-----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, AbAMfbsEBheOS7xMRCAVqHADnpxnP5+eGN/qaA8sE5Ow+bmNCw6hy4YU7tkA8KyK rezsyBc2XpSh0P74avYqRg== 0000929624-00-000700.txt : 20000516 0000929624-00-000700.hdr.sgml : 20000516 ACCESSION NUMBER: 0000929624-00-000700 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: 633488 BUSINESS ADDRESS: STREET 1: 2101 WEBSTER ST STREET 2: 14TH FLOOR CITY: OAKLAND STATE: CA ZIP: 94612 BUSINESS PHONE: 5108366500 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 March 31, 2000 -------------- 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 April 1, 2000: Class Number of Shares Outstanding ----- ---------------------------- Common Stock 4,953,533 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 March 31, 2000, March 31, 1999 and December 31, 1999 3 Consolidated Statements of Income - Three Months Ended March 31, 2000 and March 31, 1999 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 2000 and March 31, 1999 5 Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2000 and March 31, 1999 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II. Other Information 20 SIGNATURES 21
2 Part I. FINANCIAL INFORMATION Item 1. Financial Statements CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands except shares)
March 31, March 31, December 31, 2000 1999 1999 --------- --------- ------------ ASSETS - ------ Cash and due from banks $ 29,685 $ 17,339 $ 12,205 Federal funds sold - 81,750 7,500 ---------- ---------- ---------- Total cash and cash equivalents 29,685 99,089 19,705 Securities available for sale 36,831 35,727 31,665 Securities held to maturity (market value of $45,406, $37,027 and $42,468, respectively) 46,397 36,574 43,416 Other securities 2,243 2,257 2,126 Loans: Commercial 210,310 154,226 173,124 Real estate-construction 13,621 8,643 10,053 Real estate-other 108,203 64,887 85,470 Installment and other 21,449 16,495 16,890 ---------- ---------- ---------- Total loans 353,583 244,251 285,537 Less allowance for loan losses 5,962 4,710 4,850 ---------- ---------- ---------- Loans - net 347,621 239,541 280,687 Interest receivable and other assets 19,350 6,231 6,151 Leasehold improvements and equipment - net 2,077 1,612 1,621 Foreclosed assets 200 - - ---------- ---------- ---------- TOTAL ASSETS $ 484,404 $ 421,031 $ 385,371 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ LIABILITIES Deposits: Noninterest-bearing $ 86,920 $ 72,941 $ 65,277 Interest-bearing: Checking 6,721 4,692 11,851 Money market 189,018 173,463 160,432 Time and savings 139,553 120,805 97,154 ---------- ---------- ---------- Total deposits 422,212 371,901 334,714 Federal funds purchased 8,875 - - Accrued interest payable and other liabilities 5,339 5,617 4,453 ---------- ---------- ---------- Total liabilities 436,426 377,518 339,167 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, 4,953,533, 4,755,633 and 4,908,132 shares 38,096 33,259 34,751 Retained earnings, (subsequent to July 1, 1996 date of quasi-reorganization, total deficit eliminated $5.5 million) 10,140 10,072 11,701 Accumulated other comprehensive income (loss) - net (258) 182 (248) ---------- ---------- ---------- Total shareholders' equity 47,978 43,513 46,204 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 484,404 $ 421,031 $ 385,371 ========== ========== ==========
3 CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Dollars in thousands except shares and per share amounts)
Three Months Ended March 31, ---------------------------------- 2000 1999 ------------ ------------ INTEREST INCOME: Loans $ 7,544 $ 5,475 Securities available for sale, securities held to maturity and other securities 880 782 Tax exempt securities 247 192 Federal funds sold 72 813 ------------ ------------ Total interest income 8,743 7,262 INTEREST EXPENSE: Deposits 2,288 2,188 Other borrowings 67 - ------------ ------------ Total interest expense 2,355 2,188 ------------ ------------ NET INTEREST INCOME 6,388 5,074 Provision for loan losses 150 45 ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 6,238 5,029 ------------ ------------ NONINTEREST INCOME: Customer service fees 308 202 Other 44 40 ------------ ------------ Total noninterest income 352 242 NONINTEREST EXPENSE: Salaries and employee benefits 2,632 2,019 Occupancy 321 277 Equipment 289 245 Data processing services 104 96 Telephone and postage 109 83 Consulting fees 72 66 Marketing 59 42 Legal fees 55 45 Goodwill and core deposit amortization 86 42 Other 422 296 ------------ ------------ Total noninterest expense 4,149 3,211 ------------ ------------ INCOME BEFORE INCOME TAXES 2,441 2,060 Income tax expense 936 785 ------------ ------------ NET INCOME $ 1,505 $ 1,275 ============ ============ BASIC EARNINGS PER COMMON SHARE $ 0.31 $ 0.27 ============ ============ DILUTED EARNINGS PER COMMON SHARE $ 0.30 $ 0.26 ============ ============ Weighted average shares outstanding used to compute basic earnings per common share 4,920,623 4,724,081 Dilutive effects of stock options 111,400 145,256 ------------ ------------ Total weighted average shares outstanding used to compute diluted earnings per common share 5,032,023 4,869,337 ============ ============
4 CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands)
Three Months Ended March 31, ---------------------------- 2000 1999 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,505 $ 1,275 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 150 45 Depreciation and amortization 353 313 Increase (decrease) in deferred loan fees 357 22 Change in assets and liabilities: (Increase) decrease in interest receivable and other assets (4,304) (23) Increase (decrease) in accrued interest payable and other liabilities 892 (59) --------- -------- Net cash (used) provided by operating activities (1,047) 1,573 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (645) (205) Net increase in loans (68,749) (10,821) Acquisition, net of cash acquired (7,872) - Activities in securities held to maturity: Proceeds from maturing securities 180 6 Purchases of securities (3,323) (4,130) Activities in securities available for sale: Proceeds from maturing securities 8,000 3,000 Purchases of securities (13,216) (8,126) --------- -------- Net cash used by investing activities (85,625) (20,276) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 279 536 Proceeds from short-term borrowing 8,875 - Net increase in deposits 87,498 28,952 --------- -------- Net cash provided by financing activities 96,652 29,488 --------- -------- Net increase in cash and cash equivalents 9,980 10,785 Cash and cash equivalents at beginning of period 19,705 88,304 --------- -------- Cash and cash equivalents at end of period $ 29,685 $ 99,089 ========= ======== Cash paid during period for: Interest $ 2,157 $ 2,372 ========= ======== Income taxes $ 151 $ 250 ========= ======== Supplemental schedule of non-cash investing activity: Fair value of assets acquired $ 87,219 $ - Liabilities assumed $ 72,614 $ - Cash paid for capital stock $ 14,605 $ -
5 CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ----------------------------------------------- (In thousands)
Three Months Ended March 31, ---------------------------- 2000 1999 ------------ ---------- Net Income $ 1,505 $ 1,275 Other Comprehensive Income: Unrealized loss on securities available for sale (17) (187) Income tax benefit related to unrealized loss on securities available for sale 7 75 ---------- ---------- Other Comprehensive Loss (10) (112) ---------- ---------- COMPREHENSIVE INCOME $ 1,495 $ 1,163 ========== ==========
6 CIVIC BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited consolidated financial statements of Civic BanCorp and its subsidiary bank, CivicBank of Commerce, (the Company) have been prepared in accordance with generally accepted accounting principles and 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, cash flows and comprehensive income 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, 1999. The results of operations and cash flows are not necessarily indicative of those expected for the complete fiscal year. 2. NEW PRONOUNCEMENTS In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of Effective Date of FASB Statement Number 33." Statement number 137 defers the effective date of Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" for one year. Statement No. 133 is now effective for fiscal quarters of fiscal years beginning after June 15, 2000. This statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For instruments existing at the date of adoption, Statement No. 133 provides an entity with the option of not applying this provision to hybrid instruments entered into before January 1, 1998 and not modified substantially thereafter. Consistent with the deferral of the effective date for one year, Statement No. 137 provides an entity with the option of not applying this provision to hybrid instruments entered into before January 1, 1998 or 1999 and not modified substantially thereafter. The Company has not completed its evaluation of the impact of Statement No. 133 as amended on the Company's consolidated financial statements. 3. ACQUISITION OF EAST COUNTY BANK On February 29, 2000 CivicBank of Commerce acquired East County Bank for approximately $14.6 million in cash. East County Bank is a community bank headquartered in Antioch, California with two branches in Concord and Walnut Creek serving business and individuals in Contra Costa County. Unaudited total assets of East County Bank on February 29, 2000 were approximately $79 million. The transaction was treated as a purchase for accounting purposes with goodwill amortized on a straight-line basis over 15 years. The results of operations of the acquired enterprise from March 1 through March 31 are included in the income statement of Civic BanCorp for the first three months of the fiscal year 2000. The following unaudited pro-forma financial information presents the combined results of operations of the Company and East County Bank as if the acquisition had occurred at the beginning of the period, after giving effect to certain adjustments, including the amortization of goodwill. The pro-forma financial information does not necessarily reflect the results of operations that would have occurred had the Company and East County bank constituted a single entity during such periods. 7
Pro-forma results of operations: Three Months Ended March 31, dollars in thousands except per share 2000 1999 --------- ---------- Net Interest Income $ 7,137 $ 6,152 Net Income $ 1,449 $ 1,305 Dilued Earnings per Share $ 0.29 $ 0.27
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three Months Ended March 31, 2000 and 1999 OVERVIEW For the three months ended March 31, 2000, the Company reported net income of $1,505,000, or $0.30 earnings per diluted share compared to net income of $1,275,000 or $0.26 earnings per diluted share for the same period of the prior year. The annualized return on average assets was 1.43% for the three months ended March 31, 2000 compared to 1.28% for the same period of the prior year. The annualized return on average shareholders' equity for the three months ended March 31, 2000 and 1999 was 12.76% and 11.97%, respectively. RESULTS OF OPERATIONS Net interest income for the three months ended March 31, 2000 was $6.4 million, increasing $1.3 million or 25.9% from net interest income of $5.1 million for the same period in 1999. The increase in net interest income is primarily attributed to an increase in the volume of earning assets and an increase in average rate earned on those earning assets. 8 The following table presents an analysis of the components of net interest income for the first quarter of 2000 and 1999.
Three months ended March 31, ---------------------------------------------------------------------------------- 2000 1999 ---------------------------------------- --------------------------------------- dollars in thousands Interest Rates Interest Rates Average Income\ Earned\ Average Income\ Earned\ Balance Expense /2/ Paid Balance Expense /2/ Paid ------------ ----------- ------------ ---------- ------------ ----------- ASSETS Securities available for sale $ 32,851 $ 511 6.25% $ 33,177 $ 520 6.36% Securities held to maturity: U.S. Treasury securities 483 8 6.33% - - 0.00% U.S. Government agencies 24,307 330 5.47% 17,369 230 5.37% Municipal securities/(1)/ 20,193 375 7.46% 16,147 291 7.32% Other securities 2,198 31 5.75% 2,254 32 5.81% Federal funds sold and securities purchased under agreements to resell 5,155 72 5.58% 70,177 813 4.70% Loans: /2/,/3/ Commercial 184,388 4,534 9.89% 149,601 3,482 9.44% Real estate-construction 11,650 343 11.85% 7,874 185 9.52% Real estate-other 94,734 2,236 9.49% 63,047 1,429 9.19% Installment and other 18,500 431 9.38% 16,847 379 9.12% --------- --------- ------ --------- --------- --------- Total Loans 309,272 7,544 9.81% 237,369 5,475 9.35% --------- --------- ------ --------- --------- --------- Total Earning Assets 394,459 8,871 9.04% 376,493 7,361 7.93% Cash and due from banks 22,215 18,254 Leasehold improvements and equipment - net 1,785 1,605 Interest receivable and other assets 7,323 5,932 Foreclosed assets 68 - Less allowance for loan loss (5,325) (4,518) --------- --------- TOTAL ASSETS $ 420,525 $ 397,766 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking $ 35,205 48 0.55% $ 27,773 40 0.58% Money market 110,551 941 3.42% 101,736 806 3.21% Time and savings 115,316 1,299 4.53% 124,369 1,342 4.38% Other borrowed funds 4,523 67 5.97% - - 0.00% --------- --------- ------ --------- --------- --------- Total interest bearing liabilities 265,595 2,355 3.57% 253,878 2,188 3.50% Demand deposits 103,070 95,638 Other liabilities 4,698 5,628 Shareholders' equity 47,162 42,622 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 420,525 $ 397,766 ========= ========= Net Interest Income $ 6,516 $ 5,173 ========= ========= Net Interest Margin 6.64% 5.57% ========= ========= Tax Equivalent Adjustment/(1)/ $ 128 $ 99 ========= =========
- -------------------------------------------------------------------------------- (1) The tax-equivalent income adjustment on municipal securities is computed using a Federal income tax rate of 34%. Interest on municipal securities was $247,000 and $197,000 for March 31, 2000 and 1999, 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 on commercial loans of $96,000 and $139,000 for March 31, 2000 and 1999, respectively; fees on real estate loans of $151,000 and $67,000 for March 31, 2000 and 1999, respectively; and fees on installment and other loans of $8,000 and $7,000 for March 31, 2000 and 1999, respectively. 9 Total interest income for the first three months of 2000 was $8.7 million, an increase of $1.5 million, or 20.4% over the same period ended 1999. The increase in total interest income results from an increase in the volume of earning assets, an increase in the yield on earning assets, and an improvement in the mix of those earning assets. Average earning assets increased $18.0 million or 4.8% to $394.5 million in the first quarter of 2000 compared to $376.5 million for the same period ended 1999. The average yield earned on earning assets increased 111 basis points due to a rising interest rate environment and a more favorable mix of earning assets. There was a shift in the mix of earning assets from Federal funds sold, which have the lowest interest rates of earning assets, to loans, which earn at the highest rates. Total interest expense for the first three months of 2000 was $2.4 million, an increase of $0.2 million over the same period ended 1999. The increase in total interest expense reflects a modest increase in both the volume and rate of interest bearing deposits. Average interest bearing deposits increased $11.7 million or 4.6% to $265.6 million in the first quarter of 2000 compared to $253.9 million for the same period ended 1999. 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 three month period ended March 31, 2000. Analysis of Changes in Interest Income and Expense Increase (Decrease) Due to Changes in
in thousands Volume /1/ Rate /2/ Total -------------- ------------- --------- Increase (decrease) in interest income: Securities available for sale - $ (9) $ (9) Securities held to maturity: U.S. Treasury securities 8 - 8 U.S. Government agencies 94 6 100 Municipal securities 77 7 84 Other securities (1) - (1) Federal funds sold (752) 11 (741) Loans: Commercial 845 207 1,052 Real estate-construction 90 68 158 Real estate-other 736 71 807 Installment and other 40 12 52 ------- ---------- -------- Total Loans 1,711 358 2,069 ------- ---------- -------- Total increase $ 1,137 $ 373 $ 1,510 ------- ---------- -------- (Increase) decrease in interest expense: Deposits: Interest bearing checking $ (10) $ 2 $ (8) Money market (77) (58) (135) Savings and time 86 (43) 43 Other borrowed funds (67) -- (67) ------- -------- - -------- Total increase $ (68) $ (99) $ (167) ------- ---------- -------- Total change in net interest income $ 1,069 $ 274 $ 1,343 ======= ========== ========
(1) Changes not solely due to volume have been allocated to volume (2) Loan fees are reflected in rate variances. 10 Net Interest Margin The net interest margin increased 107 basis points to 6.64% for the first quarter of 2000 from 5.57% for the same period in 1999 due to a rising interest rate environment and favorable changes in the mix of earning assets. The average yield on the loan portfolio increased 46 basis points for the three months ended March 31, 2000 as compared to the same period in 1999 due to a rising interest rate environment. There was also a shift in the composition of average earning assets as Federal funds sold decreased to 1.3% of total earning assets for the first quarter of 2000 compared to 18.6% for the same period of the prior year. Concurrently, loans increased to 78.4% from 63.0% of total earning assets for the same periods, respectively. Loans have the highest yield in the portfolio of earning assets while Federal funds have the lowest yield and the shift has increased the weighted average yield on the portfolio of earning assets. The average yield on interest bearing deposits increased 7 basis points to 3.57% for the three months ended March 31, 2000 compared to 3.50% for the same period ended one year ago. The interest rates on deposits have reacted to the rising interest rate environment more slowly than have the interest rates on the earning assets. Provision for Loan Losses The provision for loan losses is charged to operations and creates an allowance for future loan losses. The amount of the provision is dependent on many factors which include the amount of the allowance for loan losses, growth in the loan portfolio, net charges against the allowance, changes in the composition of the portfolio, the number and dollar amount of delinquent loans, management's assessment of the overall quality of the portfolio, the value of the collateral on problem loans, recommendations by regulatory authorities and general economic conditions among others. The provisions for loan losses for the three months ended March 31, 2000 and 1999 were $150,000 and $45,000, respectively. The increase in the provision in the first quarter of the current year was based on the growth in the loan portfolio and the increase in classified loans. Noninterest Income Noninterest income for the three months ended March 31, 2000 was $352,000, an increase of $110,000 or 41.3% from the three months ended March 31, 1999. The increase in noninterest income is primarily attributable to an increase in the number of deposit accounts and in the volume of services provided. Noninterest Expense Noninterest expense totaled $4.1 million for the three months ended March 31, 2000, an increase of $938,000 or 29.2% from $3.2 million for the same period of the prior year. Salaries and employee benefits, the largest component of noninterest expense increased $613,000 or 30.4% due to additional staff, normal merit increases and an increase in the incentive accruals, which are based on the growth in profitability. Full time equivalent personnel numbered 156 on March 31, 2000 compared to 112 on March 31, 1999. The following table summarizes the significant components of noninterest expense for the dates indicated. 11 Quarter Ended March 31, Dollar % (Dollars in thousands) 2000 1999 Change Change ---------- -------- ------ ------ Salaries and employee benefits $ 2,632 $ 2,019 $ 613 30.4% Occupancy 321 277 44 15.9% Equipment 289 245 44 18.0% Data processing services 104 96 8 8.3% Telephone and postage 109 83 26 31.3% Consulting fees 72 66 6 9.1% Marketing 59 42 17 40.5% Legal fees 55 45 10 22.2% Goodwill and core deposit amortization 86 42 44 104.8% Other 422 296 126 42.6% ---------- ------- ----- ----- TOTAL NONINTEREST EXPENSE $ 4,149 $ 3,211 $ 938 29.2% ========== ======= ===== ===== Provision for Income Taxes The provision for income taxes for the first quarter of 2000 increased to $936,000 from $785,000 for the same quarter of the prior year. These provisions represent effective tax rates of 38%. FINANCIAL CONDITION Loans Average loans for the first quarter of 2000 increased $71.9 million or 30.3% to $309.3 million compared to $237.4 million for the same quarter of 1999. Loans outstanding at March 31, 2000 increased $68.0 million to $353.6 million from $285.5 million at December 31, 1999. The increase in loans outstanding during the first quarter was primarily due to a strong regional economy and the acquisition of East County Bank, which contributed approximately $49 million in loan volume. Real estate construction loans as a percentage of total loans outstanding were 3.9% at March 31, 2000 compared to 3.5% at March 31, 1999. The Bank maintains a limited portfolio of real estate construction loans as the 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 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 $108.2 million at March 31, 2000, an increase of $43.3 million or 66.8% from March 31, 1999. 12 The following table sets forth the amount of loans outstanding in each category and the percentage of total loans outstanding for each category as of the date indicated.
March 31, 2000 December 31, 1999 March 31, 1999 --------------------------- -------------------------- -------------------------- Amount Percent Amount Percent Amount Percent ------------- ----------- ------------- ---------- ----------- ------------ (Dollars in thousands) Commercial $ 210,310 59.5% $ 173,124 60.6% $ 154,226 63.1% Real estate - construction 13,621 3.9% 10,053 3.5% 8,643 3.5% Real estate - other 108,203 30.6% 85,470 29.9% 64,887 26.6% Installment and other 21,449 6.1% 16,890 5.9% 16,495 6.8% --------- ------ --------- ------ --------- ------ TOTAL $ 353,583 100.0% $ 285,537 100.0% $ 244,251 100.0% ========= ====== ========= ====== ========= ======
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.
March 31 Dec. 31 March 31 2000 1999 1999 ------- ------- -------- (Dollars in thousands) Loans 90 days or more past due and still accruing $ 227 $ 193 $ -- Non-accrual loans 664 632 79 Non-accrual SBA guaranteed loans 707 -- -- Foreclosed assets 200 -- -- ------ ------ ----- Total non-performing assets $1,798 $ 825 $ 79 ====== ====== ===== Non-performing assets to period end loans, other assets held for sale plus foreclosed assets 0.51% 0.29% 0.03% ====== ====== =====
The increase in non-performing assets is attributable to the increase in foreclosed assets and non-performing SBA loans, which were acquired in the merger with East County Bank. At March 31, 2000, the recorded investment in SBA loans considered impaired and placed on a non-accrual basis totaled $707,000 and consisted of $672,000 of loans with SBA guarantees and an associated allowance of $35,000 for the retained portion, which is not SBA, guaranteed. Included in non-accrual loans totaling $664,000 are $36,000 of loans with an associated allowance of $29,000, and $628,000 of loans with adequate supporting collateral and accordingly they do not have an associated allowance. For the quarter ended March 31, 2000, the average recorded investment in impaired loans was $700,000. No interest income was recognized on impaired loans. If interest income on those loans had been recognized, such income would have approximated $23,000. The Company has an active credit administration function that periodically reviews all loans to identify potential problem credits using quality standards and criteria similar to those of regulatory agencies. Loans receiving lesser grades are considered to be classified and fall into "substandard", "doubtful" and "loss" categories. Substandard loans are characterized as having one or more deficiencies, which could result in a loss to the Company if the deficiencies are not corrected. Doubtful loans have the weakness of substandard loans with the added complication that those weaknesses are less likely to be remedied and are of a character that 13 increases the probability of a principal loss. A loan classified as a loss is considered uncollectable and is discharged against the allowance. The following table sets forth the classified assets as of the dates indicated.
(Dollars in thousands) March 31, December 31, March 31, 2000 1999 2000 ---------- ---------- ----------- Substandard $11,084 $ 8,415 $ 3,464 Doubtful 936 45 353 Loss - - - ---------- ---------- ----------- Total Classified $12,020 $ 8,460 $ 3,817 Classified Loans to Total Loans 3.40% 2.96% 1.56% Classified Loans to Allowance for Loan Loss 201.61% 174.43% 81.04%
Potential Problem Loans At March 31, 2000 there were no loans classified 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. Allowance for Loan Losses The allowance for loan losses is established through a provision for loan losses, the amount of which is based on many factors. See "Provision for Loan Losses". The allowance is increased by provisions charged against earnings and reduced by net loan charge-offs. Loans are charged off when, based on current information and circumstances, it becomes probable that the Company will be unable to collect all amounts due according to the original terms and conditions of the loan agreement. Recoveries of amounts previously charged off are recorded only when cash is received. The policy of the Company is to review each loan in the portfolio to identify potential problem credits and to assess the credit quality of each loan in the portfolio. Specific allocations are made for loans where the probability of a loss can be defined and reasonably estimated and general allocations are based on the number and size of classified loans in the portfolio, delinquency trends, historical data, industry averages and general economic conditions in the Company's market area. Although management believes that the allowance for loan losses is adequate for both potential losses of identified credits and estimated inherent losses in the portfolio, future provisions will be subject to continuing evaluations of the portfolio, and if the economy declines or the quality of the loan portfolio deteriorates, additional provisions may be required. 14 The following table summarizes the changes in the allowance for loan losses for the periods indicated:
Three Months Year Three Months Ended Ended Ended March 31, 2000 December 31, 1999 March 31, 1999 -------------- ----------------- -------------- (Dollars in thousands) Balance, at beginning of period $ 4,850 $ 4,424 $ 4,424 Charge-offs: Commercial 145 - - Real estate - construction - 800 - Real estate - other - - - Installment and other 65 4 - --------- --------- --------- Total charge-offs 210 804 0 Recoveries: Commercial 3 480 82 Real estate - construction - - - Real estate - other 52 351 101 Installment and other 9 84 58 --------- --------- --------- Total recoveries 64 915 241 --------- --------- --------- Net (recoveries) charge-offs 146 (111) (241) Reserve acquired through merger 1,108 - - Provision charged to operations 150 315 45 --------- --------- --------- Balance, at end of period $ 5,962 $ 4,850 $ 4,710 ========= ========= ========= Ratio of net (recoveries) charge-offs to average loans (annualized) 0.19% (0.04%) (0.41%) ========= ========= ========= Allowance at period end to total loans outstanding 1.69% 1.70% 1.93% ========= ========= =========
Investment Portfolio The Company's investment portfolio is used primarily for liquidity purposes and secondarily for investment income. The portfolio is composed of U.S. Treasury, U.S. government agency instruments and investment grade municipal obligations. U.S. government agency and municipal securities totaling approximately $15 million were acquired in the merger with East County Bank. 15 The table below summarizes the amortized cost and estimated market values of investment securities at the dates indicated.
March 31, 2000 December 31, 1999 -------------------------------- ------------------------------- Amortized Market Amortized Market Cost Value Cost Value ----------- ------------- ----------- ------------- (Dollars in thousands) SECURITIES HELD TO MATURITY: U.S. government agencies and corporation $ 24,243 $ 23,670 $ 24,277 $ 23,773 Municipal securities 21,625 21,207 19,105 18,660 U.S. Treasury 499 497 - - Mortgage Backed Securities 30 32 34 35 ----------- ------------- ----------- ------------- TOTAL $ 46,397 $ 45,406 $ 43,416 $ 42,468 =========== ============= =========== ============= SECURITIES AVAILABLE FOR SALE: U.S. Treasury securities $ - $ - $ 8,003 $ 8,015 U.S. government agencies and corporation 37,261 36,831 24,075 23,650 ----------- ------------- ----------- ------------- TOTAL $ 37,261 $ 36,831 $ 32,078 $ 31,665 =========== ============= =========== =============
Deposits As of March 31, 2000 total deposits were $422.2 million, an increase of $87.5 million or 26.1% relative to total deposits of $334.7 million at December 31, 1999. Included in this increase are approximately $72 million in deposits acquired in the merger with East County Bank which became effective on February 29, 2000. Management attributes the increase in deposits beyond the merger 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 deposit needs. Accordingly, a correlation is expected between the loan and the deposit volumes such that deposit volumes are expected to increase as the loan volume increases. For the three months ended March 31, 2000, average demand deposits totaled $103.1 million, an increase of $7.4 million or 7.8% from the same period in 1999. Average demand deposits as a percentage of total deposits increased to 28.3% for the first quarter of 2000 from 27.4% for the same period of the prior year. Average interest-bearing deposits increased $7.2 million or 2.8% for the three months ended March 31, 2000 from the same period in 1999. Included in the average interest deposits for first quarter 1999 were two large time deposits totaling $18 million that matured and were withdrawn in April 1999. Average interest-bearing deposits comprised 71.7% of average total deposits for the three months ended March 31, 2000 and 72.6% of average total deposits for the three months ended March 31, 1999. The following table sets forth information regarding the Bank's average deposits by amount and percentage of total deposits for the three months ended March 31, 2000 and 1999. 16
Average Deposits -------------------------------------------------------------------- (Dollars in thousands) Three Months Ended March 31, -------------------------------------------------------------------- 2000 1999 ----------------------------- ----------------------------- Amount Percentage Amount Percentage ------------ ---------- ------------ ---------- Demand accounts $ 103,070 28.3% $ 95,638 27.4% Interest-bearing checking 35,205 9.7% 27,773 7.9% Money market 110,551 30.4% 101,736 29.1% Savings and time 115,316 31.7% 124,369 35.6% ------------ ---------- ------------ ---------- Total $ 364,142 100.0% $ 349,516 100.0% ============ ========== ============ ==========
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 March 31, 2000 had the following schedule of maturities: (In thousands) ---------------- Three months or less $ 44,158 After three months through six months 31,318 After six months through twelve months 10,840 After twelve months 2,863 --------- Total $ 89,179 ========= LIQUIDITY AND CAPITAL RESOURCES Liquidity Liquidity management refers to the Bank's ability to acquire funds to meet loan demand, fund deposit withdrawals and to service other liabilities. To augment liquidity, the Bank has informal Federal funds borrowing arrangements with correspondent banks totaling $35.0 million and 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 March 31, 2000 the Bank had no outstanding borrowings against these arrangements. Additionally, at March 31, 2000, unpledged government securities that are available to secure additional borrowing in the form of reverse repurchase agreements totaled approximately $59.4 million. At March 31, 2000 the Bank had no reverse repurchase agreements. The liquidity position of the Company improved during the first quarter of 2000. Deposit growth and short-term borrowing provided $95.5 million of cash and cash equivalents during the quarter. Cash and cash equivalents of $77.8 million were used in the Company's investing activities to purchase securities and to fund the growth of the loan portfolio and operating activities required $7.8 million of cash and cash equivalents. The net increase in cash and cash equivalents for the quarters ended March 31, 2000 and 1999 was $10.0 million and $10.8 million, respectively. 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 March 31, 2000, the Company had a liquidity ratio of 20.2% as compared to 23.6% at December 31, 1999. 17 On a stand-alone basis, the Company's primary source of liquidity is dividends from the Bank. The ability of the Bank to pay dividends is subject to regulatory approval. Capital Resources Total shareholders' equity increased to $48.0 million at March 31, 2000 from $46.2 million at December 31, 1999 reflecting retained income of $1,505,000 and common stock option exercises of $279,000. These benefits were partially offset by the market adjustment of securities available for sale. The Company and the Bank are subject to capital adequacy guidelines issued by the Federal Reserve Board of Governors which requires 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 and goodwill is treated as a deduction from capital. At March 31, 2000 the Company's total capital ratio was 10.32% as compared to the total capital ratio at December 31, 1999 of 14.48%. The decline in the total capital ratio is due to the deduction of the goodwill from total capital associated with the merger of East County Bank recorded as a purchase for accounting purposes. The following table presents the Company's risk-based capital and leverage ratios as of March 31, 2000 and December 31, 1999.
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 March 31, 2000: Total Capital (to Risk Weighted Assets) $ 44,084 10.32% $ 34,183 8.00% $ 42,728 10.00% Tier 1 Capital (to Risk Weighted Assets) 38,735 9.07% 17,091 4.00% 25,637 6.00% Tier 1 Capital (to Average Assets) 38,735 9.21% 16,821 4.00% 21,026 5.00% As of December 31, 1999: Total Capital (to Risk Weighted Assets) $ 50,070 14.48% $ 23,070 8.00% $ 28,837 10.00% Tier 1 Capital (to Risk Weighted Assets) 45,741 13.23% 11,535 4.00% 17,302 6.00% Tier 1 Capital (to Average Assets) 45,741 11.80% 15,987 4.00% 19,984 5.00%
Year 2000 18 For the past several years the Company has taken steps to resolve the potential impact of Year 2000 on its computer system and the associated software applications. The Year 2000 problem is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's time-sensitive programs could interpret a date using "00" as 1900 rather than the year 2000 and such interpretation could result in major miscalculation or system failure. The Company also identified customers who have a material loan or deposit relationship with the Bank to insure they were prepared to meet Year 2000 processing requirements. Further, the Company took steps to avoid disruptions on February 29, the first leap year in the new millennium. The Company did not experience any failures of its computerized systems resulting from Year 2000 issues, nor does it have any information that indicates any of its customers or service providers were negatively impacted by Year 2000 issues. Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The Company's primary market risk is interest rate risk. Interest rate risk occurs as a result of interest sensitive assets and liabilities not repricing at the same time or by the same amount and is quantified by estimating the potential gain or loss in the market value of assets and net interest income that can result from changes in interest rates. The Company's exposure to interest rate risk is monitored monthly by the Risk Management Committee which includes members of the Board of Directors and Senior Management. The Company attempts to manage its exposure to changes in interest rates; however, due to its size and the direct competition from major banks, the Company must offer products which are competitive in the market place, even if less than optimum with respect to interest rate exposure. The Company's balance sheet position at Market 31, 2000 was liability sensitive due to the proportion of fixed rate loans and securities. Generally, if more liabilities reprice than assets at a given time in a rising rate environment, net interest income will deteriorate, and in a declining rate environment, net interest income would increase. Management believes there has been no significant change in the Bank's market risk exposure as disclosed in the Company's Annual Report on Form 10-K for the year December 31, 1999. 19 Part II. OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and Use of Proceeds - 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 On March 24, 2000 the Company filed Form 8-K/A regarding the merger of East County Bank with and into CivicBank of Commerce. Exhibits Number Exhibit 10.17 2000 Employee Stock Option Plan 27 Financial Data Exhibit 20 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: May 7, 2000 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 21 EX-10.17 2 2000 EMPLOYEE STOCK OPTION PLAN Exhibit 10.17 CIVIC BANCORP 2000 STOCK OPTION PLAN ---------------------- 1. PURPOSE OF PLAN The Civic BanCorp 2000 Stock Option Plan is intended to encourage key employees and directors of Civic BanCorp, a California corporation (the "Company"), its Subsidiaries and Parent (if any) to acquire stock in the Company and to provide such persons with an additional incentive to promote the financial success of the Company. 2. DEFINED TERMS Capitalized terms used in the Plan have the following meanings: (a) "Board of Directors": The Board of Directors of the Company. (b) "Change of Ownership": Any (i) merger, consolidation, share exchange or reorganization of the Company with any other corporation in which the Company is not the surviving corporation, (ii) dissolution or complete liquidation of the Company, (iii) sale of all or substantially all of the assets of the Company, or (iv) transaction (or series of related transactions) in which there is a change in the beneficial ownership, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power or value of the Company's then outstanding equity securities. The term "equity securities" shall have the meaning set forth in Section 3(a)(11) of the Securities Exchange Act of 1934. (c) "Code": The Internal Revenue Code of 1986, as amended, together with all regulations. (d) "Committee": The Personnel Committee of the Board of Directors, or if there is none, the Board of Directors. (e) "Common Stock": The Common Stock of the Company, or such other class or kind of shares or other securities as may be applicable pursuant to the provisions of Section 4(b) hereof. (f) "Company": Civic BanCorp, a California corporation. (g) "Effective Date": The date on which the Plan shall become effective as set forth in Section 10. (h) "Fair Market Value": As applied to a specific date, the fair market value of the Common Stock on such date as determined in good faith by the Committee in the following manner: 1 (i) If the shares of Common Stock are then listed on any national regional stock exchange, the Fair Market Value shall be the mean between the high and low sales price on the date in question, or if there are no reported sales on such date, on the last preceding date on which sales were reported; (ii) If the shares of Common Stock are not so listed, then the Fair Market Value shall be the mean between the bid and ask prices quoted by a market maker or other recognized specialist in the shares of Common Stock at the close of the date in question; (iii) In the absence of either of the foregoing, the Fair Market Value shall be determined by the Committee in its absolute discretion after giving consideration to the book value, the earnings history and the prospects of the Company in light of market conditions generally. The Fair Market Value determined in such manner shall be final, binding and conclusive on all parties. (i) "ISO": A stock option intended to meet the requirements of an "incentive stock option," as defined in Section 422 of the Code or any statutory provision that may replace such Section. (j) "NQSO": A stock option not intended to be an ISO and designated a non-qualified stock option by the Committee. (k) "Option": Any stock option, either an ISO or NQSO, granted from time to time under the Plan. (l) "Optionee": An employee or director of the Company or any of its Subsidiaries who has been granted an Option, and those heirs, legatees or legal representatives of such employee or director who may exercise an Option pursuant to Section 6(b). (m) "Parent": A "parent corporation" as defined in Section 424(e) of the Code, including any parent corporation which becomes such after the Effective Date of the Plan. (n) "Plan": This Civic BanCorp 2000 Stock Option Plan, as it may be amended from time to time. (o) "Stock Option Agreement": A stock option agreement evidencing an Option in a form adopted by the Committee pursuant to Section 9(b). 2 (p) "Subsidiary": A "subsidiary corporation" as defined in Section 424(f) of the Code, including any subsidiary corporation which becomes such after the Effective Date of the Plan. 3. ELIGIBILITY (a) In General. Employees of the Company, its Parent or any Subsidiary are eligible to receive Options. (b) More Than 10% Shareholders. No Option shall be granted to any person who at the time of grant owns stock with more than 10% of the total voting power of all classes of stock of the Company, its Parent or any Subsidiary, computed pursuant to Sections 422(b)(6) and 424(d) of the Code, unless at the time the Option is granted the exercise price is at least 110% of the Fair Market Value of the shares of Common Stock subject to the Option, and the Option is not exercisable after five years from the date of grant. 4. SHARES SUBJECT TO PLAN (a) Maximum Shares. The maximum number of shores of Common Stock that may be subject to Options and which are reserved for the Plan is 500,000 shares of Common Stock, subject to adjustment as provided in Section 4(b). If an Option expires or terminates for any reason without having been fully exercised, the unpurchased share of Common Stock shall be added to the share of Common Stock available for Options. The unpurchased shares of Common Stock shall not increase the maximum number of shares of Common Stock which may be subject to Options. Notwithstanding the foregoing, the number of share for which Options may be granted and outstanding at any one time under the Plan may not exceed 500,000. (b) Adjustment of Shares and Price. In the event that the Common Stock is changed into or exchanged for a different kind or number of shares of stock or securities of the Company as the result of any stock dividend, stock split, combination of shares, exchange of shares, merger, consolidation, reorganization, recapitalization or other change in capital structure, then, unless the change results in the termination of outstanding Options pursuant to Section 6(c), the number of shares of Common Stock subject to this Plan and to outstanding Options and the exercise price for such shares shall be equitably adjusted by the Committee to prevent the dilution or enlargement of rights. Any new stock or securities into which the Common Stock has been changed or for which it has been exchanged shall be substituted for the Common Stock subject to this Plan and to outstanding Options; provided, however, that fractional shares may be deleted from the adjustment or substitution. Any determination made by the Committee pursuant to this Section shall be conclusive. 5. GRANTING OF OPTIONS 3 (a) Grants. The Committee shall from time to time, in its sole discretion but subject to this Plan, determine: (i) the persons who will be granted Options; (ii) the number of shares of Common Stock subject to each Option; and (iii) whether the Option will be an ISO or an NQSO. New Options may not be granted after the tenth anniversary of the Effective Date; provided, however, that the Board of Directors may, in its sole discretion, direct the Committee to suspend or cease granting Options at an earlier date. An Option shall be considered to be granted on the date on which the Committee authorizes the grant, provided that the Optionee executes a Stock Option Agreement in the form required by the Committee. (b) Single Employee ISO Limit. The aggregate Fair Market Value (determined at the time an Option is granted) of the shares of Common Stock or other stock of the Company with respect to which ISO's granted to an employee are exercisable for the first time by such employee during any calendar year (under all Options and all other stock option plans of the Company or a Parent or any Subsidiaries of the Company or any predecessor corporation of any such corporations) shall not exceed $100,000, as required by Section 422(d) of the Code, or any successor provision. (c) Exercise Price. Subject to Section 3(b) and Section 4(b), the exercise price per share of Common Stock subject to each ISO is determined solely by the Committee but shall not be less than the Fair Market Value of the shares of Common Stock on the date the Option is granted. 6. EXERCISE OF OPTIONS (a) Exercise Rights. Subject to Section 3(b) and Sections 6(b) and (c), at the time of grant of the Option the Committee shall determine and set forth in the Stock Purchase Agreement the time or times the Option may be exercised, the period or periods during which the Option may be exercised, and the number of shares subject to the Option, except that: (i) no Option shall be exercisable prior to the date the Plan is approved by the Company's shareholders pursuant to Section 10; (ii) no Option shall be exercisable after the expiration of 10 years from the date of grant; and 4 (iii) the calculation of the vesting period shall be suspended during any leave of absence at the request, or with the approval, of the Company, a Subsidiary, or a Parent. (b) Termination of Employment. Subject to earlier termination of an Option pursuant to Section 6(a)(ii), 6(c), or 10, the Optionee shall have the right, within the following periods of time following termination of the Optionee's employment with the Company or a Subsidiary or Parent, to exercise the Optionee's Option for up to the same number of shares that the Optionee would have been able to exercise on the date immediately preceding the date the Optionee's employment was terminated (without regard to any severance pay, vacation pay or other payments upon termination): (i) one year when termination is caused by the death or disability (meaning the Optionee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months); or (ii) three months after termination for any reason other then the death or disability of the Optionee. In the event of the Optionee's death, the Optionee's heirs, legatees or legal representatives shall have the right to exercise the Optionee's Option for up to the same number of shares that the Optionee would have been able to exercise on the date immediately preceding the date the Optionee's employment was terminated (without regard to any severance pay, vacation pay or other payments upon termination). To the extent the Option remains unexercised as of the end of the applicable period of time following termination of the Optionee's employment, the Option shall automatically terminate. A leave of absence at the request, or with the approval, of the Company, a Subsidiary, or a Parent shall not be deemed a termination for purposes of this Section 6(b), so long as the period of such leave does not exceed 90 days, or, if longer, so long as the Optionee's right to reemployment with the Company (or Subsidiary or Parent of the Company) is guaranteed by contract. (c) Change of Ownership. In the event of Change of Ownership consisting of a merger or consolidation which the Company will not be the surviving corporation, each Option then outstanding shall become fully exercisable upon adoption by the Board of Directors of a plan or arrangement for such transaction; provided, the original vesting schedule shall be restored if the transaction is not completed. If the surviving corporation does not provide for the assumption of any Option or a substitution of a new option for any Option, the Company may cancel any Option not exercised prior to or as of the consummation of the Change in Ownership. 5 To the extent not inconsistent with any applicable law, the Company shall use its best efforts to give at least 15 days advance notice of any proposed Change of Ownership transaction to each Optionee who has outstanding unexercised Options, which notice shall describe the transaction in general terms, and notify the Optionee of any action which the Company and surviving corporation, if other than the Company, have decided to take pursuant to this Section 6(c) with respect to that Optionee's Options. (d) Cause. If the Optionee is determined by the Board of Directors to have committed an act of embezzlement, fraud, dishonesty or breach of fiduciary duty to the Company, or to have deliberately disregarded the rules of the Company which resulted in loss, damage or injury to the Company, or if the Optionee makes any unauthorized disclosure of any of the secrets or confidential information of the Company, induces any client or customer of the Company to break any contract with the Company or induces any principal for whom the Company acts as agent to terminate such agency relationship, or engages in any conduct which constitutes unfair competition with the Company, or if the Optionee is removed from any office of the Company be any regulatory agency, neither the Optionee nor the Optionee's estate shall be entitled to exercise any Option whatsoever, whether or not after termination of employment and whether the Optionee may receive any other benefits, including severance or salary continuation payments for any period. 7. EXERCISE PROCEDURE AND PAYMENT (a) Exercise Procedure. To exercise an Option, an Optionee must give written notice to the Company in form satisfactory to the Company specifying the number of whole shares, but in increments of not less than 100 (unless the Optionee is exercising all Options held), that the Optionee elects to purchase. The Company shall specify a closing date, which shall be not more than 30 days after the date of the Optionee's notice, for the payment of the exercise price and the issuance of the Common Stock being purchased. If any purchase of shares requires the consent of or a filing with or notice to the Securities and Exchange Commission or any other applicable federal or state agency charged with the administration of applicable securities laws, the time period specified for the closing shall be extended for such periods as the necessary consent, filing or notice period is pending. The date of exercise shall be the date on which the written notice is received by the Company. On or before the closing date, the Optionee must deliver to the Company in form satisfactory to the Company all documents required by the Plan, the Stock Option Agreement and applicable laws and regulation with regard to the purchase of the shares of Common Stock, together with full payment of the exercise price and payment in cash of such amount as may be required to pay any and all applicable withholding taxes. Payment of the exercise price shall be made either (i) in cash (including check, bank draft or money order), or (ii) with the consent of the Committee and subject to Section 7(b), by delivering shares of Common Stock already owned by the Optionee, or (iii) by a combination of these forms of payment. Subject to compliance with this Plan and with any requirements imposed by 6 the Committee or Company under this Plan, the Company shall issue and deliver to the Optionee on the specified closing date or at the earliest practicable date after the specified closing date one or more certificates for the number of shares of Common Stock purchased. No Optionee shall have any rights of a shareholder with respect to any shares of Common Stock until certificates for the shares have been issued. (b) Payment with Stock. With the consent of the Committee, the Optionee may deliver Common Stock already owned by the Optionee, valued at Fair Market Value as of the closing date in full or partial payment of the exercise price of the shares of Common Stock subject to any Option; provided, however, that no Common Stock already owned by the Optionee which is "statutory option stock" as defined in Section 424(c)(3) of the Code may be delivered in payment of the exercise price if the applicable holding period requirements for such Common Stock under Sections 422(a)(1) or 423(a)(1) of the Code have not been met at the time of exercise. (c) Cashless Exercise. With the consent of the Committee and subject to applicable holding periods after grant of an Option, an Optionee may engage through a broker in a "cashless exercise," pursuant to which the Optionee sells all or some of the shares acquired substantially simultaneously with the exercise of the Option and remits to the Company net proceeds of the sale equal to the exercise price, and in such case the Company shall cooperate with the Optionee in this process; provided, the Optionee shall bear any costs of such process. 8. RESTRICTIONS ON TRANSFERS; SECURITIES LAW COMPLIANCE (a) Transferability of Options. No Option shall be transferable otherwise than by will or under the laws of descent and distribution, nor shall any Option be sold, pledged, assigned, hypothecated, or encumbered. Each Option shall be exercisable, during the lifetime of the Optionee, only by the Optionee. (b) Compliance with Securities and Other Laws. The Company may require investment or residency representations from an Optionee or impose other restrictions prior and as a condition to issuance of shares to the Optionee or transfer of shares by the Optionee. Shares of Common Stock shall not be issued to any Optionee until the Company has obtained any required approval of any governmental authority or of any stock exchange on which the Common Stock is then listed and the Company and its counsel are satisfied that the proposed issuance complies with all applicable federal and state securities and other laws. Shares of Common Stock purchased under Options may not be transferred, sold, pledged, hypothecated or encumbered except in accordance with all applicable federal and state securities laws, rules and regulations and the provisions of this Plan and the Stock Option Agreement, and the certificates for the shares of Common Stock issued may bear a legend to that effect. Under no circumstances shall the Company be obligated to register or qualify the shares of Common Stock purchased under Options with the Securities and Exchange Commission or with applicable state securities agencies. 7 9. ADMINISTRATION OF PLAN (a) The Committee. the Plan shall be administered by the Committee, which shall act upon majority vote. The Committee shall consist of two or more members of the Board of Directors. If at any time any class of equity securities of the Company is registered pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934, then, to the extent possible, the Committee shall consist of two or more directors, all of whom shall, while serving on the Committee, be "disinterested administrators," within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 as at such time in effect or any other provision that may replace the Rule and be in effect at such time. (b) Committee Authority. To clarify the Committee's powers and duties, but not to limit them, the Committee has full authority and power to: (i) Interpret the provisions of the Plan and make rules and regulations for the administration of the Plan which are not inconsistent with the Plan; (ii) Decide all questions of eligibility for Plan participation and for the grant of Options; (iii) Adopt forms of Stock Option Agreements and other documents consistent with the Plan and, in the case of ISO's, with Section 422 of the Code; (iv) Engage agents to perform legal, accounting and other professional services as it may deem proper for administering the Plan; and (v) Take other actions reasonably required or appropriate to administer the Plan or to carry out the Committee activities contemplated by the Plan. (c) Indemnification. In addition to other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Company against the reasonable expenses, including court costs and reasonable attorneys' fees, actually incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Option, and against all amounts paid by them in settlement or in satisfaction of a judgment in any such action, suit or proceeding, except where such indemnification is expressly prohibited by the applicable laws of the State of California. 10. EFFECTIVE DATE The Effective Date of the Plan shall be the date of its adoption by the Board of Directors; provided, however, that no Option shall be exercisable prior to the approval of 8 the Plan by the holders of a majority of the shares of Common Stock of the Company represented at a meeting of the shareholders at which the Plan is considered. If shareholder approval is not obtained within one year after the Effective Date, then the Plan and all Options shall automatically terminate on the first anniversary of the Effective Date. 11. AMENDMENT AND TERMINATION (a) The Plan. (i) Amendment. The Board of Directors may amend the Plan from time to time in its sole discretion; provided, however, that no amendment shall, without the approval of the shareholders of the Company in the manner provided in Section 10 and in accordance with Section 422 of the Code, (a) change the class of persons eligible to receive Options or otherwise materially modify the requirements as to eligibility for participation in the Plan; (b) increase the aggregate number of shares of Common Sock which may be purchased upon exercise of Options and issued under the Plan; or (c) materially increase the benefits accruing to Optionees under the Plan. Any amendment in violation of there restrictions shall be void and of no effect. Furthermore, no amendment shall impair the rights of any Optionee under any Option, without Optionee's consent. (ii) Termination. The Plan shall terminate automatically on the tenth anniversary of the Effective Date, and the Company may terminate the Plan at any earlier time. Upon termination of the Plan, no additional Options shall be granted; provided, however, that the terms of the Plan and Stock Option Agreements shall continue in full force and effect with respect to outstanding and unexercised Options and shares of Common Stock issued under the Plan. (b) Options. Subject to the terms and conditions and the limitations of the Plan, the Committee may, in its sole discretion modify, extend or renew outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and authorize the granting of new Options in substitution (to the extent not exercised). Notwithstanding the preceding sentence, no modification of an Option shall, without the consent of the Optionee, impair any rights or obligations under any Option previously granted. 12. MISCELLANEOUS (a) Employment. Neither the establishment of the Plan or any amendments, nor the granting of any Options, shall in any way modify or effect, or evidence any intention or understanding as to, the terms of employment of any Optionee with the Company, or any Subsidiary or Patent, including the duration of such employment. No person shall have a right to be granted Options or, having been granted Options, to be selected again. 9 (b) Multiple Options. Subject to the terms and restrictions set forth in the Plan, an Optionee may hold more than one Option. (c) Written Notice. Any notices required under the Plan shall be in writing and shall be given on the forms, if any, provided or specified by the Committee. Written notice shall be effective upon actual receipt by the person to whom such notice is to be given; provided, however, that in the case of notices to Optionees and their assigns, heirs, legatees and legal representatives, notice shall be effective upon delivery if delivered personally or three business days after mailing, registered first class postage prepaid to the last known address of the person to whom notice is given. Written notice shall be given to the Committee and the Company at the following address or such other address as may be specified from time to time: Civic BanCorp 2101 Webster Street Oakland, CA 94612 Attn: Chief Financial Officer (d) Applicable Law; Severablilty. The Plan shall be governed by and construed in all respects in accordance with the laws of the State of California and, with respect to ISO's, shall be interpreted and administered in accordance with Section 422 of the Code. If any provision regarding an ISO is susceptible to more than one interpretation, it shall be interpreted in a manner consistent with the Option being treated as an ISO for federal income tax purposes. If any provisions of the Plan shall be held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. (e) Withholding Taxes. At or after the time an Option is exercised, in whole or in part, the Company may withhold from other payments due to Optionee, and if the payments are not sufficient, upon request of the Company the Optionee shall make adequate provision for federal and state income tax withholding obligations, if any, of the Company, any Subsidiary or the Parent which arise as a result of the exercise of the Option. (f) Financial Information for Optionees. Not less often than annually, the Company shall provide each Optionee with a copy of the annual financial statements of the Company. 10 * * * The undersigned, being the duly elected and acting Secretary of the Company, hereby certifies that the foregoing Plan was adopted by the Board of Directors on January 19, 2000, and approved by the shareholders in accordance with Section 10 on May 6, 2000. /S/ Secretary 11 EX-27 3 FINANCIAL DATA SCHEDULE
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 3-MOS 3-MOS DEC-31-2000 DEC-31-1999 JAN-01-2000 JAN-01-1999 MAR-31-2000 MAR-31-1999 29,685 17,339 0 0 0 81,750 0 0 36,831 35,727 46,397 36,574 45,406 37,027 353,583 244,251 5,962 4,710 484,404 421,031 422,212 371,901 8,875 0 5,339 5,617 0 0 0 0 0 0 38,096 33,259 9,882 10,254 484,404 421,031 7,544 5,475 1,199 1,787 0 0 8,743 7,262 2,288 2,188 67 2,188 6,388 5,074 150 45 0 0 4,149 3,211 2,441 2,060 2,441 2,060 0 0 0 0 1,505 1,275 0.31 0.27 0.30 0.26 0.66 0.56 1,371 79 227 0 0 0 0 0 4,840 4,424 210 0 64 241 5,962 4,710 5,962 4,710 0 0 0 1,367
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