-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MBFN8obalaDFXluqLcmRSHSZ4Lh8EVAz6kf6PlLIcw/PHOrjrMS3jH90gVvUyPYr Ii3yij+ke4zGQX9SZ9zxfQ== 0000912057-97-017872.txt : 19970520 0000912057-97-017872.hdr.sgml : 19970520 ACCESSION NUMBER: 0000912057-97-017872 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA COMMERCIAL BANKSHARES CENTRAL INDEX KEY: 0000704886 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 953819471 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-78788 FILM NUMBER: 97606812 BUSINESS ADDRESS: STREET 1: 4100 NEWPORT PLACE CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7148632300 MAIL ADDRESS: STREET 1: 4100 NEWPORT PLACE CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 - ------------------------------------------------------------------------------- FORM 10 - Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF --- THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1997 Commission File Number 2-78788 CALIFORNIA COMMERCIAL BANKSHARES -------------------------------- CALIFORNIA 95-3819471 ------------------- -------------- (State of Other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 4100 NEWPORT PLACE, NEWPORT BEACH, CA 92660 -------------------------------------------- (Address of principal executive offices) Registrant's telephone number (714) 863-2300 -------------- - -------------------------------------------------------------------------------- Former name, former address and former fiscal year if changed from last report Indicate by check (x) whether the registrant (1) has filed all reports required to be filed by Section 13 of 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 ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date 3,040,000. 1 CALIFORNIA COMMERCIAL BANKSHARES INDEX PART I. FINANCIAL INFORMATION _________________________________________________ Item 1. Financial Statements. Consolidated Condensed Statements of Income for three months ended March 31, 1997 and March 31, 1996. Consolidated Condensed Balance Sheets March 31, 1997 and December 31, 1996. Consolidated Statement of Cash Flow for the three months ended March 31, 1997 and March 31, 1996. Notes to Consolidated Financial Statements March 31, 1997. Item 2. Management Discussion and Analysis of the Financial Condition and Results of Operations. 2 CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (000'S Omitted) (Unaudited) Three Months Ended March 31, 1997 1996 ---- ---- INTEREST AND FEE INCOME: Loans and Leases 5,193 4,770 Investment Securities 1,088 928 Federal Funds Sold 330 573 ----- ----- Total Interest and Fee Income 6,611 6,271 INTEREST EXPENSE: Deposits 1,473 1,664 Securities Sold Under Agreement to Repurchase 6 0 Note Payable 43 59 ----- ----- Total Interest Expense 1,522 1,723 NET INTEREST INCOME 5,089 4,548 PROVISION FOR LOAN/LEASE LOSSES 150 300 NET INTEREST INCOME AFTER PROVISION FOR LOAN/LEASE LOSSES 4,939 4,248 OTHER INCOME: Escrow Fees 155 121 Service Charges 276 291 Securities gains or (losses) 0 0 Other Income 233 291 ----- ----- Total Other Income 664 703 OTHER EXPENSES: Salaries and Employee Benefits 1,934 2,178 Occupancy, Furniture and Equipment 581 511 Data Processing 295 218 Supplies 91 97 Legal Fees 320 198 Regulatory Assessments 157 140 Losses on OREO 69 99 Other 590 726 ----- ----- Total Other Expenses 4,037 4,167 INCOME BEFORE INCOME TAXES 1,566 784 INCOME TAXES 627 314 NET INCOME 939 470 EARNINGS PER COMMON SHARE $0.30 $0.16 3 CALIFORNIA COMMERCIAL BANKSHARES CONSOLIDATED CONDENSED BALANCE SHEETS (000'S Omitted) ASSETS March 31 December 31 1996 1995 -------- ----------- Cash and Due From Banks Non Interest-bearing $31,282 $28,849 Investment Securities - Available for Sale 75,738 91,504 Federal Funds Sold 25,000 14,500 Loans, net of unearned interest: Commercial 84,534 80,927 Real Estate - Construction 27,163 25,875 Real Estate - Equity Line 6,939 7,487 Real Estate - Mortgage 74,358 72,617 Installment and Other 22,012 19,706 Lease Contracts Receivable 2,245 2,663 -------- -------- 217,251 209,275 Less: Deferred Loan Fees & Costs (330) (442) -------- -------- 216,921 208,833 Less: Reserve for Loan Loss (5,231) (5,417) -------- -------- Total Loans, net 211,690 203,416 -------- -------- Loans Available for Sale 1,230 1,234 Real Estate Owned 3,333 2,657 Bank Premises, Furniture & Equipment 1,339 1,435 Accrued Interest Receivable 2,278 2,668 Deferred Income Taxes 2,541 2,541 Prepaid Expenses and Other Assets 1,669 2,660 --------- --------- Total Assets $356,100 $351,464 --------- --------- --------- --------- LIABILITIES AND SHAREHOLDERS EQUITY Deposits: Demand Deposit Non Interest Bearing $139,104 $146,257 Interest Bearing 87,095 72,845 Savings Deposits 46,079 46,179 Time Certificates $100,000 and over 33,365 32,324 Other Time Deposits 19,202 21,099 --------- --------- Total Deposits 324,845 318,704 Securities Sold Under Agreement to Repurchase 600 Note Payable 350 2,350 Interest Payable 158 148 Other Liabilities 4,118 5,262 Shareholders Equity: Capital Stock - Authorized 10,000,000 shares; Issued and outstanding 3,040,000 in 1997 and 2,944,000 in 1996 14,680 14,382 Paid in Capital 497 497 Retained Earnings 11,184 10,244 Unrealized Gain (Loss) on investment securities available for sale (net of tax) (332) (123) -------- -------- Total Liabilities and Shareholders Equity 356,100 351,464 -------- -------- -------- -------- 4 CALIFORNIA COMMERICAL BANKSHARES CONSOLIDATED STATEMENT OF CASH FLOW FOR THE THREE MONTHS ENDED MARCH 31 (000's Omitted) (Unaudited) 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (loss) 939 470 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and Amortization 128 104 Amortization of discounts and premiums on investment securities available for sale (97) 140 Provision for loan and lease losses 150 300 Provision for selling expenses on other real estate owned 43 Loss (gain) on sale of other real estate owned 20 (Gain) loss on sale of other real estate owned (35) Decrease (increase) in accrued interest receivable 390 145 (Decrease) increase in deferred loan fees (112) (202) Increase (decrease) in unearned lease income (49) 24 (Increase) decrease in other assets 1,182 393 Net increase (decrease) in interest payable and other liabilities (535) 575 ------ ------ Net cash from operating activities 2,004 1,969 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturity of investment securities available for sale 55,022 13,079 Purchase of investment securities available for sale (39,558) (26,053) Net (increase) decrease in loans and investment in leases (9,180) (186) Recoveries of loans and investment in leases 51 148 Purchases of property (31) (167) Additions to other real estate owned (142) Proceeds from sale of other real estate owned 186 ------ -------- Net cash from investing activities 6,490 (13,321) CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) increase in deposits 6,141 (283) (Decrease) increase in note payables (2,000) (1) Proceeds from excercise of common stock options 298 70 ------ -------- Net cash from financing activities 4,439 (214) Net (Decrease) Increase In Cash And Cash Equivalents 12,933 (11,566) Cash And Cash Equivalents At Beginning Of Year 43,349 73,549 Cash And Cash Equivalents At March 31 56,282 61,983 5 CALIFORNIA COMMERCIAL BANKSHARES Notes To Consolidated Condensed Financial Statements: Note 1 - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. Note 2 - Earnings per share were computed based on the following weighted average outstanding shares: Three Months Ended March 31, 1997..........3,142,000 Three Months Ended March 31, 1996..........2,939,000 6 CALIFORNIA COMMERCIAL BANKSHARES Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations. The purpose of this discussion is to provide additional information about the Company's financial condition and results of operations which is not otherwise apparent from the consolidated financial statements included in this interim report. Since the banking subsidiary represents most of the Company's activity and investment, the following discussion relates primarily to the financial condition and operations of the Bank. It should be read in conjunction with the consolidated financial statements of the Company and the notes thereto. The following chart shows comparative data for selected items of the financial statements: Percent March 31 March 31 Increase/ 1997 1996 (Decrease) -------- -------- ---------- (in thousands) Averages for the Three Months Ended: Total Assets $347,419 $329,468 5.45 Investment securities 73,997 63,136 17.20 Fed funds sold 25,989 43,330 (40.20) Gross loans 212,817 195,141 9.06 Total deposits 314,649 303,405 3.71 Interest bearing deposits 178,686 183,370 (2.55) Other interest bearing liabilities 2,642 2,350 12.43 Results of Operations: Interest Income 6,611 6,271 5.42 Interest Expense 1,522 1,723 (11.67) NET INTEREST INCOME 5,089 4,548 11.90 Provision for loan losses 150 300 (50.00) NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,939 4,248 16.27 Non-interest income 664 703 (5.55) Non-interest expense 4,037 4,167 (3.12) INCOME (LOSS) BEFORE INCOME TAXES 1,566 784 99.74 Income tax expense (benefit) 627 314 99.68 NET INCOME (LOSS) 939 470 99.79 Ending Balance Sheet Data: Assets 356,100 334,466 6.47 Securities 76,341 74,976 1.82 Loans, net of deferred fees and costs 218,152 193,874 12.52 Allowance for loan losses 5,231 6,737 (22.35) Deposits 324,845 308,223 5.39 Borrowed funds 350 2,350 (85.11) Common shareholders' equity 26,029 21,389 21.69 7 Per Share Data and Other Selected Ratios: Earnings (loss) per common and common equivelant share .30 .16 87.50 Dividends declared per share 0 0 N/A Book value per share 8.56 7.26 17.91 Shareholders' equity to assets at period end 7.31 6.40 14.30 Return on average assets 1.10 .57 92.98 Return on average equity 14.73 8.87 66.07 Average equity/average assets 7.44 6.47 14.99 Net intertest margin 6.60 6.07 8.73 During the first quarter of 1997, the Company continued its efforts of controlling costs and improving asset quality as well as maintaining projected growth. The growth was achieved in total assets including total loans and total earning assets as well as total deposits. The following table shows average earning assets and interest bearing liabilities and their relative cost and yield without loan fees and loan costs. For the Three Months Ended March 31, 1997 1996 Percent Increase/ Yield (in thousands) Amt Yld Amt Yld (Decrease) Diff --- --- --- --- ---- Average Earning Assets $312,803 8.32 $301,606 8.01 3.71 .31 Average interest bearing liabilities $178,686 3.45 $185,720 3.73 (3.79) (.28) According to Company policy loans past due 90 days or more as to interest or principal payments are placed on non accrual. Loans accounted for on a non accrual basis amounted to $3,194,000 on March 31, 1997 as compared to $15,144,000 on March 31, 1996. Other real estate owned totaled $3,333,000 on March 31, 1997 as compared to $2,598,000 on March 31, 1996. The Company follows SFAS 114 with respect to impaired loans which states - "A loan is impaired when, based on current financial 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...All amounts due according to the contractual terms means that both the contractual interest payments and the contractual principal payments of a loan will be collected as scheduled in the loan agreement." (See Accounting Pronouncements) A loan is not considered impaired during a period of delay in payment if the Company expects to collect all amounts due including interest accrued at the contractual interest rate for the period of delay. Six months is the maximum period of delay allowed before a loan is considered impaired. As of March 31, 1997 the aggregate amount of impaired loans measured under present value method and fair value methods were $4,901,000. The following loans are exempt from SFAS 114 due to their characteristics as smaller balance homogeneous loans: credit card loans, leases, overdraft protection loans and consumer loans. Risk in these loans is accounted for by applying an historic loss percentage to the loan pool. Difference between non accrual and impaired loans: 8 Non Accrual Loans - These loans are on non accrual primarily for one of two reasons; 1) the loan is past due in interest or principal payments for 90 days or more but sufficient collateral is held to offset any potential loss, or 2) full payment of all principal plus interest is doubtful. Impaired Loan - A loan can be impaired also for two reasons; 1) a restructure of the original note has occurred resulting in a reduced interest rate. The loan is then considered impaired due to present value calculations, or 2) full collection of all principal and interest as currently scheduled is not expected. The Company's policy with respect to the recognition of interest income for impaired loans is to recognize the income on an accrual basis for only those loans that are not on non accrual. If the loan is on non accrual the interest received is generally not recognized as income but instead is applied as reduction to the principal. Income may be recognized on a cash basis on non accrual only if the net principal balance is adequately covered by collateral and has shown a minimum of six months performance since being restructured. According to Company policy a loan that is not performing or has been non performing for over 90 days is charged off unless sufficient collateral is held to offset the loss amount. If collateral is held, then appropriate measures should be taken to obtain possession of the collateral for immediate sale. This policy applies to all types of loans including impaired loans. The following table shows the total charge offs, recoveries and the net result for the three months ended March 31, 1997 and 1996. Three Months Ended: March 31 1997 1996 ---- ---- (in thousands) Charge Offs 386 253 Recoveries 51 148 Net Charge Offs 335 105 For the three months ended March 31, 1997 and 1996 the Company added $150,000 and $300,000 respectively to its reserve for loan and lease losses. The reserve balance as of March 31, 1997 was $5,147,000 which was 2.40% of total loans and leases which compares with $6,736,000 and 3.47%, respectively, on March 31, 1996. RESULTS OF OPERATIONS INTEREST INCOME AND INTEREST EXPENSE The Company's primary source of revenue is interest income. The average interest earning assets increased to $312,803,000 in the first quarter of 1997 compared to $301,607,000 in the first quarter of 1996. The net interest income without the loan fees increased from $4,284,00 to $4,892,000 from the first quarter of 1996 to the same period of 1997. The net yield without the loan fees increased from 5.71 to 6.34 as the yield on earning assets increased from 8.01% to 8.32% from the first quarter of 1996 to first quarter of 1997. This was due to a significant reduction in nonperforming loans which declined from $15,144,000 on March 31, 1996 to $3,194,000 on March 31, 1997. The Company continued to focus on monitoring the performance of the outstanding loans, identifying potential problems and collecting identified problem loans and real estate owned. At the same time, the Company has maintained its refined loan underwriting and approval process, seeking higher quality credits. 9 The following table shows the average balances of interest earning assets and interest bearing liabilities and interest (excluding loan fees and costs) earned and paid on those balances. 1st Quarter 1997 1st Quarter 1996 ---------------- ---------------- (in thousands except for interest rates) Average Interest Average Interest Balance Interest Rate Balance Interest Rate Assets ------- -------- ---- ------- -------- ----- Securities 73,997 1,088 5.96 61,136 928 5.91 Fed Funds 25,989 330 5.15 43,330 573 5.32 Loans 212,817 4,996 9.52 195,141 4,505 9.29 ------- ----- ---- ------- ----- ---- TOTAL 312,803 6,414 8.32 301,607 6,007 8.01 ------- ----- ---- ------- ----- ---- Liabilities Savings 127,081 858 2.74 119,168 843 2.85 Time 51,606 616 4.84 64,203 821 5.14 Other 2,642 49 7.52 2,350 59 10.09 ------- ----- ---- ------- ----- ----- TOTAL 181,329 1,523 3.40 185,720 1,723 3.73 ------- ----- ---- ------- ----- ---- Net Interest Income 4,891 4,284 Net Spread on Earning Assets 6.34 5.71 In recent months, the continued recovery of the Southern California economy, particularly in Orange County, has resulted in strong growth in deposits at the Company, significantly above historical growth. Although the Company has also seen continued improvement in loan demand consistent with overall market growth during the continued recovery of the Southern California economy, the increase in demand to date has not been sufficient to permit the Company fully to utilize new deposits to fund loans, and accordingly the Company has increased its relative holdings of securities investments. Management of the Company believes that loan demand will continue to improve, but there can be no assurance that there will be sufficient loan demand in the future to keep pace with increases in deposits such that desirable levels of securities held relative to loans can be maintained. OTHER INCOME AND OTHER EXPENSES - Non-interest income decreased by $39,000 to $664,000 in the first quarter of 1997 compared to $704,000 for the same period a year ago. The decrease was largely due to decrease in Rental Income on foreclosed properties which declined from $53,000 in the first quarter 1996 to $14,000 in 1997. Non-interest expense decreased by $130,000 from $4,167,000 in the first quarter of 1996 to $4,037,000 in 1997. Following is a summary of changes in various categories of non-interest expense for the first quarter of 1997 compared to the same period of 1996. Advertising $(23,000) Loan Related Expense (36,000) Salaries & Benefits (244,000) Occupancy, Furniture & Eq. 70,000 Data Processing 77,000 Legal Fees 122,000 Regulatory Assessments 17,000 Losses on OREO (30,000) Overdrafts & Credit Card Losses (58,000) Other (25,000) ---------- Total $(130,000) 10 The major increases or decreases were in the following categories: 1. Salaries and benefits decreased due to reorganization of bank operations and business development which resulted in reduced overhead. 2. Data Processing increased due to increases related to data processing expenses that the Bank pays for its customers who maintain large profitable accounts. 3. Legal fees remained high as the Bank continues to resolve litigation matters. 4. Occupancy expense increased due to increased rent and amortization of upgraded equipment and software. ACCOUNTING PRONOUNCEMENTS On January 1, 1996, the Company adopted a Statement on Special Accounting Standards ("SFAS") No. 121, "Accounting for the impairment of Long-Lived Assets to Be Disposed Of." This Statement requires that long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, or to be disposed of, be reviewed for impairment based on the fair value of the asset. Furthermore, this Statement requires that certain long-lived assets and identifiable intangibles to be disposed of, be reported at the lower of carrying amount of fair value less cost to sell. The Company has determined that the impact of this Statement on its operations and financial position is not material. SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock based compensation using the intrinsic value method prescribed in Accounting Principal Board No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock on the date of the grant over the amount an employee must pay to acquire the stock. In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," as amended in December 1996 by SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No. 125." This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities. SFAS No. 125 applies prospectively to financial statements for fiscal years beginning after March 31, 1997. However, SFAS No. 127 defers for one year the effective date of certain provisions within SFAS No. 125. SFAS No. 125 does not permit earlier or retroactive application. As of March 31, 1997, the Company has not adopted SFAS No. 125, as amended by SFAS No. 127; however, the Company does not believe the impact on its operations and financial position will be material upon adoption. LIQUIDITY AND CAPITAL RESOURCES It is the Company's policy to always maintain adequate liquidity in cash, federal funds and in readily marketable government securities. The Company's total liquid assets on March 31, 1997 were: Cash and Due From Banks $31,282,000, Federal Funds Sold $25,000,000, and Investment Securities free of collateral $66,000,000; totaling $122,282,000 or 34% of total assets. Additionally, the majority of the Company's loans are on a short term basis, maturing in approximately one year, which, combined with lines of credit with correspondent banks, provides additional liquidity. 11 In December 1988, the Company obtained a $3,000,000 term loan from another financial institution for the purpose of providing additional capital to the Bank. The Credit Agreement for this loan was amended pursuant to a Second Amendment to the Credit Agreement dated August 25, 1994. The Second Amendment was supported by a Support Agreement between a shareholder and Director of the Company and the Company whereby the shareholder guaranteed the payment of the loan. To compensate the shareholder for signing the Support Agreement, the Company signed a Holding Company Support Agreement whereby the Company: (1) paid the shareholder a standby fee of $23,500 in 1994 and 1995, and 1996 (2) issued to the shareholder warrants to purchase 25,000 shares of common stock of the Company at an exercise price of $6.74 per share which was equal to 80% of the book value per share of the Company on December 31, 1996. In March of 1996 the shareholder paid off the outstanding balance of $2,350,000 to the lending financial institution to allow the Company to contribute the maximum amount from the proceeds of the stock offering into the capital of the Bank. The new note bears an interest rate of 3% over prime rate with interest only payable quarterly for the first year and thereafter $125,000 plus interest payable quarterly. The remaining principal and interest is due on April 1, 1999. In March of 1997 the Company paid down the shareholder $2,000,000, paid an annual fee of $3,500 at 1% of the remaining $350,000 and issued 3,723 warrants at an excersize price of $6.74 per share which was equal to 80% of the book value per share of the Company on December 31, 1996. On April 1, 1997 the Company paid the remaining $350,000 to the shareholder. RISK-BASED CAPITAL STANDARDS AND OTHER REGULATORY MATTERS On April 8, 1992, the Bank executed a Formal Agreement (the "Agreement") with the Office of the Comptroller of the Currency (the "Comptroller"). On November 15, 1996 the Comptroller as a result of the examination as of September 30, 1996, determined that the continued existence of the Formal Agreement was no longer necessary and the Agreement was terminated as of that date. On May 27, 1993, the Company executed a Memorandum of Understanding (the "Memorandum") with the Federal Reserve Bank of San Francisco (the "Fed"). On March 13, 1997 the Fed as a result of the examination as of December 31, 1996, determined that the memorandum was no longer necessary and the memorandum was terminated as of that date. The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgements by the regulators about components, risk weightings and other factors. 12 Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk weighted assets, and of Tier I capital to average assets. Management believes, as of March 31, 1997, and 1996 that the Bank meets all capital adequacy requirements to which it is subject. As of March 31, 1997 and 1996 the most recent notification from the Comptroller categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risked-based, Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category. The Company's and the Bank's actual capital amounts and ratios are also presented in the table.
To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- As of March 31, 1997: Total Capital (to Risk Weighted Assets) Consolidated $29,541,000 11.70% $20,187,000 8.0% N/A Subsidiary Bank $28,936,000 11.49% $20,131,000 8.0% $25,164,000 10.0% Tier I Capital (to Risk Weighted Assets) Consolidated $26,361,000 10.45% $10,094,000 4.0% N/A Subsidiary Bank $25,765,000 10.24% $10,066,000 4.0% $15,098,000 6.0% Tier I Capital (to Average Assets) Consolidated $26,361,000 7.58% $13,910,000 4.0% N/A Subsidiary Bank $25,765,000 7.41% $13,898,000 4.0% $17,373,000 5.0% As of March 31, 1996: Total Capital (to Risk Weighted Assets) Consolidated $24,351,000 10.98% $17,710,000 8.0% N/A Subsidiary Bank $25,749,000 11.62% $17,700,000 8.0% $22,125,000 10.0% Tier I Capital (to Risk Weighted Assets) Consolidated $21,535,000 9.73% $8,855,000 4.0% N/A Subsidiary Bank $22,934,000 10.37% $8,850,000 4.0% $13,275,000 6.0% Tier I Capital (to Average Assets) Consolidated $21,535,000 6.53% $13,185,000 4.0% N/A Subsidiary Bank $22,934,000 6.96% $13,175,000 4.0% $16,469,000 5.0%
LEGAL PROCEEDINGS From time to time, the Company or the Bank is a party to claims and legal proceedings arising in the ordinary course of business. Management of the Company evaluates the Company's or Bank's exposure to the cases individually and in the aggregate and provides for potential losses on such litigation if the amount of the loss is determinable and if the incurrence of the loss is probable. After taking into consideration information furnished by counsel to the Company or the Bank as to the current status of various claims and legal proceedings to which the Company or the Bank is a party, management has accrued $950,000 as a reserve for various litigation pending as of December 31, 1996. 13 Set forth below is a brief summary of the status of litigation against the Company or the Bank involving claims in excess of $750,000. Management believes that the reserves which it has established for these matters is adequate at this time. However, litigation is inherently uncertain and no assurance can be given that this or any other litigation will not result in any loss which might be material to the Company. PDI LITIGATION. NATIONAL BANK OF SOUTHERN CALIFORNIA V. VINCENT E. GALEWICK, PERFORMANCE DEVELOPMENT, INC. ET. AL (the "PDI Litigation") is an interpleader action filed by the Bank on August 22, 1995 in the Orange County Superior Court. The dispute arose from a demand by the California Department of Corporations under California Government Code Section 7480 on August 17, 1995 for the identification of account names and account numbers associated with Vincent Galewick and Performance Development Inc. As a result of receipt of a declaration by the California Department of Corporations under California Financial Code Section 952, the Bank froze $12,301,113.01 in their accounts. On August 21, 1995, a temporary restraining order was issued restraining Performance Development, Inc., Vincent Galewick and others from transferring funds. The Bank was thereafter threatened by various parties with lawsuits for refusal to release the funds, and an attack was made on the applicability of the temporary restraining order to the funds. The Bank deposited the funds with the Orange County Superior Court and filed the interpleader action to allow the court to determine the disposition of the funds. In response, the defendants filed a cross complaint against the Bank alleging $25 million (the original claim alleged $45 million and was reduced during discovery) in damages due to lost opportunities, breach of contract, loss of goodwill and damage to their reputation due to the inability to use the $12,301,113.01. Additional claims for an unspecified amount of punitive damages, consequential damages and incidental damages have been alleged. Discovery has not yet been completed. A related action was filed by Larry Curran in the Orange County Superior Court arising out of the same transaction. A request for dismissal, without prejudice, was filed on behalf of the plaintiff in this action on January 31, 1997. FIP LITIGATION. In December 1995, Financial Institutions Partners, L.P. ("FIP") purchased 288,888 shares of the Company's Common Stock (the "Initial Shares") in a private placement at $6.75 per share ($1,949,994 in the aggregate). Under the terms of the Company's agreements with FIP, FIP agreed to purchase an additional 266,659 shares of the Company's Common Stock (the "Additional Shares") on or prior to May 5, 1996, subject to satisfaction of certain closing conditions. On April 11, 1996, FIP received confirmation from the Federal Reserve Bank of San Francisco that no regulatory approval was required for the purchase of the Additional Shares. On April 24, 1996, Hovde Financial, Inc., the corporate general partner of FIP, purchased 53,909 shares of the Company's Common Stock in the open market. FIP thereafter refused to purchase the Additional Shares on the grounds that the PDI Litigation constituted a material adverse change in the Company's financial condition and therefore the closing conditions were not, and could not, be satisfied by the Company. On June 11, 1996, FIP demanded that the Company either (a) extend the agreement until December 31, 1996 at an increased purchase price based upon the earnings of the Company from June 1, 1996 through November 30, 1996, or (b) repurchase the Initial Shares for an amount equal to the purchase price, plus $6.00 per share, plus nine percent interest, plus FIP's legal, accounting and due diligence expenses. The Company had periodic discussions with FIP thereafter regarding the purchase of the Additional Shares, but was unable to reach agreement with FIP. 14 FIP filed a complaint dated December 19, 1996 in the United States District Court for the Central District of California against the Company, the Bank and certain of their respective officers and directors alleging violation of Section 10 (b) (5) promulgated under the Securities Exchange Act of 1934, intentional misrepresentation, negligent misrepresentation and suppression of fact and rescission of FIP's purchase of the Initial Shares, consequential damages in excess of $1,650,000 and punitive damages due to the alleged failure by the Company to disclose all material facts regarding the PDI Litigation. In the alternative, FIP seeks a declaratory judgement requiring the Company to sell the Additional Shares to FIP at $6.75 per share if FIP determines it wishes to purchase such shares following a review of all information regarding the PDI Litigation. FIRST PENSION LITIGATION. ROUSSEAU. ET. AL. V. RANCHO VISTA NATIONAL BANK AND OTHERS is an action brought in the San Diego Superior Court on October 23, 1995 by a class of investors who invested pension funds with First Pension, a pension plan administrator, alleging claims against various banks who dealt with First Pension. The plaintiffs have stated claims for fraud and deceit, aiding and abetting fraud and deceit, breach of fiduciary duty, constructive fraud and aiding and abetting constructive fraud against a number of financial institutions, including the Bank. The Bank and certain of its officers were named as defendants, based on the fact that First Pension deposited investor pension funds into an account at the Bank of which the Bank agreed to be custodian. The plaintiffs allege losses of over $130 million due to the combined alleged wrongdoing of the bank defendants. No specific damage claim was alleged against the Bank. In January 1997, the Bank offered to settle the matter or, in the alternative, to seek an order from the court dismissing the action for failure to prosecute. A tentative settlement has been reached whereby the Bank would pay $30,000 to be distributed to the class, less certain fees and expenses. Before this settlement would be final, a settlement agreement must be executed, the class certified and the settlement agreement approved by the Court. EVAN V. HOME BANK AND OTHERS is a suit brought by the receiver for First Pension and related entities in the Central District of California based on the same allegations as in the ROUSSEAU matter. The receiver alleges that the Bank improperly delegated its fiduciary duties as a custodian of pension funds to First Pension and failed to ensure that all pension assets were transferred to the successor custodian. Plaintiffs have not alleged a specific damage claim against the Bank. Discovery on this matter has just commenced. RECENT DEVELOPMENTS On December 18, 1996, the Board of Directors of the Company (with one director absent) approved an Agreement and Plan of Reorganization (the "Merger Agreement") with Monarch Bancorp ("Monarch"). The Merger Agreement provides for the merger of the Company with and into Monarch, with Monarch as the surviving corporation. In connection with the merger, each share of common stock issued and outstanding at the effective time of the merger (other than (a) shares which have not been voted in favor of the principal terms of the merger and with respect to which dissenters' rights have been perfected in accordance with California law, and (b) shares held directly or indirectly by Monarch, other than shares held in a fiduciary capacity or in satisfaction of a debt previously contracted) will be converted into one share of Monarch common stock. As a result of the merger, holders of common stock immediately prior to the merger will own approximately 43% of the outstanding common stock of Monarch. As a condition to consummation of the merger, each of William H. Jacoby, Robert L. McKay and Mark H. Stuenkel will be appointed to the Monarch Board of Directors effective upon consummation of the merger. In addition, Monarch and the Company have agreed to take all actions necessary to 15 consummate the merger of Monarch Bank with and into NBSC, with NBSC as the surviving corporation. Consummation of the merger is subject to the satisfaction of certain conditions, including, (a) the approval by the shareholders of the Company and Monarch of the principal terms of the merger, (b) receipt of approvals and consents required by law in connection with the approval of the merger, (c) designated of the common stock of Monarch for listing on the NASDAQ National Market System, (d) receipt of an opinion that the merger will be a tax-free reorganization, and (e) confirmation that the merger may be accounted for as a pooling of interests (a condition which may be waived by the parties). More detailed information regarding the merger is set forth in the joint proxy statement of the Company and Monarch dated May 12, 1997. On April 29, 1997, Monarch executed an Agreement and Plan of Reorganization with SC Bancorp which provides for the shareholders of SC Bancorp to receive shares of Monarch common stock based on a purchase price of $14.25 per share of common stock of SC Bancorp using a floating exchange ratio and a price range. If the merger is consummated, shareholders of the Company (other than those perfecting dissenters' rights) will be entitled to vote on the merger of Monarch and SC Bancorp at a special meeting called for that purpose. 16 SIGNATURES: Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CALIFORNIA COMMERCIAL BANKSHARES (Registrant) Date: May 12, 1997 William H. Jacoby ----------------- ------------------------- William H. Jacoby President Date: May 12, 1997 Abdul S. Memon ----------------- ------------------------- Abdul S. Memon Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
9 3-MOS DEC-31-1997 MAR-31-1997 31282 0 25000 0 75738 0 0 216921 5231 356100 324845 0 5226 0 0 0 14680 11349 356100 5193 1088 330 6611 1473 1522 5089 150 0 4037 1566 1566 0 0 939 0.30 0.30 6.60 4060 0 0 4901 5,417 386 51 5231 3179 0 2052
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