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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended
December 31, 2000
Commission File Number: 0-27384
[ ] TRANSITION REPORT PURSUANT TO SECIONT 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ________ to ________
- -------------------------------------------------------------------------------
CAPITAL CORP OF THE WEST
(Exact name of registrant as specified in its charter)
CALIFORNIA 77-0405791
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
550 WEST MAIN STREET, MERCED, CALIFORNIA 95340
(Address of principal executive offices) (Zip Code)
(209) 725-2269
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act:
NONE
Securities registered under Section 12(g) of the Act (Title of Class):
COMMON STOCK, NO PAR VALUE.
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Company was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
/X/ Yes / / No
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/
Aggregate market value of the voting stock held by nonaffiliates of the
Registrant was approximately $54,348,351 (based on the $13.1875 average of bid
and ask prices per common share on March 15, 2001). The number of shares
outstanding of the Registrant's common stock, no par value, as of March 15, 2001
was 4,512,862.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive proxy statement for the 2001 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A are incorporated by reference in Part III,
1
Items 10 through 13 and portions of the Annual Report to Shareholders for
2000 are incorporated by reference in Part II, Item 5 through 8.
CAPITAL CORP OF THE WEST
Table of Contents
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PAGE REFERENCE
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PART I
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ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 3
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ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 18
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ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . 20
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . 20
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PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS . . . . . . . . . . . . . . . . . 21 Page 19 of 2000 Annual Report
- ------------------ ----------------------------------------------------------- -------- ----------------------------
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . 21 Page 9 of 2000 Annual Report
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 21 Pages 10 through 20 of
. . . . . . . . . . . . . . . . . . . . . . 2000 Annual Report
- ------------------ ----------------------------------------------------------- -------- ----------------------------
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY Pages 22 through 44 of
DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2000 Annual Report
- ------------------ ----------------------------------------------------------- -------- ----------------------------
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . 21
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PART III
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE Proxy Statement for 2001
REGISTRANT. . . . . . . . . . . . . . . . . . . . . . . . 21 Annual Meeting
- ------------------ ----------------------------------------------------------- -------- ----------------------------
- ------------------ ----------------------------------------------------------- -------- ----------------------------
ITEM 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . 21 Proxy Statement for 2001
Annual Meeting
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- ------------------ ----------------------------------------------------------- -------- ----------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 22 Proxy Statement for 2001
OWNERS AND MANAGEMENT. . . . . . . . . . . . . . . . . . Annual Meeting
- ------------------ ----------------------------------------------------------- -------- ----------------------------
- ------------------ ----------------------------------------------------------- -------- ----------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED Proxy Statement for 2001
TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . . 22 Annual Meeting
- ------------------ ----------------------------------------------------------- -------- ----------------------------
PART IV
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . 22
- ------------------ ----------------------------------------------------------- -------- ----------------------------
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE COMPANY
GENERAL
Capital Corp of the West (the "Company" or "Capital Corp") is a bank holding
company incorporated under the laws of the State of California on April 26,
1995. On November 1, 1995, the Company became registered as a bank holding
company and is the holder of all of the capital stock of County Bank (the
"Bank"). During 1999, Town and Country Finance and Thrift (the "Thrift) was
merged into County Bank. The Company's primary asset is the Bank and the Bank
is the Company's primary source of income. As of December 31, 2000, the
Company's securities consist of 4,552,042 shares of Common Stock, no par
value, and no shares of Preferred Stock. As of March 15, 2001 there were
4,592,890 common shares outstanding, held by approximately 3,000
shareholders. There were no preferred shares outstanding at March 15, 2001.
The Company has one wholly owned inactive nonbank subsidiary, Capital West
Group ("CWG") at December 31, 2000. The Bank has two wholly owned
subsidiaries, Merced Area Investment & Development, Inc. ("MAID") and County
Asset Advisors ("CAA"). CAA is currently inactive. All references herein to
the "Company" include the Bank and the Bank's subsidiaries, unless the
context otherwise requires.
INFORMATION ABOUT COMMERCIAL BANKING & GENERAL BUSINESS OF THE COMPANY AND
ITS SUBSIDIARIES
The Bank was organized on August 1, 1977, as County Bank of Merced, a
California state banking corporation. The Bank commenced operations in 1977.
In November 1992, the Bank changed its legal name to County Bank. The Bank's
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC"),
up to applicable limits. The Bank is a member of the Federal Reserve System.
INDUSTRY & MARKET AREA
The Bank engages in general commercial banking business primarily in Fresno,
Madera, Mariposa, Merced, Stanislaus, Tulare and Tuolomne counties and
operates a loan production office in San Francisco. The Bank has sixteen full
service branch offices and one loan production office; two of which are
located in Merced with the branch located in downtown Merced currently
serving as both a branch and as administrative headquarters. There are
offices in Atwater, Hilmar, Los Banos, Sonora, two offices in Modesto, two
offices in Turlock and one office in Visalia. In 1997, the Bank also opened
an office in Madera and purchased three branch offices from Bank of America
in Livingston, Dos Palos and Mariposa. During 1999, the Bank opened its first
office in Fresno, and in 2000 expanded our presence in Fresno by adding an
additional office. On January 18, 2001 the Bank opened a loan production
office in San Francisco. The Bank's administrative headquarters also provides
accommodations for the activities of MAID, the Bank's wholly owned real
estate development subsidiary. (See "ITEM 2. PROPERTIES")
COMPETITION
The Company's primary market area consists of Fresno, Madera, Mariposa,
Merced, San Francisco, Stanislaus, Tulare, Tuolomne and Stanislaus Counties
and nearby communities. The banking business in California generally, and
specifically in the Company's primary market area, is highly competitive with
respect to both loans and deposits. The banking business is dominated by a
relatively small number of major banks which have many offices operating over
wide geographic areas. Many of the major commercial banks offer certain
services (such as international, trust and securities brokerage services)
which are not offered directly by the Company or through its correspondent
banks. By virtue of their greater total capitalization, such banks have
substantially higher lending limits than the Company and substantial
advertising and promotional budgets.
Smaller independent financial institutions, savings and loans and credit
unions also serve as competition in our service area. At June 30, 2000, the
Bank maintained a market share of 32% of total FDIC insured deposits in the
County of Merced, California. The Bank's market share of FDIC insured
deposits in the counties of Mariposa, Stanislaus, Tuolumne and Madera,
California was 37%, 3%, 3% and 2%, respectively.
3
The Bank's market share of total FDIC insured deposits in the counties of
Fresno and Tulare, California were less than 1% of the total FDIC insured
deposits in those counties.
In the past, the Bank's principal competitors for deposits and loans have
been other banks (particularly major banks), savings and loan associations
and credit unions. To a lesser extent, competition was also provided by
thrift and loans, mortgage brokerage companies and insurance companies. Other
institutions, such as brokerage houses, credit card companies, and even
retail establishments have offered new investment vehicles, such as
money-market funds, which also compete with banks. The direction of federal
legislation in recent years seems to favor competition between different
types of financial institutions and to foster new entrants into the financial
services market, and it is anticipated that this trend will continue.
To compete effectively in our service area, the Bank relies upon specialized
services, responsive handling of customer needs, local promotional activity,
and personal contacts by its officers, directors and staff. For customers
whose loan demands exceed the Bank's lending limits, the Bank seeks to
arrange funding for such loans on a participation basis with its
correspondent banks or other independent commercial banks. The Bank also
assists customers requiring services not offered by the Bank to obtain such
services from its correspondent banks.
See also the discussion under "Regulation and Supervision - Financial
Services Modernization Legislation."
BANK'S SERVICES AND MARKETS
BANK
The Bank conducts a general commercial banking business including the
acceptance of demand (includes interest bearing), savings and time deposits.
The Bank also offers commercial, agriculture, real estate, personal, home
improvement, home mortgage, automobile, credit card and other installment and
term loans. The Bank offers travelers' checks, safe deposit boxes,
banking-by-mail, drive-up facilities, 24-hour automated teller machines, and
other customary banking services to its customers. The Bank does not operate
a trust department nor does it offer these services through a correspondent
banking relationship to its customers.
The five general areas in which the Bank has directed its lendable assets are
(i) real estate mortgage loans, (ii) consumer loans, (iii) agricultural
loans, (iv) commercial loans, and (v) real estate construction loans. As of
December 31, 2000, these five categories accounted for approximately 34%,
21%, 20%, 17% and 8%, respectively, of the Bank's loan portfolio.
In 1994, the Bank organized a department to originate loans within the
underwriting standards of the Small Business Administration ("SBA"). The Bank
originates packages and subsequently sells these loans in the secondary
market and retains servicing rights on these loans.
The Bank's deposits are attracted primarily from individuals and small and
medium-sized business-related sources. The Bank also attracts some deposits
from municipalities and other governmental agencies and entities. In
connection with the deposits of municipalities or other governmental
agencies, the Bank is generally required to pledge securities to secure such
deposits, except when the depositor signs a waiver with respect to the first
$100,000 of such deposits, which amount is insured by the FDIC.
The principal sources of the Bank's revenues are (i) interest and fees on
loans, (ii) interest on investment securities (principally U.S. Government
securities, mortgage-backed securities, collateralized mortgage obligations,
corporate bonds and municipal bonds), and (iii) service charges on deposit
accounts. For the year ended December 31, 2000, these sources comprised
approximately 69%, 20%, and 6% respectively, of the Bank's total interest and
noninterest income.
Most of the Bank's business originates from individuals, businesses and
professional firms located in its service area. The Bank is not dependent
upon a single customer or group of related customers for a material portion
of its deposits, nor is a material portion of the Bank's loans concentrated
within a single industry or group of related industries. The quality of Bank
assets and Bank earnings could be adversely affected by a downturn in the
local economy, including the agricultural sector.
4
BANK'S REAL ESTATE SUBSIDIARY (MAID)
GENERAL
California state-chartered banks previously were allowed, under state law, to
engage in real estate development activities either directly or through
investment in a wholly-owned subsidiary. Pursuant to this authorization, the
Bank established MAID, its wholly-owned subsidiary, as a California
corporation on February 18, 1987. MAID engaged in real estate development
activities for approximately seven years.
Federal law now precludes banks from engaging in real estate development. The
uncertainty about the effect of the investment in MAID on the results of
future operations caused management to recognize a write-down equal to the
total investment in MAID in late 1995. At December 31, 2000, MAID held no
real estate investments. The last remaining real estate parcel held by MAID
was sold during 2000. MAID does not currently intend to purchase or develop
any new properties.
EMPLOYEES
As of December 31, 2000, the Company employed a total of 243 full-time
equivalent employees. The Company believes that employee relations are
excellent.
SEASONAL TRENDS IN THE COMPANY'S BUSINESS
Although the Company does experience some immaterial seasonal trends in
deposit growth and funding of its agricultural and construction loan
portfolios, in general the Company's business is not seasonal.
OPERATIONS IN FOREIGN COUNTRIES
The Company conducts no operations in any foreign country.
5
REGULATION AND SUPERVISION
REGULATORY ENVIRONMENT
The banking and financial services industry is heavily regulated.
Regulations, statutes and policies affecting the industry are frequently
under review by Congress and state legislatures, and by the federal and state
agencies charged with supervisory and examination authority over banking
institutions. Changes in the banking and financial services industry can be
expected to occur in the future. Some of the changes may create opportunities
for the Company and the Bank to compete in financial markets with less
regulation. However, these changes also may create new competitors in
geographic and product markets which have historically been limited by law to
bank institutions, such as the Bank. Changes in the regulation, statutes or
policies that impact the Company and the Bank cannot necessarily be predicted
and may have a material effect on their business and earnings.
The operations of bank holding companies and their subsidiaries are affected
by the credit and monetary policies of the Federal Reserve Bank (FRB). An
important function of the FRB is to regulate the national supply of bank
credit. Among the instruments of monetary policy used by the FRB to implement
its objectives are open market operations in U.S. government securities,
changes in the discount rate on bank borrowings and changes in reserve
requirements on bank deposits. These instruments of monetary policy are used
in varying combinations to influence the overall level of bank loans,
investments and deposits, the interest rates charged on loans and paid for
deposits, the price of the dollar in foreign exchange markets, and the level
of inflation. The credit and monetary policies of the FRB will continue to
have a significant effect on the Bank and on the Company.
Set forth below is a summary of significant statutes, regulations and
policies that apply to the operation of banking institutions. This summary is
qualified in its entirety by reference to the full text of such statutes,
regulations and policies.
BANK HOLDING COMPANY ACT
As a bank holding company, Capital Corp is subject to regulation under the
BHC Act, and is registered as such with, and subject to examination by, the
FRB. Pursuant to the BHC Act, Capital Corp is subject to limitations on the
kinds of businesses in which it can engage directly or through subsidiaries.
It may of course manage or control banks. Generally, however, it is
prohibited, with certain exceptions, from acquiring direct or indirect
ownership or control of more than five (5) percent of any class of voting
shares of an entity engaged in nonbanking activities, unless the FRB finds
such activities to be "so closely related to banking" as to be deemed "a
proper incident thereto" within the meaning of the BHC Act. Removal of many
of the activity limitations is currently under review by Congress, but
whether any legislation liberalizing permitted bank holding company
activities will be enacted is not known. As a bank holding company, the
Company may not acquire more than (5) percent of the voting shares of any
domestic bank without the prior approval of (or, for "well managed"
companies, prior written notice to) the FRB.
The BHC Act subjects bank holding companies to minimum capital requirements.
See "--Regulatory Capital Requirements." Regulations and policies of the FRB
also require a bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. It is the FRB's policy that a
bank holding company should stand ready to use available resources to provide
adequate capital funds to a subsidiary bank during periods of financial
stress or adversity and should maintain the financial flexibility and
capital-raising capacity to obtain additional resources for assisting a
subsidiary bank. Under certain conditions, the FRB may conclude that certain
actions of a bank holding company, such as a payment of a cash dividend,
would constitute an unsafe and unsound banking practice.
COUNTY BANK
County Bank is a California state-licensed bank. The Bank is a member of the
Federal Reserve Bank (FRB) and maintains deposits insured by the Federal
Deposit Insurance Corporation (FDIC) and thus is subject to the rules and
regulations of the FDIC pertaining to deposit insurance, including deposit
insurance assessments. The Bank is subject to regulation and supervision by
the FRB and the California Department of Financial Institutions (the
"Department" or "DFI"). Applicable federal and state regulations address many
aspects of the Bank's business and activities, including investments, loans,
borrowings, transactions with affiliates,
6
branching, reporting and other areas. County Bank may acquire other banks or
branches of other banks with approval of the FRB, FDIC and the Department.
County Bank is subject to examination by both the FRB and the Department.
DIVIDENDS
The Company may make a distribution to its shareholders if the corporation's
retained earnings equal at least the amount of the proposed distribution. In
the event sufficient retained earnings are not available for the proposed
distribution, such a corporation may nevertheless make a distribution to its
shareholders if, after giving effect to the distribution, the corporation's
assets equal at least 125% of its liabilities and certain other conditions
are met. Since the 125% ratio translates into a minimum capital ratio of 20%,
most bank holding companies, including the Company based on its current
capital ratios, are unable to meet this last test.
The primary source of funds for payment of dividends by the Company to its
shareholders is the receipt of dividends from the Bank. The Company's ability
to receive dividends from the Bank is limited by applicable state and federal
law. A California state-licensed 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 period. However, with the approval of the
Commissioner of Financial Institutions (the "Commissioner"), a bank may pay
dividends in 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.
The FRB, FDIC and the Commissioner have authority to prohibit a bank from
engaging in practices which are considered to be unsafe and unsound.
Depending on the financial condition of the Bank and upon other factors, the
FRB or the Commissioner could determine that payment of dividends or other
payments by the Bank might constitute an unsafe or unsound practice. Finally,
any dividend that would cause a bank to fall below required capital levels
could also be prohibited.
REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are required to maintain a minimum risk-based
capital ratio of 8% (at least 4% in the form of Tier 1 capital) of
risk-weighted assets and off-balance sheet items. "Tier 1" capital consists
of common equity, non-cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries and excludes
goodwill. "Tier 2" capital consists of cumulative perpetual preferred stock,
limited-life preferred stock, mandatory convertible securities, subordinated
debt and (subject to a limit of 1.25% of risk-weighted assets) general loan
loss reserves. In calculating the relevant ratio, a bank's assets and
off-balance sheet commitments are risk-weighted: thus, for example, loans are
included at 100% of their book value while assets considered less risky are
included at a percentage of their book value (20%, for example, for interbank
obligations, and 0% for vault cash and U.S. Government securities).
The Company and the Bank are also subject to leverage ratio guidelines. The
leverage ratio guidelines require maintenance of a minimum ratio of 3% Tier 1
capital to total assets for the most highly rated organizations. Institutions
that are less highly rated, anticipating significant growth or subject to
other significant risks will be required to maintain capital levels ranging
from 1% to 2% above the 3% minimum.
Federal regulation has established five tiers of capital measurement ranging
from "well capitalized" to "critically undercapitalized." Federal bank
regulatory authorities are required to take prompt corrective action with
respect to inadequately capitalized banks. If a bank does not meet the
minimum capital requirements set by its regulators, the regulators are
compelled to take certain actions, which may include a prohibition on payment
of dividends to a parent holding company and requiring adoption of an
acceptable plan to restore capital to an acceptable level. Failure to comply
will result in further sanctions, which may include orders to raise capital,
merge with another institution, restrict transactions with affiliates, limit
asset growth or reduce asset size, divest certain investments and /or elect
new directors. It is Capital Corp's intention to maintain risk-based capital
ratios for itself and for the Bank at above the minimum for the "well
capitalized" level (6% Tier 1 risk-based; 10% total risk-based) and to
maintain the leverage capital ratio for County Bank above the 5% minimum for
"well-capitalized" banks. At December 31, 2000, the Company's leverage, Tier
1 risk-based and total risk-based capital ratios were 7.56%, 9.66% and
10.92%, and the Bank's leverage, Tier 1 risk-based and total risk-based
capital ratios were 7.21%, 9.31% and 10.57%. No assurance can be given that
the Company or the Bank will be able to maintain capital ratios in the "well
capitalized" level in the future.
7
CROSS-INSTITUTION ASSESSMENTS
Any insured depository institution owned by the Company can be assessed for
losses incurred by the FDIC in connection with assistance provided to, or the
failure of, any other depository institution owned by the Company.
INSURANCE PREMIUMS AND ASSESSMENTS
The FDIC has authority to impose a special assessment on members of the Bank
Insurance Fund (the "BIF") to ensure that there will be sufficient assessment
income for repayment of BIF obligations and for any other purpose which it
deems necessary. The FDIC is authorized to set semi-annual assessment rates
for BIF members at levels sufficient to increase the BIF's reserve ratio to a
designated level of 1.25% of insured deposits. The BIF achieved this level in
mid-1995. Congress is considering various proposals to merge the BIF with the
Savings Association Insurance Fund ("SAIF") or otherwise to require banks to
contribute to the insurance funds for savings associations. Adoption of any
of these proposals might increase the cost of deposit insurance for all
banks, including the Bank.
The FDIC has developed a risk-based assessment system, under which the
assessment rate for an insured depository institution will vary according to
the level of risk incurred in its activities. An institution's risk category
is based upon whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. Each insured depository
institution is also to be assigned to one of the following "supervisory
subgroups": Subgroup A, B or C. Subgroup A institutions are financially sound
institutions with few minor weaknesses; Subgroup B institutions are
institutions that demonstrate weaknesses which, if not corrected, could
result in significant deterioration; and Subgroup C institutions are
institutions for which there is a substantial probability that the FDIC will
suffer a loss in connection with the institution unless effective action is
taken to correct the areas of weakness. The FDIC assigns each member
institution an annual FDIC assessment rate which, as of the date of this
report, varies between 0.0% per annum with a $2,000 minimum (for well
capitalized Subgroup A institutions) and 0.27% per annum (for
undercapitalized Subgroup C institutions). Insured institutions are not
permitted to disclose their risk assessment classification.
The cost of carrying bonds issued by the Financing Corporation ("FICO") to cover
losses of failed savings associations is allocated equally between BIF-insured
institutions and SAIF-- insured institutions. The Bank's premiums during 2001
are being assessed at a rate of $.0196 per $100 of insured deposits.
AUDIT REQUIREMENTS
All depository institutions are required to have an annual, full-scope on-site
examination. Those depository institutions with assets greater than $500 million
are required to have annual independent audits, prepare financial statements in
accordance with generally accepted accounting principles, and develop a
management assertion letter addressing internal controls over financial
reporting. Each institution is required to have an independent audit committee
comprised entirely of outside directors.
COMMUNITY REINVESTMENT ACT
The Community Reinvestment Act ("CRA") requires each bank to identify the
communities served by the bank's offices and to identify the types of credit the
bank is prepared to extend within such communities. It also requires the bank's
regulators to assess the bank's performance in meeting the credit needs of its
community and to take such assessment into consideration in reviewing
application for mergers, acquisitions and other transactions, such as the Branch
Acquisition. An unsatisfactory rating may be the basis for denying such an
application. The Bank completed a CRA examination as of January 2000, and
received a "low satisfactory" rating.
POTENTIAL ENFORCEMENT ACTIONS
Banks and their institution-affiliated parties may be subject to potential
enforcement actions by the bank regulatory agencies for unsafe or unsound
practices in conducting their businesses, or for violations of any law, rule or
regulation or provision, any consent order with any agency, any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver,
cease-and-desist orders and written agreements, the termination of insurance of
8
deposits, the imposition of civil money penalties and removal and prohibition
orders against institution-affiliated parties. See " -- County Bank".
INTERSTATE BANKING
Riegle-Neal Interstate Banking and Branching Efficiency
Act. The Riegle-Neal Interstate Banking and Branching Efficiency Act (the
"Riegle-Neal Act") was enacted in 1994. Generally, provisions of the
Riegle-Neal Act authorize interstate banking and interstate branching,
subject to certain state options. The following is a summary of its
provisions:
INTERSTATE BANKING AND BRANCHING
- Interstate acquisition of banks by holding companies was permitted in
all states on and after September 29, 1995. However, states may continue to
prohibit acquisition of banks that have been in existence less than five years
and interstate chartering of new banks.
- Interstate mergers of banks were permitted as of June 1, 1997, unless
a state adopted legislation before June 1, 1997 to "opt out" of interstate
merger authority. Individual states were permitted to enact legislation to
permit interstate mergers earlier than that date.
- Interstate acquisition of branches is permitted to a bank only if the
law of the state where the branch is located expressly permits interstate
acquisition of a branch without acquiring the entire bank.
- Interstate de novo branching is permitted to a bank only if a state
adopts legislation to "opt in" to interstate de novo branching authority.
LIMITATIONS ON CONCENTRATIONS. An interstate banking application may
not be approved if the applicant and its depository institution affiliates would
control more than 10% of insured deposits nationwide or more than 30% of insured
deposits in the state in which the bank to be acquired in located. These limits
do not apply to mergers solely between affiliates. States may waive the 30% cap
on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market
share of a depository institution and its affiliates are not affected.
AGENCY AUTHORITY. A bank subsidiary of a bank holding company is
authorized to receive deposits, renew time deposits, close loans, service loans
and receive payments on loans as an agent for a depository institution affiliate
without being deemed a branch of the affiliate. A bank is not permitted to
engage, as agent for an affiliate, in any activity as agent that it could not
conduct as a principal, or to have an affiliate, as its agent, conduct any
activity that it could not conduct directly, under federal or state law.
HOST STATE REGULATION. Out-of-state banks seeking to acquire or
establish a branch are required to comply with any nondiscriminatory filing
requirements of the host state where the branch is located. The host state may
set notification and reporting requirements for a branch of an out-of-state
bank. A branch of an out-of-state bank is subject to all of the laws of the host
state regarding intrastate branching, consumer protection, fair lending and
community reinvestment. A branch of an out-of-state bank is not permitted to
conduct any activities at the branch that are not permissible for a bank
chartered by the host state.
MEETING LOCAL CREDIT NEEDS. CRA evaluations are required for each state
in which an interstate bank has a branch. Interstate banks are prohibited from
using out-of-state branches "primarily for the purpose of deposit production."
Federal banking agencies have adopted regulations to ensure that interstate
branches are being operated with a view to the needs of the host communities.
CALIFORNIA LAW. In October 1995, California enacted state legislation
in accordance with authority under the Riegle-Neal Act. This law permits banks
headquartered outside California to acquire or merge with California banks that
have been in existence for at least five years, and thereby establish one or
more California branch offices. An out-of-state bank may not enter California by
acquiring one or more branches of a California bank or other operations
constituting less than the whole bank. The law authorizes waiver of the 30%
limit on state-wide market share for deposits as permitted by the Riegle-Neal
Act. This law also authorizes California state-licensed banks to conduct certain
banking activities (including receipt of deposits and loan payments and
conducting loan closings) on an agency basis on behalf of out-of-state banks and
to have out-of-state banks conduct similar agency activities on their behalf.
It is impossible to predict with any degree of accuracy the competitive
impact the laws and regulations described above will have on commercial
banking in general and on the business of the Company in particular, or to
predict whether or when any of the proposed legislation and regulations will
be adopted. It is anticipated that the banking industry will continue to be a
highly regulated industry. Additionally, if experience is any indication,
there appears to be a continued lessening of the historical distinction
between the services offered by financial institutions and other businesses
offering financial services. Finally, the trend
9
toward nationwide interstate banking is expected to continue. As a result of
these factors, it is anticipated banks will experience increased competition
for deposits and loans and, possibly, further increases in their cost of
doing business.
FINANCIAL SERVICES MODERNIZATION LEGISLATION
The Gramm-Leach-Bliley Act of 1999 (the "Modernization Act"). The
Modernization Act repeals two provisions of the Glass-Steagall Act: Section
20, which became effective March 11, 2000 restricts the affiliation of
Federal Reserve member banks with firms "engaged principally" in specified
securities activities; and Section 32, which restricts officer, director, or
employee interlocks between a member bank and any company or person
"primarily engaged" in specified securities activities. In addition, the
Modernization Act also expressly preempts any state law restricting the
establishment of financial affiliations, primarily related to insurance. The
law establishes a comprehensive framework to permit affiliations among
commercial banks, insurance companies, securities firms, and other financial
service providers by revising and expanding the BHC Act framework to permit a
holding company system to engage in a full range of financial activities
through a new entity known as a Financial Holding Company. "Financial
activities" is broadly defined to include not only banking, insurance, and
securities activities, but also merchant banking and additional activities
that the Federal Reserve, in conjunction with the Secretary of the Treasury,
determine to be financial in nature, incidental to such financial activities,
or complementary activities that do not pose a substantial risk to the safety
and soundness of depository institutions or the financial system generally.
In order for the Company to take advantage of the ability provided by the
modernization Act to affiliate with other financial service providers, it
must become a "Financial Holding Company." To do so, the Company would file a
declaration with the Federal Reserve, electing to engage in activities
permissible for Financial Holding companies and certifying that it is
eligible to do so because its insured depository institution subsidiary (the
Bank) is well-capitalized and well-managed. In addition, the Federal Reserve
must also determine that an insured depository institution subsidiary has at
least a "satisfactory" rating under the Community Reinvestment Act. The
Company currently meets the requirements for Financial Holding Company
status. The Company will continue to monitor its strategic business plan to
determine whether, based on market conditions and other factors, the Company
wishes to utilize any of its expanded powers provided in the modernization
Act.
The Modernization Act also includes a new section of the Federal Deposit
Insurance Act governing subsidiaries of state banks that engage in
"activities as principal that would only be permissible" for a national bank
to conduct in a financial subsidiary. It expressly preserves the ability of a
state bank to retain all existing subsidiaries. Because California permits
commercial banks chartered by the state to engage in any activity permissible
for national banks, the Bank will be permitted to form subsidiaries to engage
in the activities authorized by the Modernization Act to the same extent as a
national bank. In order to form a financial subsidiary, the Bank must be
well-capitalized, and the Bank would be subject to the same capital
deduction, risk management and affiliate transaction rules as applicable to
national banks. [the Bank currently meets those requirements.]
Under the Modernization Act, securities firms and insurance companies that
elect to become Financial Holding Companies may acquire banks and other
financial institutions. The Company does not believe that the Modernization
Act will have a material adverse effect on its operations in the near-term.
However, to the extent that it permits banks, securities firms, and insurance
companies to affiliate, the financial services industry may experience
further consolidation. The Modernization Act is intended to grant to
community banks certain powers as a matter of right that larger institutions
have accumulated on an ad hoc basis. Nevertheless, this act may have the
result of increasing the amount of competition that the Company and the Bank
face from larger institutions and other types of companies offering financial
products, many of which may have substantially more financial resources than
the Company and the Bank.
10
SELECTED STATISTICAL INFORMATION
The following tables on pages 11 through 17 present certain statistical
information concerning the business of the Company. This information should be
read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" at ITEM 7, pages 10 through 20 of the
Company's 2000 Annual Report to Shareholders incorporated herein by reference,
and with the Company's Consolidated Financial Statements and the Notes thereto
included in Item 14, pages 22 through 44 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference. The statistical information that
follows is generally based on average daily amounts.
INTEREST RATES AND MARGINS:
Managing interest rates and margins is essential to the Company in order to
maintain profitability. The following table presents, for the periods indicated,
the distribution of average assets, liabilities and shareholder's equity, as
well as the total dollar amount of interest income from average interest-earning
assets and resultant yields and the dollar amounts of interest expense and
average interest-bearing liabilities, expressed both in dollars and rates.
FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998
-------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
(Dollars in thousands) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------------------------------------------------------------------------------------------------
ASSETS
Federal funds sold $10,208 $ 650 6.37% $ 9,140 $ 443 4.85% $23,469 $ 1,253 5.34%
Time deposits at other financial 635 39 6.14 2,691 156 5.80 1,040 57 5.48
institutions
Nontaxable investment securities(1) 29,511 1,347 4.56 30,057 1,378 4.58 16,320 797 4.88
Taxable investment securities 145,707 10,209 7.01 114,402 7,129 6.23 121,728 7,348 6.66
Loans, gross (3) 369,367 38,643 10.46 303,463 30,255 9.97 242,989 25,159 10.35
-------- ------ ------- ------ ------- ------
Total interest-earning assets 555,428 50,888 9.16 459,753 39,361 8.56 405,546 34,614 8.54
Allowance for loan losses (7,121) (5,902) (4,158)
Cash and noninterest-bearing deposits
at other banks 23,753 24,579 19,610
Premises and equipment, net 13,036 13,146 13,390
Interest receivable and other assets 27,786 24,310 22,084
------ ------ ------
Total assets $612,882 $515,886 $456,472
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Negotiable orders of withdrawal $ 74,663 503 .67% $68,134 458 .67% $57,602 503 .87%
Savings deposits 178,279 7,095 3.98 174,301 5,752 3.30 156,956 5,696 3.63
Time deposits 198,183 11,642 5.87 141,497 7,074 5.00 112,555 6,143 5.46
Other borrowings 22,456 1,528 6.80 10,772 756 7.02 20,862 1,292 6.19
------- ------ ------- ------- -----
Total interest-bearing liabilities 473,581 20,768 4.39 394,704 14,040 3.56 347,975 13,634 3.92
Noninterest-bearing deposits 86,706 74,979 63,243
Accrued interest, taxes and other
liabilities 5,787 3,118 2,976
------ ------- -------
Total liabilities 566,074 472,801 414,194
Total shareholders' equity 46,808 43,085 42,278
-------- -------- --------
Total liabilities and shareholders' $612,882 $515,886 $456,472
equity ======== ======== ========
NET INTEREST INCOME AND MARGIN (2) $30,120 5.42% $25,321 5.51% $20,980 5.17%
(1) INTEREST ON MUNICIPAL SECURITIES IS NOT COMPUTED ON TAX-EQUIVALENT BASIS.
(2) NET INTEREST MARGIN IS COMPUTED BY DIVIDING NET INTEREST INCOME BY TOTAL
AVERAGE INTEREST-EARNING ASSETS.
(3) INTEREST ON NON-ACCRUAL LOANS IS RECOGNIZED INTO INCOME ON A
CASH RECEIVED BASIS.
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities. It is also affected
by changes in yields earned on interest-earning assets and rates paid on
interest-bearing deposits and borrowed funds. The following table sets forth
changes in interest
11
income and interest expense for each major category of interest-earning asset
and interest-bearing liability and the amount of change attributable to
volume and rate changes for the years indicated. The changes due to both rate
and volume have been allocated to rate and volume in proportion to the
relationship of the absolute dollar amount of the change in each.
(Dollars in thousands) 2000 COMPARED TO 1999 1999 COMPARED TO 1998
- ------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------
NET INTEREST INCOME VARIANCE ANALYSIS VOLUME RATE TOTAL VOLUME RATE TOTAL
--------------------------------------------------------------------
INCREASE (DECREASE) IN INTEREST INCOME:
Loans $ 6,835 $1,553 $ 8,388 $ 6,059 $ (963) $ 5,096
Taxable investment securities 2,118 962 3,080 (452) 233 (219)
Nontaxable investment securities (25) (6) (31) 633 (52) 581
Federal funds sold 56 151 207 (704) (106) (810)
Time deposit at other institutions (126) 9 (117) 96 3 99
------- ------ ------- ------- ------ -------
Total 8,858 2,669 11,527 5,632 (885) 4,747
INCREASE (DECREASE) IN INTEREST EXPENSE:
Interest-bearing demand deposits 44 1 45 83 (128) (45)
Savings deposits 134 1,209 1,343 598 (542) 56
Time deposits 3,179 1,389 4,568 1,480 (549) 931
Other borrowings 796 (24) 772 (690) 154 (536)
------- ------ ------- ------- ------ -------
4,153 2,575 6,728 1,471 (1,065) 406
------- ------ ------- ------- ------ -------
INCREASE (DECREASE) IN NET INTEREST INCOME $ 4,705 $ 94 $ 4,799 $ 4,161 $ 180 $ 4,341
======= ===== ======= ======= ===== =======
INVESTMENT PORTFOLIO MATURITIES
The following table sets forth the maturities of debt securities at December 31,
2000 and the weighted average yields of such securities calculated on a book
value basis using the weighted average yield within each scheduled maturity
grouping. Maturities of mortgage-backed securities and collateralized mortgage
obligations are stipulated in their respective contracts, however, actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call prepayment penalties.
Yields on municipal securities have not been calculated on a tax-equivalent
basis.
Within One Year One to Five Years Five to Ten Years Over Ten Years
--------------------------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Total
Available for sale debt
securities:
U.S. Treasury and U.S.
government agencies $ - -% $ 25,869 6.79% $ 10,070 7.17% $ - -% $35,939
State and political
subdivisions - - - - 13,168 4.32 11,002 4.54 24,170
Mortgage-backed securities 7 7.86 31 9.31 432 6.98 53,939 6.73 54,409
Collateralized mortgage
obligations - - - - - - 29,015 7.13 29,015
Corporate debt securities 1,008 6.09 3,642 6.50 - - 5,183 7.92 9,833
Held to maturity debt
securities:
U.S. Treasury and U.S.
government agencies - - - - 4,595 6.70 - - 4,595
State and political
subdivisions - - - - 1,342 5.13 3,033 5.14 4,375
Mortgage-backed securities - - - - - - 22,736 7.25 22,736
Collateralized mortgage
obligations - - - - - - 3,516 7.76 3,516
------- ---- -------- ---- -------- ---- -------- ---- --------
Total debt securities $ 1,015 6.10% $ 29,542 7.00% $ 29,607 5.73% $128,424 6.76% $188,588
======= ==== ======== ==== ======== ==== ======== ==== ========
12
The Company does not own securities of a single issuer whose aggregate book
value is in excess of 10% of its total equity.
ASSET / LIABILITY REPRICING
The interest rate gaps reported in the table below arise when assets are funded
with liabilities having different repricing intervals. Since these gaps are
actively managed and change daily as adjustments are made in interest rate views
and market outlook, positions at the end of any period may not reflect the
Company's interest rate sensitivity in subsequent periods. Active management
dictates that longer-term economic views are balanced against prospects for
short-term interest rate changes in all repricing intervals. For purposes of the
analysis below, repricing of fixed-rate instruments is based upon the
contractual maturity of the applicable instruments. Actual payment patterns may
differ from contractual payment patterns.
BY REPRICING INTERVAL
----------------------------------------------------------------------------------
After three
Within months, After one Noninterest-
three Within year, within After bearing
(Dollars in thousands) months one year five years five years Funds Total
----------------------------------------------------------------------------------
ASSETS
Federal funds sold $ 1,415 $ - $ - $ - $ - $ 1,415
Time deposits at other institutions - 100 - - - 100
Investment securities 5,736 6,505 37,993 138,354 2,464 191,052
Loans 182,296 56,865 116,150 57,353 - 412,664
Noninterest-earning assets and
allowance for loan losses - - - - 77,790 77,790
-------- --------- --------- --------- ---------- ----------
Total assets $ 189,447 $ 63,470 $ 154,143 $ 195,707 $ 80,254 $ 683,021
======== ========= ========= ========= ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ - $ - $ - $ - $ 107,581 $ 107,581
Savings, money market & NOW deposits 268,594
268,594 - - - -
Time deposits 94,979 100,173 30,171 - - 225,323
Other interest-bearing liabilities 13,272 6,000 - 3,155 - 22,427
Other liabilities and shareholders'
equity - - - - 59,096 59,096
-------- --------- --------- --------- -------- ---------
Total liabilities and shareholders' $ 376,845 $ 106,173 $ 30,171 $ 3,155 $ 166,677 $ 683,021
equity ========= ========= ========= ======== ======== =========
Interest rate sensitivity gap $(187,398) $ (42,703) $ 123,972 $ 192,552 $(86,423) $ -
Cumulative interest rate sensitivity $(187,398) $(230,101) $(106,129) $ 86,423 $ - -
gap
13
LOAN PORTFOLIO
At December 31, 2000, the Company had approximately $144,480,000 in undisbursed
loan commitments. This compares with $101,847,000 at December 31, 1999. Standby
letters of credit were $1,320,000 and $2,674,000, at December 31, 2000 and
December 31, 1999. For further information about the composition of the
Company's loan portfolio see "ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" section entitled "Credit Risk
Management and Asset Quality," pages 14 through 15 of the Company's 2000 Annual
Report to Shareholders incorporated herein by reference.
The following table shows the composition of the loan portfolio of the Company
by type of loan on the dates indicated:
(Dollars in thousands) December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---------------------------------------------------------------------------------
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
Commercial, financial
and agricultural $ 155,952 $ 112,179 $ 87,245 $ 78,550 $ 71,786
Real estate -construction 30,133 11,926 13,840 12,657 13,923
Real estate - mortgage 141,575 120,978 96,957 70,802 57,098
Consumer installment 85,004 86,185 70,891 55,968 40,440
------ ------ ------ ------ ------
Total $ 412,664 $ 331,268 $ 268,933 $ 217,977 $ 183,247
========= ========= ========== ========== ==========
The table that follows shows the maturity distribution of the portfolio of
commercial and agricultural, real estate construction, real estate mortgage and
installment loans on December 31, 2000 by fixed and floating rate attributes:
December 31, 2000
-------------------------------------------------------------------
Within One to Over
(Dollars in thousands) ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -----
COMMERCIAL AND AGRICULTURAL
Loans with floating rates $ 67,958 $ 28,095 $ 16,485 $ 112,538
Loans with predetermined rates 6,766 20,265 16,383 43,414
--------------- ------------- -------------- -------------
Subtotal 74,724 48,360 32,868 155,952
REAL ESTATE--CONSTRUCTION
Loans with floating rates 20,931 1,822 4,325 27,078
Loans with predetermined rates 2,516 - 539 3,055
--------------- ------------- -------------- -------------
Subtotal 23,447 1,822 4,864 30,133
REAL ESTATE--MORTGAGE
Loans with floating rates 7,158 18,456 72,005 97,619
Loans with predetermined rates 3,938 3,370 36,648 43,956
--------------- ------------- -------------- -------------
Subtotal 11,096 21,826 108,653 141,575
CONSUMER INSTALLMENT
Loans with floating rates 14,034 8,520 - 22,554
Loans with predetermined rates 3,415 56,302 2,733 62,450
--------------- ------------- -------------- -------------
Subtotal 17,449 64,822 2,733 85,004
Total $ 126,716 $ 136,830 $ 149,118 $ 412,664
========== ========= ========= =========
The Company seeks to mitigate the risks inherent in its loan portfolio by
adhering to certain underwriting practices. They include analysis of prior
credit histories, financial statements, tax returns and cash flow
14
projections of its potential borrowers as well as obtaining independent
appraisals on real and personal property taken as collateral and audits of
accounts receivable or inventory pledged as security.
The Company also has an internal loan review process as well as periodic
external reviews. The results of these reviews are assessed by the Company's
audit committee. Collection of delinquent loans is generally the responsibility
of the Company's credit administration staff. However, certain problem loans may
be dealt with by the originating loan officer. The Directors Loan Committee
reviews the status of delinquent and problem loans on a monthly basis. The
Company's underwriting and review practices notwithstanding, in the normal
course of business, the Company expects to incur loan losses in the future.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following table summarizes nonperforming loans of the Company as of the
dates indicated:
(Dollars in thousands) DECEMBER 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
------- ------- ------- ------- -------
Nonaccrual loans $ 2,243 $ 1,984 $ 1,164 $ 2,611 $ 4,968
Accruing loans past due 90 days or more ------------- ------------- ---------- --------- -------
97 6 413 131 600
-- - --- --- ---
Total nonperforming loans 2,340 1,990 1,577 2,742 5,568
Other real estate owned 248 247 60 60 1,466
---------- ---------- ------------ -----------
Total nonperforming assets $ 2,588 $ 2,237 $ 1,637 $ 2,802 $ 7,034
======= ======= ======= ======= =======
Nonperforming loans to total loans 0.57% 0.60% 0.59% 1.26% 3.04%
Nonperforming assets to total assets 0.38% 0.40% 0.33% 0.66% 2.64%
Loans with significant potential problems or impaired loans are placed on
nonaccrual status. Management defines impaired loans as those loans, regardless
of past due status, in which management believes the collection of principal and
interest is in doubt. The amount of gross interest income that would have been
recorded in the periods then ended if the loans had been current in accordance
with the original terms and had been outstanding throughout the period or since
origination, if held for part of the period, was $224,000, $143,000, $91,000,
$189,000 and $489,000 in 2000, 1999, 1998, 1997 and 1996. The amount of interest
income on these loans that was included in net income was $79,000, $126,000,
$134,000, $471,000 and $625,000 in 2000, 1999, 1998, 1997 and 1996.
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table summarizes a breakdown of the allowance for loan losses by
loan category and the percentage by loan category of total loans for the dates
indicated:
(Dollars in thousands) December 31,
-----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------------------------
LOANS LOANS LOANS LOANS LOANS
% TO % TO % TO % TO % TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Commercial, financial
and agricultural $ 4,186 38% $ 3,365 34% $ 2,618 33% $ 1,868 36% $ 840 39%
Real estate -construction 451 7 358 4 376 5 640 6 1,421 8
Real estate - mortgage 2,076 34 1,815 36 1,260 36 1,058 32 219 31
Installment 1,494 21 1,004 26 521 26 267 26 312 22
------ --- ----- --- ------ --- ------- --- ------- ---
Total $ 8,207 100% $ 6,542 100% $ 4,775 100% $ 3,833 100% $ 2,792 100%
======= === ======= === ======= === ======= === ======= ===
15
OTHER INTEREST-BEARING ASSETS
The following table relates to other interest bearing assets not disclosed above
for the dates indicated. This item consists of a salary continuation plan for
the Company's executive management and a deferred compensation plan for
participating board members. The plans are informally linked with universal life
insurance policies containing cash surrender values as listed in the following
table:
December 31
--------------------------------------------
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Cash surrender value of life insurance $ 6,075 $ 5,792 $ 4,104
ITEM V DEPOSITS
The following table sets forth the average balance and the average rate paid for
the major categories of deposits for the years indicated:
Deposits
For the Year Ended December 31,
--------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998
---- ---- ----
Amount Yield Amount Yield Amount Yield
--------------------------------------------------------------
Noninterest-bearing demand deposits $ 86,706 -% $ 74,979 -% $63,243 -%
Interest-bearing demand deposits 74,663 0.67 68,134 0.67 57,602 0.87
Savings deposits 178,279 3.98 174,301 3.30 156,956 3.63
Time deposits under $100,000 114,422 5.78 90,586 4.73 86,020 5.34
Time deposits $100,000 and over 83,761 6.00 50,911 5.48 26,535 5.84
MATURITIES OF TIME CERTIFICATES OF DEPOSITS OF $100,000 OR MORE
Maturities of time certificates of deposits of $100,000 or more outstanding at
December 31, 2000 are summarized as follows:
(Dollars in thousands)
Remaining Maturity:
Three months or less $ 45,233
Over three through six months 20,643
Over six through twelve months 16,526
Over twelve months 11,252
--------
Total $ 93,654
========
16
ITEM VI RETURN ON EQUITY AND ASSETS
The following table sets forth certain financial ratios for the periods
indicated (averages are computed using actual daily figures):
RETURN ON AVERAGE EQUITY AND ASSETS
For the year ended
December 31,
-------------------------------------------
1999 1999 1998
----- ----- -----
Return on average assets 1.09 % 0.99 % 0.60 %
Return on average equity 14.33 11.86 6.48
Dividend payout ratio - - -
Average equity to average assets 7.64 % 8.35 % 9.26 %
MARKET FOR COMPANY'S COMMON STOCK AND RELATED STOCK MATTERS
The Company's stock is included for quotation on the Nasdaq National Market
System with a stock quotation symbol of CCOW. The following table indicates the
range of high and low bid prices for the period shown, based upon information
provided by the Nasdaq National Market System. Such over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily reflect actual transactions. There were
approximately 3,000 CCOW shareholders as of December 31, 2000.
- ---------------- ----------------- ----------------
2000 High Low
- ---------------- ----------------- ----------------
4th quarter $ 12.00 $ 10.63
3rd quarter 11.88 10.38
2nd quarter 10.75 8.13
1st quarter $ 10.75 $ 7.75
1999 High Low
- ---------------- ----------------- ----------------
4th quarter $ 12.00 $ 8.50
3rd quarter 13.88 12.00
2nd quarter 14.09 9.75
1st quarter $ 10.75 $ 8.50
- ---------------- ----------------- ----------------
17
ITEM 2. PROPERTIES
THE BANK
(1) NORTH MERCED OFFICE
The Bank's north Merced office is located at 490 West Olive Avenue in Merced
with approximately 5,600 square feet of interior floor space. This building was
constructed in 1978 at a cost of approximately $400,000 and is situated on a lot
of approximately 47,000 square feet, which the Bank purchased in 1977 for
approximately $186,000. Management believes that this facility will be adequate
to accommodate the operations of this branch for the foreseeable future.
(2) DOWNTOWN MERCED BRANCH AND ADMINISTRATIVE HEADQUARTERS
On September 2, 1997, the Bank relocated its downtown Merced branch to 550 West
Main Street in Merced where it serves as the main branch of the Bank. The
facility is a three story facility with a two story attached parking facility
and is approximately 29,000 square feet. Approximately 19,800 square feet is
occupied by the administrative and central support functions. The facility cost
was approximately $5.1 million. Management believes that this facility will be
adequate to accommodate the operations of Company for the foreseeable future.
(3) ATWATER BRANCH
On October 5, 1981, the Bank opened a branch office at 735 Bellevue Road,
Atwater. The building contains approximately 6,000 square feet of interior floor
space, and was built at a total cost of approximately $500,000. In 1994, the
Bank purchased the lot at a cost of $316,000. Management of the Bank believes
that this facility will be adequate to accommodate the operations of this branch
for the foreseeable future. The data processing and central service support
personnel and related equipment were relocated to the new facility in downtown
Merced, as discussed above in late 1997.
(4) LOS BANOS BRANCH
In October of 1994, the Bank opened a full service banking facility relocated at
953 W. Pacheco Boulevard, Los Banos. The Bank entered into a ten-year lease with
a non-affiliated third party on the facility. The new facility contains 4,928
square feet of interior floor space. Remodeling and redecorating expenses were
approximately $355,000. Management believes that this facility will be adequate
to accommodate the operation of the branch for the foreseeable future.
(5) HILMAR BRANCH
On November 15, 1993, the Bank opened a branch office at 8019 N. Lander Avenue,
Hilmar. The building was purchased at a cost of $328,000 and consists of a
single story building of approximately 4,456 square feet of interior floor
space. Remodeling and redecorating expenses were approximately $53,000.
Management believes that this facility will be adequate to accommodate the
operation of this branch for the foreseeable future.
(6) SONORA BRANCH
On January 12, 1996, the Bank received approval to open a full service banking
facility at the Crossroads Shopping Center and entered into a five-year lease
with a non-affiliated third party on January 12, 1996 for a 2,500 square foot
facility. The branch opened April 1, 1996. On August 28, 1998, the Bank
relocated from the Crossroads Shopping Center to a larger facility of 3,131
square feet in a nearby shopping center. As part of the move the Bank entered
into a ten-year lease with a non-affiliated third party. Management believes
that this facility will be adequate to accommodate the operation of this branch
for the foreseeable future.
(7) TURLOCK BRANCHES
On September 1, 1995, the Bank opened a branch in Turlock, California. In May
1995 the Bank acquired 2 lots for $297,000 at 2001 Geer Road, Turlock. The Bank
completed the construction of a permanent facility in February 1997 at a cost of
approximately $694,000 and the facility is approximately 3,300 square feet.
Management believes that this facility will be adequate to accommodate the
operation of this branch for the foreseeable future.
18
In November, 1999, the Bank received approval to convert the Turlock Town and
Country branch into a full service County Bank branch. The current lease on this
facility covers a two year term with a non-affiliated third party, was entered
into on February 12, 2000, and is for an approximate 2,160 square feet located
at 410 East Olive Avenue in Turlock. Management believes that this facility will
be adequate to accommodate the operation of this branch for the foreseeable
future.
(8) MODESTO BRANCHES
On January 24, 1996, the Bank received approval to open a full service banking
facility in Modesto and entered into a ten-year lease with a non-affiliated
third party on December 2, 1996 for an approximately 5,413 square foot building
at 3508 McHenry Avenue, Modesto. The branch opened for business on December 10,
1996. Management believes that this facility will be adequate to accommodate the
branch for the foreseeable future.
On September 26, 1996, the Bank renewed the lease on the branch in downtown
Modesto and entered into a four-year lease with a non-affiliated third party on
December 1, 1996 for an approximately 8,208 square foot building at 1003 12th
Street, Modesto. The branch opened for business on December 31, 1996. Management
believes that this facility will be adequate to accommodate the banking
operation for the foreseeable future.
(9) ACQUIRED BRANCHES - DOS PALOS, LIVINGSTON, AND MARIPOSA
On December 11, 1997, the Bank purchased the sites of three former branches of
Bank of America. These facilities are located at 640 Main Street, Livingston,
1507 Center Street, Dos Palos and 5121 Hwy 140, Mariposa. The branch in
Livingston was purchased at a cost of $251,000 and is a 5,699 square feet
facility. The Dos Palos branch was purchased at a cost of $296,000 and is an
8,274 square feet facility. The Mariposa branch was purchased for a cost of
$313,000 and is a 4,200 square feet facility. Management believes that these
facilities will be adequate to accommodate the banking operation for the
foreseeable future.
(10) MADERA BRANCH
In October, 1999, the Bank entered into a 3 year lease with a nonaffiliated
third party for an approximate 4,000 square foot facility located at 413
Yosemite Avenue, Suite 101, Madera, California. The branch relocated to this
larger facility on October 29, 1999 from a temporary facility that was rented on
a month to month basis. Management believes the new facility will be adequate to
accommodate the banking operation for the foreseeable future.
(11) FRESNO BRANCHES
In November, 1999, the Bank received approval to convert the Fresno Town and
County branch into a full service County Bank office. The Bank relocated the
previous Thrift office to a larger facility, entering into a 4 year lease with a
nonaffiliated party for an approximate 5,200 square foot facility located at
2150 West Shaw Avenue, Fresno, California. The new lease agreement was entered
into in August, 1999. Management believes the facility will be adequate to
accommodate the banking operation for the foreseeable future.
In September, 2000, the Bank opened a second full service office. The Bank
entered into a 10 year lease with a nonaffiliated party for approximately a
4,755 square foot facility located at 1330 Ease Shaw Avenue, Fresno, California.
The new lease became effective July 1, 2000. Management believes the facility
will be adequate to accommodate the banking operation for the foreseeable
future.
(12) VISALIA BRANCH
In November, 1999, the Bank received approval to convert the Visalia Town and
Country branch into a full service County Bank office. The Town and Country
lease signed in May, 1998 covered a five year term and was assumed by County
Bank. The facility encompasses approximately 1,275 square feet located at 725
West Main Street, Visalia, California. During 2001, an application to close this
branch was approved and the branch was closed effective March, 2001. The Bank is
obligated to continue making lease payments on this building during the
remainder of the lease term.
19
(13) SAN FRANCISCO BRANCH
In January, 2001, the Bank opened a loan production office in San Francisco,
California. The current facility is located at 130 Battery Street in San
Francisco. Effective March 1, 2001, the Bank entered into a 5 year lease with a
nonaffiliated party for approximately 2,880 square feet of office space.
Management believes the facility will be adequate to accommodate the loan
production operations in San Francisco for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2000, the Company, is not a party to, nor is any of it's
property the subject of, any material pending legal proceedings, nor are any
such proceedings known to be contemplated by government authorities.
The Company is, however, exposed to certain potential claims encountered in the
normal course of business. In the opinion of Management, the resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations in the foreseeable future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in the
quarter ended December 31, 2000.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
For information concerning the market for the Company's common stock and related
shareholder matters, see page 19 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
For selected consolidated financial data concerning the Company, see page 9 of
the Company's 2000 Annual Report to Shareholders incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For management's discussion and analysis of financial condition and results of
operations, see pages 10 through 20 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference.
ITEM 7A. MARKET RISK
For management's discussion and analysis of market risk and interest rate risk
management, see pages 17 through 18 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited Consolidated Balance Sheets as of December 31, 2000 and 1999 and Audited
Consolidated Statements of Income and Comprehensive Income, Shareholders' Equity
and Cash Flows for the fiscal years ending December 31, 2000, 1999, and 1998
appear on pages 22 through 25 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference. Notes to the Consolidated
Financial Statements appear on pages 26 through 44 of the Company's 2000 Annual
Report to Shareholders incorporated herein by reference. The Independent
Auditors' Report appears on page 21 of the Company's 2000 Annual Report to
Shareholders incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in and there were no disagreements with accountants on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by Securities and Exchange Commission's rules relating to Form
10-K, the information called for by this item is incorporated by reference from
the section of the Company's 2000 Proxy Statement titled "Election of
Directors," which is to be filed on or about March 15, 2001.
ITEM 11. EXECUTIVE COMPENSATION
As permitted by Securities and Exchange Commission, the information called for
by this item is incorporated by reference from the section of the Company's 2000
Proxy Statement titled "Information Pertaining to Election of Directors," which
is to be filed on or about March 15, 2001.
21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As permitted by Securities and Exchange Commission's rules relating to Form
10-K, the information called for by this item is incorporated by reference from
the Company's Proxy Statement, which is to be filed on or about March 15, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by Securities and Exchange Commission's rules relating to Form
10-K, the information called for by this item is incorporated by reference from
the Company's Proxy Statement, which was filed on or about March 15, 2001.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.
(a) FINANCIAL STATEMENTS AND SCHEDULES
An index of all financial statements and schedules filed as part of this
Form 10-K appears below and the material which begins on the pages of the
Company's Annual Report to Shareholders for the year ended December 31, 2000
listed, are incorporated herein by reference in response to Item 8 of this
report.
- ----------------------------------------------------------------------------------------- -------------------
FINANCIAL STATEMENTS: PAGE
- -------------------- ----
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Independent Auditors' Report 21
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Consolidated Balance Sheets as of December 31, 2000 and 1999 22
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Consolidated Statements of Income and Comprehensive Income for the Years Ended 2000, 23
1999, and 1998
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Consolidated Statements of Shareholders' Equity for the Years Ended 2000, 1999, and 1998 24
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Consolidated Statements of Cash Flows for the Years Ended 2000, 1999, and 1998 25
- ----------------------------------------------------------------------------------------- -------------------
- ----------------------------------------------------------------------------------------- -------------------
Notes to Consolidated Financials 26
- ----------------------------------------------------------------------------------------- -------------------
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed in the quarter ending
December 31, 2000.
(c) EXHIBITS
The following is a list of all exhibits required by Item 601 of
Regulation S-K to be filed as part of this Form 10-K:
- --------------- ------------------------------------------------------------------------- -------------------
Sequentially
Exhibit Numbered
NUMBER EXHIBIT PAGE
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
3.1 Articles of Incorporation (filed as Exhibit 3.1 of the Company's
September 30, 1996 Form 10-Q filed with the SEC on or about
November 14, 1996).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
3.2 Bylaws (filed as Exhibit 3.2 of the Company's September 30, 1996
Form 10-Q filed with the SEC on or about November 14, 1996)
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10 Employment Agreement between Thomas T. Hawker and
Capital Corp. of the West *
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
22
- --------------- ------------------------------------------------------------------------- -------------------
Sequentially
Exhibit Numbered
NUMBER EXHIBIT PAGE
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.1 Administration Construction Agreement (filed as Exhibit 10.4 of
the Company's 1995 Form 10-K filed with the SEC on or about
March 31, 1996).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.2 Stock Option Plan (filed as Exhibit 10.6 of the Company's 1995
Form 10-K filed with the SEC on or about March 31, 1996).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.3 401(k) Plan (filed as Exhibit 10.7 of the Company's 1995 Form
10-K filed with the SEC on or about March 31, 1996).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.4 Employee Stock Ownership Plan (filed as Exhibit 10.8 of the
Company's 1995 Form 10-K filed with the SEC on or about March
31, 1996).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.5 Purchase Agreement for three branches from Bank of America is
incorporated herein by reference from Exhibit 2.1 Registration
Statement on Form S-2 filed July 14, 1997, File No. 333-31193.
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.6 Change-in-Control Agreement between R. Dale McKinney and Capital Corp *
of the West (filed as Exhibit 10.6 of the Company's 1999 Form 10-K
with the SEC on or about March 17, 2000).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.7 Deferred Compensation Agreement between members of the board of *
directors and Capital Corp of the West (filed as exhibit 10.7 of the
Company's 1999 Form 10-K with the SEC on or about March 17, 2000).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
10.8 Executive Salary Continuation Agreement between certain members of *
executive management and Capital Corp of the West (filed as Exhibit
10.8 of the Company's 1999 Form 10-K with the SEC in or about March 17,
2000).
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
11 Statement Regarding the Computation of Earnings Per Share is
incorporated herein by reference from Note 1 of the Company's
Consolidated Financial Statements.
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
13 Annual Report to Security Holders.
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
23 Independent Auditor's Consent Letter.
- --------------- ------------------------------------------------------------------------- -------------------
- --------------- ------------------------------------------------------------------------- -------------------
* Denotes management contract or compensatory plan arrangement.
- --------------- ------------------------------------------------------------------------- -------------------
(d) FINANCIAL STATEMENT SCHEDULES
All other supporting schedules are omitted because they are not applicable,
not required, or the information required to be set forth therein is
included in the financial statements or notes thereto incorporated herein by
reference.
Consent of accountant (for incorporation by reference of report of
accountants into form S-8 registration statement.)
23
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, as amended, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 15th day
of March, 2001.
CAPITAL CORP OF THE WEST
By: /S/ THOMAS T. HAWKER
------------------------------
THOMAS T. HAWKER
(President and Chief Executive Officer
of Capital Corp of the West)
By: /S/ R. DALE MCKINNEY
-----------------------------------
R. DALE MCKINNEY
(Executive Vice President and Chief Financial Officer
of Capital Corp of the West)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
/S/ LLOYD H. ALHEM Director March 15, 2001
- -------------------
LLOYD H. ALHEM
/S/ DOROTHY L. BIZZINI Director March 15, 2001
- ----------------------
DOROTHY L. BIZZINI
/S/ JERRY E. CALLISTER Director March 15, 2001
- ----------------------
JERRY E. CALLISTER
/S/ JOHN FAWCETT Director March 15, 2001
- ----------------
JOHN FAWCETT
/S/ THOMAS T. HAWKER Director/CEO and March 15, 2001
- --------------------
THOMAS T. HAWKER Principal Operations Officer
/S/ BERTYL W. JOHNSON Director March 15, 2001
- ---------------------
BERTYL W. JOHNSON
/S/ JAMES W. TOLLADAY Chairman of the March 15, 2001
- ---------------------
JAMES W. TOLLADAY Board of Directors
/S/ CURTIS RIGGS Director March 15, 2001
- ----------------
CURTIS RIGGS
24
/S/ TOM A.L. VAN GRONINGEN Director March 15, 2001
- --------------------------
TOM A.L. VAN GRONINGEN