-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIfufI0Lll6h9A7t79Ca9bboJkiEa7N8O4ia4FuD44hYC6tvREhtloOzuuKsaxIe mpmurYsTe7wuZm5F8bDpgw== 0000892569-95-000607.txt : 19951103 0000892569-95-000607.hdr.sgml : 19951103 ACCESSION NUMBER: 0000892569-95-000607 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951020 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951102 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELDORADO BANCORP CENTRAL INDEX KEY: 0000351991 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953642383 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09709 FILM NUMBER: 95586645 BUSINESS ADDRESS: STREET 1: 17752 E 17TH ST CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7148324204 MAIL ADDRESS: STREET 1: 19100 VON KARMAN AVE SUITE 550 CITY: IRVINE STATE: CA ZIP: 92715 8-K 1 FORM 8-K 1 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 (Date of earliest event reported) October 20, 1995 ----------------------------- ELDORADO BANCORP - ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in Charter) California 1-9709 95-3642383 - ------------------------------------------------------------------------------ (State or Other Jurisdiction (Commission (I.R.S. Employer of Incorporation) File Number) Identification No.) 17752 East 17th Street, Tustin California 92680 - ------------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (714) 832-4204 -------------------------- Not Applicable - ------------------------------------------------------------------------------ (Former Name or Former Address, if Changed Since Last Report) Page 1 of _____ Pages Exhibit Index on Sequentially Numbered Page _____ 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 20, 1995, Eldorado Bank, a wholly-owned subsidiary of Eldorado Bancorp (the "Company") acquired Mariners Bancorp and its wholly-owned subsidiary Mariners Bank. Mariners Bank operated three commercial banking offices in southern Orange County, California. Its headquarters office was located in San Clemente, California, and its branch banking offices were located in San Juan Capistrano, California and Dana Point, California. All three Mariners Bank offices have become branch offices of Eldorado Bank. The acquisition was effected by the merger (the "Merger") of Mariners Bancorp with and into Eldorado Bank, as a result of which Eldorado Bank succeeded to all of the assets and operations of Mariners Bancorp, including all of the outstanding shares of Common Stock of Mariners Bank. Immediately following the effectiveness of the Merger, Mariners Bank was also merged into Eldorado Bank. In the Merger, each of the 630,276 outstanding shares of Mariners Bancorp Common Stock was converted into the right to receive one (1) share of the Company's Common Stock and cash in the amount of $6.46, subject to the rights of the holders thereof to exercise dissenters' rights under applicable California law. Accordingly, the aggregate number of shares of Common Stock of the Company issued or to be issued by the Company in the Merger will not exceed 630,276. At June 30, 1995, Mariners Bancorp had total assets of approximately $77,221,000 as compared to total assets of the Company of approximately $309,345,000 as of the same date. For the six months ended June 30, 1995, Mariners Bancorp had net earnings of approximately $400,000. For the same six-month period, the Company had net earnings of approximately $1,917,000. The foregoing descriptions of the acquisition of Mariners Bancorp and the Merger are qualified in their entirety by reference to the Agreement and Plan of Reorganization and Merger, dated as of May 22, 1995, among the Company, Eldorado Bank, Mariners Bancorp and Mariners Bank, which is incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (File No. 33-61235) filed with the Commission under the Securities Act of 1933, as amended, on July 21, 1995. 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired. The following financial statements of Mariners Bancorp are incorporated by reference herein from pages F-28 through F-46 inclusive of the Prospectus, dated September 12, 1995, of the Company filed with the Commission pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on September 14, 1995 (the "Prospectus").
MARINERS BANCORP Page No. -------- Report of Dayton & Associates F - 28 Consolidated Balance Sheets as of December 31, 1994 and 1993 F - 29 Consolidated Statements of Income for the years ended December 31, 1994, 1993 and 1992 F - 30 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1994, 1993 and 1992 F - 31 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 F - 32 Notes to Consolidated Financial Statements F - 33 Consolidated Balance Sheets (Unaudited) as of June 30, 1995 and December 31, 1994 and F - 42 Consolidated Statements of Income (Unaudited) for the six months Ended June 30, 1995 and 1994 F - 43 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the six months ended June 30, 1995 and the years ended December 31, 1992, 1993 and 1994 F - 44 Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 1995 and 1994 F - 45 Notes to Consolidated Financial Statements F - 46
(b) Pro Forma Financial Information. The Unaudited Pro Forma Combined Financial Information of the Company and Mariners Bancorp, including an unaudited pro forma condensed 4 balance sheet as of June 30, 1995 and unaudited pro forma condensed income statements for the year ended December 31, 1994 and the six-month period ended June 30, 1995 are incorporated by reference herein from pages 48 through 56 inclusive of the Prospectus. (c) Exhibits. Exhibit Number 2.1 Agreement and Plan of Reorganization and Merger dated as of May 22, 1995, by and among Eldorado Bancorp, a California corporation, Eldorado Bank, a California state chartered bank, Mariners Bancorp, a California corporation and Mariners Bank, a California state chartered bank (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (File No. 33-61235) filed with the Commission under the Securities Act of 1933, as amended, on July 21, 1995) 23.1 Consent of Dayton & Associates 99.1 Press Release dated October 20, 1995 99.2 Financial Statements of Mariners Bancorp listed in Item 7 (b) above 99.3 Unaudited Pro Forma Combined Financial Information of the Company and Mariners Bancorp, including an unaudited pro forma condensed balance sheet as of June 30, 1995 and unaudited pro forma condensed income statements for the year ended December 31, 1994 and the six-month period ended June 30, 1995 5 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. ELDORADO BANCORP Date: October _____, 1995 By: /s/ DAVID R. BROWN ---------------------------- David R. Brown, Executive Vice President and Chief Financial Officer 6 EXHIBIT INDEX The following exhibits are attached hereto and incorporated herein by reference:
Sequentially Exhibit Number Description Numbered Page - -------------- ----------- ------------- 2.1 Agreement and Plan of Reorganization and Merger - dated as of May 22, 1995, by and among Eldorado Bancorp, a California corporation, Eldorado Bank, a California state chartered bank, Mariners Bancorp, a California corporation and Mariners Bank, a California state chartered bank.* (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 (File No. 33-61235) filed with the Commission under the Securities Act of 1933, as amended, on July 21, 1995) 23.1 Consent of Dayton & Associates 99.1 Press Release dated October 20, 1995 99.2 Financial Statements of Mariners Bancorp listed in Item 7 (b) above 99.3 Unaudited Pro Forma Combined Financial Information of the Company and Mariners Bancorp, including an unaudited pro forma condensed balance sheet as of June 30, 1995 and unaudited pro forma condensed income statements for the year ended December 31, 1994 and the six-month period ended June 30, 1995
- --------------- * Schedules omitted. The Registrant shall furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule upon request. EX-23.1 2 CONSENT OF DAYTON & ASSOCIATES 1 [DAYTON & ASSOCIATES LETTERHEAD] Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (nos. 33-60893, 33-49482 and 33-31416) of Eldorado Bancorp ("Eldorado") of our Independent Auditor's Report dated January 13, 1995 regarding the consolidated financial statements of Mariners Bancorp ("Mariners") and Subsidiary appearing on page F-28 of the Joint Proxy Statement/Prospectus, dated September 12, 1995, of Eldorado and Mariners for the Special Meetings of Shareholders of Eldorado and Mariners held on October 11, 1995, which Report is incorporated by reference in Eldorado's Current Report on Form 8-K dated October 20, 1995. DAYTON & ASSOCIATES November 1, 1995 Laguna Hills, California EX-99.1 3 PRESS RELEASE DATED OCTOBER 20, 1995 1 Exhibit 99.1 [ELDORADO BANCORP LETTERHEAD] NEWS RELEASE FOR ADDITIONAL INFORMATION CONTACT: DAVID R. BROWN, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER FOR IMMEDIATE RELEASE ELDORADO BANCORP (714) 798-1100 ELDORADO COMPLETES ACQUISITION OF MARINERS BANK TUSTIN, California, October 20, 1995 -- Eldorado Bancorp (ASE/ELB) today announced that it has completed the acquisition of Mariners Bancorp which has been merged with and into Eldorado Bank, the wholly-owned subsidiary of Eldorado Bancorp. Mariners Bancorp shareholders will receive in the transaction one share of Eldorado Bancorp common stock and $6.46 cash for each of their Mariners Bancorp shares. The transaction is valued at approximately $13.4 million. Mariners Bancorp, through its wholly owned subsidiary, Mariners Bank, conducts banking business in three banking offices in the south Orange County cities of San Clemente, San Juan Capistrano and Monarch Beach (Dana Point). Total assets on September 30, 1995 were $75 million. J.B. Crowell, President and Chief Executive Officer of Eldorado Bancorp and Chairman of Eldorado Bank, said, "This acquisition has made Eldorado Bank the largest independent bank in the growing southern portion of Orange County. We expect the business combination to begin contributing positively to earnings in the first quarter of 1996." The combined bank will maintain the name of Eldorado Bank. Eldorado Bank has expanded by acquiring other banks in the past. The most recent was the 1991 acquisition of Bank of San Clemente. Tustin-based Eldorado Bancorp, through its Eldorado Bank subsidiary, operates eleven banking offices in Orange, Riverside and San Bernardino counties. Total assets on June 30, 1995 were $309 million. ****** EX-99.2 4 FINANCIAL STATEMENTS OF MARINERS BANCORP 1 EXHIBIT 99.2 INDEPENDENT AUDITORS' REPORT Board of Directors Mariners Bancorp and Subsidiary San Clemente, California We have audited the accompanying consolidated balance sheets of Mariners Bancorp and Subsidiary as of December 31, 1994, and December 31, 1993, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the 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 Mariners Bancorp and Subsidiary as of December 31, 1994, and December 31, 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. DAYTON & ASSOCIATES January 13, 1995 Laguna Hills, California F-28 2 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1994 1993 ----------- ----------- ASSETS Cash and Due from Banks........................................... $ 4,799,172 $ 3,095,600 Interest-Bearing Deposits......................................... 2,369,000 2,166,000 Securities Held to Maturity -- Note B............................. 14,251,185 8,345,352 Federal Funds Sold................................................ 6,950,000 15,400,000 Loans -- Note C: Commercial...................................................... 7,434,083 5,961,875 Construction Financing.......................................... 15,133,598 13,889,363 Real Estate..................................................... 24,945,134 27,822,240 Consumer........................................................ 2,761,059 2,539,374 ----------- ----------- TOTAL LOANS............................................. 50,273,874 50,212,852 Net Deferred Loan Fees.......................................... (215,282) (192,028) Allowance for Possible Credit Losses............................ (807,000) (700,000) ----------- ----------- NET LOANS............................................... 49,251,592 49,320,824 Premises and Equipment -- Note D.................................. 1,596,127 1,807,954 Other Real Estate Owned........................................... 910,683 597,032 Accrued Interest and Other Assets................................. 1,664,131 1,406,898 ----------- ----------- $81,791,890 $82,139,660 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-Bearing Demand...................................... $16,616,647 $13,817,018 Money Market and NOW............................................ 29,250,115 29,364,397 Savings......................................................... 13,027,835 18,221,495 Time Deposits Under $100,000.................................... 10,423,600 9,931,253 Time Deposits $100,000 and Over................................. 4,644,036 3,302,559 ----------- ----------- TOTAL DEPOSITS.......................................... 73,962,233 74,636,722 Accrued Interest and Other Liabilities............................ 506,572 335,480 ----------- ----------- TOTAL LIABILITIES....................................... 74,468,805 74,972,202 Commitments and Contingencies -- Note J Stockholders' Equity -- Note G: Common Stock -- Authorized 1,500,000 Shares; Issued and Outstanding; 630,276 in 1994 and 1993........................ 2,111,318 2,111,318 Retained Earnings............................................... 5,211,767 5,056,140 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY.............................. 7,323,085 7,167,458 ----------- ----------- $81,791,890 $82,139,660 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-29 3 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ----------------------------------------- 1994 1993 1992 ----------- ----------- ----------- INTEREST INCOME Interest and Fees on Loans........................... $ 5,034,557 $ 5,490,219 $ 6,410,854 Interest on Investment Securities.................... 682,437 472,730 374,102 Other Interest Income................................ 510,827 443,254 358,238 ----------- ----------- ----------- TOTAL INTEREST INCOME........................ 6,227,821 6,406,203 7,143,194 INTEREST EXPENSE Interest on Demand Deposits.......................... 504,605 611,597 860,684 Interest on Savings Deposits......................... 386,168 603,001 832,743 Interest on Time Deposits............................ 501,747 551,939 849,172 Interest on Note Payable............................. -- -- 20,412 ----------- ----------- ----------- TOTAL INTEREST EXPENSE....................... 1,392,520 1,766,537 2,563,011 ----------- ----------- ----------- NET INTEREST INCOME.......................... 4,835,301 4,639,666 4,580,183 Provision for Credit Losses............................ 182,000 280,000 148,000 ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.................. 4,653,301 4,359,666 4,432,183 NONINTEREST INCOME Voucher Control and Appraisal Fees................... 221,703 128,581 138,260 Mortgage Fees........................................ 468,080 1,800,530 1,579,111 Service Charges and Fees............................. 373,867 406,632 416,099 Other Income......................................... 566,841 427,806 286,681 ----------- ----------- ----------- 1,630,491 2,763,549 2,420,151 ----------- ----------- ----------- 6,283,792 7,123,215 6,852,334 NONINTEREST EXPENSE Salaries and Employee Benefits....................... 2,334,001 2,405,970 2,188,126 Occupancy Expenses................................... 575,841 554,133 694,244 Furniture and Equipment.............................. 236,226 240,245 235,254 Other Expenses -- Note F............................. 2,804,069 2,732,132 2,371,508 ----------- ----------- ----------- 5,950,137 5,932,480 5,489,132 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES................... 333,655 1,190,735 1,363,202 Income Taxes -- Note E................................. 115,000 488,000 551,000 ----------- ----------- ----------- NET INCOME................................... $ 218,655 $ 702,735 $ 812,202 =========== =========== =========== Per Share Data: Net Income........................................... $ .35 $ 1.12 $ 1.29 =========== =========== =========== Number of Shares Used in Computation................. 630,276 628,838 627,635 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-30 4 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ------------------------ NUMBER OF RETAINED SHARES AMOUNT EARNINGS TOTAL --------- ---------- ---------- ---------- BALANCE AT JANUARY 1, 1992................. 627,276 $2,090,318 $3,541,203 $5,631,521 Proceeds from the Exercise of Stock Options.................................. 450 3,150 3,150 Net Income for the Year.................... 812,202 812,202 ------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1992............... 627,726 2,093,468 4,353,405 6,446,873 Proceeds from the Exercise of Stock Options.................................. 2,550 17,850 17,850 Net Income for the Year.................... 702,735 702,735 ------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1993............... 630,276 2,111,318 5,056,140 7,167,458 Dividends Paid............................. (63,028) (63,028) Net Income for the Year.................... 218,655 218,655 ------- ---------- ---------- ---------- BALANCE AT DECEMBER 31, 1994............... 630,276 $2,111,318 $5,211,767 $7,323,085 ======= ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. F-31 5 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------- 1994 1993 1992 ----------- ----------- ----------- OPERATING ACTIVITIES Net Income........................................ $ 218,655 $ 702,735 $ 812,202 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization................ 235,915 244,793 371,896 Deferred Income Taxes........................ (26,000) (15,000) (82,000) Provision for Credit Losses.................. 182,000 280,000 148,000 Provision for Loss on Other Real Estate Owned..................................... 18,000 148,000 -- Net Gain on Sale of Other Real Estate Owned..................................... (110,241) -- -- Net Increase from Cash Surrender Value-Life Insurance................................. (17,235) (17,651) (19,405) Net Change in Accrued Interest, Other Assets, and Other Liabilities..................... (42,906) (348,530) (66,567) ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES.............................. 458,188 994,347 1,164,126 INVESTING ACTIVITIES Net Change in Interest-Bearing Deposits........... (203,000) (584,000) 1,559,000 Proceeds from Sales of Other Real Estate Owned.... 1,520,335 689,518 -- Purchases of Held-to-Maturity Securities.......... (9,724,485) -- -- Proceeds from Maturities of Held-to-Maturity Securities..................................... 3,818,652 -- -- Proceeds from Maturities of Investment Securities..................................... -- 2,420,317 1,539,190 Purchases of Investment Securities................ -- (6,550,755) (542,266) Net Change in Loans............................... (1,854,513) 6,979,818 (609,590) Increase in Other Real Estate Owned............... -- -- 601,088 Purchases of Premises and Equipment............... (24,088) (112,045) (1,335,564) ----------- ----------- ----------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................. (6,467,099) 2,842,853 1,211,858 FINANCING ACTIVITIES Net Change in Demand Deposits and Savings Accounts....................................... (2,508,313) (5,385,584) 16,900,871 Net Change in Time Deposits....................... 1,833,824 (2,469,209) (5,671,290) Principle Payments on Note Payable................ -- (169,160) (160,960) Payments for Dividends............................ (63,028) -- -- Proceeds from Exercise of Stock Options........... -- 17,850 3,150 ----------- ----------- ----------- NET CASH USED BY FINANCING ACTIVITIES..... (737,517) (8,006,103) 11,071,771 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................. (6,746,428) (4,168,903) 13,447,755 Cash and Cash Equivalents at Beginning of Year...... 18,495,600 22,664,503 9,216,748 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................................... $11,749,172 $18,495,600 $22,664,503 ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Loans Transferred to Other Real Estate Owned...... $ 1,741,744 $ 597,033 $ 236,430 Cash Paid During the Year for Interest............ $ 1,356,720 $ 1,976,578 $ 2,506,755 Cash Paid During the Year for Income Taxes........ $ 192,000 $ 609,000 $ 586,950
The accompanying notes are an integral part of these consolidated financial statements. F-32 6 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of Mariners Bancorp (the Company), and its wholly-owned subsidiary, Mariners Bank (the Bank). Cash Equivalents For the purpose of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption "Cash and Due from Banks" and "Federal Funds Sold" Securities Held to Maturity Bonds, notes, and debentures for which the Bank has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity. Loans Held for Sale Mortgage and SBA loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. Loans Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances reduced by any charge-offs or specific valuation accounts and net of any deferred fees or costs on originated loans, or unamortized premiums or discounts on purchased loans. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield of the related loan. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Bank's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, and current economic conditions. Other Real Estate Owned Real estate properties acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of cost or fair value minus estimated costs to sell. Revenue and expenses from operations and additions to the valuation allowance are included in other expenses. Income Taxes Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Premises and Equipment Land is carried at cost. Bank premises, furniture and equipment, and leasehold improvements are carried at cost, less accumulated depreciation and amortization. F-33 7 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) Financial Instruments In the ordinary course of business, the Bank has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. Net Income per Share Net income per share of common stock has been computed on the basis of the weighted average number of shares of common stock outstanding. Reclassifications Certain reclassifications of prior year amounts have been made to conform with current year classifications. Current Accounting Pronouncements In May, 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan ("SFAS 114") and in October, 1994, the FASB issued Statement of Financial Accounting Standards No. 118, Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures ("SFAS 118"). Under the provisions of SFAS 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. SFAS 114 requires creditors to measure impairment of a loan based on the present value of expected future cash flows discounted at the loan's effective interest rate. If the measure of the impaired loan is less than the recorded investment in the loan, a creditor shall recognize the impairment by recording a valuation allowance with a corresponding charge to provision for estimated losses on loans. This statement also applies to restructured loans and eliminates the requirement to classify loans that are in-substance foreclosures as foreclosed assets except for loans where the creditor has physical possession of the underlying collateral but not legal title. SFAS 114 applies to financial statements for fiscal years beginning after December 15, 1994. The Company expects to adopt the statement on January 1, 1995 and does not expect that the adoption of the statement will have a material impact on the Company's results of operations or financial position. SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on impaired loans. In addition, SFAS 118 amends certain disclosure requirements of SFAS 114. In December, 1991, the FASB issued SFAS 107, Disclosures About Fair Value of Financial Instruments ("SFAS 107"). Implementation of SFAS No. 107 is required for fiscal years ending after December 15, 1992 for institutions with assets greater than $150 million, and for fiscal years ending after December 15, 1995 for all other institutions, however, earlier adoption is permitted. SFAS No. 107 requires disclosures about fair value for all financial instruments. The Company will implement this statement in 1995. In October, 1994, the FASB issued SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments ("SFAS 119"). This statement amends SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk and SFAS 107 and provides specific disclosure requirements for derivative financial instruments. The Company will implement this statement in 1995, however, the Company has not engaged in any derivative activities during the years ended December 31, 1994, 1993 and 1992. In May of 1995, the FASB issued SFAS No. 122, Accounting for Mortgage Servicing Rights ("SFAS 122"). This statement amends SFAS No. 65, Accounting for Certain Mortgage Banking Activities, by allowing for the capitalization as an asset the mortgage servicing rights acquired through loan origination activities. SFAS 122 applies to fiscal years beginning after December 15, 1995, but earlier application is F-34 8 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED) encouraged. Application of SFAS 122 will not have a material impact on Mariners' results of operations or financial position since Mariners does not retain servicing rights on its sold mortgage loans. NOTE B -- INVESTMENT SECURITIES Debt and equity securities have been classified in the consolidated balance sheets according to management's intent. The carrying amount of securities and their approximate market values at December 31 were as follows:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- HELD-TO-MATURITY SECURITIES: DECEMBER 31, 1994: U.S. Treasury Securities................. $ 5,385,647 $ 3,238 $ 97,885 $ 5,291,000 U.S. Government Agencies and Corporations.......................... 5,461,722 13,424 235,146 5,240,000 Mortgage-Backed Securities............... 2,495,328 12,924 2,252 2,506,000 State and Municipal Securities........... 908,488 6,552 24,040 891,000 ----------- --------- --------- ----------- $14,251,185 $ 36,138 $ 359,323 $13,928,000 =========== ========= ========= =========== DECEMBER 31, 1993: U.S. Treasury Securities................. $ 4,084,168 $ 46,832 $ -- $ 4,131,000 U.S. Government Agencies and Corporations.......................... 500,517 13,483 -- 514,000 Mortgage-Backed Securities............... 3,165,328 39,461 19,789 3,185,000 State and Municipal Securities........... 595,339 22,661 -- 618,000 ----------- --------- --------- ----------- $ 8,345,352 $ 122,437 $ 19,789 $ 8,448,000 =========== ========= ========= ===========
Investment securities carried at approximately $5,352,000 and $3,811,000, at December 31, 1994 and December 31, 1993, respectively, were pledged to secure public deposits and other purposes as required by law. The scheduled maturities of securities held to maturity at December 31, 1994, are as follows:
ESTIMATED AMORTIZED MARKET COST VALUE ----------- ----------- Due in One Year or Less..................................... $ 8,777,068 $ 8,528,000 Due from One Year to Five Years............................. 2,666,791 2,586,000 Due from Five to Ten Years.................................. 126,276 116,000 Due after Ten Years......................................... 185,722 192,000 ----------- ----------- 11,755,857 11,422,000 Mortgage-Backed Securities.................................. 2,495,328 2,506,000 ----------- ----------- $14,251,185 $13,928,000 =========== ===========
In May of 1993, the Financial Accounting Standards Board issued Statement No. 115, Accounting for Certain Investments in Debt Securities. The Bank adopted the provisions of the new standard in its financial statements as of January 1, 1994. F-35 9 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE C -- LOANS The Bank's loan portfolio consists primarily of loans to borrowers within the South Orange County area of Southern California. Although the Bank seeks to avoid concentrations of loans to a single industry or based upon a single class of collateral, real estate and real estate associated businesses are among the principal industries in the Bank's market area and, as a result, the Bank's loan and collateral portfolios are, to some degree, concentrated in those industries. The Bank also originates mortgage and SBA loans for sale to institutional investors. At December 31, 1994, and December 31, 1993, the Bank was servicing approximately $4,818,000 and $2,961,000, respectively, in loans previously sold. A summary of the changes in the allowance for possible credit losses for the years ended December 31 follows:
1994 1993 1992 -------- ---------- -------- Balance at Beginning of Year...................... $700,000 $ 690,000 $687,000 Additions to the Allowance Charged to Expense... 182,000 280,000 148,000 Recoveries on Loans Charged Off................. 3,000 32,000 3,000 -------- ---------- -------- 885,000 1,002,000 838,000 Less Loans Charged Off............................ 78,000 302,000 148,000 -------- ---------- -------- $807,000 $ 700,000 $690,000 ======== ========== ========
A summary of loans past due 90 days or more and still accruing interest and those loans on which the accrual of interest has been discontinued as of December 31 follows:
1994 1993 1992 -------- ---------- -------- Loans Past Due 90 Days or More and Still Accruing Interest........................................ $486,000 $1,478,000 $568,000 ======== ========== ======== Loans on Nonaccrual............................... $ 42,000 $ 8,000 $ None ======== ========== ========
NOTE D -- PREMISES AND EQUIPMENT A summary of premises and equipment as of December 31 follows:
1994 1993 ---------- ---------- Buildings and Improvements.................................. $ 775,000 $ 775,000 Leasehold Improvements...................................... 847,724 838,902 Furniture, Fixtures, and Equipment.......................... 1,071,585 1,058,990 ---------- ---------- 2,694,309 2,672,892 Less Accumulated Depreciation and Amortization.............. 1,098,182 864,938 ---------- ---------- $1,596,127 $1,807,954 ========== ==========
F-36 10 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE E -- INCOME TAXES The provisions for income taxes included in the consolidated statements of income for the years ended December 31 consist of the following:
1994 1993 1992 -------- -------- -------- Current: Federal..................................... $ 91,000 $360,000 $469,000 State....................................... 50,000 143,000 164,000 -------- -------- -------- 141,000 503,000 633,000 Deferred.................................... (26,000) (15,000) (82,000) -------- -------- -------- $115,000 $488,000 $551,000 ======== ======== ========
A comparison of the federal statutory income tax rates to the Company's effective income tax rates follows:
1994 1993 1992 --------------- --------------- --------------- AMOUNT RATE AMOUNT RATE AMOUNT RATE -------- ---- -------- ---- -------- ---- Federal Tax Rate........................... $113,000 34.0% $405,000 34.0% $463,000 34.0% California Franchise Taxes, Net of Federal Tax Benefit.............................. 24,000 7.2% 86,000 7.2% 98,000 7.2% Other Items, Net........................... (22,000) (6.7%) (3,000) (0.2%) (10,000) (0.8%) -------- ---- -------- ---- -------- ---- Bank's Effective Rate...................... $115,000 34.5% $488,000 41.0% $551,000 40.4% ======== ==== ======== ==== ======== ====
The following is a summary of the components of the net deferred tax asset and liability accounts recognized in the accompanying consolidated balance sheets:
1994 1993 -------- -------- Deferred Tax Assets: Allowance for Credit Losses Due to Tax Limitations........... $275,000 $229,000 Premises and Equipment Due to Depreciation Differences....... 16,000 -- Other Assets/Liabilities..................................... 13,000 61,000 -------- -------- 304,000 290,000 -------- -------- Deferred Tax Liability: Premises and Equipment Due to Depreciation Differences....... -- (12,000) -------- -------- Net Deferred Taxes............................................. $304,000 $278,000 ======== ========
F-37 11 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE F -- OTHER EXPENSES A summary of other expenses for the years ended December 31 is as follows:
1994 1993 1992 ---------- ---------- ---------- Commissions.................................... $ 134,894 $ 616,548 $ 529,113 Data Processing................................ 363,409 362,785 345,567 Loan Processing................................ 113,412 249,175 112,275 Marketing Expenses............................. 103,240 99,551 103,005 Other Real Estate Owned........................ 73,818 173,926 3,563 Regulatory Assessments......................... 181,300 192,657 184,033 Settlement of Litigation....................... 785,000 -- -- Other Expenses................................. 1,048,996 1,037,490 1,093,952 ---------- ---------- ---------- $2,804,069 $2,732,132 $2,371,508 ========== ========== ==========
NOTE G -- STOCK OPTION PLAN Under the 1982 Mariners Bancorp Stock Option Plan approved by shareholders, options may be granted to salaried officers, key employees, and directors to purchase a maximum of 76,500 shares of authorized but unissued common shares at the fair market value at the date the options are granted. The terms and conditions (including exercise date and number of shares) are determined by the Board of Directors. The plan expired June 22, 1992, and no further options may be granted thereafter. Options granted by the Board of Directors to salaried officers and key employees are to be designated as "incentive stock options" (as defined in Section 422A of the Internal Revenue Code). Options granted to directors are to be designated as non-qualified options. Changes in the number of shares subject to option during the years ended December 31 are summarized as follows:
1994 1993 1992 ------- ------- -------- Outstanding at Beginning of Year................... 8,400 10,950 3,000 Options Granted ($11.00 per Share)................. -- -- 8,400 Options Forfeited.................................. (1,200) -- -- Options Exercised.................................. (--) (2,550) (450) ------- ------- -------- Outstanding at End of Year......................... 7,200 8,400 10,950 ======= ======= ======== Total Option Price................................. $79,200 $92,400 $110,250 ======= ======= ======== Options Exercisable................................ 5,280 4,800 6,150 ======= ======= ======== Available for Future Grants........................ None None None ======= ======= ========
F-38 12 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE H -- RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank has granted loans to certain officers and directors and the companies with which they are associated. In the Bank's opinion, all loans and loan commitments to such parties are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons. A summary of activity with respect to these loans for the years ended December 31 follows:
1994 1993 ---------- ---------- Balance Outstanding at Beginning of Year.................... $1,419,000 $1,345,000 Loans Granted............................................... -- 140,000 Repayments.................................................. (572,000) (66,000) ---------- ---------- Balance Outstanding at End of Year.......................... $ 847,000 $1,419,000 ========== ==========
NOTE I -- RETIREMENT SAVINGS PLAN In late 1988, the Company adopted a retirement savings plan, which allows eligible employees to invest a portion of their base salary into the plan. The Company may match 50% of the amount contributed by the employee up to a maximum of 3% of their salary. In addition, the Company also adopted a profit sharing plan whereby the Board of Directors may make an annual discretionary contribution. The combined retirement expense was approximately $36,000 in 1994, $57,000 in 1993, and $55,000 in 1992. NOTE J -- COMMITMENTS AND CONTINGENCIES The Company and its subsidiary have entered into leases for its branches and operating facilities. These leases include provisions for periodic rent increases as well as payment by the lessee of certain operating expenses. Total rental expense included in occupancy expense and furniture and equipment expense was approximately $296,000 in 1994 and $365,000 in 1993. The approximate future minimum annual payments for these leases by year are as follows: 1995............................................. $ 226,000 1996............................................. 195,000 1997............................................. 202,000 1998............................................. 209,000 1999............................................. 216,000 Thereafter....................................... 530,000 ----------- $1,578,000 ===========
The minimum rental payments shown above are given for the existing lease obligations and are not a forecast of future rental expense. The Company is involved in various litigation which has arisen in the ordinary course of its business. In the opinion of management, the disposition of such pending litigation will not have a material effect on the Company's financial statements. In the normal course of business, the Bank enters into financial commitments to meet the financing needs of its customers. These financial commitments include commitments to extend credit and standby letters of credit. Those instruments involve to varying degrees, elements of credit and interest rate risk not recognized in the Company's consolidated financial statements. F-39 13 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE J -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED) The Company's exposure to credit loss in the event of nonperformance on commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments as it does for loans reflected in the financial statements. The Company had the following outstanding financial commitments as of December 31 whose contractual amount represents credit risk:
1994 1993 ----------- ----------- Commitments to Extend Credit...................... $26,595,000 $18,228,000 Standby Letters of Credit......................... 651,000 316,000 ----------- ----------- $27,246,000 $18,544,000 =========== ===========
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. Standby letters of credit are conditional commitments to guarantee the performance of a Bank customer to a third party. Since some of the commitments and standby letters of credit are expected to expire without being drawn upon, the total amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness 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 customer. The majority of the Bank's commitments to extend credit and standby letters of credit are secured by real estate. NOTE K -- OTHER MATTERS Banker's Support Services (BSSC), a subsidiary of the holding company, was merged with the Bank in 1994. BSSC provided voucher disbursement, inspection, and appraisal services primarily to the Bank. NOTE L -- REGULATORY MATTERS All depository institutions are required by law to maintain reserves on transaction accounts and nonpersonal time deposits in the form of cash balances at the Federal Reserve Bank. These reserve requirements, which can be offset by cash balances held at the Bank, totaled $611,000 at December 31, 1994. Federal regulations require the Bank to meet certain capital standards. The risk based capital standard requires the Bank to achieve a minimum ratio of total capital to risk-weighted assets of 8% (of which at least 4% must contain of common stock and retained earnings, less goodwill). Tier 1 capital, which consists primarily The Bank is also required to achieve a minimum leverage ratio of 3%. The leverage ratio basically consists of Tier 1 capital divided by average total assets. As in the case of the risk-based capital guidelines, the leverage ratio constitutes only a supervisory minimum, and those institutions experiencing or anticipating significant growth or those with high or inordinate levels of risk will be expected to maintain capital well above the minimum level. At December 31, 1994, the Bank's leverage ratio was 9.39%, Tier 1 risk-weighted ratio was 13.25%, and total risk-weighted ratio was 14.50% (unaudited). At December 31, 1994, the Bank is in the "well-capitalized" category. F-40 14 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE M -- CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY The following are condensed balance sheets for Mariners Bancorp only as of December 31, 1994 and 1993 and condensed statements of income and cash flows for each of the three years in the period ended December 31, 1994. BALANCE SHEETS
1994 1993 ---------- ---------- Assets: Cash............................................................ $ 68,208 $ 33,814 Investment in Bank.............................................. 7,255,877 7,133,644 ---------- ---------- $7,324,085 $7,167,458 ========== ========== Liabilities and Stockholders' Equity: Other Liabilities............................................... $ 1,000 $ -- Stockholders' Equity............................................ 7,323,085 7,167,458 ---------- ---------- $7,324,085 $7,167,458 ========== ==========
STATEMENTS OF INCOME
1994 1993 1992 -------- -------- -------- Other Income............................................. $ 1,023 $ 594 $ 2,892 Other Expenses........................................... (6,204) (6,080) (22,382) Equity in Income of the Bank............................. 223,836 708,221 831,692 -------- -------- -------- Net Income..................................... $218,655 $702,735 $812,202 ======== ======== ========
STATEMENTS OF CASH FLOWS
1994 1993 1992 --------- --------- --------- Cash Flows from Operating Activities: Net Income.......................................... $ 218,655 $ 702,735 $ 812,202 Equity in Income of the Bank........................ (223,836) (708,221) (831,692) Change in Other Assets and Other Liabilities........ 1,000 4,566 (17,468) --------- --------- --------- (4,181) (920) (36,958) Cash Flows from Investing Activities: Dividends from the Bank............................. 101,603 145,000 120,000 Cash Flows from Financing Activities: Principle Payment on Note Payable................... -- (169,160) (160,960) Dividends Paid...................................... (63,028) -- -- Proceeds from Stock Options......................... -- 17,850 3,150 --------- --------- --------- (63,028) (151,310) (157,810) --------- --------- --------- Increase (Decrease) in Cash......................... 34,394 (7,230) (74,768) Cash at Beginning of Year........................... 33,814 41,044 115,812 --------- --------- --------- Cash at End of Year................................. $ 68,208 $ 33,814 $ 41,044 ========= ========= =========
F-41 15 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 1995 1994 --------- ------------ (DOLLARS IN THOUSANDS) ASSETS Cash and Due from Banks.............................................. $ 3,674 $ 4,799 Interest-Bearing Deposits............................................ 586 2,369 Securities Held to Maturity.......................................... 11,787 14,251 Federal Funds Sold................................................... 3,245 6,950 Loans Commercial......................................................... 4,588 7,434 Construction Financing............................................. 20,408 15,134 Real Estate........................................................ 25,926 24,945 Consumer........................................................... 3,198 2,761 ------- ------- TOTAL LOANS................................................ 54,120 50,274 Net Deferred Loan Fees............................................. (217) (215) Allowance for Possible Credit Losses............................... (685) (807) ------- ------- NET LOANS.................................................. 53,218 49,252 Premises and Equipment............................................... 1,498 1,596 Other Real Estate Owned.............................................. 1,531 911 Accrued Interest and Other Assets.................................... 1,682 1,664 ------- ------- $77,221 $81,792 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-Bearing Demand......................................... $15,076 $16,617 Money Market and NOW............................................... 25,811 29,250 Savings............................................................ 10,105 13,028 Time Deposits Under $100,000....................................... 13,378 10,423 Time Deposits $100,000 and Over.................................... 4,528 4,644 ------- ------- TOTAL DEPOSITS............................................. 68,898 73,962 Accrued Interest and Other Liabilities............................... 665 507 ------- ------- TOTAL LIABILITIES.......................................... 69,563 74,469 ------- ------- Stockholders' Equity Common Stock -- Authorized 1,500,000 Shares; Issued and Outstanding; 630,276............................................ 2,111 2,111 Retained Earnings.................................................. 5,547 5,212 ------- ------- TOTAL STOCKHOLDERS' EQUITY................................. 7,658 7,323 ------- ------- $77,221 $81,792 ======= =======
F-42 16 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 1995 1994 ------- ------- (DOLLARS IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE) INTEREST INCOME Interest and Fees on Loans........................................... $ 2,934 $ 2,465 Interest on Investment Securities.................................... 328 304 Other Interest Income................................................ 180 252 ------- ------- TOTAL INTEREST INCOME........................................ 3,442 3,021 INTEREST EXPENSE Interest on Demand Deposits.......................................... 257 243 Interest on Savings Deposits......................................... 131 202 Interest on Time Deposits............................................ 383 232 ------- ------- TOTAL INTEREST EXPENSE....................................... 771 677 ------- ------- NET INTEREST INCOME.......................................... 2,671 2,344 Provision for Credit Losses............................................ 90 108 ------- ------- NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES........ 2,581 2,236 NONINTEREST INCOME Voucher Control and Appraisal Fees................................... 101 126 Mortgage Fees and SBA Premiums....................................... 261 406 Service Charges and Fees............................................. 186 191 Other Income......................................................... 136 220 ------- ------- 684 943 ------- ------- 3,265 3,179 NONINTEREST EXPENSE Salaries and Employee Benefits....................................... 1,148 1,251 Occupancy Expenses................................................... 332 325 Furniture and Equipment.............................................. 120 117 Other Expenses....................................................... 967 1,033 ------- ------- 2,567 2,726 ------- ------- INCOME BEFORE INCOME TAXES................................... 698 453 Income Taxes........................................................... 298 189 ------- ------- NET INCOME................................................... $ 400 $ 264 ------- ------- Per Share Data: Net Income........................................................... $ .63 $ .42 ======= ======= Number of Shares Used in Computation................................. 630,276 630,276 ======= =======
F-43 17 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
COMMON STOCK -------------------- NUMBER OF RETAINED SHARES AMOUNT EARNINGS TOTAL --------- ------ -------- ------ (DOLLARS IN THOUSANDS) BALANCE AT JANUARY 1, 1993........................... 627,726 $2,093 $4,353 $6,446 Proceeds from the Exercise of Stock Options.......... 2,550 18 18 Net Income for the Year.............................. 703 703 ------- ------ ------ ------ BALANCE AT DECEMBER 31, 1993......................... 630,276 2,111 5,056 7,167 Dividends............................................ (63) (63) Net Income for the Year.............................. 219 219 ------- ------ ------ ------ BALANCE AT DECEMBER 31, 1994......................... 630,276 2,111 5,212 7,323 Dividends............................................ (65) (65) Net Income for Six Months............................ 400 400 ------- ------ ------ ------ BALANCE AT JUNE 30, 1995............................. 630,276 $2,111 $5,547 $7,658 ======= ====== ====== ======
F-44 18 MARINERS BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------- 1995 1994 ------- ------- (DOLLARS IN THOUSANDS) OPERATING ACTIVITIES Net Income................................................... $ 400 $ 264 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization............................. 135 137 Provision for Credit Losses............................... 90 108 Provision for Loss on Other Real Estate Owned............. 60 18 Net Gain on Sale of Other Real Estate Owned............... -- (110) Net Change in Accrued Interest, Other Assets and Other Liabilities............................................. 109 89 ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES............ 794 506 INVESTING ACTIVITIES Net (Increase) Decrease in Interest-Bearing Deposits......... 1,783 (485) Proceeds from Sales of Other Real Estate Owned............... -- 1,520 Purchases of Held-to-Maturity Securities..................... (1,006) (8,406) Proceeds from Maturities of Held-to-Maturity Securities...... 3,444 1,909 Net Change in Loans.......................................... (4,738) 735 Purchases of Premises and Equipment.......................... (11) (22) ------- ------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES.............................. (528) (4,749) FINANCING ACTIVITIES Net Decrease in Demand Deposits and Savings Accounts......... (7,902) (236) Net Change in Time Deposits.................................. 2,838 294 Payments for Dividends....................................... (32) (63) ------- ------- NET CASH USED BY FINANCING ACTIVITIES................ (5,096) (5) ------- ------- DECREASE IN CASH AND CASH EQUIVALENTS................ (4,830) (4,248) Cash and Cash Equivalents at Beginning of Year................. 11,749 18,496 ------- ------- CASH AND CASH EQUIVALENTS AT JUNE 30........................................... 6,919 14,248 ======= =======
F-45 19 MARINERS BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The financial statements for interim periods are unaudited. In the opinion of management, all material adjustments necessary for fair presentation of the interim financial statements have been included. Interim period financial statements are not necessarily indicative of results to be expected for the entire year. NOTE B -- EARNINGS PER SHARE Net earnings per common share are based upon the weighted average number of shares outstanding during each period. F-46 EX-99.3 5 UNAUDITED PRO FORMA FINANCIAL INFORMATION 1 EXHIBIT 99.3 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION The following unaudited Pro Forma Combined Balance Sheet as of June 30, 1995 combines the historical consolidated balance sheets of Eldorado and subsidiary and Mariners and subsidiary as if the Merger had been effective on June 30, 1995 after giving effect to the purchase accounting adjustments described in the accompanying notes. The unaudited Pro Forma Combined Statements of Operations present the combined results of operations of Eldorado and Mariners for the six-month period ended June 30, 1995 and the year ended December 31, 1994, as if the Merger had been effective on January 1, 1995 and January 1, 1994, respectively, after giving effect to the purchase accounting adjustments described in the accompanying notes. Upon consummation of the Merger, each outstanding share of Mariners Common Stock, other than shares of Mariners Common Stock with respect to which the holders properly exercise their dissenters' rights, will be converted into the right to receive one (1) share of Eldorado Common Stock and cash in the amount of $7.30. The cash portion of the Merger consideration is subject to adjustment as follows: (a) if the Average Eldorado Closing Price of Eldorado Common Stock is less than $12.00, then the cash component of the Merger consideration shall be increased by an amount equal to the difference between $12.00 and such Average; provided, however, that the maximum amount of such increase shall not exceed $1.50 per share. If, on the other hand, the Average Eldorado Closing Price exceeds $13.00, then the cash component of the Merger consideration shall be decreased in an amount equal to the difference between the Average Eldorado Closing Price and $13.00; provided, however, that the maximum amount of such decrease shall not exceed $1.00 per share. (b) If the sum of $7,400,000 exceeds Mariners' Consolidated Tangible Net Worth as of the Determination Date, then the cash component of the Merger consideration (as the same may have been adjusted as described above), shall be reduced by an amount equal to the quotient obtained by dividing such excess by the total number of shares of Mariners Common Stock outstanding immediately prior to the Effective Time. If Mariners' Consolidated Tangible Net Worth exceeds $7,600,000 as of the Determination Date, then the cash component of the Merger consideration (as adjusted), shall be increased by an amount equal to the quotient obtained by dividing such excess by the total number of shares of Mariners Common Stock outstanding immediately prior to the Effective Time. The unaudited pro forma combined financial statements and accompanying notes reflect the application of the purchase method of accounting. Under this method of accounting, the purchase price will be allocated to the assets acquired and liabilities assumed based on their estimated fair values at the Effective Time. Deferred tax assets and liabilities will be adjusted for the difference between the tax basis of the assets and liabilities and their estimated fair values. The excess, if any, of the total acquisition cost over the sum of the assigned fair values of the tangible assets acquired less liabilities assumed is recorded as goodwill. As described in the accompanying notes, estimates of the fair values of Mariners' assets and liabilities have been combined with the recorded values of the assets and liabilities of Eldorado. The pro forma financial information provides information to assist in assessing the continuing impact upon Eldorado Bancorp after the mergers of Mariners and its wholly-owned subsidiary, Mariners Bank, with and into Eldorado Bank. Such statements are intended to assist in analyzing the future prospects of Eldorado by illustrating the possible scope of the change in Eldorado's historical financial position and results of operations caused by the Merger. The Unaudited Pro Forma Condensed Balance Sheet shows the effect the Merger would have had on Eldorado's asset and liability balances if the transaction had been consummated as of June 30, 1995. The total acquisition cost of $12.9 million is allocated to the individual assets of Mariners based upon estimates of fair market values. Goodwill of $5.4 million is shown, representing the excess of acquisition cost over the fair value of the assets acquired less liabilities assumed. The pro forma adjustments include only items that are directly attributable to the acquisition and are factually supportable. (See Explanatory Note (2) to the Unaudited Pro Forma Condensed Balance Sheet). 48 2 The Unaudited Pro Forma Condensed Income Statements for the year ended December 31, 1994 and the six months ended June 30, 1995 show the effect the Merger might have had on historical operations. The pro forma adjustments include only items that are directly attributable to the transaction, are expected to have a continuing impact on the operations and are factually supportable. Pro forma earnings per share for the year ended December 31, 1994 is $0.66 compared to $0.93 for Eldorado and $0.35 for Mariners. Pro forma earnings per share for the six month period ended June 30, 1995 is $0.60 compared to $0.70 and $0.63 for Eldorado and Mariners, respectively, as a result of the increase in the number of Eldorado shares that would have occurred as of January 1, 1994 and January 1, 1995 had the Merger taken place on those respective dates. The pro forma earnings per share do not include anticipated economies, from the consolidation of branch and administrative operations, or other anticipated opportunities provided by the Merger. Results of operations of Mariners subsequent to June 30, 1995 may affect the allocation of the purchase price by increasing or decreasing the amount of the unallocated portion of the purchase price. In addition, changes to the adjustments already included in the unaudited pro forma combined financial statements are expected as evaluations of assets and liabilities are completed and as additional information becomes available. Accordingly, the final pro forma combined amounts will differ from those set forth in the unaudited pro forma combined financial statements. THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS ARE INTENDED FOR INFORMATIONAL PURPOSES AND ARE NOT NECESSARILY INDICATIVE OF THE FUTURE FINANCIAL POSITION OR FUTURE RESULTS OF OPERATIONS OF THE COMBINED COMPANY, OR OF THE FINANCIAL POSITION OR THE RESULTS OF OPERATIONS OF THE COMBINED COMPANY THAT WOULD HAVE ACTUALLY OCCURRED HAD THE MERGER BEEN IN EFFECT AS OF THE DATE OR FOR THE PERIODS PRESENTED. These unaudited pro forma combined financial statements and the accompanying notes should be read in conjunction with and are qualified in their entirety by the consolidated financial statements, including the accompanying notes, of Eldorado and Mariners appearing elsewhere in this Joint Proxy Statement. 49 3 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 30, 1995
PURCHASE ELDORADO MARINERS ACCOUNTING PROFORMA BANCORP BANCORP ADJUSTMENTS COMBINED ------------- ------------ ----------- ------------- Cash and due from banks.............. $ 25,187,000 $ 3,674,000 $(4,609,000)(a) $ 24,252,000 Interest-bearing deposits in other banks........................ -- 586,000 586,000 Federal funds sold................... 15,600,000 3,245,000 18,845,000 Investment securities available-for-sale................. 82,216,000 -- 82,216,000 Investment securities held-to-maturity................... 2,589,000 11,787,000 -- (b) 14,376,000 Loans and leases, gross.............. 173,338,000 53,903,000 463,000 (c) 227,704,000 Less: Allowance for credit losses.... 5,562,000 685,000 6,247,000 ------------ ----------- ------------ Net Loans.................. 167,776,000 53,218,000 221,457,000 Premises and equipment............... 7,324,000 1,498,000 (200,000)(d) 8,622,000 Other real estate owned.............. 2,144,000 1,531,000 3,675,000 Goodwill............................. 1,058,000 -- 5,386,000 (e) 6,444,000 Deferred tax asset................... 184,000 304,000 488,000 Other assets......................... 5,267,000 1,378,000 6,645,000 ------------ ----------- ------------ Total assets............... 309,345,000 77,221,000 387,606,000 ============ =========== ============ Deposits............................. 268,050,000 68,898,000 (2,000)(f) 336,946,000 Federal funds purchased.............. 6,721,000 -- 6,721,000 Other liabilities.................... 3,248,000 665,000 456,000 (g) 4,369,000 Shareholders' equity: Preferred stock.................... -- -- -- Common stock....................... 17,479,000 2,111,000 (2,111,000)(h) 8,244,000 (i) 25,723,000 Retained earnings.................. 13,453,000 5,547,000 (5,547,000)(h) 13,453,000 Securities valuation allowance, net............................. 394,000 -- 394,000 ------------ ----------- ------------ Total shareholders' equity................... 31,326,000 7,658,000 39,570,000 ------------ ----------- ------------ Total liabilities and shareholders' equity............................. $309,345,000 $77,221,000 $387,606,000 ============ =========== ============
See accompanying notes to pro forma financial statements. 50 4 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED BALANCE SHEET AS OF JUNE 30, 1995 EXPLANATORY NOTES (1) UNAUDITED PRO FORMA CONDENSED BALANCE SHEET ASSUMPTIONS The pro forma condensed balance sheet shows the effect the business combination would have had on Eldorado Bancorp's asset and liability balances if the transaction had been consummated as of June 30, 1995. The pro forma condensed balance sheet accounts for the business combination under the purchase accounting method, whereby a portion of the total cost of the acquisition is allocated to each individual asset acquired on the basis of its fair value. The excess of the total acquisition cost over the sum of the assigned fair values of the tangible assets acquired less liabilities assumed is recorded as goodwill. The total acquisition cost, for the purpose of the pro forma condensed balance sheet presentation, is the sum of: 1) the estimated fair value of the right to receive one (1) share of Eldorado Bancorp common stock of $13.08, and 2) the cash component of the merger consideration of $7.30 less $0.08 adjustment for the Average Eldorado Closing Price of $13.08 plus $0.09 adjustment for Mariners' Consolidated Tangible Net Worth of $7,658,000, the sum of which is multiplied by the number of Mariners' common shares outstanding, and 3) the estimated direct costs of the acquisition of $400,000. The Merger Agreement provides for adjustment to the cash component of the merger consideration, as described in the Introduction above, contingent upon the market price of Eldorado Bancorp common stock based upon a future period. This contingent adjustment may affect the actual total acquisition cost upon consummation of the merger. The pro forma total acquisition cost of $12.9 million is allocated to the individual assets of Mariners based upon Mariners' historical cost with adjustments for estimated fair values. The tax basis of an asset or liability has not been considered in determining its fair value. A deferred tax asset has been recorded for the deferred tax consequences of differences between the assigned values and the tax bases of the assets and liabilities (except the portion of goodwill for which amortization is not deductible for tax purposes). Goodwill of $5.4 million is shown, representing the excess of acquisition cost over the fair value of the assets acquired less liabilities assumed. The pro forma adjustments, subject to later adjustment, include only items that are directly attributable to the acquisition and are factually supportable and are described in Note (2) below. (2) DESCRIPTION OF PRO FORMA ADJUSTMENTS The following descriptions reference the adjustments as labeled on the pro forma condensed balance sheet as of June 30, 1995: (a) Reduction of Cash and Due From Banks balances to reflect cash disbursement of approximately $4.6 million to Mariners shareholders representing the total cash component of the merger consideration. (b) No adjustment to Investment Securities Held-to-Maturity balances is necessary as the book value at June 30, 1995 reflects the fair value of the investment securities acquired in the merger. (c) Adjustment to loans to reflect fair value of assets acquired. (d) Adjustment to Premises and Equipment to reflect fair value of assets acquired. (e) Increase to Goodwill balance to reflect the excess of the total acquisition cost over the fair value of the assets acquired less liabilities assumed. (f) Adjustment to deposits to reflect fair value of liabilities assumed. 51 5 (g) Increase to Other Liabilities to reflect the direct costs of acquisition (e.g. legal, accounting, etc.) and an amount required to record deferred tax liability for the differences between the assigned values and the tax bases of the assets and liabilities. (h) Adjustments to Common Stock and Retained Earnings to reflect the elimination of Mariners shareholder equity interest. (i) Adjustment to reflect the Eldorado Bancorp common stock issued to Mariners shareholders representing the total stock component of the merger consideration estimated at $13.08 per share. (3) POSSIBLE RANGE OF ACQUISITION COST As described in the Introduction above, the Merger Agreement provides for adjustment to the cash component of the merger consideration, contingent upon (1) the market price of Eldorado Common Stock based upon the average daily price of the shares for the month preceding the consummation of the transaction (the "Average Eldorado Closing Price") and separately (2) the Mariners' Consolidated Tangible Net Worth at consummation of the transaction. This contingent adjustment may affect the actual total acquisition cost upon consummation of the merger. The following table indicates the range of possible adjustment to the acquisition cost (excluding direct costs) based upon the range of the Average Eldorado Closing Price:
POSSIBLE RANGE OF AVERAGE ELDORADO CLOSING PRICE --------------------------------------------------------------------------------------- $9.50 $10.50 $12.00 $13.00 $14.00 $15.00 ------------ ------------ ------------ ------------ ------------ ------------ Cash per share to be paid(1)............... $8.80 $8.80 $7.30 $7.30 $6.30 $6.30 Total acquisition cost per share(1).......... $18.30 $19.30 $19.30 $20.30 $20.30 $21.30 Total acquisition cost(1)............... $11,534,000 $12,164,000 $12,164,000 $12,795,000 $12,795,000 $13,425,000
- --------------- (1) The total cash per share and total acquisition cost, on a per share and aggregate basis, also are subject to adjustment as follows: (i) if Mariners' Consolidated Tangible Net Worth as of the Determination Date is less than $7,400,000, the cash, and therefore the total acquisition cost, payable by Eldorado would be reduced by the amount by which $7,400,000 exceeds such Consolidated Tangible Net Worth; or (ii) if such Consolidated Tangible Net Worth exceeds $7,600,000, the cash, and therefore the total acquisition cost, payable by Eldorado would increase by the amount of that excess. The effect of any such adjustment on the cash per share and acquisition cost per share can be determined by dividing the decrease or increase (as the case may be) in the total acquisition cost resulting from such adjustment by 630,276, which is the total number of shares of Mariners Common Stock outstanding. Accordingly, for example, for each $100,000 that the Mariners' Consolidated Tangible Net Worth exceeds $7,600,000 as of the Determination Date, the acquisition cost per share would increase by approximately $0.159 per share, all of which increase would be payable in cash. See "THE MERGER -- Merger Consideration." 52 6 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1994
ELDORADO MARINERS PROFORMA BANCORP BANCORP ADJUSTMENTS COMBINED ----------- ---------- ----------- ----------- Interest and fees on loans.............. $16,170,000 $5,035,000 (56,000)(a) $21,149,000 Interest on investment securities....... 3,721,000 682,000 4,403,000 Other interest income................... 1,143,000 511,000 (265,000)(b) 1,389,000 ----------- ---------- ----------- Total interest income......... 21,034,000 6,228,000 26,941,000 Interest on deposits and other borrowings............................ 4,626,000 1,393,000 6,019,000 ----------- ---------- ----------- Net interest income..................... 16,408,000 4,835,000 20,922,000 Provision for credit losses............. 2,006,000 182,000 2,188,000 ----------- ---------- ----------- Net interest income after provision for credit losses......................... 14,402,000 4,653,000 18,734,000 Other income............................ 4,848,000 1,631,000 6,479,000 Other expenses: Salaries and related expense.......... 6,309,000 2,334,000 8,643,000 Occupancy............................. 1,865,000 576,000 (20,000)(c) 2,421,000 Goodwill amortization................. 110,000 -- 359,000 (d) 469,000 Settlement of litigation.............. -- 785,000 785,000 Other................................. 6,652,000 2,255,000 8,907,000 ----------- ---------- ----------- Total noninterest expense..... 14,936,000 5,950,000 21,225,000 Income before taxes..................... 4,314,000 334,000 3,988,000 Taxes................................... 1,758,000 115,000 (120,000)(e) 1,753,000 ----------- ---------- ----------- Net income.............................. $ 2,556,000 $ 219,000 $ 2,235,000 =========== ========== =========== Average shares outstanding.............. 2,753,934 630,276 3,384,210 Earnings per share...................... $ 0.93 $ 0.35 $ 0.66 =========== ========== ===========
See accompanying notes to pro forma financial statements. 53 7 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1994 EXPLANATORY NOTES (1) UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT ASSUMPTIONS The Pro Forma Condensed Income Statement for the year ended December 31, 1994 shows the effect the acquisition might have had on historical operations if the merger had been consummated on January 1, 1994. The pro forma condensed income statement accounts for the business combination under the purchase accounting method, whereby the reported income includes the operations of Mariners only after acquisition based upon the costs assigned (fair value) to the assets acquired. The Goodwill recorded, which is the excess of the total acquisition cost over the sum of the assigned fair values of the assets acquired less liabilities assumed, is amortized by systematic charges to income over a period of 15 years. The pro forma adjustments, subject to later adjustment, include only items that are directly attributable to the transaction, are expected to have a continuing impact on the operations and are factually supportable. The pro forma adjustments do not include anticipated economies, from the consolidation of branch and administrative operations, or other anticipated opportunities provided by the acquisition. The pro forma adjustments are described in Note (2) below. (2) DESCRIPTION OF PRO FORMA ADJUSTMENTS The following descriptions reference the adjustments as labeled on the pro forma condensed income statement for the year ended December 31, 1994: (a) Amortization of purchase accounting premium adjustment to loans. (b) Reduction of Other Interest Income reflecting the opportunity cost of the cash paid to Mariners shareholders for partial merger consideration. The interest opportunity cost assumes a rate at the current federal funds rate of approximately 5.75 percent per annum. (c) Reduction in fixed asset depreciation due to purchase accounting adjustment to premises and equipment. (d) Increase in Goodwill Amortization reflecting the charge to income assuming an estimated life of 15 years. (e) Tax effect of adjustments at an effective federal and state income tax rate of 40 percent excluding nondeductible portion of goodwill. 54 8 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1995
ELDORADO MARINERS PROFORMA BANCORP BANCORP ADJUSTMENTS COMBINED ---------- ---------- -------- ----------- Interest and fees on loans.............. $8,460,000 $2,934,000 (28,000)(a) $11,366,000 Interest on investment securities....... 2,580,000 328,000 2,908,000 Other interest income................... 527,000 180,000 (133,000)(b) 574,000 ---------- ---------- ---------- Total interest income......... 11,567,000 3,442,000 14,848,000 Interest on deposits and other borrowings............................ 2,605,000 771,000 3,376,000 ---------- ---------- ---------- Net interest income before provision.... 8,962,000 2,671,000 11,472,000 Provision for credit losses............. 603,000 90,000 693,000 ---------- ---------- ---------- Net interest income after provision..... 8,359,000 2,581,000 10,779,000 Other income............................ 2,038,000 684,000 2,722,000 Other expenses: Salaries and related expense.......... 3,170,000 1,148,000 4,318,000 Occupancy............................. 762,000 332,000 (10,000)(c) 1,084,000 Goodwill amortization................. 56,000 -- 180,000 (d) 236,000 Other................................. 3,145,000 1,087,000 4,232,000 ---------- ---------- ---------- Total noninterest expense..... 7,133,000 2,567,000 9,870,000 Income before taxes..................... 3,264,000 698,000 3,631,000 Taxes................................... 1,347,000 298,000 (60,000)(e) 1,585,000 ---------- ---------- ---------- Net income.............................. $1,917,000 $ 400,000 $2,046,000 ========== ========== ========== Average shares outstanding.............. 2,757,041 630,276 3,387,317 Earnings per share...................... $ 0.70 $ 0.63 $ 0.60 ========== ========== ==========
See accompanying explanatory notes to pro forma financial statements. 55 9 PRO FORMA FINANCIAL INFORMATION MERGER OF MARINERS BANCORP WITH AND INTO ELDORADO BANK PURCHASE ACCOUNTING METHOD UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 1995 EXPLANATORY NOTES (1) UNAUDITED PRO FORMA CONDENSED INCOME STATEMENT ASSUMPTIONS The Pro Forma Condensed Income Statement for the six months ended June 30, 1995 shows the effect the acquisition might have had on historical operations if the merger had been consummated on January 1, 1995. The pro forma condensed income statement accounts for the business combination under the purchase accounting method, whereby the reported income includes the operations of Mariners only after acquisition based upon the costs assigned (fair value) to the assets acquired. The Goodwill recorded, which is the excess of the total acquisition cost over the sum of the assigned fair values of the assets acquired less liabilities assumed, is amortized by systematic charges to income over a period of 15 years. The pro forma adjustments include only items that are directly attributable to the transaction, are expected to have a continuing impact on the operations and are factually supportable. The pro forma adjustments do not include anticipated economies, from the consolidation of branch and administrative operations, or other anticipated opportunities provided by the acquisition. The pro forma adjustments are described in Note (2) below. (2) DESCRIPTION OF PRO FORMA ADJUSTMENTS The following descriptions reference the adjustments as labeled on the pro forma condensed income statement for the six months ended June 30, 1995: (a) Amortization of purchase accounting premium adjustment to loans. (b) Reduction of Other Interest Income reflecting the opportunity cost of the cash paid to Mariners shareholders for partial merger consideration. The interest opportunity cost assumes a rate at the current federal funds rate of approximately 5.75 percent per annum. (c) Reduction in fixed asset depreciation due to purchase accounting adjustment to premises and equipment. (d) Increase in Goodwill Amortization reflecting the charge to income assuming an estimated life of 15 years. (e) Tax effect of adjustments at an effective federal and state income tax rate of 40 percent excluding nondeductible portion of goodwill. 56 -----END PRIVACY-ENHANCED MESSAGE-----