<PAGE>
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
June 30, 1996 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 August 2, 1996: 4,514,903
The total number of pages in this form is 19
------
The index of exhibits appears on page 18
------
1
<PAGE>
CIVIC BANCORP
AND
SUBSIDIARY
Index to Form 10-Q Page Number
-----------
PART I
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1996, June 30, 1995
and December 31, 1995 3
Consolidated Statements of Operations -
Three Months Ended June 30, 1996 and
and June 30, 1995 and Six Months Ended
June 30, 1996 and June 30, 1995 4-5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1996 and
June 30, 1995 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II. Other Information 18
SIGNATURES 19
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIVIC BANCORP AND SUBSIDIARY
----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands except shares)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1996 1995 1995
ASSETS ------- ------- -----------
- ------
<S> <C> <C> <C>
Cash and due from banks $ 17,314 $ 17,105 $ 16,758
Federal funds sold 12,200 15,100 14,800
-------- -------- --------
Total cash and cash equivalents 29,514 32,205 31,558
Securities available for sale 6,068 10,127 10,021
Securities held to maturity
(market value of $44,092, $52,295
and $52,163, respectively) 43,838 51,711 51,199
Other securities 1,646 1,518 1,636
Loans:
Commercial 79,765 64,646 70,417
Real estate-construction 2,574 4,224 4,067
Real estate-other 62,852 54,466 61,752
Installment and other 17,434 18,770 18,460
-------- -------- --------
Total loans 162,625 142,106 154,696
Less allowance for loan losses 5,050 4,499 4,960
-------- -------- --------
Loans - net 157,575 137,607 149,736
Interest receivable and other assets 3,443 4,215 3,914
Leasehold improvements and equipment - net 1,595 1,962 1,730
Foreclosed assets 422 884 770
Other assets held for sale 275 297 275
-------- -------- --------
TOTAL ASSETS $244,376 $240,526 $250,839
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 69,992 $ 68,313 $ 73,149
Interest-bearing:
Checking 25,268 18,445 24,791
Money market 72,006 81,291 68,151
Time and savings 44,345 43,840 54,007
-------- -------- --------
Total deposits 211,611 211,889 220,098
Accrued interest payable and other liabilities 1,409 1,381 1,381
-------- -------- --------
Total liabilities 213,020 213,270 221,479
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,
4,514,903, 4,447,945 and 4,488,485 shares 36,918 36,467 36,751
Retained deficit (5,501) (9,271) (7,411)
Net unrealized gain (loss) on securities
available for sale (61) 60 20
-------- -------- --------
Total shareholders' equity 31,356 27,256 29,360
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $244,376 $240,526 $250,839
======== ======== ========
</TABLE>
3
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands except shares and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $4,053 $ 4,012 $ 8,185 $ 7,997
Securities available for sale,
securities held to maturity,
and other securities 925 (1,057) 1,858 2,105
Tax exempt securities 31 3 34 7
Federal funds sold 19 240 43 414
------ ---------- ---------- ----------
Total interest income 5,028 5,312 10,120 10,523
INTEREST EXPENSE:
Deposits (1,115) (1,303) 2,237 2,608
Other borrowings 17 - 31 -
------ ---------- ---------- ----------
Total interest expense 1,132 1,303 2,268 2,608
------ ---------- ---------- ----------
NET INTEREST INCOME 3,896 4,009 7,852 7,915
Provision for loan losses 225 (1,440) 450 1,740
------ ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,671 2,569 7,402 6,175
------ ---------- ---------- ----------
NONINTEREST INCOME:
Customer service fees 145 143 280 290
Other 33 274 77 317
------ ---------- ---------- ----------
Total other income 178 417 357 607
NONINTEREST EXPENSES:
Salaries and employee benefits 1,491 1,379 3,025 2,911
Occupancy 253 246 502 494
Equipment 214 221 428 444
Goodwill and core deposit
amortization 65 71 129 143
Data processing services 61 77 125 148
FDIC insurance - 126 1 252
Telephone and postage 70 65 126 130
Consulting fees 60 26 120 116
Legal fees 45 67 90 101
Marketing 61 61 116 119
Foreclosed asset expense 73 (95) 153 (45)
Other 276 337 644 749
------ ---------- ---------- ----------
Total other expenses 2,669 2,581 5,459 5,562
------ ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 1,180 405 2,300 1,220
Income tax expense 195 35 390 70
------ ---------- ---------- ----------
NET INCOME $ 985 $ 370 $ 1,910 $ 1,150
====== ========== ========== ==========
NET INCOME PER COMMON SHARE $0.21 $0.08 $0.40 $0.25
====== ========== ========== ==========
Weighted average shares
outstanding to compute net
income per common share 4,609,492 4,519,336 4,589,331 4,499,305
========= ========= ========= =========
</TABLE>
4
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CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,910 $ 1,150
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 450 1,740
Depreciation and amortization 536 686
Loss on sale of fixed assets - 32
Loss (gain) on sale of foreclosed assets 43 (187)
Write-down of foreclosed assets 73 20
Decrease in deferred loan fees (58) (80)
Change in assets and liabilities:
Decrease in interest receivable and other assets 342 1,006
Increase in accrued interest payable
and other liabilities 28 197
------- --------
Net cash provided by operating activities 3,324 4,564
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (193) (204)
Expenditures on foreclosed assets - (22)
Proceeds from sales of foreclosed assets 307 367
Pay-down on other assets held for sale - 9
Net (increase) decrease in loans (8,306) 11,771
Activities in securities held to maturity:
Proceeds from maturing securities 11,084 10,000
Purchases of securities (3,730) (10,107)
Activities in securities available for sale:
Proceeds from maturing securities 10,000 12,073
Purchases of securities (6,210) (6,034)
------- --------
Net cash provided by investing activities 2,952 17,853
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 167 -
Net decrease in deposits (8,487) (21,942)
------- --------
Net cash used in financing activities (8,320) (21,942)
------- --------
Net (decrease) increase in cash and cash equivalents (2,044) 475
Cash and cash equivalents at beginning of period 31,558 31,730
------- --------
Cash and cash equivalents at end of period $29,514 $ 32,205
======= ========
Cash paid during year for:
Interest $ 2,370 $ 2,575
======= ========
Income taxes $ 955 $ 28
======= ========
Supplemental schedule of noncash investing activity:
Loans transferred to foreclosed assets $ 75 $ 462
======= ========
</TABLE>
5
<PAGE>
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 are prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q. In the opinion of management, all adjustments necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods have been included. 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, 1995. The results of
operations and cash flows are not necessarily indicative of those expected
for the year. Net income per share computed on a primary and fully diluted
basis is substantially the same.
2. SUBSEQUENT EVENT - QUASI-REORGANIZATION
The Company's deficit retained earnings at June 30, 1996 were incurred
primarily as a result of substantial writedowns of real estate loans and
foreclosed assets in 1992 and 1993, and the conditions giving rise to those
losses have substantially changed. As a result, the Company determined that
it was appropriate to effect a quasi-reorganization which was approved by the
Company's Board of Directors on April 17, 1996 and by the shareholders on May
30, 1996, and to be effective July 1, 1996.
In a quasi-reorganization, assets and liabilities are restated to fair values
at the effective date. However, no adjustments were made to the assets and
liabilities of the Company since, in the opinion of management, the book
value of the Company's assets and liabilities approximated fair value at July
1, 1996. As part of a quasi-reorganization, the deficit of $5.5 million in
retained earnings was eliminated against common stock (paid-in capital).
Retained earnings in the future will be dated to reflect only the results of
operations subsequent to the effective date of the quasi-reorganization. Any
future tax effects of the temporary differences, operating loss and tax
credit carryforward items which arose prior to the effective date of the
quasi-reorganization will be reported as a direct credit/debit to common
stock (paid-in capital) as they are realized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
OVERVIEW
For the six months ended June 30, 1996, the Company reported net income of
$1,910,000, or $.41 per share compared to a net income of $1,150,000 or $.26
6
<PAGE>
per share for the same period in 1995. The annualized return on average
assets was 1.62% for the six months ended June 30, 1996 compared to .91% for
the same period in 1995. The annualized return on average shareholders'
equity for the six months ended June 30, 1996 and 1995 was 12.56% and 8.54%,
respectively.
RESULTS OF OPERATIONS
Net interest income for the six months ended June 30, 1996 was consistent
with the prior year of $7.9 million.
Total interest income for the first six months of 1996 equaled $10.1 million,
a decrease of $.4 million from the same period in 1995. The impact on
interest income from the decline in the volume of earning assets was offset
by a shift in the mix of earning assets to higher yielding loans. Total
average earning assets declined $13.0 million or 5.6% to $218.5 million for
the first half of 1996 from $231.5 million for the same period of the prior
year, however average loans and leases, as a percentage or total earning
assets, increased to 72.3% from 64.2% for the same periods, respectively.
Average loans yielded 10.5% as compared to 6.4% on investments and Federal
fund sales.
Total interest expense for the first six months of 1996 and 1995 equaled $2.3
million and $2.6 million, respectively, a decrease of $.3 million or 13.0%.
The decrease is due to the lower volume of interest bearing liabilities which
averaged $137.6 million for the first half of 1996 from $156.5 million for
the same period of the prior year.
In addition to reducing interest expense, the decline in interest bearing
liabilities also had a positive effect on net interest margin by creating a
shift in the mix of funding liabilities toward non-interest bearing
liabilities, primarily demand deposits and capital. Demand deposits and
capital, as a percentage of total liabilities, increased to 41.6% for the
first half of 1996 from 37.9% for the same period of the prior year.
The net interest margin increased to 7.27% at June 30, 1996 from 6.90% at
June 30, 1995, an increase of .37%. The increase is primarily attributed to
the shifts in earning assets and funding liabilities as previously discussed.
7
<PAGE>
The following table presents an analysis for the average daily balances,
interest income and expense and the interest rates calculated for each
category of interest earning assets and interest-bearing liabilities for the
six months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/2/ Paid Balance Expense/2/ Paid
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities available for sale $ 8,257 $ 243 5.95% $ 10,828 $ 329 6.13%
Securities held for investment:
U.S. Treasury securities 10,783 329 6.17% 14,219 368 5.22%
U.S. Government agencies 36,105 1,220 6.83% 40,307 1,320 6.60%
Municipal securities 1,566 34 4.43% 227 7 6.37%
Commercial Paper 632 19 5.95% 1,477 45 6.08%
Other securities 1,627 47 5.85% 1,536 43 5.60%
Federal funds sold 1,607 43 5.40% 14,248 414 5.86%
Loans/2,3/
Commercial 77,386 4,104 10.72% 68,817 3,848 11.28%
Real estate-construction 3,130 165 10.64% 4,872 258 10.67%
Real estate-other 60,344 3,063 10.26% 55,197 2,884 10.54%
Installment and other 17,035 853 10.12% 19,737 1,007 10.28%
-------- ------- ----- -------- ------- -----
Total Loans 157,895 8,185 10.48% 148,623 7,997 10.85%
-------- ------- ----- -------- ------- -----
Total Earning Assets 218,417 10,120 9.37% 231,465 10,523 9.17%
Cash and due from banks 16,119 15,820
Leasehold improvements and equipment - net 1,675 2,022
Interest receivable and other assets 3,511 4,412
Foreclosed assets 737 1,072
Assets held for sale 275 409
Less Allowance for Loan Loss (4,999) (3,268)
-------- --------
TOTAL ASSETS $235,790 $251,932
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest-bearing:
Checking $ 22,876 107 0.95% $ 21,101 132 1.26%
Money market 70,033 1,106 3.19% 88,052 1,444 3.31%
Time and savings 43,601 1,024 4.75% 47,350 1,032 4.39%
Other borrowed funds 1,121 31 5.62% - - -%
-------- ------- ----- -------- ------- -----
Total interest-bearing liabilities 137,631 2,268 3.33% 156,503 2,608 3.36%
Demand deposits 65,959 66,964
Other liabilities 1,790 1,523
Shareholders' equity 30,410 26,942
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $235,790 $251,932
======== ========
Net Interest Income $ 7,852 $ 7,915
======= =======
Net Interest Margin 7.27% 6.90%
===== =====
</TABLE>
- --------------------------------------------------------------------------------
(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 $221,000 and
$223,000 for June 30, 1996 and 1995, respectively; fees on real estate loans of
$236,000 and $184,000 for June 30, 1996 and 1995, respectively; and fees on
installment and other loans of $16,000 and $9,000 for June 30, 1996 and 1995,
respectively.
8
<PAGE>
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 six month period ended June 30, 1996
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense
Increase (Decrease) Due to Change in
1996 over 1995
Volume/1/ Rate/2/ Total
--------- ------- -----
<S> <C> <C> <C>
Increase (decrease) in interest income
Securities available for sale $ (78) $ (8) $ (86)
Securities held to maturity:
U.S. Treasury securities (89) 50 (39)
U.S. government agency (138) 38 (100)
Municipal securi3 42 (15) 27
Commercial paper (26) 0 (26)
Other securities 2 2 4
Federal funds sold (367) (4) (371)
Loans:
Commercial 480 (224) 256
Real estate-construction (92) (1) (93)
Real estate-other 269 (90) 179
Installment and other (138) (16) (154)
----- ----- ------
Total loans 519 (331) 188
----- ----- ------
Total increase (decrease) $(135) $(268) $ (403)
----- ----- ------
(Increase) decrease in interest expense:
Deposits:
Interest-bearing checking $ (11) $ 36 $ 25
Money market 295 43 338
Savings and time 82 (74) 8
Other borrowed funds (31) 0 (31)
----- ----- ------
Total (increase) decrease $ 335 $ 5 $ 340
----- ----- ------
Total change in net interest income $ 200 $(263) $ (63)
===== ===== ======
</TABLE>
(1) Changes not solely attributed to rate or volume have been allocated to
volume.
(2) Loan fees are reflected in rate variances.
(3) 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 six months ended June 30, 1996 was
$450,000, a decrease of $1,290,000 or 74.1% from the six months ended June 30,
1995. In the second quarter of 1995, the Company made a special provision
9
<PAGE>
following the completion of a regular examination by the Federal Reserve Bank of
San Francisco. The provision in 1996 reflects a return to a normalized level.
Noninterest Income
Non-interest income for the six months ended June 30, 1996 was $357,000, a
decrease of $250,000 or 41.2% from the six months ended June 30, 1995. The
decrease in other income is attributed to non-recurring transactions during the
first six months of 1995 which included a gain on the sale of foreclosed
property of $72,000, the recovery of $132,000 related to the sale of mortgage
division in September 1994 and interest income of $58,000 allowed on a income
tax refund. Customer service fees for the six months ended June 30, 1996
declined $10,000 or 3.4% from the six months ended June 30, 1995 primarily due
to the decrease in deposit volumes.
Noninterest Expense
Noninterest expense totaled $5.5 million and $5.6 million for the six months
ended June 30, 1996 and 1995, respectively. Salaries and employee benefits
expense increased $114,000 or 3.9% from June 30, 1995 due an increase in
incentive accruals and normal merit increases. Full time equivalent personnel
numbered 102 on June 30, 1996 compared to 116 on June 30, 1995.
For the six months ended June 30, 1996 the Company recorded expenses of $153,000
associated with the maintenance of foreclosed assets which included a loss of
$43,000 on the sale of one property. For the same period in 1995, recoveries
associated with foreclosed assets exceeded maintenance expenses by $45,000. FDIC
insurance expense declined to $1,000 for the first half of 1996 from $252,000
for the same period of the prior year due to a reduction in the assessment rate.
Other expense declined $105,000 to $644,000 for the first half of 1996 from
$749,000 for the first half of 1995. Included in 1995 was an expense of $85,000
resulting from a legal settlement.
The following table summarizes the significant components of noninterest expense
for the dates indicated:
10
<PAGE>
<TABLE>
<CAPTION>
Noninterest Expense
--------------------------------------------
June 30 June 30 Dollar %
1996 1995 Change Change
------- ------- ------ ------
<S> <C> <C> <C> <C>
Salaries and related benefits............................... $3,025 $2,911 $ 114 3.9%
Occupancy................................................... 502 494 8 1.6%
Equipment................................................... 428 444 (16) -3.6%
Goodwill and core deposit amortization...................... 129 143 (14) -9.7%
Data processing services.................................... 125 148 (23) -15.5%
FDIC insurance.............................................. 1 252 (251) -99.6%
Telephone and postage....................................... 126 130 (4) -3.0%
Consulting fees............................................. 120 116 4 3.4%
Legal fees.................................................. 90 101 (11) -10.8%
Marketing................................................... 116 119 (3) -2.5%
Foreclosed asset expenses................................... 153 (45) 198 -440.0%
Other....................................................... 644 749 (105) -14.0%
------ ------ ------ ------
TOTAL NONINTEREST EXPENSE................................... $5,459 $5,562 $ (103) -1.8%
====== ====== ====== ======
</TABLE>
Provision for Income Taxes
At December 31, 1995 the Company had net deferred tax assets of approximately
$3.1 million and a valuation allowance of the same amount. At that time, the
Company also had approximately $1.1 million in state net operating loss
carryforwards and $455,000 in Federal income tax credits. The effective tax rate
of the Company's $390,000 provision for income taxes for the six months ended
June 30, 1996 differs from the Federal statutory income tax rate due to a change
in the valuation allowance.
FINANCIAL CONDITION
Loans
Average loans increased $9.3 million or 6.2% to $157.9 million for the six
months ended June 30, 1996 from $148.6 million for the same period in 1995. The
increase in average loans is attributed to an improving economy and an overall
increase in loan demand.
Real estate construction loans, as a percentage of total loans, were 1.6% at
June 30, 1996 compared to 3.0% the prior year. The relatively low level of real
estate construction loans reflects management's decision to curtail real estate
construction lending because the risks associated with construction loans are
generally higher than those of other forms of lending.
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.
11
<PAGE>
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.
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30
----------------- ----------------- -----------------
1996 1995 1995
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 79,765 49.0% $ 70,417 45.5% $ 64,646 45.5%
Real estate - construction 2,574 1.6% 4,067 2.6% 4,224 3.0%
Real estate - other 62,852 38.6% 61,752 39.9% 54,466 38.3%
Installment and other 17,434 10.7% 18,460 11.9% 18,770 13.2%
-------- ----- -------- ----- -------- -----
TOTAL $162,625 100.0% $154,696 100.0% $142,106 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Non-Performing Assets
The following table provides information with respect to the Company's non-
performing assets at the dates indicated.
<TABLE>
<CAPTION>
June 30 Dec. 31 June 30
1996 1995 1995
------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C>
Loans 90 days or more past due and still accruing... $ 518 $ 325 $2,463
Non-accrual loans................................... 2,620 2,859 2,737
Other assets held for sale.......................... 275 275 297
Foreclosed assets................................... 422 770 884
------ ------ ------
Total non-performing assets........................ $3,835 $4,229 $6,381
====== ====== ======
Non-performing assets to period end loans,
other assets held for sale plus foreclosed assets 2.34% 2.71% 4.45%
====== ====== ======
</TABLE>
At June 30, 1996 the recorded investment in loans considered to be impaired
under SFAS No. 114 was $2,620,000, all of which were on a non-accrual basis.
Included in this amount are $283,000 of impaired loans for which the related
allowance for loan losses is $21,000, and $2,337,000 of impaired loans which
approximate the fair value of the supporting collateral and accordingly do not
have an associated allowance for loan loss. For the six months ended June 30,
1996 the average recorded investment in impaired loans was $2.7 million and no
income was recognized on impaired loans. If interest income on those loans had
been recognized, such income would have approximated $143,000.
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
12
<PAGE>
in relation to the risk of future losses inherent in the loan portfolio. 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:
<TABLE>
<CAPTION>
Six Months Year Six Months
Ended Ended Ended
6-30-96 12-31-95 6-30-95
---------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, at beginning of period......... $4,960 $3,216 $ 3,216
Charge-offs:
Commercial............................. 95 188 50
Real estate - construction............. 230 884 614
Real estate - other.................... 175 33 -
Installment and other.................. 126 310 164
------ ------ -------
Total charge-offs..................... 626 1,415 828
Recoveries:
Commercial............................. 111 336 215
Real estate - construction............. 45 144 101
Real estate - other.................... 105 34 7
Installment and other.................. 5 80 48
------ ------ -------
Total recoveries...................... 266 594 371
------ ------ -------
Net charge-offs......................... 360 821 457
Provision charged to operations......... 450 2,565 (1,740)
------ ------ -------
Balance, at end of period............... $5,050 $4,960 $ 4,499
====== ====== =======
Ratio of net charge-offs to average
loans (annualized)..................... 0.45% 0.55% 0.61%
====== ====== =======
Allowance at period end to total loans
outstanding............................ 3.11% 3.21% 3.17%
====== ====== =======
</TABLE>
The balance in the allowance for loan losses at June 30, 1996 was $5.1 million
or 3.11% of total loans compared to $4.5 million or 3.17% at June 30, 1995. The
coverage of the allowance for loan losses to non-performing loans has
13
<PAGE>
stabilized and management believes that the allowance for loan losses was
adequate at June 30, 1996 based upon the detailed review of the loan portfolio.
Potential Problem Loans
At June 30, 1996 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 US
Treasury and US government agency instruments and investment grade municipal
obligations.
The table below summarizes the book value and estimated market values of
investment securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------
1996 1995
------------------- --------------------
Book Market Book Market
Value Value Value Value
------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. Treasury securities........ $10,818 $10,805 $10,781 $10,809
U.S. government agencies and
corporation................... 29,081 29,434 40,517 41,064
Municipal securities............ 3,790 3,699 226 227
Collateralized mortgage
obligations.................... 149 154 187 195
------- ------- ------- -------
TOTAL......................... $43,838 $44,092 $51,711 $52,295
======= ======= ======= =======
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities........ $ - $ - $10,066 $10,127
U.S. government agencies and
corporation................... 6,129 6,068 - -
------- ------- ------- -------
TOTAL......................... $ 6,129 $ 6,068 $10,066 $10,127
======= ======= ======= =======
</TABLE>
Deposits
For the six months ended June 30, 1996, average deposits totaled $202.5 million,
a decrease of $21.0 million or 9.4% from $223.5 million for the same period in
1995. Management attributes the decline in deposits, particularly money market
deposits, to increased competition and availability of nondeposit products such
as mutual funds.
14
<PAGE>
For the first half of 1996, average demand deposits totaled $66.0 million a
decrease of $1.0 million or 1.5% from the same period in 1995. Average demand
deposits as a percentage of total deposits increased to 32.6% for the six months
ended June 30, 1996 from 30.0% for the same period of the prior year. Average
interest-bearing deposits decreased $20.0 million or 12.8% for the six months
ended June 30, 1996 from the same period in 1995.
The table below sets forth information regarding trends in the Bank's average
deposits by amount and percentage of deposits for the six months ended June 30,
1996 and 1995.
<TABLE>
<CAPTION>
Average Deposits
-------------------------------------------
Six Months Ended June 30,
-------------------------------------------
1996 1995
-------------------- --------------------
Amount Percentage Amount Percentage
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Demand accounts............ $ 65,959 32.5% $ 66,964 29.9%
Interest-bearing checking.. 22,876 11.2% 21,101 9.4%
Money market............... 70,033 34.5% 88,052 39.4%
Savings and time........... 43,601 21.5% 47,350 21.1%
-------- ----- -------- -----
Total................. $202,469 100.0% $223,467 100.0%
======== ===== ======== =====
</TABLE>
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 deposit over $100,000 or more at June 30, 1996 had the
following schedule of maturities:
<TABLE>
<CAPTION>
(In thousands) June 30, 1996
-------------
<S> <C>
Three months or less $10,208
After three months through six months 7,079
After six months through twelve months 2,665
After twelve months 212
-------
Total $20,164
=======
</TABLE>
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 as they come
due. To augment liquidity, the Bank has informal Federal Funds borrowing
arrangements with correspondent banks totaling $24.0 million and maintains a
credit arrangement with the Federal Reserve Bank of San Francisco for open
window borrowing. Additionally, at June 30, 1996, unpledged government
securities available to secure additional borrowing in the form of reverse
15
<PAGE>
repurchase agreements totaled approximately $37.0 million. At June 30, 1996 and
1995, 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
borrowing, (up to six months), and long term borrowing, (up to five years). At
June 30, 1996 and 1995 there were no outstanding advances.
The liquidity position of the Company declined by $2.0 million during the first
half of 1996 as the funds provided by operating and investing activities were
exceeded by the funds required by financing activities. Operating activities
contributed $3.3 million and maturing loans and investing activities provided
$3.0 million in cash and cash equivalents. Cash and cash equivalents of $8.3
million were required to meet the decrease in deposits.
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, (b) divided by total assets
less pledged securities. Using this definition at June 30, 1996, the Company had
a liquidity ratio of 30.6% as compared to 35.3% at December 31, 1995. The
decline in the liquidity position reflects the shift in earning assets from
securities to loans.
Capital Resources
Total shareholders' equity increased to $31.4 million at June 30, 1996 from
$29.4 million at December 31, 1995 reflecting the addition to capital of
$167,000 from the exercise of employee stock options and retained income of
$1,910,000 offset by the change in the unrealized gain (loss) on securities
available for sale.
The Company and the Bank are subject to capital adequacy guidelines issued by
the Federal Reserve Board of Governors which require a minimum risk-based
capital ratio of 8%. At least 4% must be in the form of "Tier 1" capital and
consists of common equity, non-cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries. "Tier 2" capital
consists of cumulative and limited-life preferred stock, mandatory convertible
securities, subordinated debt and, subject to certain limitations, (no more than
1.25% of risk-weighted assets) the allowance for loan losses.
16
<PAGE>
At June 30, 1996, the Company's risk-based capital ratio was 18.23%. The
following table presents the Company's risk-based capital and leverage ratios as
of June 30, 1996 and December 31, 1995.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
------------------------------------
(Dollars in thousands)
June 30, 1996 December 31, 1995
--------------- -----------------
Amount Ratio Amount Ratio
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Company Capital Ratios:
Tier 1 Capital $ 30,265 16.95% $ 28,102 16.04%
Tier 1 minimum requirement 7,139 4.00% 7,008 4.00%
-------- ----- -------- -----
Excess $ 23,125 12.95% $ 21,094 12.04%
======== ===== ======== =====
Total Capital $ 32,531 18.22% $ 30,292 17.29%
Total Capital minimum
requirement 14,278 8.00% 14,016 8.00%
-------- ----- -------- -----
Excess $ 18,252 10.22% $ 16,276 9.29%
======== ===== ======== =====
Risk-adjusted assets $178,487 $175,194
======== ========
Leverage ratio 12.11% 10.99%
Leverage ratio minimum 4.00% 4.00%
----- -----
Leverage ratio excess 8.11% 6.99%
===== =====
</TABLE>
17
<PAGE>
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
(a) The annual meeting of shareholders of Civic BanCorp was held on
May 30, 1996.
(b) With respect to the election of directors at the annual meeting of
shareholders on May 30, 1996 (i) proxies for the meeting were
solicited pursuant to Regulation 14 under the Securities Exchange Act
of 1934, (ii) there was no solicitation in opposition to management's
nominees as listed in the proxy statement, and (iii) all such nominees
were elected.
(c) At the meeting, shareholders approved the Civic BanCorp Quasi-
reorganization as described in the proxy statement and in footnote 2 -
Subsequent Event - Quasi-reorganization. The plan was approved by
2,426,056 votes in favor, 15,008 votes against and 10,893 votes
abstaining.
The total number of shares of the Company's common stock outstanding
as of April 11, 1996, the record date of the annual meeting was
4,514,203.
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
18
<PAGE>
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: August 2, 1996 By: /s/ HERBERT FOSTER
------------------------------------
Herbert Foster
Chairman
Chief Executive Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17,314
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,068
<INVESTMENTS-CARRYING> 43,838
<INVESTMENTS-MARKET> 44,092
<LOANS> 162,625
<ALLOWANCE> 5,050
<TOTAL-ASSETS> 244,376
<DEPOSITS> 211,611
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,409
<LONG-TERM> 0
0
0
<COMMON> 36,918
<OTHER-SE> (5,562)
<TOTAL-LIABILITIES-AND-EQUITY> 244,376
<INTEREST-LOAN> 8,185
<INTEREST-INVEST> 1,935
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 10,120
<INTEREST-DEPOSIT> 2,237
<INTEREST-EXPENSE> 2,268
<INTEREST-INCOME-NET> 7,852
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,459
<INCOME-PRETAX> 2,300
<INCOME-PRE-EXTRAORDINARY> 2,300
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,910
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
<YIELD-ACTUAL> 7.27
<LOANS-NON> 2,620
<LOANS-PAST> 518
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,960
<CHARGE-OFFS> 626
<RECOVERIES> 266
<ALLOWANCE-CLOSE> 5,050
<ALLOWANCE-DOMESTIC> 5,050
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
