-----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, OLdCyiBnHm9c0ZugzsOoHFgQg/m32VEe20gmXXFtkDyekyBhElO7mNuke73528V0 Aj/HGNxLQFJvWm8K8j72hg== 0000950109-95-004476.txt : 19951119 0000950109-95-004476.hdr.sgml : 19951119 ACCESSION NUMBER: 0000950109-95-004476 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951106 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIVIC BANCORP CENTRAL INDEX KEY: 0000747205 STANDARD INDUSTRIAL CLASSIFICATION: 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: 95587512 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 QUARTERLY REPORT 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 September 30, 1995 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 November 3, 1995: 4,451,350 -- The total number of pages in this form is 21 ------ The index of exhibits appears on page 20 ----- 1 CIVIC BANCORP AND SUBSIDIARY
Index to Form 10-Q Page Number ----------- PART I Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1995, September 30, 1994 and December 31, 1994 3 Consolidated Statements of Operations - Nine Months Ended September 30, 1995 and and September 30, 1994 and Three Months Ended September 30, 1995 and September 30, 1994 4-5 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1995 and September 30, 1994 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. Other Information 20 Item 1. Legal Proceedings Item 2. Changes in Securities Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 21
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CIVIC BANCORP AND SUBSIDIARY ---------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- (In thousands except shares) ASSETS ------
September 30, September 30, December 31, 1995 1994 1994 ------------- ------------- ------------ ASSETS Cash and due from banks $ 13,453 $ 21,928 $ 13,730 Interest bearing deposits in banks - 437 - Federal funds sold 6,500 13,800 18,000 -------- -------- -------- Total cash and cash equivalents 19,953 36,165 31,730 Securities available for sale 10,039 9,968 9,965 Securities held to maturity (market value of $53,866, $43,624, and $56,914, respectively) 53,294 44,063 58,010 Other securities 1,599 1,520 1,551 Loans held for investment: Commercial 68,976 73,806 74,164 Real estate - construction 3,716 8,179 5,977 Real estate - other 58,773 51,750 53,715 Installment and other 17,557 21,451 20,860 -------- -------- -------- Total loans held for investment 149,022 155,186 154,716 Less allowance for loan losses 4,843 3,372 3,216 -------- -------- -------- Loans held for investment - net 144,179 151,814 151,500 Interest receivable and other assets 3,926 7,520 5,293 Leasehold improvements and equipment, net 1,864 2,286 2,105 Foreclosed assets 826 1,153 600 Other assets held for sale 297 306 306 Net assets of discontinued operations - 3,015 - -------- -------- -------- TOTAL ASSETS $235,977 $257,810 $261,060 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ LIABILITIES Deposits: Noninterest-bearing $ 64,732 $ 72,122 $ 78,024 Interest-bearing: Checking 22,093 22,256 23,388 Money market 75,434 86,619 87,216 Time and savings 44,394 50,023 45,203 -------- -------- -------- Total deposits 206,653 231,020 233,831 Accrued interest payable and other liabilities 1,220 1,433 1,184 -------- -------- -------- Total liabilities 207,873 232,453 235,015 SHAREHOLDERS' EQUITY: Preferred stock no par value; authorized, 10,000,000 shares; issued and outstanding, none Common stock no par value; authorized, 10,000,000 shares; issued and outstanding, 4,451,350, 4,447,945 and 4,447,945 shares 36,488 36,467 36,467 Retained deficit (8,396) (11,104) (10,421) Net unrealized gain (loss) on securities available for sale 12 (6) (1) -------- -------- -------- Total shareholders' equity 28,104 25,357 26,045 -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $235,977 $257,810 $261,060 ======== ======== ========
3 CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (In thousands except share and per share amounts) (unaudited)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30, 1995 1994 1995 1994 -------- -------- -------- -------- INTEREST INCOME: Loans (including fees) $3,928 $3,947 $11,925 $11,376 Securities available for sale, securities held to maturity, and other securities 1,064 706 3,169 1,701 Tax exempt securities 3 5 10 25 Federal funds sold 147 100 561 269 Interest-bearing deposits with banks - 3 - 9 ------ ------ ------- ------- Total interest income 5,142 4,761 15,665 13,380 INTEREST EXPENSE: Deposits 1,215 1,204 3,823 3,596 Other borrowing - - - 18 ------ ------ ------- ------- Total interest expense 1,215 1,204 3,823 3,614 ------ ------ ------- ------- NET INTEREST INCOME 3,927 3,557 11,842 9,766 PROVISION FOR LOAN LOSSES 625 75 2,365 225 ------ ------ ------- ------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,302 3,482 9,477 9,541 ------ ------ ------- ------- OTHER INCOME: Customer service fees 152 161 442 484 Other 69 45 386 815 ------ ------ ------- ------- Total other income 221 206 828 1,299 OTHER EXPENSES: Salaries and related benefits 1,436 1,417 4,347 4,262 Occupancy expense 253 157 747 807 Equipment 226 231 670 681 FDIC insurance (12) 142 240 483 Foreclosed asset expense - 28 (45) 564 Goodwill and core deposit amortization 72 105 215 299 Consulting fees 90 103 206 255 Telephone and postage 65 68 195 196 Data processing services 62 90 210 216 Marketing 42 45 161 134 Legal fees 51 54 152 126 Write-down other assets held for sale - - - 39 Other 333 350 1,082 1,003 ------ ------ ------- ------- Total other expenses 2,618 2,790 8,180 9,065 ------ ------ ------- ------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 905 898 2,125 1,775 INCOME TAXES 30 - 100 1 ------ ------ ------- ------- NET INCOME FROM CONTINUING OPERATIONS 875 898 2,025 1,774 ------ ------ ------- ------- DISCONTINUED OPERATIONS: (Loss) from Mortgage Division (less applicable income taxes of 0 and 0, respectively - (395) - (647) ------ ------ ------- ------- NET INCOME $ 875 $ 503 $ 2,025 $ 1,127 ====== ====== ======= =======
4 NET INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS $ .19 $ .20 $ .45 $ .40 NET (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS - (.09) - (.15) ------ ------ ------- ------- NET INCOME PER COMMON SHARE $ 0.19 $ 0.11 $ 0.45 $ 0.25 ====== ====== ======= ======= Weighted average shares outstanding to compute net income per common share on a fully diluted basis 4,526,584 4,447,945 4,508,405 4,457,035 ========= ========= ========= =========
5 CIVIC BANCORP AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands) (unaudited)
Nine Months Ended Sept. 30, --------------------------- 1995 1994 -------- -------- Cash flows from operating activities: Net income from continuing operations $ 2,025 $ 1,774 Adjustments to reconcile net income from continuing operations to net cash provided by operating activities: Depreciation and amortization 1,546 918 Provision for loan losses 2,365 225 Loss on disposal of fixed assets 40 58 Gain on sale of foreclosed assets (197) (407) Write-down of foreclosed assets 20 345 Write-down of other assets held for sale - 39 Loss from discontinued operations - (647) Decrease (increase) in interest receivable and other assets 805 (1,368) (Decrease) increase in accrued interest payable and other liabilities 36 (426) Decrease in deferred loan fees (8) (87) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 6,632 424 Cash flows from investing activities: Capital expenditures (275) (620) Expenditures on foreclosed assets (23) (316) Proceeds from sales of foreclosed assets 436 5,866 Pay-down on other assets held for sale 9 40 Net decrease in loans 4,502 15,203 Activity in securities available for sale: Proceeds from maturities 10,014 23,471 Purchase of securities (10,107) (36,758) Activity in securities held to maturity: Proceeds from maturities 15,307 25,145 Purchase of securities (11,115) (24,957) -------- -------- NET CASH PROVIDED BY INVESTING ACTIVITIES 8,748 7,074 Cash flows from financing activities: Decrease in deposits (27,178) (6,488) Proceeds from exercise of stock options 21 2 Proceeds from the issuance of stock - 9 -------- -------- NET CASH USED IN FINANCING ACTIVITIES (27,157) (6,477) -------- -------- (Decrease) increase in cash and cash equivalents from continuing operations (11,777) 1,021 NET CASH PROVIDED BY DISCONTINUED OPERATIONS - 14,607 -------- -------- (Decrease) increase in cash and cash equivalents (11,777) 15,628 Cash and cash equivalents at beginning of year 31,730 20,537 -------- -------- Cash and cash equivalents at end of period $ 19,953 $ 36,165 ======== ======== OTHER CASH FLOW INFORMATION: Cash paid for interest $ 3,726 $ 3,697 Cash paid for income taxes 85 1 NON-CASH INVESTING ACTIVITY: Loans transferred to foreclosed assets $ 462 $ 1,252
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 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, 1994. The results of operations and cash flows are not necessarily indicative of those expected for the complete fiscal year. 2. INCOME PER SHARE OF COMMON STOCK Net income per share is based upon the weighted average number of common shares outstanding adjusted by the dilutive effect of stock options outstanding on a fully diluted basis.
Three Months Ended September 30, 1995 1994 -------- -------- Weighted average shares: Primary 4,514 4,448 Fully diluted 4,527 4,448
3. RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In May 1995, the FASB issued FAS 122, Accounting for Mortgage Servicing Rights. This statement amends FAS 65, Accounting for Certain Mortgage Banking Activities, to require that, for mortgage loans originated for sale, rights to service those loans be recognized as separate assets, similar to purchased mortgage servicing rights. This statement also requires that mortgage servicing rights be assessed for impairment based on the fair value of those rights. These statements are effective January 1, 1996; earlier implementation is encouraged. The Company has not yet determined when it will implement these statements; however, it is expected that, upon adoption, the statements will not have a material effect on its financial statements. 7 In October 1995, the FASB issued FAS 123, Accounting for Stock-Based Compensation. This statement establishes a method for accounting for stock- based compensation plans and encourages employers to adopt the new method in place of the provisions of Accounting Principles Board Opinion (APB 25), Accounting for Stock Issued to Employees. FAS 123 establishes a fair value based accounting method for stock-based compensation arrangements. Companies may continue to apply the accounting provisions of APB 25 in determining net income; however, they must apply the disclosure requirements of FAS 123. The recognition provisions may be adopted immediately and apply to all awards granted after the beginning of the fiscal year in which the recognition provisions are first applied. The disclosure requirements of this statement are effective January 1, 1996; however, earlier application of the disclosure requirements is encouraged. The Company has not yet determined whether to adopt the accounting provisions of FAS 123. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS For the Nine Months Ended September 30, 1995 and 1994 OVERVIEW For the nine months ended September 30, 1995, the Company reported net income of $2,025,000, or $.45 per share compared to a net income of $1,127,000 or $.25 per share for the same period in 1994. The annualized return on average assets was 1.09% for the nine months ended September 30, 1995 compared to .58% for the same period in 1994. The annualized return on average shareholders' equity for the nine months ended September 30, 1995 and 1994 was 9.93% and 6.24%, respectively. RESULTS OF OPERATIONS Net interest income for the nine months ended September 30, 1995 was $11.8 million, an increase of $2.0 million or 20.4% from net interest income of $9.8 million for the same period in 1994. The increase in net interest income is due to an increase in the rates of interest earned on securities available for sale and securities held to maturity and an increase in market rates of interest earned on loans. Total interest income for the first nine months of 1995 equalled $15.7 million, an increase of $2.3 million compared to interest earned during the same period in 1994. The increase in total interest income was attributed to an increase in the rates of interest earned on securities available for sale and securities held to maturity and an increase in market rates of interest earned on loans. The reference rate used by the Company to price loan products increased 1.00% to 8.75% at September 30, 1995 from a reference rate of 7.75% at September 30, 1994. Average earning assets for the first nine months of 1995 were $228.5 million compared to $224.8 million for the same period in 1994, an increase of $3.7 million or 1.6%. In September 1994 the Company sold the mortgage division which was reflected as discontinued operations on the financial 8 statements. The increase in earning assets is primarily due to the sale of the mortgage division as certain non-earning assets were reinvested in investment securities and, to a lesser degree, in federal funds sold. Total interest expense equalled $3.8 million and increased 5.6% from the $3.6 million for the nine months ended September 30, 1994 due to higher rates of interest paid on interest-bearing deposits. The average rate paid on interest-bearing liabilities increased .47% to 3.34% for the nine months ended September 30, 1995 from 2.87% at September 30, 1994. The net interest margin increased to 6.93% at September 30, 1995 from 5.81% at September 30, 1994, an increase of 1.12%. The increase is primarily attributed to higher market rates of interest earned on earning assets, the increase in the level of average earning assets and a decline in the volume of average interest-bearing liabilities. 9 The following table presents an analysis of the average daily balances, interest income and expense and average interest rates calculated for each major category of interest earning assets and interest-bearing liabilities for the nine month periods ended September 30, 1995 and 1994.
Nine Months Ended September 30, ---------------------------------------------------------------------------- 1995 1994 -------------------------------- ------------------------------- Interest Rates Interest Rates Average Income\ Earned\ Average Income\ Earned\ Balance Expense/2/ Paid Balance Expense/2/ Paid --------- ---------- ------- --------- ---------- ------- ASSETS (dollars in thousands) Time deposits $ - $ - 0.00% $ 437 $ 9 2.66% Federal Funds sold 12,863 561 5.83 9,604 269 3.74 Securities available for sale: U.S. Treasury securities 10,577 488 6.17 12,339 351 3.81 Securities held to maturity: U.S. Treasury securities 13,354 543 5.43 25,649 810 4.22 U.S. government agencies 40,912 2,023 6.61 10,070 412 5.47 Municipal securities/1/ 202 10 6.35 1,449 70 6.49 Commercial paper 1,082 51 6.30 439 14 4.33 Other securities 1,550 64 5.50 1,705 69 5.43 Loans/2, 3,4/ Commercial 68,055 5,718 11.23 79,883 5,546 9.28 Real estate - construction 4,892 376 10.28 10,260 684 8.92 Real estate - other 55,910 4,314 10.32 49,907 3,745 10.03 Installment and other 19,133 1,517 10.60 23,081 1,401 8.12 ------- ------ ----- ------- ------ ----- Loans - net 147,990 11,925 10.77 163,131 11,376 9.32 -------- ------ ----- ------- ------ ----- Total Earning Assets 228,530 15,665 9.16 224,823 13,380 7.96 Cash and due from banks 15,789 15,594 Leasehold improvements and equipment 1,991 2,197 Interest receivable and other assets 4,346 5,459 Foreclosed assets 743 1,609 Assets held for sale 297 409 Discontinued operations/4/ - 12,018 Less allowance for loan losses 3,684 4,135 ------- ------- TOTAL ASSETS $248,012 $257,974 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Interest-bearing: Checking 21,588 190 1.18 22,031 206 1.25 Money market 85,128 2,076 3.26 91,432 1,939 2.84 Time and savings 46,321 1,557 4.50 54,320 1,451 3.57 Other borrowed funds 0 0 0.00 687 18 3.57 ------ ----- ---- ------- ----- ----- Total Interest-Bearing Liabilities 153,037 3,823 3.34 168,470 3,614 2.87 Demand deposits 66,226 64,101 Other liabilities 1,559 1,313 Shareholders' equity 27,190 24,090 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $248,012 $257,974 ======== ======== Net Interest Income $11,842 $9,766 ======= ====== Net Interest Margin 6.93% 5.81% ==== ===== - - --------------------------------------------------------------------------------------------------------------------------
(1) Tax-exempt interest income has not been adjusted to a fully taxable equivalent basis. (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 $321,000 and $306,000 for September 30, 1995 and 1994, respectively; fees on real estate loans of $244,000 and $482,000 for September 30, 1995 and 1994, respectively; and fees on installment and other loans of $31,000 and $32,000 for September 30, 1995 and 1994, respectively. (4) The above table excludes $302,000 in interest income on loans held for sale for the nine months ended September 30, 1994. This amount is included in the results of discontinued operations. See note 18 to the December 31, 1994 Consolidated Financial Statements. 10 The following table sets forth changes in interest income and interest expense for each major category of interest-earning assets and interest-bearing liabilities, and the amount of change attributable to volume and rate changes for the nine month period ended September 30, 1995.
Analysis of Changes in Interest Income and Expenses Increase (Decrease) Due to Change in 1995 Over 1994 Volume Rate/1/ Total ---------- ------------- ----------- (In thousands) Increase (decrease) in interest and fee income: Interest bearing deposits with banks $ (9) $ - $ (9) Federal funds sold 91 201 292 Securities available for sale: U.S. Treasury securities (50) 187 137 Securities held to maturity: U.S. Treasury securities (388) 121 (267) U.S. government agency 1,261 350 1,611 Municipal securities/2/ (60) - (60) Commercial paper 21 16 37 Other securities (6) 1 (5) Loans held for investment: Commercial (822) 994 172 Real estate-construction (358) 50 (308) Real estate-other 451 118 569 Installment and other (239) 355 116 ------ ------ ------ Total increase (decrease) (108) 2,393 2,285 Increase (decrease) in interest expense: Deposits: Interest-bearing checking (5) (11) (16) Money market (133) 270 137 Savings and time (214) 320 106 Other borrowed funds (18) - (18) ------ ------ ------ Total increase (decrease) (370) 579 209 ------ ------ ------ Total change in net interest income $ 262 $1,814 $2,076 ====== ====== ======
(1) Loan fees are reflected in rate variances. (2) Tax-exempt interest income has not been adjusted to a fully taxable equivalent basis. Provision for Loan Losses The provision for loan losses for the nine months ended September 30, 1995 was $2.4 million, an increase of $2.1 million from $225,000 for the nine months ended September 30, 1994. In the second quarter, 1995 the Company made a special provision to the allowance for loan losses of $1.2 million following completion of a regular examination by federal examiners. The components of the $1.2 million special provision include amounts attributable to a change in the methodology in assessing the adequacy of the allowance by increasing the provision for unclassified loans, increasing the provision for loans classified as "special mention" and downgrading of certain loans. Excluding the special provision, the incremental increase in the provision in 1995 reflects anticipated growth in loan volume. 11 Non-Interest Income Non-interest income for the nine months ended September 30, 1995 was $828,000, a decrease of $471,000 or 36.3% from the nine months ended September 30, 1994. The decrease in other income is attributed to gains on sales of foreclosed assets of $407,000, rental income earned on foreclosed assets of $164,000 and interest received on a Federal income tax refund in the amount of $125,000 during the first nine months of 1994. Gains on sales of foreclosed assets were $67,000 for the first nine months of 1995 and there was no rental income in 1995. Customer service fees for the nine months ended September 30, 1995 declined $42,000 or 8.7% from the nine months ended September 30, 1994 primarily due to the decrease in deposit volume. Non-Interest Expense Non-interest expense totalled $8.2 million and $9.1 million for the nine months ended September 30, 1995 and 1994, respectively. The reduction in non-interest expense is due to a reduction in expenses associated with managing foreclosed assets and a reduction in FDIC premiums. Salaries and benefits expense for the nine months ended September 30, 1995 increased $85,000 or 2.0% from September 30, 1994. Full time equivalent personnel numbered 113 on September 30, 1995 compared to 111 on September 30, 1994. For the nine months ended September 30, 1995 the Company recorded expense recoveries associated with foreclosed assets of $45,000 compared to expenses incurred of $564,000 for the same period of the prior year associated with managing, maintaining and liquidating foreclosed assets. FDIC insurance expense totalled $240,000 for the nine months ended September 30, 1995, a decrease of $243,000 or 50.3% compared with $483,000 for the nine months ended September 30, 1994. The reduction is due to a reduction in the assessment level from $.23 per $100 to $.04 per $100 and the decline in the deposit levels upon which the insurance premium is based. The following table summarizes the significant components of non-interest expense for the dates indicated:
Non-Interest Expense Sept. 30 Sept. 30 Dollar % 1995 1994 Change Change -------- -------- -------- -------- (Dollars in thousands) Salaries and related benefits........... $ 4,347 $ 4,262 $ 85 (1.99)% Foreclosed assets expense............... (45) 564 (609) (107.98) Occupancy............................... 747 807 (60) (7.43) FDIC insurance.......................... 240 483 (243) (50.31) Equipment............................... 670 681 (11) (1.62) Data processing services................ 210 216 (6) (2.78) Telephone and postage................... 195 196 (1) (0.51) Consulting fees......................... 206 255 (49) (19.22) Legal fees.............................. 152 126 26 20.63 Marketing............................... 161 134 27 20.15 Goodwill and core deposit amortization.. 215 299 (84) (28.09) Write-down on other assets held for sale - 39 (39) (100.00) Other................................... 1,082 1,003 79 7.88 ------- ------- ------- ------ TOTAL................................. $ 8,180 $ 9,065 $ (885) (9.76)% ======= ======= ======= ======
12 Provision for Income Taxes At December 31, 1994 the Company had estimated approximately $12.0 million and $9.7 million of federal and state net operating loss carryforwards, respectively. Subsequent to preparation and filing of the 1994 tax returns and as a result of a settlement with the Internal Revenue Service for audits of tax returns for prior years, the federal and state net operating loss carryforwards were reduced to approximately $4.5 million and $5.3 million, respectively. The net operating loss carryforwards begin to expire in 1998. The Company recorded a provision for income taxes totalling $100,000 for federal and state alternative minimum taxes for the nine months ended September 30, 1995. FINANCIAL CONDITION Loans Average loans declined $15.1 million or 9.3% to $148.0 million for the nine months ended September 30, 1995 from $163.1 million for the same period in 1994. At September 30, 1995 loans totalled $149.0 million and represented 63.2% of total assets compared with $155.2 million or 60.2% of total assets at September 30, 1994. Commercial loans totalled $69.0 million at September 30, 1995, a decrease of $4.8 million or 6.5% from September 30, 1994. Real estate construction loans totalled $3.7 million at September 30, 1995, a decrease of $4.5 million or 54.6% from September 30, 1994. Other real estate loans, consisting of loans for land acquisition and "mini-perm" loans totalled $58.8 million at September 30, 1995, an increase of $7.0 million or 13.6% from $51.8 million at September 30, 1994. Real estate construction loans as a percentage of total loans outstanding were 2.5% at September 30, 1995 compared to 5.3% at September 30, 1994. Risks associated with real estate construction loans are generally considered to be higher than risks associated with other forms of lending in which commercial banks traditionally engage. In response to the prevailing state of the local real estate market and losses incurred in 1992 and 1993, management has sharply curtailed new real estate construction loan commitments. Other real estate loans consist of mini-perm and land acquisition loans. Mini- perm loans were introduced to provide for interim financing due to a shortage of long term permanent financing alternatives. Mini-perm loans are currently available for completed commercial and retail projects that are primarily owner- occupied and are generally granted based on the rental or lease income stream generated by the property. The rental/lease income is the primary source of repayment to service the loan. The major risks associated with the origination of mini-perm loans are the ability of the tenant or tenants to maintain the rental or lease payments over the life of the loan and the ability of the borrower to obtain other financing for the balloon payment at maturity. Installment loans and other personal loans totalled $17.6 million at September 30, 1995, a decrease of $3.9 million or 18.2% from September 30, 1994. 13 The following table sets forth the amount of loans outstanding in each category and the percentage of total loans outstanding for each category at the dates indicated.
September 30, ---------------------------------------------- 1995 1994 ------------------- ------------------- Amount Percent Amount Percent -------- ------- -------- ------- (Dollars in thousands) Commercial................ $ 68,976 46.3% $ 73,806 47.6% Real estate-construction.. 3,716 2.5 8,179 5.3 Real estate - other....... 58,773 39.4 51,750 33.3 Installment and other..... 17,557 11.8 21,451 13.8 -------- ----- -------- ----- TOTAL.................... $149,022 100.0% $155,186 100.0% ======== ===== ======== =====
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.
September 30, -------------------------------- 1995 1994 ---------- ---------- (Dollars in thousands) Loans 90 days or more past due and still accruing...................... $ 627 $ 570 Non-accrual loans.................... 2,956 2,009 Restructured loans................... - 266 Other assets held for sale........... 297 306 Foreclosed assets.................... 826 1,153 ------ ------ Total non-performing assets......... $4,706 $4,304 ====== ====== Non-performing assets to period end loans, foreclosed assets and other assets held for sale.......... 3.13% 2.75% ====== ======
The Company's policy is to recognize interest income on an accrual basis unless the full collectibility of principal and interest is uncertain. Loans that are delinquent 90 days or more, unless well secured and in the process of collection, are placed on non-accrual status and previously accrued but uncollected interest is reversed against income. Thereafter, income is only recognized as it is collected in cash. Collectibility is determined by considering the borrower's financial condition, cash flow, quality of management, the existence of collateral or guarantees and the state of the local economy. Interest income recorded on loans 90 days or more past due and still accruing totalled $50,700 for the nine months ended September 30, 1995 compared to $46,600 for the same period a year ago. Interest income that would have been recorded on non-accrual loans had they performed in accordance with their original terms would have been $181,000 for the nine months ended September 30, 1995. There was no interest income recognized on non-accrual loans for the nine months ended September 30, 1995. The increase in non-performing assets at September 30, 1995 from September 30, 1994 is primarily due to an increase in non-accrual loans. At September 30, 1995 non-accrual loans included $610,000 of commercial loans, $930,000 of land development loans, $1.3 million of mini-perm loans and consumer and installment loans totalling $113,000. 14 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, ascertain whether there are probable losses which must be charged off and assess the aggregate risk characteristics of the portfolio. Factors which influence management's judgment include the impact of forecasted economic conditions, historical loan loss experience, and the evaluation of risks which vary with the type of loan, creditworthiness of the borrower and the value of the underlying collateral. Analysis of the Allowance for Loan Losses The following table summarizes changes in the allowance for loan losses for the periods indicated:
Nine Months Year Nine Months Ended Ended Ended 9-30-95 12-31-94 9-30-94 ------- -------- ------- (Dollars in thousands) Balance, at beginning of period...... $3,216 $4,371 $4,371 Charge-offs: Commercial......................... 98 786 522 Real estate - other................ 884 205 205 Real estate - construction......... - 560 560 Installment and other.............. 228 512 419 ------ ------ ------ Total charge-offs............... 1,210 2,063 1,706 Recoveries: Commercial......................... 278 399 362 Real estate - other................ 114 1 1 Real estate - construction......... 7 116 116 Installment and other.............. 73 17 2 ------ ------ ------ Total recoveries.................. 472 533 481 ------ ------ ------ Net charge-offs...................... 738 1,530 1,225 Provision charged to operations...... 2,365 375 225 ------ ------ ------ Balance at end of period............. $4,843 $3,216 $3,371 ====== ====== ====== Ratio of net charge-offs to average loans (annualized).................. 0.66% 0.96% 1.00% ==== ==== ====
The balance in the allowance for loan losses at September 30, 1995 was $4.8 million or 3.25% of total loans compared to $3.4 million or 2.17% at September 30, 1994. Based on management's evaluation of current economic conditions, the review of the loan portfolio and trends in the overall level of delinquent and classified loans, management believes that the allowance for loan losses was adequate at September 30, 1995. 15 Potential Problem Loans At September 30, 1995, there were no loans which represented material credits about which management has serious doubts as to the ability of the borrowers to comply with the original terms and conditions. At September 30, 1995 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. Effective December 31, 1993 the Company adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and changed its accounting policy to classify its securities as available for sale or held to maturity. The table below summarizes the book value and estimated market values of investment securities at the dates indicated.
September 30, ----------------------------------------------- 1995 1994 --------------------- --------------------- Book Market Book Market Value Value Value Value --------- -------- --------- -------- (In thousands) SECURITIES HELD TO MATURITY: U.S. Treasury securities........ $10,724 $10,760 $21,826 $21,666 U.S. government agencies........ 42,391 42,919 21,787 21,500 Municipal securities............ - - 230 235 Collateralized mortgage obligations................... 179 187 220 223 ------- ------- ------- ------- TOTAL.......................... $53,294 $53,866 $44,063 $43,624 ======= ======= ======= ======= SECURITIES AVAILABLE FOR SALE: U. S. Treasury securities....... $ 4,994 $ 4,989 $ 9,974 $ 9,968 U. S. government agencies....... 5,033 5,050 - - ------- ------- ------- ------- TOTAL.......................... $10,027 $10,039 $ 9,974 $ 9,968 ======= ======= ======= =======
Deposits For the nine months ended September 30, 1995, average deposits totalled $219.3 million, a decrease of $12.6 million or 5.4% from $231.9 million for the same period in 1994. Total deposits at September 30, 1995 were $206.7 million, a decrease of $24.4 million or 10.5% from $231.0 million at September 30, 1994. The decline in deposits is attributed to low rates of interest paid for deposits compared to non-bank investments such as mutual funds and a reduction in average deposits maintained by various customers. Average loans outstanding declined $15.1 million and these loan customers also had established deposit relationships 16 which decreased as the loans were reduced or paid off. For the nine months ended September 30, 1995, average demand deposits totalled $66.2 million, an increase of $2.1 million or 3.3% from the same period in 1994. Average demand deposits comprised 30.2% of average total deposits for the nine months ended September 30, 1995. Average interest-bearing deposits decreased $14.7 million or 8.8% for the nine months ended September 30, 1995 from the same period in 1994. Average interest-bearing deposits comprised 69.8% of average total deposits for the nine months ended September 30, 1995 and 72.3% of average total deposits for the nine months ended September 30, 1994. The table below sets forth information regarding trends in the Bank's average deposits by amount and percentage of deposits for the nine months ended September 30, 1995 and 1994.
Average Deposits ---------------------------------------------------- Nine Months Ended September 30, ---------------------------------------------------- 1995 1994 ---------------------- ---------------------- Amount Percentage Amount Percentage -------- ---------- -------- ---------- (Dollars in thousands) Demand accounts............... $ 66,226 30.2% $ 64,101 27.7% Interest-bearing checking..... 21,588 9.9 22,031 9.5 Money market.................. 85,128 38.8 91,432 39.4 Savings and time.............. 46,321 21.1 54,320 23.4 -------- ----- -------- ----- Total......................... $219,263 100.0% $231,884 100.0% ======== ===== ======== =====
Time certificates of deposit over $100,000 or more at September 30, 1995 had the following schedule of maturities:
(In thousands) Three months or less..................... $ 14,932 After three months through six months.... 2,036 After six months though twelve months.... 1,605 After twelve months...................... 862 -------- Total.................................... $ 19,435 ========
The decrease in time deposits is due to lower market rates of interest. 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. Management estimates that at least 70% of certificates over $100,000 are deposits held by persons or entities with other relationships with the Company. At September 30, 1995, certificates of deposit over $100,000 totalling $18.6 million or 9.0% of total deposits were scheduled to mature within a year. Management believes that the presumed volatility of such deposits presents acceptable risk and payment of such certificates of deposit would not have a material impact on the liquidity position of the Company. 17 LIQUIDITY AND CAPITAL RESOURCES. Liquidity Liquidity management refers to the Bank's ability to acquire funds to meet loan demand and fund deposit withdrawals and to service other liabilities as they come due. To augment liquidity, the Bank has informal federal funds borrowing arrangements with correspondent banks totalling $24.0 million and maintains a credit arrangement with the Federal Reserve Bank of San Francisco for open window borrowing. At September 30, 1995 and 1994, the Bank had no outstanding borrowings against these arrangements. Additionally, at September 30, 1995, unpledged U.S. government securities that are available to secure additional borrowing in the form of reverse repurchase agreements totalled approximately $44.1 million. At September 30, 1995 and 1994, the Bank had no outstanding borrowings against these arrangements. The Bank is a member of the Federal Home Loan Bank of San Francisco and through membership has the ability to pledge qualifying collateral for short term (up to six months) and long term (up to five years) borrowing. At September 30, 1995 and 1994 there were no outstanding advances. The liquidity position of the Company declined during the first nine months of 1995 as cash flows required for financing activities exceeded the funds provided by operating and investing activities by $11.8 million. Cash and cash equivalents of $27.2 million were required to accommodate deposit withdrawals which were partially funded by a combination of operating activities which provided $6.6 million and investing activities, principally maturing loans and investment securities, which provided $8.8 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 September 30, 1995, the Company had a liquidity ratio of 33.4% as compared to 33.7% at September 30, 1994. Capital Resources Total shareholders' equity increased to $28.1 million at September 30, 1995 from $26.0 million at December 31, 1994 reflecting retained income of $2.0 million for the first nine months of 1995, net of the change in the net unrealized gain on securities available for sale. The Company and the Bank are subject to capital adequacy guidelines issued by the Federal Reserve Board 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. 18 At September 30, 1995, the Company's risk-based capital ratio was 17.33%. The following table presents the Company's risk-based capital and leverage ratios as of September 30, 1995 and December 31, 1994.
RISK-BASED CAPITAL RATIOS -------------------------------------------- (Dollars in thousands) September 30, 1995 December 31, 1994 ------------------ ------------------ Amount Ratio Amount Ratio -------- ------- -------- ------- Company Capital Ratios: Tier 1 Capital.............. $26,811 16.08% $24,284 13.87% Tier 1 minimum requirement.. 6,671 4.00 7,006 4.00 ------- ----- ------- ----- Excess...................... $20,140 12.08% $17,278 9.87% ======= ===== ======= ===== Total Capital............... $28,895 17.33% $26,473 15.12% Total Capital minimum requirement................ 13,342 8.00 14,011 8.00 ------- ----- ------- ----- Excess...................... $15,553 9.33% $12,462 7.12% ======= ===== ======= ===== Risk-adjusted assets $166,769 $175,138 ======== ======== Leverage ratio.............. 11.13% 9.18% Leverage ratio minimum...... 4.00 4.00 ----- ----- Leverage ratio excess....... 7.13% 5.18% ===== =====
19 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 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: November 6, 1995 By: /s/ Herbert C. Foster ----------------------------------- Herbert C. Foster President Chief Executive Officer 21 EX-27 2 ARTICLE 9 FDS
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (IDENTIFY SPECIFIC FINANCIAL STATEMENTS) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 SEP-30-1995 13,453,000 0 6,500,000 0 10,039,000 53,294,000 53,866,000 149,022,000 4,843,000 235,977,000 206,653,000 0 1,220,000 0 0 0 36,488,000 (8,396,000) 235,977,000 11,925 3,740 0 15,665 3,823 3,823 11,842 2,365 0 8,180 2,125 2,125 0 0 2,025 .45 .45 6.93 2,956 627 0 0 3,216 1,210 472 4,843 4,843 0 0
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