UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the fiscal year ended December 31, 2004
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number: 000-49892
PACIFIC STATE BANCORP
---------------------
(Exact name of Registrant as specified in its charter)
California 61-1407606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1889 W. March Lane
Stockton, CA 95207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (209) 870-3213
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
As of March 15, 2005, there were 3,453,845 shares of the Registrant's Common
Stock outstanding.
Indicate by check mark whether the Registrant (1) 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 Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference to Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in rule 126-2 of the Exchange Act.
Yes [ ] No [X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $18,747,777 as of June 30, 2004 which was
calculated based on the last reported sale of the Company's Common Stock prior
to June 30, 2004. This calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purpose.
1
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Security Holders for Fiscal Year Ended
December 31, 2004 (Part II)
Proxy Statement for 2005 Annual Meeting of Shareholders (Part III)
TABLE OF CONTENTS
- -----------------
PART 1. Page
Item 1. Business..........................................................3
Item 2. Properties........................................................9
Item 3. Legal Proceedings.................................................10
Item 4. Submission of Matters to a Vote of Security Holders...............10
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.................10
Item 6. Selected Financial Data...........................................11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation .........................................11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........11
Item 8. Financial Statements and Supplementary Data.......................11
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure..........................................11
Item 9A Controls and Procedures...........................................11
Item 9B Other Information.................................................11
PART III.
Item 10. Directors and Executive Officers of the Registrant................12
Item 11. Executive Compensation............................................12
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........................12
Item 13. Certain Relationships and Related Transactions....................12
Item 14. Principal Accountant Fees and Services............................12
PART IV.
Item 15. Exhibits, Financial Statement Schedules...........................13
Signatures........................................................14
Index of Exhibits.................................................16
2
PACIFIC STATE BANCORP
STOCKTON, CALIFORNIA
FORM 10-K
FISCAL YEAR ENDED DECEMBER 31, 2004
PART I
------
ITEM 1. BUSINESS.
Certain statements discussed or incorporated by reference in this Annual Report
including, but not limited to, information concerning possible or assumed future
results of operations of the Company set forth matters in the Management's
Discussion and Analysis of Financial Condition and Results of Operation, are
forward-looking statements within the meaning of the Securities Exchange Act of
1934 (the "Exchange Act"). Forward-looking statements include statements in
which words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate," "consider" or similar expressions are used. The Company's actual
future results and shareholder values may differ materially from those
anticipated and expressed in these forward-looking statements, which are based
on management's beliefs and assumptions and on information currently available
to management, and are subject to risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and
uncertainties include, among others, (1) competitive pressures in the banking
industry; (2) changes in the interest rate environment; (3) general economic
conditions, either nationally or regionally; (4) changes in the regulatory
environment; (5) changes in business conditions and inflation; and (6) changes
in securities markets. Many of these factors are beyond the Company's ability to
control or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any intention
or obligation to update forward-looking statements contained in this Annual
Report, even if new information, future events or other circumstances have made
them incorrect or misleading. Except as specifically noted herein all references
to the "Company" refer to Pacific State Bancorp, a California corporation
General Description of Business
-------------------------------
Pacific State Bancorp is a holding company with one bank subsidiary, Pacific
State Bank, (the "Bank"), and two unconsolidated subsidiary guarantor trusts,
Pacific State Statutory Trusts I and II. Pacific State Bancorp commenced
operations on June 24, 2002 when it acquired all the then issued and outstanding
shares of Pacific State Bank under a plan of reorganization approved by the
Bank's shareholders on May 9, 2002. The Bank is a California state chartered
bank. The Bank is a member of the Federal Reserve System. The Bank's primary
source of revenue is providing loans to customers who are predominately small to
middle-market businesses and individuals within the bank's service area. Pacific
State Statuatory Trusts I and II are unconsolidated, wholly owned statutory
business trusts formed in June 2002 and March 2004, respectively for the
exclusive purpose of issuing and selling trust preferred securities.
The Bank has engaged since November 2, 1987 in a general commercial banking
business, primarily in Stockton and San Joaquin County, and offers commercial
banking services to residents and employers of businesses in the Bank's service
area, including professional firms and small to medium sized retail and
wholesale businesses and manufacturers. The Company as of March 15, 2005 had 65
employees, including 28 officers. The Bank does not engage in any non-bank lines
of business. The business of the Bank is not to any significant degree seasonal
in nature. The Bank has no operations outside California and has no material
amount of loans or deposits concentrated among any one or few persons, groups or
industries. The Bank's Administrative headquarters are located at 1899 W. March
Lane, Stockton, California. The Bank operates seven branches with it's main
office is located at 6 So. El Dorado Street, in Stockton, California; additional
branches are located elsewhere in Stockton and in the communities of Angels
Camp, Arnold, Groveland, Modesto and Tracy, California. In 2004, the company
opened a Loan Production Office in Castro Valley, California.
3
Business Plan
-------------
The focus of the Company's business plan is to attract "middle market"
accounts, but not to the exclusion of any other business which the Company can
reasonably and profitably attract. In order to provide a level of service to
attract such customers, the Company has structured its specific services and
charges on a basis which management believes to be profitable, taking into
consideration other aspects of the account relationship. The Company offers a
range of banking services to its customers intended to attract the following
specific types of accounts: relatively large consumer accounts; professional
group and association accounts, including the accounts of groups or firms of
physicians, dentists, attorneys and accountants; and accounts of small to
medium-sized businesses engaged in retail, wholesale, light industrial and
service activities and individuals within the bank's service area.
Trust Subsidiaries
------------------
The Company during 2002 and 2004 established two business trust subsidiary
grantor trusts, Pacific State Statutory Trusts I and II (the "Trusts") for the
sole purpose of issuing capital securities ("Capital Securities") pursuant to
declarations of trust (the "Declarations"). The proceeds from the sale of the
Capital Securities were loaned to the Company as subordinated debentures (the
"Debentures") issued to the Trusts pursuant to indentures (the "Indentures").
Interest payments on the Debentures will flow through the Trusts to the Pooling
Vehicles, which are the holders of the Capital Securities and similar securities
issued by other financial institutions. Payments of distributions by the Trusts
to the Pooling Vehicles are guaranteed by the Company. See note 8 to the
Company's consolidated financial statements
Proceeds from the issuance of the 2002 subordinated debentures were used to
provide the Bank with an additional $4.5 million in capital in order to support
the continued growth of the Bank. The remaining $500,000 was placed in the
Company for general corporate purposes. Proceeds from the issuance of the 2004
subordinated debentures were used to provide the Bank with an additional $3.5
million in capital in order to support the continued growth of the Bank.
Product Lines and Services
--------------------------
The Bank currently offers the following general banking services at all of
its branches: commercial, construction and real estate loans and personal credit
lines, interest on checking, U.S. Savings bond services, domestic and foreign
drafts, banking by appointment, automatic transfer of funds between savings and
checking accounts, business courier services, checking and savings accounts for
personal and business purposes, domestic letters of credit, a depository for
MasterCard and Visa drafts, federal depository services, cash management
assistance, wire and telephone transfers, Individual Retirement Accounts, time
certificates of deposit, courier service for non-cash deposits, Visa and
MasterCard, revolving lines of credit to consumers secured by deeds of trust on
private residences, unsecured overdraft protection credit lines attached to
checking accounts, ATM cards and MasterMoney debit cards via the Star, Cirrus,
Plus, Mastercard and Visa networks.
The Bank is not authorized to offer trust services. The Federal Reserve
Bank of San Francisco is the Company's primary correspondent relationship. The
Bank currently also has correspondent relationships with City National Bank in
Beverly Hills, California, Bank of America in San Francisco, California, First
Tennessee Bank in Memphis, Tennessee, Compass Bank in Birmingham, Alabama, Wells
Fargo Bank, San Francisco, California and Pacific Coast Bankers Bank, San
Francisco, California.
4
The Bank recognizes that, in order to be competitive, it must attract a
certain number of consumer accounts. Individual Retirement Accounts, Visa and
MasterCard, revolving lines of credit to consumers secured by deeds of trust on
private residences, and unsecured overdraft protection credit lines attached to
checking accounts currently offered by the Bank are designed to appeal
particularly to consumers. Moreover, participation in a large-scale ATM network
assists the Company in competing for consumer accounts.
The Bank is an approved Small Business Administration and 504 lender,
FarmerMac I and II, USDA Business and Industry, USDA Part-time Farmer Program,
FHA and VA lender and California Capital lender. The Bank is a national leader
in the underwriting of U.S. Department of Agriculture business and industry
loans, as well as a Preferred Lender for this program.
Marketing
---------
The basic marketing strategy of the Bank is to retain the Bank's initial
market share and to increase the Bank's penetration of the market over the long
term via expansion east and west of Stockton, California in small to medium
sized communities. The Bank attempts to accomplish this by providing a full
range of personalized Banking services to small and medium size businesses,
professionals and individuals within Alameda, Calaveras, San Joaquin, Stanislaus
and Tuolumne Counties.
The Bank's marketing plan aims to provide for strong continuity in
banker-customer relationships, a high degree of convenience for customers,
prompt response in the handling of loan requests, and personal attention to
needs of individual customers. The marketing plan also includes a commitment to
lend the Bank's deposits back into the areas from which they are derived,
thereby assisting in the building activity, population growth and other changes,
which are occurring in the market area. By focusing the Bank's relationship
toward its community the Bank attempts to establish strong continuity with its
customers.
The Directors of the Company are active in business development through
personal contacts and personal participation in local activities. The Directors
of the Company have a strong commitment to community banking. They believe in
business development by actively participating in community events.
Local advertising and publicity in local papers also are used to attract
business and to acquaint potential customers with the Bank's services.
Competition
-----------
The Bank's service area consists of Alameda, Calaveras, San Joaquin,
Stanislaus and Tuolumne Counties. The banking business in California generally,
and specifically in the Bank'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 Bank. By virtue of their greater total capitalization,
such banks have substantially higher lending limits than the bank and
substantial advertising and promotional budgets.
In the past, an independent bank's principal competitors for deposits and
loans have been other banks (particularly major banks) savings and loan
associations and credit unions. To a lesser extent, competition was also
provided by thrift and loans, mortgage brokerage companies and insurance
companies. Other institutions, such as brokerage houses, credit card companies,
and even retail establishments have offered new investment vehicles, such as
5
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 with major financial institutions in its 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, as opposed to large multi-branch banks, which compete primarily by
interest rates and multiple branch locations. 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.
Supervision and Regulation
--------------------------
The Company is principally regulated by the Federal Reserve Board ("FRB").
The Bank is principally regulated by the California Commissioner of Financial
Institutions ("Commissioner"), but is also subject to regulation by the Federal
Deposit Insurance Corporation ("FDIC") and by it's primary federal regulator,
the FRB. These agencies govern most of the Company's and the Bank's business,
including capital requirements, loans, investments, mergers and acquisitions,
borrowings, dividends, branch locations and other similar matters. In addition,
the Bank's business is affected by general economic conditions and by the
monetary and fiscal policies of the United States government. These policies
influence, for example, the Federal Reserve's open market operations in U.S.
Government securities, the reserve requirements imposed upon commercial banks,
the discount rates applicable to borrowings from the Federal Reserve by banks,
and other similar matters which impact the growth of the Bank's loans,
investments and deposits and the interest rates which the Bank charges and pays.
Proposals to change the laws and regulations governing the operations and
taxation of financial institutions are frequently made in Congress, in the
California legislature and before various regulatory and professional agencies.
The likelihood of any major changes and the impact such changes might have are
difficult to predict with accuracy. Certain significant recently proposed or
enacted laws and regulations are discussed below.
Interstate Banking. Since 1995, initial entry into California by merger or
acquisition involving an out-of state institution must be accomplished by
acquisition of or merger with an existing whole bank which has been in existence
for at least five years.
Capital Requirements. The Company and the Bank are subject to certain
regulatory capital requirements administered by the FRB and the FDIC. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and the Bank must meet specific capital guidelines that
involve quantitative measures of its assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices. The Company's
and the Bank's capital amounts and classifications are also subject to
qualitative judgments by the regulators about the components, risk weightings
and other factors.
The Uniform Financial Institutions Rating System classifies and evaluates
the soundness of financial institutions according to the so-called "CAMELS"
criteria, an acronym for capital adequacy, asset quality, management, earnings,
liquidity and sensitivity to market risk, (changes in interest rates, foreign
exchange rates, commodity prices or equity prices which may adversely affect an
institution's earnings and capital).
Prompt Corrective Action regulations (the "PCA Regulations") of the federal
bank regulatory agencies establish five capital categories in descending order
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized), assignment to which depends
6
upon the institution's total risk-based capital ratio, Tier 1 risk-based capital
ratio, and leverage ratio. Institutions classified in one of the three
undercapitalized categories are subject to certain mandatory and discretionary
supervisory actions, which include increased monitoring and review,
implementation of capital restoration plans, asset growth restrictions,
limitations upon expansion and new business activities, requirements to augment
capital, restrictions upon deposit gathering and interest rates, replacement of
senior executive officers and directors, and requiring divestiture or sale of
the institution. The Bank is currently classified as a well capitalized bank
pursuant to the PCA regulations.
As of December 31, 2004, the Bank's total risk-based capital ratio
(approximately 12.2%) and its leverage ratio (approximately 9.1%) exceeded
minimum levels. It is not expected that compliance with the risk-based capital
guidelines or minimum leverage requirements will have a materially adverse
effect on the business of the Bank in the reasonably foreseeable future.
Deposit Insurance Assessments. The Bank's deposit insurance assessment was
$26,752 for the year 2004; the Company estimates that its deposit insurance
assessment for 2005 will not differ materially from its 2004 assessment.
Community Reinvestment Act. Community Reinvestment Act ("CRA") regulations
evaluate the Bank's lending to low and moderate income individuals and
businesses across a four-point scale from "outstanding" to "substantial
noncompliance," and are a factor in regulatory review of applications to merge,
or establish new branches. In addition, any Bank rated in "substantial
noncompliance" with the CRA regulations may be subject to enforcement
proceedings. The Bank has a current rating of "satisfactory" CRA compliance.
Safety and Soundness Standards. Federal bank regulations for insured
financial institutions establish safety and soundness standards for (1) internal
controls, information systems and internal audit systems; (2) loan
documentation; (3) credit underwriting; (4) interest rate exposure; (5) asset
growth; (6) compensation, fees and benefits; and (7) excessive compensation. If
an agency determines that an institution fails to meet any standard established
by the guidelines, the agency may require the financial institution to submit to
the agency an acceptable plan to achieve compliance with the standard. Agencies
may elect to initiate enforcement action in certain cases where failure to meet
one or more of the standards could threaten the safe and sound operation of the
institution. The Company has not been and does not expect to be required to
submit a safety and soundness compliance plan because of a failure to meet any
of the safety and soundness standards.
Recently Enacted Legislation
----------------------------
The Sarbanes-Oxley Act of 2002 (the "SOA") was enacted to increase
corporate responsibility, to provide for enhanced penalties for accounting and
auditing improprieties at publicly traded companies and to protect investors by
improving the accuracy and reliability of corporate disclosures pursuant to the
securities laws.
The SOA is the most far-reaching U.S. securities legislation enacted in
many years. The SOA generally applies to all companies, both U.S. and non-U.S.,
that file or are required to file periodic reports with the Securities and
Exchange Commission, ("the SEC"), under the Securities Exchange Act of 1934.
Given the extensive SEC role in implementing rules relating to many of the SOA's
new requirements, the final scope of these requirements remains to be
determined.
7
The SOA includes very specific additional disclosure requirements and new
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules
and mandates further studies of specified issues by the SEC and the Comptroller
General. The SOA represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the
accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors and
its committees.
The SOA addresses, among other matters:
o Duties, responsibilities and qualifications of the audit committee;
o certification of financial statements by the chief executive officer
and the chief financial officer;
o the forfeiture of bonuses or other incentive-based compensation and
profits from the sale of an issuer's securities by directors and
senior officers in the twelve month period following initial
publication of any financial statements that later require
restatement;
o a prohibition on insider trading during pension plan black out
periods;
o disclosure of off-balance sheet transactions;
o a prohibition on certain personal loans to directors and officers;
o expedited filing requirements for forms which disclose transactions by
officers and directors in Company stock;
o disclosure of a code of ethics and of any change or waiver of such
code;
o new requirements for auditing and reporting on Company internal
controls;
o "real time" filing of periodic reports;
o the formation of a public company accounting oversight board (the
"PCAOB") with authority to set auditing, quality control and
independence standards and investigate and discipline public
accounting firms;
o auditor independence; and
o various increased criminal penalties for violations of securities
laws.
The SEC has and PCAOB have issued final rules covering most of these
topics, but it is to be expected that these rules may be altered as future
experience requires.
Although we anticipate that we will incur additional expense in complying
with the provisions of the SOA, management does not expect that such compliance
will have a material impact on our results of operation or financial condition.
In October 2001, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the
"Patriot Act ") was enacted in response to the terrorist attacks in New York,
Pennsylvania and Washington, D.C. which occurred on September 11, 2001. The
Patriot Act is intended to strengthen U.S. law enforcement's and the
intelligence communities' abilities to work cohesively to combat terrorism on a
variety of fronts. The potential impact of the Patriot Act on financial
institutions of all kinds is significant and wide ranging. The Patriot Act
contains sweeping anti-money laundering and financial transparency laws and
imposes various regulations, including standards for verifying client
identification at account opening, and rules to promote cooperation among
financial institutions, regulators and law enforcement entities in identifying
parties that may be involved in terrorism or money laundering.
The federal banking agencies have proposed and begun to implement
regulations pursuant to the Patriot Act which will require financial
institutions to begin to the policies and procedures contemplated by the new
law. The Company cannot be certain of the effect of the foregoing recently
enacted legislation on its business, although there is likely to be
consolidation among financial services institutions and increased competition
for the company. Most provisions of the Patriot Act will expire at the end of
2005 unless reauthorized by Congress. A number of political and public interest
8
groups have expressed opposition to various aspects of the Patriot Act and
oppose reauthorization of those sections of the law, and it is expected that
legislative action in this area will be contentious. Whether or not the Patriot
Act will be reauthorized in whole or in part, and the potential effect on the
Company cannot be predicted.
New Accounting Pronouncements
The Company adopted no new accounting policies in 2004 that had a material
impact on its consolidated financial position or results of operation. Please
see Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operation, for a discussion of critical accounting policies and see
Note 2 to the consolidated financial statements at Item 8, Financial Statements
and Supplementary Data, for a summary of significant accounting policies.
Other-Than-Temporary Impairment of Certain Investments
In June 2004, the Financial Accounting Standards Board (FASB) ratified Emerging
Issues Task Force (EITF) Issue 03-1, The Meaning of Other-than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-1). EITF 03-1
includes additional guidance for evaluating and recording impairment losses on
debt and equity investments, as well as disclosure requirements for investments
that are deemed to be temporarily impaired. The proposed guidance indicates that
an investor must have the intent and ability to hold an investment until a
forecasted recovery of the fair value up to or beyond the cost of the investment
in order to determine that any impairment is temporary. In September 2004, the
FASB delayed the effective date of the recognition and measurement guidance of
EITF 03-1, pending further deliberations. The disclosures for investments that
are deemed temporarily impaired are included in Note 3 to the consolidated
financial statements. Once the FASB has reached a final decision on the
measurement and recognition provisions, the Company will evaluate the impact of
the adoption of EITF 03-1.
Share-Based Payments
In December 2004 the FASB issued Statement Number 123 (revised 2004) (FAS 123
(R)), Share-Based Payments. FAS 123 (R) requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments such as stock options granted to employees. The Company is required to
apply FAS 123 (R) on a modified prospective method. Under this method, the
Company is required to record compensation expense (as previous awards continue
to vest) for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. In addition, the Company may elect to adopt
FAS 123 (R) by restating previously issued financial statements, basing the
expense on that previously reported in their pro forma disclosures required by
FAS 123. FAS 123 (R) is effective for the first reporting period beginning after
June 15, 2005. Management has not completed its evaluation of the effect that
FAS 123 (R) will have, but believes that the effect will be consistent with its
previous pro forma disclosures.
Accounting for Certain Loans or Debt Securities Acquired in a Transfer
In December 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 03-03,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP).
This SOP addresses accounting for differences between contractual cash flows and
cash flows expected to be collected from an investor's initial investment in
loans or debt securities (loans) acquired in a transfer if those differences are
attributable, at least in part, to credit quality. It also includes such loans
acquired in purchase business combinations. This SOP does not apply to loans
originated by the entity. This SOP limits the yield that may be accreted and
requires that the excess of contractual cash flows over cash flows expected to
be collected not be recognized as an adjustment of yield, loss accrual, or
valuation allowance.
9
This SOP prohibits "carrying over" or creation of valuation allowances in the
initial accounting for loans acquired in a transfer that are within its scope.
The prohibition of the valuation allowance carryover applies to the purchase of
an individual loan, a pool of loans, a group of loans, and loans acquired in a
purchase business combination.
This SOP is effective for loans acquired in fiscal years beginning after
December 15, 2004. In management's opinion, the adoption of this pronouncement
will not have a material impact on the Company's financial position or results
of operations.
ITEM 2. PROPERTIES
----------
The Company owns its March Lane (Stockton), Modesto, Groveland, Angels Camp
and Arnold branch facilities. The Company purchased the March Lane office for
$866,700 in 1992. The Company's executive officers and support staff were
located in the March Lane building from 1997 to 2004. During 2001 the Company
purchased an adjacent building to the March Lane office, for $747,000, in order
to expand its administrative functions. The executive offices, finance
department, central operations and data processing were moved into these offices
in 2004. The Company repossessed the Modesto building and converted it to a
banking branch in 1996. The Modesto land was purchased in 1999 for $524,000. The
Company purchased the Arnold Branch for $600,000 as part of its 1997 expansion
into branches acquired from Valliwide Bank. A portion of the building, located
at 1013 Blagen Road, is leased to First American Title. The lease is expected to
generate $9,000 in 2005. During 2000 the Company purchased a lot in Groveland
and purchased a lot in Angels Camp in order to build and relocate the current
Branch offices. The new sites in both locations offer the Company better
visibility and demonstrate commitment to the communities we serve. The Groveland
property was purchased for $148,000 and construction was completed in January
2003. The Angels Camp property was purchased for $200,000 and was completed in
the third quarter of 2003.
All other Company premises are leased. The Company's total rentals for
premises and equipment for fiscal year 2004 were approximately $263,000, and its
minimum future commitments under lease payments as of December 31, 2004, totaled
$1,057,000.
The Company is currently in the fourteenth year of a sixteen-year gross
level lease for its main office located at 6 South El Dorado Street in downtown
Stockton. The lease cost is $0.70 per square foot per month over the life of the
lease. The Company's projected lease expense for 2005 is approximately $246,000
per year.
In 1999, the Company entered into a 10-year lease with two options to
extend for an additional 5 years each for the 3,861 square foot building in
Tracy. The Tracy office is located at 2850 Tracy Boulevard. The annual rent on
the Tracy office was $69,000 for the first five years. The current annual rent
is $71,000 for 2005 and will continue to increase annually at a rate of 3% per
year.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the Company is a party
or of which any of its property is the subject.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted to vote of the security holders during the fourth
quarter of the period covered by this report.
Item (*) Executive Officers of the Registrant.
-----------------------------------
The following table presents certain information regarding the executive
officers of the Company:
NAME AGE POSITION(S) SINCE
---- --- ----------- -----
Steven A. Rosso 50 President and CEO/Director 1992
Gary A. Stewart 55 Executive VP/CCO/Director 1996
JoAnne Roberts 48 Vice President/CFO 2004
(*) Included pursuant to General Instruction (G(3).
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
----------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
See information under the caption "Market for Registrant's Common Equity
and Related Shareholder Matters" in the Company's 2004 Annual Report to
Shareholders), which information is incorporated here by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
See information under the caption "Five Year Selected Financial Data" in
the Company's 2004 Annual Report to Shareholders, (see page 1), which
information is incorporated here by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATION.
-------------
See information under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Company's 2004 Annual
Report to Shareholders which information is incorporated here by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISLOSURES ABOUT MARKET RISK.
---------------------------------------------------------
See information under the caption "Liquidity and Market Risk" in the
Company's 2004 Annual Report to Shareholders which information is incorporated
here by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
------------------------------------------
See Independent Auditor's Report, Consolidated Balance Sheet, Consolidated
Statement of Income, Consolidated Statement of Changes in Shareholders' Equity,
Statement of Cash Flows and Notes to Consolidated Financial Statements, all
contained in the Company's 2004 Annual Report to Shareholders, which information
is incorporated here by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
None
11
ITEM 9A. CONTROLS AND PROCEDURES
-----------------------
The Chief Executive Officer and Chief Financial Officer of the Company have
concluded, based on their evaluation as of the end of the period covered by this
Annual Report on Form 10-K, that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports filed or submitted by it under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission, and include controls and procedures designed
to ensure that information required to be disclosed by the Company in such
reports is accumulated and communicated to the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. The design
of any system of controls is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions,
regardless of how remote.
There were no significant changes in the Company's internal controls or in
other factors during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, these controls.
ITEM 9B. OTHER INFORMATION
-----------------
None.
PART III
--------
Certain information required by Part III is incorporated by reference to
the Company's definitive Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the solicitation of proxies for the
Company's 2005 Annual Meeting of Shareholders (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
The information required by this item is incorporated by reference from the
table of directors in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
The information required by this item is incorporated by reference from the
Proxy Statement, including all information under the caption "Compensation and
Certain Transactions" except for information under the subheading "Transactions
with Management."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
------------------------------------------------------------------
RELATED STOCKHOLDER MATTERS.
----------------------------
The information required by this item is incorporated by reference from the
Proxy Statement, including information under the captions "Principal
Shareholders" and "Stock Ownership of Management."
12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
The information required by this item is incorporated by reference from the
Proxy Statement, including all information under the subheading "Transactions
with Management."
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
--------------------------------------
The information required by this item is incorporated by reference from the
Proxy Statement, including all information under the subheading "Principal
Accountant Fees and Services."
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
---------------------------------------
(a)(1)
The following financial statements of the Company included in the Annual
Report to Shareholders for the year ended December 31, 2004, are filed and
incorporated by reference in Item 8 of this report.
(i) Report of Independent Registered Public Accounting Firm
Independent Auditor's Report dated March 10, 2005.
(ii) Consolidated Balance Sheet, December 31, 2004 and 2003.
(iii) Consolidated Statement of Income: Years ended December 31, 2004,
2003 and 2002.
(iv) Consolidated Statement of Changes in Shareholders' Equity: Years
ended December 31, 2004, 2003 and 2002.
(v) Consolidated Statement of Cash Flows: Years ended December 31,
2004, 2003 and 2002.
(vi) Notes to Consolidated Financial Statements.
(2) (3) See the Index to Exhibits below, which is incorporated herein by
reference.
(b) The Exhibits listed on the Index of Exhibits are filed and incorporated
here by reference.
(c) All Schedules have been omitted because they are not applicable or not
required, or because the information is included in the financial
statements or the notes thereto or is not material.
13
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: March 17, 2005 PACIFIC STATE BANCORP
By: /s/ STEVEN A. ROSSO
-----------------------------------
Steven A. Rosso
President/Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 17, 2005 By: /s/ STEVEN A. ROSSO
-----------------------------------
Steven A. Rosso
President and Chief Executive Officer
Director
Date: March 17, 2005 By: /s/ JOANNE ROBERTS
-----------------------------------
JoAnne Roberts
Vice President/CFO
(Principal Financial Officer)
(Principal Accounting Officer)
Date: March 17, 2005 By: /s/ MICHAEL L. DALTON
-----------------------------------
Michael L. Dalton
Director and Vice Chairman
Chairman of the Audit Committee
Date: March 17, 2005 By: /s/ HAROLD HAND
-----------------------------------
Harold Hand
Director and Chairman of the Board
Date: March 17, 2005 By: /s/ PATRICIA A. HATTON
-----------------------------------
Patricia A. Hatton
Director and Chairperson of the
Director Loan Committee
Date: March 17, 2005 By: /s/ STEVEN J. KIKUCHI
-----------------------------------
Steven J. Kikuchi
Director and Secretary of the Board
Date: March 17, 2005 By: /s/ MAXWELL FREEMAN
-----------------------------------
Maxwell Freeman
Director
Date: March 17, 2005 By: /s/ YOSHIKAZU MATAGA
-----------------------------------
Yoshikazu Mataga
Director
14
Date: March 17, 2005 By: /s/ GARY A. STEWART
-----------------------------------
Gary A. Stewart
Executive Vice President/CLO
Director
Date: March 17, 2005 By: /s/ KATHLEEN VERNER
-----------------------------------
Kathleen Verner
Director
Date: March 17, 2005 By: /s/ PHILIP B. WALLACE
-----------------------------------
Philip B. Wallace
Director
15
LIST OF EXHIBITS
3.1 Articles of Incorporation, as amended.
3.2 Bylaws Incorporated by reference from Exhibit 3.2 filed with the
Company's Registration Statement No. 333-84908 on Form S-4EF (the
"S-4").
4 Agreement to file copy of Indenture for the Company's $5 Million of
Floating Rate Junior Subordinated Deferrable Interest Debentures due
2032 issued to Pacific State Statutory Trust I. Incorporated by
reference from the Company's Form 10-K for the year ended December 31,
2002.
4.1 Agreement to file copy of Indenture for the Company's $3.5 Million of
Floating Rate Junior Subordinated Deferrable Interest Debentures due
2034 issued to Pacific State Statutory Trust II. Incorporated by
reference from the Company's Form 10-K for the year ended December 31,
2003.
10.1 Lease Agreement for Main Office. Incorporated by reference from Exhibit
10.1 filed with the S-4.
10.2 Intentionally left blank
10.3 Lease Agreement, Tracy Branch Office. Incorporated by reference from
Exhibit 10.3 filed with the S-4.
10.4* Employment Agreement (Steven A. Rosso). Incorporated by reference from
Exhibit 10.4 filed with the S-4.
10.5 Intentionally left blank
10.6* 1997 Stock Option Plan. Incorporated by reference from Exhibit 10.6
filed with the Company's Quarterly Report on Form 10-Q for the quarterly
period ending September 30, 2003.
13 The portions of the Pacific State Bancorp 2004 Annual Report to
Shareholders which have been incorporated by reference in Items 5-8
herein are filed with the Commission.
21 List of Subsidiaries
23 Consent of Independent Registered Public Accounting Firm Auditor's
Consent
31.1 Certification of the Chief Executive Officer (section 302 of
Sarbanes-Oxley Act).
31.2 Certification of the Chief Financial Officer (section 302 of
Sarbanes-Oxley Act).
32 Certifications of Report (section 906 of Sarbanes-Oxley Act).
* Denotes management contract or compensatory arrangement
16