-----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, Nb05UaG7746YSolKZqWcLBA7AOieIAsdJkUCt+ADUprNCr/QFkn6dmECgjU4zS8T fwq9fVm5v7y1znkKXhwiZw== 0000929624-97-000521.txt : 19970509 0000929624-97-000521.hdr.sgml : 19970509 ACCESSION NUMBER: 0000929624-97-000521 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970508 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: 1934 Act SEC FILE NUMBER: 000-13287 FILM NUMBER: 97597952 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 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the Quarter Ended Commission file number March 31, 1997 0-13287 - --------------------- ---------------------- CIVIC BANCORP ------------------------------------------------------ (Exact name of Registrant as specified in its charter) California 68-0022322 - ---------------------------- ---------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2101 Webster Street, Oakland, California 94612 --------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 836-6500 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of April 30, 1997: 4,394,026 The total number of pages in this form is 17 -- The index of exhibits appears on page 16 -- 1 CIVIC BANCORP AND SUBSIDIARY
Index to Form 10-Q Page Number - ------------------ ----------- PART I. Item 1. Financial Statements Consolidated Balance Sheets March 31, 1997, March 31, 1996 and December 31, 1996 3 Consolidated Statements of Operations - Three Months Ended March 31, 1997 and March 31, 1996 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1997 and March 31, 1996 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II. Other Information 16 SIGNATURES 17
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 1997 1996 1996 -------- -------- -------- ASSETS - ------ Cash and due from banks $ 13,546 $ 13,465 $ 16,929 Federal funds sold 4,600 8,850 29,300 -------- -------- -------- Total cash and cash equivalents 18,146 22,315 46,229 Securities available for sale 30,784 7,908 26,871 Securities held to maturity (market value of $37,097, $49,030 and $41,667, respectively) 37,131 48,539 41,311 Other securities 1,780 1,576 1,761 Loans: Commercial 106,488 76,600 92,756 Real estate-construction 8,243 3,934 6,608 Real estate-other 65,154 55,887 64,272 Installment and other 19,285 17,067 19,757 -------- -------- -------- Total loans 199,170 153,488 183,393 Less allowance for loan losses 5,041 5,076 4,969 -------- -------- -------- Loans - net 194,129 148,412 178,424 Interest receivable and other assets 5,094 3,825 4,921 Leasehold improvements and equipment - net 1,435 1,656 1,463 Foreclosed assets 973 712 923 Other assets held for sale 232 275 275 -------- -------- -------- TOTAL ASSETS $289,704 $235,218 $302,178 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ LIABILITIES Deposits: Noninterest-bearing $ 75,934 $ 64,257 $ 84,337 Interest-bearing: Checking 22,322 21,971 26,245 Money market 86,684 71,250 85,035 Time and savings 67,919 45,376 70,830 -------- -------- -------- Total deposits 252,859 202,854 266,447 Accrued interest payable and other liabilities 2,404 1,952 1,584 -------- -------- -------- Total liabilities 255,263 204,806 268,031 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, 4,392,326, 4,514,203 and 4,431,895 shares 31,222 36,914 31,739 Retained deficit - (6,486) - Retained earnings, (subsequent to July 1, 1996 date of quasi-reorganization, total deficit eliminated $5.5 million) 3,290 - 2,240 Net unrealized (loss) gain on securities available for sale (71) (16) 168 -------- -------- -------- Total shareholders' equity 34,441 30,412 34,147 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $289,704 $235,218 $302,178 ======== ======== ========
3 CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
(In thousands except shares and per share amounts) Three Months Ended March 31, ------------------------------- 1997 1996 --------- --------- INTEREST INCOME: Loans $4,707 $4,132 Securities available for sale, securities held to maturity and other securities 994 933 Tax exempt securities 138 3 Federal funds sold 80 24 --------- --------- Total interest income 5,919 5,092 INTEREST EXPENSE: Deposits 1,634 1,122 Other borrowing 1 14 --------- --------- Total interest expense 1,635 1,136 --------- --------- NET INTEREST INCOME 4,284 3,956 Provision for loan losses 25 225 --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,259 3,731 --------- --------- NONINTEREST INCOME: Customer service fees 188 135 Other 29 44 --------- --------- Total noninterest income 217 179 NONINTEREST EXPENSE: Salaries and employee benefits 1,651 1,534 Occupancy 240 249 Equipment 219 214 Foreclosed asset expense 24 80 Goodwill and core deposit amortization 57 64 Telephone and postage 79 56 Data processing services 78 64 Marketing 47 55 Legal fees 69 45 Consulting fees 45 60 FDIC insurance 7 1 Other 330 368 --------- --------- Total noninterest expense 2,846 2,790 --------- --------- INCOME BEFORE INCOME TAXES 1,630 1,120 Income tax expense 580 195 --------- --------- NET INCOME $1,050 $ 925 ========= ========= NET INCOME PER COMMON SHARE $ 0.23 $ 0.20 ========= ========= Weighted average shares outstanding used to compute net income per common share 4,583,348 4,569,171 ========= =========
4 CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands)
Three Months Ended March 31, ---------------------------- 1997 1996 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,050 $ 925 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 25 225 Depreciation and amortization 276 239 Write-down of foreclosed assets - 58 Increase (decrease) in deferred loan fees 92 (42) Change in assets and liabilities: (Increase) decrease in interest receivable and other assets (119) 24 Increase in accrued interest payable and other liabilities 868 571 --------- -------- Net cash provided by operating activities 2,192 2,000 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (131) (80) Paydown on assets held for sale 43 - Net (increase) decrease in loans (15,897) 1,141 Expenditures on foreclosed assets 25 - Activities in securities held to maturity: Proceeds from maturing securities 5,008 5,067 Purchases of securities (836) (2,290) Activities in securities available for sale: Proceeds from maturing securities - 5,000 Purchases of securities (4,382) (3,000) --------- -------- Net cash (used in) provided by investing activities (16,170) 5,838 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 64 163 Purchase of common stock (581) - Net decrease in deposits (13,588) (17,244) --------- -------- Net cash used in financing activities (14,105) (17,081) --------- -------- Net decrease in cash and cash equivalents (28,083) (9,243) Cash and cash equivalents at beginning of period 46,229 31,558 --------- -------- Cash and cash equivalents at end of period $ 18,146 $ 22,315 ========= ======== Cash paid during year for: Interest $ 1,516 $ 1,184 ========= ======== Income taxes $ 37 $ 30 ========= ======== Supplemental schedule of non-cash investing activity: Loans transferred to foreclosed assets $ 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 PRONOUNCEMENT In February, the Financial Accounting Standards Board issues Statement of Financial Accounting Standards No. 128, (FAS128), 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 financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 OVERVIEW For the three months ended March 31, 1997, the Company reported net income of $1,050,000, or $.23 per share compared to a net income of $925,000 or $.20 per share for the same period of the prior year. The annualized return on average assets was 1.47% for the three months ended March 31, 1997 compared to 1.57% for the same period of the prior year. The annualized return on average shareholders' equity for the three months ended March 31, 1997 and 1996 was 12.19% and 12.37%, respectively. RESULTS OF OPERATIONS Net interest income for the three months ended March 31, 1997 was $4.3 million, increasing $300,000 or 8.3% from net interest income of $4.0 million for the same period in 1996. The increase in net interest income is primarily due to an increase in the volume of earning assets offset by an increase in the volume of interest bearing liabilities. Total interest income for the first three months of 1997 equaled $5.9 million, an increase of $800,000 from interest income earned in the same period in 1996. The increase in total interest income is primarily attributed to the increase in volume of earning assets. Average earning assets increased $47.8 million or 21.9% to $266.5 million for the first quarter of 1997 compared to $218.7 million for the first quarter of 1996. Total interest expense for the first three months of 1997 equaled $1.6 million and increased $.5 million or 43.9% from the $1.1 million for the three months ended March 31, 1996 due to an increase of $39.3 million or 28.4% in the volume on interest bearing deposits. Savings and time deposits as a percentage of total deposits increased to 27.0% from 21.3% for the three months ended 1997 and 1996. 6 The following table presents an analysis of the components of net interest income for the first quarter of 1997 and 1996.
Three months ended March 31. ---------------------------------------------------------------------------------- 1997 1996 -------------------------------------- --------------------------------------- Interest Rates Interest Rates Average Income/ Earned/ Average Income/ Earned/ Balance Expense/2/ Paid Balance Expense/2/ Paid ---------- ---------- --------- --------- ---------- ---------- ASSETS Securities available for sale $ 30,977 $ 491 6.43% $ 6,162 $ 90 5.86% Securities held to maturity: U.S. Treasury securities 8,559 125 5.94% 10,767 164 6.14% U.S. Government agencies 19,150 351 7.44% 38,411 649 6.80% Municipal securities/(1)/ 11,888 213 7.26% 333 5 6.28% Commercial paper 0 0 0.00% 483 7 5.85% Other securities 1,774 27 6.20% 1,623 23 5.69% Federal funds sold and securities purchased under agreements to resell 6,025 80 5.39% 1,819 24 5.40% Loans:/2,3/ Commercial 96,648 2,462 10.33% 76,470 2,025 10.65% Real estate-construction 7,338 186 10.26% 3,976 104 10.47% Real estate-other 64,995 1,595 9.95% 61,515 1,572 10.28% Installment and other 19,178 464 9.82% 17,151 431 10.10% -------- ------ ------- -------- ------ -------- Total Loans 188,159 4,707 10.15% 159,112 4,132 10.45% -------- ------ ------- -------- ------ -------- Total Earning Assets 266,532 5,994 9.12% 218,710 5,094 9.37% Cash and due from banks 17,611 15,558 Leasehold improvements and equipment - net 1,496 1,703 Interest receivable and other assets 4,845 3,598 Foreclosed assets 943 758 Assets held for sale 232 275 Less allowance for loan loss (4,988) (5,062 -------- -------- TOTAL ASSETS $286,671 $235,540 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking $ 22,457 52 0.93% 22,396 52 0.94% Money market 87,283 742 3.45% 71,486 557 3.14% Time and savings 67,598 840 5.04% 43,284 513 4.77% Other borrowed funds 105 1 5.49% 995 14 5.64% -------- ------- ------- -------- ------ -------- Total interest bearing liabilities 177,443 1,635 3.74% 138,161 1,136 3.31% Demand deposits 72,731 65,624 Other liabilities 2,029 1,844 Shareholders' equity 34,468 29,911 -------- -------- TOTAL LIABILITIES AND $286,671 $235,540 SHAREHOLDER'S EQUITY ======== ======== Net Interest Income $4,359 $3,958 ======= ====== Net Interest Margin 6.63% 7.27% ======== ========= Tax Equivalent Adjustment/(1)/ $ 75 $ 2 ======= ======
- -------------------------------------------------------------------------------- (1) Tax-exempt interest income on municipal securities is computed using a Federal income tax rate of 35%. Interest on municipal securities was $138 and $3 for March 31, 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 on commercial loans of $105,000 and $105,000 for March 31, 1997 and 1996, respectively; fees on real estate loans of $93,000 and $126,000 for March 31, 1997 and 1996, respectively; and fees on installment and other loans of $6,000 and $8,000 for March 31, 1997 and 1996, respectively. 7 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, 1997.
Analysis of Changes in Interest Income and Expense Due to Change in 1997 over 1996 Volume/1/ Rate/2/ Total ---------- ----------- ----------- (In thousands) Increase (decrease) in interest income: Securities available for sale $ 357 $ 44 $ 401 Securities held to maturity: U.S. Treasury securities (35) (4) (39) U.S. government agency (328) 30 (298) Municipal securities 179 29 208 Commercial paper (7) 0 (7) Other securities 2 2 4 Federal funds sold 56 (0) 56 Loans: Commercial 515 (78) 437 Real estate-construction 86 (4) 82 Real estate-other 75 (52) 23 Installment and other 47 (14) 33 ------ ------ ------ Total Loans 723 (148) 575 ------ ------ ------ Total increase (decrease) $ 947 $ (47) $ 900 ------ ------ ------ (Increase) decrease in interest expense: Deposits: Interest bearing checking $ (1) $ 1 $ (0) Money market (118) (67) (185) Savings and time (282) (45) (327) Other borrowed funds 13 0 13 ------ ------ ------ Total decrease $(388) $(111) $(499) ------ ------ ------ Total change in net interest income $ 559 $(158) $ 401 ====== ====== ======
(1) Changes not solely attributed to rate or volume have been allocated to volume. (2) Loan fees are reflected in rate variances. Net Interest Margin The net interest margin declined 64 basis points to 6.63% for the first quarter of 1997 from 7.27% for the same period of the prior year. The decrease in the margin is attributed to the decline in average rate earned on earning assets of 25 basis points and the increase in the average rate paid on interest bearing deposits of 43 basis points. The decline in the yield on earning assets 8 was due to a lower average reference rate for the first quarter of 1997 as compared to the first quarter of the prior year. The average reference rate was 8.25% for the first quarter of 1997 as compared to an average rate of 8.42% for the first quarter of 1996. Approximately 90% of the loans in the portfolio have adjustable interest rates based on the Bank's reference rate. The increase in the average rate paid on interest bearing deposits reflects a higher interest rate environment for deposits and an increase in time deposits as a percentage of interest bearing deposits to 38.1% for the first quarter of 1997 from 31.1% for the same quarter of the prior year. Provision for Loan Losses The provision for loan losses for the three months ended March 31, 1997 was $25,000, a decrease of $200,000 or 88.9% from the three months ended March 31, 1996. The amount of the provision was reduced because management believed the reserve for loan loss is adequate and because loan recoveries exceeded charge-offs by $47,000 during the first quarter of 1997. Charge-offs exceeded recoveries by $109,000 for the first quarter of 1996. Non-Interest Income Non-interest income for the three months ended March 31, 1997 was $217,000, an increase of $38,000 or 21.2% from the three months ended March 31, 1996. The increase in customer service fees is attributed to the increase in deposits and an increase in foreign trade transaction volume. Non-Interest Expense Salaries and employee benefits for the three months ended March 31, 1997 increased $117,000 or 7.6% from the same period in 1996 due to an increase in incentive accruals and normal merit increases. Full time equivalent personnel numbered 103 on March 31, 1997 compared to 102 on March 31, 1996. Non-interest expense totaled $2.8 million for the three months ended March 31, 1997 and 1996, respectively. FDIC assessments increased $6,000 or 600.0% for the first quarter of 1997 as compared to the prior year due to the addition of a FICO assessment. The Company reduced the volume of external marketing consulting in 1997 from 1996 which reduced the level of consulting expenses. For the three months ended March 31, 1997 the Company had no write-downs associated with foreclosed assets and incurred $24,000 in expenses associated with managing, maintaining and liquidating foreclosed assets compared to a write-down of $50,000 and expenses of $30,000 for the three months ended March 31, 1996. The following table summarizes the significant components of noninterest expense for the dates indicated. 9
Quarter Ended March 31, Dollar % (Dollars in thousands) 1997 1996 Change Change ------------- ------------- ------- ------ Salaries and employee benefits $1,651 $1,534 $ 117 7.6% Occupancy 240 249 (9) -3.6% Equipment 219 214 5 2.3% Goodwill and core deposit amortization 57 64 (7) -10.9% Data processing services 78 64 14 21.9% FDIC insurance 7 1 6 600.0% Telephone and postage 79 56 23 41.1% Consulting fees 45 60 (15) -25.0% Legal fees 69 45 24 53.3% Marketing 47 55 (8) -14.5% Foreclosed asset expenses 24 80 (56) -70.0% Other 330 368 (38) -10.3% ------ ------ ------- ----- TOTAL NONINTEREST EXPENSE $2,846 $2,790 $ 56 2.0% ====== ====== ======= =====
Provision for Income Taxes The provision for income taxes for the first quarter of 1997 increased to $580,000 from $195,000 for the same quarter of the prior year. These provisions represent effective tax rates of 36% and 17%, 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 $29 million or 18.3% to $188.2 million for the three months ended March 31, 1997 from $159.1 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. Real estate construction loans as a percentage of total loans outstanding were 4.1% at March 31, 1997 compared to 2.6% at March 31, 1996. Risks associated with real estate construction lending are generally considered to be higher than risks associated with other forms of lending and accordingly, 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 $65.2 million at March 31, 1997, an increase of $9.3 million or 16.6% from March 31, 1996. 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. 10
March 31, 1997 December 31, 1996 March 31, 1996 --------------------- ----------------------- ------------------------ Amount Percent Amount Percent Amount Percent --------- ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Commercial $106,488 53.5% $ 92,756 50.6% $ 76,600 49.9% Real estate - construction 8,243 4.1% 6,608 3.6% 3,934 2.6% Real estate - other 65,154 32.7% 64,272 35.0% 55,887 36.4% Installment and other 19,285 9.7% 19,757 10.8% 17,067 11.1% -------- ----- -------- ----- -------- ----- TOTAL $199,170 100.0% $183,393 100.0% $153,488 100.0% ======== ===== ======== ===== ======== =====
Foreclosed Assets Foreclosed assets totaled $973,000 at March 31, 1997, an increase of $261,000 or 36.7% from March 31, 1996, and consist of two parcels of raw land and one finished lot. 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 1997 1996 1996 ------------------- ------------------------ ----------------- (Dollars in thousands) Loans 90 days or more past due and still accruing $ 341 $ 322 $ 497 Non-accrual loans 2,945 2,811 2,920 Other assets held for sale 232 275 275 Foreclosed assets 973 923 712 ------- ------- ------ Total non-performing assets $4,491 $4,331 $4,404 ======= ======= ====== Non-performing assets to period end loans, other assets held for sale plus foreclosed assets 2.24% 2.35% 2.85% ======= ======= ======
At March 31, 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 $2,945,000 all of which were on a non-accrual basis. Included in this amount was $13,000 of impaired loans for which the related allowance for loan losses was $9,000 and $2,932,000 of impaired loans which approximate the fair value of the supporting collateral and accordingly do not have an associated allowance for loan loss. For the quarter ended March 31, 1997, the average recorded investment in impaired loans was $2,940,000 and no interest income was recognized on impaired loans. If interest income on those loans had been recognized, such income would have approximated $52,000. 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. 11 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 March 31, 1997. The following table summarizes the changes in the allowance for loan losses for the periods indicated:
Three Months Year Three Months Ended Ended Ended 3-31-97 12-31-96 3-31-96 ----------- ------------ ----------- (Dollars in thousands) Balance, at beginning of period $4,969 $4,960 $4,960 Charge-offs: Commercial 16 95 95 Real estate - construction -- 370 -- Real estate - other -- 477 50 Installment and other 3 127 9 ------ ------ ------ Total charge-offs 19 1,069 154 Recoveries: Commercial 4 242 26 Real estate - construction 37 56 2 Real estate - other 21 140 15 Installment and other 4 40 2 ------ ------ ------ Total recoveries 66 478 45 ------ ------ ------ Net (recoveries) charge-offs (47) 591 109 Provision charged to operations 25 600 225 ------ ------ ------ Balance, at end of period $5,041 $4,969 $5,076 ====== ====== ====== Ratio of net (recoveries) charge-offs to average loans (annualized) -0.10% 0.36% 0.27% ====== ======= ======= Allowance at period end to total loans outstanding 2.53% 2.71% 3.31% ====== ====== =======
Potential Problem Loans At March 31, 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. 12 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 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.
March 31, 1997 December 31, 1996 ------------------------------------ -------------------------------- Book Market Book Market Value Value Value Value -------------- ---------------- -------------- -------------- (Dollars in thousands) SECURITIES HELD TO MATURITY: U.S. Treasury securities $ 5,905 $ 5,873 $10,882 $10,886 U.S. government agencies and corporation 19,022 19,197 19,029 19,310 Municipal securities 12,084 11,903 128 134 Collateralized mortgage obligations 120 124 11,272 11,337 ------- ------- ------- ------- TOTAL $37,131 $37,097 $41,311 $41,667 ======= ======= ======= ======= SECURITIES AVAILABLE FOR SALE: U.S. Treasury securities $12,039 $12,040 $12,042 $12,207 U.S. government agencies and corporation 18,864 18,744 14,551 14,664 ------- ------- ------- ------- TOTAL $30,903 $30,784 $26,593 $26,871 ======= ======= ======= =======
Deposits For the three months ended March 31, 1997 average deposits totaled $250.1 million, an increase of $47.3 million or 23.3% from $202.8 million for the same period in 1996. Management attributes the increase in deposits to an improving economic environment. For the three months ended March 31, 1997, average demand deposits totaled $72.7 million, an increase of $7.0 million or 10.8% from the same period in 1996. Average demand deposits as a percentage of total deposits decreased to 29.1% for the first quarter of 1997 from 32.4% for the same period of the prior year. Average interest-bearing deposits increased $40.2 million or 29.3% for the three months ended March 31, 1997 from the same period in 1996. Average interest-bearing deposits comprised 70.9% of average total deposits for the three months ended March 31, 1997 and 67.6% of average total deposits for the three months ended March 31, 1996. The table below sets forth information regarding the Bank's average deposits by amount and percentage of total deposits for the three months ended March 31, 1997 and 1996. 13
Average Deposits ---------------------------------------------------------------------------------- Three Months Ended March 31, ---------------------------------------------------------------------------------- 1997 1996 -------------------------------- ------------------------------------------ Amount Percentage Amount Percentage ------------- ------------ ------------ ---------- Demand accounts $ 72,731 29.1% $ 65,624 32.4% Interest-bearing checking 22,457 9.0% 22,396 11.0% Money market 87,283 34.9% 71,486 35.3% Savings and time 67,598 27.0% 43,284 21.3% --------- ------- --------- ------ Total $250,069 100.0% $202,790 100.0% ========= ======= ========= ======
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, 1997 had the following schedule of maturities:
(In thousands) --------------- Three months or less $25,823 After three months through six months 12,552 After six months through twelve months 3,626 After twelve months 784 ------- Total $42,785 =======
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 $24.0 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, 1997 the Bank had no outstanding borrowings against these arrangements. Additionally, at March 31, 1997, unpledged government securities that are available to secure additional borrowing in the form of reverse repurchase agreements totaled approximately $46.6 million. At March 31, 1997 the Bank had no reverse repurchase agreements. The liquidity position of the Company declined during the first quarter of 1997 from December 31, 1996 as cash flows required for financing and investing activities exceeded the funds provided by operating activities by $28.1 million. Cash and cash equivalents of $14.1 million were required to accommodate deposit withdrawals and cash and cash equivalents of $16.2 million were required to fund investing activities which were partially funded by operating activities, which provided $2.2 million of cash and cash equivalents. 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, 1997, the Company had a liquidity ratio of 28.1% as compared to 36.5% at December 31, 1996. The liquidity ratio at December 31, 1996 included $29.3 million of over-night Federal Funds sold which is an unusually 14 high level. Federal Funds sold at March 31, 1997 were $4.6 million which is a more typical level. The liquidity ratio at March 31, 1997 is considered adequate. Capital Resources Total shareholders' equity increased to $34.4 million at March 31, 1997 from $34.1 million at December 31, 1996 resulting from retained income of $1,050,000 for the first quarter of 1997 offset by the market adjustment of securities available for sale and a net reduction of $517,000 in common stock due to stock repurchases. 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 and 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 March 31, 1997 the Company's risk-based capital ratio was 16.00%. The following table presents the Company's risk-based capital and leverage ratios as of March 31, 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 March 31, 1997: Total Capital (to Risk Weighted Assets) 36,282 15.97% 18,176 > 8.00% 22,721 10.00% Tier 1 Capital (to Risk Weighted Assets) 33,415 14.71% 9,088 > 4.00% 13,632 6.00% Tier 1 Capital (to Average Assets) 33,415 11.75% 11,375 > 4.00% 14,219 5.00% As of December 31, 1996: Total Capital (to Risk Weighted Assets) 35,412 16.10% 17,594 > 8.00% 21,993 10.00% Tier 1 Capital (to Risk Weighted Assets) 32,635 14.84% 8,797 > 4.00% 13,196 6.00% Tier 1 Capital (to Average Assets) 32,635 11.27% 11,580 > 4.00% 14,475 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: May 7, 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 STATEMENT
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 MAR-31-1997 MAR-31-1996 JAN-01-1997 JAN-01-1996 MAR-31-1997 MAR-31-1996 13,546 13,465 0 0 4,600 8,850 0 0 30,784 7,908 37,131 48,539 37,097 49,030 199,170 153,488 5,041 5,076 289,704 235,218 252,859 202,854 0 0 2,404 1,952 0 0 0 0 0 0 31,222 36,914 3,219 (6,502) 289,704 235,218 4,707 4,132 1,212 960 0 0 5,919 5,092 1,634 1,122 1,635 1,136 4,284 3,956 25 225 0 0 2,846 2,790 1,630 1,120 1,630 1,120 0 0 0 0 1,050 925 .23 .20 .23 .20 .066 .073 2,945 2,920 341 497 0 0 0 0 4,969 4,960 19 154 66 45 5,041 5,076 5,041 5,076 0 0 1,258 1,325
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