-----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, Wgdv47JYbHNRk4cB0GKoua0a59mFsVuHayrmF+skOBVjTIcgputCoESpklXBScby IKkDa7xDGvnAQahFzjpS1w== 0000929624-97-001338.txt : 19971107 0000929624-97-001338.hdr.sgml : 19971107 ACCESSION NUMBER: 0000929624-97-001338 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIVIC BANCORP CENTRAL INDEX KEY: 0000747205 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 680022322 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13287 FILM NUMBER: 97708933 BUSINESS ADDRESS: STREET 1: 2101 WEBSTER ST STREET 2: 14TH FLOOR CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 510-836-6500 MAIL ADDRESS: STREET 1: 2101 WEBSTER STREET STREET 2: 14TH FLOOR CITY: OAKLAND STATE: CA ZIP: 94612 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _________________ Commission File No. 0-13287 CIVIC BANCORP 2101 Webster Street, 14th Floor Oakland, CA 94612 (510) 836-6500 Incorporated in California I.R.S. Employer Identification No. 68-0022322 The number of shares of common stock outstanding as of the close of business on November 4, 1997. Class Number of Shares Outstanding ----- ---------------------------- Common Stock 4,611,259 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 ________ ------- 1 CIVIC BANCORP AND SUBSIDIARY Index to Form 10-Q Page Number -----------
PART I. Item 1. Financial Statements Consolidated Balance Sheets September 30, 1997, September 30, 1996 and December 31, 1996 3 Consolidated Statements of Operations - Three Months Ended September 30, 1997 and September 30, 1996 and Nine Months Ended September 30, 1997 and September 30, 1996 4 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and September 30, 1996 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. Other Information 16 SIGNATURES 17
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PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIVIC BANCORP AND SUBSIDIARY ------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------ (In thousands except shares) September 30, September 30, December 31, 1997 1996 1996 ---------------- ---------------- ----------------- ASSETS - ------ Cash and due from banks $ 20,352 $ 12,469 $ 16,929 Federal funds sold 7,400 19,400 29,300 ---------------- ---------------- ----------------- Total cash and cash equivalents 27,752 31,869 46,229 Securities available for sale 31,133 26,751 26,871 Securities held to maturity (market value of $30,467, $45,901 and $41,667, respectively) 30,107 45,611 41,311 Other securities 1,949 1,717 1,761 Loans: Commercial 119,556 88,621 92,756 Real estate-construction 15,479 3,160 6,608 Real estate-other 64,954 56,628 64,272 Installment and other 20,280 19,316 19,757 ---------------- ---------------- ----------------- Total loans 220,269 167,725 183,393 Less allowance for loan losses 4,638 5,133 4,969 ---------------- ---------------- ----------------- Loans - net 215,631 162,592 178,424 Interest receivable and other assets 5,229 4,185 4,921 Leasehold improvements and equipment - net 1,324 1,563 1,463 Foreclosed assets 570 308 923 Other assets held for sale 205 275 275 ---------------- ---------------- ----------------- TOTAL ASSETS $313,900 $274,871 $302,178 ================ ================ ================= LIABILITIES AND SHAREHOLDERS' EQUITY - ----------------------------------- LIABILITIES Deposits: Noninterest-bearing $ 77,380 $ 65,358 $ 84,337 Interest-bearing: Checking 5,023 31,717 26,245 Money market 98,367 82,091 85,035 Time and savings 92,607 61,088 70,830 ---------------- ---------------- ----------------- Total deposits 273,377 240,254 266,447 Accrued interest payable and other liabilities 3,352 2,035 1,584 ---------------- ---------------- ----------------- Total liabilities 276,729 242,289 268,031 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred stock no par value; authorized, 10,000,000 shares; none issued or outstanding Common stock no par value; authorized, 10,000,000 shares; issued and outstanding, 4,391,123, 4,515,883 and 4,431,895 shares 31,278 31,423 31,739 Retained earnings, (subsequent to July 1, 1996 date of quasi-reorganization, total deficit eliminated $5.5 million) 5,665 1,050 2,240 Net unrealized gain on securities available for sale 228 109 168 ---------------- ---------------- ----------------- Total shareholders' equity 37,171 32,582 34,147 ---------------- ---------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $313,900 $274,871 $302,178 ---------------- ---------------- -----------------
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CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (In thousands except shares and per share amounts) Three Months Ended Sept. 30, Nine Months Ended Sept. 30, ------------------------------ ----------------------------- 1997 1996 1997 1996 ---- ---- ---- ---- INTEREST INCOME: Loans $ 5,618 $ 4,209 $ 15,612 $ 12,394 Securities available for sale, securities held to maturity and other securities 912 949 2,828 2,807 Tax exempt securities 159 68 438 102 Federal funds sold 90 239 222 282 ---------- ---------- ---------- ---------- Total interest income 6,779 5,465 19,100 15,585 INTEREST EXPENSE: Deposits 1,934 1,417 5,328 3,654 Other borrowings 7 - 39 31 ---------- ---------- ---------- ---------- Total interest expense 1,941 1,417 5,367 3,685 ---------- ---------- ---------- ---------- NET INTEREST INCOME 4,838 4,048 13,733 11,900 Provision for loan losses 25 75 75 525 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,813 3,973 13,658 11,375 ---------- ---------- ---------- ---------- NONINTEREST INCOME: Customer service fees 222 150 581 430 Other 26 18 108 95 ---------- ---------- ---------- ---------- Total noninterest income 248 168 689 525 NONINTEREST EXPENSE: Salaries and employee benefits 1,744 1,475 5,146 4,500 Occupancy 269 251 760 753 Equipment 210 219 664 647 Foreclosed asset expense 9 101 72 254 Goodwill and core deposit amortization 57 64 172 193 Telephone and postage 76 62 220 188 Data processing services 83 59 246 184 Marketing 59 52 160 168 Legal fees 74 44 217 134 Consulting fees 45 30 135 150 FDIC insurance 8 1 23 2 Other 367 298 1,037 942 ---------- ---------- ---------- ---------- Total other expenses 3,001 2,656 8,852 8,115 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 2,060 1,485 5,495 3,785 Income tax expense 810 435 2,070 825 ---------- ---------- ---------- ---------- NET INCOME $ 1,250 $ 1,050 $ 3,425 $ 2,960 ========== ========== ========== ========== NET INCOME PER COMMON SHARE $ 0.27 $ 0.23 $ 0.74 $ 0.64 ========== ========== ========== ========== Weighted average shares outstanding used to compute net income per common share 4,644,089 4,630,746 4,610,346 4,603,160 ========== ========== ========== ==========
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CIVIC BANCORP AND SUBSIDIARY --------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS --------------------------------------------------------------------- (In thousands) Nine Months Ended Sept. 30, -------------------------- 1997 1996 ---------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,425 $ 2,960 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 75 525 Depreciation and amortization 835 597 Loss on sale of fixed assets - 30 Loss on sale of foreclosed assets - 43 Write-down of foreclosed assets 15 27 Increase (Decrease) in deferred loan fees 42 (149) Change in assets and liabilities: Increase in interest receivable and other assets (378) (464) Increase in accrued interest payable and other liabilities 1,827 654 -------- -------- Net cash provided by operating activities 5,841 4,223 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (303) (355) Paydown on assets held for sale 70 - Expenditures on foreclosed assets 35 - Proceeds from sales of foreclosed assets 1,063 467 Net increase in loans (38,084) (13,307) Activities in securities held to maturity: Proceeds from maturing securities 12,019 14,098 Purchases of securities (1,005) (8,392) Activities in securities available for sale: Proceeds from maturing securities - 10,000 Purchases of securities (4,382) (26,752) -------- -------- Net cash used in investing activities (30,587) (24,241) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 193 173 Purchase of common stock (854) - Net increase in deposits 6,930 20,156 -------- -------- Net cash provided by financing activities 6,269 20,329 -------- -------- Net (decrease) increase in cash and cash equivalents (18,477) 311 Cash and cash equivalents at beginning of period 46,229 31,558 -------- -------- Cash and cash equivalents at end of period $ 27,752 $ 31,869 ======== ======== Cash paid during year for: Interest $ 5,138 $ 3,601 ======== ======== Income taxes $ 1,483 $ 1,322 ======== ======== Supplemental schedule of non-cash investing activity: Loans transferred to foreclosed assets $ 760 $ 75 ======== ========
5 CIVIC BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated financial statements of Civic BanCorp and subsidiary (the Company) have been prepared in accordance with generally accepted accounting principles and with the instructions to Form 10-Q. In the opinion of management, all necessary adjustments have been made to fairly present the financial position, results of operations and cash flows for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. The results of operations and cash flows are not necessarily indicative of those expected for the complete fiscal year. Net income per common share computed on a primary and fully diluted basis is substantially the same. 2. NEW PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board, ("FASB"), issued Statement of Financial Accounting Standards No. 128, ("FAS 128"), "Earnings Per Share". This statement specifies the computation, presentation and disclosure requirements for earnings per share and is effective for both interim and annual periods ending after December 15, 1997. Earlier application is not permitted. The Company does not believe FAS 128 will have a material effect on its consolidated financial statements. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, ("FAS 130"), "Reporting Comprehensive Income". This statement establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. It does not require a specific format for the statement, but requires the Company to display an amount representing total comprehensive income for the period in that financial statement. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, ("FAS 131"), "Disclosures About Segments of an Enterprise and Related Information". This statement establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 31, 1997. The Company does not believe it has any separate reportable business segments. The Securities and Exchange Commission, ("SEC"), has approved rule amendments to clarify and expand existing disclosure requirements for derivative instruments. The amendments require enhanced disclosure of accounting policies for derivative financial instruments in the notes to the financial statements and expand existing disclosure requirements to include quantitative and qualitative information about market risk inherent in market risk sensitive instruments. The required quantitative and qualitative information should be disclosed outside the financial statements and related notes thereto. The enhanced accounting policy disclosure requirements are effective for the quarterly period ended September 30, 1997 and the required expanded disclosure of quantitative and qualitative information about market risk are effective with the 1997 Form 10-K. As the Company does not engage in derivative instruments, no further interim period disclosure has been provided. 3. SUBSEQUENT EVENT On October 15, 1997, at a regularly scheduled meeting of the Board of Directors of Civic BanCorp, the Directors declared a 5% stock dividend to shareholders of record on October 29, 1997, payable on November 12, 1997. Fractional shares will be paid in cash. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW For the nine months ended September 30, 1997, the Company reported net income of $3,425,000, or $.74 per share compared to a net income of $2,960,000 or $.64 per share for the same period of the prior year. The annualized return on average assets was 1.53% for the nine months ended September 30, 1997 compared to 1.61% for the same period of the prior year. The annualized return on average shareholders' equity for the nine months ended September 30, 1997 and 1996 was 12.94% and 12.78%, respectively. RESULTS OF OPERATIONS Net interest income for the nine months ended September 30, 1997 was $13.7 million, increasing $1.8 million or 15.4% from net interest income of $11.9 million for the same period in 1996. The increase in net interest income is primarily due to an increase in the volume of average earning assets the benefits of which were partially offset by an increase in the volume of interest bearing liabilities. Total interest income for the first nine months of 1997 equaled $19.1 million, an increase of $3.5 million from interest income earned for the same period in 1996. The increase in total interest income is primarily attributed to the increase in volume of earning assets. Total average earning assets increased $51.7 million or 22.8% to $278.9 million for the first nine months of 1997 compared to $227.2 million for the same period in 1996. Total interest expense for the first nine months of 1997 was $5.4 million an increase of $1.7 million or 45.6% from the $3.7 million for the first nine months of 1996. The increase in interest expense was due to increases in both the average volume and the average rate paid on interest bearing liabilities. Average interest bearing liabilities were $187.4 million for the first nine months of 1997 as compared to $145.2 million for the same period of the prior year, an increase of $42.2 million or 29.1%. The average rate paid on these liabilities increased 44 basis points to 3.83% for the first nine months of 1997 from 3.39% for the same period of 1996. The increase in the average rate is attributed to a shift in the mix of interest bearing liabilities to savings and time deposits. Savings and time deposits as a percentage of average total interest bearing liabilities increased to 41.9% from 32.5% for the first nine months of 1997 and 1996, respectively. Net Interest Margin Net interest margin declined 32 basis points to 6.72% for the nine months ended September 30, 1997 from 7.04% for the same period of the prior year. The decrease in the margin is attributed to the slight decrease in average rate earned on loans of 17 basis points and the increase in the average rate paid on interest bearing deposits of 44 basis points. Management attributes the decline in the yield on average loans to the Company's efforts to transact loans with lower risk. Terms which would reduce the level of risk on a loan include stronger sources of repayment, higher levels of collateralization and other terms which are considered more favorable to the Bank. Higher quality loans generally have a lower risk premium over the Bank's reference rate. Additionally, there is increased competition for such higher quality loans from other financial institutions. However, no assurance can be given that the effort to make loans with lower risk will result in fewer delinquencies and lower loan losses in the future. The increase in the average rate paid on interest bearing deposits reflects a higher interest rate environment for deposits and a shift in the mix of interest bearing liabilities toward savings and time deposits which have higher interest rates. 7 The following table presents an analysis of the components of net interest income for the first nine months ended September 30, 1997 and 1996.
Nine months ended Sept. 30, -------------------------------------------------- 1997 -------------------------------------------------- Interest Rates Dollars in thousands Average Income\ Earned\ Balance Expense /2 / Paid ------------ ----------- ------------ ASSETS Securities available for sale $ 30,901 $ 1,478 6.40% Securities held to maturity: U.S. Treasury securities 6,788 303 5.97% U.S. Government agencies 17,325 964 7.44% Municipal securities /(1)/ 12,013 731 8.13% Commercial paper - - -% Other securities 1,860 83 5.95% Federal funds sold and securities purchased under agreements to resell 5,466 222 5.43% Loans: /2,3/ Commercial 108,487 8,458 10.42% Real estate-construction 10,879 829 10.19% Real estate-other 64,867 4,823 9.94% Installment and other 20,362 1,502 9.86% ---------- ---------- ---------- Total Loans 204,595 15,611 10.20% ---------- ---------- ---------- Total Earning Assets 278,948 19,392 9.29% Cash and due from banks 17,271 Leasehold improvements and equipment - net 1,418 Interest receivable and other assets 4,891 Foreclosed assets 608 Assets held for sale 205 Less allowance for loan loss (4,882) ---------- TOTAL ASSETS $298,459 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking $ 14,734 175 1.59% Money market 93,247 2,149 3.08% Time and savings 78,489 3,004 5.12% Other borrowed funds 896 39 5.85% ---------- ---------- ---------- Total interest bearing 187,366 5,367 3.83% liabilities Demand deposits 73,051 Other liabilities 2,742 Shareholders' equity 35,300 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' $298,459 EQUITY ========== Net Interest Income $14,025 ========== Net Interest Margin 6.72% ========== Tax Equivalent Adjustment /(1)/ $ 292 ========== - ------------------------------------------------------------------------------------------------------------------------------------
Nine months ended Sept. 30, -------------------------------------------------- Dollars in thousands 1996 -------------------------------------------------- Interest Rates Average Income\ Earned\ Balance Expense /2 / Paid ------------ ----------- ------------ ASSETS Securities available for sale $ 10,832 $ 497 6.13% Securities held to maturity: U.S. Treasury securities 10,799 495 6.12% U.S. Government agencies 33,241 1,711 6.88% ---------- ---------- ---------- Municipal securities /(1)/ 2,983 170 7.60% Commercial paper 777 32 5.42% Other securities 1,648 72 5.86% Federal funds sold and securities purchased under agreements to resell 7,278 282 5.18% Loans: /2,3/ Commercial 79,478 6,285 10.56% Real estate-construction 3,151 237 10.04% Real estate-other 59,506 4,546 10.20% Installment and other 17,492 1,326 10.12% ---------- ---------- ---------- Total Loans 159,627 12,393 10.37% ---------- ---------- ---------- Total Earning Assets 227,185 15,652 9.20% Cash and due from banks 16,832 Leasehold improvements and equipment-net 1,643 Interest receivable and other assets 3,531 Foreclosed assets 613 Assets held for sale 275 Less allowance for loan loss (5,030) ---------- TOTAL ASSETS $245,049 ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking $ 24,343 172 0.94% Money market 72,969 1,782 3.26% Time and savings 47,161 1,700 4.82% Other borrowed funds 745 31 5.59% ---------- ---------- ---------- Total interest bearing liabilities 145,218 3,685 3.39% Demand deposits 67,135 Other liabilities 1,837 Shareholders' equity 30,887 ---------- TOTAL LIABILITIES AND SHAREHOLDERS' $245,077 EQUITY ========== Net Interest Income $11,967 ========= Net Interest Margin 7.04% ========== Tax Equivalent Adjustment /(1)/ $67 ========= - ------------------------------------------------------------------------------------------------------------------------------------
(1) Tax-exempt interest income on municipal securities is computed using a Federal income tax rate of 40%. Interest on municipal securities was $438,000 and $102,000 for the nine months ended September 30, 1997 and 1996, respectively. (2) Non-performing loans have been included in the average loan balances. Interest income is included on non-accrual loans only to the extent cash payments have been received. (3) Interest income includes loan fees of $330,000 and $313,000 on commercial loans for the nine months ended September 30, 1997 and 1996, respectively; fees of $298,000 and $343,000 on real estate loans for the nine months ended September 30, 1997 and 1996, respectively; and fees of $25,000 and $25,000 on installment and other loans for the nine months ended September 30, 1997 and 1996, respectively. 8 The following table sets forth changes in interest income and interest expense for each major category of interest-earning assets and interest-bearing liabilities, and the amount of change attributable to volume and rate changes for the nine month periods ended September 30, 1997 and 1996 .
Analysis of Changes in Interest Income and Expense Increase (Decrease) Due to Change in in thousands Volume /1 / Rate /2 / Total ------------- ---------- ----------- (In thousands) Increase (decrease) in interest income: Securities available for sale $ 920 $ 61 $ 981 Securities held to maturity: U.S. Treasury securities (185) (7) (192) U.S. Government agencies (820) 73 (747) Municipal securities 512 48 560 Commercial paper (32) - (32) Other securities 9 2 11 Federal funds sold (70) 10 (60) Loans: Commercial 2,287 (114) 2,173 Real estate-construction 581 11 592 Real estate-other 403 (126) 277 Installment and other 217 (41) 176 ------------- ---------- ----------- Total Loans 3,488 (270) 3,218 ------------- ---------- ----------- Total increase (decrease) $ 3,822 $ (83) $ 3,739 ------------- ---------- ----------- (Increase) decrease in interest expense: Deposits: Interest bearing checking $ 68 $ (71) $ (3) Money market (493) 126 (367) Savings and time (1,127) (177) (1,304) Other borrowed funds (6) (2) (8) ------------- ---------- ----------- Total increase (decrease) $(1,558) $(124) $(1,682) ------------- ---------- ----------- Total change in net interest income $ 2,264 $(207) $ 2,057 ============= ========== ===========
(1) Changes not solely attributed to rate or volume have been allocated to volume. (2) Loan fees are reflected in rate variances. Provision for Loan Losses The provision for loan losses for the nine months ended September 30, 1997 was $75,000, a decrease of $450,000 or 85.7% from the nine months ended September 30, 1996. The amount of the provision was reduced because management believed the allowance for loan losses is adequate. Non-Interest Income Non-interest income for the nine months ended September 30, 1997 was $689,000, an increase of $164,000 or 31.2% from the nine months ended September 30, 1996. Customer service fees have increased $151,000 or $35.1% to $581,000 from $430,000 due to the increase in deposit activity and an increase in foreign trade transaction volume. 9 Non-Interest Expense Non-interest expense totaled $8.9 million and $8.1 million for the nine months periods ended September 30, 1997 and 1996, respectively. Salaries and employee benefits for the nine months ended September 30, 1997 increased $646,000 or 14.4% from the same period in 1996. The increase in salaries and employee benefits is related to increases in the management incentive accrual, employer contributions to the 401K plan and staffing levels. Full time equivalent personnel numbered 108 on September 30, 1997 compared to 100 on September 30, 1996. Foreclosed asset expenses have decreased as foreclosed properties have been sold and increased data processing expenses are related to increased loan and deposit activity combined with general cost escalation. Legal expenses have increased due to increased legal activity to recover prior period loan charge-offs and the FDIC assessments increased by $21,000 for the first nine months of 1997 as compared to the prior year due to the addition of a regulatory FICO assessment. The following table summarizes the significant components of noninterest expense for the periods indicated.
Nine Months Ended --------------------------------- September September Dollar % (Dollars in thousands) 1997 1996 Change Change ---------- ---------- --------- -------- Salaries and related benefits $5,146 $4,500 $ 646 14.4% Occupancy 760 753 7 0.9% Equipment 664 647 17 2.6% Foreclosed asset expenses 72 254 (182) -71.7% Goodwill and core deposit amortization 172 193 (21) -10.9% Telephone and postage 220 188 32 17.0% Data processing services 246 184 62 33.7% Marketing 160 168 (8) -4.8% Legal fees 217 134 83 61.9% Consulting fees 135 150 (15) -10.0% FDIC insurance 23 2 21 1050.0% Other 1,037 942 95 10.1% ------- ------- ------- ------- TOTAL NONINTEREST EXPENSE $8,852 $8,115 $ 737 9.1% ======= ======= ======= =======
Provision for Income Taxes The provision for income taxes for the first nine months of 1997 increased to $2,070,000 from $825,000 for the same period of the prior year. These provisions represent effective tax rates of 38% and 22%, respectively. The 1997 provision represents a more normalized effective tax rate as compared to the 1996 provision which included the tax benefits of prior period operating losses and tax carryforward items. Beginning July 1, 1996, the effective date of the quasi-reorganization, certain tax benefits which arose prior to the date of the quasi-reorganization are being reported as a direct adjustment to common stock. FINANCIAL CONDITION Loans Average loans increased $45.0 million or 28.2% to $204.6 million for the nine months ended September 30, 1997 from $159.6 million for the same period in 1996. The increase in average loans is attributed to an improving economic environment and an overall increase in loan demand. 10 Real estate construction loans as a percentage of total loans outstanding were 7.0% at September 30, 1997 compared to 1.9% at September 30, 1996. Risks associated with real estate construction lending are generally considered to be higher than risks associated with other forms of lending however, the Bank continues to fund real estate construction commitments on a limited basis with more stringent underwriting criteria. Other real estate loans consist of mini-perm loans and land acquisition loans which are primarily owner-occupied and are generally granted based on the rental or lease income stream generated by the property. Other real estate loans totaled $65.0 million at September 30, 1997, an increase of $8.3 million or 14.7% from September 30, 1996. The following table sets forth the amount of loans outstanding in each category and the percentage of total loans outstanding for each category at the dates indicated.
September 30, December 31, September 30, ---------------------- -------------------------- -------------------------- 1997 1996 1996 ---------------------- -------------------------- -------------------------- Amount Percent Amount Percent Amount Percent ----------- --------- ------------ ----------- ----------- ---------- (Dollars in thousands) Commercial $119,556 54.3% $ 92,756 50.6% $ 88,621 52.8% Real estate - construction 15,479 7.0% 6,608 3.6% 3,160 1.9% Real estate - other 64,954 29.5% 64,272 35.0% 56,628 33.8% Installment and other 20,280 9.2% 19,757 10.8% 19,316 11.5% -------- ------- -------- ------- -------- -------- TOTAL $220,269 100.0% $183,393 100.0% $167,725 100.0% ======= ====== ======== ====== ======== ======
Foreclosed Assets Foreclosed assets totaled $570,000 at September 30, 1997, as compared to $923,000 at December 31, 1996. During the first nine months of 1997, the Company sold three properties with proceeds of $1,063,000, but foreclosed on one single family residence which is currently under contract and is the only foreclosed asset as of September 30, 1997. Non-Performing Assets The following table provides information with respect to the Company's past due loans and components of non-performing assets at the dates indicated.
Sept. 30 Dec. 31 Sept. 30 1997 1996 1996 -------- -------- --------- (Dollars in thousands) Loans 90 days or more past due and still accruing $ 192 $ 322 $ 151 Non-accrual loans 3,465 2,811 3,200 Other assets held for sale 205 275 275 Foreclosed assets 570 923 308 -------- -------- --------- Total non-performing assets $4,432 $4,331 $3,934 ======== ======== ========= Non-performing assets to period end loans, other assets held for sale plus foreclosed assets 2.00% 2.35% 2.34% ======== ======== =========
11 At September 30, 1997, the recorded investment in loans considered to be impaired under Statement of Financial Accounting Standards No. 114 "Accounting by Creditors for Impairment of a Loan" as amended by Statement of Financial Accounting Standards No. 118 was $3,465,000 all of which were placed on a non- accrual basis. For the nine months ended September 30, 1997, the average recorded investment in impaired loans was $3,498,000 and no interest income has been recognized on impaired loans. If interest income on those loans had been recognized, such income would have approximated $459,000. Allowance for Loan Losses The allowance for loan losses is maintained at a level that management of the Company considers to be adequate for losses that can be reasonably anticipated in relation to the risk of future losses inherent in the loan portfolio. The allowance is increased by charges to operating expenses and reduced by net charge-offs. In assessing the adequacy of the allowance for loan losses, management relies on its ongoing review of the loan portfolio to identify potential problem loans in a timely manner, ascertains whether there are probable losses which must be charged off and assesses the aggregate risk characteristics of the portfolio. Factors which influence management's judgment include the impact of forecasted economic conditions, historical loan loss experience, the evaluation of risks which vary with the type of loan, creditworthiness of the borrower and the value of the underlying collateral. Management believes the allowance for loan losses was adequate at September 30, 1997. The following table summarizes the changes in the allowance for loan losses for the periods indicated:
Nine Months Year Nine Months Ended Ended Ended 9-30-97 12-31-96 9-30-96 ----------- ----------- ----------- (Dollars in thousands) Balance, at beginning of period $ 4,969 $ 4,960 $ 4,960 Charge-offs: Commercial 16 95 95 Real estate - construction 300 370 270 Real estate - other 400 477 175 Installment and other 16 127 126 ---------- ----------- ---------- Total charge-offs 732 1,069 666 Recoveries: Commercial 11 242 125 Real estate - construction 37 56 54 Real estate - other 253 140 122 Installment and other 25 40 13 ---------- ----------- ---------- Total recoveries 326 478 314 ---------- ----------- ---------- Net charge-offs 406 591 352 Provision charged to operations 75 600 525 ---------- ----------- ---------- Balance, at end of period $ 4,638 $ 4,969 $ 5,133 ========== =========== ========== Ratio of net charge-offs to average loans (annualized) 0.26% 0.36% 0.29% ========== =========== ========== Allowance at period end to total loans outstanding 2.11% 2.71% 3.06% ========== =========== ========== Allownace at period end to total non-performing loans 126.8% 158.6% 153.2% ========== =========== ==========
12 Potential Problem Loans At September 30, 1997 there were no loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been disclosed in the discussion above that (i) represented or resulted from trends or uncertainties which management anticipated would have a material impact on future operating results, liquidity, capital resources or (ii) represented material credits about which management was aware of information that would cause serious doubt as to the ability of the borrower to comply with the loan repayment terms. Investment Portfolio The Company's investment portfolio is used primarily for liquidity purposes and secondarily for investment income. The portfolio is primarily composed of U.S. Treasury and U.S. government agency instruments and investment grade municipal obligations. The company has diverted liquidity from maturing U.S. government agency securities to satisfy the growth of the higher yielding loan portfolio and has increased its investment in municipal securities to benefit from higher after-tax yields available on bank-qualified municipal securities. The table below summarizes the book value and estimated market values of investment securities at the dates indicated.
September 30, -------------------------------------------------- 1997 1996 ------------------------- ---------------------- Book Market Book Market Value Value Value Value -------- -------- -------- --------- (Dollars in thousands) SECURITIES HELD TO MATURITY: U.S. Treasury securities $ 5,934 $ 5,952 $10,850 $10,847 U.S. government agencies and corporation 12,013 12,095 26,042 26,361 Municipal securities 12,062 12,317 8,585 8,558 Collateralized mortgage obligations 98 103 134 135 -------- --------- -------- -------- TOTAL $30,107 $30,467 $45,611 $45,901 ======== ========= ======== ======== SECURITIES AVAILABLE FOR SALE: U.S. Treasury securities $12,031 $12,215 $12,046 $12,130 U.S. government agencies and corporation 18,722 18,918 14,596 14,621 -------- --------- -------- -------- TOTAL $30,753 $31,133 $26,642 $26,751 ======== ========= ======== =========
Deposits For the nine months ended September 30, 1997 average deposits totaled $259.5 million, an increase of $47.9 million or 22.6% from $211.6 million for the same period in 1996. Management attributes the increase in deposits to an improving economic environment and an increase in loan demand. It is the Company's objective to become the primary bank for its customers by servicing both the loan and the deposit needs. Accordingly, a correlation is expected between loan and deposit volumes such that deposit volumes will increase as loan activity increases. Average demand deposits totaled $73.1 million, an increase of $6.0 million or 8.9% from the same period in 1996, however as a percentage of total deposits, demand deposits decreased to 28.1% for the nine months ended September 30, 1997 from 31.7% for the same period of the prior year. Average interest-bearing deposits increased $42.0 million or 29.1% for the nine months ended September 30, 1997 from the same period in 1996. Average interest-bearing deposits comprised 71.9% of average total deposits for the nine months ended September 30, 1997 and 68.3% of average total deposits for the nine months ended September 30, 1996. 13 The increase in savings and time deposits, which had the greatest level of growth of all deposit types, is attributed to the interest rate environment wherein time deposit rates are comparable to interest rates on investment securities and do not require broker commissions or other transaction costs when purchased. The table below sets forth information regarding the Bank's average deposits by amount and percentage of total deposits for the nine months ended September 30, 1997 and 1996.
Average Deposits -------------------------------------------------------------- Nine Months Ended Sept. 30, --------------------------------------------------------------- 1997 1996 -------------------------------- ---------------------------- Amount Percentage Amount Percentage ----------- --------------- ---------- ------------ Demand accounts $ 73,051 28.1% $ 67,135 31.7% Interest-bearing checking 14,734 5.7% 24,343 11.5% Money market 93,247 35.9% 72,969 34.5% Savings and time 78,489 30.3% 47,161 22.3% ----------- --------------- ---------- ------------ Total $259,521 100.0% $211,608 100.0% =========== =============== ========== ============
Certificates of deposit over $100,000 are generally considered a higher cost and less stable form of funding than lower denomination deposits and may represent a greater risk of interest rate and volume volatility than small retail deposits. Time certificates of $100,000 or more at September 30, 1997 had the following schedule of maturities:
(In thousands) Sept. 30, 1997 Dec. 31, 1996 -------------- ------------- Three months or less $33,485 $15,318 After three months through six months 18,571 20,918 After six months through twelve months 11,885 8,898 After twelve months 3,042 668 --------- --------- Total $66,983 $45,802 ========= =========
LIQUIDITY AND CAPITAL RESOURCES Liquidity Liquidity management refers to the Bank's ability to acquire funds to meet loan demand, to fund deposit withdrawals and to service other liabilities. To augment liquidity, the Bank has informal federal funds borrowing arrangements with correspondent banks totaling $30.0 million. The Bank is a member of the Federal Home Loan Bank of San Francisco and through membership has the ability to pledge qualifying collateral for short term (up to six months) and long term (up to five years) borrowing. At September 30, 1997 the Bank had no outstanding borrowings against these arrangements. Additionally, at September 30, 1997, unpledged government securities that are available to secure additional borrowing in the form of reverse repurchase agreements totaled approximately $39.6 million. At September 30, 1997 the Bank had no reverse repurchase agreements. The liquidity position of the Company declined during the first nine months of 1997 from December 31, 1996 as cash flows required for investing activities exceeded the funds provided by operating and financing activities by $18.5 million. Cash and cash equivalents of $30.6 million were required to accommodate the growth in the loan portfolio. Deposit growth provided $6.3 million of cash and cash equivalents and operating activities provided by an additional $5.8 million of cash and cash equivalents. 14 The liquidity position of the Company may be expressed as a ratio defined as (a) cash, Federal funds sold, other unpledged short term investments and marketable securities, including those maturing after one year, divided by (b) total assets less pledged securities. Using this definition at September 30, 1997, the Company had a liquidity ratio of 26.6% as compared to 36.5% at December 31, 1996. Overnight Federal funds sold at September 30, 1997 were $7.4 million compared to $29.3 million of overnight Federal funds sold at December 31, 1996 which is an unusually high level and was attributed to client year-end activity. Capital Resources Total shareholders' equity increased to $37.2 million at September 30, 1997 from $34.1 million at December 31, 1996 reflecting retained income of $3,425,000 for the first nine months of 1997 and an increase in the market adjustment of securities available for sale offset by a net reduction of $661,000 in common stock due to stock repurchases and option exercises. The Company and the Bank are subject to capital adequacy guidelines issued by the Federal Reserve Board of Governors which require a minimum risk-based capital ratio of 8%. At least 4% must be in the form of "Tier 1" capital which consists of common equity, non-cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries. "Tier 2" capital consists of cumulative and limited-life preferred stock, mandatory convertible securities, subordinated debt and, subject to certain limitations, the allowance for loan losses. General loan loss reserves included in Tier 2 capital cannot exceed 1.25% of risk-weighted assets. At September 30, 1997 the Company's total risk-based capital ratio was 15.08%. The following table presents the Company's risk-based capital and leverage ratios as of September 30, 1997 and December 31, 1996.
Minimum Capital Requirements To Be Considered Well Capitalized Minimum Under Prompt Corrective Actual Capital Requirements Action Provisions --------------------------- --------------------------- ---------------------------- Amount Ratio Amount Ratio Amount Ratio ----------- ----------- ----------- ----------- ------------ ----------- As of September 30, 1997: Total Capital (to Risk Weighted Assets) $39,273 15.08% $20,840 greater than 8.00% $26,050 greater than 10.00% Tier 1 Capital (to Risk Weighted Assets) 36,000 13.82% 10,420 greater than 4.00% 15,630 greater than 6.00% Tier 1 Capital (to Average Assets) 36,000 11.67% 12,341 greater than 4.00% 15,426 greater than 5.00% As of December 31, 1996: Total Capital (to Risk Weighted Assets) $35,412 16.10% $17,594 greater than 8.00% $21,993 greater than 10.00% Tier 1 Capital (to Risk Weighted Assets) 32,635 14.84% 8,797 greater than 4.00% 13,196 greater than 6.00% Tier 1 Capital (to Average Assets) 32,635 11.27% 11,580 greater than 4.00% 14,475 greater than 5.00%
15 PART II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None 16 SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized and in the capacity indicated. CIVIC BANCORP ------------- (Registrant) Date: November 5, 1997 By: /s/ Herbert C. Foster --------------------------------------- Herbert C. Foster President Chief Executive Officer By: /s/ Gerald J. Brown ---------------------------------------- Gerald J. Brown Chief Financial Officer Principal Accounting Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 9
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS DEC-31-1997 DEC-31-1996 JAN-01-1997 JAN-01-1996 SEP-30-1997 SEP-30-1996 20,352 12,469 0 0 7,400 19,400 0 0 31,133 26,751 30,107 45,611 30,467 45,901 220,269 167,725 4,638 5,133 313,900 274,871 273,377 240,254 0 0 3,352 2,035 0 0 0 0 0 0 31,278 31,423 5,893 1,159 313,900 274,871 15,612 12,394 3,488 3,191 0 0 19,100 15,585 5,328 3,654 5,367 3,685 13,733 11,900 75 525 0 0 8,852 8,115 5,495 3,785 5,495 3,785 0 0 0 0 3,425 2,960 0.24 0.23 0.24 0.23 6.72 7.04 3,465 3,200 192 151 0 0 0 0 4,969 4,960 732 666 326 314 4,638 5,133 4,638 5,133 0 0 1,790 1,968
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