<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
-----------------
COMMISSION FILE NUMBER 2-78788
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CALIFORNIA COMMERCIAL BANKSHARES
--------------------------------------
CALIFORNIA 95-3819471
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(STATE OF OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
4100 NEWPORT PLACE, NEWPORT BEACH, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
- --------------------------------------------------------------------------------
REGISTRANT'S TELEPHONE NUMBER (714) 863-2300
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF CHANGED FROM LAST
REPORT
INDICATE BY CHECK (X) WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OF 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: INDICATE THE NUMBER OF SHARES OUTSTANDING
OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE
DATE 2,944,000 .
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1
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
INDEX
PART 1. FINANCIAL INFORMATION
_________________________________________________________________
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
JUNE 30, 1996.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
2
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans and Leases 10,082 10,219 5,312 5,151
Investment Securities 2,173 1,539 1,245 729
Federal Funds Sold 1,008 419 435 341
-------- -------- -------- ---------
Total Interest and Fee Income 13,263 12,177 6,992 6,221
INTEREST EXPENSE:
Deposits 3,272 3,360 1,608 1,734
Securities Sold Under Agreement
to Repurchase 0 8 0 0
Note Payable 131 95 72 52
-------- -------- -------- ---------
Total Interest Expense 3,403 3,463 1,680 1,786
NET INTEREST INCOME 9,860 8,714 5,312 4,435
PROVISION FOR LOAN / LEASE LOSSES 700 1,000 400 225
NET INTEREST INCOME AFTER PROVISION
FOR LOAN / LEASE LOSSES 9,160 7,714 4,912 4,210
OTHER INCOME:
Escrow Fees 311 86 190 59
Service Charges 597 476 306 223
Securities Gains 0 (72) 0 0
Gain on Sale of Loans 1,003 0 1,003 0
Other Income 601 449 310 248
-------- -------- -------- ---------
Total Other Income 2,512 939 1,809 530
OTHER EXPENSES:
Salaries and Employee Benefits 4,276 3,703 2,098 1,875
Occupancy, Furniture and Equipment 1,160 1,031 649 508
Data Processing 482 139 264 68
Supplies 210 168 113 74
Legal Fees 1,023 494 825 376
Regulatory Assessments 282 415 142 207
Losses (Gain) on OREO (267) 861 (366) 649
Other 1,473 1,139 747 631
-------- -------- -------- ---------
Total Other Expenses 8,639 7,950 4,472 4,388
INCOME BEFORE INCOME TAXES 3,033 703 2,249 352
INCOME TAXES 1,213 280 899 139
NET INCOME 1,820 423 1,350 213
EARNINGS PER COMMON SHARE $0.61 $ 0.17 $0.45 $ 0.09
</TABLE>
3
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000'S OMITTED)
ASSETS
JUNE 30 DECEMBER 31
1996 1995
-------- --------
Cash and Due From Banks
Non Interest-Bearing $31,352 $28,549
Interest-Bearing 50
Investment Securities - Available for Sale 82,853 62,283
Federal Funds Sold 36,500 45,000
Loans, net of unearned interest:
Commercial 75,527 84,271
Real Estate - Construction 26,072 22,593
Real Estate - Equity line 5,901 7,039
Real Estate - Mortgage 68,155 55,207
Installment and Other 15,653 13,120
Lease Contracts Receivable 2,867 3,064
--------- ---------
194,175 185,294
Less: Deferred Loan Fees & Costs (471) (702)
--------- ---------
193,704 184,592
Less: Reserve for Loan Loss (5,763) (6,542)
--------- ---------
Total Loans, net 187,941 178,050
Loans Available for Sale 4,768 9,620
Real Estate Owned 2,268 2,165
Bank Premises, Furniture & Equipment 1,379 1,150
Accrued Interest Receivable 3,003 2,649
Deferred Income Taxes 2,249 2,249
Prepaid Expenses and Other Assets 1,581 2,328
--------- ---------
Total Assets $353,944 $334,043
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand Deposit
Non Interest Bearing $138,940 $130,660
Interest Bearing 75,577 65,301
Savings Deposits 56,065 45,312
Time Certificates $100,000 and over 30,355 34,718
Other Time Deposits 25,491 32,513
--------- ---------
Total Deposits 326,428 308,504
Note Payable 2,350 2,351
Interest Payable 162 221
Other Liabilities 2,473 1,848
Shareholders Equity:
Capital Stock - Authorized 10,000,000 shares;
issued and outstanding 2,944,000 in 1996 and
2,922,000 in 1995 14,171 14,077
Paid in Capital 446 470
Retained Earnings 8,268 6,448
Unrealized Gain (Loss) on investment securities
available for sale (net of tax) (354) 124
--------- ---------
Total Liabilities and Shareholders Equity $353,944 $334,043
--------- ---------
--------- ---------
4
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30
(000'S OMITTED)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) 1,820 423
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and Amortization 206 251
Amortization of discounts and premiums on
investment securities available for sale 241 402
Provision for loan and lease losses 700 1,000
Provision for expenses on other real estate owned 118
(Gain) loss on sale of other real estate owned (427) 163
(Gain) loss on sale of property (8)
(Increase) decrease in accrued interest receivable (354) 128
(Decrease) increase in deferred loan fees (231) 166
Increase (decrease) in unearned lease income 2 (51)
Decrease (increase) in other assets 1,004 (381)
Net increase (decrease) in interest payable and
other liabilities 566 692
-------- --------
Net cash from operating activities 3,519 2,911
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities
available for sale 20,135 4,084
Purchase of investment securities available for sale (41,681) (13,114)
Proceeds from sale of investment securities 21,088
Net (increase) decrease in loans and investment in leases (6,265) (4,046)
Recoveries of loans and investment in leases 228 137
Purchases of property (435) (331)
Proceeds from sale of property 8 4
Additions to other real estate owned (142)
Proceeds from sale of other real estate owned 993 770
-------- --------
Net cash from investing activities (27,159) 8,592
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits 17,924 18,093
(Decrease) increase in note payables (1)
Proceeds from exercise of common stock options 70 8
-------- --------
Net cash from financing activities 17,993 18,101
Net (Decrease) Increase In Cash and Cash Equivalents (5,647) 29,604
Cash And Cash Equivalents At Beginning of Year 73,549 23,315
-------- --------
Cash And Cash Equivalents At June 30 67,902 52,919
-------- --------
-------- --------
</TABLE>
5
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996.
NOTE 2 - EARNINGS PER SHARE WERE COMPUTED BASED ON THE FOLLOWING WEIGHTED
AVERAGE OUTSTANDING SHARES:
Six months ended June 30, 1996..........3,001,000
Six months ended June 30, 1995..........2,459,000
6
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The purpose of this discussion is to provide additional information about the
Company's financial condition and results of operations which is not otherwise
apparent from the consolidated financial statements included in this interim
report. Since the banking subsidiary represents most of the Company's activity
and investment, the following discussion relates primarily to the financial
condition and operations of the Bank.
The following chart shows comparative data for selected items of the financial
statements:
<TABLE>
<CAPTION>
AVERAGES FOR THE THREE MONTHS ENDED
PERCENT
JUNE 30 JUNE 30 INCREASE/
(IN THOUSANDS) 1996 1995 (DECREASE)
--------- --------- -----------
<S> <C> <C> <C>
Total Assets: $343,846 $300,452 14.44
Investment securities: 83,926 52,717 59.20
Fed funds sold: 34,131 23,178 47.25
Gross loans: 195,389 200,359 (2.48)
Total deposits: 316,889 274,629 15.39
Interest bearing deposits 183,597 180,263 1.85
Other interest bearing liabilities: 2,350 2,351 (.04)
</TABLE>
<TABLE>
AVERAGES FOR THE SIX MONTHS ENDED
PERCENT
JUNE 30 JUNE 30 INCREASE/
(IN THOUSANDS) 1996 1995 (DECREASE)
--------- --------- -----------
<S> <C> <C> <C>
Total Assets: $335,552 $296,979 12.99
Investment securities: 73,539 56,992 29.03
Fed funds sold: 38,708 14,359 69.57
Gross loans: 195,263 201,218 (2.96)
Total deposits: 310,130 270,914 14.48
Interest bearing deposits 183,475 178,954 2.53
Other interest bearing
LIABILITIES: 2,350 2,600 (9.62)
</TABLE>
During 1995 the Company employed additional staff in its business development
department. As a result, the deposits and total assets continued to increase in
1995 and 1996. However, the total loans declined as the Bank continued to work
on collecting problem loans and economic growth in the area remained modest.
The combination of increased deposits and lower loans outstanding, resulted in
increased liquidity which was invested in investment securities and Fed Funds
sold. Other interest bearing liabilities are comprised of note payable in the
amount of $2,350,000 and Securities sold under agreement to repurchase. During
1996, no securities were sold under repurchase agreement.
7
<PAGE>
The following table shows average earning assets and interest bearing
liabilities and their relative cost and yield without loan fees and loan costs.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
1996 1995
---- ----
PERCENT
INCREASE/ YIELD
(IN THOUSANDS) AMT YLD AMT YLD (DECREASE) DIFF
--- --- --- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Average Earning
Assets $313,446 8.77 $276,255 8.69 13.46 .08
Average interest
bearing liabilities $185,947 3.63 $182,614 3.92 1.82 (.29)
</TABLE>
<TABLE>
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
---- ----
PERCENT
INCREASE/ YIELD
(IN THOUSANDS) AMT YLD AMT YLD (DECREASE) DIFF
--- --- --- --- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Average Earning
Assets $307,510 8.40 $272,569 8.70 12.82 (.30)
Average interest
bearing liabilities $185,825 3.68 $181,554 3.85 2.35 (.17)
</TABLE>
During the second quarter of 1996 the Company sold three loans which had been
designated as "Available for Sale" during the third quarter of 1995. The sale
resulted in a gain of $1,003,000 and collection of unrecognized interest income
of $120,000. Additionally the Company placed three loans on accrual which had
been on non-accrual and recognized interest income of $424,000. Of the total
interest recognized on loans sold and loans placed on accrual during the three
months ended June 30, 1996, $145,000 pertains to the first quarter of 1996 and
$352,000 pertains to the year 1995. The foregoing items increased the stated
yield as reflected in the charts above. (See results of operations.)
According to Company policy loans past due 90 days or more as to interest or
principal payments are placed on non-accrual. Loans accounted for on a non-
accrual basis amounted to $7,184,000 on June 30, 1996 as compared to
$11,690,000 on June 30, 1995. Other real estate owned totaled $2,268,000 on
June 30, 1996 as compared to $5,868,000 on June 30, 1995.
The Company follows SFAS 114 with respect to impaired loans which states - "A
loan is impaired when, based on current financial information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement...All amounts due according to the
contractual terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as scheduled in the
loan agreement." (See Accounting Pronouncements)
A loan is not considered impaired during a period of delay in payment if the
Company expects to collect all amounts due including interest accrued at the
contractual interest rate for the period of delay. Six months is the maximum
period of delay allowed before a loan is considered impaired. As of June 30,
1996 the aggregate amount of impaired loans measured under present value method
and fair value methods were $4,792,000.
8
<PAGE>
The following loans are exempt from SFAS 114 due to their characteristics as
smaller balance homogeneous loans; credit card loans, leases, overdraft
protection loans and consumer loans. Risk in these loans is accounted for by
applying an historic loss percentage to the loan pool.
Difference between non-accrual and impaired loans:
Non-Accrual Loans - These loans are on non accrual primarily for one of two
reasons; 1) the loan is past due in interest or principal payments for 90 days
or more but sufficient collateral is held to offset any potential loss, or 2)
full payment of all principal plus interest is doubtful.
Impaired Loan - A loan can be impaired also for two reasons; 1) a restructure of
the original note has occurred resulting in a reduced interest rate. Then the
loan is considered impaired due to present value calculations, or 2) full
collection of all principal and interest as currently scheduled is not expected.
The Company's policy with respect to the recognition of interest income for
impaired loans is to recognize the income on an accrual basis for only those
loans that are not on non-accrual. If the loan is on non-accrual the interest
received is generally not recognized as income, however it is applied as
reduction to the principal. Income may be recognized on a cash basis on non-
accrual loans only if the net principal balance is adequately covered by
collateral and has shown a minimum of six months performance to current program.
The following table shows the total charge offs, recoveries and the net result
for the three months ended June 30, 1996 and 1995.
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
Charge Offs $1,453 $1,178 $1,706 $1,798
Recoveries 80 72 228 137
Net charge Offs
(recoveries) $1,373 $1,106 $1,478 $1,661
For the three months and six months ended June 30, 1996 the Company added
$400,000 and $700,000 respectively to its reserve which compares with $225,000
and $1,000,000 for the same periods in 1995. The reserve balance as of June 30,
1996 was $5,763,000 which was 2.90% of total loans and leases which compares
with $4,999,000 and 2.52%, respectively, on June 30, 1995.
RESULTS OF OPERATIONS
INTEREST INCOME AND INTEREST EXPENSE
The Company's primary source of revenue is interest income. The net yield
without the loan fees on interest earning assets increased to 6.62% and 6.17%
for the second quarter and six months ended June 30, 1996 from 6.10% and 6.14%
during the the same periods of 1995. The net interest income without the loan
fees increased to $5,157,000 and $9,440,000 for the three and six months ending
June 30, 1996 from $4,198,000 and $8,299,000 for the same periods of 1995. The
average yield on earning assets increased by .08% from 8.69% in the second
quarter of 1995 to 8.77% in 1996 and declined by .30% from 8.70% for the six
months ending June 30, 1995 to 8.40% for the same period of 1996. The average
interest rate paid on interest bearing liabilities decreased by
9
<PAGE>
.29% from 3.92% in the second quarter of 1995 to 3.63% in 1996 and by .17%
from 3.85% for the six months ending June 30, 1995 to 3.68% for the same
periods of 1996.
During the second quarter of 1996 the Company sold three loans. These loans had
been designated as "Available for Sale" during 1995. The sale resulted in a
gain of $1,003,000 and collection of unrecognized interest income of $120,000.
Additionally the company placed three loans on accrual which had been on non-
accrual and recognized interest income of $424,000. Of the total interest
recognized on loans sold and loans placed on accrual during the second quarter
of 1996, $145,000 pertains to the first quarter of 1996 and $352,000 pertains to
the year 1995. If adjusted for the above the yield on earning assets for the
second quarter and six months ending June 30, 1996 would have been 8.13% and
8.17%.
The average outstanding loans have continued to decline as the Company focused
on monitoring the performance of the outstanding loans, identifying potential
problems and collecting identified problem loans and selling real estate owned.
At the same time, the Company has maintained its refined loan underwriting and
approval process, seeking higher quality credits which reduced the volume of
loans meeting the tightened criteria.
The following table shows the average balances of interest earning assets and
interest bearing liabilities and interest earned and paid on those balances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
AVERAGE INTEREST AVERAGE INTEREST
Assets BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Securities 83,926 1,245 5.97 52,717 730 5.55
Fed Funds 34,131 435 5.13 23,178 341 .91
Loans 195,389 5,157 10.62 200,359 4,914 9.84
------- ------ ------- ------- ------ -------
TOTAL 313,446 6,837 8.77 276,254 5,985 8.69
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Liabilities
Savings 126,091 898 2.86 119,744 850 2.85
Time 57,506 711 4.97 60,519 885 5.86
Other 2,350 71 12.15 2,351 52 8.88
------- ------ ------- ------- ------ -------
TOTAL 185,947 1,680 3.63 182,614 1,787 3.92
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Net Interest
Income 5,157 4,198
Yield on Earning
Assets 6.62 6.10
SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
AVERAGE INTEREST AVERAGE INTEREST
Assets BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
Securities 73,539 2,173 5.94 56,992 1,539 5.45
Fed Funds 38,708 1,008 5.24 14,359 419 5.89
Loans 195,263 9,662 9.95 201,218 9,804 9.83
------- ------ ------- ------- ------ -------
TOTAL 307,510 12,843 8.40 272,569 11,762 8.70
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Liabilities
Savings 122,622 1,741 2.86 119,882 1,692 2.85
Time 60,853 1,532 5.06 59,072 1,669 5.70
Other 2,350 130 11.12 2,600 102 7.95
------- ------ ------- ------- ------ -------
TOTAL 185,825 3,403 3.68 181,554 3,463 3.85
------- ------ ------- ------- ------ -------
------- ------ ------- ------- ------ -------
Net Interest
Income 9,440 8,299
Yield on Earning
Assets 6.17 6.14
</TABLE>
10
<PAGE>
OTHER INCOME AND OTHER EXPENSES - Non-interest income increased significantly
by $1,279,000 to $1,809,000 in the second quarter of 1996 compared to $530,000
in the same period a year ago. For the six months ending June 30, 1996 the
non-interest income increased by $1,573,000 to $2,512,000 from $939,000 a year
ago.The increase was due to the following:
1. Escrow fees increased by $131,000 for the quarter and $225,00 for the six
months ending June 30, 1996. The increase was due to increased marketing
efforts and an increase in staff in the escrow division, along with greater
activity in the local real estate market.
2. Service charges increased by $83,000 for the quarter and $121,000 for the
six months ending June 30, 1996. The increase was due to the increase in
deposits.
3. During first quarter of 1995 the Company sold some securities in the amount
of approximately $21,000,000 at a loss of $72,000. These securities were
originally purchased with very short maturities to meet a projected cash outflow
during the first quarter of 1995.
4. Gain on sale of loans - During second quarter of 1996 the Company sold three
loans which were designated as "Available for Sale", at gain of $1,003,000.
5. Other income increased by $62,000 for the quarter and $152,000 for the six
months ending June 30, 1996. The increases were in various categories.
Non-interest expense increased by $84,000 from $4,388,000 in the second quarter
of 1995 to $4,472,000 in 1996. For the six months ending June 30, 1996 the
expense increased by $689,000 from $7,950,000 in 1995 to $8,639,000 in 1996.
Following is a summary of changes in various categories of non-interest expense
for the second quarter of 1996 and six month ending June 30, 1996 compared to
the same periods of 1995.
SIX MONTHS THREE MONTHS
----------- ------------
Salaries & Benefits $573,000 $223,000
Occupancy, Furniture & Eq. 129,000 141,000
Date Processing 343,000 196,000
Supplies 42,000 39,000
Legal Fees 529,000 449,000
Regulatory Assessments (133,000) (65,000)
Losses (Gain) on OREO (1,128,000) (1,015,000)
Other 334,000 116,000
---------- ----------
Total $689,000 $84,000
The major increases or decreases were in the following categories:
1. Salaries and benefits increased due to additions to the staff in the escrow
division due to increasing business activity(see Results of Operation-Other
Income), in business development to generate future loan and deposit
growth and opening of a new branch in Fountain Valley.
2. Occupancy expense increased due to an assessment of common area maintenance
charges by the management company for the years 1993, through June of 1996,
which had not been billed for the Newport Beach location. Also, opening
the new branch in Fountain Valley added to the occupancy expense.
3. Data Processing increased due to upgrading the Bank's data processing
systems and increases related to data processing expenses that the Banks
incurs for its customers who maintain large profitable accounts.
11
<PAGE>
4. Legal fees remained high as the Bank continues to resolve problem loans and
other litigation matters. Management of the Company evaluates the
Company's or the Bank's exposure to litigation matters individually and in
the aggregate and provides for potential losses on such litigation if, in
management's judgment, the amount of the loss is determinable and the
incurrence of the loss is probable. There are currently two legal matters
described below which involve a claim of damages in excess of $750,000.
National Bank adv. Rousseau et al is a class action lawsuit filed, in San
Diego Superior Court on July 7, 1995 for aggregate losses exceeding
$100,000,000 by investors with accounts administered by First Pension
Corporation. The Bank, in its custodial capacity, is one of a number of
financial institutions that performed financial services for First Pension
Corporation that have been named as defendants in the action. The complaint
has been dismissed on two occasions with leave to amend the complaint.
Additionally, a receiver for First Pension Corporation has filed a similar
action in the U.S. District Court for the Central District of California.
National Bank of Southern California, plaintiff, vs. Vincent E. Galewick/
Performance Development, Inc. is an interpleader action filed by the Bank
on August 22, 1995 in the Orange County Superior Court in response to an
order to freeze the defendant's account and claims against such accounts
received from other parties. The defendant filed a cross complaint against
the Bank claiming damages for lost profits of $45,000,000 arising from
the Bank's freezing the accounts.
5. Regulatory Assessments decreased as FDIC reduced the assessment rate from
.29% per $100 in annualized deposits in 1995 to .17% in 1996.
6. Gain or loss on REO: In 1995, the total losses and expenses on other real
estate owned were $649,000 for the second quarter and $861,000 for the six
months. With the reduced amount of other real estate owned in 1996 the
expense has declined significantly. Additionally, in the second quarter of
1996 the Company sold two foreclosed properties at a gain of $425,000.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS TO BE DISPOSED OF and SFAS No. 122, ACCOUNTING FOR MORTGAGE
SERVICING RIGHTS, an amendment to FASB Statement No. 65. The provisions of
these statements are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company does not believe the application
of SFAS Nos. 121 and 122 will have a material impact on its financial condition
and results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" which requires adoption of the disclosure provisions no later than
fiscal years beginning after December 15, 1995 and adoption of the recognition
and measurement provisions for non-employee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period, which is usually the vesting
period.
Pursuant to the new standard, companies are encouraged, but are not required, to
adopt the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions under
Accounting principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if the
company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to fair value method, nor has
it determined the effect the new standard will have on net income and earnings
per share should it elect to make such a change. Adoption of the new standard
will have no effect on the Company's cash flow.
LIQUIDITY AND CAPITAL RESOURCES
It is the Company's policy to always maintain adequate liquidity in cash,
federal funds and in readily marketable government securities. The Company's
total liquid assets on June 30, 1996 were: Cash and Due From Banks $31,352,000,
Federal Funds Sold $36,500,000, and Investment Securities free of collateral
$72,947,000; totaling $140,799,000 or 40% of total assets. Additionally, the
majority of the Company's loans are on a short term basis, maturing in
approximately one year, which, combined with lines of credit with correspondent
banks, provides additional liquidity.
12
<PAGE>
In December 1988, the Company obtained a $3,000,000 term loan from another
financial institution for the purpose of providing additional capital to the
Bank. The Credit Agreement for this loan was amended pursuant to a Second
Amendment to the credit agreement dated August 25, 1994. The loan, as amended,
bears interest at a fluctuating rate per annum equal to .75% in excess of the
lender's reference rate. Interest was payable monthly on the unpaid principal
balance of the loan and required prepayment of 40% of the proceeds of any stock
offering or placement of debt or equity. Principal was to be repaid January 1,
1997. The Second Amendment was supported by a Support Agreement between a
shareholder Director of the Company and the Company whereby the shareholder
guaranteed the payment of the loan.
To compensate the shareholder Director for signing the Support Agreement, the
Company signed a Holding Company Support Agreement whereby the Company: (1)
paid the shareholder a standby fee of $23,500 in 1994 and 1995, and (2) will
issue to the shareholder on or prior to March 31, 1997 warrants to purchase
25,000 shares of common stock of the Company at an exercise price per share
equal to 80% of the book value per share of the Company on December 31, 1996.
During the third quarter of 1995, the Company obtained $3,200,000 in proceeds
from a private placement of the Company's common stock. The Company contributed
$2,900,000 of the proceeds into the Bank as additional capital. One shareholder,
a limited partnership which purchased 289,000 shares at $6.75 per share (9.9%
of the total shares outstanding), obtained an option to purchase an additional
267,000 shares at $ 6.75 per share (which would bring total shares owned by the
shareholder to 556,000 shares or 17.4% of the shares which would then be
outstanding). The option was subject to the approval by the Federal Reserve
Board. The optionee's purchase is subject to mutual agreement upon conditions.
In March of 1996 the Company obtained a loan for $2,350,000 from the shareholder
Director and paid off the outstanding balance of $2,350,000 to the lending
financial institution to allow the Company to contribute the maximum amount from
the proceeds of the stock offering into the Capital of the Bank. The new note
bears an interest rate of 3% over prime rate with interest only payable
quarterly for the first year and thereafter $125,000 plus interest payable
quarterly. The remaining principal and interest is due on April 1, 1999.
On December 31, 1990, new risk based capital requirements became effective.
Under the requirements, holding companies and banks are required currently to
maintain minimum ratios of total capital and "core" (Tier 1) capital to
risk-weighted assets; however, under the terms of its formal agreement with the
Comptroller, the Bank is required to maintain capital in excess of this minimum
requirement. The regulatory capital requirements, capital requirements under
the formal agreement and the Bank and Company's actual capital ratios are shown
in the following table as of the dates indicated:
13
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30
1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
EXCESS EXCESS
PER EXCESS TO PER EXCESS TO
MINIMUM FORMAL TO FORMAL MINIMUM FORMAL TO FORMAL
STATUTORY AGREEMENT ACTUAL STATUTORY AGREEMENT STATUTORY AGREEMENT ACTUAL STATUTORY AGREEMENT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE BANK
Risk-based Capital:
Tier 4.00% n/a 11.04% 7.04% n/a 4.00% n/a 10.15% 6.15% n/a
Total Risk-based 8.00% 9.00% 12.29% 4.29% 3.29% 8.00% 9.00% 11.40% 3.40% 2.40%
Tier 1 leverage
Ratio(1) 4.00% 6.00% 6.87% 2.87% .87% 4.00% 6.00% 7.18% 3.18% 1.18%
FOR THE COMPANY
Risk-based Capital:
Tier 4.00% n/a 10.36% 6.36% n/a 4.00% n/a 9.38% 5.38% n/a
Total Risk-based 8.00% n/a 11.61% 3.61% n/a 8.00% n/a 10.62% 2.62% n/a
Tier 1 leverage/a
Ratio 4.00% n/a 6.46% 2.46% n/a 4.00% n/a 6.69% 2.69% n/a
</TABLE>
(1) In some circumstances this minimum ratio may be 3%.
As of June 30, 1996 and 1995, the Bank and the Company were in compliance with
statutory risk-based capital requirements and the Bank was in compliance with
the more stringent capital requirements imposed by the Formal Agreement.
14
<PAGE>
CALIFORNIA COMMERCIAL BANKSHARES
SIGNATURES:
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA COMMERCIAL BANKSHARES
(Registrant)
Date: August 14, 1996 /s/William H. Jacoby
----------------- ----------------------
William H. Jacoby
President, CEO
Date: August 14, 1996 /s/Abdul S. Memon
----------------- ----------------------
Abdul S. Memon
Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 31,352
<INT-BEARING-DEPOSITS> 50
<FED-FUNDS-SOLD> 36,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,853
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 193,704
<ALLOWANCE> 5,763
<TOTAL-ASSETS> 353,944
<DEPOSITS> 326,428
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,635
<LONG-TERM> 2,350
0
0
<COMMON> 14,171
<OTHER-SE> 8,360
<TOTAL-LIABILITIES-AND-EQUITY> 353,944
<INTEREST-LOAN> 10,082
<INTEREST-INVEST> 2,173
<INTEREST-OTHER> 1,008
<INTEREST-TOTAL> 13,262
<INTEREST-DEPOSIT> 3,272
<INTEREST-EXPENSE> 3,403
<INTEREST-INCOME-NET> 9,860
<LOAN-LOSSES> 700
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,639
<INCOME-PRETAX> 3,033
<INCOME-PRE-EXTRAORDINARY> 3,033
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,820
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 6.17
<LOANS-NON> 7,184
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,427
<ALLOWANCE-OPEN> 6,542
<CHARGE-OFFS> 1,706
<RECOVERIES> 228
<ALLOWANCE-CLOSE> 5,763
<ALLOWANCE-DOMESTIC> 3,455
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,309
</TABLE>
