,000 519,778 1,066,823 525,000 250,000 ------------ ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 5,843,701 5,324,316 6,084,214 6,311,491 5,503,601 ------------ ------------ ------------ ------------ ------------ Total non-interest income 1,213,053 1,290,233 1,670,837 2,120,735 1,221,774 Total non-interest expense 6,663,133 8,478,118 7,473,238 6,692,883 5,743,842 ------------ ------------ ------------ ------------ ------------ Income (loss) before provision for income taxes and extra- ordinary item 393,621 (1,863,569) 281,813 1,739,343 981,533 Provision for income taxes 78,500 -- 114,453 713,000 399,500 ------------ ------------ ------------ ------------ ------------ Income (loss) before extra- ordinary item 315,121 (1,863,569) 167,360 1,026,343 582,033 Extraordinary item, tax benefit of net operating loss carryforward -- -- 44,000 630,000 374,000 ------------ ------------ ------------ ------------ ------------ Net income (loss) $ 315,121 $(1,863,569) $ 211,360 $ 1,656,343 $ 956,033 ============ ============ ============ ============ ============
-15-
Years Ended December 31, 1993 1992 1991 1990 1989 - - ----------------------------------------------------------------------------------------------------------- Income (loss) before extra- ordinary item $ 0.08 $ (0.46) $ 0.04 $ 0.25 $ 0.14 Extraordinary item -- -- 0.01 0.16 0.09 ------------ ------------ ------------ ------------ ------------ Net income (loss) per share $ 0.08 $ (0.46) $ 0.05 $ 0.41 $ 0.23 ============ ============ ============ ============ ============ Total Assets $123,393,109 $119,945,633 $148,454,333 $150,020,495 $129,551,463 ============ ============ ============ ============ ============ Long-term Obligations -- -- -- -- -- ============ ============ ============ ============ ============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS ------------------------------------ 1. Overview Management's discussion and analysis of the financial condition and results of operation is intended to provide a better understanding of significant changes in the trends of CapitolBank Sacramento. The discussion and analysis should be read in conjunction with the consolidated financial statements and notes, thereto, along with other financial information included in this report. CapitolBank Sacramento was incorporated under the laws of the State of California on December 31, 1975, and was licensed by the California State Banking Department and commenced operations as a California state-chartered bank on April 22, 1976. The Bank's securities consist of one class of common stock having a par value of $1.5625 per share. As of December 31, 1993, there were 4,080,302 shares outstanding; these shares were held by 1,073 shareholders. The Bank is an insured bank under the Federal Deposit Insurance Act, up to applicable limits thereof. Like many state-chartered banks of its size in California, it is not a member of the Federal Reserve System. The Bank's net income was $315,121 for the year ended December 31, 1993, representing earnings per share of $0.08. This represents a dramatic improvement over the 1992 loss of $ 1,863,569 ($0.46 loss per share) and a 49.1% increase from 1991 earnings of $211,360 ($0.05 per share). The increase in net income during 1993 when compared to 1992 was principally due to improvements in the quality and size of the Bank's loan portfolio, an improvement in the net interest margin due primarily to reduced interest expense while maintaining loan interest rates constant and reductions in Other Real Estate Owned, legal fees and other expenses. 1992 results were also negatively impacted by a one time charge to income of $1,060,000 resulting from the divestiture of a real estate joint venture, undertaken in 1990 by Capitol Commerce Development Company VI, a wholly owned subsidiary of the Bank. Return on average equity for the years 1993, 1992 and 1991 was 3.57%, (21.65%) and 1.95%, respectively. The Bank's risk-based capital ratio at December 31, 1993 was 12.90% compared to 14.58% at December 31, 1992. These ratios are in excess of the Federal Reserve Board's requirement of 8.00%. -16- 2. Net Interest Income Net interest income, the primary component of bank revenue, is the difference between interest and loan fees earned by the Bank on its earning assets and the interest expense paid on its interest-bearing deposit liabilities and other borrowed funds. Net interest income, expressed as a percentage of average total earning assets, is referred to as "net interest margin." 1993 Compared to 1992 - - --------------------- The Bank's net interest income of $6,279,701 increased $435,607 (7.5%) when compared to 1992. This increase resulted from the combination of a $3,936,000 (6.0%) increase in average loans, a $5,174,000 (24.1%) reduction in average time deposits and a 15.3% decrease in the average cost of funds. The decrease in time deposits is consistent with management's desire to shift its deposit mix from time deposits to interest-bearing transaction accounts. The decrease in the average cost of funds resulted from the shift in the deposit mix combined with a general decline in deposit interest rates. 1992 Compared to 1991 - - --------------------- During 1992, net interest income declined 18.28% to $5,844,094 from $7,151,037 in 1991. This was due to a combination of decreasing interest rates and a declining loan portfolio. The average prime rate for the year ended December 31, 1992 was 6.29% compared to 8.46% for the year ended December 31, 1991. These two factors contributed to the decrease in the yield on interest-earning assets of 10.08% in 1991 to 8.17% in 1992. The rate paid on interest-bearing liabilities decreased from 5.53% in 1991 to 3.67% in 1992. This decrease is due primarily to repricing of deposits periodically throughout the year in response to decreases in the Bank's prime lending rate and market conditions affecting the financial industry. 3. Deposits The Bank's efforts to move towards "relationship" banking is evidenced by a decreasing concentration in time deposit accounts and a shift to interest- bearing transaction accounts. The following table sets forth information regarding the trends in the Bank's average deposits for 1993, 1992 and 1991:
Deposits Average for the Years Ended December 31, 1993 1992 1991 ------------------------------------------------------------- (Dollar amounts in Thousands) Amount % Amount % Amount % -------- ------- ---------- --------- --------- -------- Demand deposits $ 26,889 24.20% $ 25,444 22.35% $ 27,685 22.69% Interest-bearing transaction accounts 63,781 57.39% 62,670 55.06% 60,234 49.37% Savings accounts 4,133 3.72% 4,216 3.70% 2,196 1.80% -------- ------ -------- ------ -------- ------ 94,803 85.31% 92,330 81.11% 90,115 73.86% Time accounts 16,324 14.69% 21,498 18.89% 31,897 26.14% -------- ------ -------- ------ -------- ------ Total deposit accounts $111,127 100.00% $113,828 100.00% $122,012 100.00% ======== ====== ======== ====== ======== ======
-17- 4. Loans The following table sets forth information regarding trends in the Bank's average loans for 1993, 1992 and 1991:
Loans Average for the Years Ended December 31, 1993 1992 1991 --------------------------------------------------------------------- (Dollar amounts in Thousands) Amount % Amount % Amount % ---------- ------- ---------- ------- ---------- ------- Real estate construction $ 16,010 22.89% $ 20,578 31.17% $ 24,247 32.06% Real estate mortgages 29,837 42.65% 21,902 33.18% 23,637 31.25% Commercial and agricultural 20,705 29.60% 19,139 28.99% 22,245 29.41% Individual consumer 2,562 3.66% 3,553 5.38% 4,510 5.96% Other 840 1.20% 846 1.28% 1,000 1.32% ---------- ------- ---------- ------- ----------- ------- $ 69,954 100.00% $ 66,018 100.00% $ 75,638 100.00% ========== ======= ========== ======= =========== =======
Ninety-one percent of the Bank's loans have floating rates of interest, generally indexed to the Bank's reference rate or to another market rate indicator. The remaining nine percent of the loans are fixed rate loans with the following maturity distribution: due in one year or less--2%, due after one year to five years--3% and due after five years--4%. 5. Loan to Deposit Ratio The Bank's average loan to deposit ratio was 63% during 1993 compared to 58% during 1992 and 62% during 1991. This ratio represents the amount of each deposit dollar that is invested in loans, expressed as a percent. Although the loan and deposit functions operate separately, they are managed continuously during the year to ensure that this ratio remains within acceptable industry standards, and more importantly, consistent with the specific objectives established by the Bank. 6. Allowance for Loan Losses The purpose of the allowance for loan losses is to provide a reserve sufficient to cover loan losses which can reasonably be anticipated. To determine the level of reserves needed, the Bank reviews, on a monthly basis, the quality of its loans, the general economic conditions, historical loan loss experience and other pertinent data. -18- At December 31, 1993, the allowance for loan losses totaled $1,405,784 or 1.83% of gross loans. This compares to $1,170,174 or 1.80% of total loans at December 31, 1992. The activity in the allowance for loan losses is summarized as follows:
-------------------------------------------- 1993 1992 1991 -------------------------------------------- Balance, beginning of year $ 1,170,174 $ 1,122,597 $ 1,161,245 Provision for loan losses 436,000 519,778 1,066,823 Recoveries 160,959 207,617 44,209 Loans charged off (361,394) (679,818) (1,149,680) ------------- ------------ ------------ Balance, end of year $ 1,405,784 $ 1,170,174 $ 1,122,597 ============= ============ ============
As of December 31, 1993 and 1992, loans totaling approximately $138,000 and $2,449,000, respectively, were on non-accrual status. The aggregate effect of non-accrual loans was to reduce interest income by approximately $87,000, $159,000, and $248,000 for the years ended December 31, 1993, 1992 and 1991, respectively. 7. Non-Interest Income Non-interest income is composed of service charges on deposit accounts, security gains, real estate joint venture revenue, trust fees and commissions, gains resulting from the disposition of other real estate owned and other income. Non-interest income was $1,213,053 in 1993 compared to $1,290,233 in 1992 and $1,670,837 in 1991. Trust services revenue decreased 2.3% during 1993 as compared to 1992 and increased 8.8% during 1992 as compared to 1991. During the first quarter of 1992, a major trust account was terminated. The 2.3% decrease in trust revenue during 1993 as compared to 1992 was principally due to the loss of that account. Service charges on deposit accounts decreased $94,595 (42.4%) during 1993 as compared to 1992. The decrease is attributable to the loss of one account relationship. The Bank's direct costs associated with the administration of this account were reduced by approximately $80,000, thereby resulting in an immaterial impact on the overall results of operations. During 1993, the Bank reported gains of $49,197 on the sale of other real estate owned. This was the result of the Bank selling other real estate owned with a carrying value of $893,000. Consistent with management's commitment to emphasize core banking revenue sources, during 1993, the Bank completely divested itself of all real estate joint venture activity. Gross income from real estate development projects totaled $0, $28,000 and $130,797 during the years ended December 31, 1993, 1992 and 1991, respectively. -19- The following schedule reflects the components of non-interest income for the years 1993, 1992 and 1991:
---------------------------------------------------------- 1993 1992 1991 ---------------------------------------------------------- Amount % Amount % Amount % ---------------------------------------------------------- Non-interest income: Trust fees and commissions $ 689,221 56.8% $ 705,291 54.7% $ 648,418 38.8% Gains on securities transactions, net 282,729 23.3% 268,619 20.8% 448,694 26.9% Service charges on deposit accounts 128,711 10.6% 223,306 17.3% 227,427 13.6% Gains on sale of other real estate 49,197 4.1% 16,960 1.3% 149,195 8.9% Real estate development revenue -- -- 28,000 2.2% 130,797 7.8% Other income 63,195 5.2% 48,057 3.7% 66,306 4.0% ---------- ----- ---------- ----- ---------- ----- $1,213,053 100.0% $1,290,233 100.0% $1,670,837 100.0% ========== ===== ========== ===== ========== =====
8. Non-Interest Expense Non-interest expense includes salaries and benefits, occupancy costs, equipment and other expenses. These costs represent not only the cost of ongoing operations but, to some extent, an investment toward future growth and profitability. The following table summarizes the significant components of non-interest expense for 1993, 1992 and 1991:
----------------------------------------- 1993 1992 1991 ----------------------------------------- Salaries and benefits $ 3,379,284 $ 3,359,829 $ 3,186,070 Occupancy 1,402,170 1,439,257 1,371,807 Equipment 396,701 417,270 391,793 Divestiture of joint venture investment -- 1,060,000 -- Provision for loss on other real estate 61,721 466,000 -- Special shareholder meeting -- -- 712,822 Professional services 148,768 233,619 276,990 All other non-interest expenses 1,274,489 1,502,143 1,533,756 ------------ ------------ ------------ $ 6,663,133 $ 8,478,118 $ 7,473,238 ============ ============ ============
Non-interest expense decreased $1,814,985 (21.4%) to $6,663,133 in 1993 from $8,478,118 in 1992. These expenses increased $1,004,880 (13.5%) in 1992 as compared to 1991. Salaries and benefits increased $19,455 (.58%) to $3,379,284 during 1993 as compared to $3,359,829 in 1992. Salaries and benefits totaled $3,186,070 during 1991. The nominal increase during 1993 is due to the effects of the 1993 salary and hiring freeze. The increase in 1992 is due, in part, to the hiring of additional senior level personnel. Occupancy costs decreased $37,087 (2.6%) to $1,402,170 during 1993 as compared to $1,439,257 in 1992 and $1,371,807 in 1991. The decrease in 1993 is due to a reduction in general operating costs on the Bank building. For the years ended December 31, 1993, 1992 and 1991, the Bank collected -20- $190,054, $188,943 and $183,331 in rental payments pursuant to sublease agreements with unrelated third parties. In accordance with the terms of the lease on the Bank building, the rent is scheduled to increase April 1, 1994 based upon the three year increase in the Consumer Price Index since February, 1991. Occupancy costs on the Bank's main banking facility continue to have a negative effect on earnings. The current monthly lease rate of $3.65 per square foot significantly exceeds current market rates. The lease was initiated in 1985 and includes escalation clauses. In management's opinion, the lease rate is one of the highest of any community bank in the United States. To date, the Bank's landlord has been unwilling to renegotiate this lease. Management's strategy is to mitigate the negative effects of this lease through prudent growth. Equipment expense decreased by $20,569 (4.9%) in 1993 as compared to an increase of $25,477 in 1992. The increase in 1992 is attributable to an expansion of the Bank's computer system, including the addition of "CapitolAccess," a product which enables customers to access their accounts via their own personal computer. During 1992, the Bank divested itself from a real estate joint venture which resulted in a charge to other non-interest expense totaling $1,060,000. The provision for real estate losses of $61,721 in 1993 and $466,000 in 1992 reflects the decline in the fair market value of real estate acquired through foreclosure. Fair value is generally determined based upon periodic independent third party appraisals. During 1993, the Bank reduced the level of service provided by outside consultants which resulted in an $84,851 (36.3%) reduction in professional services. All other non-interest expenses decreased $227,654 (15.2%) to $1,274,489 during 1993 as compared to $1,502,143 in 1992 and $1,533,756 in 1991. A portion of the decrease in 1993 as compared to 1992 is attributable to an $80,000 reduction in expenses associated with the administration of one customer account that was terminated during 1992. The balance of the reductions are the result of cost control efforts initiated during mid 1992. 9. Income Taxes Effective January 1, 1993, the Bank adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The cumulative effect of that change in the method of accounting for income taxes was not material. Prior to January 1, 1993, the Bank determined income tax expense under the provisions of Accounting Principles Board opinion No. 11. "Accounting for Income Taxes." For further information regarding the adoption of SFAS 109, refer to notes 1 and 7 to the consolidated financial statements. 10. Investments to Deposit Ratio The investments to deposit ratio is the portion of each deposit dollar directed to investment securities. During 1993 average investments decreased from $45,743,000 to $40,676,000. The average investments -21- to deposit ratio was 36.6%, 40.2% and 39.5% at December 31, 1993, 1992 and 1991, respectively. The decrease in investments provided the funding for the Bank's 1993 loan growth. 11. Liquidity Liquidity is the ability to meet present and future financial obligations either through the sale or maturity of existing assets or by the acquisition of funds through liability management. The primary sources of liquidity for CapitolBank Sacramento include: cash and due from banks, marketable securities, time deposits with other banks and federal funds sold. At December 31, 1993, these assets were $46,016,404 (37.3%) of total assets, compared to $52,201,536 (43.5%) and $74,429,247 (50.1%) at December 31, 1992 and 1991, respectively. The Bank's management monitors the liquidity position continuously and projects it based on the trends of loans and deposits. Management attempts to adjust maturity distribution and interest rate sensitivity in response to these changes. The Bank has available a $3 million short-term Federal funds borrowing line with a major bank to meet short-term, liquidity requirements should the need arise. 12. Regulatory Capital Effective December 31, 1990, the Federal Deposit Insurance Corporation (the FDIC) specified minimum capital ratios for banks using both risk-weighted assets (risk-based capital ratio) and average assets (leverage ratio). Regulatory accounting principles, which differ from generally accepted accounting principles, are applied in the calculation of these ratios. Total risk-based capital consists of the following two elements: Tier I - Common stock, paid-in-surplus, retained earnings, less certain intangible assets such as goodwill and core deposit premiums, plus; Tier II - Allowance for loan losses, limited to 1.25% of risk-weighted assets in 1993 and 1992 and 1.5% in 1991. In addition, on December 19, 1992, certain additional capital guidelines were defined under the Federal Deposit Insurance Corporation Improvement Act. These guidelines included minimum capital ratios for banks considered to be well capitalized. -22- The Bank's capital ratios and the respective minimum regulatory requirements at December 31, 1993, 1992 and 1991 were as follows:
-------------------------- 1993 1992 1991 -------------------------- Ratio Description - - ----------------- Leverage Ratio CapitolBank Sacramento 7.54% 7.05% 7.79% Minimum requirement for "Well- Capitalized" institution 5.00% 5.00% Minimum regulatory requirement 4.00% 4.00% 4.00% Tier I Risk-Based Capital Ratio CapitolBank Sacramento 11.65% 13.33% 12.64% Minimum requirement for "Well- Capitalized" institution 6.00% 6.00% Minimum regulatory requirement 4.00% 4.00% 3.60% Total Risk-Based Capital Ratio CapitolBank Sacramento 12.90% 14.58% 13.97% Minimum requirement for "Well- Capitalized" institution 10.00% 10.00% Minimum regulatory requirement 8.00% 8.00% 7.25%
Under the FDIC's risk-based capital regulations, balance sheet assets and certain off-balance sheet commitments are weighted by risk and compared to capital. The decrease in the Bank's Tier I and Total Risk-Based Capital ratios at December 31, 1993 as compared to 1992 was primarily due to an $11.9 million (18.4%) increase in gross loans at December 31, 1993 as compared to 1992. Accordingly, total risk-weighted assets increased $11.9 million (17.7%) from $79.0 million at December 31, 1993 compared to $67.1 million at December 31, 1992. -23- ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA ------------------------------------------ Audited consolidated balance sheets of the Bank and its subsidiaries as of the close of the last two (2) fiscal years, audited consolidated statements of operations of the Bank and its subsidiaries for the last three (3) years, notes and certain tables are included herein. Financial Highlights
1993 1992 1991 - - ------------------------------------------------------------------------------- Net Income (loss) $ 315,121 $(1,863,569) $ 211,360 Per Share $ 0.08 $ (0.46) $ 0.05 - - ------------------------------------------------------------------------------- Return on Average Equity 3.57% (21.65%) 1.95% Return on Average Assets 0.26% (1.50%) 0.16% Average Total Loans to Average Deposits 62.95% 58.00% 61.99% Net Interest Margin 5.68% 5.23% 5.77% - - ------------------------------------------------------------------------------- Average Daily Prime Rate 6.00% 6.29% 8.46% - - ------------------------------------------------------------------------------- At Year-End (in thousands, except per share data) Total Assets $ 123,393 $ 119,946 $ 148,454 Net Loans 74,503 63,228 68,310 Total Deposits 111,063 108,188 133,621 Trust Assets At Cost 178,018 163,551 224,414 At Market 189,830 177,898 250,440 Stockholders' Equity 9,217 8,902 10,766 Book Value Per Share $ 2.26 $ 2.18 $ 2.64 - - -------------------------------------------------------------------------------
-24- CONSOLIDATED BALANCE SHEETS
December 31, 1993 1992 --------------------------- Assets Cash and due from banks $ 6,456,108 $ 5,942,738 Federal funds sold 4,820,000 7,600,000 ------------ ------------ Cash and cash equivalents 11,276,108 13,542,738 Interest-bearing deposits with other banks 398,000 4,470,000 Investment securities at cost: Market values--$35,217,000 for 1993 and $35,146,000 for 1992 34,342,296 34,188,798 Loans, net of deferred fees and allowance for loan losses of $1,405,784 for 1993 and $1,170,174 for 1992 74,502,992 63,227,571 Bank premises, leasehold improvements and equipment, net 1,484,333 1,784,846 Other real estate owned 70,000 962,862 Interest receivable and other assets 1,319,380 1,768,818 ------------ ------------ Total Assets $123,393,109 $119,945,633 ============ ============ Liabilities and Stockholders' Equity Deposits: Non-interest bearing $ 28,439,209 $ 25,198,108 Interest bearing 82,624,062 82,990,062 ------------ ------------ Total deposits 111,063,271 108,188,170 ------------ ------------ Short-term borrowings 2,734,047 2,520,728 Interest payable and other liabilities 378,305 334,370 ------------ ------------ Total liabilities 114,175,623 111,043,268 ============ ============ Commitments and contingent liabilities (Note 8) Stockholders' Equity Common stock--Par value $1.5625 per share; authorized 10,000,000 shares, issued and outstanding 4,080,302 shares in 1993 and 1992 6,375,472 6,375,472 Paid in surplus 5,744,748 5,744,748 Deficit (2,902,734) (3,217,855) ------------ ------------ Total stockholders' equity 9,217,486 8,902,365 ------------ ------------ Total Liabilities and Stockholders' Equity $123,393,109 $119,945,633 ============ ============
The accompanying notes are an integral part of these consolidated statements. -25- CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1993 1992 1991 ------------------------------------------- Interest income: Interest and fees on loans and leases $ 6,679,645 $ 6,333,944 $ 8,881,555 Interest on Federal funds sold 162,284 146,688 247,673 Interest on investment securities 1,987,764 2,267,673 2,738,701 Interest on deposits with other banks 121,149 376,801 620,120 ------------ ------------ ------------ Total interest income 8,950,842 9,125,106 12,488,049 ------------ ------------ ------------ Interest expense: Interest on deposits 2,631,160 3,239,865 5,249,696 Interest on short-term borrowings 39,981 41,147 87,316 ------------ ------------ ------------ Total interest expense 2,671,141 3,281,012 5,337,012 ------------ ------------ ------------ Net interest income 6,279,701 5,844,094 7,151,037 Provision for loan losses 436,000 519,778 1,066,823 ------------ ------------ ------------ Net interest income after provision for loan losses 5,843,701 5,324,316 6,084,214 ------------ ------------ ------------ Non-interest income: Service charges on deposit accounts 128,711 223,306 227,427 Trust fees and commissions 689,221 705,291 648,418 Gains on sale of other real estate owned 49,197 16,960 149,195 Gains on securities transactions, net 282,729 268,619 448,694 Real estate development revenue -- 28,000 130,797 Other income 63,195 48,057 66,306 ------------ ------------ ------------ Total non-interest income 1,213,053 1,290,233 1,670,837 ------------ ------------ ------------ Non-interest expense: Salaries and employee benefits 3,379,284 3,359,829 3,186,070 Net occupancy expense 1,402,170 1,439,257 1,371,807 Equipment expense 396,701 417,270 391,793 Divestiture of joint venture investment -- 1,060,000 -- Other operating expenses 1,484,978 2,201,762 2,523,568 ------------ ------------ ------------ Total non-interest expense 6,663,133 8,478,118 7,473,238 ------------ ------------ ------------ Income (loss) before provision for income taxes and extraordinary item 393,621 (1,863,569) 281,813 Provision for income taxes 78,500 -- 114,453 ------------ ------------ ------------ Income (loss) before extraordinary item 315,121 (1,863,569) 167,360 Extraordinary item, tax benefit of net operating loss carryforward -- -- 44,000 ------------ ------------ ------------ Net income (loss) $ 315,121 (1,863,569) $ 211,360 ============ ============ ============ Per share amounts: Income (loss) before extraordinary item $ 0.08 $ (0.46) $ 0.04 Extraordinary item -- -- 0.01 ------------ ------------ ------------ Net income (loss) $ 0.08 $ (0.46) $ 0.05 ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. -26- Consolidated Statements of Stockholders' Equity
Common Stock ------------------------ Number of Paid in Shares Amount Surplus Deficit Total ---------- ------------ ------------ ------------- ------------- Balance, December 31, 1990 4,080,302 $ 6,375,472 $ 5,744,748 $ (1,565,646) $ 10,554,574 Net Income 211,360 211,360 ---------- ------------ ------------ ------------- ------------- Balance, December 31, 1991 4,080,302 6,375,472 5,744,748 (1,354,286) 10,765,934 Net Loss (1,863,569) (1,863,569) ---------- ------------ ------------ ------------- ------------- Balance, December 31, 1992 4,080,302 6,375,472 5,744,748 (3,217,855) 8,902,365 Net Income 315,121 315,121 ---------- ------------ ------------ ------------- ------------- Balance, December 31, 1993 4,080,302 $ 6,375,472 $ 5,744,748 $ (2,902,734) $ 9,217,486 ========== ============ ============ ============== ============
The accompanying notes are an integral part of these consolidated statements. -27- CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31,
1993 1992 1991 - - ------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 315,121 $ (1,863,569) $ 211,360 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Gain on sale on investment securities (282,729) (268,619) (448,694) Amortization of discounts and premiums, net 148,845 128,049 (14,048) Provision for loan losses 436,000 519,778 1,066,823 Increase (decrease) in deferred loan fees, net 401,536 116,662 (135,234) Depreciation and amortization 375,045 408,732 420,949 Provision for other real estate owned 61,721 466,000 -- Gain on sale of other real estate owned (49,197) (16,960) (149,195) Deferred taxes 78,500 -- -- Net change in operating assets and liabilities: Interest receivable and other assets 370,938 954,321 545,687 Interest payable and other liabilities 43,935 188,613 (429,070) ----------- ------------ ----------- Net cash provided by operating activities 1,899,715 633,007 1,068,578 ----------- ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of certificates of deposit (2,876,000) (5,265,000) (9,043,000) Purchase of investment securities (16,315,143) (15,345,755) (40,532,870) Proceeds from maturity of certificates of deposit 6,948,000 9,640,000 8,078,000 Proceeds from maturity of investment securities 3,706,092 14,725,020 10,723,711 Proceeds from sale of investment securities 12,589,437 13,569,444 17,890,737 Loans originated and principal collected, net (13,386,732) 2,501,799 9,253,921 Additions to bank premises and equipment (74,532) (91,963) (300,831) Proceeds from sale of other real estate owned 2,154,113 1,305,958 1,138,068 ----------- ------------ ----------- Net cash (used for) provided by investing activities (7,254,765) 21,039,503 (2,792,264) ----------- ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 2,875,101 (25,432,336) (1,783,935) Net increase (decrease) in short-term borrowings 213,319 (1,284,746) 315,667 ----------- ------------ ----------- Net cash provided by (used for) financing activities 3,088,420 (26,717,082) (1,468,268) ----------- ------------ ----------- Decrease in cash and cash equivalents (2,266,630) (5,044,572) (3,191,954) Cash and cash equivalents, at beginning of year 13,542,738 18,587,310 21,779,264 ----------- ------------ ----------- Cash and cash equivalents, at end of year $11,276,108 $ 13,542,738 $18,587,310 =========== ============ =========== - - ------------------------------------------------------------------------------ SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 2,642,819 $ 3,385,533 $ 5,493,347 Cash paid for taxes 21,500 8,000 271,651 Total gross additions to other real estate 1,273,775 1,827,860 1,878,873 - - ------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated statements. -28- Average Balances, Yields and Rates (Dollar amounts in thousands)
1993 1992 1991 ----------------------------- ----------------------------- ------------------------------ Interest Rates Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Balance Expenses Paid ----------------------------- ----------------------------- ------------------------------ ASSETS Federal funds sold $ 5,910 $ 162 2.74% $ 4,683 $ 147 3.14% $ 4,121 $ 248 6.02% Interest-bering deposits with other financial institutions 3,023 121 4.00% 5,706 377 6.61% 8,490 620 7.30% Investment securities: U.S. Treasury securities 24,375 1,548 6.35% 23,241 1,575 6.78% 21,729 1,660 7.64% U.S. Government Agencies 6,045 390 6.45% 5,728 445 7.77% 10,507 904 8.60% Other securities 1,323 50 3.78% 6,385 247 3.88% 3,378 174 5,15% Loans 69,954 6,680 9.55% 66,018 6,334 9.59% 75,638 8,882 11.74% -------- -------- -------- ------ -------- ------- Total Interest-Earning Assets 110,630 8,951 8.09% 111,761 9,125 8.17% 123,863 12,488 10.08% -------- ------ ------- Cash and due from banks 8,587 8,664 7,302 Furniture, fixtures and equipment 1,636 1,982 2,157 Interest receivable and other assets 2,508 3,536 3,700 Reserve for loan losses (1,268) (1,400) (1,306) -------- -------- -------- Total Assets $122,093 $124,543 $135,716 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing transaction accounts 63,781 1,869 2.93% 62,670 2,090 3.33% 60,234 2,971 4.93% Savings accounts 4,133 128 3.10% 4,216 154 3.65% 2,196 115 5.24% Time accounts 16,324 634 3.88% 21,498 996 4.63% 31,897 2,164 6.78% Other borrowed funds 1,614 40 2.48% 1,092 41 3.75% 2,084 87 4.17% -------- -------- -------- ------ -------- ------- Total Interest-Bearing Liabilities 85,852 2,671 3.11% 89,476 3,281 3.67% 96,411 5,337 5.53% Demand accounts 26,889 25,444 27,685 Accrued expenses and other liabilities 527 1,017 781 Shareholders' equity 8,825 8,606 10,839 -------- -------- -------- Total Liabilities and Shareholders' Equity $122,093 $124,543 $135,716 ======== ======== ======== NET INTEREST INCOME $ 6,280 $ 5,844 $ 7,151 ======== ======== ======= NET INTEREST MARGIN 5.68% 5.23% 5.77%
NOTE: Loan fees are included in interest income for loans. Non-accrual loans have been included in average loan balances. -29-
Analysis of Changes in Interest Income and Expenses (In thousands) 1993 Over 1992 1992 Over 1991 ------------------------------------------------------------------ Volume Rate Total Volume Rate Total ------------------------------------------------------------------ Increase (decrease) in interest and fee income: Federal funds sold $ 39 $ (24) $ 15 $ 34 $ (135) $ (101) Interest-bearing deposits with other financial institutions (177) (79) (256) (203) (40) (243) Investment securities: U.S. Treasury securities 77 (104) (27) 116 (201) (85) U.S. Government Agencies 26 (80) (54) (411) (49) (460) Other securities (197) (1) (198) 155 (81) 74 Loans 378 (32) 346 (1,130) (1,418) (2,548) ------ -------- ------ ------ -------- --------- 146 (320) (174) (1,439) (1,924) (3,363) ------ -------- ------ ------ -------- --------- Increase (decrease) in interest expense: Deposits: Interest-bearing transaction accounts 37 (257) (220) 120 (1,001) (881) Savings accounts (3) (23) (26) 106 (68) 38 Time accounts (240) (123) (363) (705) (462) (1,167) Other borrowed funds 20 (21) (1) (42) (4) (46) ------ -------- ------ ------ -------- --------- (186) (424) (610) (521) (1,535) (2,056) ------ -------- ------ ------ -------- --------- Changes in Net Interest Income $ 332 $ 104 $ 436 $ (918) (389) (1,307) ====== ======== ====== ====== ======== =========
-30- Notes to the Consolidated Financial Statements 1. Summary of Significant Accounting Policies The accounting and reporting policies of CapitolBank Sacramento and Subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry. The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements. Principles of Consolidation - - --------------------------- The consolidated financial statements include the accounts of CapitolBank Sacramento (the Bank) and its wholly owned subsidiaries, Capitol Commerce Development Corporations VI and VII and Commerce Corporation. All material intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents - - ------------------------- For the purpose of the statement of cash flows, the Bank considers cash and amounts due from banks and Federal fund sold to be cash and cash equivalents. Investment Securities - - --------------------- Investment securities are carried at cost, adjusted for amortization of premium and accretion of discount. Premium and discounts are amortized and accreted using the interest method. Gains or losses on the sale of securities are determined on the specific identification method and are shown separately in the consolidated statements of operations No allowance for market decline, if any, is provided as interest is current on the investment portfolio and management intends and has the ability to hold these investments until maturity. Allowance for Loan Losses - - ------------------------- The allowance for loan losses is maintained at a level considered adequate to provide for losses that can reasonably be expected to occur. Bank management makes continuous credit reviews of the loan portfolio and considers current economic conditions, historical loan loss experience and other factors in determining the adequacy of this allowance. The evaluation process requires the use of current estimates which may vary from the ultimate losses. As adjustment to these estimates become necessary, they are charged to operations in the periods when they become known. 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 (the 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. -31- Bank Premises, Leasehold Improvements and Equipment - - --------------------------------------------------- Bank premises, leasehold improvements and equipment are carried at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Estimated useful lives of the premises and equipment are from three to ten years. Leasehold improvements at the Bank's main office are amortized over twenty years, representing the term of the lease of fifteen years and one of three five-year renewal options. Leasehold improvements at the Bank's auxiliary office are amortized over five years in accordance with the term of the lease. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred; significant renewals or betterments are capitalized. Real Estate Joint Venture Divestiture - - ------------------------------------- During 1992, the Bank elected to divest itself of a real estate joint venture project initiated in 1990 through its wholly owned subsidiary, Capitol Commerce Development Company VI. Funding of this development project had been capitalized and included in Other Assets in prior periods on the Bank's Consolidated Balance Sheet. The expense associated with the elimination of this investment was charged to Non-Interest Expense during the year ended December 31, 1992. Other Real Estate - - ----------------- Other real estate includes real estate acquired in full or partial settlement of loan obligations. When property is acquired, any excess of the Bank's recorded investment in the loan balance and accrued interest income over the estimated fair market value of the property is charged against the allowance for loan losses. Thereafter, it is carried at the lower of cost or fair value minus estimated selling costs. Fair value is generally determined based upon periodic independent third party appraisals. Subsequent gains or losses on sales or write-downs are recorded in other income or expense as incurred. Interest and Fees on Loans - - -------------------------- Interest on loans is calculated by using the simple interest method on the daily balance of the principal amount outstanding. However, when, in the opinion of management, the future collectibility of interest and principal is in serious doubt, a loan is placed on non-accrual status and the accrual of interest income is suspended. Any interest accrued but unpaid is charged against 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. Substantially all loan origination fees, commitment fees, direct loan origination costs and discounts on loans are deferred and recognized as an adjustment of yield, to be amortized to interest income over the contractual term of the loan. The unamortized balance of deferred fees and costs is reported as a component of net loans. -32- Income Taxes - - ------------ Effective January 1, 1993 the Bank adopted the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). -------- The cumulative effect of that change in the method of accounting for income taxes was not material. Under the asset and liability method of SFAS 109, -------- 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 carry-forwards. 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. Under SFAS 109, 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. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. In the financial statements, deferred tax assets, net of deferred tax liabilities are included in interest receivable and other assets. Reclassifications - - ----------------- Certain reclassifications have been made to prior years' balances to conform with classifications used in 1993. -33- 2. Investment Securities The amortized cost and estimated market values of investment securities are as follows at December 31, 1993:
Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ---------- ---------- ----------- U.S. Treasury $25,162,828 $ 845,298 $ 14,126 $25,994,000 U.S. Agency 3,033,800 100,200 -- 3,134,000 Mortgage-backed 5,643,687 19,229 76,916 5,586,000 Obligations of State and Political Subdivisions 251,981 1,019 -- 253,000 Other 250,000 -- -- 250,000 ----------- ---------- ---------- ----------- $34,342,296 $ 965,746 $ 91,042 $35,217,000 =========== ========== ========== =========== The amortized cost and estimated market values of investment securities are as follows at December 31, 1992: Gross Gross Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ---------- ---------- ----------- U.S. Treasury $27,325,384 $ 827,914 $ 54,298 $28,099,000 U.S. Agency 4,031,063 108,778 2,421 4,137,000 Mortgage-backed 2,327,394 79,606 -- 2,407,000 Obligations of State and Political Subdivisions 254,957 -- 2,377 253,000 Other 250,000 -- -- 250,000 ----------- ---------- ---------- ----------- $34,188,798 $1,016,298 $ 59,096 $35,146,000 =========== ========== ========== ===========
The amortized cost and estimated market value of investment securities at December 31, 1993 by contractual maturity, are shown below. Expected maturities will differ from contractual maturities -34- 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 $ 3,256,415 $ 3,342,000 Due after one year through five years 23,431,980 24,195,000 Due after five years through ten years 2,010,214 2,094,000 ----------- ----------- 28,698,609 29,631,000 Mortgage-backed 5,643,687 5,586,000 ----------- ----------- $34,342,296 $35,217,000 =========== ===========
Gross gains realized on sales of investment securities totaled $283,998, $305,560 and $449,543 in 1993, 1992 and 1991, respectively. Gross losses of $1,269, $36,941 and $849 were realized on sales of investment securities in 1993, 1992 and 1991, respectively. The book value of securities pledged to secure public deposits totaled $12,416,000 and $11,438,000 at December 31, 1993 and 1992, respectively. -35- 3. Loans and Allowance for Loan Losses Outstanding loans are summarized as follows:
December 31, -------------------------- 1993 1992 -------------------------- Real estate construction $21,188,594 $12,439,932 Real estate mortgage 30,684,510 27,410,064 Commercial and agricultural 21,637,422 21,437,041 Consumer installment 2,196,718 2,863,165 Other 1,041,009 688,221 ----------- ----------- 76,748,253 64,838,423 Unearned discount (13,274) (16,011) Allowance for loan losses (1,405,784) (1,170,174) Deferred loan fees (826,203) (424,667) ----------- ----------- $74,502,992 $63,227,571 =========== ===========
Real estate loans totaling $0 and $490,000 were pledged to secure public deposits at December 31, 1993 and 1992, respectively. Activity in the allowance for loan losses is summarized as follows:
-------------------------------------- 1993 1992 1991 -------------------------------------- Balance, beginning of year $1,170,174 $1,122,597 $1,161,245 Provision for loan losses 436,000 519,778 1,066,823 Recoveries 160,959 207,617 44,209 Loans charged off (361,349) (679,818) (1,149,680) ---------- ---------- ---------- Balance, end of year $1,405,784 $1,170,174 $1,122,597 ========== ========== ==========
At December 31, 1993 and 1992, loans totaling approximately $138,000 and $2,151,000, respectively, were on non-accrual status. -36- The aggregate effect of non-accrual loans was to reduce interest income by approximately $87,000, $159,000 and $248,000 for the years ended December 31, 1993, 1992 and 1991, respectively. 4. Bank Premises, Leasehold Improvements and Equipment A summary of Bank premises, leasehold improvements and equipment is as follows:
December 31, -------------------------- 1993 1992 -------------------------- Bank premises and equipment $ 2,054,105 $ 1,991,426 Leasehold improvements 1,955,240 1,955,967 ----------- ----------- 4,009,345 3,947,393 Less accumulated depreciation (2,525,012) (2,162,547) ----------- ----------- $ 1,484,333 $ 1,784,846 =========== ===========
Depreciation charged to expense amounted to $375,045, $408,732 and $420,949 in 1993, 1992 and 1991, respectively. 5. Interest-Bearing Deposits Interest-bearing deposits consisted of the following:
December 31, ------------------------- 1993 1992 ------------------------- Savings $ 4,017,208 $ 6,127,289 Money Market 46,618,981 42,168,853 NOW Accounts 16,600,870 17,095,435 Time, $100,000 or More 8,323,775 9,632,686 Other Time 7,063,229 7,965,799 ----------- ----------- $82,624,062 $82,990,062 =========== ===========
Interest expense recognized on time deposits of $100,000 or more during the years ended December 31, 1993, 1992 and 1991 totaled $349,000, $540,000 and $1,259,000, respectively. 6. Short-Term Borrowings Short-term borrowings consist of treasury tax and loan deposits and generally mature within one to 120 days from the transaction date. The Bank has a $3 million unsecured Federal funds purchase agreement with one of its correspondent banks. There were no borrowings outstanding under this agreement at December 31, 1993 and 1992. -37- 7. Income Taxes As discussed in Note 1, the Bank adopted SFAS 109 as of January 1, 1993. The -------- cumulative effect of that change in the method of accounting for income taxes was not material. Prior years' consolidated financial statements have not been restated to apply the provisions of SFAS 109. -------- The provision for income taxes for the years ended December 31, 1993, 1992 and 1991 consists of the following:
------------------------ 1993 1992 1991 ------------------------ Current Federal $ -- $ -- $ 84,453 State -- -- 30,000 ------- ----- -------- -- -- 114,453 Deferred Federal 50,500 -- -- State 28,000 -- -- ------- ----- -------- 78,500 -- -- ------- ----- -------- $78,500 $ -- $114,453 ======= ===== ========
Significant temporary differences and carryforwards that give rise to the deferred tax assets and liabilities as of December 31, 1993 are as follows:
Deferred tax assets: Allowance for loan losses $ 291,700 Net operating loss carryforwards 1,600,200 General tax credit carryforwards 226,800 Other 16,500 ---------- Total gross deferred tax assets 2,135,200 Less valuation reserve (1,827,000) ---------- Net deferred tax assets 308,200 ---------- Deferred tax liabilities: Bank premises, leasehold improvements and equipment (104,100) ---------- Total gross deferred tax liabilities (104,100) ---------- Net deferred taxes $ 204,100 ==========
A valuation allowance has been provided for net operating loss carryforwards and the general tax credit carryforwards because of the uncertainty surrounding their realization. -38- The provision for income taxes differs from the amounts computed by applying the statutory federal tax rates to income before taxes. The reasons for the differences are as follows:
-------------------------------------------------------------- 1993 1992 1991 -------------------------------------------------------------- Amount Rate Amount Rate Amount Rate -------------------------------------------------------------- Federal income tax expense at statutory rates $133,800 34.0% (630,213) (34.0%) $ 95,816 34.0% State franchise taxes, net of Federal income tax benefit 28,000 7.1% (131,400) (7.1%) 19,605 7.0% Tax benefit of loss carryforwards (63,900) (16.2%) 761,613 41.1% Other, net (19,400) (5.0%) (968) (0.3%) -------- ------- ---------- ------- -------- ------ $ 78,500 19.9% $ -- --% $ 114,453 40.7% ======== ======= ========== ======= ======== ======
At December 31, 1993, the Bank has the following net operating loss (NOL) and tax credit carryforwards for tax return purposes:
Federal Expires Operating Loss Tax Credit December 31, Carryforward Carryforward - - --------------------------------------------------- 2001 $ $ 227,000 2002 744,000 2003 390,000 2005 40,000 2007 4,465,000 2008 26,000 -------------- ------------ $ 5,665,000 $ 227,000 ============== ============
The Bank also has alternative minimum tax credit carryforwards for tax purposes of approximately $6 million, which are available to reduce future federal regular income taxes over an indefinite period. The Internal Revenue Code imposes restrictions on a bank's ability to utilize NOL and tax credit carryforwards if a 50 percent change in ownership occurs within a three-year period. Changes in ownership are defined to include, among other things, ownership changes involving owners of 5 percent or more of a bank's common stock and public stock offerings. Certain events in the future, including the issuance of additional shares of the Bank's common stock or activities involving persons owning 5 percent or more of the Bank's common stock, could occur that would trigger such a change in control. This may result in the loss of some or all of the Bank's NOL or tax credit carryforwards. -39- 8. Commitments and Contingent Liabilities Financial Instruments with Off-Balance Sheet Risk - - ------------------------------------------------- The Bank makes commitments to extend credit in the normal course of business to meet the financing needs of its customers. 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 amount does not necessarily represent future cash requirements. The Bank is exposed to credit loss, in the event of nonperformance by the borrower, in the contract amount of the commitment. The Bank uses the same credit policies in making commitments as it does for on-balance sheet instruments and evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on management's credit evaluation of the borrower. Collateral held varies but may include cash, accounts receivable, inventory, equipment and real estate property. The Bank also issues standby letters of credit which are unconditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support construction bonds, private borrowing arrangements and similar transactions. Most of these guarantees are short-term commitments expiring in decreasing amounts through 1994 and are not expected to be drawn upon. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral as deemed necessary, as described above. The contract amount of commitments not reflected on the balance sheet at December 31, 1993 and 1992 is as follows:
1993 1992 - - ----------------------------------------------------- Loan Commitments $25,488,000 $13,459,000 Standby Letters of Credit 974,000 2,609,000
Significant Concentration of Credit Risk - - ---------------------------------------- The Bank accepts deposits and grants credit primarily within its local service area which the Bank has identified as the Greater Sacramento Area. That comprises the four counties of Sacramento, El Dorado, Placer and Yolo. At year- end, the Bank had construction loans comprising 27.61% of the loan portfolio. This comprises 17.2% of total assets at December 31, 1993. Although the Bank has a diversified loan portfolio, a substantial portion of its portfolio is secured by commercial and residential real estate. -40- Federal Reserve Requirements - - ---------------------------- Banks are required to maintain reserves with the Federal Reserve Bank equal to a percentage of their reservable deposits. The reserve balances held with the Federal Reserve Bank totaled $1,013,000 and $901,000 as of December 31, 1993 and 1992, respectively. Operating Leases - - ---------------- The Bank has executed a non-cancelable operating lease for its main office space. The lease provides for an initial term of fifteen years, three five-year renewal options, and a market value adjustment at the end of 10 years. In addition, the Bank has executed a noncancelable operating lease for its auxiliary office space. The lease provides for a term of five years. Both operating leases are included in the following schedule of future minimum lease payments as of December 31, 1993:
Year Ending December 31, 1994 $1,377,000 1995 1,408,000 1996 1,386,000 1997 1,339,000 1998 1,339,000 1999-2000 1,674,000 ---------- $8,523,000 ==========
Rental expense under operating leases totaled $1,239,000, $1,230,000 and $1,165,000 in 1993, 1992 and 1991, respectively. Legal Actions - - ------------- The Bank is involved in litigation of a routine nature which is being defended in the ordinary course of the Bank's business. In the opinion of management, the resolution of this litigation will have no material impact on the Bank's financial position. 9. Stockholders' Equity Capital Adequacy - - ---------------- The Federal Deposit Insurance Corporation has specified guidelines for purposes of evaluating a Bank's capital adequacy. Banks are required to satisfy two separate capital requirements. First, banks must meet a minimum leverage capital ratio ranging from three to five percent based upon the bank's CAMEL (capital adequacy, asset quality, management, earnings and liquidity) rating. At December 31, 1993, the Bank's leverage capital ratio was 7.54%. Second, banks must meet a minimum risk-based capital ratio of 8.0%. Risk-based capital guidelines vary from leverage 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. -41- The effect of the risk-based capital guidelines is that banks with high risk 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. The Bank's risk-based capital ratio at December 31, 1993 was 12.90%. Earnings Per Share - - ------------------ Earnings per share amounts were computed on the basis of the weighted average number of shares of common stock outstanding during the year. There were no dilutive common stock equivalents outstanding during 1993, 1992 or 1991. The number of shares used for the computations was 4,080,302 in all three years. Dividend Restrictions - - --------------------- Under California banking laws, the Bank may not pay cash dividends without prior approval until such time as the deficit in undivided profits is restored and there are sufficient earnings to cover the dividends. Stock Options - - ------------- During June 1992, the Board of Directors adopted an incentive stock option plan (the Plan). Final approval of the Plan was subject to the Bank obtaining the approval of the State Banking Department and the stockholders. The State Banking Department approved the Plan in July 1992 and the stockholders approved the Plan at the 1993 annual stockholders' meeting. Under the terms of the Plan, 306,023 shares of common stock have been reserved for issuance to employees of the Bank. The Plan requires that the option price of all options granted may not be less than the fair market value-of the stock at the date the option is granted, and that the stock must be paid for in full at the time the option is exercised. All options expire on a date determined by the Board of Directors, but not later than ten years from the date of the grant. The following summarizes the activity under the Plan:
Balance January 1, 1992 -- Options Granted 141,608 ------- Balance December 31, 1992 141,608 Options Canceled (26,400) ------- Balance December 31, 1993 115,208 =======
Stock options granted during 1992 were not exercisable until the Plan was approved by the stockholders. At December 31, 1993, stock options for 24,801 shares were exercisable at a price of $2.00 per share. -42- 10. Other Expenses Other expenses consisted of the following:
---------------------------------------- 1993 1992 1991 ---------------------------------------- FDIC Assessment $ 279,721 $ 258,058 $ 257,779 Legal fees 211,117 226,312 192,184 Professional services 148,768 233,619 276,990 Stationery, printing and supplies 101,210 100,895 114,744 Data processing 76,300 78,699 156,891 Provision for loss on other real estate 61,721 466,000 -- Client data processing 18,477 97,909 145,236 Special stockholder meeting -- -- 712,822 Other 587,664 740,270 666,922 ------------ ----------- ------------ $ 1,484,978 $ 2,201,762 $ 2,523,568 ============ =========== ============
11. Related Party Transactions In the normal course of business, the Bank enters into transactions with related parties, including directors, principal shareholders and their affiliates. The transactions are on substantially the same terms and conditions as those prevailing for comparable transactions with unrelated parties. It is the Bank's policy not to make loans to Directors; and accordingly, no loans were outstanding to Directors at December 31, 1993 and 1992, respectively. 12. Tax Deferred Investment Plan The Bank established a trusteed tax deferred investment plan (the "Plan") for all eligible employees during 1988. The Plan permits each employee to contribute up to 15% of compensation on a pre-tax basis up to a specified maximum, which for calendar year 1993, was $8,994. The Bank provides a matching contribution of $1.00 for every 51.00 of compensation deferred by the employee with a maximum matching contribution of 3% of the employee's annual compensation. The Bank's Plan expense totaled $54,000, $54,400 and $56,900 for the years ending December 31, 1993, 1992 and 1991, respectively. 13. Regulatory Agreements On February 24, 1993, the Bank entered into a Memorandum of Understanding (the "Memorandum") with the Federal Deposit Insurance Corporation (the "FDIC") and the California State Banking Department (the "State") as a result of a joint examination of the Bank by the FDIC and the State. The FDIC performed a subsequent examination of the Bank as of November 15, 1993. Based upon the results of the examination, on February 7, 1994, the FDIC, along with the State, terminated the existing Memorandum. -43- 14. Prospective Accounting Pronouncements Impairment of Loans - - ------------------- In May of 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan. This statement applies to financial statements for fiscal years beginning after December 15, 1994. It requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Initial adoption of this statement is required to be reflected prospectively. The Bank has not completed the analysis necessary to determine the impact, if any, of this statement on its financial position or results of operations. Investments - - ----------- In May of 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. This statement applies to financial statements for fiscal years beginning after December 15, 1993 and is to be applied as of the beginning of an enterprise's fiscal year. Initial adoption of this statement is required to be reflected prospectively. The statement requires that investments of equity securities that have readily determinable fair values and all investments in debt securities be classified in these categories and accounted for as follows: Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity securities or trading securities are classified as available-for-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders' equity. The Bank adopted this statement as of January 1, 1994. If the provisions of the statement would have been applied as of December 31, 1993, stockholders' equity would have been increased by approximately $220,000. Fair Value Disclosures - - ---------------------- In December 1991, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107 "Disclosures about Fair Value of Financial Instruments." The provisions of Statement 107 are effective for financial statements issued for years ending after December 15, 1992 for entities whose total assets exceed $150 million. For those entities whose total assets are less than $150 million at December 15, 1992, the provisions of Statement 107 are effective for years ended after December 15, 1995. Statement 107 requires the disclosure of the fair value of financial instruments for which it is practicable to estimate that value. Most loan and deposit instruments issued by financial -44- institutions will be subject to Statement 107. These disclosures apply to off- balance sheet financial instruments as well as those recorded on the balance sheet. -45- [Letterhead of KPMG Peat Marwick] KPMG Peat Marwick Certified Public Accountants 2495 Natomas Park Drive Sacramento, CA 95833-2936 Independent Auditors' Report ---------------------------- To the Shareholders and Board of Directors of CapitolBank Sacramento: We have audited the accompanying consolidated balance sheet of CapitolBank Sacramento and Subsidiaries as of December 31, 1993 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of CapitolBank Sacramento and Subsidiaries for the years ended December 31, 1992 and 1991, were audited by other auditors whose report thereon dated February 19, 1993, expressed an unqualified opinion on those consolidated statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1993 consolidated financial statements referred to above present fairly, in all material respects, the financial position of CapitolBank Sacramento and Subsidiaries as of December 31, 1993 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Notes 1 and 7 to the consolidated financial statements, the Bank changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. -46- Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The supplementary information included in Schedules I, II, III, IV, V and VI to Form F-2 is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ KPMG Peat Marwick Sacramento, California February 25, 1994 -47- Report of Independent Public Accountants To the Shareholders and Board of Directors of CapitolBank Sacramento: We have audited the accompanying consolidated balance sheets of CAPITOLBANK SACRAMENTO (a California state chartered bank) AND SUBSIDIARIES as of December 31, 1992, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 1992. 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 CapitolBank Sacramento and Subsidiaries as of December 31, 1992, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. /s/ Arthur Andersen & Co. Sacramento, California February 19, 1993 -48- Report of Independent Public Accountants To the Shareholders and Board of Directors of CapitolBank Sacramento: We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in CAPITOLBANK SACRAMENTO'S annual report to shareholders and incorporated by reference in this Form F-2, and have issued our report thereon dated February 19, 1993. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. Schedules I, II, III, IV, V and VI for the year ended December 31, 1992, listed in Item 11 are presented for purposes of complying with the Federal Deposit Insurance Corporation's rules and are not part of the consolidated financial statements. These schedules have been subjected to the auditing procedures applied in our audit of the consolidated financial statements and, in our opinion, fairly state in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen & Co. Sacramento, California February 19, 1993 -49- ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF BANK ---------------------------------------- Mr. Louis G. Fifer, 45, has served as a director since May 1991. Currently, Mr. Fifer also serves as the Vice President of Operations with Hotel Information Systems, a manufacturer and provider of hospitality information systems. Prior to that time, he served in various managerial and ownership capacities with Systems Integrators, Inc., a company engaged in the development and sales of computerized publishing systems. Mr. Fifer terminated his employment with Systems Integrators, Inc. on October 31, 1992. Systems Integrators, Inc. filed a petition under Chapter 11 of the U.S. Bankruptcy Code on September 22, 1993. Mr. Thomas J. Hammer, Jr., 61, has served as a director since November 1991. For more than five years, Mr. Hammer has served as the President of Shasta Linen Supply, Inc., a Sacramento based linen service provider. Mr. Robert T. Jenkins, 50, has served as a director since September 1991. For more than five years, he has served in various capacities with Intel Corporation, a worldwide developer and manufacturer of advanced computer chips. Most recently, Mr. Jenkins has served as Vice President and Director of Corporate Licensing of Intel Corporation. Ms. Carolyn G. Reid, 55, has served as a director since May 1991. For more than five years, she has been Vice President and co-owner of Reid and Associates, a building materials marketing and sales company in Sacramento. Mr. J. Al Wickland, Jr., 73, has served as a Director since March 1986 and as Chairman of the Board from January 1987 to August 1990. Mr. Wickland was re- elected Chairman of the Board in August 1991, and currently serves in this capacity. For more than five years, he has served as Chairman of the Board of Wickland Oil Co., a Sacramento based petroleum distribution and marketing company. Mr. John A. Wickland, III, 49, has served as a Director since January 1989. Since 1989, he has also been the president of Wickland Corporation and Wickland Properties. He also holds executive positions with Wickland Oil Company. From 1975 through 1989, he was President of Regal Stations, Inc., the predecessor corporation of Wickland Properties. Mr. Thomas E. King, 50, served as the Bank's President and Chief Executive Officer and as a director from April 1992 through April 15, 1994, at which time he will cease being an officer and director of the Bank. For information regarding Mr. King's cessation of employment, see "Item 10." Mr. Thayer T. Prentice, 56, was appointed as Vice Chairman of the Board, Chief Executive Officer and a Director on March 30, 1994. Prior to that time, Mr. Prentice served in various capacities at Bank of San Francisco, including Chairman, President and Chief Executive Officer (from November 1, 1991 through August 4, 1993) and Vice Chairman (from 1990 through November 1, 1991). From 1988 to 1990, Mr. Prentice served as Executive Vice President and Division Manager of First Interstate Bank, and from 1979 to 1988, Mr. Prentice served as President and Chief Executive Officer of Point West Bank. Mr. Prentice also has served on the Board of Directors of the Dean's Advisory Council of the Graduate School of Management of the University of California at Davis since 1990 and on the Salvation Army Advisory Board in Sacramento, California, since 1980 (serving as Chairman in 1984). -50- Mr. Ralph Andersen, 54, was appointed as a Director on March 30, 1994. Since his retirement in 1987, Mr. Andersen has served as a member of the Board of Directors of the Junior Statesmen Foundation, University of California Berkeley Foundation, Sutter Community Hospitals, Salvation Army, and the ICMA Retirement Corporation. From 1972 to 1987, Mr. Andersen owned and operated Ralph Andersen & Associates, a management consulting firm, with offices in Sacramento and Newport Beach, California and Dallas, Texas. Mr. Andersen also engaged in real estate development and investment in Sacramento, California, and served on the Board of Directors of Point West Bank (from 1982 to 1988) until Point West Bank was sold to First Interstate Bank. From 1964 to 1971, Mr. Andersen served as Principal Assistant to the Director of the League of California Cities. Mr. William J. Martin, 47, was appointed as President and Chief Operating Officer on April 2, 1994. Mr. Martin will become a Director on April 15, 1994. From December 1993 to April 1, 1994, Mr. Martin served as Executive Vice President of American River Bank. From October 1990 to December 1993, Mr. Martin served as Executive Vice President and Commercial Lending Manager of the Sacramento Regional Office of Bank of San Francisco. For more than 20 years prior to that time, Mr. Martin served in various capacities in the banking industry, including as Senior Vice President and Manager of First Interstate Bank's Sacramento Business Banking Center (from January 1989 to October 1990), Executive Vice President of Point West Bank, Sacramento, California (from October 1986 to January 1989) and with Crocker National Bank (from 1971 to 1986). Director's Compensation - - ----------------------- Each outside member of the Board of Directors receives $400 per board meeting and $200 per committee meeting attended. A total of $54,500 was paid during 1993 to all outside directors. Employee directors receive no compensation for attending meetings of the Board of Directors or committees of the Board. Executive Officers of the Bank - - ------------------------------ The following table sets forth certain information regarding the current executive officers of the Bank. Officers are elected annually and serve until their successors are elected.
Name Age Position with the Bank - - ---- --- ---------------------- Thayer T. Prentice 56 Vice Chairman of the Board and Chief Executive Officer William J. Martin 47 President and Chief Operating Officer Lawrence McGovern 39 Senior Vice President and Chief Financial Officer Bernard Rao 57 Senior Vice President and Chief Administrative Officer Susan J. Drack 39 Senior Vice President and Commercial Lending Manager Florence A. Bellacosa 61 Vice President and Trust Manager
-51-
Name Age Position with the Bank - - ---- --- ---------------------- Kathleen M. Thomas 47 Senior Vice President and Chief Credit Officer
Mr. Prentice was appointed as Vice Chairman of the Board, Chief Executive Officer and a Director of the Bank on March 30, 1994. Prior to that time, Mr. Prentice served in various capacities at Bank of San Francisco, including Chairman, President and Chief Executive Officer (from November 1, 1991 through August 4, 1993) and Vice Chairman (from 1990 through November 1, 1991). From 1988 to 1990, Mr. Prentice served as Executive Vice President and Division Manager of First Interstate Bank, and from 1979 to 1988, Mr. Prentice served as President and Chief Executive Officer of Point West Bank. Mr. Prentice also has served on the Board of Directors of the Dean's Advisory Council of the Graduate School of Management of the University of California at Davis since 1990 and on the Salvation Army Advisory Board in Sacramento, California, since 1980 (serving as Chairman in 1984). Mr. Martin was appointed as President and Chief Operating Officer of the Bank on April 2, 1994. Mr. Martin will become a Director on April 15, 1994. From December 1993 to April 1, 1994, Mr. Martin served as Executive Vice President of American River Bank. From October 1990 to December 1993, Mr. Martin served as Executive Vice President and Commercial Lending Manager of the Sacramento Regional Office of Bank of San Francisco. For more than 20 years prior to that time, Mr. Martin served in various capacities in the banking industry, including as Senior Vice President and Manager of First Interstate Bank's Sacramento Business Banking Center (from January 1989 to October 1990), Executive Vice President of Point West Bank, Sacramento, California (from October 1986 to January 1989) and with Crocker National Bank (from 1971 to 1986). Mr. McGovern was appointed as Senior Vice President and Chief Financial Officer on April 2, 1994. From December 1993 to April 1, 1994, Mr. McGovern served as Senior Vice President, Lending of American River Bank. From January 1991 to December 1993, Mr. McGovern served as Senior Vice President, Lending of the Bank of San Francisco and from December 1988 to January 1991, he served as Division Finance Manager of First Interstate Bank of California. From December 1983 to December 1988, Mr. McGovern served as Vice President and Chief Financial Officer of Point West Bank. Mr. Rao has served as Senior Vice President and Chief Administrative Officer of the Bank from August 1985 to the present. From March 1979 until August 1985, he was Vice President and Senior Operations Officer with Union Bank in Sacramento, California. Ms. Drack has served as Senior Vice President and Commercial Lending Manager of the Bank since June 1993. From November 1991 to June 1993 Ms. Drack served in various real estate lending positions with the Bank. Prior to joining the Bank, Ms. Drack was employed with First Interstate Bank of California in Real Estate Portfolio Management. Ms. Bellacosa has served as Vice President and Trust Manager since June 1992. From October 1982 to May 1992, Ms. Bellacosa served as a Trust Officer. Prior to her employment with the Bank, Ms. Bellacosa was employed by Nevada National Bank as a Trust Officer for approximately eight years. Ms. Thomas was appointed as the Senior Vice President and Chief Credit Officer of the Bank on April 2, 1994. From December 1993 to April 1, 1994, Ms. Thomas served as Senior Vice President and Chief Credit Officer of American River Bank. From December 1990 to December 1993, Ms. Thomas -52- served as Senior Vice President and Team Leader of the Sacramento Regional Office of the Bank of San Francisco. For ten years prior to that time, Ms. Thomas served in various capacities in the banking industry, including Vice President and Credit Administration Support Manager of First Interstate Bank of California, a Vice President of Wells Fargo Bank and Assistant Vice President Team Leader with Crocker National Bank. There is no family relationship between any of the directors and executive officers listed above, except for the relationship between J. Al Wickland, Jr. and John A. Wickland, III which is a father/son relationship. ITEM 10. MANAGEMENT COMPENSATION AND TRANSACTIONS WITH MANAGEMENT EXECUTIVE ------------------------------------------------------------------ COMPENSATION ------------ The following table sets forth the aggregate remuneration for services in all capacities paid or accrued for the fiscal year ended December 31, 1993: (a) to each of the five most highly compensated principal officers of the Bank whose aggregate cash and cash equivalent forms of remuneration exceeded $60,000; and (b) to all principal officers of the Bank as a group: - - -------------------------------------------------------------------------------- CASH COMPENSATION TABLE
Identification and Capacities in Salaries, Fees which Remuneration is Received and Bonuses(1)(2) - - -------------------------------------------------------------------------------- Thomas E. King $ 170,680(3) President & Chief Executive Officer Susan J. Drack $ 101,160 Senior Vice President and Commercial Lending Manager Bernard Rao $ 95,640 Senior Vice President and Chief Administrative Officer Dennis F. Ceklovsky $ 90,340(4) Senior Vice President and Chief Credit Officer Florence A. Bellacosa $ 77,760 Vice President and Trust Department Manager All Principal Officers as a Group(5) (10 Persons) $ 714,782 - - ----------
(1) Includes deferrals to salary pursuant to the 401(k) plan as described in footnote (2) below. No other compensation was paid or distributed during the last fiscal year to the: (i) individuals named in the cash compensation table above which in the aggregate equals or exceeds the lesser of $25,000 or 10 percent of the compensation set forth in the cash compensation table for such -53- individual or (ii) group named in the cash compensation table above which in the aggregate equals or exceeds the lesser of $25,000 times the number of persons in the group or 10 percent of the aggregate compensation set forth in the cash compensation table for such group. (2) The Bank's practice is to pay for health insurance, long-term disability insurance and vision insurance for all salaried employees of the Bank. These insurance policies require co-payments by the employees. The Bank established a 401(k) investment plan (the "Plan") for all eligible employees during 1988. The Plan permits each eligible employee to defer up to 15% of compensation on a pre-tax basis up to a specified maximum which, for calendar year 1993, was $8,994. The Bank makes a matching contribution of $1.00 for every $1.00 of compensation deferred by the employee with a maximum matching contribution of 3% of the employee's annual compensation. The Bank incurred expenses on behalf of the Plan of approximately $54,000 for the year ended December 31, 1993. (3) Mr. King will cease being the President and Chief Executive Officer and a Director of the Bank effective April 15, 1994. For more information regarding Mr. King's cessation of employment, see "Severance Contract with Thomas E. King." (4) Mr. Ceklovsky ceased being the Senior Vice President and Chief Credit Officer of the Bank effective April 15, 1994. It is expected that Mr. Ceklovsky will cease providing services to the Bank effective May 15, 1994. The Bank is currently negotiating a severance arrangement with Mr. Ceklovsky. (5) Includes all principal officers who served during 1993. Compensation Plans The Bank established a 401(k) investment plan (the "Plan") for all eligible employees in 1988. The Plan permits each eligible employee to defer up to 15% of compensation on a pre-tax basis up to a specified maximum which for calendar year 1993 was $8,994. The Bank makes a matching contribution of $1.00 for every $1.00 of compensation deferred by the employee with a maximum matching contribution of 3% of the employee's annual compensation. The Bank incurred expenses on behalf of the Plan of approximately $54,000 for the year ended December 31, 1993. During fiscal year 1993, the Bank made matching contributions for its principal officers as follows:
1993 ------- Thomas E. King $ 4,680 Susan J. Drack 2,655 Bernard Rao 2,640 Dennis F. Ceklovsky 2,340 Florence A. Bellacosa 2,008 All Principal Officers as a Group (6 persons) 14,848
-54- Stock Options - - ------------- During June 1992, the Bank adopted the 1992 Stock Option Plan (the "Stock Option Plan"), which was approved by the shareholders of the Bank at the Bank's 1993 Annual Meeting of Shareholders. The Stock Option Plan is administered by a committee of at least two Directors, who during their service as an administrator of the Stock Option Plan, and during the one-year period prior to such service, have not received or been awarded any of the Bank's common stock pursuant to the Stock Option Plan or other stock option or stock appreciation rights plan of the Bank. The Committee is currently composed of the same members whom comprise the Compensation Committee. Options may be granted to officers and employees (including directors who are employees) of the Bank or a subsidiary of the Bank. Nonemployee directors of the Bank are not eligible to receive options under the Stock Option Plan. Options are granted at not less than the fair market value of the underlying shares on the date of the grant. Under the Stock Option Plan, the Bank may issue stock options with respect to an aggregate of 306,023 shares of common stock. As of April 15, 1994, 275,367 shares of common stock will be subject to outstanding options granted under the Stock Option Plan (including the options described below that were recently granted to Messrs. Prentice and Martin) and 30,656 shares will remain available for subsequent option grants. Options may be either incentive stock options or non-qualified stock options. Options granted under the Stock Option Plan shall be granted to employees and officers of the Bank who in the judgment of the Board of Directors or the committee designated by the Board, contribute to the successful conduct of the Bank's operations through their judgment, interest, ability and special efforts, and shall vest in such manner as the Board or the committee designated by the Board determines, but such vesting period shall not exceed ten years from the date the option is granted. If the optionee ceases to be an officer or employee of the Bank or any of its subsidiaries due to death or disability, the Stock Option Plan provides that the optionee's estate, or in the case of disability of the optionee, the optionee, may exercise the options for a period of twelve months following the date of such death or disability to the extent the option was exercisable on such date, and provided that the date of exercise is in no event after the expiration of the term of the option. If the optionee ceases to be an officer or employee of the bank or any of its subsidiaries because the optionee has been terminated for cause, the optionee shall have no right to exercise such options. In all other circumstances, the optionee may exercise any vested stock options within three months after such optionee ceases to be an officer or employee of the Bank or any of its subsidiaries, provided that the date of exercise is in no event after the expiration of the term of the option. Currently, the Bank has 7 principal officers and 77 other full-time employees. -55- The following table shows, as to the persons named therein, certain information with respect to stock options, including: (i) the title and aggregate amount of shares subject to options granted since January 1, 1992, and (ii) the average per share exercise price thereof.
Shares of Thomas E. Thayer T. William J. Bernard Dennis F. Susan J. Florence Common Stock King(2) Prentice Martin Rao Ceklovsky(2) Drack Bellacosa - - ------------------------------------------------------------------------------------------------------------- Granted from January 1, 1992 to April 15, 1994: Number of Shares 102,008 125,000 104,167 16,600 16,600 10,000 3,000 Average per share option price $ 2.00 $ 1.50 $ 1.50 $ 1.70 $ 1.70 $ 1.50 $ 1.50 Exercised from January 1, 1992 to April 15, 1994: Number of Shares 0 0 0 0 0 0 0 Net value (market value of shares on date options exercised less exercise price) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 Exercisable options at April 15, 1994: Number of Shares (1) 31,250 26,042 2,200 2,200 0 0 Average per share option price (1) $ 1.50 $ 1.50 $ 2.00 $ 2.00 $ 0.00 $ 0.00 - - ----------
(1) Mr. King will cease being an officer and director of the Bank on April 15, 1994. As part of Mr. King's severance Agreement described below, Mr. King agreed that his stock options will have terminated effective April 4, 1994. (2) Mr. Ceklovsky ceased being an officer of the Bank effective April 2, 1994 and will cease providing services to the Bank effective May 15, 1994. The Bank is currently negotiating a severance arrangement with Mr. Ceklovsky. As of April 15, 1994, all principal officers as a group (seven in number), held options to purchase 275,367 shares of the Bank's Common Stock at an exercise prices ranging between $1.50 and $2.00 per share. There are no options outstanding other than those described in the table above. Employment Contract with Thomas E. King - - --------------------------------------- On April 3, 1992, the Bank entered into an employment agreement with Thomas E. King, President and Chief Executive Officer, which provided for a base salary of $150,000 per year. In addition, the agreement provided that Mr. King was entitled to participate in the Bank's stock option plan and was eligible to receive up to 50% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals. Under the agreement, Mr. King was also entitled to severance compensation equal to twelve months base salary if the Board of Directors terminated Mr. King's employment during the first year of employment for reasons other than serious misbehavior or malfeasance. The severance compensation was to decrease each year after the first year of his employment until it reached zero after five years of employment. -56- On August 26, 1993, the severance compensation portion of the agreement with Mr. King was amended. The amendment, among other things, provided that if Mr. King was terminated for reasons other than serious misbehavior or malfeasance, the Bank would pay to Mr. King as severance compensation the difference, if any, between $150,000 and the before-tax gain realized by Mr. King upon the sale of shares of the Bank's common stock that Mr. King had acquired, or had a right to acquire, pursuant to the Bank's Stock Option Plan. Severance Contract with Thomas E. King - - -------------------------------------- Pursuant to the terms of a severance agreement dated April 7, 1994 (the "Severance Agreement"), between the Bank and Mr. King, Mr. King will cease being the President and Chief Executive Officer and a Director of the Bank effective April 15, 1994. In connection with the termination of Mr. King's employment, Mr. King, among other things, agreed to provide consulting services to the Bank through August 15, 1994, relinquish rights he had to compensation that accrued and had not been paid prior to the time of his termination, relinquish rights he had to options to purchase shares of the Bank's Common Stock, and release the Bank and its affiliates from certain liabilities and obligations including those that arose out of his employment by the Bank, termination of that employment, and related matters. The Bank, in turn, among other things, agreed to pay to Mr. King a one-time severance payment of $150,000 on April 15, 1994, his out- placement assistance until he secures a full-time position, his costs of health insurance until the earlier of August 15, 1994, or the date he becomes eligible for health insurance benefits offered by a future employer, and, provided that he provides the consulting services described in the Severance Agreement for the time period described therein, to continue to pay to him his regular base salary of $12,500 through August 15, 1994. The Bank also agreed to release Mr. King from certain liabilities and obligations including those that arose out of his employment by the Bank, termination of that employment, and related matters. Employment Contract with Thayer T. Prentice - - ------------------------------------------- The Bank is expected to enter into a five-year employment agreement with Thayer T. Prentice, Vice Chairman and Chief Executive Officer, which will provide for a base salary of $150,000 per year. In addition, the agreement is expected to provide that Mr. Prentice is entitled to participate in the Bank's stock option plan and other employee benefit plans, is eligible to receive up to 40% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals and is to receive a $500,000 term life insurance policy and an automobile allowance of $500 per month. The agreement is also expected to provide that Mr. Prentice will be entitled to severance compensation equal to twelve months base salary if he is terminated without cause. On March 30, 1994, Mr. Prentice was granted options to purchase 125,000 shares of the Bank's common stock at a price of $1.50 per share. Mr. Prentice's options have a term of ten years from the date of grant and become exercisable as to 25% of the shares underlying the options immediately and as to the remaining 75% of the shares, in equal installments on March 30, 1995, 1996, 1997 and 1998, subject to earlier vesting in the event Mr. Prentice's employment is terminated without cause or upon certain reorganizations. Employment Contract with William T. Martin - - ------------------------------------------ The Bank is expected to enter into a five-year employment agreement with William J. Martin, President and Chief Operating Officer, which will provide for a base salary of $125,000 per year. In addition, the agreement is expected to provide that Mr. Martin is entitled to participate in the Bank's stock option plan -57- and other employee benefit plans, is eligible to receive up to 40% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals and is to receive a $500,000 term life insurance policy and an automobile allowance of $500 per month. The agreement is also expected to provide that Mr. Martin will be entitled to severance compensation equal to twelve months base salary if he is terminated without cause. On April 4, 1994, Mr. Martin was granted options to purchase 104,167 shares of the Bank's common stock at a price of $ 1.50 per share. Mr. Martin's options have a term of ten years from the date of grant and become exercisable as to 25% of the shares underlying the options immediately and as to the remaining 75% of the shares, in equal installments on April 4, 1995, 1996, 1997 and 1998, subject to earlier vesting in the event Mr. Martin's employment is terminated without cause or upon certain reorganizations. Transactions with Management - - ---------------------------- The Bank has had and expects to continue to have banking transactions with some of its directors (and their affiliates). Loans by the Bank to any director (or affiliate) have been made in the ordinary course of business on substantially the same terms, including interest rates, collateral and repayment terms, as those prevailing at the time for comparable transactions with other persons. In the opinion of management of the Bank, such loans have not involved more than the normal risk of collectibility or presented other unfavorable features. Compliance with Section 16(a) of the Securities Exchange Act of 1934 - - -------------------------------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934 requires the Bank's directors and executive officers, and any person who owns more than ten percent of the Bank's common stock, to file with the FDIC initial reports of ownership and reports of changes in ownership of common stock of the Bank. Directors, executive officers and greater than ten-percent shareholders, if any, are required by FDIC regulations to furnish the Bank with copies of all Section 16(a) forms they file. To the Bank's knowledge, based solely on review of the copies of such reports furnished to the Bank and written representations that no other reports were required, during the fiscal year ended December 31, 1993, all directors and executive officers of the Bank were in compliance with the applicable Section 16(a) filing requirements, except as follows: Director Louis G. Fifer purchased 500 shares of common stock in 1993. The purchase was not reported on a Form F-8, however, an FDIC Form F-8A disclosing the purchase was filed with the FDIC four days after the Form F-8A filing deadline of February 14, 1993. Florence Bellacosa, Vice President and Trust Department Manager, was late in filing a Form F-7. ITEM 11. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM F-3 ---------------------------------------------------------------- (a) Contents. The following documents are filed as a part of this report: -------- (1) Financial Statements for the Periods Ended: . Financial Highlights December 31, 1993, 1992 and 1991. -58- . Consolidated Balance Sheets December 31, 1993 and 1992. . Consolidated Statements of Operations December 31, 1993, 1992 and 1991. . Consolidated Statements of Changes in Stockholders' Equity December 31, 1993, 1992 and 1991. . Consolidated Statements of Cash Flows December 31, 1993, 1992 and 1991. . Notes to the Consolidated Financial Statements. . Report of Independent Public Accountants. (2) Financial Statement Schedules: Tables required to be filed by item 7 of this form: -------------------------------------------------- . Table I - Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differentials - December 31, 1993, 1992 and 1991. . Table II - Investment Portfolio - December 31, 1993 and 1992. . Table III - Loan Portfolio - December 31, 1993 and 1992. . Table IV - Analysis of the Allowance for Loan Losses - December 31, 1993 and 1992. . Table V - Deposits - December 31, 1993 and 1992. . Table VI - Return on Equity and Assets - December 31, 1993, 1992 and 1991. . Table VII - Short-Term Borrowings - December 31, 1993, 1992 and 1991. Schedules required to be filed according to FDIC rules and ---------------------------------------------------------- regulations, section 335.627: ---------------------------- . Schedule I - Securities. . Schedule II - Loans to officers, directors, principal security holders, and any associates of the foregoing persons. . Schedule III - Loans and lease financing receivables. -59- . Schedule IV - Fixed Assets. . Schedule V - Investments in, income from dividends, and equity in earnings or losses of subsidiaries and associated companies. . Schedule VI - Allowance for loan losses. (b) Reports on Form F-3. ------------------- . The Bank filed a Current Report on Form F-3 on March 9, 1994, regarding the termination of a Memorandum of Understanding entered into between the Bank and the FDIC and State Banking Department on February 24, 1993. (c) Exhibits. The following exhibits are filed as a part of this report: -------- (1) Articles of Incorporation and Bylaws.* (2) Instruments defining the rights of security holders, including indentures. (Not filed, as not applicable). (3.1) CapitolBank Sacramento 1992 Stock Option Plan.* (3.2) Thomas E. King Employment Agreement. (3.3) Thomas E. King Severance Agreement. (3.4) Lease - West Sacramento.** (3.5) Lease - 300 Capitol Mall.*** (4) Statement regarding computation of per share earnings. (Incorporated by reference to consolidated Statement of Operations of the Bank - Note 9, Page 46). (5) Statement regarding computation of ratios. (Not filed, as not applicable). (6) Annual report to security holders. (Not filed, as not applicable). (7) Letter regarding change in accounting principles. (Not filed, as not applicable). (8) Previously unfiled documents. (Not filed, as not applicable). (9) List of all subsidiaries of the Bank. (Exhibit 9). * Incorporated by reference from the exhibits included with the Bank's Form F-2, for the year ended December 31, 1992. -60- ** Incorporated by reference from the exhibits included with the Bank's Form F-2, for the year ended December 31, 1990. *** Incorporated by reference from the exhibits included with the Bank's Form F-2, for the year ended December 31, 1987. -61- EXHIBIT 9 LIST OF ALL SUBSIDIARIES OF THE BANK
Percentage of Outstanding Shares State of Year of Name of Subsidiary Owned by the Bank Incorporation Incorporation Nature of Business - - -------------------------------------------------------------------------------------------------------------- Commerce Corporation 100% California 1977 Acts as Trustee for Trust Deeds held by the Bank Capitol Commerce Develop- 100% California 1983 Real estate investment and ment Corporation VI* development Capitol Commerce 100% California 1983 Real estate investment and Development development Corporation VII* Capitol Commerce 100% California 1977 Dormant Corporation - - ----------
* Although incorporated in 1983, no shares of the Corporation were acquired by the Bank until 1984. The financial statements of all subsidiaries are consolidated with the financial statements of the Bank. -62- SIGNATURE Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Bank has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: April 14, 1994 CAPITOLBANK SACRAMENTO By /s/ Thayer T. Prentice -------------------------- Thayer T. Prentice Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Dated: April 14, 1994 /s/ Thayer T. Prentice -------------------------------------- Thayer T. Prentice CEO & Director (Principal Executive Officer) Dated: April 14, 1994 /s/ Mary D. Roper -------------------------------------- Mary D. Roper (Controller) Dated: April 14, 1994 /s/ Ralph Andersen -------------------------------------- Ralph Andersen, Director Dated: April 14, 1994 /s/ Louis G. Fifer -------------------------------------- Louis G. Fifer, Director Dated: April 14, 1994 /s/ Thomas J. Hammer, Jr. -------------------------------------- Thomas J. Hammer, Jr., Director Dated: April 14, 1994 /s/ Robert T. Jenkins -------------------------------------- Robert T. Jenkins, Director Dated: April 14, 1994 /s/ William J. Martin -------------------------------------- William J. Martin, Director* Dated: April 14, 1994 /s/ Thayer T. Prentice -------------------------------------- Thayer T. Prentice, Director Dated: April 14, 1994 /s/ Carolyn G. Reid -------------------------------------- Carolyn G. Reid, Director -63- Dated: April 14, 1994 /s/ J. Al Wickland, Jr. -------------------------------------- J. Al Wickland, Jr., Director Dated: April 14, 1994 /s/ John A. Wickland, III -------------------------------------- John A. Wickland, III, Director __________ * Mr. Martin will become a director effective April 15, 1994. -64- Table I--Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differentials Average Balances, Yields and Rates (Dollar amounts in thousands)
1993 1992 1991 ----------------------------- ----------------------------- ----------------------------- Interest Rates Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Balance Expenses Paid ----------------------------- ----------------------------- ----------------------------- ASSETS Federal funds sold $ 5,910 $ 162 2.74% $ 4,683 $ 147 3.14% $ 4,121 $ 248 6.02% Interest-bering deposits with other financial institutions 3,023 121 4.00% 5,706 377 6,61% 8,490 620 7.30% Investment securities: U.S. Treasury securities 24,375 1,548 6.35% 23,241 1,575 6.78% 21,729 1,660 7.64% U.S. Government Agencies 6,045 390 6.45% 5,728 445 7.77% 10,507 904 8.60% Other securities 1,323 50 3.78% 6,385 247 3.88% 3,378 174 5,15% Loans 69,954 6,680 9.55% 66,018 6,334 9.59% 75,638 8,882 11.74% -------- ------ -------- ------ -------- ------- Total Interest-Earning Assets 110,630 8,951 8.09% 111,761 9,125 8.17% 123,863 12,488 10.08% ------ ------ ------- Cash and due from banks 8,587 8,664 7,302 Furniture, fixtures and equipment 1,636 1,928 2,157 Interest receivable and other assets 2,508 3,536 3,700 Reserve for loan losses (1,268) (1,400) (1,306) -------- -------- -------- Total Assets $122,093 $124,543 $135,716 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing transaction accounts 63,781 1,869 2.93% 62,670 2,090 3.33% 60,234 2,971 4.93% Savings accounts 4,133 128 3.10% 4,216 154 3.65% 2,196 115 5.24% Time accounts 16,324 634 3.88% 21,498 996 4.63% 31,897 2,164 6.78% Other borrowed funds 1,614 40 2.48% 1,092 41 3.75% 2,084 87 4.17% -------- ------ -------- ------ -------- ------- Total Interest-Bearing Liabilities 85,852 2,671 3.11% 89,476 3,281 3.67% 96,411 5,337 5.53% Demand accounts 26,889 25,444 27,685 Accrued expenses and other liabilities 527 1,017 781 Shareholders' equity 8,825 8,606 10,839 -------- -------- -------- Total Liabilities and Shareholders' Equity $122,093 $124,543 $135,716 ======== ======== ======== NET INTEREST INCOME $6,280 $5,844 $ 7,151 ====== ====== ======= NET INTEREST MARGIN 5.68% 5.23% 5.77%
NOTE: Loan fees are included in interest income for loans. Non-accrual loans have been included in average loan balances. -65- ACCOMPANYING INFORMATION TABLE II--INVESTMENT PORTFOLIO DECEMBER 31, 1993
- - ----------------------------------------------------------------------------------------- Principal Book Value Market Average Type of Maturity Grouping Amount Value(1) Value Yields - - ----------------------------------------------------------------------------------------- U.S. Treasury Securities: Within 1 year $ 3,000,000 $ 3,004,434 $ 3,088,740 3.48% After 1 but within 5 years 21,000,000 21,141,214 21,850,230 4.30% After 5 but within 10 years 1,000,000 1,017,180 1,054,680 5.22% ---------------------------------------------------------- Total: $ 25,000,000 $ 25,162,828 $ 25,993,650 4.24% ========================================================== Securities of Other U.S. Government Agencies and Corporations: Within 1 year $ 0 $ 0 $ 0 0.00% After 1 but within 5 years 3,613,095 3,677,347 3,739,407 5.55% After 5 but within 10 years 1,000,000 993,033 1,039,370 5.52% After 10 years 4,000,000 4,007,107 3,941,410 5.73% ---------------------------------------------------------- Total: $ 8,613,095 $ 8,677,487 $ 8,720,187 5.68% ========================================================== Other Bonds, Notes and Debentures: $ 500,000 $ 501,981 $ 503,518 4.62% ========================================================== $ 34,113,095 $ 34,342,296 $ 35,217,355 4.95% ==========================================================
- - ---------- (1) Book value reflects cost, adjusted for accumulated amortization and accretion. No securities are less than investment grade. -66- ACCOMPANYING INFORMATION TABLE II--INVESTMENT PORTFOLIO DECEMBER 31, 1992
- - --------------------------------------------------------------------------------- Principal Book Value Market Average Type of Maturity Grouping Amount Value(1) Value Yields - - --------------------------------------------------------------------------------- U.S. Treasury Securities: Within 1 year $ 2,000,000 $ 2,001,587 $ 2,026,560 7.66% After 1 but within 5 years 24,000,000 24,303,515 25,073,360 6.42% After 5 but within 10 years 1,000,000 1,020,282 999,370 5.99% -------------------------------------------------- Total: $27,000,000 $27,325,384 $28,099,290 6.49% ================================================== Securities of Other U.S. Government Agencies and Corporations: Within 1 year $ 1,000,000 $ 1,009,280 $ 1,011,250 4.10% After 1 but within 5 years 2,692,578 2,728,383 2,848,446 7.66% After 5 but within 10 years 1,626,605 1,620,794 1,641,621 7.30% After 10 years 1,000,000 1,000,000 1,042,530 8.13% -------------------------------------------------- Total: $ 6,319,183 $ 6,358,457 $ 6,543,847 7.08% ================================================== Municipal Bonds: After 1 but within 5 years $ 250,000 $ 254,957 $ 252,580 5.50% ================================================== Other Bonds, Notes and Debentures: $ 250,000 $ 250,000 $ 250,000 6.25% ================================================== $33,819,183 $34,188,798 $35,145,717 6.59% ==================================================
- - ---------- (1) Book value reflects cost, adjusted for accumulated amortization and accretion. No securities are less than investment grade. -67- ACCOMPANYING INFORMATION TABLE III--LOAN PORTFOLIO The following table shows the composition of loans of CapitolBank Sacramento by type of loan on December 31:
(dollars in thousands) 1993 1992 ------- ------- Real Estate Construction $21,189 $12,440 Real Estate Mortgages 30,685 27,410 Commercial and Agricultural 21,637 21,437 Individual Consumer 2,197 2,863 Other 1,041 688 ------- ------- 76,749 64,838 Less: Unearned Discount (13) (16) Allowance for Loan Losses (1,406) (1,170) Deferred Loan Fees (826) (425) ------- ------- (2,245) (1,611) Loans, Net $74,504 $63,227 ======= =======
There were no concentrations of loans exceeding 10% of total loans which were not otherwise disclosed at a category of in the above table.
NON-PERFORMING LOANS December 31, (dollars in thousands) 1993 1992 ------ ------ Non-accrual loans: Real Estate $ 67 $1,209 Commercial and Agricultural 71 942 ------ ------ Total 138 2,151 Accruing loans past due 30 days or more: Real Estate 1,119 3 Commercial and Agricultural 0 170 ------ ------ Total 1,119 173 Total Non-Performing Loans $1,257 $2,324 ====== ====== Other Real Estate Owned $ 70 $ 963 ====== ====== Non-performing loans as a percent of total loans 1.64% 3.58% ====== ====== Allowance for loan losses as a percent of total loan 1.83% 1.80% ====== ======
-68- ACCOMPANYING INFORMATION TABLE IV--ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
1993 1992 1991 ------- ------- -------- (dollar amounts in thousands) Balance at beginning of year $1,170 $1,122 $1,161 Provision charged to expense 436 520 1,067 Charge-Offs: Real Estate 136 0 388 Commercial 226 680 762 ------ ------ ------ Total: 362 680 1,150 Recoveries: Real Estate 5 1 4 Commercial 156 207 40 ------ ------ ------ Total: 161 208 44 Net Charge-Offs (201) (472) (1,106) Balance at end of year* $1,405 $1,170 $1,122 ====== ====== ====== Ratio: Net charge-offs to average loans 0.27% 0.73% 1.49% ====== ====== ====== - - ----------
* Allowance for loan losses is unallocated. -69- ACCOMPANYING INFORMATION TABLE V--DEPOSITS The following table sets forth, by time remaining to maturity, the time deposits of CapitolBank Sacramento in amounts of $100,000 or more as of December 31: (in thousands)
1993 1992 ------ ------ Time deposits of $100,000 or more: Three months or less $4,713 $5,764 Over three months through six months 1,201 1,509 Over six months through twelve months 1,305 1,159 Over twelve months 1,105 1,200 ------ ------ Total $8,324 $9,632 ====== ======
Note: Refer to Average Balances and Rate Schedules for information on separate deposit categories. -70- ACCOMPANYING INFORMATION TABLE VI--RETURN ON EQUITY AND ASSETS
December 31, 1993 1992 1991 ------ ------ ------ Return on Average Assets 0.26% -1.50% 0.16% Return on Average Equity 3.57% -21.65% 1.95% Equity to Assets Ratio 7.47% 7.42% 7.25%
-71- ACCOMPANYING INFORMATION TABLE VII--SHORT-TERM BORROWINGS The following table shows balances outstanding as of December 31:
Average Average Interest Interest (dollars in thousands) 1993 Rate 1992 Rate -------- -------- -------- -------- Repurchase Agreements $ 150 2.70% $ 205 3.00% Federal Funds Purchased 0 0.00% 0 0.00% Treasury, Tax and Loan 2,584 2.70% 2,315 2.65% Other Borrowings 0 0.00% 0 0.00% -------- -------- -------- -------- $ 2,734 2.70% $ 2,520 2.68% ======== ======== ======== ========
Repurchase agreements: Generally for a term of less than thirty days. Federal funds purchased: Overnight. Treasury, tax and loan: Note option. The following table shows average amounts outstanding and average yields thereon:
Average Average Interest Interest (dollars in thousands) 1993 Rate 1992 Rate -------- -------- -------- -------- Repurchase Agreements $ 510 2.55% $ 252 3.55% Federal Funds Purchased 0 0.00% 8 4.64% Treasury, Tax and Loan 1,104 2.45% 1,092 2.96% Other Borrowings 0 0.00% 21 0.00% -------- -------- -------- -------- $ 1,614 2.48% $ 1,373 3.04% ======== ======== ======== ========
-72- SCHEDULE I--SECURITIES DECEMBER 31, 1993
- - ----------------------------------------------------------------------------------------- Book Market Value Value - - ----------------------------------------------------------------------------------------- 1. U.S. Treasury securities $ 25,162,828 $ 25,993,650 2. U.S. Government agency and corporate obligations: a. All holdings of U.S. Government-issued or guaranteed certificates of participation in pools of residential mortgages 5,643,687 5,586,137 b. All other 3,033,800 3,134,050 3. Securities issued by states and political subdivisions in the U.S. 251,981 253,518 4. Other domestic securities (debt and equity): a. All holdings of private (i.e., non- government-issued or guaranteed) certificates of participation in pools of residential mortgages -0- -0- b. All other -0- -0- 5. Foreign securities (debt and equity) 250,000 250,000 ------------ ------------ 6. Total (sum of items 1 through 5) $ 34,342,296 $ 35,217,355 ============ ============ 7. Pledged securities $ 12,416,000 $ 13,063,000 ============ ============
-73- SCHEDULE I--SECURITIES DECEMBER 31, 1992
- - ----------------------------------------------------------------------------------------- Book Market Value Value - - ----------------------------------------------------------------------------------------- 1. U.S. Treasury securities $ 27,325,384 $ 28,099,290 2. U.S. Government agency and corporate obligations: a. All holdings of U.S. Government-issued or guaranteed certificates of participation in pools of residential mortgages 2,327,394 2,407,000 b. All other 4,031,063 4,136,847 3. Securities issued by states and political subdivisions in the U.S. 254,957 252,580 4. Other domestic securities (debt and equity): a. All holdings of private (i.e., non- government-issued or guaranteed) certificates of participation in pools of residential mortgages -0- -0- b. All other -0- -0- 5. Foreign securities (debt and equity) 250,000 250,000 ------------ ------------ 6. Total (sum of items 1 through 5) $ 34,188,798 $ 35,145,717 ============ ============ 7. Pledged securities $ 11,438,000 $ 12,017,386 ============ ============
-74- SCHEDULE II--LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS DECEMBER 31, 1993
- - -------------------------------------------------------------------------------- Deductions: Balance at Balance Name of beginning Amounts Amounts end of Borrower of period Additions Collected Charged-Off Period - - -------------------------------------------------------------------------------- None
-75- SCHEDULE II--LOANS TO OFFICERS, DIRECTORS, PRINCIPAL SECURITY HOLDERS, AND ANY ASSOCIATES OF THE FOREGOING PERSONS DECEMBER 31, 1992
- - -------------------------------------------------------------------------------- Deductions: Balance at Balance Name of beginning Amounts Amounts end of Borrower of period Additions Collected Charged-Off Period - - -------------------------------------------------------------------------------- None
-76- SCHEDULE III--LOANS AND LEASE FINANCING RECEIVABLES DECEMBER 31, 1993 Book Value -------- 1. Loans secured by real estate: a. Construction and land development $ 19,859 b. Secured by farmland 0 c. Secured by 1-4 family residential properties (1.) Revolving, open-end loans secured by 1-4 residential properties and extended residential properties and extended under lines of credit 2,197 (2.) All other loans secured by 1-4 family residential properties: (a.) Secured by first liens 4,470 (b.) Secured by junior liens 148 d. Secured by multifamily (5 or more) residential properties 0 e. Secured by nonfarm nonresidential properties 28,963 2. Loans to depository institutions: a. To commercial banks in the U.S.: (1.) To U.S. branches and agencies of foreign banks 0 (2.) To other commercial banks in the U.S. 0 b. To other depository institutions in the U.S. 0 c. To banks in foreign countries: (1.) To foreign branches of other U.S. banks 0 (2.) To other banks in foreign countries 0 3. Loans to finance agricultural production and other loans to farmers 0 4. Commercial and industrial loans: a. To U.S. addressees (domicile) 19,538 b. To non-U.S. addressees (domicile) 0 5. Acceptances of other banks 0 6. Loans to individuals for household, family, and other personal expenditures (ie., consumer loans) (includes purchased paper): a. Credit cards and related plans (includes check credit 846 and other revolving credit plans) b. Other (includes single payment, installment, and all student loans) 532 7. Loans to foreign governments and official institutions (including Foreign central banks) 0 8. Obligations (other than securities and leases) of states and political subdivisions in the U.S. (includes nonrated industrial development obligations): a. Taxable obligations 0 b. Tax-exempt obligations 0 9. Other loans a. Loans for purchasing or carrying securities (secured or unsecured) 0 b. All other loans (exclude consumer loans) 195 10. Lease financing receivables (net of unearned income) 0 11. LESS: Any unearned income on loans reflected in items 1-9 above 839 -------- 12. Total loans and leases, net of unearned income (sum of items 1 through 10 minus item 11) $ 75,909 ======== -77- SCHEDULE III--LOANS AND LEASE FINANCING RECEIVABLES DECEMBER 31, 1992 Book Value -------- 1. Loans secured by real estate: a. Construction and land development $ 12,440 b. Secured by farmland 0 c. Secured by 1-4 family residential properties (1.) Revolving, open-end loans secured by 1-4 residential properties and extended residential properties and extended under lines of credit 2,756 (2.) All other loans secured by 1-4 family residential properties: (a.) Secured by first liens 4,935 (b.) Secured by junior liens 178 d. Secured by multifamily (5 or more) residential properties 0 e. Secured by nonfarm nonresidential properties 25,624 2. Loans to depository institutions: a. To commercial banks in the U.S.: (1.) To U.S. branches and agencies of foreign banks 0 (2.) To other commercial banks in the U.S. 0 b. To other depository institutions in the U.S. 0 c. To banks in foreign countries: (1.) To foreign branches of other U.S. banks 0 (2.) To other banks in foreign countries 0 3. Loans to finance agricultural production and other loans to farmers 0 4. Commercial and industrial loans: a. To U.S. addressees (domicile) 17,957 b. To non-U.S. addressees (domicile) 0 5. Acceptances of other banks 0 6. Loans to individuals for household, family, and other personal expenditures (ie., consumer loans) (includes purchased paper): a. Credit cards and related plans (includes check credit and other revolving credit plans) 669 b. Other (includes single payment, installment, and all student loans) 261 7. Loans to foreign governments and official institutions (including Foreign central banks) 0 8. Obligations (other than securities and leases) of states and political subdivisions in the U.S. (includes nonrated industrial development obligations): a. Taxable obligations 0 b. Tax-exempt obligations 0 9. Other loans a. Loans for purchasing or carrying securities (secured or unsecured) 0 b. All other loans (exclude consumer loans) 19 10. Lease financing receivables (net of unearned income) 0 11. LESS: Any unearned income on loans reflected in items 1-9 above 441 -------- 12. Total loans and leases, net of unearned income (sum of items 1 through 10 minus item 11) $ 64,398 ======== -78- SCHEDULE IV--FIXED ASSETS DECEMBER 31, 1993
- - ----------------------------------------------------------------------------- Accumulated Amount at Gross depreciation and which carried on Classification Book Value amortization balance sheet - - ----------------------------------------------------------------------------- Personal property $ 61,789 $ 44,719 $ 17,070 Furniture, fixtures and equipment 1,992,316 1,633,490 358,826 Leasehold improvements 1,955,240 846,803 1,108,437 --------------------------------------------------- Totals $ 4,009,345 $ 2,525,012 $ 1,484,333 ===================================================
-79- SCHEDULE IV--FIXED ASSETS DECEMBER 31, 1992
- - ----------------------------------------------------------------------------- Accumulated Amount at Gross depreciation and which carried on Classification Book Value amortization balance sheet - - ----------------------------------------------------------------------------- Personal property $ 42,438 $ 27,571 $ 14,867 Furniture, fixtures and equipment 1,948,988 1,403,272 545,716 Leasehold improvements 1,955,967 731,704 1,224,263 ------------------------------------------------------ Totals $ 3,947,393 $ 2,162,547 $ 1,784,846 ======================================================
-80- SCHEDULE V--INVESTMENTS IN INCOME FROM DIVIDENDS, AND EQUITY IN EARNINGS OR LOSSES OF SUBSIDIARIES AND ASSOCIATED COMPANIES DECEMBER 31, 1993
- - -------------------------------------------------------------------------------------------------------------- Equity in Bank's % of underlying proportionate Voting net assets part of earnings Stock Total at balance Amount of or loss for Name of Issuer Owned Investment sheet date Dividends the period - - -------------------------------------------------------------------------------------------------------------- Commerce Corporation 100% $ 50,618 $ 50,618 $ 0 41,867 Capitol Commerce Development Corporation VI 100% 61,549 61,549 0 (2,617) Capitol Commerce Development Corporation VII 100% 447,926 447,926 0 43,527
The financial statements of all subsidiaries are consolidated with the financial statements of the Bank. -81- SCHEDULE V--INVESTMENTS IN INCOME FROM DIVIDENDS, AND EQUITY IN EARNINGS OR LOSSES OF SUBSIDIARIES AND ASSOCIATED COMPANIES DECEMBER 31, 1992
- - -------------------------------------------------------------------------------------------------------------- Equity in Bank's % of underlying proportionate Voting net assets part of earnings Stock Total at balance Amount of or loss for Name of Issuer Owned Investment sheet date Dividends the period - - -------------------------------------------------------------------------------------------------------------- Commerce Corporation 100% $ 800,000 $ 399,752 $ 0 114,222 Capitol Commerce Development Corporation VI 100% 780,700 (716,534) 0 (1,060,803) Capitol Commerce Development Corporation VII 100% 400,000 1,392,410 0 122,727
The financial statements of all subsidiaries are consolidated with the financial statements of the Bank. -82- SCHEDULE VI--ALLOWANCE FOR LOAN LOSSES DECEMBER 31, 1993
Amount ------ Balance end of previous period $1,170 Recoveries credited to allowance 161 Changes incident to mergers and absorptions 0 Provision for loan losses 436 Less: Losses charged to allowance 361 Foreign currency translation adjustment 0 ------ Balance end of period $1,406 ======
-83- SCHEDULE VI--ALLOWANCE FOR LOAN LOSSES DECEMBER 31, 1992
Amount ------ Balance end of previous period $1,122 Recoveries credited to allowance 208 Changes incident to mergers and absorptions 0 Provision for loan losses 520 Less: Losses charged to allowance 680 Foreign currency translation adjustment 0 ------ Balance end of period $1,170 ======
-84- EXHIBIT 3.2 [Letterhead of CapitolBank Sacramento] CapitolBank Sacramento April 3, 1992 Mr. Thomas E. King 24735 Senda Pajaro Calabasas Park, California 91302 Dear Tom, On behalf of the Search Committee for the Board of Directors of CapitolBank Sacramento, I would like to express our excitement regarding your acceptance of the position of President and Chief Executive Officer of CapitolBank Sacramento. The Committee is enthusiastically convinced you have the ability to build upon our organization and lead it forward to become the premier business bank in the greater Sacramento area. We enthusiastically endorse your suggested mission statement and believe you are the one to make it happen. The following are the terms of employment we have agreed upon: 1. A base salary of $150,000 per year. 2. Eligible to receive up to 50% of your annual base salary in the form of an incentive compensation payment based on achieving certain performance benchmarks in our strategic five-year plan (see attached). For compensation purposes, your incentive plan-year will coincide with the Bank's fiscal year. 3. A front-end bonus of $30,000 to be payable at the start of employment to cover all relocation, moving and temporary living expenses. 4. An automobile allowance of $500 per month plus a mileage allowance per the current Bank plan. 5. Participation in a stock option plan to be formed within twelve months of employment allowing you options on no less than 2 1/2% of the Bank's common stock. Said option rights should be spread equally over the first five years of the plan. Each option right should remain available to exercise for a determinant period of time thereafter, such as two years. The option price is to be based on the market value of CapitolBank stock as of the first day of your employment. (If the Bank is either acquired by or merged with another bank, your rights to exercise the stock will immediately vest.) Such a plan needs to be reviewed and approved by the Shareholders at the April 29 Shareholders annual meeting. 6. A severance payment which pays twelve months base pay should the Board decide to terminate your employment for reasons other than serious misbehavior or malfeasance. Said severance shall remain at that level for the entire first year after which time, on your first anniversary date, it will be reduced by 20%. It is to remain at that reduced level for your second twelve-months of employment. Commencing with your second anniversary date, it shall thereafter decrease each month in equal amounts over the next 36-months, at which point it becomes zero. In the event the Bank is either acquired by or merged with another bank without providing you with comparable earnings opportunity, you will be entitled to one- year's base pay as a severance. 7. All other fringe benefits to which all Bank employees are entitled and which are enumerated in the Bank's Policy Manual. 8. At the pleasure of the Shareholders, a seat on the Board of Directors. 9. Employment to commence on or about April 15, 1992. If this letter covers the basis of our understanding, acknowledge with your signature in the appropriate place on one of the duplicate originals and return to me. We look forward to a long and beneficial arrangement for all involved. Yours truly, /s/ John A. Wickland, III John A. Wickland, III Chairman, Search Committee Attachments JAW/lml cc: Directors, CapitolBank Sacramento ACCEPTED BY: /s/ Thomas E. King ------------------------- DATE: April 3, 1992 -------------------------------- CAPITOLBANK SACRAMENTO CEO INCENTIVE COMPENSATION PERFORMANCE PLAN 1992 ----
PERFORMANCE CHARACTERISTICS % OF BASE SALARY - - --------------------------- ------------------------------------------------------------------------ 10% 20% 30% 40% -------------- ---------------- ---------------- -------------------- (GREEN) (BLUE) (1) LOAN PORTFOLIO QUALITY [1].. (less than)4% (greater than)4% (greater than)3% (greater than)2-1/2% (2) TOTAL ASSETS (000).......... 152,000 154,000 156,800 161,000 (3) TOTAL LOANS (000)........... 103,740 105,105 107,061 109,883 (4) NET INCOME (000) [2]........ 1,350 1,380 1,410 1,430 (5) RETURN ON AVERAGE EQUITY.... 11.00% 1.50% 11.89% 12.05%
MULTIPLIER BASED ON INTANGIBLES [3] LOW: 75% OF ABOVE LEVEL AVE: 100% OF ABOVE LEVEL HIGH: 125% OF ABOVE LEVEL [1] SUMMARY OF TOTAL NON ACCRUAL LOANS AND/OR DELINQUENCY STATUS [2] BEFORE PRESIDENT'S INCENTIVE [3] THE BOARD WILL SELECT THE APPROPRIATE LEVEL BASED ON ITS SUBJECTIVE EVALUATION OF PERFORMANCE IN THE FOLLOWING AREAS: -MORALE AND ENTHUSIASM OF ORGANIZATION -REPUTATION IN COMMUNITY -PERCEIVED EFFECTIVENESS OF PRESIDENT IN LEADERSHIP ISSUES -DECISIVENESS STEPS TO CALCULATING - - -------------------- (1) IDENTIFY THE LEVEL OF PERFORMANCE OF EACH OF THE PERFORMANCE CHARACTERISTICS. (2) DISCARD THE PERFORMANCE CHARACTERISTIC WITH THE POOREST LEVEL OF PERFORMANCE. (3) IDENTIFY THE HIGHEST "% OF BASE SALARY" WHICH CONTAINS ALL REMAINING FOUR LEVELS OF PERFORMANCE. (4) MULTIPLY THE "% OF BASE SALARY" PERCENTAGE BY THE INTANGIBLE MULTIPLIER AND APPLY THE RESULTING % TO THE APPROPRIATE BASE SALARY. [Letterhead of CapitolBank Sacramento] CapitolBank Sacramento August 26, 1993 Thomas E. King, President CapitolBank Sacramento 300 Capitol Mall Post Office Box 2311 Sacramento, California 95814 Re: Modification to April 3, 1992 employment letter Dear Tom, In response to your letter dated February 26, 1993, the Executive Compensation Committee has met to review your proposal; suggested a counter-proposal to which you have verbally agreed; and submitted the agreed-upon modification to the Board of Directors, who approved it at the August 18, 1993 board meeting. The modification to the February 5, 1992 letter which we have all agreed to, is as follows: CapitolBank agrees, in the event of a termination as anticipated in Paragraph 6 of the April 3 letter, to guarantee that upon liquidation of the stock you purchased, or had a right to purchase pursuant to your Stock Option Agreement, you will realize a before-tax gain of $150,000. To the extent your gain is less, based on the then-current market price, the Bank will pay you the balance as your severance payment. In the event the amount you realize exceeds $150,000, the Bank has no additional obligation. Should this language adequately express the modification to the subject letter, please sign and return one of the two copies I have provided you. The second copy is for your records. Very truly yours, Agreed upon by, /s/ John A. Wickland, III /s/ Thomas E. King - - ------------------------------------ -------------------------------------- John A. Wickland, III Thomas E. King Chairman President Executive Compensation Committee CapitolBank Sacramento CapitolBank Sacramento Dated: August 30, 1993 cc: Board of Directors, CapitolBank Sacramento EXHIBIT 3.3 [Letterhead of CapitolBank Sacramento] CapitolBank Sacramento April 7, 1994 Thomas E. King CapitolBank Sacramento Post Office Box 2311 Sacramento, California 95814 Dear Tom, This letter will memorialize the agreement between you and CapitolBank Sacramento regarding the termination of your employment with the Bank. In that regard, you and the Bank agree as follows: 1. Your signature below constitutes your termination from the offices of President and Chief Executive Officer and as an employee of the Bank and your resignation as a director of the Bank, effective as of the close of business on April 15, 1994. 2. Through August 15, 1994 (the "Termination Date"), you will provide such consulting services to the Bank as may from time to time be assigned to you by the Chairman of the Board, Chief Executive Officer, or President of the Bank, which services will be similar to those performed by you prior to your termination of employment. In your capacity as a consultant to the Bank, you will be available to the Bank by telephone or mail. It is understood that it shall not be a breach of this agreement should you obtain other employment within the four-month consulting period described in this Section. 3. The Bank will pay to you a one-time severance payment of $150,000 on April 15, 1994 and, provided that you provide the consulting services described above for the time period described above, will (a) continue to pay to you your regular base salary of $12,500 per month in accordance with the Bank's standard payroll practices through the Termination Date; and (b) will pay your costs of health insurance, as elected by you under Consolidated Omnibus Reconciliation Act ("COBRA"), until the earlier of the Termination Date, or the date you become eligible for health insurance benefits offered by a future employer. The Bank will also pay for your out-placement assistance at the agency of your choice until you secure a full-time position. The Bank may withhold from or on account of benefits hereunder all federal, state, city or other taxes as may be required by all applicable federal, state, city or other tax laws, regulations or rulings. 4. Effective April 15, 1994: (a) you will no longer be entitled to participate in any employee benefit or health or other insurance plans of the Bank or its affiliates and will no longer accrue any vacation, personal or similar time; (b) you agree that your stock option arrangements with the Bank will have terminated effective April 4, 1994, and any employment agreements between you and the Bank (including, without limitation, the letter agreement dated April 3, 1992, as amended by the letter agreement dated August 26, 1993), will immediately terminate and be of no further force or effect, and you hereby waive and relinquish any rights you have or claim to have under such arrangements or agreements; and (c) you hereby waive and relinquish any rights you have or claim to have to any form of compensation that accrued prior to your termination of employment with the Bank, except accrued vacation time or payment in respect thereof. 5. As a material inducement to the Bank to enter into this agreement, you hereby irrevocably and unconditionally release, acquit, and forever discharge the Bank and each of the Bank's owners, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, accountants, representatives, attorneys, divisions, subsidiaries, affiliates (and agents, directors, officers, employees, representatives, independent accountants and attorneys of such divisions, subsidiaries and affiliates), and all persons acting by, through, under or in concert with any of them (collectively "Releasees"), or any of them, from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses (including attorneys' fees and costs actually incurred), of any nature known or unknown ("claim" or "claims"), arising or which may have existed prior to the date hereof or in connection with your termination of employment (excluding accrued vacation time or payment in respect thereof), including, but not limited to, any and all claims arising out of your employment by the Bank, termination of that employment, alleged or actual violations of any employment-related contracts, express or implied, any covenant of good faith and fair dealing, express or implied, any tort, any federal, state or municipal statute, regulation or ordinance, including, but not limited to, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, and the California Fair Employment and Housing Act, and/or employee benefits arising from your employment (including, without limitation, any rights you have or claim to have to incentive awards or bonuses and any rights you have or claim to have under your stock option arrangements with the Bank, but excluding your right to accrued vacation time or payment in respect thereof). The Bank, on its own behalf and on behalf of all companies affiliated with the Bank, hereby irrevocably and unconditionally releases, acquits, and forever discharges you, from any and all claims (as defined above), arising or which may have existed prior to the date hereof or in connection with your termination of employment, including, but not limited to, any and all claims arising out of your employment by the Bank, the termination of that employment, alleged or actual violations of any employment-related contracts, express or implied, any covenant of good faith and fair dealing, express or implied, or any tort, or any federal, state or municipal statute, regulation or ordinance. It is understood and agreed that as to the claims or potential claims enumerated in this section, this is a full and final release covering all unknown, undisclosed and unanticipated losses, wrongs, injuries, debts, claims or damages to the parties which may have arisen, or may arise from any act or omission prior to the date hereof or in connection with your termination of employment arising out of or related, directly or indirectly, to the matters released above, as well as any and all claims, causes of action, suits, debts, demands, costs, expenses, attorneys' fees, contracts, agreements, payments, compensation, liabilities or obligations, contingent or fixed, liquidated or unliquidated, material or immaterial, of every nature, known or unknown, arising or which may have existed prior to the date hereof or in connection with your termination of employment. Therefore, each party hereby waives and relinquishes all rights and benefits afforded by Section 1542 of the Civil Code of the State of California, and do so understanding and acknowledging the significance and consequence of such specific waiver of Section 1542. Section 1542 of the Civil Code of the State of California states: "A general release does not extend to claims which creditor does not know or suspect to exist in his favor at time of executing release, which if known by him must have materially affected his settlement with debtor." Thus, notwithstanding provisions of Section 1542, and for the purpose of implementing a full and complete release and discharge of all parties, you and the Bank expressly acknowledge that this agreement is intended to include in its effect, without limitation, all claims which you and the Bank do not know or suspect to exist in your or the Bank's favor at the time of execution hereof, and that this agreement contemplates extinguishment of any such claim or claims. 6. You agree on or before the close of business, Friday, April 15, 1994, to return to the Bank office keys, company-issued credit cards, and all records, manuals, books, reports, documents, personal property and related matters and copies thereof which are the property of the Bank or which relate in any way to the business, products, practices or techniques of the Bank which are in your possession or under your control. You also understand and agree that you have a continuing obligation to preserve as confidential and refrain from using or disclosing trade secrets and confidential information concerning the Bank, including without limitation, the business, business plans, financial information, products, practices, marketing methods, customer and depositor lists and techniques of the Bank, and agree to refrain from acts that would reduce the value of such trade secrets and confidential information to the Bank. 7. It is understood and agreed that you will have seven (7) days after signing this agreement to revoke it ("Revocation Period") and that this agreement will not become effective and enforceable until the Revocation Period has expired. You also acknowledge that you have been afforded twenty-one (21) days to consider this agreement, its benefits, and its consequences. 8. This agreement, which shall be governed and construed in accordance with California law, reflects the entire agreement between the Bank and you, and fully supersedes any and all prior agreements or understandings pertaining to the subject matter hereof. 9. You agree that you will keep the terms, amount and fact of this agreement completely confidential, and will not hereafter disclose any information concerning this agreement to anyone, including but not limited to any past, present, or prospective employees or applicants for employment with the Bank. You understand, however, that the Bank may disclose the terms, amount and fact of this agreement in regulatory filings and otherwise, and agree to cooperate with the Bank on the wording of a press release relating hereto. After you have reviewed the contents of this letter, please sign the acknowledgment and consent form below and return the signed copy of the letter to me. Very truly yours, CapitolBank Sacramento /s/ John A. Wickland, III - - ------------------------- by John A. Wickland, III Director ACKNOWLEDGMENT AND CONSENT I hereby acknowledge that I have thoroughly read and understand this letter, the scope of the release contained therein and the scope of my continuing obligations to the Bank with respect to trade secrets and confidential information and agree that this letter fairly sets forth the terms of my severance arrangement with the Bank. Executed by Thomas E. King as of the date first written above. /s/ Thomas E. King ------------------------------------------ Thomas E. King EX-99.11 14 QUARTERLY REPORT EXHIBIT 99.11 QUARTERLY REPORT OF CAPITOLBANK SACRAMENTO PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1994 FDIC CERTIFICATE #22260-7 CAPITOLBANK SACRAMENTO AND SUBSIDIARIES 300 CAPITOL MALL SACRAMENTO, CALIFORNIA 95814 IRS EMPLOYER IDENTIFICATION NUMBER: 94-2319513 TELEPHONE NUMBER: (916) 449-8300 HAS THE BANK (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES AND EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS; AND (2) BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS? YES X NO ------------ ----------- AS OF MARCH 31, 1994, THE BANK HAD 4,080,302 SHARES OF COMMON STOCK WHICH IS ALL ONE CLASS. ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE 1. Consolidated Statements of Condition 2. Consolidated Statement of Income (Quarter) 3. Consolidated Statement of Cash Flows 4. Consolidated Statement of Changes in Stockholders' Equity 5. Analysis of Reserve for Loan Losses 6. Computation of Per Share Earnings ITEM 2. 7. & 8. Management's Discussion and Analysis ITEM 3. 9. Statements CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Condition (000's Omitted)
March 31, December 31, 1994 1993 --------- ------------ ASSETS - - ------ Cash and due from banks $ 8,487 $ 6,456 Interest-bearing deposits in banks 199 398 Investment securities 34,494 34,342 Federal funds sold 500 4,820 Loans, net of reserve for loan losses 72,193 74,503 Premises and equipment, net 1,417 1,484 Interest receivable and other assets 1,552 1,390 -------- -------- TOTAL ASSETS $118,842 $123,393 ======== ======== LIABILITIES - - ----------- Deposits: Demand accounts $ 27,393 $ 28,439 Money market accounts 60,706 63,219 Time and savings accounts 18,472 19,405 -------- -------- Total Deposits 106,571 111,063 Short-term borrowings 2,039 2,734 Other liabilities 410 378 -------- -------- Total liabilities 109,020 114,175 STOCKHOLDERS' EQUITY - - -------------------- Common stock, par value $1.5625 Authorized--10,000,000 shares Issued and outstanding--4,080,302 shares in 1994 and 4,080,302 in 1993 6,375 6,375 Paid in surplus 5,745 5,745 FASB 115 Adjustment 303 0 Undivided Profits (2,601) (2,902) -------- -------- Total shareholder's equity 9,822 9,218 -------- -------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $118,842 $123,393 ======== ========
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Income (Loss) For Three Months Ended March 31, 1994 and 1993 (000's Omitted)
1994 1993 ------ -------- INTEREST INCOME: Interest and fees on loans $1,801 $1,454 Interest on deposits in other banks 4 43 Interest on federal funds sold 10 43 Interest on investment securities 522 547 ------ ------ Total interest income 2,337 2,087 ------ ------ INTEREST EXPENSE: Interest on deposits 582 677 Interest on short-term borrowings 13 11 ------ ------ Total interest income 595 688 ------ ------ NET INTEREST INCOME 1,742 1,399 Provision for loan losses 70 50 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,672 1,349 ------ ------ NON-INTEREST INCOME: Income from fiduciary activity 185 175 Service charges on deposit accounts 45 34 Other revenue 6 11 ------ ------ Total non-interest income 236 220 ------ ------ Gains on securities transactions 0 0 NON-INTEREST EXPENSE: Salaries and related expenses 854 858 Net occupancy 338 350 Other expense 400 434 ------ ------ Total non-interest expense 1,592 1,642 INCOME (LOSS) BEFORE INCOME TAXES 316 (72) Income tax expense (benefit) 15 (1) ------ ------ NET INCOME (LOSS) $ 301 $ (71) ====== ====== NET INCOME (LOSS) PER SHARE $0.07 $ (0.02) ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statements of Cash Flows (000's Omitted)
For the periods ended March 31, 1994 1993 - - --------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Reconciliation of net income to net cash provided by operating activities: Net income $ 301 $ (71) Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 70 50 Depreciation and amortization 85 98 Net change in operating assets & liabilities: Interest receivable & other assets (133) 158 Interest payable & other liabilities 32 (73) ------- ------- Total adjustments 54 233 Net cash provided by operating activities 355 163 CASH FLOWS FROM INVESTING ACTIVITIES: FASB 115 Adjustment 303 0 Purchase of investment securities (152) (7,721) Proceeds from sale or maturity of investment securities 199 10,412 Loans originated and principal collected, net 2,240 (2,446) Additions to premises and equipment (18) (7) Net change in other real estate owned (29) (216) ------- ------- Net cash provided by investing activities 2,543 23 CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits (4,492) 3,566 Net increase (decrease) in short-term borrowings (695) (570) ------- ------- Net cash provided by financing activities (5,187) 2,995 ------- ------- Increase (decrease) in cash and cash equivalents (2,289) 3,181 Cash and cash equivalents, at beginning of year 11,276 5,943 ------- ------- Cash and cash equivalents, at end of year $ 8,987 $ 9,124 ======= ======= - - --------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 601 $ 678 Cash paid for taxes $ 0 $ 0 Total gross additions to other real estate $ 99 $ 216 - - ---------------------------------------------------------------------
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY As of March 31, 1994 and 1993 (000's Omitted)
# of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Totals --------------------------------------------------------------------------- Balance, December 31, 1992 4,080 $ 6,375 $ 5,745 $ 0 $ (3,218) $ 8,902 Net Income (Loss) (7) (71) FASB 115 Adjustment 0 0 --------------------------------------------------------------------------- Balance, March 31, 1993 4,080 $ 6,375 $ 5,745 $ 0 $ (3,289) $ 8,831 =========================================================================== # of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Total --------------------------------------------------------------------------- Balance, December 31, 1993 4,080 $ 6,375 $ 5,745 $ 0 $ (2,902) $ 9,218 Net Income (Loss) 301 301 FASB 115 Adjustment 303 303 --------------------------------------------------------------------------- Balance, March 31, 1994 4,080 $ 6,375 $ 5,745 $ 303 (2,601) $ 9,822 ===========================================================================
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES LOAN LOSSES AND RECOVERIES For Three Months Ended March 31, 1994 and 1993 (000'S OMITTED)
1994 1993 ------ ------ Balance end of previous year $1,406 $1,170 Recoveries credited to allowance 9 23 Provision for possible loan losses 70 61 Less: losses charged to allowance 3 11 ------ ------ Balance end of current period $1,482 $1,243 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS For Periods Ended March 31, 1994 and 1993 (000'S OMITTED)
THREE MONTHS 1994 1993 -------- -------- Net Income (Loss) $ 301 $ (71) ====== ====== Weighted Average Common Shares 4,080 4,080 Weighted Average Common Stock Equivalents 0 0 Maximum potential shares included in per share computation 4,080 4,080 ====== ====== Net Income (loss) per share $ 0.07 $ (0.02) ====== ========
MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS - - ------------------------------------------------ EARNINGS - - -------- Income for the month of March, 1994 was $184,000. This brought the first quarter of 1994 income to $301,000. This compares favorably to the first quarter of 1993 loss of $71,000. Earnings per share for the first quarter of 1994 was $0.07 versus a loss for the same period of 1993 of $0.02. There are several reasons for the increase in net income. Foremost among these is improved net interest income which increased 25% from $1,399,000 to $1,742,000. The net interest margin also improved on a quarterly comparison basis. The 1994 margin is 5.75% as opposed to the 1993 margin of 5.24%. An increase in outstanding loans from $66,000,000 to $72,000,000 with a corresponding decrease in federal funds sold improved the Bank's net interest margin. Continued improvement in the quality of the loan portfolio meant minimal charge- offs of $3,000 in the first quarter so the addition to the loan loss reserve was only $70,000 for the first quarter of 1994. Non-interest expenses dropped $50,000 from $1,642,000 in 1993 to $1,592,000 in 1994. This represents a 3% decrease in these balances. Salaries were slightly lower ($4,000), occupancy dropped by $12,000 and other expense was $34,000 less than the previous year. The major components of other expense are:
1st Qtr 1st Qtr Description 1994 1993 - - ----------- ------- ------- FDIC Assessments $68,758 $69,156 Professional Services 32,544 31,977 Stationery & Supplies 19,855 23,436 Insurance 26,578 22,371 Legal Fees 35,130 21,965 Data Processing 25,654 21,595 Postage 21,384 16,776 Telephone 10,809 13,094 OREO Expense 10,026 11,869
BALANCE SHEET - - ------------- Total assets dropped by $4,551,000 or 4% for the last three months. This was primarily due to a $4,492,000 drop in total deposits from December 31, 1993 to March 31, 1994. This was the reason for the federal funds sold position dropping from $4,820,000 at December 31, 1993 to $500,000 at March 31, 1994. The drop in deposits took place in all three categories with demand deposits going from $28,439,000 to $27,393,000, money market accounts dropping from $63,219,000 to $60,706,000 and time/savings accounts balance reduced from $19,405,000 to $18,472,000. Stockholder's equity was increased by $604,000 for the first quarter which represents net income for the quarter ($301,000) and the FASB 115 adjustment ($303,000) effective March 31, 1994. The loan loss reserve was $1,482,000 at March 31, 1994. This represents a 2.0% reserve to outstanding loans. The loan to deposit ratio was 69% at March 31, 1994. The Bank's primary capital was $11,304,000 or 9.5% at March 31, 1994. The Bank's core capital ratio was 8.3% at March 31, 1994. STATEMENTS ALL NECESSARY ADJUSTMENTS FOR A FAIR STATEMENT OF RESULTS FOR THE QUARTER ENDED MARCH 31, 1994 HAVE BEEN REFLECTED ON THE FINANCIAL STATEMENTS. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE BANK HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. CAPITOLBANK SACRAMENTO By /s/ Lawrence D. McGovern ----------------------------------- Lawrence D. McGovern, Senior Vice President & Chief Financial Officer By /s/ William J. Martin ------------------------------------ William J. Martin, President & Chief Operating Officer EX-99.12 15 QUARTERLY REPORT EXHIBIT 99.12 QUARTERLY REPORT OF CAPITOLBANK SACRAMENTO PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1994 FDIC CERTIFICATE #22260-7 CAPITOLBANK SACRAMENTO AND SUBSIDIARIES 300 CAPITOL MALL SACRAMENTO, CALIFORNIA 95814 IRS EMPLOYER IDENTIFICATION NUMBER: 94-2319513 TELEPHONE NUMBER: (916) 449-8300 HAS THE BANK (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES AND EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS; AND (2) BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS? YES X NO ------------ ----------- AS OF JUNE 30, 1994, THE BANK HAD 4,080,302 SHARES OF COMMON STOCK WHICH IS ALL ONE CLASS. ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE 1. Consolidated Statements of Condition 2. Consolidated Statement of Income (Y-T-D) 3. Consolidated Statement of Income (Quarter) 4. Consolidated Statement of Cash Flows 5. Consolidated Statement of Changes in Stockholders' Equity 6. Analysis of Reserve for Loan Losses 7. Computation of Per Share Earnings ITEM 2. 8. & 9. Management's Discussion and Analysis ITEM 3. 10. Statements CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Condition (000's Omitted)
June 30, December 31, 1994 1993 -------- ------------ ASSETS - - ------ Cash and due from banks $ 9,368 $ 6,456 Interest-bearing deposits in banks 0 398 Investment securities 30,278 34,342 Federal funds sold 2,535 4,820 Loans, net of reserve for loan losses 78,806 74,503 Premises and equipment, net 1,322 1,484 Interest receivable and other assets 1,387 1,390 -------- -------- TOTAL ASSETS $123,696 $123,393 ======== ======== LIABILITIES - - ----------- Deposits: Demand accounts $ 29,910 $ 28,439 Money market accounts 62,924 63,219 Time and savings accounts 18,879 19,405 -------- -------- Total deposits 111,713 111,063 Short-term borrowings 2,390 2,734 Other liabilities 505 378 -------- -------- Total liabilities 114,608 114,175 STOCKHOLDERS' EQUITY - - -------------------- Common stock, par value $1.5625 Authorized--10,000,000 shares Issued and outstanding--4,080,302 shares in 1994 and 4,080,302 in 1993 6,375 6,375 Paid in surplus 5,745 5,745 FASB 115 Adjustment (193) 0 Undivided Profits (2,839) (2,902) -------- -------- Total shareholders' equity 9,088 9,218 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $123,696 $123,393 ======== ========
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Income (Loss) For Six Months Ended June 30, 1994 and 1993 (000's Omitted)
1994 1993 ------ ------ INTEREST INCOME: Interest and fees on loans $3,780 $3,013 Interest on federal funds sold 30 81 Interest on investment securities 977 1,171 ------ ------ Total interest income 4,787 4,266 ------ ------ INTEREST EXPENSE: Interest on deposits 1,167 1,381 Interest on short-term borrowings 28 20 ------ ------ Total interest income 1,195 1,401 ------ ------ NET INTEREST INCOME 3,592 2,865 Provision for loan losses 230 161 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,362 2,704 ------ ------ NON-INTEREST INCOME: Income from fiduciary activity 364 338 Service charges on deposit accounts 55 65 Other revenue 52 25 ------ ------ Total non-interest income 471 429 ------ ------ Gains on securities transactions 82 243 NON-INTEREST EXPENSE: Salaries and related expenses 2,096 1,714 Net occupancy 737 698 Other expense 980 915 ------ ------ Total non-interest expense 3,813 3,327 INCOME (LOSS) BEFORE INCOME TAXES 103 48 Income tax expense (benefit) 40 7 ------ ------ NET INCOME (LOSS) $ 63 $ 42 ====== ====== NET INCOME (LOSS) PER SHARE $0.02 $0.01 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Income (Loss) For Quarter Ended June 30, 1994 and 1993 (000's Omitted)
1994 1993 -------- ------ INTEREST INCOME: Interest and fees on loans $1,979 $1,559 Interest on federal funds sold 20 38 Interest on investment securities 451 581 ------ ------ Total interest income 2,450 2,178 ------ ------ INTEREST EXPENSE: Interest on deposits 585 704 Interest on short-term borrowings 15 9 ------ ------ Total interest income 600 713 ------ ------ NET INTEREST INCOME 1,850 1,465 Provision for loan losses 160 100 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,690 1,365 ------ ------ NON-INTEREST INCOME: Income from fiduciary activity 179 163 Service charges on deposit accounts 25 32 Other revenue 31 14 ------ ------ Total non-interest income 235 209 ------ ------ Gains on securities transactions 82 243 NON-INTEREST EXPENSE: Salaries and related expenses 1,241 867 Net occupancy 399 348 Other expense 580 481 ------ ------ Total non-interest expense 2,220 1,696 ------ ------ INCOME (LOSS) BEFORE INCOME TAXES (213) 120 Income tax expense 25 8 ------ ------ NET INCOME (LOSS) $ (238) $ 112 ====== ====== NET INCOME (LOSS) PER SHARE $ (0.06) $0.03 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statements of Cash Flows (000's omitted)
For the periods ended June 30, 1994 1993 - - ------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Reconciliation of net income to net cash provided by operating activities: Net income $ 63 $ 42 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 230 161 Depreciation and amortization 196 179 Net change in operating assets and liabilities: Interest receivable and other assets 65 194 Interest payable and other liabilities 128 (12) ------- ------ Total adjustments 619 522 Net cash provided by operating activities 682 564 CASH FLOWS FROM INVESTING ACTIVITIES: FASB 115 Adjustment (193) 0 Purchase of investment securities 4,064 (14,966) Proceeds from sale or maturity of investment securities 398 17,605 Loans originated and principal collected, net (4,533) (7,106) Additions to premises and equipment (34) (15) Net change in other real estate owned (63) (714) ------- ------ Net cash provided by investing activities (361) (5,196) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 650 7,113 Net increase (decrease) in short-term borrowings (344) (327) ------- ------ Net cash provided by financing activities 306 6,786 ------- ------ Increase (decrease) in cash and cash equivalents 627 2,154 Cash and cash equivalents, at beginning of year 11,276 5,943 ------- ------ Cash and cash equivalents, at end of year $11,903 $8,096 ======= ====== - - ------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 1,176 $1,378 Cash paid for taxes $ 45 $ 8 Total gross additions to other real estate $ 64 $ 794 - - -------------------------------------------------------------------
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY As of June 30, 1994 and 1993 (000's omitted)
# of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Totals ------------------------------------------------------- Balance, December 31, 1992 4,080 $6,375 $5,745 $0 $(3,218) $8,902 Net Income 42 42 FASB 115 Adjustment 0 0 ------------------------------------------------------- Balance, June 30, 1993 4,080 $6,375 $5,745 $0 $(3,176) $8,944 ======================================================= # of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Total -------------------------------------------------------- Balance, December 31, 1993 4,080 $6,375 $5,745 $0 $(2,902) $9,218 Net Income 63 63 FASB 115 Adjustment (193) (193) -------------------------------------------------------- Balance, June 30, 1994 4,080 $6,375 $5,745 (193) $(2,839) $9,088 ========================================================
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES LOAN LOSSES AND RECOVERIES For Six Months Ended June 30, 1994 and 1993 (000'S OMITTED)
1994 1993 ------ ------ Balance end of previous year $1,406 $1,170 Recoveries credited to allowance 23 124 Provision for possible loan losses 230 161 Less: losses charged to allowance 10 91 ------ ------ Balance end of current period $1,649 $1,364 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS For Periods Ended June 30, 1994 and 1993 (000's Omitted)
SIX MONTHS ----------- 1994 1993 ---- ---- Net Income (Loss) $ 63 $ 42 ====== ====== Weighted Average Common Shares 4,080 4,080 Weighted Average Common Stock Equivalents 0 0 Maximum potential shares included in per share computation 4,080 4,080 ====== ====== Net Income (loss) Per Share $ 0.02 $ 0.01 ====== ======
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS EARNINGS Income for the month of June, 1994 was $103,000. This brought the year to date income to $63,000. This compares favorably to 1993 net income of $42,000. In both 1994 and 1993 there was a gain on the sale of investment securities of $82,000 and $243,000, respectively. Net income per share increased from $0.01 for the first half of 1993 to $0.02 for the same period in 1994. The net loss for the quarter ended June 30, 1994 was $238,578 compared to net income of $112,000 for the same period in 1993. The loss for the second quarter of 1994 is primarily due to the reorganization of the Bank's senior management team. Severance monies paid out totaled approximately $320,000. Legal fees and outplacement service fees totaled approximately $80,000. Net interest income for the quarter ended June 30, 1994 was $1,850,000 compared to $1,465,000 for the same period in 1993. The average loan balance for the second quarter of 1994 was $78,829,000 compared to $68,613,000 in 1993, an increase of 15%. Year to date net interest income for the period ended June 30, 1994 was $3,592,000 compared to $2,865,000 for the same period in 1993. The average loan balance for 1994 was $77,584,000 compared to $66,180,000 for 1993. The increase in net interest income is due primarily to the increase in loan volume and the higher prime rate. Non-interest expense increased from $1,696,000 for the second quarter in 1993 to $2,220,000 for the second quarter in 1994. The majority of this increase was attributable to the increase in salaries expense due to the reorganization of the Bank's senior management team. A detailed schedule of the major other non- interest expenses is outlined as follows:
Y-T-D Y-T-D Description June 1994 June 1993 $ Variance - - ----------- --------- --------- ----------- Legal Fees $117,283 $ 96,031 $21,252 FDIC Assessment 137,516 138,311 (795) Professional Services 116,236 75,989 40,247 Supplies 56,624 44,592 12,032 Insurance 54,542 44,356 10,186 Data Processing 36,668 39,880 (3,212)
BALANCE SHEET Total consolidated assets remained stable for the first six months of 1994. Loans increased by $4,000,000 causing a decrease of $4,000,000 in investment securities. Due to a large cash letter at the end of the quarter Cash and Due From Banks increased by $3,000,000 causing Federal funds sold to decrease. Stockholders' equity was decreased by $130,000 for the period ended June 30, 1994 which represents year to date net income ($63,000) and the FASB 115 adjustment ($193,000 loss). The loan loss reserve was $1,649,000 at June 30, 1994. This represents a 2.0% reserve to outstanding loans. The loan to deposit ratio was 73% at June 30, 1994. The Bank's primary capital was $10,736,000 or 8.68% at June 30, 1994. The Bank's core capital ratio was 7.35% at June 30, 1994. STATEMENTS ALL NECESSARY ADJUSTMENTS FOR A FAIR STATEMENT OF RESULTS FOR THE QUARTER ENDED JUNE 30, 1994 HAVE BEEN REFLECTED ON THE FINANCIAL STATEMENTS. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE BANK HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. CAPITOLBANK SACRAMENTO BY /s/ Lawrence D. McGovern -------------------------------------- Lawrence D. McGovern, Senior Vice President and Chief Financial Officer BY /s/ William J. Martin -------------------------------------- William J. Martin, President and Chief Operating Officer EX-99.13 16 QUARTERLY REPORT EXHIBIT 99.13 QUARTERLY REPORT OF CAPITOLBANK SACRAMENTO PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1994 FDIC CERTIFICATE #22260-7 CAPITOLBANK SACRAMENTO AND SUBSIDIARIES 300 CAPITOL MALL SACRAMENTO, CALIFORNIA 95814 IRS EMPLOYER IDENTIFICATION NUMBER: 94-2319513 TELEPHONE NUMBER: (916) 449-8300 HAS THE BANK (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OF THE SECURITIES AND EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS; AND (2) BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS? YES X NO ------------ ------------ AS OF SEPTEMBER 30, 1994, THE BANK HAD 4,080,302 SHARES OF COMMON STOCK WHICH IS ALL ONE CLASS. ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE 1. Consolidated Statements of Condition 2. Consolidated Statement of Income (Y-T-D) 3. Consolidated Statement of Income (Quarter) 4. Consolidated Statement of Cash Flows 5. Consolidated Statement of Changes in Stockholders' Equity 6. Analysis of Reserve for Loan Losses 7. Computation of Per Share Earnings ITEM 2. 8. & 9. Management's Discussion and Analysis ITEM 3. 10. Statements CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Condition (000's Omitted)
Sept 30, December 31, 1994 1993 --------- ------------- ASSETS - - ------ Cash and due from banks $ 8,495 $ 6,456 Interest-bearing deposits in banks 0 398 Investment securities 17,606 34,342 Federal funds sold 21,500 4,820 Loans, net of reserve for loan losses 87,511 74,503 Premises and equipment, net 1,294 1,484 Interest receivable and other assets 1,563 1,390 -------- -------- TOTAL ASSETS $137,969 $123,393 ======== ======== LIABILITIES - - ----------- Deposits: Demand accounts $ 32,868 $ 28,439 Money market accounts 72,616 63,219 Time and savings accounts 20,542 19,405 -------- -------- Total deposits 126,026 111,063 Short-term borrowings 1,719 2,734 Other liabilities 952 378 -------- -------- Total liabilities 128,697 114,175 STOCKHOLDERS' EQUITY - - -------------------- Common stock, par value $1.5625 Authorized--10,000,000 shares Issued and outstanding--4,080,302 shares in 1994 and 4,080,302 in 1993 6,375 6,375 Paid in surplus 5,745 5,745 FASB 115 Adjustment (227) 0 Undivided Profits (2,621) (2,902) -------- -------- Total shareholders' equity 9,272 9,218 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $137,969 $123,393 ======== ========
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Income For Nine Months Ended September 30, 1994 and 1993 (000's Omitted)
1994 1993 ------ ------ INTEREST INCOME: Interest and fees on loans $6,032 $4,866 Interest on federal funds sold 193 124 Interest on investment securities 1,275 1,632 ------ ------ Total interest income 7,500 6,622 ------ ------ INTEREST EXPENSE: Interest on deposits 1,827 2,005 Interest on short-term borrowings 41 32 ------ ------ Total interest expense 1,868 2,037 ------ ------ NET INTEREST INCOME 5,632 4,585 Provision for loan losses 285 336 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,347 4,249 ------ ------ NON-INTEREST INCOME: Income from fiduciary activity 547 496 Service charges on deposit accounts 74 97 Other revenue 75 99 ------ ------ Total non-interest income 696 692 ------ ------ Gains on securities transactions 82 283 NON-INTEREST EXPENSE: Salaries and related expenses 2,998 2,560 Net occupancy 1,135 1,053 Other expense 1,656 1,421 ------ ------ Total non-interest expense 5,789 5,034 INCOME BEFORE INCOME TAXES 336 190 Income tax expense 55 26 ------ ------ NET INCOME $ 281 $ 164 ====== ====== NET INCOME PER SHARE $0.07 $0.04 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statement of Income For the Quarter Ended September 30, 1994 and 1993 (000's Omitted)
1994 1993 ------ ------ INTEREST INCOME: Interest and fees on loans $2,252 $1,853 Interest on federal funds sold 163 43 Interest on investment securities 298 461 ------ ------ Total interest income 2,713 2,357 ------ ------ INTEREST EXPENSE: Interest on deposits 661 624 Interest on short-term borrowings 13 12 ------ ------ Total interest expense 674 636 ------ ------ NET INTEREST INCOME 2,039 1,721 Provision for loan losses 55 175 ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,984 1,546 ------ ------ NON-INTEREST INCOME: Income from fiduciary activity 184 158 Service charges on deposit accounts 19 32 Other revenue 23 72 ------ ------ Total non-interest income 226 262 ------ ------ Gains on securities transactions 0 40 NON-INTEREST EXPENSE: Salaries and related expenses 902 846 Net occupancy 398 355 Other expense 676 506 ------ ------ Total non-interest expense 1,976 1,707 ------ ------ INCOME BEFORE INCOME TAXES 234 141 Income tax expense 15 19 ------ ------ NET INCOME $ 219 $ 122 ====== ====== NET INCOME PER SHARE $0.05 $0.03 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES Consolidated Statements of Cash Flows (000's omitted)
For the periods ended September 30, 1994 1993 - - -------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Reconciliation of net income to net cash provided by operating activities: Net income $ 281 $ 164 Adjustments to reconcile net income to net cash provided by operating activities: Provision for possible loan losses 285 336 Depreciation and amortization 302 284 Net change in operating assets and liabilities: Interest receivable and other assets (141) 301 Interest payable and other liabilities 574 106 ------- ------- Total adjustments 1,020 1,027 Net cash provided by operating activities 1,301 1,191 CASH FLOWS FROM INVESTING ACTIVITIES: FASB 115 Adjustment (227) 0 Purchase of investment securities 16,736 (12,226) Proceeds from sale or maturity of investment securities 398 20,103 Loans originated and principal collected, net (13,293) (12,473) Additions to premises and equipment (111) (58) Net change in other real estate owned (33) 324 ------- ------- Net cash provided by investing activities 3,470 (4,330) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 14,963 2,564 Net increase (decrease) in short-term borrowings (1,015) (182) ------- ------- Net cash provided by financing activities 13,948 2,382 ------- ------- Increase (decrease) in cash and cash equivalents 18,719 (757) Cash and cash equivalents, at beginning of year 11,276 13,542 ------- ------- Cash and cash equivalents, at end of year $29,995 $12,785 ======= =======
- - --------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES: Cash paid for interest $ 1,868 $ 2,012 Cash paid for taxes $ 55 $ 8 Total gross additions to other real estate $ 63 $ 1,359 ====================================================================
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY As of September 30, 1994 and 1993 (000's Omitted)
# of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Totals ------------------------------------------------------- Balance, December 31, 1992 4,080 $6,375 $5,745 $ 0 $(3,218) $8,902 Net Income 164 164 FASB 115 Adjustment 0 0 ------------------------------------------------------- Balance, September 30, 1993 4,080 $6,375 $5,745 $ 0 $(3,054) $9,066 =======================================================
# of Common Paid-in FASB 115 Undivided Shares Stock Surplus Adjustment Profits Total --------------------------------------------------------- Balance, December 31, 1993 4,080 $6,375 $5,745 $ 0 $(2,902) $9,218 Net Income 281 281 FASB 115 Adjustment (227) (227) --------------------------------------------------------- Balance, September 30, 1994 4,080 $6,375 $5,745 $(227) $(2,621) $9,272 ========================================================
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES LOAN LOSSES AND RECOVERIES For Nine Months Ended September 30, 1994 and 1993 (000's OMITTED)
1994 1993 ------ ------ Balance end of previous year $1,406 $1,170 Recoveries credited to allowance 136 146 Provision for possible loan losses 285 336 Less: losses charged to allowance 15 331 ------ ------ Balance end of current period $1,812 $1,321 ====== ======
CAPITOLBANK SACRAMENTO AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS For Periods Ended September 30, 1994 and 1993 (000's Omitted)
NINE MONTHS 1994 1993 ------ ------ Net Income $ 281 $ 164 ====== ====== Weighted Average Common Shares 4,080 4,080 Weighted Average Common Stock Equivalents 0 0 Maximum potential shares included in per share computation 4,080 4,080 ====== ====== Net Income Per Share $ 0.07 $ 0.04 ====== ======
MANAGEMENT'S DISCUSSION & ANALYSIS OF OPERATIONS EARNINGS Income for the month of September, 1994 was $49,000. This brought the year-to- date net income to $281,000. This compares favorably to net income of $164,000 for the nine months ended 9/30/93. In both 1994 and 1993 there was a gain on the sale of investment securities of $82,000 and $283,000, respectively. Net income per share increased from $0.04 for the nine months ended 9/30/93 to $0.07 for the nine months ended 9/30/94. Net profit for the quarter ended September 30, 1994 was $219,000 compared to net income of $122,000 for the quarter ended September 30, 1993. Legal fees paid in connection with a lawsuit, known as Tyler v. Wickland, were $161,000 for the quarter ended September 30, 1994. The Tyler v. Wickland lawsuit is a class action lawsuit brought by certain CapitolBank Sacramento (CBS) stockholders against four CBS directors. Although CBS itself is not a named party to the lawsuit, CBS has indemnification agreements with the four named directors and is, therefore, responsible for the payment of the legal fees for those directors. CBS is obligated under the terms of the Directors and Officers Liability (D&O) insurance policy to pay the first $250,000 of expenses incurred in defense of any suit for which D&O coverage is applicable. This $250,000 deductible requirement is the reason for the current $161,000 spent. Of the $161,000 spent, $14,000 is not counted toward the deductible. The $14,000 was incurred in defense of former CBS directors not named in the lawsuit. Since CBS --- also has indemnification agreements with those former directors not named in the lawsuit, CBS is also responsible for their legal fee expenses. Net interest income for the quarter ended September 30, 1994 was $2,039,000 compared to $1,721,000 for the same period in 1993. The average loan balance for the third quarter of 1994 was $84,646,000 compared to $73,864,000 in 1993, an increase of 15%. Year-to-date net interest income for the period ended September 30, 1994 was $5,632,000 compared to $4,585,000 for the same period in 1993. The average loan balance for year-to-date 1994 was $79,964,000 compared to $68,770,000 for year-to-date 1993. The increase in interest income is primarily due to the increase in loan volume and a higher prime rate. Non-interest expense increased from $1,707,000 for the third quarter in 1993 to $1,976,000 for the third quarter in 1994. The majority of this increase was due to the $161,000 in legal fees incurred in connection with the lawsuit noted above. The professional services fees category was primarily higher for 1994 due to $48,000 in payments made to a bank consultant and $30,000 in payments made to an investment advisor. The bank consultant has been used in various capacities within the bank and currently continues to be used by CBS. The investment advisor was used for investment advice on CBS's investment portfolio, however, the investment consultant is no longer engaged by CBS. A detailed schedule of the major non-interest expenses is outlined as follows:
Y-T-D Y-T-D Description Sept 1994 Sept 1993 $ Variance - - ----------- --------- --------- ----------- Legal Fees $138,776 $148,741 $ (9,965) Lawsuit Fees 161,218 0 161,218 FDIC Fees 197,178 209,106 (11,928) Professional Services 188,336 117,262 71,074 Supplies 93,523 79,062 14,461 Insurance 87,518 72,415 15,103
BALANCE SHEET - - ------------- The balance sheet reflects substantial growth in 1994. Since the beginning of 1994, the loan portfolio has increased $13 Million or 17.5%; deposits have increased $15 Million or 13.5%; and total assets have increased $15 Million or 12%. Stockholders' equity increased by $54,000. Year-to-date income of $281,000 was offset by a FASB 115 loss adjustment of $227,000. The loan loss reserve was $1,812,000 at September 30, 1994. This represents a 2.0% reserve to outstanding loans. The loan to deposit ratio was 69% at September 30, 1994. The Bank's primary capital was $11,084,000 or 8.03% at September 30, 1994. The Bank's core capital ratio was 6.72% at September 30, 1994. Asset Quality - - ------------- Asset quality continues, as it has for the last four quarters, to remain at a relatively high level of quality. CBS has $2.1 Million in loans on non-accrual, $103 Thousand of Other Real Estate Owned (OREO), and a loan loss reserve to total loans of 2%. STATEMENTS ALL NECESSARY ADJUSTMENTS FOR A FAIR STATEMENT OF RESULTS FOR THE QUARTER ENDED SEPTEMBER 30, 1994 HAVE BEEN REFLECTED ON THE FINANCIAL STATEMENTS. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE BANK HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. CAPITOLBANK SACRAMENTO BY /s/ Lawrence D. McGovern --------------------------------- Lawrence D. McGovern, Senior Vice President/Chief Financial Officer BY /s/ William J. Martin ------------------------------------ William J. Martin, President & Chief Operating Officer EX-99.14 17 NOTICE OF ANNUAL MEETING/PROXY STATEMENT EXHIBIT 99.14 CAPITOLBANK SACRAMENTO 300 Capitol Mall Sacramento, CA 95814 (916) 449-8300 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS May 25, 1994 TO THE SHAREHOLDERS OF CAPITOLBANK SACRAMENTO: NOTICE IS HEREBY GIVEN that pursuant to its Bylaws and the call of its Board of Directors, the Annual Meeting of Shareholders ("Meeting") of CAPITOLBANK SACRAMENTO ("Bank") will be held at the offices of the Bank, 300 Capitol Mall, Sacramento, California, on Wednesday, May 25, 1994, at 5:00 p.m., for the purpose of considering and voting upon the following matters: 1. Election of Directors. The Board of Directors has nominated the following nine persons for election to the Board of Directors to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified: RALPH ANDERSEN LOUIS G. FIFER THOMAS J. HAMMER ROBERT T. JENKINS WILLIAM J. MARTIN THAYER T. PRENTICE CAROLYN G. REID J. AL WICKLAND JOHN A. WICKLAND, III 2. Amendment to Stock Option Plan. To approve an amendment to the Bank's 1992 Stock Option Plan to increase the number of shares available thereunder from 306,023 to 500,000. 3. Ratification of Independent Public Accountants. To ratify the appointment of KPMG Peat Marwick as independent public accountants for the Bank for the current year. 4. To transact such other business as may properly come before the Meeting and at any adjournment or postponement thereof. Section 16(b) of Article III of the Bylaws of the Bank provides for nomination of directors in the following manner: "Nomination for election of members of the Board of Directors may be made by the Board of Directors or by any stockholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations, (other than nominations 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 21 days nor more than 60 days prior to any meeting of stockholders called for the election of directors; provided, however, that if less than 21 days notice of the meeting is given to shareholders, such notice of intention to nominate shall be mailed or delivered to the President of the corporation not later than the close of business on the tenth day following the day on which the notice of meeting was mailed; provided further that if notice of such meeting is sent by third-class mail as permitted by Section 6 of these Bylaws, no notice of intention to make nominations shall be required. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the corporation owned by the notifying shareholder. Nominations not made in accordance herewith may, in the discretion of the Chairman of the meeting, be disregarded, and upon the Chairman's instructions, the inspectors of election can disregard all votes cast for each such nominee. A copy of this paragraph shall be set forth in a notice to shareholders of any meeting at which Directors are to be elected." Only those shareholders of record at the close of business on April 15, 1994 will be entitled to notice of and to vote at the Meeting, and at any adjournment or postponement thereof. By Order of the Board of Directors /s/ Thayer T. Prentice Thayer T. Prentice Vice Chairman & Chief Executive Officer DATED: May 4, 1994 YOUR VOTE IS IMPORTANT. WE URGE YOU TO SIGN AND RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. IF YOU DO ATTEND THE MEETING, YOU MAY VOTE BY BALLOT AT THE MEETING, THEREBY REVOKING ANY PROXY PREVIOUSLY GIVEN. CAPITOLBANK SACRAMENTO 300 Capitol Mall Sacramento, California 95814 (916) 449-8300 PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS MAY 25, 1994 INTRODUCTION The 1994 Annual Meeting of Shareholders of the Bank will be held on Wednesday, May 25, 1994, at 5:00 p.m. at the offices of the Bank, 300 Capitol Mall, Sacramento, California, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. This proxy statement is furnished in connection with the solicitation by the Board of Directors of proxies to be used at the Meeting and at any adjournment or postponement thereof. This proxy statement and the accompanying proxy are first being sent to shareholders on or about May 4, 1994. If a proxy in the accompanying form is duly executed and returned in time for the meeting, the shares represented thereby will be voted by the proxyholders in accordance with the instructions on the proxy. If no instruction is specified, the shares will be voted for the nominees identified in this proxy statement, for the amendment to the Stock Option Plan, for the ratification of the appointment of KPMG Peat Marwick as independent public accountants for the Bank for the current year, and in accordance with the recommendations of the Board of Directors on such other matters as may properly be presented at the Meeting. The proxy may, nevertheless, be revoked prior to its exercise by delivering written notice of revocation to the Assistant Secretary of the Bank, by executing a later dated proxy or by attending the Meeting and voting in person. The expense of preparing, assembling, printing and mailing this proxy statement and the material used in this solicitation of proxies will be borne by the Bank. It is contemplated that proxies will be solicited through the mail, but officers and regular employees of the Bank may solicit proxies personally. The annual report of the Bank to its shareholders, including financial statements for the fiscal year ended December 31, 1993 (which also serves as the Bank's Annual Disclosure Statement under applicable FDIC regulations), is being provided to shareholders with this proxy statement. Additional copies of the annual report may be obtained upon request of the Corporate Secretary, CapitolBank Sacramento, P.O. Box 2311, Sacramento, California 95812-2311 (916) 449-8300. -1- VOTING SECURITIES The Board of Directors set April 15, 1994 as the record date for the purpose of determining the shareholders entitled to notice of and to vote at the Meeting. On April 15, 1994, there were 4,080,302 shares of the Bank's common stock outstanding. Each share of common stock is entitled to one vote on each matter that comes before the Meeting (except as noted below under the discussion of cumulative voting). In connection with the election of directors, shares are entitled to be voted cumulatively if a shareholder present at the Meeting has given notice of his or her intention to vote his or her shares cumulatively. If a shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. If a proxy is marked for the election of directors without any exception indicated, it may, at the discretion of the proxyholders, be voted cumulatively in the election of directors. Cumulative voting entitles a shareholder to give one nominee as many votes as is equal to the number of shares owned by such shareholder multiplied by the number of directors to be elected, or to distribute his or her votes on the same principle between two or more nominees as he or she sees fit. REGULATORY AGREEMENT On February 24, 1993, the Bank entered into a Memorandum of Understanding (the "Memorandum") with the Federal Deposit Insurance Corporation (the "FDIC") and the California State Banking Department (the "State") as a result of a joint examination of the Bank by the FDIC and the State. The FDIC performed a subsequent examination of the Bank as of November 15, 1993. Based upon the results of that examination, on February 7, 1994, the FDIC, along with the State, terminated the existing Memorandum. PROPOSAL ONE: ELECTION OF DIRECTORS The Bylaws of the Bank provide that the authorized number of directors of the Bank shall be not less than seven nor more than thirteen, the exact number of directors within said range to be fixed by a duly adopted resolution of the Board of Directors. Pursuant to such a resolution, the Board has fixed the number of directors at nine. The nine persons named below, all of whom are presently members of the Board of Directors of the Bank, have been nominated for election to serve until the next Annual Meeting of Shareholders and until their successors are elected and qualified, or until such director's earlier death, resignation or removal. All persons named below have consented to being named as nominees in this proxy statement and to serve if elected. If any of the nominees should unexpectedly decline or be unable to act or serve as a director, the proxies -2- may be voted for a substitute nominee to be designated by the Board of Directors. Shares represented by executed proxies shall be voted, if authority to do so is not withheld, for the nine nominees named below, subject to the proxyholders' discretionary power to cumulate votes. The nine nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them shall be elected as directors. Certain information with respect to the persons nominated by the Board of Directors for election as directors, and all nominees for election, and principal officers of the Bank as a group, is set forth below:
- - ----------------------------------------------------------------------------- Common Stock First Year Beneficially Elected or Owned on Appointed a April 15, 1994 (1) Age Director No. % - - ----------------------------------------------------------------------------- Ralph Andersen 54 1994 0 0% Louis G. Fifer 45 1991 500 .01% Thomas J. Hammer, Jr. 61 1991 1,500 .03% Robert T. Jenkins 50 1991 1,000 .02% William J. Martin (2) 47 1994 26,042 .64% Thayer T. Prentice (3) 57 1994 31,250 .77% Carolyn G. Reid 55 1991 3,000 .07% J. Al Wickland, Jr. 73 1986 839,254 20.60% John A. Wickland, III 49 1989 180,705 4.40% - - ----------------------------------------------------------------------------- Directors and Principal Officers (14 persons) (4) (5) 1,109,507 26.60% - - -----------------------------------------------------------------------------
(1) Unless otherwise indicated and subject to community property laws, each of the above Directors holds sole voting and investment power as to all shares owned. (2) Includes 26,042 shares which may be acquired under stock options exercisable within 60 days of April 15, 1994. (3) Includes 31,250 shares which may be acquired under stock options exercisable within 60 days of April 15, 1994. (4) As used in this proxy statement, the term "officer" or "principal officer" means a Chairman of the Board of Directors, Vice Chairman of the Board, President, Executive Vice Presidents, Senior Vice Presidents, Corporate Secretary, Vice President, and any other person who participates in major policy-making functions of the Bank. -3- (5) Includes 82,592 shares which may be acquired under stock options exercisable within 60 days of April 15, 1994. Principal Shareholders The following table sets forth certain information regarding all shareholders who beneficially own more than 5% of the outstanding shares of Common Stock of the Bank (the only class outstanding) as of April 15, 1994, the record date for determining shareholders entitled to vote.
- - ------------------------------------------------------------------------------ Number of Shares Percent of Name and Address of Directly or Outstanding Beneficial Owner Beneficially Owned Shares - - ------------------------------------------------------------------------------ J. Al Wickland, Jr. 3640 American River Drive Sacramento, California 95853 839,254 (1) 20.6%
(1) Mr. Wickland, a Director of the Bank, holds sole voting and investment power to all of his shares. Business Experience of Nominees Ralph Andersen: Mr. Andersen, 54, was appointed as a Director on March 30, 1994. Since his retirement in 1987, Mr. Andersen has served as a member of the Board of Directors of The Junior Statesmen Foundation, University of California Berkeley Foundation, Sutter Community Hospitals, Salvation Army, and the ICMA Retirement Corporation. From 1972 to 1987, Mr. Andersen owned and operated Ralph Andersen & Associates, a management consulting firm, with offices in Sacramento and Newport Beach, California and Dallas, Texas. Mr. Andersen also engaged in real estate development and investment in Sacramento, California, and served on the Board of Directors of Point West Bank (from 1982 to 1988) until Point West Bank was sold to First Interstate Bank. From 1964 to 1971, Mr. Andersen served as Principal Assistant to the Director of the League of California Cities. Louis G. Fifer: Mr. Fifer has served as a director since May 1991. Currently, Mr. Fifer also serves as the Vice President of Operations with Hotel Information Systems, a manufacturer and provider of hospitality information systems. Prior to that time, he served in various managerial and ownership capacities with Systems Integrators, Inc., a company engaged in the development and sales of computerized publishing systems. Mr. Fifer terminated his employment with Systems Integrators, Inc. on October 31, 1992. Systems Integrators, -4- Inc. filed a petition under Chapter 11 of the U.S. Bankruptcy Code on September 22, 1993. Thomas J. Hammer, Jr.: Mr. Hammer has served as a director since November 1991. For more than five years, Mr. Hammer has served as the President of Shasta Linen Supply, Inc., a Sacramento based linen service provider. Robert T. Jenkins: Mr. Jenkins has served as a director since September 1991. For more than five years, he has served in various capacities with Intel Corporation, a worldwide developer and manufacturer of advanced computer chips. Most recently, Mr. Jenkins has served as Vice President and Director of Corporate Licensing of Intel Corporation. William J. Martin: Mr. Martin, 47, was appointed as President and Chief Operating Officer on April 2, 1994. Mr. Martin became a Director effective April 15, 1994. From December 1993 to April 1, 1994, Mr. Martin served as Executive Vice President of American River Bank. From October 1990 to December 1993, Mr. Martin served as Executive Vice President and Commercial Lending Manager of the Sacramento Regional Office of Bank of San Francisco. For more than 20 years prior to that time, Mr. Martin served in various capacities in the banking industry, including as Senior Vice President and Manager of First Interstate Bank's Sacramento Business Banking Center (from January 1989 to October 1990), Executive Vice President of Point West Bank, Sacramento, California (from October 1986 to January 1989) and with Crocker National Bank (from 1971 to 1986). Thayer T. Prentice: Mr. Prentice, 56, was appointed as a Director on March 30, 1994. Prior to that time, Mr. Prentice served in various capacities at Bank of San Francisco, including Chairman, President and Chief Executive Officer (from November 1, 1991 through August 4, 1993) and Vice Chairman (from 1990 through November 1, 1991). From 1988 to 1990, Mr. Prentice served as Executive Vice President and Division Manager of First Interstate Bank, and from 1979 to 1988, Mr. Prentice served as President and Chief Executive Officer of Point West Bank. Mr. Prentice also has served on the Board of Directors of the Dean's Advisory Council of the Graduate School of Management of the University of California at Davis since 1990 and on the Salvation Army Advisory Board in Sacramento, California, since 1980 (serving as Chairman in 1984). Carolyn G. Reid: Ms. Reid has served as a director since May 1991. For more than five years, she has been Vice President and Co-Owner of Reid and Associates, a building materials marketing and sales company in Sacramento. J. Al Wickland, Jr.: Mr. Wickland has served as a director since March 1986, and as Chairman of the Board from January 1987 to August 1990. Mr. Wickland was reelected Chairman of the Board in August 1991, and currently serves in this capacity. -5- For more than five years, he has served as Chairman of the Board of Wickland Oil Co., a Sacramento based petroleum distribution and marketing company. John A. Wickland, III: Mr. Wickland has served as a director since January 1989. Since 1989, he has also been President of Wickland Corporation and Wickland Properties. He also holds executive positions with Wickland Oil Company. From 1975 through 1989, he was President of Regal Stations, Inc., the predecessor corporation of Wickland Properties. There is no family relationship between any of the directors listed above, except that John A. Wickland, III is the son of J. Al Wickland, Jr. The Board of Directors and Committees The Board of Directors is responsible for the overall affairs of the Bank. To assist it in carrying out this responsibility, the Board has delegated certain authority to several standing committees. These include a Compensation Committee, Loan Committee, Audit Committee, Investment Committee and Trust Committee. The membership and duties of these committees are as follows: The Compensation Committee is chaired by Mr. John A. Wickland, III, and Messrs. Robert T. Jenkins and Louis G. Fifer serve as members. The Compensation Committee held one meeting during 1993. The primary purpose of the Compensation Committee is to review and make recommendations regarding the policy of the Bank with respect to the compensation of the Bank's management. The Compensation Committee also serves as the Stock Option Committee for the Bank. The Loan Committee is chaired by Mr. John A. Wickland, III, and Messrs. Louis G. Fifer and William J. Martin serve as permanent members and Mr. Thayer T. Prentice serves as an ex-officio member. Messrs. Thomas J. Hammer, Jr., Robert T. Jenkins, J. Al Wickland, Jr. and Ms. Carolyn G. Reid are rotating members. During 1993, the Loan Committee held a total of 41 meetings. The purpose of the Loan Committee is to monitor adherence to the Bank's loan policies and to approve loan requests over the limits assigned to management. The Loan Committee also reviews loans approved by management for compliance with the Bank's lending policy and to determine credit worthiness of the borrower. The Audit Committee is chaired by Ms. Carolyn Reid, and Messrs. J. Al Wickland, Jr. and Robert T. Jenkins are members. During 1993, the Audit Committee held a total of four meetings. The purpose of the Audit Committee is to establish and maintain an internal audit system, review and modify internal Bank procedures, monitor reports by regulatory agencies, meet quarterly -6- with independent auditors, and to recommend independent accountants for appointment by the Board of Directors. The Investment Committee is chaired by Mr. Robert T. Jenkins and Messrs. John A. Wickland, III and William J. Martin are members and Mr. Thayer T. Prentice is an ex-officio member. During 1993, the Investment Committee held a total of three meetings. The purpose of the Investment Committee is to monitor adherence to the Bank's Investment Policy and to review investment activity. The Trust Committee is chaired by Mr. Thomas J. Hammer, Jr., and Messrs. J. Al Wickland, Jr. and William J. Martin and Ms. Carolyn G. Reid are members and Mr. Thayer T. Prentice is an ex-officio member. During 1993, the Trust Committee held a total of eleven meetings. The purpose of the Trust Committee is to approve trust applications and terminations, and to review all trust investments and implement audits of all trust accounts. The Board of Directors does not currently have a standing Nominating Committee. The Board as a whole identifies potential nominees for election to the Board of Directors and will consider shareholder nominations in accordance with established procedures as outlined in the Bylaws of the Bank and stated in the Notice of Annual Meeting of Shareholders accompanying this proxy statement. The Board held 13 meetings in 1993; the committees held 55 meetings. Each of the persons who was a director of the Bank during 1993 attended at least 75% of the aggregate of the total number of meetings of the Board and the total number of committee meetings of which he or she was a member, with the exception of John A. Wickland, III, who attended 73% of said meetings. Directors' Compensation Each outside member of the Board of Directors receives $400 per board meeting and $200 per committee meeting attended. A total of $54,500 was paid during 1993 to all outside directors. Employee directors receive no compensation for attending meetings of the Board of Directors or committees of the Board. Remuneration Cash Compensation The following table sets forth the aggregate remuneration for services in all capacities paid or accrued for the fiscal year ended December 31, 1993: (a) to each of the five most highly compensated principal officers of the Bank whose aggregate cash and cash equivalent forms of remuneration exceeded $60,000; and (b) to all principal officers of the Bank as a group: -7- - - -------------------------------------------------------------------------------- CASH COMPENSATION TABLE
Identification and Capacities in Which Salaries, Fees and Remuneration is Received Bonuses (1) - - -------------------------------------------------------------------------------- Thomas E. King (2) President & Chief Executive Officer $170,680 Susan J. Drack Senior Vice President and Commercial Banking Manager $101,160 Bernard Rao Senior Vice President and Chief Administrative Officer $95,640 Dennis F. Ceklovsky (3) Senior Vice President and Chief Credit Officer $90,340 Florence A. Bellacosa Vice President and Trust Department Manager $77,760 All Principal Officers as a Group (4) (10 persons) $714,782
(1) Includes deferrals of salary pursuant to the 401(k) plan as described under the heading COMPENSATION PLANS below. No other compensation was paid or distributed during the last fiscal year to the: (i) individuals named in the cash compensation table above which in the aggregate equals or exceeds the lesser of $25,000 or 10 percent of the compensation set forth in the cash compensation table for such individual or (ii) group named in the cash compensation table above which in the aggregate equals or exceeds the lesser of $25,000 times the number of persons in the group or 10 percent of the aggregate compensation set forth in the cash compensation table for such group. (2) Mr. King ceased being the President and Chief Executive Officer and a Director of the Bank effective April 15, 1994. For information regarding Mr. King's cessation of employment with the Bank, see "Severance Agreement with Thomas E. King." (3) Mr. Ceklovsky ceased being an officer of the Bank effective April 2, 1994. It is expected that Mr. Ceklovsky will cease providing services to the Bank effective May 15, 1994. The Bank is currently negotiating a severance arrangement with Mr. Ceklovsky, which is expected to provide that Mr. Ceklovsky will, among other things, -8- release the Bank and its affiliates from certain liabilities and obligations including those that arose out of his employment by the Bank and termination of that employment. The Bank, in turn, among other things, is expected to agree to pay to Mr. Ceklovsky the equivalent of six months' salary ($41,000) and if at the conclusion of six months from the effective date of the agreement Mr. Ceklovsky has not obtained subsequent employment or is not self-employed, the Bank will pay to Mr. Ceklovsky a continuation salary of $6,833 per month for up to three months or until Mr. Ceklovsky obtains such subsequent employment, whichever occurs first. It is also expected that the Bank will pay up to a maximum of $12,000 for Mr. Ceklovsky's out-placement assistance and will release Mr. Ceklovsky from certain liabilities and obligations including those that arose out of his employment by the Bank and termination of that employment. Ms. Kathleen M. Thomas was appointed to the office of Senior Vice President and Chief Credit Officer of the Bank effective April 2, 1994. (4) Includes all principal officers who served during 1993. Employment Agreement with Thomas E. King On April 3, 1992, the Bank entered into an employment agreement with Thomas E. King, President and Chief Executive Officer, which provided for a base salary of $150,000 per year. In addition, the agreement provided that Mr. King was entitled to participate in the Bank's stock option plan and was eligible to receive up to 50% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals. Under the agreement, Mr. King was also entitled to severance compensation equal to twelve months base salary if the Board of Directors terminated Mr. King's employment during the first year of employment for reasons other than serious misbehavior or malfeasance. The severance compensation was to decrease each year after the first year of his employment until it reached zero after five years of employment. On August 26, 1993, the severance compensation portion of the agreement with Mr. King was amended. The amendment, among other things, provided that if Mr. King was terminated for reasons other than serious misbehavior or malfeasance, the Bank would pay to Mr. King as severance compensation the difference, if any, between $150,000 and the before-tax gain realized by Mr. King upon the sale of shares of the Bank's common stock that Mr. King had acquired, or had a right to acquire, pursuant to the Bank's Stock Option Plan. Severance Agreement with Thomas E. King Pursuant to the terms of a severance agreement dated April 7, 1994 (the "Severance Agreement"), between the Bank and Mr. King, Mr. King ceased being the President and Chief -9- Executive Officer and a Director of the Bank effective April 15, 1994. In connection with the termination of Mr. King's employment, Mr. King, among other things, agreed to provide consulting services to the Bank through August 15, 1994, relinquish rights he had to compensation that accrued and had not been paid prior to the time of his termination, relinquish rights he had to options to purchase shares of the Bank's Common Stock, and release the Bank and its affiliates from certain liabilities and obligations including those that arose out of his employment by the Bank, termination of that employment, and related matters. The Bank, in turn, among other things, agreed to pay to Mr. King a one-time severance payment of $150,000 on April 15, 1994, his out-placement assistance until he secures a full-time position, his costs of health insurance until the earlier of August 15, 1994, or the date he becomes eligible for health insurance benefits offered by a future employer, and, provided that he provides the consulting services described in the Severance Agreement for the time period described therein, to continue to pay to him his regular base salary of $12,500 per month through August 15, 1994. The Bank also agreed to release Mr. King from certain liabilities and obligations including those that arose out of his employment by the Bank, termination of that employment, and related matters. Employment Agreement with Thayer T. Prentice Effective March 30, 1994, the Bank entered into a five-year employment agreement with Thayer T. Prentice, Vice Chairman and Chief Executive Officer, which provides for a base salary of $150,000 per year. In addition, the agreement provides that Mr. Prentice is entitled to participate in the Bank's stock option plan and other employee benefit plans, is eligible to receive up to 40% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals and is to receive a $500,000 term life insurance policy and an automobile allowance of $500 per month. The agreement also provides that Mr. Prentice is entitled to severance compensation equal to $150,000 if he is terminated (a) without cause, or (b) in the event of certain reorganizations, including the sale of all or substantially all of the assets of the Bank, the merger, consolidation or reorganization of the Bank in which the Bank is not the survivor, or a tender offer involving fifty percent (50%) or more of the issued and outstanding voting securities of the Bank. Pursuant to the agreement, on March 30, 1994, Mr. Prentice was granted options to purchase 125,000 shares of the Bank's common stock at a price of $1.50 per share. Mr. Prentice's options have a term of ten years from the date of grant and become exercisable as to 25% of the shares underlying the options immediately and as to the remaining 75% of the shares, in equal installments on March 30, 1995, 1996, 1997 and 1998, subject to earlier vesting in connection with certain reorganizations described above. -10- Employment Agreement with William J. Martin Effective April 2, 1994, the Bank entered into a five-year employment agreement with William Martin, President and Chief Operating Officer, which provides for a base salary of $125,000 per year. In addition, the agreement provides that Mr. Martin is entitled to participate in the Bank's stock option plan and other employee benefit plans, is eligible to receive up to 40% of his annual base salary in the form of an incentive bonus based upon the achievement of certain performance goals and is to receive a $500,000 term life insurance policy, a $20,000 one-time bonus upon execution of the agreement (which has been paid to Mr. Martin) and an automobile allowance of $500 per month. The agreement also provides that Mr. Martin is entitled to severance compensation equal to $125,000 if he is terminated (a) without cause, or (b) in the event of certain reorganizations, including the sale of all or substantially all of the assets of the Bank, the merger, consolidation or reorganization of the Bank in which the Bank is not the survivor, or a tender offer involving fifty percent (50%) or more of the issued and outstanding voting securities of the Bank. Pursuant to the agreement, on April 4, 1994, Mr. Martin was granted options to purchase 104,167 shares of the Bank's common stock at a price of $1.50 per share. Mr. Martin's options have a term of ten years from the date of grant and become exercisable as to 25% of the shares underlying the options immediately and as to the remaining 75% of the shares, in equal installments on April 4, 1995, 1996, 1997 and 1998, subject to earlier vesting in connection with certain reorganizations described above. Other New Principal Officers In addition to Messrs. Prentice and Martin, the Bank appointed Mr. Lawrence McGovern to the office of Senior Vice President and Chief Financial Officer and Ms. Kathleen Thomas to the office of Senior Vice President and Chief Credit Officer of the Bank, effective April 2, 1994. Prior to joining the Bank, from December 1993 to April 1, 1994, Mr. McGovern served as Senior Vice President, Lending of American River Bank. From January 1991 to December 1993, Mr. McGovern served as Senior Vice President, Lending of the Bank of San Francisco and from December 1988 to January 1991, he served as Division Finance Manager of First Interstate Bank of California. From December 1983 to December 1988, Mr. McGovern served as Vice President and Chief Financial Officer of Point West Bank. Prior to joining the Bank, from December 1993 to April 1, 1994, Ms. Thomas served as Senior Vice President and Chief Credit Officer of American River Bank. From December 1990 to December 1993, Ms. Thomas served as Senior Vice President and Team Leader of the Sacramento Regional Office of the Bank of San Francisco. For ten years prior to that time, Ms. Thomas served in various capacities in the banking industry, including Vice President and Credit Administration Support Manager of First -11- Interstate Bank of California, a Vice President of Wells Fargo Bank and Assistant Vice President Team Leader with Crocker National Bank. Compensation Plans 401(k) Plan The Bank established a 401(k) investment plan (the "Plan") for all eligible employees in 1988. The Plan permits each eligible employee to defer up to 15% of compensation on a pre-tax basis up to a specified maximum which for calendar year 1993 was $8,994. The Bank makes a matching contribution of $1.00 for every $1.00 of compensation deferred by the employee with a maximum matching contribution of 3% of the employee's annual compensation. The Bank incurred expenses on behalf of the Plan of $54,031, $54,419 and $56,900 for the years ended December 31, 1993, 1992 and 1991, respectively. During fiscal years 1993, 1992 and 1991, the Bank made matching contributions for the principal officers named in the Cash Compensation Table and groups as follows:
1993 1992 1991 ---- ---- ---- Thomas E. King $ 4,680 $ 3,000 $ (1) Susan J. Drack 2,655 1,632 -0- Bernard Rao 2,640 2,560 2,441 Dennis F. Ceklovsky 2,340 -0- (1) Florence A. Bellacosa 2,008 1,565 617 All Principal Officers as a Group (2) 14,848 9,753 7,666 All Officers (other than Principal Officers) as a Group (3) 20,977 23,424 28,379 All Employees as a Group (other than Officers and Principal Officers) (4) 18,206 21,242 20,855
- - ------------------------ (1) Such person was not an employee of the Bank during the period indicated. (2) Includes 6 persons in 1993, 4 in 1992 and 4 in 1991. (3) Includes 19 persons in 1993, 19 in 1992 and 19 in 1991. (4) Includes 36 persons in 1993, 37 in 1992 and 48 in 1991. -12- Stock Options During June 1992, the Bank adopted the 1992 Stock Option Plan (the "Stock Option Plan"), which was approved by the shareholders of the Bank at the Bank's 1993 Annual Meeting of Shareholders. The Stock Option Plan is administered by a Committee of two or more Directors, who, during their service as an administrator of the Stock Option Plan and during the one-year period prior to such service, have not received or been awarded any of the Bank's common stock pursuant to the Stock Option Plan or any other stock option or stock appreciation rights plan of the Bank. The Committee is currently composed of the same members who comprise the Compensation Committee of the Board. Options may be granted to officers and employees (including directors who are employees) of the Bank or a subsidiary of the Bank. Nonemployee directors of the Bank are not eligible to receive options under the Stock Option Plan. Options are granted at not less than the fair market value of the underlying shares on the date of the grant. Under the Stock Option Plan, the Bank may issue stock options with respect to an aggregate of 306,023 shares of common stock. As of April 15, 1994, 275,367 shares of common stock were subject to outstanding options granted under the Stock Option Plan (including the options described above that were recently granted to Messrs. Prentice and Martin) and 30,656 shares remained available for subsequent option grants. Options may be either incentive stock options or nonqualified stock options. Options granted under the Stock Option Plan shall be granted to employees and officers of the Bank who in the judgment of the Board of Directors or the committee designated by the Board, contribute to the successful conduct of the Bank's operations through their judgment, interest, ability and special efforts, and shall vest in such manner as the Board or the committee designated by the Board determines, but such vesting period shall not exceed ten years from the date the option is granted. If the optionee ceases to be an officer or employee of the Bank or any of its subsidiaries due to death or disability, the Stock Option Plan provides that the optionee's estate, or in the case of disability of the optionee, the optionee, may exercise the options for a period of twelve months following the date of such death or disability to the extent the option was exercisable on such date, and provided that the date of exercise is in no event after the expiration of the term of the option. If the optionee ceases to be an officer or employee of the Bank or any of its subsidiaries because the optionee has been terminated for cause, the optionee shall have no right to exercise such options. In all other circumstances, the optionee may exercise any vested stock options within three months after such optionee ceases to be an officer or employee of the Bank or any of its -13- subsidiaries, provided that the date of exercise is in no event after the expiration of the term of the option. Currently, the Bank has 7 principal officers and 77 other full-time employees. The following table shows, as to the persons named therein, certain information with respect to stock options, including: (i) the title and aggregate amount of shares subject to options granted since January 1, 1992, and (ii) the average per share exercise price thereof.
Shares of Thomas E. Thayer T. William J. Bernard Dennis F. Susan J. Florence Common Stock King(1) Prentice Martin Rao Ceklovsky(2) Drack Bellacosa - - ------------ --------- --------- ---------- ------- ------------ -------- --------- Granted from January 1, 1992 to April 15, 1994: Number of Shares 102,008 125,000 104,167 16,600 16,600 10,000 3,000 Average per share $2.00 $1.50 $1.50 $1.70 $1.70 $1.50 $1.50 option price Exercised from January 1, 1992 to April 15, 1994: Number of Shares 0 0 0 0 0 0 0 Net value (market value of $0 $0 $0 $0 $0 $0 $0 shares on date options exercised less exercise price) Exercisable options at April 15, 1994: Number of Shares (1) 31,250 26,042 2,200 2,200 0 0 Average per share option price (1) $1.50 $1.50 $2.00 $2.00 $0 $0
- - -------------------------------- (1) Mr. King ceased being an officer and director of the Bank on April 15, 1994. As part of Mr. King's Severance Agreement described above, Mr. King agreed that his stock options will have terminated effective April 4, 1994. (2) Mr. Ceklovsky ceased being an officer of the Bank effective April 2, 1994. It is expected that Mr. Ceklovsky will cease providing services to the Bank effective May 15, 1994. The Bank is currently negotiating a severance arrangement with Mr. Ceklovsky, the expected terms of which are described above. As of April 15, 1994, all principal officers as a group (7 in number), held options to purchase 275,367 shares of the Bank's Common Stock at exercise prices ranging between $1.50 and $2.00 per share. There are no options outstanding other than those described in the table above. -14- Transactions with Management In the ordinary course of its business, the Bank enters into banking transactions with related parties, including directors, principal shareholders and their affiliates on substantially the same terms, including interest rates and collateral, as to unaffiliated parties. At December 31, 1993, there were no such borrowings. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Bank's directors and executive officers, and any person who owns more than ten percent of the Bank's common stock, to file with the FDIC initial reports of ownership and reports of changes in ownership of common stock of the Bank. Directors, executive officers and greater than ten-percent shareholders, if any, are required by FDIC regulations to furnish the Bank with copies of all Section 16(a) forms they file. To the Bank's knowledge, based solely on review of the copies of such reports furnished to the Bank and written representations that no other reports were required, during the fiscal year ended December 31, 1993, all directors and executive officers of the Bank were in compliance with the applicable Section 16(a) filing requirements, except as follows: Director Louis G. Fifer purchased 500 shares of common stock in 1993. The purchase was required to be reported on a Form F-8, which was not filed; however, an FDIC Form F-8A disclosing the purchase was filed with the FDIC four days after the Form F-8A filing deadline of February 14, 1993. Florence Bellacosa, the Vice President and Trust Department Manager of the Bank was late in filing a Form F- 7. PROPOSAL TWO: AMENDMENT TO STOCK OPTION PLAN Shareholders are being asked to approve an amendment to the Stock Option Plan, which amendment was approved by the Board of Directors on April 20, 1994. The amendment would increase the number of shares available under the Stock Option Plan from 306,023 to 500,000. Certain information regarding the Stock Option Plan, including information regarding the purpose of, administration of, persons eligible under, and option grants under, the Stock Option Plan, is summarized above under "PROPOSAL ONE: ELECTION OF DIRECTORS -- Compensation Plans -Stock Options." Certain additional information, including information regarding shares available for grant under the Stock Option Plan and federal tax consequences of option grants and exercises, is summarized below. A copy of the proposed amendment to the Stock Option Plan is attached hereto as Appendix A. -15- Assuming the amendment to the Stock Option Plan is approved by the shareholders, the grant of options entitling optionees to purchase in excess of 306,023 shares of the Bank's Common Stock under the Stock Option Plan and the issuance of shares pursuant to the exercise of such options is subject to obtaining a permit from the California State Banking Department. The Bank will apply for such a permit as soon as practicable. Shares Subject to the Plan As indicated above, under the Stock Option Plan, the Bank may issue stock options with respect to an aggregate of 306,023 shares of common stock. As of April 15, 1994, 275,367 shares of common stock were subject to outstanding options granted under the Stock Option Plan and 30,656 shares remained available for subsequent option grants. Options may be either incentive stock options or nonqualified stock options. If the shareholders of the Bank approve the amendment to the Stock Option Plan attached hereto as Appendix A and the Bank obtains a permit from the California State Banking Department, the Bank will be permitted to issue stock options with respect to an aggregate of 500,000 shares of common stock. Adjustment Upon Changes in Capitalization or Merger The number of shares of common stock reserved for issuance under the Stock Option Plan, the number of shares of common stock covered by each outstanding option and the exercise price as to outstanding options shall be proportionately adjusted for any increase or decrease in the number of issued shares of common stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Bank's common stock, or any other increase or decrease in the number of issued shares of common stock effected without receipt of consideration by the Bank. In the event of a sale of the Bank, or a merger or consolidation in which the Bank is not the surviving or resulting corporation, outstanding options will become exercisable in full for a period of thirty days prior to the consummation of such event if the surviving or resulting corporation has determined not to assume outstanding options granted under the Stock Option Plan. In the event of dissolution or liquidation of the Bank, outstanding options will terminate. Amendment and Termination of the Plan The Stock Option Plan became effective upon its adoption by the Board of Directors and will continue for a term of 10 years unless sooner terminated by the Board of Directors. The Board of Directors may amend or terminate the Stock Option Plan from time to time as they deem advisable. No such amendment or termination will affect outstanding options without the consent of the affected optionee. -16- The Board may not, without the approval of the Bank's shareholders (to the extent such shareholder approval is required by applicable law), amend the Stock Option Plan to (i) materially increase the benefits accruing to participants under the Stock Option Plan, (ii) materially increase the number of shares which may be issued under the Stock Option Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan. Federal Tax Consequences Options granted under the Stock Option Plan may be either Incentive Options which satisfy the requirements of Section 422 of the Code or Nonstatutory Options which do not meet such requirements. The federal income tax treatment for the two types of options differs as follows: Incentive Options. No taxable income is recognized by an optionee at the time of the option grant, and no taxable income is generally recognized at the time the option is exercised. However, the excess of the fair market value of the Bank's common stock received upon the exercise of an Incentive Option over the exercise price is includable in the employee's alternative minimum taxable income ("AMTI") and may be subject to the alternative minimum tax ("AMT"). For AMT purposes only, the basis of the Bank's common stock received upon exercise of an Incentive Option is increased by the amount of such excess. An optionee will recognize taxable income in the year in which the purchased shares acquired upon exercise of an Incentive Option are sold or otherwise disposed. For federal tax purposes, dispositions are divided into two categories: (i) qualifying and (ii) disqualifying. An optionee will make a qualifying disposition of the purchased shares if the sale or disposition is made more than two years after the grant date of the option and more than one year after the exercise date. If an optionee fails to satisfy either of these two holding periods prior to sale or disposition, then a disqualifying disposition of the purchased shares will result. Upon a qualifying disposition, an optionee will recognize long-term capital gain or loss in an amount equal to the difference between the amount realized upon the sale or other disposition of the purchased shares and the exercise price paid for the shares except that for AMT purposes, the gain or loss would be the difference between the amount realized upon the sale or other disposition of the purchased shares and the employee's basis increased as described above. If there is a disqualifying disposition of the shares, then the optionee will generally recognize ordinary income to the extent of the lesser of the difference between the exercise price and (i) the fair market value of the Bank's common stock on the date of exercise; or (ii) the amount realized on such disqualifying disposition. Any additional gain recognized upon the disposition will be -17- capital gain. If the amount realized is less than the exercise price, the optionee will, in general, recognize a capital loss. If the optionee makes a disqualifying disposition of the purchased shares, then the Bank will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, to the extent the optionee recognizes ordinary income. In no other instance will the Bank be allowed a deduction with respect to the optionee's disposition of the purchased shares. Nonstatutory Options. No taxable income is recognized by an optionee upon the grant of a Nonstatutory Option. The optionee will in general recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of purchased shares on the date of exercise over the exercise price paid for such shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income. Upon a subsequent sale of the purchased shares, the optionee will generally recognize either a capital gain or a capital loss depending on whether the amount realized is more or less than the exercise price plus the difference between the exercise price and the fair market value on the date of exercise. The Bank will be entitled to a business expense deduction equal to the amount of ordinary income recognized by the optionee with respect to an exercised Nonstatutory Option. The deduction will in general be allowed for the taxable year of the Bank in which ordinary income is recognized by the optionee in connection with the acquisition of the option shares. Accounting Treatment Under present accounting rules, neither the grant nor the exercise of options issued at fair market value under the Stock Option Plan will result in any charge to the Bank's earnings. However, the number of outstanding options under the Stock Option Plan may be a factor in determining earnings per share. All of the existing accounting rules for stock compensation plans are currently being reviewed by the Financial Accounting Standards Board and may be the subject of significant changes in the near future. The proposals under consideration, if adopted, could result in a charge against earnings; however, the Bank cannot now determine the impact, if any, of such proposals on the Bank's financial position or results of operations. Vote Required The amendment to the Stock Option Plan described herein is subject to approval by the Bank's shareholders. The affirmative vote of the holders of a majority of the shares of the Bank's common stock present in person or represented by proxy and entitled to vote at the Meeting, and by the holders of a majority of the disinterested shares present in person or represented by proxy and voting at the Annual Meeting, is required to -18- approve the amendment provided that the number of affirmative votes equals at least a majority of the shares constituting the required quorum. For this purpose, "disinterested shares" are shares held by persons who have not been granted an option under the Stock Option Plan. Abstentions will be counted for purposes of determining the number of shares entitled to vote on the proposal and will have the effect of a vote against the proposal. Although "broker non- votes" (shares held by brokers or nominees which are present in person or represented by proxy at the meeting but as to which voting instructions have not been received from the beneficial owners or persons entitled to vote such shares and the broker or nominee does not have discretionary voting power under applicable New York Stock Exchange rules or other rules applicable to brokers) with respect to Proposal Two, if any, will be counted to determine the presence or absence of a quorum, broker nonvotes with respect to this proposal will not be counted in determining the number of shares entitled to vote on this proposal. The Board recommends a vote for Proposal Two. --- PROPOSAL THREE: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS During 1993, management obtained proposals from independent public accounting firms to act as independent accountants for the Bank for the 1993 fiscal year. The decision to request such proposals was not based upon any disagreement with the prior accountants, Arthur Andersen & Co. Rather, management desired to seek proposals in an attempt to secure responsive services at a competitive price. The firm of KPMG Peat Marwick served as the Bank's independent public accountants for the 1993 fiscal year. The Board of Directors also recently selected KPMG Peat Marwick as the Bank's independent accountants for the current year. Representatives of KPMG Peat Marwick will be present at the Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. Unless marked to the contrary, proxies received will be voted "For" the ratification of the appointment of KPMG Peat Marwick as the independent public accountants for the Bank for the current year. PROPOSALS OF SHAREHOLDERS Under certain circumstances, shareholders are entitled to present proposals at shareholder meetings. Any such proposal to be included in the proxy statement for the Bank's 1995 Annual Meeting of Shareholders must be received no later than January 3, 1995, in a form that complies with applicable FDIC -19- regulations. Proposals should be sent to the attention of the Corporate Secretary, CapitolBank Sacramento, P.O. Box 2311, Sacramento, California 95812- 2311. OTHER MATTERS The Board of Directors does not know of any other matters which may be presented at the Meeting. If other matters properly come before the Meeting, it is the intention of the persons named in the accompanying proxy to vote the proxy in accordance with the judgment of the person or persons voting such proxies. In addition to the matters described above, there will be an address by the Chairman of the Board and a general discussion period during which shareholders will have an opportunity to ask questions about the business of the Bank. CAPITOLBANK SACRAMENTO /s/ Thayer T. Prentice Thayer T. Prentice Vice Chairman & Chief Executive Officer Dated: May 4, 1994 Shareholders may obtain a copy of the Bank's annual report to the Federal Deposit Insurance Corporation on Form F-2 which includes financial statements for the fiscal year ended December 31, 1993 and all supplemental schedules thereto, by writing to CapitolBank Sacramento, P.O. Box 2311, Sacramento, California 95812-2311. -20- APPENDIX A 3. Stock Subject to the Plan. Subject to the provisions of Section ------------------------- 12 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 500,000 shares of Common Stock. If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. -21- CAPITOLBANK SACRAMENTO THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Thayer T. Prentice, Vice Chairman of the Board & Chief Executive Officer and Bernard Rao, Senior Vice President & Chief Administrative Officer and each of them, with full power of substitution, as proxies of the undersigned, to attend the Annual Meeting of Shareholders of CapitolBank Sacramento to be held at the Sutter Club, 1229 9th Street, Sacramento, California, on Wednesday, May 24, 1994 at 5:00 p.m. and any adjournment or postponement thereof, and to vote the number of shares the undersigned would be entitled to vote if personally present upon the following items and to vote according to their discretion on any other matter which may properly be presented for action at said meeting or any adjournment or postponement thereof: 1. Election of Directors. [_] FOR all nominees [_] WITHHOLD AUTHORITY to vote for all listed below nominees listed below (except as indicated to the contrary below) Louis G. Fifer, Carolyn G. Reid, Thomas J. Hammer, Jr. Robert Jenkins, John A. Wickland, III, Thayer T. Prentice William J. Martin, Ralph Andersen INSTRUCTION: To withhold authority to vote for any individual nominee(s), write that nominee's name in the space provided below. - - ------------------------------------------------------------------------------- The Board of Directors recommends a vote FOR the foregoing nominees. 2. Amendment to Stock Option Plan. Proposal to approve an amendment to the Bank's 1992 Stock Option Plan to increase the number of shares available thereunder from 306,023 to 500,000. [_] FOR [_] AGAINST [_] ABSTAIN 3. Ratification of Independent Public Accountants. Proposal to ratify the appointment of KPMG Peat Marwick as independent public accountants for the Bank for the current year. [_] FOR [_] AGAINST [_] ABSTAIN (To be completed and signed on the reverse side) (Continued from other side) THIS PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, WILL BE VOTED FOR THE NINE NOMINEES FOR ELECTION AS DIRECTORS, FOR THE AMENDMENT TO THE STOCK OPTION PLAN AND FOR THE RATIFICATION OF KPMG PEAT MARWICK AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE CURRENT YEAR. THE PROXYHOLDERS NAMED ON THE REVERSE SIDE OF THIS CARD SHALL HAVE THE DISCRETIONARY AUTHORITY TO CUMULATE VOTES REPRESENTED BY THE SHARES OF THE UNDERSIGNED IN THE ELECTION OF DIRECTORS IF THE REQUIREMENTS FOR CUMULATIVE VOTING ARE SATISFIED. (Please sign exactly as name appears. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person.) Dated: ____________________________, 1994 Signature ________________________________ Signature, if held jointly __________________________________ SHAREHOLDERS ARE URGED TO MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. -----END PRIVACY-ENHANCED MESSAGE-----