-----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, BlI1rLw8QHZ00l0CWpvHv712/UvmEUKz70v1NfeVl/Ev6zytXhmtEnj0KrZgwcy4 tuxnmiDc9P+R1+vCmApc9g== 0000929624-98-000877.txt : 19980508 0000929624-98-000877.hdr.sgml : 19980508 ACCESSION NUMBER: 0000929624-98-000877 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980507 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIVIC BANCORP CENTRAL INDEX KEY: 0000747205 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 680022322 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13287 FILM NUMBER: 98612387 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 CIVIC BANCORP 10-Q FOR PERIOD ENDING 03/31/199 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, 1998 -------------- 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, 1998: Class Number of Shares Outstanding ----- ---------------------------- Common Stock 4,620,635 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, 1998, March 31, 1997 and December 31, 1997 3 Consolidated Statements of Operations - Three Months Ended March 31, 1998 and March 31, 1997 4 Consolidated Statements of Cash Flows - Three Months Ended March 31, 1998 and March 31, 1997 5 Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 1998 and March 31, 1997 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. Other Information 18 SIGNATURES 19 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 1998 1997 1997 ----------------- ------------------ ------------------ ASSETS Cash and due from banks $18,178 $13,546 $16,503 Federal funds sold 25,100 4,600 13,230 ----------------- ------------------ ------------------ Total cash and cash equivalents 43,278 18,146 29,733 Securities available for sale 34,982 30,784 31,097 Securities held to maturity (market value of $24,437, $37,097 and $27,727, respectively) 24,080 37,131 27,280 Other securities 2,055 1,780 1,990 Loans: Commercial 129,630 106,488 135,140 Real estate-construction 9,674 8,243 12,929 Real estate-other 64,172 65,154 64,430 Installment and other 17,899 19,285 20,478 ----------------- ------------------ ------------------ Total loans 221,375 199,170 232,977 Less allowance for loan losses 4,073 5,041 4,351 ----------------- ------------------ ------------------ Loans - net 217,302 194,129 228,626 Interest receivable and other assets 5,175 5,094 5,216 Leasehold improvements and equipment - net 1,336 1,435 1,435 Foreclosed assets 554 973 - Other assets held for sale - 232 43 ----------------- ------------------ ------------------ TOTAL ASSETS $328,762 $289,704 $325,420 ================= ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing $80,398 $75,934 $89,823 Interest-bearing: Checking 9,844 22,322 6,950 Money market 89,998 86,684 95,770 Time and savings 104,883 67,919 90,607 ----------------- ------------------ ------------------ Total deposits 285,123 252,859 283,150 Accrued interest payable and other liabilities 3,823 2,404 3,583 ----------------- ------------------ ------------------ Total liabilities 288,946 255,263 286,733 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, 4,620,635, 4,392,326 and 4,619,768 shares 35,115 31,222 35,149 Retained earnings, (subsequent to July 1, 1996 date of quasi-reorganization, total deficit eliminated $5.5 million) 4,462 3,290 3,287 Accumulated other comprehensive income - net 239 (71) 251 ----------------- ------------------ ------------------ Total shareholders' equity 39,816 34,441 38,687 ----------------- ------------------ ------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $328,762 $289,704 $325,420 ================= ================== ==================
3 CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except shares and per share amounts)
Three Months Ended March 31, --------------------------------------------- 1998 1997 ------------------ ------------------ INTEREST INCOME: Loans $5,627 $4,707 Securities available for sale, securities held to maturity and other securities 709 994 Tax exempt securities 160 138 Federal funds sold 337 80 ------------------ ------------------ Total interest income 6,833 5,919 INTEREST EXPENSE: Deposits 2,015 1,634 Other borrowing - 1 ------------------ ------------------ Total interest expense 2,015 1,635 ------------------ ------------------ NET INTEREST INCOME 4,818 4,284 Provision for loan losses 38 25 ------------------ ------------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,780 4,259 ------------------ ------------------ NONINTEREST INCOME: Customer service fees 209 188 Other 28 29 ------------------ ------------------ Total noninterest income 237 217 NONINTEREST EXPENSE: Salaries and employee benefits 1,842 1,651 Occupancy 271 240 Equipment 212 219 Data processing services 89 78 Telephone and postage 66 79 Legal fees 55 69 Goodwill and core deposit amortization 48 57 Marketing 69 47 Consulting fees 60 45 Foreclosed asset expense 3 24 FDIC insurance 8 7 Other 324 330 ------------------ ------------------ Total noninterest expense 3,047 2,846 ------------------ ------------------ INCOME BEFORE INCOME TAXES 1,970 1,630 Income tax expense 795 580 ------------------ ------------------ NET INCOME $ 1,175 $ 1,050 ================== ================== BASIC EARNINGS PER COMMON SHARE $ 0.25 $ 0.23 ================== ================== DILUTED EARNINGS PER COMMON SHARE $ 0.24 $ 0.22 ================== ================== Weighted average shares outstanding used to compute basic earnings per common share 4,623,047 4,634,128 Dilutive effects of stock options 267,732 178,277 ------------------ ------------------ Total weighted average shares outstanding used to compute diluted earnings per common share 4,890,779 4,812,405 ================== ==================
4 CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Three Months Ended March 31, 1998 1997 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,175 $ 1,050 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 38 25 Depreciation and amortization 251 276 (Decrease) increase in deferred loan fees (28) 92 Change in assets and liabilities: Decrease (increase) in interest receivable and other assets 193 (119) Increase in accrued interest payable and other liabilities 130 868 ----------------- ----------------- Net cash provided by operating activities 1,759 2,192 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (31) (131) Paydown on assets held for sale 43 43 Net decrease (increase) in loans 10,760 (15,897) Expenditures on foreclosed assets - 25 Activities in securities held to maturity: Proceeds from maturing securities 4,005 5,008 Purchases of securities (870) (836) Activities in securities available for sale: Purchases of securities (3,979) (4,382) ----------------- ----------------- Net cash provided by (used in) investing activities 9,928 (16,170) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 71 64 Purchase of common stock (186) (581) Net increase (decrease) in deposits 1,973 (13,588) ----------------- ----------------- Net cash provided by (used in) financing activities 1,858 (14,105) ----------------- ----------------- Net increase (decrease) in cash and cash equivalents 13,545 (28,083) Cash and cash equivalents at beginning of period 29,733 46,229 ----------------- ----------------- Cash and cash equivalents at end of period $43,278 $18,146 ================= ================= Cash paid during year for: Interest $ 1,664 $ 1,516 ================= ================= Income taxes $ - $ 37 ================= ================= Supplemental schedule of non-cash investing activity: Loans transferred to foreclosed assets $ 554 $ 75 ================= =================
5 CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands except shares and per share amounts)
Three Months Ended March 31, --------------------------------------------- 1998 1997 ------------------ ------------------ Net Income $ 1,175 $ 1,050 Other Comprehensive Income: Unrealized loss on securities available for sale (21) (397) Income tax expense related to unrealized loss on securities available for sale 9 158 ------------------ ------------------ Other Comprehensive Income (12) (239) ------------------ ------------------ COMPREHENSIVE INCOME $ 1,163 $ 811 ------------------ ------------------
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 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, 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, 1997. The results of operations and cash flows are not necessarily indicative of those expected for the complete fiscal year. 2. NEW PRONOUNCEMENTS On January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income." This statement establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. It does not require a specific format for the statements, but requires the Company to display an amount representing total comprehensive income for the period in that financial statement. In June 1997, the FASB issued FAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." This statement establishes standards for reporting information about operating segments in annual reports and in interim financial reports issued to shareholders. The statement is effective for fiscal years beginning after December 15, 1997. The Company has adopted FAS No. 131 but does not have multiple industry segments as defined in FAS No. 131. In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures About Pensions and Other Post Retirement Benefits." FAS No. 132 changes disclosure only on applicable defined benefit pension or post retirement plans. The statement is effective for fiscal years beginning after December 15, 1997. At this time, the Company does not have a defined benefit pension or post retirement plan. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 OVERVIEW For the three months ended March 31, 1998, the Company reported net income of $1,175,000, or $.24 earnings per diluted share compared to a net income of $1,050,000 or $.22 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, 1998 compared to 1.47% for the same period of the prior year. The annualized return on average shareholders' equity for the three months ended March 31, 1998 and 1997 was 11.96% and 12.19%, respectively. RESULTS OF OPERATIONS Net interest income for the three months ended March 31, 1998 was $4.8 million, increasing $534,000 or 12.5% from net interest income of $4.3 million for the same period in 1997. The increase in net interest income is primarily due to the increase in the volume of earning assets which was partially offset by an increase in the volume of interest bearing liabilities. 7 Total interest income for the first three months of 1998 equaled $6.8 million, an increase of $914,000 from interest income earned in the same period in 1997. The increase in total interest income is primarily attributed to the increase in volume of earning assets. Average earning assets increased $40.9 million or 15.3% to $307.4 million in the first quarter of 1998 compared to $266.5 million in the first quarter of 1997. Total interest expense for the first three months of 1998 equaled $2.0 million and increased $.4 million or 23.2% from the $1.6 million for the three months ended March 31, 1997 due to an increase of $28.1 million or 15.8% in the volume on interest bearing deposits. Average savings and time deposits as a percentage of total average deposits increased to 36.3% from 27.0% for the three months ended 1998 and 1997, respectively. 8 The following table presents an analysis of the components of net interest income for the first quarter of 1998 and 1997.
Three months ended March 31, -------------------------------------------------------------------------------------- 1998 1997 ---------------------------------------- --------------------------------------- Interest Rates Interest Rates Average Income\ Earned\ Average Income\ Earned\ Balance Expense 2 Paid Balance Expense 2 Paid --------- --------- ---------- --------- ----------- --------- ASSETS Securities available for sale $ 31,331 $ 496 6.42% $ 30,977 491 6.43% Securities held to maturity: U.S. Treasury securities 5,955 88 5.99% 8,559 125 5.94% U.S. Government agencies 4,756 95 8.09% 19,150 351 7.44% Municipal securities(1) 13,366 242 7.33 11,888 209 7.13% Other securities 2,032 30 6.04% 1,774 27 6.20% Federal funds sold and securities purchased under agreements to resell 24,948 337 5.47% 6,025 80 5.39% Loans: 2,3 Commercial 130,022 3,338 10.41% 96,648 2,462 10.33% Real estate-construction 11,771 299 10.30% 7,338 186 10.26% Real estate-other 64,118 1,523 9.63% 64,995 1,595 9.95% Installment and other 19,141 467 9.90% 19,178 464 9.82% --------- ------ --------- --------- ------ ----- Total Loans 225,052 5,627 10.14% 188,159 4,707 10.15% --------- ------ --------- --------- ------ ----- Total Earning Assets 307,440 6,915 9.12% 266,532 5,990 9.11% Cash and due from banks 19,040 17,611 Leasehold improvements and equipment - net 1,392 1,496 Interest receivable and other assets 4,896 4,845 Foreclosed assets 239 943 Assets held for sale 20 232 Less allowance for loan loss (4,245) (4,988) --------- --------- TOTAL ASSETS $ 328,782 $ 286,671 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest bearing: Checking $ 27,807 65 0.95% $ 22,457 52 0.93% Money market 74,099 621 3.40% 87,283 742 3.45% Time and savings 103,619 1,329 5.20% 67,598 840 5.04% Other borrowed funds -- -- -- 105 1 5.49% --------- ------ --------- --------- ----- ----- Total interest bearing liabilities 205,525 2,015 3.98% 177,443 1,635 3.74% Demand deposits 80,134 72,731 Other liabilities 3,816 2,029 Shareholders' equity 39,307 34,468 --------- --------- TOTAL LIABILITIES AND $ 328,782 $ 286,671 ========= ========= SHAREHOLDERS' EQUITY Net Interest Income 4,900 4,355 ====== ===== Net Interest Margin 6.46% 6.63% ====== ===== Tax Equivalent Adjustment(1) 82 71 ====== =====
- ------------------------------------------------------------------------------- (1) Tax-exempt interest income on municipal securities is computed using a Federal income tax rate of 34%. Interest on municipal securities was $160 and $138 for March 31, 1998 and 1997, 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 $124,000 and $105,000 for March 31, 1998 and 1997, respectively; fees on real estate loans of $88,000 and $93,000 for March 31, 1998 and 1997, respectively; and fees on installment and other loans of $9,000 and $6,000 for March 31, 1998 and 1997, respectively. 9 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, 1998. Analysis of Changes in Interest Income and Expense Due to Change in 1998 over 1997
Volume 1 Rate 2 Total ---------- ---------- ----------- (In thousands) Increase (decrease) in interest income: Securities available for sale $6 $ (1) $5 Securities held to maturity: U.S. Treasury securities (38) 1 (37) U.S. government agency (264) 8 (256) Municipal securities 26 7 33 Other securities 4 (1) 3 Federal funds sold 252 5 257 Loans: Commercial 849 27 876 Real estate-construction 112 1 113 Real estate-other (21) (51) (72) Installment and other (1) 4 3 ---------- ---------- ----------- Total Loans 939 (19) 920 ---------- ---------- ----------- Total increase (decrease) $925 $ (1) $924 ---------- ---------- ----------- (Increase) decrease in interest expense: Deposits: Interest bearing checking $ (13) $ (1) $ (14) Money market 112 10 122 Savings and time (447) (42) (489) Other borrowed funds 1 0 1 ---------- ---------- ----------- Total increase (decrease) $ (347) $ (33) $ (380) ---------- ---------- ----------- Total change in net interest income $578 $ (34) $ 544 ========== ========== ===========
(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 17 basis points to 6.46% for the first quarter of 1998 from 6.63% for the same period of the prior year. The decrease in the margin is attributed primarily to the growth in time deposits. Average time deposits as a percentage of total average interest bearing deposits increased to 50.4% for the first quarter of 1998 from 38.1% for the same quarter of the prior year. Additionally, the average rate paid on time deposits increased to 5.20% for the first quarter of 1998 from 5.04% for the same period of the prior year due to a higher interest rate environment for deposits. 10 Provision for Loan Losses The provision for loan losses for the three months ended March 31, 1998 was $38,000, an increase of $13,000 or 52.0% from the three months ended March 31, 1997. The increase in the provision was based on the growth in the loan portfolio. Non-Interest Income Non-interest income for the three months ended March 31, 1998 was $237,000, an increase of $20,000 or 9.2% from the three months ended March 31, 1997. The increase in customer service fees, the largest component of other income, is attributed to the increase in deposits and foreign trade transaction volume. Non-Interest Expense Non-interest expense totaled $3.0 million for the three months ended March 31, 1998, an increase of $201,000 or 7.1% from $2.8 million for the same period of the prior year. Salaries and employee benefits, the largest component of noninterest expense increased $191,000 or 11.6% due to additional staff, normal merit increases, increased employee benefit costs and an increase in the marketing and management incentive accruals. Full time equivalent personnel numbered 107 on March 31, 1998 compared to 103 on March 31, 1997. Occupancy expenses increased due to normal rent escalations and the addition of the Palo Alto office in June 1997. For the three months ended March 31, 1998 the Company incurred expenses of $3,000 associated with managing, maintaining and liquidating foreclosed assets compared to $24,000 for the three months ended March 31, 1997. The following table summarizes the significant components of noninterest expense for the dates indicated.
Quarter Ended March 31, Dollar % (Dollars in thousands) 1998 1997 Change Change -------------- ---------------- -------------- ---------------- Salaries and employee benefits $1,842 $1,651 $191 11.6% Occupancy 271 240 31 12.9% Equipment 212 219 (7) -3.2% Data processing services 89 78 11 14.1% Telephone and postage 66 79 (13) -16.5% Legal fees 55 69 (14) -20.3% Goodwill and core deposit amortization 48 57 (9) -15.8% Marketing 69 47 22 46.8% Consulting fees 60 45 15 33.3% Foreclosed asset expenses 3 24 (21) -87.5% FDIC insurance 8 7 1 14.3% Other 324 330 (6) -1.8% -------------- ---------------- -------------- -------------- TOTAL NONINTEREST EXPENSE $3,047 $2,846 $201 7.1% ============== ================ ============== ===============
Provision for Income Taxes The provision for income taxes for the first quarter of 1998 increased to $795,000 from $580,000 for the same quarter of the prior year. These provisions represent effective tax rates of 40% and 36%, respectively. The effective rate has been increased for 1998 due to the reduced impact of tax exempt municipal securities on the larger net income. 11 FINANCIAL CONDITION Loans Average loans for the first quarter of 1998 increased $36.9 million or 19.6% to $225.1 million compared to $188.2 million for the same quarter of 1997 due to an improving economy and an overall increase in loan demand. However, loans outstanding at March 31, 1998 have decreased $11.6 million to $221.4 million from $233.0 million at December 31, 1997. The decrease in loans outstanding during the first quarter was due to pay-offs of certain construction loans as anticipated combined with delays in the scheduled funding of new construction loans due to inclement weather from the El Nino weather system. Additionally, the Bank continues to scrutinize the loan portfolio and has elected to discontinue financing of certain commercial clients due to quality concerns. Real estate construction loans as a percentage of total loans outstanding were 4.4% at March 31, 1998 compared to 4.1% at March 31, 1997. The Bank maintains a limited portfolio of real estate constructions 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 $64.2 million at March 31, 1998, a decrease of $1.0 million or 1.5% from March 31, 1997. 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, 1998 December 31, 1997 March 31, 1997 ---------------------------- -------------------------- ------------------------ Amount Percent Amount Percent Amount Percent -------------- ---------- -------------- --------- ------------ ---------- (Dollars in thousands) Commercial $129,630 58.6% $135,140 58.0% $106,488 53.5% Real estate - construction 9,674 4.4% 12,929 5.5% 8,243 4.1% Real estate - other 64,172 29.0% 64,430 27.7% 65,154 32.7% Installment and other 17,899 8.1% 20,478 8.8% 19,285 9.7% -------------- ---------- -------------- ---------- ------------ ---------- TOTAL $221,375 100.0% $232,977 100.0% $199,170 100.0% ============== ========== ============== ========== ============ ==========
Foreclosed Assets Foreclosed assets totaled $554,000 at March 31, 1998, a decrease of $419,000 or 43.1% from March 31, 1997, and consists of a commercial leasehold interest in property owned by the Port of Oakland. 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. 12
March 31 Dec. 31 March 31 1998 1997 1997 -------------- --------------- -------------- (Dollars in thousands) Loans 90 days or more past due and still accruing $ 182 $ 496 $ 341 Non-accrual loans 3,238 3,465 2,945 Other assets held for sale - 43 232 Foreclosed assets 554 - 973 -------------- --------------- -------------- Total non-performing assets $3,974 $4,004 $4,491 ============== =============== ============== Non-performing assets to period end loans, other assets held for sale plus foreclosed assets 1.80% 1.72% 2.24% ============== =============== ==============
[TABLE] At March 31, 1998, the recorded investment in loans considered to be impaired was $3,238,000 all of which were on a non-accrual basis. For the quarter ended March 31, 1998, the average recorded investment in impaired loans was $3,311,000 and no interest income was recognized on impaired loans. If interest income on those loans had been recognized, such income would have approximated $128,000. Allowance for Loan Losses The allowance for loan losses is maintained at a level that management of the Company considers to be adequate for losses that can be reasonably anticipated in relation to the risk of future losses inherent in the loan portfolio. The allowance is increased by charges to operating expenses and reduced by net charge-offs. In assessing the adequacy of the allowance for loan losses, management relies on its ongoing review of the loan portfolio to identify potential problem loans in a timely manner, ascertains whether there are probable losses which must be charged off and assesses the aggregate risk characteristics of the portfolio. Factors which influence management's judgment include the impact of forecasted economic conditions, historical loan loss experience, the evaluation of risks which vary with the type of loan, creditworthiness of the borrower and the value of the underlying collateral. Management believes the allowance for loan losses was adequate at March 31, 1998. 13 The following table summarizes the changes in the allowance for loan losses for the periods indicated:
Three Months Year Three Months Ended Ended Ended 3-31-98 12-31-97 3-31-97 ------------- -------------- ------------- (Dollars in thousands) Balance, at beginning of period $4,351 $4,969 $4,969 Charge-offs: Commercial 171 16 16 Real estate - construction 150 564 - Real estate - other 58 650 - Installment and other - 16 3 ------------- -------------- ------------- Total charge-offs 379 1,246 19 Recoveries: Commercial 6 43 4 Real estate - construction 9 139 37 Real estate - other 15 280 21 Installment and other 33 66 4 ------------- -------------- ------------- Total recoveries 63 528 66 ------------- -------------- ------------- Net charge-offs (recoveries) 316 718 (47) Provision charged to operations 38 100 25 ------------- -------------- ------------- Balance, at end of period $4,073 $4,351 $5,041 ============= ============== ============= Ratio of net charge-offs to average loans (annualized) 0.56% 0.34% -0.10% ============= ============== ============= Allowance at period end to total loans outstanding 1.84% 1.87% 2.53% ============= ============== =============
Potential Problem Loans At March 31, 1998 there were no loans classified for regulatory purposes as loss, doubtful, substandard or special mention that have not been disclosed in the discussion above that (i) represented or resulted from trends or uncertainties which management anticipated would have a material impact on future operating results, liquidity, capital resources or (ii) represented material credits about which management was aware of information that would cause serious doubt as to the ability of the borrower to comply with the loan repayment terms. Investment Portfolio The Company's investment portfolio is used primarily for liquidity purposes and secondarily for investment income. The portfolio is primarily composed of U.S. Treasury and U.S. government agency instruments and investment grade municipal obligations. The company has increased its investment in municipal securities to benefit from higher after-tax yields available on bank-qualified municipal securities. 14 The table below summarizes the book value and estimated market values of investment securities at the dates indicated. March 31, 1998 December 31, 1997 ----------------- ------------------ Book Market Book Market Value Value Value Value ------- -------- -------- -------- (Dollars in thousands) SECURITIES HELD TO MATURITY: U.S. Treasury securities .......... $ 5,964 $ 5,981 $ 5,949 $ 5,968 U.S. government agencies and corporation ..................... 4,001 4,010 8,004 8,036 Municipal securities .............. 14,031 14,357 90 94 Collateralized mortgage obligations 84 89 13,237 13,629 ------- ------- ------- ------- TOTAL ........................... $24,080 $24,437 $27,280 $27,727 ======= ======= ======= ======= SECURITIES AVAILABLE FOR SALE: U.S. Treasury securities .......... $12,024 $12,214 $12,028 $12,227 U.S. government agencies and corporation ..................... 22,559 22,768 18,650 18,870 ------- ------- ------- ------- TOTAL ........................... $34,583 $34,982 $30,678 $31,097 ======= ======= ======= ======= Deposits For the three months ended March 31, 1998 average deposits totaled $285.7 million, an increase of $35.6 million or 14.2% from $250.1 million for the same period in 1997. Management attributes the increase in deposits to an improving economic environment and an increase in loan demand. It is the Company's objective to become the primary bank for it's customers by servicing both the loans 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, 1998, average demand deposits totaled $80.1 million, an increase of $7.4 million or 10.2% from the same period in 1997. Average demand deposits as a percentage of total deposits decreased to 28.1% for the first quarter of 1998 from 29.1% for the same period of the prior year. Average interest-bearing deposits increased $28.2 million or 15.9% for the three months ended March 31, 1998 from the same period in 1997. Average interest- bearing deposits comprised 71.9% of average total deposits for the three months ended March 31, 1998 and 70.9% of average total deposits for the three months ended March 31, 1997. 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, 1998 and 1997.
Average Deposits --------------------------------------------------------------------- Three Months Ended March 31, --------------------------------------------------------------------- 1998 1997 ------------------------------ ------------------------------ Amount Percentage Amount Percentage ------------- ----------- ------------- ----------- Demand accounts $ 80,134 28.1% $ 72,731 29.1% Interest-bearing checking 5,506 1.9% 22,457 9.0% Money market 96,400 33.7% 87,283 34.9% Savings and time 103,619 36.3% 67,598 27.0% ------------- ----------- ------------- ----------- Total $285,659 100.0% $250,069 100.0% ============= =========== ============= ===========
15 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, 1998 had the following schedule of maturities: (In thousands) ---------------- Three months or less $39,527 After three months through six months 29,927 After six months through twelve months 5,476 After twelve months 3,809 ---------------- Total $78,739 ================ 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, 1998 the Bank had no outstanding borrowings against these arrangements. Additionally, at March 31, 1998, unpledged government securities that are available to secure additional borrowing in the form of reverse repurchase agreements totaled approximately $35.8 million. At March 31, 1998 the Bank had no reverse repurchase agreements. The liquidity position of the Company improved during the first quarter of 1998 due to the decline in loans. Funds provided by maturing loans contributed $9.9 million of cash and cash equivalents. Additionally, the increase in deposits provided $1.9 million of cash and cash equivalents and net cash and cash equivalents of $1.8 million were provided by operating activities. 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, 1998, the Company had a liquidity ratio of 29.8% as compared to 25.6% at December 31, 1997. The increase in liquidity position reflects the increase in over-night Federal Funds sold. Federal Funds sold at March 31, 1998 were $25.1 million compared to $13.2 million at December 31, 1997. Capital Resources Total shareholders' equity increased to $39.8 million at March 31, 1998 from $38.7 million at December 31, 1997 reflecting retained income of $1,175,000 and the recognition of $200,000 of deferred tax benefits from tax carryforward items which arose prior to the date of the quasi-reorganization. These benefits were partially offset by the market adjustment of securities available for sale and the net reduction of $115,000 in common stock due to the repurchase of shares of common stock in the market. 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 16 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, 1998 the Company's risk-based capital ratio was 15.73%. The following table presents the Company's risk-based capital and leverage ratios as of March 31, 1998 and December 31, 1997.
Minimum Capital Requirements To Be Considered Well Capitalized Minimum Under Prompt Corrective Actual Capital Requirement Action Provisions ---------------------------- ---------------------------- ----------------------------- Amount Ratio Amount Ratio Amount Ratio ------------ ------------ ------------ ------------- ------------- ------------ As of March 31, 1998: Total Capital (to Risk Weighted Assets) $42,063 15.73% $21,388 8.00% $26,735 10.00% Tier 1 Capital (to Risk Weighted Assets) 38,712 14.48% 10,694 4.00% 16,041 6.00% Tier 1 Capital (to Average Assets) 38,712 11.86% 13,058 4.00% 16,323 5.00% As of December 31, 1997: Total Capital (to Risk Weighted Assets) $40,965 14.97% $21,894 8.00% $27,367 10.00% Tier 1 Capital (to Risk Weighted Assets) 37,533 13.71% 10,947 4.00% 16,420 6.00% Tier 1 Capital (to Average Assets) 37,533 12.01% 12,499 4.00% 15,624 5.00%
17 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 18 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, 1998 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 19 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR MAR-31-1998 MAR-31-1997 JAN-01-1998 JAN-01-1997 MAR-31-1998 MAR-31-1997 18,178 13,546 0 0 25,100 4,600 0 0 34,982 30,784 24,080 37,131 24,437 37,097 221,375 199,170 4,073 5,041 328,762 289,704 285,123 252,859 0 0 3,823 2,404 0 0 0 0 0 0 35,115 31,222 4,701 3,219 328,762 289,704 5,627 4,707 1,206 1,212 0 0 6,833 5,919 2,015 1,634 2,015 1,635 4,818 4,284 38 25 0 0 3,047 2,846 1,970 1,630 1,970 1,630 0 0 0 0 1,175 1,050 0.25 0.23 0.24 0.22 .065 .066 3,238 2,945 182 341 0 0 0 0 4,351 4,969 379 19 63 66 4,073 5,041 4,073 5,041 0 0 1,479 1,258
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