Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(NO FEE REQUIRED)
For the transition period from: to
Commission file number: 0-19231
REDWOOD EMPIRE BANCORP
------------------------------------------------------------
(Exact number of Registrant as specified in its charter)
California 68-0166366
---------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
111 Santa Rosa Avenue, Santa Rosa, California 95404-4905
---------------------------------------------- ----------
(Address of principal executive officers) (Zip Code)
Registrant's telephone number, including area code: (707) 545-9611
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------------- -----------------------
Common Stock American Stock Exchange
7.80% Noncumulative Convertible American Stock Exchange
Perpetual Preferred Stock, Series A
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
--- ---
The aggregate market value of the Registrant's common stock held by
non-affiliates on March 1, 1996 (based on the closing sale price of the Common
Stock on the American Stock Exchange on such date) was $16,740,441.
As of March 1, 1996 there were outstanding 2,679,227 shares of the
Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders (see Part II, Items 5, 6, 7, and 8; and
Part IV, Item 14).
2. Definitive Proxy Statement (see Part III, Items 10, 11, and 12).
1
TABLE OF CONTENTS
-----------------
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .
24
Item 4. Submission of Matters to A Vote of Securities Holders. . . . . . . 24
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . 25
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . 26
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . 26
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . 26
Item 12. Security Ownership of Certain Beneficial Owners and Management . . 26
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . 27
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K. 27
2
PART I
ITEM 1. BUSINESS
Redwood Empire Bancorp ("Redwood," and with its subsidiaries, the
"Company") is a financial institution holding company headquartered in Santa
Rosa, California, and operating in Northern and Central California through two
principal subsidiaries: National Bank of the Redwoods, a national bank ("NBR"),
and Allied Bank, F.S.B., a federal savings bank ("Allied").
(a) GENERAL DEVELOPMENT OF BUSINESS.
Redwood is a California corporation, headquartered in Santa Rosa,
California. Its wholly-owned subsidiaries are NBR, a national bank which was
chartered in 1985, and Allied, a federal savings bank which was chartered in
1986. In addition, NBR has two wholly-owned subsidiaries, NBR Mortgage Company,
Inc. and Redwood Empire Datacorp. Redwood was created by NBR in August 1988, in
order to become a bank holding company through the acquisition of all of NBR's
outstanding shares. That transaction was consummated in January 1989. Redwood
acquired Allied in September 1990, through a tax-free reorganization in which
Redwood exchanged shares of its stock for all of the outstanding shares of
Allied. The acquisition of Allied was accounted for as a pooling of interests
for financial reporting purposes.
On October 31, 1992, Lake Savings and Loan Association, a one-branch
California chartered savings and loan based in Lakeport, California ("Lake"),
was purchased for approximately $2,300,000 in cash, and merged into Allied. At
the time of its acquisition Lake had total assets of approximately $41 million.
The acquisition was accounted for as a purchase.
On November 4, 1994, Codding Bank, a multiple-branch California chartered
bank based in Rohnert Park, California ("Codding"), was purchased for $7,028,000
in cash, including merger related expenses, and merged into NBR. At the merger
date, the fair value of the assets acquired totalled approximately $42 million.
(See Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA NOTE C OF NOTES TO
THE CONSOLIDATED FINANCIAL STATEMENTS OF REDWOOD EMPIRE BANCORP.") The
acquisition was accounted for as a purchase.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
During the year ended December 31, 1995, the Company operated in two
principal industry segments: commercial banking and mortgage banking. Commercial
banking activities include all other services provided by the Company, including
portfolio lending, the origination for sale and servicing of Small Business
Administration loans, various deposit programs and numerous fee-based services.
The Company's mortgage banking activities relate principally to the origination
for sale, servicing of loans sold to investors, and sale and purchase of
mortgage loans and servicing rights.
3
The Company's principal business lines, commercial banking and residential
mortgage banking, attempt to counterbalance the effects on the Company of
interest rate shifts. When interest rates decline, the Company anticipates
greater mortgage lending activity through mortgage refinancings and home
purchases. As business activity increases, the Company's commercial banking
business has the potential to increase interest margins and to expand its
commercial lending portfolio. See Item 8 "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA NOTE Q OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
OF REDWOOD EMPIRE BANCORP."
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The Company's principal targeted mortgage banking areas are Northern and
Central California, Oregon and Washington State. These areas are served by four
offices, all of which provide retail and wholesale lending. The Company's
targeted commercial banking market area includes the California counties north
of San Francisco. The Company provides these banking services through six
additional retail branches. At December 31, 1995, the Company's total assets
were $558 million.
Commercial banking loans are generally extended to professionals and to
businesses with annual revenues of less than $10 million. Commercial loans are
primarily for working capital, asset acquisition, or commercial real estate.
The Company, a Preferred Lender under the Small Business Administration loan
program, makes loans, a portion of which are guaranteed by the Small Business
Administration ("SBA"), and sells the guaranteed portions of such loans into the
secondary market. The Company also finances construction loans to residential
home builders generally operating in Sonoma and Mendocino Counties. The Company
offers consumer loans and commercial construction loans, as well as various
deposit programs and numerous fee-based services. During 1995, the Company's
commercial banking operations generated revenues of approximately $47.9 million
and operating profits of approximately $7.6 million, as compared to operating
revenues and profits of approximately $32.6 million and $6.9 million in 1994 and
$24.9 million and $4.2 million in 1993.
4
The Company's mortgage banking business originates one-to-four unit
residential first mortgage loans. Such residential mortgage loans are
predominantly conforming loans; that is, such loans are underwritten using
standards set by Fannie Mae or Freddie Mac. Such conforming mortgage loans are
readily saleable to Fannie Mae or Freddie Mac, or into the national secondary
mortgage market. A combination of declining mortgage rates during 1992 and
1993, as well as the Company's increased penetration of the Northern and Central
California mortgage market, produced significant growth in the Company's
mortgage banking operations during 1992 and 1993. During 1994, however,
increases in interest rates sharply curtailed refinancing activity and the
residential mortgage market shifted towards adjustable rate mortgages. As a
result, the Company's mortgage banking loan originations declined sharply in
1994, as compared to rapid increases in origination volumes in 1992 and 1993.
During 1995, the Company's mortgage banking originations totalled approximately
$840 million, a 22% decrease from 1994 originations of approximately $1.1
billion. The 1994 originations represented a decrease of 45% over the Company's
$1.9 billion of originations for 1993. In addition, the Company's origination
of fixed rate loans increased in 1995 to approximately 84% of originations as
opposed to 67% in 1994 and 91% in 1993. In 1995, the Company's mortgage banking
operations generated revenues of $16,089,000 as compared to $16,269,000 in 1994
and $21,537,000 in 1993. In 1995 the Company's mortgage operations generated an
operating profit of $138,000 compared to an operating loss of $9,821,000 in 1994
and an operating profit of $4,484,000 in 1993. (See Item 7 "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - NOTE Q OF NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF REDWOOD EMPIRE BANCORP".)
In addition to its lending activities, the Company has purchased mortgage
loan servicing rights from other institutions to augment and diversify its
income sources. Based on market conditions, the Company either retains or sells
the servicing on mortgage loans sold to institutional investors. At December
31, 1995 the Company's mortgage loan servicing portfolio aggregated
approximately $1.0 billion, an increase of approximately 9% from the size of the
portfolio as of December 31, 1994. The Company is also approved to offer
various other specialized products. It is an approved Fannie Mae/Freddie Mac
lender/servicer, a principal bank for VISA/Mastercard, and an approved lender of
the Federal Housing, Veterans and Farmers Home Administrations.
The primary sources of funds for the Company's lending programs are local
deposits, proceeds from loan sales, loan payments, and other borrowings by its
subsidiaries. The Company attracts deposits primarily from local businesses,
professionals and retail customers. These deposits are periodically
supplemented through insured certificates of deposit obtained directly by the
Company from other financial institutions located throughout the United States.
The Company generally does not purchase deposits through deposit brokers and had
no brokered deposits at December 31, 1995. In addition to deposits, the Company
obtains other borrowed funds through its membership in the Federal Home Loan
Bank of San Francisco (the "FHLB") and its retention of treasury tax and loan
funds at the Federal Reserve Bank of San Francisco.
The Company is regulated by various government agencies, with the primary
regulators being the Board of Governors of the Federal Reserve System (the
"FRB"), the Office of Thrift Supervision (the "OTS"), the Office of the
Comptroller of the Currency (the "OCC"), and the Federal Deposit Insurance
Corporation (the "FDIC").
5
The Company and its subsidiaries had 353 full-time-equivalent employees at
December 31, 1995. Redwood's headquarters are located at 111 Santa Rosa Avenue,
Santa Rosa, California 95404-4905, and its telephone number is (707) 545-9611.
PRIMARY MARKET AREA
The Company's deposit market area is Sonoma, Mendocino and
Lake Counties, California. In addition, Allied has wholesale mortgage loan
production offices in San Jose, San Ramon, Fresno, Santa Rosa, and
Sacramento, California and Portland, Oregon, which primarily originate loans
referred by independent mortgage brokers. The borrowers serviced through
these offices may be located throughout Northern California and the loans are
generally sold into the secondary market.
Sonoma, Mendocino and Lake Counties have benefited from
migration of population and businesses into the area, as well as growth in
established firms and industries. These counties have generally exceeded the
growth in population and economic activity of California as a whole.
INVESTMENT PORTFOLIO
The Company classifies its investment securities as held to
maturity or available for sale. The Company's intent is to hold all
securities held to maturity until maturity and management believes that the
Company has the ability to do so. Securities available for sale may be sold
to implement the Company's asset/liability management strategies and in
response to changes in interest rates, prepayment rates and similar factors.
The following table summarizes the maturities of the Company's debt
securities at their book value and their weighted average yields at December
31, 1995. Yields on tax-exempt securities have been computed on a
tax-equivalent basis. At December 31, 1995, the total market value of the
securities described below was $40,074,000.
After One Through After Five
Within One Year Five Years Years Total
----------------- ----------------- ----------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
----------------- ----------------- ----------------- -----------------
(dollars in thousands)
U.S. Government and agencies $ 7,966 5.85% $ 10,507 6.54% $ 11,981 6.17% $ 30,454 6.22%
Other bonds 2,035 5.08 4,985 5.83 2,600 7.30 9,620 6.07
-------- -------- -------- --------
Total $ 10,001 5.70% $ 15,492 6.31% $ 14,581 6.37% $ 40,074 6.18 %
-------- -------- -------- --------
-------- -------- -------- --------
6
The following table summarizes the book value of the Company's investment
securities held on the dates indicated:
December 31,
1995 1994 1993
------------------------------------
(in thousands)
U.S. Government and agencies $37,436 $31,910 $19,553
Other bonds and mortgage-backed securities 2.638 2,093 2,326
FHLB and FRB Stock 3,890 8,063 8,063
------------------------------------
Total $43,964 $42,066 $29,942
------------------------------------
------------------------------------
DEPOSIT STRUCTURE
The Company primarily attracts deposits from local businesses and
professionals, as well as through retail certificates of deposits, savings and
checking accounts. In addition to the Company's local depository offices, it
attracts certificates of deposit, primarily from financial institutions
throughout the nation, by publishing rates in national publications. These
certificates of deposit have often been attracted at interest rates below local
market retail deposit rates. The national deposit market is utilized to
supplement funding for the Company's mortgage banking activities and other
liquidity needs. There can be no assurance that this funding practice will
continue to provide deposits at attractive rates, or that applicable federal
regulations will not limit the Company's ability to attract deposits in this
manner. The Company generally does not purchase brokered deposits and had no
brokered deposits at December 31, 1995.
The following chart sets forth the distribution of the Company's average
daily deposits for the periods indicated.
Year Ended December 31,
1995 1994 1993
------------------ ------------------ ------------------
Amount Rate Amount Rate Amount Rate
------------------ ------------------ ------------------
(dollars in thousands)
Transaction accounts:
Interest bearing (1) $116,316 3.75% $114,266 3.22% $107,557 3.18%
Noninterest bearing 51,946 --- 44,283 --- 37,026 ---
Time 304,396 6.03 233,896 4.81 169,212 4.80
(1) Includes savings deposits, money market savings deposits, money market
demand deposits, and interest-bearing demand deposits.
7
The Company's time deposits of $100,000 or more had the following schedule
of maturities at December 31, 1995:
Amount
----------------
(in thousands)
Remaining Maturity:
Three months or less $49,769
Over three months to six months 21,351
Over six months to 12 months 28,080
Over 12 months 40,779
----------------
Total $139,979
----------------
----------------
Time deposits of $100,000 or more are generally from the Company's
institutional and business and professional customer base. The potential impact
on the Company's liquidity from the withdrawal of these deposits is considered
in the Company's asset and liability management policies, which attempt to
anticipate adequate liquidity needs through its management of investments,
federal funds sold, loan sales, or by generating additional deposits.
OTHER BORROWINGS
At December 31, 1995, the Company had FHLB short-term borrowings of
$23,000,000 with a weighted average interest rate of 6.24%, collateralized by
Allied's loan portfolio. Remaining available credit at December 31, 1995 was
$57,000,000 reflecting approximately 25% of Allied's assets at December 31,
1995. Advances are made on a short-term basis with a rolling maturity date and
are typically repaid within a 30-day period. On occasion, a borrowing is made
on a fixed maturity basis. In such instances, maturities do not extend beyond
one year. The highest amount of FHLB borrowings outstanding for a month-end
during the year was $112,150,000 at January 31, 1995. The average balance of
borrowings from the FHLB was $46,600,000, with a weighted average rate of 6.56%
during the year ended December 31, 1995.
REGULATION AND SUPERVISION
Federal Securities Laws. Redwood is subject to various federal securities
laws, including the Securities Act of 1933 (the "1933 Act") and the Securities
Exchange Act of 1934 (the "1934 Act"). The 1933 Act regulates the distribution
or public offering of securities, while the 1934 Act regulates trading in
securities that are already issued and outstanding. Both Acts provide civil and
criminal penalties for misrepresentations and omissions in connection with the
sale of securities, and the 1934 Act also prohibits market manipulation and
insider trading.
8
Redwood files annual, quarterly, and current reports with the Securities
and Exchange Commission (the "SEC"). In addition, Redwood's directors,
executive officers, and 5% or greater shareholders, and certain of the senior
officers of Redwood's subsidiaries are subject to further reporting requirements
under the 1934 Act, including obligations to submit to the SEC reports of
beneficial ownership of Redwood's securities.
THE EFFECT OF GOVERNMENTAL POLICIES AND REGULATIONS ON THE COMPANY. The
Company's overall earnings and growth, as well as that of NBR and Allied
individually, are affected not only by local market area factors and general
economic conditions, but also by government monetary and fiscal policies. For
example, the Board of Governors of the Federal Reserve System (the "FRB")
influences the supply of money through its open market operations in U.S.
Government securities, as well as by adjustments to the discount rates
applicable to borrowings by depository institutions and others. Such actions
influence the growth of loans, investments and deposits and also affect interest
rates charged on loans and paid on deposits. The nature and impact of future
changes in such policies on the Company's business and earnings cannot be
predicted.
Beginning with the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (the "FIRREA"), and following with Federal Deposit
Insurance Corporation Improvement Act of 1991 (the "FDICIA"), numerous
regulatory requirements have been placed on the banking and thrift industries in
the recent past, and additional changes have been and are being proposed. As a
consequence of the extensive regulation of commercial and mortgage banking and
thrift activities in the United States, the business of the Company is
particularly susceptible to being affected by enactment of federal and state
legislation which may have the effect of increasing or decreasing the cost of
doing business, modifying permissible activities, or enhancing the competitive
position of other financial institutions. Any change in applicable laws or
regulations could have a material adverse effect on the business and prospects
of the Company.
BANK HOLDING COMPANY REGULATION. Because of its ownership of NBR, Redwood
is a bank holding company subject to the Bank Holding Company Act of 1956, as
amended (the "BHCA"). Redwood reports to, registers with, and may be examined
by, the FRB, which also has the authority to examine Redwood's subsidiaries.
The FRB, which has significant supervisory and regulatory authority over
Redwood and its affiliates, requires Redwood to maintain certain levels of
capital. See "CAPITAL STANDARDS," below. The FRB also has the authority to
take enforcement action against any bank holding company that commits any unsafe
or unsound practice, or violates certain laws, regulations, or conditions
imposed in writing by the FRB. See "PROMPT CORRECTIVE ACTION AND OTHER
ENFORCEMENT MECHANISMS," below.
Under the BHCA, a company generally must obtain the prior approval of the
FRB before it exercises a controlling influence over, or acquires directly or
indirectly, more than 25% of the voting shares or substantially all of the
assets of any bank or bank holding company. Thus, Redwood may be required to
obtain the prior approval of the FRB before it or its subsidiaries may acquire,
merge or consolidate with any bank or bank holding company; any company seeking
to acquire or merge with Redwood also would be required to obtain the FRB's
approval.
9
Redwood is generally prohibited under the BHCA from acquiring ownership or
control of more than 5% of the voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than banking, managing banks, or providing services to affiliates of the
holding company. A bank holding company, with the approval of the FRB, may
engage, or acquire the voting shares of companies engaged, in activities that
the FRB has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. A bank holding company
must demonstrate that the benefits to the public of the proposed activity will
outweigh the possible adverse effects associated with such activity.
The FRB generally prohibits a bank holding company from declaring or paying
a cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowing or other arrangements that might
adversely affect a bank holding company's financial position. The FRB's policy
is that a bank holding company is expected to act as a source of financial
strength to its financial institution subsidiaries, and to commit resources to
support such subsidiaries even at the expense of any of its non-bank
subsidiaries, if necessary.
Transactions between Redwood and its subsidiaries are subject to a number
of other restrictions. FRB policies forbid the payment by bank subsidiaries of
management fees which are unreasonable in amount or exceed the fair market value
of the services rendered (or, if no market exists, actual costs plus a
reasonable profit). Additionally, a bank holding company and its subsidiaries
are prohibited from engaging in certain tie-in arrangements in connection with
the extension of credit, sale or lease of property, or furnishing of services.
Subject to certain limitations, depository institution subsidiaries of bank
holding companies may extend credit to, invest in the securities of, purchase
assets from, or issue a guarantee, acceptance, or letter of credit on behalf of,
an affiliate, provided that the aggregate of such transactions with affiliates
may not exceed 10% of the capital stock and surplus of the institution, and the
aggregate of such transactions with all affiliates may not exceed 20% of the
capital stock and surplus of such institution. Redwood may only borrow from
depository institution subsidiaries if the loan is secured by marketable
obligations with a value of a designated amount in excess of the loan. Further,
Redwood may not sell a low-quality asset to a depository institution subsidiary.
BANK REGULATION AND SUPERVISION. As a national bank, NBR is regulated,
supervised and regularly examined by the Office of the Comptroller of the
Currency (the "OCC"). Deposit accounts at NBR are insured by the Bank Insurance
Fund (the "BIF"), as administered by the Federal Deposit Insurance Corporation
(the "FDIC"), to the maximum amount permitted by law. NBR is also subject to
applicable provisions of California law, insofar as such provisions are not in
conflict with or preempted by federal banking law.
The OCC or the FDIC regulate or monitor virtually all areas of NBR's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, payment of dividends, establishment of branches, interest rates
chargeable on loans or payable on deposits, establishment of branches, mergers,
reorganizations, and the like. NBR is required by the OCC to prepare quarterly
reports on its financial condition and to conduct an annual audit of its affairs
in compliance with minimum standards and procedures prescribed by the OCC.
10
Under FDICIA, all insured institutions must undergo regular on-site
examination by their appropriate federal banking agency, which in the case of
NBR is the OCC. The cost of these examinations may be assessed against the
institution. Insured institutions are also required to submit annual reports to
the FDIC and their principal regulatory agency. FDICIA also requires the
federal regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions and their holding companies relating, among
other things, to (a) internal controls, including internal information and audit
systems, (b) loan documentation, (c) credit underwriting, (d) interest rate risk
exposure, and (e) asset quality.
National banks and their holding companies which have undergone a change in
control within two years, or which are deemed by the FRB or the OCC to be
troubled institutions must give the FRB or the OCC, respectively, thirty days'
prior notice of the appointment of any senior executive officer or director.
Within the thirty days the FRB or the OCC, as the case may be, may approve or
disapprove any such appointment.
THRIFT HOLDING COMPANY REGULATION. Because it controls Allied, which is a
federal savings bank, Redwood is also a savings and loan holding company within
the meaning of the Home Owners' Loan Act (the "HOLA"). As such, Redwood reports
to and is regulated, examined and supervised by the Office of Thrift Supervision
(the "OTS"). As a savings and loan holding company, Redwood is required to file
with the OTS an annual report and such additional information as the OTS may
require pursuant to the HOLA. The OTS may also conduct examinations of Redwood
and its subsidiaries.
Under the HOLA, Redwood is required to obtain the prior approval of the OTS
before it can acquire direct or indirect control over the business or
substantially all of the assets of another savings and loan or savings and loan
holding company; however acquisition of 5% or less of such an institution's
voting shares does not require the approval of the OTS. In considering such a
transaction, the OTS will consider not only the financial and managerial
resources of the prospective acquiror, but also the insurance risk posed by such
a transaction to the Savings Association Insurance Fund.
THRIFT REGULATION AND SUPERVISION. As a federal savings bank, Allied is
federally-chartered and subject to regulation, examination and general
supervision of its operations by the OTS. Savings institutions and their
directors, officers or employees failing to conform to OTS regulations,
policies, and directives may be sanctioned for noncompliance. The consent of
the OTS is required prior to any major corporate reorganization involving
Allied. The OTS requires an annual audit of all savings institutions by
independent accountants and, in connection with its own periodic examinations,
may revalue assets, based upon appraisals, and require establishment of specific
reserves based upon such revaluation. Deposit accounts with Allied are insured
by the Savings Association Insurance Fund ("SAIF") as administered by the FDIC
to the maximum amount permitted by law. As a member of the Federal Home Loan
Bank System, Allied may obtain collateralized advances from the FHLB for certain
purposes at favorable rates.
11
In 1993 the OTS amended its qualified thrift lender ("QTL") regulations to
require that at least 65% of the association's portfolio assets consist of
certain types of housing related investments for at least nine out of every
twelve consecutive months. Associations which fail the QTL test lose their
right to long-term Federal Home Loan Bank ("FHLB") advances and must either
limit their new activities and new branches to those permitted to a national
bank or convert to a bank charter. In addition, the OTS may limit or restrict
activities of a savings and loan holding company which it determines create a
serious risk for subsidiary savings associations. As of December 31, 1995,
Allied qualified as a QTL, substantially exceeding the QTL test.
CAPITAL STANDARDS. The FRB, the OCC, the OTS, and other federal banking
agencies have risk based capital adequacy guidelines intended to provide a
measure of capital adequacy that reflects the degree of risk associated with a
banking organization's operations for both transactions reported on the balance
sheet as assets and transactions, such as letters of credit and recourse
arrangements, which are reported as off balance sheet items. Under these
guidelines, nominal dollar amounts of assets and credit equivalent amounts of
off balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. government securities, to 100% for assets with relatively higher
credit risk, such as business loans.
A banking organization's risk based capital ratios are obtained by dividing
its qualifying capital by its total risk-adjusted assets and off balance sheet
items. The regulators measure risk-adjusted assets and off balance sheet items
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists of
common stock, retained earnings, noncumulative perpetual preferred stock and
minority interests in certain subsidiaries, less most other intangible assets.
Tier 2 capital may consist of a limited amount of the allowance for possible
loan and lease losses and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations imposed by the federal banking agencies. Since
December 31, 1992, the federal banking agencies have required a minimum ratio of
qualifying total capital to risk- adjusted assets and off balance sheet items of
8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off
balance sheet items of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
average total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to
rate banking organizations, the minimum leverage ratio of Tier 1 capital to
average total assets is 3%. It is improbable, however, that an institution with
a 3% leverage ratio would receive the highest rating by the regulators since a
strong capital position is a significant part of the regulators' rating. For
all banking organizations not rated in the highest category, the minimum
leverage ratio is at least 100 to 200 basis points above the 3% minimum. Thus,
the effective minimum leverage ratio, for all practical purposes, is at least 4%
or 5%. In addition to these uniform risk-based capital guidelines and leverage
ratios that apply across the industry, the regulators have the discretion to set
individual minimum capital requirements for specific institutions at rates
significantly above the minimum guidelines and ratios.
12
Savings associations (such as Allied) are also required to maintain minimum
tangible capital (generally the same as Tier 1 capital) of 1.5% of adjusted
total assets. Allied also has a minimum core capital ratio of 4% where core
capital is defined as Tier 1 capital to total assets. Allied had tangible and
core capital ratios of 6.26% as of December 31, 1995. During 1994, the OTS
issued a final rule regarding the types and amounts of intangible assets that
may be included in a savings association's capital for purposes of complying
with the minimum capital ratios. Under this rule, purchased mortgage servicing
rights ("PMSR's") and purchased credit card relationships ("PCCR's") may be
included in a savings association's regulatory capital but may not exceed, in
the aggregate, 50% of core capital, while PCCR's alone may not exceed 25% of
core capital. Savings associations may include in tangible capital the same
dollar amounts of PMSR's that they include in core capital.
As required by FDICIA, the OTS has added an interest rate risk component to
its risk-based capital rules. Under the new regulation, for which no effective
date has been set, any thrift institution regulated by the OTS deemed to have an
"above-normal" level of interest rate exposure will be required to deduct an
interest rate risk ("IRR") component from its total capital when determining its
compliance with the risk based capital requirements. An "above normal" level of
interest rate risk exposure is a projected decline in the association's net
portfolio value of assets and liabilities that is greater than 2% of assets
resulting from a projected two percentage point swing in interest rates. The
IRR component will equal one-half of the difference between the institution's
measured interest rate exposure and the level of exposure deemed "normal."
Financial institutions subject to these regulations, including Allied but not
NBR or Redwood, are required to file IRR-related data with the OTC, which the
OTC will use to calculate, on a quarterly basis, the institutions' interest rate
risk and IRR components. The IRR component to be deducted from capital is the
lowest of the IRR components so calculated for the previous three quarters
(commencing with the quarter ended September 30, 1994). At present, neither the
FRB nor the OCC has adopted an IRR-related amendment to its risk-based capital
rules, although it is anticipated that both agencies will publish new proposed
regulations for comment during 1996.
The following tables present the capital ratios for the Company, NBR and
Allied compared to the standards for well-capitalized depository institutions,
as of December 31, 1995.
Well- Minimum
Actual Capitalized Requirement
-----------------------------------------
COMPANY
Leverage 5.14% 5.00% 4.00%
Tier 1 risk-based 7.24 6.00 4.00
Total risk-based 11.68 10.00 8.00
NBR
Leverage 7.47 5.00 4.00
Tier 1 risk-based 9.41 6.00 4.00
Total risk-based 12.19 10.00 8.00
ALLIED
Core 6.26 5.00 4.00
Tier 1 risk-based 9.22 6.00 4.00
Total risk-based 10.47 10.00 8.00
13
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS. FDICIA requires
each federal banking agency to take prompt corrective action to resolve the
problems of insured depository institutions, including but not limited to those
that fall below one or more prescribed minimum capital ratios. The law required
each federal banking agency to promulgate regulations defining the following
five categories in which an insured depository institution will be placed, based
on the level of its capital ratios: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of FDICIA. An
insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
"WELL-CAPITALIZED"
Total risk-based capital of 10% or more;
Tier 1 risk-based ratio capital of 6% or more; and
Leverage ratio of 5% or more.
"ADEQUATELY CAPITALIZED"
Total risk-based capital of at least 8%;
Tier 1 risk-based capital of at least 4%; and
Leverage ratio of at least 4%.
"UNDERCAPITALIZED"
Total risk-based capital less than 8%;
Tier 1 risk-based capital less than 4%; or
Leverage ratio less than 4%.
"SIGNIFICANTLY UNDERCAPITALIZED"
Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 3%.
"CRITICALLY UNDERCAPITALIZED"
Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as well
capitalized, adequately capitalized or undercapitalized may be treated as though
it were in the next lower capital category if the appropriate federal banking
agency, after notice and opportunity for hearing, determines that an unsafe or
unsound condition or an unsafe or unsound practice warrants such treatment. At
each successive lower capital category, an insured depository institution is
subject to more restrictions. The federal banking agencies, however, may not
treat an institution as "critically undercapitalized" unless its capital ratio
actually warrants such treatment.
14
If an insured depository institution is undercapitalized, it will be
closely monitored by the appropriate federal banking agency. Undercapitalized
institutions must submit an acceptable capital restoration plan with a guarantee
of performance issued by the holding company. An undercapitalized depository
institution generally will not be able to acquire other banks or thrifts,
establish additional branches, or engage in any new lines of business unless
consistent with its capital plan. A "significantly undercapitalized"
institution will be subject to additional restrictions on its affiliate
transactions, the interest rates paid by the institution on its deposits, asset
growth, the compensation of its senior executive officers, and other activities
deemed to pose excessive risk to the institution. Regulators may also order a
significantly undercapitalized institution to hold elections for new directors,
terminate any director or senior executive officer employed for more than 180
days prior to the time the institution became significantly undercapitalized, or
hire qualified senior executive officers approved by the regulators. Further
restrictions and sanctions are required to be imposed on insured depository
institutions that are "critically undercapitalized." The most important
additional measure is that the appropriate federal banking agency is required to
either appoint a receiver for the institution within 90 days or obtain the
concurrence of the FDIC in another form of action.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease-and-desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a prima facie showing by the agency that such relief is
appropriate. Additionally, a holding company's inability to serve as a source
of strength to its subsidiary banking organizations could serve as an additional
basis for a regulatory action against the holding company.
SAFETY AND SOUNDNESS STANDARDS. FDICIA also implemented certain specific
restrictions on transactions and required the regulators to adopt overall safety
and soundness standards for depository institutions related to internal control,
loan underwriting and documentation, and asset growth. Among other things,
FDICIA limits the interest rates paid on deposits by undercapitalized
institutions, the use of brokered deposits and the aggregate extensions of
credit by a depository institution to an executive officer, director, principal
stockholder or related interest, and reduces deposit insurance coverage for
deposits offered by undercapitalized institutions for deposits by certain
employee benefits accounts.
In addition to the statutory limitations, FDICIA requires the federal
banking agencies to prescribe, by regulation, standards for all insured
depository institutions for such things as classified loans and asset growth.
In July 1992, the federal banking agencies issued a joint advance notice of
proposed rule making requesting public comment on the safety and soundness
standards. Although final regulations are required by law to be issued by
August 1, 1993 and to become effective no later than December 1, 1993, final
regulations have not yet been issued.
15
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The power of the board
of directors of an insured depository institution to declare a cash dividend or
other distribution with respect to capital is subject to statutory and
regulatory restrictions which limit the amount available for such distribution
depending upon the earnings, financial condition and cash needs of the
institution, as well as general business conditions. FDICIA prohibits insured
depository institutions from paying management fees to any controlling persons
or, with certain limited exceptions, making capital distributions, including
dividends, if, after such transaction, the institution would be
undercapitalized.
The payment of dividends by a national bank is further restricted by
additional provisions of federal law, which prohibit a national bank from
declaring a dividend on its shares of common stock unless its surplus fund
exceeds the amount of its common capital (total outstanding common shares times
the par value per share). Additionally, if losses have at any time been
sustained equal to or exceeding a bank's undivided profits then on hand, no
dividend shall be paid. Moreover, even if a bank's surplus exceeded its common
capital and its undivided profits exceed its losses, the approval of the OCC is
required for the payment of dividends if the total of all dividends declared by
a national bank in any calendar year would exceed the total of its net profits
of that year combined with its retained net profits of the two preceding years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock. A national bank must consider other business factors in
determining the payment of dividends. The payment of dividends by NBR is
governed by NBR's ability to maintain minimum required capital levels and an
adequate allowance for loan losses. Regulators also have the authority to
prohibit a depository institution from engaging in business practices which are
considered to be unsafe or unsound, possibly including payment of dividends or
other payments under certain circumstances even if such payments are not
expressly prohibited by statute. As of December 31, 1995, NBR had the ability
to dividend $4,328,000 to Redwood without prior regulatory approval.
16
Federal savings banks, such as Allied, which meet the minimum capital
requirements described above (see "CAPITAL STANDARDS," above) may distribute as
dividends up to 100% of their current net income plus an amount that would
reduce by one-half its surplus capital ratio at the beginning of the calendar
year. A federal savings bank which equals or exceeds current minimum capital
requirements may distribute up to 75% of its net income for the most recent four
quarters, depending upon its level of compliance with its risk-based capital
requirements. A federal savings bank not meeting minimum capital requirements
may not make any capital distribution without the prior written approval of the
OTS. In any event, the OTS must be given 30-days' advance written notice of all
proposed capital distributions by federal savings banks. Upon application, the
OTS may, in its discretion, allow capital distributions in excess of those
permitted by its regulations. In addition to the foregoing restrictions, in
1990 Redwood entered into a Capital Maintenance/Dividend Agreement (the "Capital
Maintenance Agreement") with the OTS as a condition to its acquisition of
Allied. Under the terms of the Capital Maintenance Agreement, Redwood may not
accept from Allied, or cause Allied to pay, any dividend (1) without the prior
written approval of the OTS if, and as long as, Allied's capital falls or
remains below the applicable minimum capital requirements of the OTS, (2) if
Allied's capital is below the current capital requirements of the OTS, or (3) if
payment of the dividend would cause Allied's capital to fall below the current
capital requirements of the OTS. In addition, the Capital Maintenance Agreement
prohibits Allied from paying dividends in excess of its cumulative net income
for the prior eight quarters, less cumulative dividends paid during that period,
without prior OTS approval, even when Allied's capital exceeds its capital
requirements. As of December 31, 1995, Allied had the ability to dividend
$2,329,000 to Redwood.
PREMIUMS FOR DEPOSIT INSURANCE AND ASSESSMENTS FOR EXAMINATIONS. FDICIA
established several mechanisms to increase funds to protect deposits insured by
the BIF administered by the FDIC. The FDIC is authorized to borrow up to $30
billion from the U.S. Treasury; borrow from the Federal Financing Bank up to 90%
of the fair market value of assets of institutions acquired by the FDIC as
receiver; and borrow from depository institutions that are members of the BIF.
Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. The result of these provisions is that
the assessment rate on deposits of BIF members could increase in the future.
FDICIA also provides authority for special assessments against insured deposits.
No assurance can be given at this time as to what the future level of premiums
will be.
17
As required by FDICIA, the FDIC adopted a transitional risk-based
assessment system for deposit insurance premiums which became effective
January 1, 1993. Under this system, depository institutions are charged
anywhere from 23 cents to 31 cents for every $100 in insured domestic deposits,
based on such institutions' capital levels and supervisory subgroup assignment.
The FDIC has adopted a permanent risk-based assessment system scheduled to take
effect on January 1, 1994, which incorporates the same basic rate structure.
The limited changes adopted by the FDIC are those it proposed in December 1992.
These amendments clarify the basis on which supervisory subgroup assignments are
made by the FDIC, eliminate from the assessment classification review procedure
the specific reference to an "informal hearing," provide for the assignment of
new institutions to the "well capitalized" assessment group, clarify that an
institution is to make timely adjustments as appropriate, clarify the basis, and
report data, on which capital group assignments are made for insured branches of
foreign banks, and expressly address the treatment of certain lifeline accounts
for which special assessment treatment is given. FDICIA prohibits assessment
rates from falling below the current annual assessment rate of 23 cents per $100
of eligible deposits if the FDIC has outstanding borrowings from the United
States Treasury Department or the 1.25% designated reserve ratio has not been
met.
During 1995, the FDIC announced that the BIF had reached its mandated
reserve level, reducing insurance premiums on BIF-insured deposits, and
subsequently announcing that deposit insurance premiums on BIF-insured deposits
would be reduced at December 31, 1995. The SAIF fund has not yet met its
mandated reserve level. As a result, deposit insurance premiums attributable to
BIF deposits are less than those attributable to SAIF deposits.
There are numerous regulatory proposals before Congress to address the
deposit insurance premium differential between BIF- and SAIF-insured deposits.
The most recent plans consist of one-time insurance premium charges attributable
to SAIF-insured deposits sufficient to bring the SAIF up to its mandated reserve
level, with a corresponding and immediate reduction in SAIF premiums thereafter.
Based on 87 basis points on Allied's deposits at March 31, 1995, the resulting
after-tax charge to the Company would be approximately $1,670,000. As both the
timing and final form of any proposed regulations remain uncertain, no
adjustments to the Company's financial statements have been recorded at December
31, 1995.
FDICIA requires all insured depository institutions to undergo a
full-scope, on-site examination by their primary federal banking regulator at
least once every 12 months. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate federal
banking agency against each institution or affiliate as it deems necessary or
appropriate.
RECENTLY ENACTED AND PROPOSED LEGISLATION. The United States Department of
the Treasury has issued a proposal to consolidate the federal bank regulatory
agencies. Under this proposal, the supervisory and regulatory oversight
authority of the FDIC, the FRB, the OCC, and the OTS would be transferred to a
new independent federal banking agency, although the FRB would continue to carry
out monetary and fiscal policy, discount window operations, and payments system
functions and the FDIC would continue to have oversight over the deposit
insurance funds. The Treasury Department may seek to introduce a bill in
Congress providing for such consolidation during 1995; however the proposal has
already been opposed by, among others, certain industry groups and the FRB,
which has suggested a competing consolidation plan which would preserve its
regulatory oversight authority. At the present time, due to the preliminary
nature of the proposals the Company cannot determine what, if any, effect such a
consolidation of regulatory agencies would have on its operations.
18
In September of 1994 the Riegle Community Development and Regulatory
Improvement Act (the "Riegle Act") and the Riegle-Neal Interstate Banking and
Branching Efficiency Act (the "Riegle-Neal Act") became law. The Riegle Act is
intended to reduce much of the federal red tape with which financial
institutions have had to contend, providing about fifty different kinds of
specific relief. Among other things, the Riegle Act requires the federal
regulatory agencies to set up regulatory appeals systems and an ombudsman
system, streamlines the examination process, simplifies the audit requirements
for CAMEL 1 or 2 rated institutions with less than $5 billion in assets,
requires the regulatory agencies to take into account the size and activities of
financial institutions in issuing certain risk-related capital rules,
streamlines the application process for bank holding company activities, and
simplifies certain Truth-in-Lending rules. The Riegle Act also provides for new
consumer protections with respect to certain high cost home mortgages, amends
securities, banking, pension, and tax laws to encourage securitization of small
business loans and the development of a secondary market for pools of such
loans, and permits lenders to participate in capital access programs designed to
encourage lenders to make loans to small and medium sized businesses.
The Riegle-Neal Act allows adequately capitalized and managed bank holding
companies, with the approval of the FRB, to acquire control of, or to acquire
all or substantially all of the assets of, banks in any State, commencing in
September of 1995. States are permitted, however, to pass legislation either
providing for earlier approval of such mergers or prohibiting interstate mergers
entirely. California had already adopted legislation permitting interstate
mergers. Additionally, the Riegle-Neal Act permits the federal bank regulatory
agencies to approve merger transactions between insured banks having different
home states, without regard to the laws of either of the States involved, unless
between September 1994 and June 1, 1997 one of the involved States has enacted a
law prohibiting expressly prohibiting merger transactions involving out-of-state
banks.
Bills are regularly introduced in the United States Congress which contain
wide-ranging proposals for altering the structures, regulations, and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or in what form any proposed legislation will be adopted, or the extent
to which the business of the Company may be affected by such legislation.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation" in October 1995, which the Company is required to adopt in 1996.
SFAS No. 123 establishes accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee compensation plans.
Under SFAS No. 123, the Company may either adopt the new fair value-based
accounting method or continue the intrinsic value-based method and provide pro
forma disclosures of net income and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company plans to adopt only the
disclosure requirements of SFAS No. 123; therefore such adoption will have no
effect on the Company's consolidated net earnings or cash flows.
19
FASB issued SFAS No. 122 "Accounting for Mortgage Servicing Rights," an
amendment of SFAS No. 65 in May 1995. SFAS No. 122 requires a mortgage banking
enterprise that purchases or originates mortgage loans with a definitive plan to
sell or securitize those loans and retain the mortgage servicing rights to
allocate the cost of the mortgage loans based on the relative fair values of the
mortgage loans and mortgage servicing rights at the date of purchase or
origination. Prior to SFAS No. 122, originated mortgage servicing rights were
not recognized for financial statement purposes with the entire cost of the
mortgage loan being allocated to the loan.
The Company early adopted SFAS No. 122 on January 1, 1995 as permitted.
The effect of adoption on the 1995 statement of operations was to increase gain
on sale of loans by $1,830,000 and net income by $857,000 ($.27 per
fully-diluted share). SFAS No. 122 prohibited the restatement of results for
prior years.
In May 1993, the FASB issued SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities. The Company adopted SFAS No. 115 at
December 31, 1993 and, accordingly, has classified its investment securities as
held to maturity or available for sale. Securities held to maturity are carried
at cost adjusted by the accretion of discounts and amortization of premiums.
The Company has the ability and intent to hold these investment securities to
maturity. Securities available for sale may be sold to implement the Company's
asset/liability management strategies and in response to changes in interest
rates, prepayment rates and similar factors. These securities are recorded at
market value and unrealized gains or losses, net of income taxes, are included
in shareholders' equity. Gain or loss on sale of investment securities is based
on the specific identification method.
During 1995, the FASB issued a Special Report, "A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities". The Special Report provided a one-time opportunity to reassess the
appropriateness of its designations of securities subject to the accounting and
reporting requirements of Statement 115, without calling into questions the
intent to hold other debt securities to maturity in the future. In accordance
with the Special Report, in December 1995, the Company transferred $20,709,000
in U.S. Government obligations with an unrealized gain of $145,000 from
held-to-maturity to available-for-sale.
On January 1, 1995, the Company adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure." These statements
address the accounting and reporting by creditors for impairment of certain
loans. In general, a loan is impaired when, based upon current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. These statements are
applicable to all loans, uncollateralized as well as collateralized, except
loans that are measured at the lower of cost or fair value. Impairment is
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate, except that as a practical expedient, the
Company measures impairment based on a loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. Loans are
measured for impairment as part of the Company's normal internal asset review
process. The effect of adopting SFAS 114 was not material to the Company's 1995
balance sheet or statement of operations.
20
COMPETITION
The Company competes for deposits and loans principally with major
commercial banks, other independent banks, savings and loan associations,
savings banks, thrift and loan associations, credit unions, mortgage companies,
insurance companies and other lending institutions. Among the advantages of the
larger of these institutions are their ability to make larger loans, finance
extensive advertising campaigns, access international money markets and to
generally allocate their investment assets to regions of highest yield and
demand. Major commercial banks, savings and loans in California, and certain
national mortgage companies operating in the Company's primary market area
dominate the commercial banking and mortgage banking industries with large
branch systems and loan production offices operating over a wide geographical
area.
In order to compete with the other financial institutions in its primary
market area, the Company relies principally upon local directors and employees,
extended hours and quick turnaround on loan requests. The Company's promotional
activities emphasize the advantages of dealing with a locally-owned and
headquartered institution attuned to the particular needs of the community. For
customers whose loan demands exceed the Company's lending limit, the Company
attempts to arrange for such loans on a participation basis with its
correspondent banks.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
Not applicable.
CERTAIN IMPORTANT CONSIDERATIONS FOR INVESTORS
MORTGAGE BANKING ACTIVITY. The Company is substantially dependent upon
mortgage banking activity, which can fluctuate significantly, in both volume and
profitability, with changes in interest rate movements. During 1992 and 1993,
the Company experienced a significant increase in mortgage banking activity as a
result of an increase in refinancing activity caused by declining interest
rates. During 1994, however, increases in interest rates curtailed refinancing
activity and the mortgage market shifted toward adjustable-rate mortgages used
to purchase homes. As a result, mortgage banking loan originations declined
sharply during 1994, compared to rapid increases in origination volumes during
1993 and 1992. Although the Company's mortgage banking originations were down
in 1995, the volume began to increase in the last half of 1995. The following
is a table of mortgage banking revenues and operating profits for the last three
years.
Year Ended December 31,
1995 1994 1993
-----------------------------------
(in thousands)
Revenue $16,089 $16,269 $21,537
Operating profit (loss) $138 ($9,821) $4,484
21
The Company seeks to minimize its interest rate by monitoring its exposure
to potential losses from shifts in interest rates on a daily basis and hedging
that exposure through the use of various financial instruments, including
derivatives. These investments include both written and purchased put and call
options and forward commitments to sell mortgage loans and mortgage-backed
securities to investors. The Company uses software developed by an independent
party to evaluate its daily hedging position and the potential impact of various
changes in interest rates. Interest rate fluctuations, however, can leave the
Company unable to adjust its hedging position in a timely manner, and could have
a material adverse effect on the Company's results of operations.
INTEREST RATE RISK. The Company's profitability may be adversely affected
by rapid changes in interest rates. The Company is substantially dependent on
mortgage banking activity, which can fluctuate significantly with interest rate
movements. The Company's ability to manage its net interest margin depends on
the volume of commercial loans compared to residential mortgage loans.
Additionally, the volume of adjustable rate mortgage loans ("ARMs") compared to
fixed rate mortgage loans can impact the net interest margin. ARMs can be
originated with initial rates at or below the cost of funding the loans and
reduce the net interest margin while the loans are held until the loans reprice.
A decline in net interest margin can result from fixed rate loans in a rising
rate environment as the Company's cost of funding loans rises. In a declining
rate environment, refinancing of fixed rate loans can inhibit an increase in the
net interest margin.
CONCENTRATION OF LENDING ACTIVITIES. Concentration of the Company's
lending activities in the real estate sector, including construction loans could
have the effect of intensifying the impact on the Company of adverse changes in
the real estate market in the Company's lending areas. At December 31, 1995,
approximately 82% of the Company's loans were secured by real estate, of which
22% were secured by commercial real estate, including small office buildings,
owner-user office/warehouses, mixed-use residential and commercial properties
and retail properties. Substantially all of the properties that secure the
Company's present loans are located within Northern and Central California. The
ability of the Company to continue to originate mortgage loans may be impaired
by adverse changes in local or regional economic conditions, adverse changes in
the real estate market, increasing interest rates, or acts of nature (including
earthquakes, which may cause uninsured damage and other loss of value to real
estate that secures the Company's loans. Due to the concentration of the
Company's real estate collateral, such events could have a significant adverse
impact on the value of such collateral or the Company's earnings.
22
DIVIDENDS. Beginning with the fourth quarter of 1992, Redwood paid a
quarterly dividend on its Common Stock each quarter until the fourth quarter of
1994, when the payment of Common Stock dividends was suspended indefinitely by
the Board of Directors. There can be no assurance that such dividend payments
will be resumed in the future. Federal regulatory agencies have the authority
to prohibit the payment of dividends by NBR and Allied to Redwood if a finding
is made that such payment would constitute an unsafe or unsound practice, or if
NBR or Allied became undercapitalized. If NBR or Allied are restricted from
paying dividends, Redwood could be unable to pay dividends on either its Common
or its Preferred Stock. In addition, the payment of dividends by Redwood is
limited by California law and subject to the discretion of the Board of
Directors of Redwood. No assurance can be given as to the ability of the
Company's subsidiaries to pay dividends to Redwood, the ability of Redwood to
continue or resume paying dividends in accordance with prior practice or at all,
or the determination by the Board of Directors that payment of any such dividend
will be appropriate under the circumstances. Under applicable law and
regulations, at December 31, 1995, Allied and NBR were able to pay up to
$4,531,000 and $4,328,000 in additional dividends to Redwood. See "REGULATION
AND SUPERVISION -- RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS," above.
GOVERNMENT REGULATION. Redwood and its subsidiaries are subject to
extensive federal and state governmental supervision, regulation and control,
and future legislation and government policy could adversely affect the
financial industry. Although the full impact of such legislation and regulation
cannot be predicted, future changes may alter the structure of and competitive
relationship among financial institutions. See "REGULATION AND SUPERVISION,"
above.
COMPETITION FROM OTHER FINANCIAL INSTITUTIONS. The Company competes for
deposits and loans principally with major commercial banks, other independent
banks, savings and loan associations, savings banks, thrift and loan
associations, credit unions, mortgage companies, insurance companies and other
lending institutions. With respect to deposits, additional significant
competition arises from corporate and governmental debt securities, as well as
money market mutual funds. The Company also depends for its origination of
mortgage loans on independent mortgage brokers who are not contractually
obligated to do business with the Company and are regularly solicited by the
Company's competitors. Aggressive policies of such competitors have in the past
resulted, and may in the future result, in a decrease in the Company's volume of
mortgage loan originations and/or a decrease in the profitability of such
originations, especially during periods of declining mortgage loan origination
volumes. Several of the nation's largest savings and loan associations and
commercial banks have a significant number of branch offices in the areas in
which the Company conducts operations. Among the advantages possessed by the
larger of these institutions are their ability to make larger loans, finance
extensive advertising campaigns, access international money markets and
generally allocate their investment assets to regions of highest yield and
demand. See "COMPETITION," above.
RISKS INVOLVED IN ACQUISITION STRATEGY. The Company has grown in
significant part through acquisitions of financial institutions, including
savings and loan companies and banks. The Company intends to continue its
policy of reviewing such opportunities as they present themselves, and to make
further acquisitions as strategically appropriate. Such acquisitions, including
the recent merger of Codding bank with and into NBR, involve risks of adversely
changing the Company's results of operations, unforeseen liabilities or asset
quality problems of the acquired entity, and unanticipated conditions not within
the Company's control, including among others adverse personnel relations, loss
of customers because of change of identity, and deterioration in local economic
conditions.
23
Management believes that the Company's potential growth in earnings will
depend in part on the successful development of future acquisition prospects.
Candidates for such future acquisitions may not prove to be available on terms
the Company believes to be favorable, however. Furthermore, state and Federal
regulatory agencies have the power to block, delay, or adversely condition such
acquisitions in the future, depending on the financial condition of Redwood, its
subsidiaries, and its potential acquisition targets. In pursuing its
acquisition strategy the Company must compete with a variety of individuals and
institutions, including major regional bank holding companies, for suitable
acquisition candidates. Such competition could affect the Company's ability to
make acquisitions, increase the price the Company may be forced to pay for
certain acquisitions in the future, and increase the Company's costs in
analyzing and negotiating such potential transactions.
STRATEGIC EVALUATION OF ALLIED. In an effort to increase shareholder value
the Board of Directors is currently evaluating strategic options relating to
Allied. These options include a sale or partial sale of Allied or a merger of
Allied into NBR. The ultimate resolution of this evaluation process and actions
stemming therefrom, if any, cannot currently be determined.
ITEM 2. PROPERTIES
The Company owns and leases certain premises and equipment used in the
normal course of business. There are no contingent rental payments and the
Company has three sublease arrangements. Total rental expenses under all
leases, including premises, totaled $2,172,000, $2,336,000 and $1,533,000, in
1995, 1994 and 1993. The expiration dates of the leases vary, with the last
such lease expiring during 2009.
The Company enters into leases for premises and equipment as the Company
expands its business. The Company maintains insurance coverage on its premises,
leaseholds and equipment, including business interruption and record
reconstruction coverage. Management believes that there are no premises
occupied that could not be relocated with minimal impact.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company to
which the Company is a party or to which any of its properties is subject,
except ordinary routine litigation incidental to the businesses of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of 1995.
24
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Redwood's Common Stock is publicly traded on the American Stock Exchange.
Market information for Redwood's Common Stock for the two most recent fiscal
years can be found under the heading "Quarterly Results" of the 1995 Annual
Report to Shareholders, and is by this reference incorporated herein. As of
March 1, 1996 there were 693 shareholders of record of Redwood's Common Stock.
Redwood declared quarterly cash dividends on its Common Stock at the rate
of $0.03 per share for the fourth quarter of 1992 and the first three quarters
of 1993. In the fourth quarter of 1993, the Common Stock dividend was increased
to $0.035 per share, and it remained at that level through the first three
quarters of 1994. The Common Stock dividend was suspended during the fourth
quarter of 1994. See Item 8 "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --
NOTE P OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF REDWOOD EMPIRE BANCORP,"
below.
Dividends from NBR and Allied are a primary source of cash for Redwood.
There are regulatory limitations on cash dividends that may be paid by NBR and
Allied to Redwood which could limit Redwood's ability to pay dividends. Federal
regulatory agencies have the authority to prohibit the payment of dividends by
NBR and Allied if a finding is made that such payment would constitute an unsafe
or unsound practice, or if NBR or Allied became critically undercapitalized.
Redwood is not subject to any prohibitions or limitations imposed on its ability
to pay dividends by any regulatory agency, although it has entered into a
Capital Maintenance/Dividend Agreement with the OTS with respect to the payment
of dividends by Allied. See Item 1(c) "NARRATIVE DESCRIPTION OF BUSINESS --
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS," above.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item can be found in the Company's 1995
Annual Report to Shareholders under the heading "Summary of Consolidated
Financial Data and Performance Ratios", and is by this reference incorporated
herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item can be found in the Company's 1995
Annual Report to Shareholders, and is by this reference incorporated herein.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements appear, together with the Notes
thereto and the independent auditors' report of Deloitte & Touche LLP dated
January 24, 1996 thereon, in the Company's 1995 Annual Report to
Shareholders, and are by this reference incorporated herein.
Supplementary data for each full quarter within the years ended December
31, 1995 and 1993, can be found in the Company's 1995 Annual Report to
Shareholders under the heading "Quarterly Results", and is by this reference
incorporated herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item can be found in Redwood's definitive
Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of
1934, and is by this reference incorporated herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item can be found in Redwood's definitive
Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of
1934, and is by this reference incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item can be found in Redwood's definitive
Proxy Statement pursuant to Regulation 14A under the Securities Exchange Act of
1934, and is by this reference incorporated herein.
26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
NBR leases 34,000 square feet of office space for its main office from 137
Group, a partnership that includes as a minority partner NBR director Richard
Colombini. The lease calls for payments of $62,455 per month plus annual rental
increases through November 1999. Total lease payments in 1995, 1994, and 1993
for this location were $851,000, $839,000 and $753,000, respectively.
(b) CERTAIN BUSINESS RELATIONSHIPS.
Except as disclosed elsewhere in this Item, management is not aware of any
business relationships required to be disclosed hereunder.
(c) INDEBTEDNESS OF MANAGEMENT.
Some of the Company's directors and executive officers and their immediate
families, as well as the companies with which they are associated, are customers
of or have had banking transactions with the Company in the ordinary course of
the Company's business, and the Company expects to have banking transactions
with such persons in the future. In management's opinion, all such loans and
commitments to lend were made in the ordinary course of business, in compliance
with applicable laws, on substantially the same terms, including interest rates
and collateral, as those prevailing for comparable transactions with other
persons of similar credit worthiness and, in the opinion of management, did not
involve more than a normal risk of collectibility or present other unfavorable
features. The Company has a strong policy regarding review of the adequacy and
fairness to the Company of loans to its directors and officers. At December 31,
1995, there were no outstanding balances under extensions of credit to directors
and executive officers of the Company and companies with which directors are
associated.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS.
The following consolidated financial statements of Redwood and its
subsidiaries, and independent auditors' report included in the Annual Report of
Redwood to its shareholders for the years ended December 31, 1995, 1994 and
1993, are incorporated herein by reference.
Independent Auditors' Report
Consolidated Financial Statements of Redwood Empire Bancorp
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
27
2. FINANCIAL STATEMENT SCHEDULES.
All financial statement schedules have been omitted, as inapplicable.
3. EXHIBITS.
The following documents are included or incorporated by reference in this
Annual Report on Form 10-K. Exhibits marked with an asterisk (*) represent
management contracts or compensatory plans or arrangements.
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Acquisition and Merger Agreement between National Bank of the Redwoods
and Codding Bank, dated June 21, 1994, including Exhibits A and B
thereto, filed as Exhibit 2.1 to the Registrant's Current Report on
Form 8-K dated June 21, 1994, and by this reference incorporated
herein.
2.2 Amendment No. 1 to Acquisition and Merger Agreement between National
Bank of the Redwoods and Codding Bank, dated September 21, 1994, filed
as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated
September 21, 1994, and by this reference incorporated herein.
3. Amended and restated By-Laws of the Registrant, filed as Exhibit 3 to
the Registrant's 1994 Annual Report on Form 10-K and by this reference
incorporated herein.
4.1 Form of Indenture (including form of Notes) between the Registrant and
the Bank of New York, as Trustee, relating to the issuance of 8.50%
Subordinated Notes due 2004, filed as Exhibit 4.1 to the Registrant's
Registration Statement on Form S-2 dated December 13, 1993
(Registration No. 33-71324), and by this reference incorporated
herein.
4.2 Certificate of Determination of the Rights, Preferences, Privileges
and Restrictions of the Registrant's 7.80% Noncumulative Convertible
Perpetual Preferred Stock, Series A, filed as Exhibit 4.1 to the
Registrant's Registration Statement on Form S-2 dated February 16,
1993 (Registration No. 33-56962), and by this reference incorporated
herein.
10.1* Severance Compensation Agreement between Allied Savings Bank, F.S.B.
and Terance O'Mahoney, filed as Exhibit 10.1 to the Registrant's 1990
Annual Report on Form 10-K and by this reference incorporated herein.
28
10.2* Amendment No. 1 to Severance Compensation Agreement between Allied
Savings Bank, F.S.B. and Terance O'Mahoney dated as of January 1,
1993, filed as Exhibit 10.2 to the Registrant's 1992 Annual Report on
Form 10-K and by this reference incorporated herein.
10.3* Employment Agreement between Allied Savings Bank, F.S.B. and Martin B.
McCormick, dated as of July 1, 1990, filed as Exhibit 10.5 to the
Registrant's 1992 Annual Report on Form 10-K and by this reference
incorporated herein.
10.4* Amendment No. 1 to Employment Agreement between Allied Savings Bank,
F.S.B. and Martin B. McCormick, dated as of January 1, 1993, filed as
Exhibit 10.6 to the Registrant's 1992 Annual Report on Form 10-K and
by this reference incorporated herein.
10.5* Employment Agreement between National Bank of the Redwoods and Patrick
W. Kilkenny, dated as of January 1, 1994, filed as Exhibit 10.7 to the
Registrant's 1993 Annual Report on Form 10-K and by this reference
incorporated herein.
10.6 Lease, dated August 30, 1988, between National Bank of the Redwoods
and 137 Group, a general partnership, filed as Exhibit 10.1 to the
Registrant's 1989 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.7 Lease, Dated April 18, 1990, between Allied Savings Bank, F.S.B. and
Stony Point West, General Partnership, filed as Exhibit 10.2 to the
Registrant's 1990 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.8* The Registrant's 401 (k) Profit Sharing Plan, filed as Exhibit 28.1 to
the Registrant's Registration Statement on Form S-8 dated June 12,
1990 (Registration No. 33-35377), and by this reference incorporated
herein.
10.9* The Allied Savings Bank, F.S.B. 1986 Stock Option Plan, filed as
Exhibit 28.1 to the Registrant's Registration Statement on Form S-8
dated June 28, 1991 (Registration No. 33-41503), and by this reference
incorporated herein.
10.10* The National Bank of the Redwoods Stock Option Plan, filed as Exhibit
28.1 to the Registrant's Post-Effective Amendment No. 1 to
Registration Statement on Form S-4 dated March 27, 1989 (Registration
No. 33-24642), and by this reference incorporated herein.
10.11* The Registrant's Amended and Restated 1991 Stock Option Plan, filed as
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8
filed on July 8, 1992 (Registration No. 33-49372), and by this
reference incorporated herein.
10.12* The Registrant's Performance Incentive Bonus Plan, filed as Exhibit
10.13 to the Registrant's 1992 Annual Report on Form 10-K, and by this
reference incorporated herein.
29
10.13 The Registrant's Dividend Reinvestment and Stock Purchase Plan, filed
as Exhibit 10.14 to the Registrant's 1992 Annual Report on Form 10-K,
and by this reference incorporated herein.
10.14* The Registrant's Phantom Stock Plan, filed as Exhibit 10.16 to the
Registrant's 1993 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.15* Phantom Stock Agreement between the Registrant and John H. Downey,
Jr., dated as of January 1, 1994, filed as Exhibit 10.17 to the
Registrant's 1993 Annual Report on Form 10-K, and by this reference
incorporated herein.
10.16* The Registrant's Executive Salary Continuation Plan, filed as Exhibit
10.9 to the Registrant's Registration Statement on Form S-2 dated
December 13, 1993 (Registration No. 33-71324), and by this reference
incorporated herein.
10.17* Director Retirement Plan, filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-2 dated December 13, 1993
(Registration No. 33-71324), and by this reference incorporated
herein.
10.18* Chairman Retirement Agreement, dated November 30, 1993, between the
Registrant and John H. Downey, Jr., filed as Exhibit 10.11 to the
Registrant's Registration Statement on Form S-2 dated December 13,
1993 (Registration No. 33-71324), and by this reference incorporated
herein.
10.19* Lease, dated December 23, 1993 between Allied Bank, F.S.B. and Santa
Rosa Corporate Center Associates II, filed as Exhibit 10.21 to the
Registrant's 1994 Annual Report on Form 10-K, and by this reference
incorporated herein.
11. Statement re Computation of Per Share Earnings.
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
12.2 Statement re Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends.
13. Annual Report to Security Holders.
21. Subsidiaries of the Registrant.
24. Consent of Deloitte & Touche LLP.
(b) REPORTS ON FORM 8-K.
The Company filed the following Current Reports on Form 8-K during the last
quarter of 1995:
1. On October 31, 1995 reporting the declaration of a quarterly dividend of
19.5 cents per share on the Registrant's 7.80% Noncumulative Convertible
Perpetual Preferred Stock.
30
2. On October 30, 1995 reporting the earnings for the quarter ended September
30, 1995.
(c) EXHIBITS.
See Item 14(a)3 and the Index to Exhibits.
(d) EXCLUDED FINANCIAL STATEMENTS
Not applicable.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REDWOOD EMPIRE BANCORP
By: /S/ JOHN H. DOWNEY, JR. Dated: March 5, 1996
-----------------------
John H. Downey, Jr.
Chairman of the Board
And By: /S/ PATRICK W. KILKENNY Dated: March 6, 1996
-----------------------
Patrick W. Kilkenny
President and Chief Executive Officer
(Principal Executive Officer)
And By: /S/ JAMES E. BECKWITH Dated: March 6, 1996
-----------------------
James E. Beckwith
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
And By: /S/ GALE D. BRIDGEMAN Dated: March 5, 1996
-----------------------
Gale D. Bridgeman
Vice President and Controller
(Principal Accounting Officer)
32
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/S/ ORLANDO J. ANTONINI Dated: March 11, 1996
- -----------------------------
Orlando J. Antonini, Director
/S/ HASKELL E. BOYETT Dated: March 5, 1996
- -----------------------------
Haskell E. Boyett, Director
/S/ JOHN H. DOWNEY, JR. Dated: March 5, 1996
- -----------------------------
John H. Downey, Jr., Director
and Chairman of the Board
/S/ PATRICK W. KILKENNY Dated: March 6, 1996
- -----------------------------
Patrick W. Kilkenny, Director
/S/ JOHN R. OLSEN Dated: March 5, 1996
- -----------------------------
John R. Olsen, Director
/S/ WILLIAM B. STEVENSON Dated: March 5, 1996
- -----------------------------
William B. Stevenson, Director
/S/ TOM D. WHITAKER Dated: March 5, 1996
- -----------------------------
Tom D. Whitaker, Director
and Vice Chairman of the Board
33
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
11. Statement re Computation of Per Share Earnings.
12.1 Statement re Computation of Ratio of Earnings to Fixed
Charges.
12.2 Statement re Computation of Ratio of Earnings to Fixed
Charges and Preferred Dividends.
13. Annual Report to security holders.
21. Subsidiaries of the Registrant.
24. Consent of Deloitte & Touche LLP.
34