<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________________
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number: 0-13287
CIVIC BANCORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 68-0022322
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 Webster Street, 14th Floor, Oakland, California 94612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 836-6500
_____________________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant of 12(g) of the Act:
Common Stock, no par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 1, 1996: $24,168,223.00
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of March 1, 1996: 4,499,827
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Proxy Statement for Annual Meeting of Shareholders (Part III),
Scheduled for May 30, 1996.
________________________________________________________________________________
THIS REPORT CONTAINS A TOTAL OF 64 PAGES
EXHIBIT INDEX ON PAGE 36
1
<PAGE>
PART I - DESCRIPTION OF BUSINESS
ITEM 1 - BUSINESS
GENERAL
Civic BanCorp (the "Company") is a California corporation incorporated on
February 14, 1984 and is registered with the Board of Governors of the Federal
Reserve System as a bank holding company under the Bank Holding Company Act of
1956, as amended. CivicBank of Commerce (the "Bank") is a wholly-owned
subsidiary of the Company, organized as a California corporation in 1984. At
present, the Company does not engage in any material business activities other
than the ownership of the Bank.
CIVICBANK OF COMMERCE
The Bank is a state chartered bank and is a member of the Federal Reserve
System. Deposits in the Bank are insured to $100,000 by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is a full service commercial bank
dedicated to providing personalized services to independent businesses and
professional firms with annual sales of $500,000 to $30 million in Alameda and
Contra Costa counties. The Bank also provides banking services to individuals
who are owners, partners or principals of these businesses or professional
practices, and other corporate executives and professionals. The Bank offers its
clients certain customary banking services, such as checking, savings and
interest-bearing demand, money market and time deposit accounts; commercial,
installment and real estate loans; safe deposit boxes; automated cash management
services; collection services; wire and telephone transfer services; courier
services; lockbox services; and account reconciliation. The Bank has one
operating subsidiary, Pasco Services, Inc. which acts as trustee to perform loan
servicing and reconveyance services under deeds of trust held by the Bank and
other lenders.
The principal offices of the Company and Bank are located at 2101 Webster
Street, Oakland, California, 94612. Their telephone number is (510) 836-6500.
The Bank has offices at 1940 Tice Valley Boulevard, Walnut Creek, CA 94596,
telephone number (510) 938-1000, 2999 Oak Road, Walnut Creek, California, 94596,
telephone number (510) 933-9200, 2201 Walnut Avenue, Fremont, California, 94538,
telephone number (510) 713-2500, and at 2251 Alvarado Street, San Leandro,
California, 94577, telephone number (510) 352-9112.
SAVINGS AND DEPOSIT ACTIVITIES
The Bank offers customary banking services such as personal and business
checking, savings accounts, time certificates of deposit and IRA accounts. Most
of the Bank's deposits are obtained from commercial businesses, professionals
and individuals with high income or high net worth. At December 31, 1995, the
Bank had a total of 6,445 accounts, consisting of demand deposit accounts with
an average balance of approximately $39,000; savings, NOW and market rate
accounts with an average balance of approximately $29,000; time certificates of
$100,000 or more with an average balance of approximately $260,000; and other
time deposits with an average balance of approximately $19,000. The Bank has not
obtained any deposits through deposit brokers and has no present intention of
using brokered deposits as a source of funding. See
2
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Deposits".
LENDING ACTIVITIES
The Bank concentrates its lending activities in commercial loans, real estate
construction loans and other forms of real estate loans made primarily to
businesses and individuals; it has no foreign loans.
The net loan portfolio as of December 31, 1995, totalled $149.7 million, which
represented 68.0% of total deposits and 59.7% of total assets. The table below
shows the mix of the loan portfolio as of December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
December 31
---------------------------------------
1995 1994 1993
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Commercial loans $ 70,417 $ 74,164 $ 87,235
Real estate construction loans 4,067 5,977 11,353
Real estate loans - other 61,752 53,715 50,022
Installment and other loans 18,460 20,860 23,886
-------- -------- --------
Subtotal 154,696 154,716 172,496
Less allowance for loan losses 4,960 3,216 4,371
-------- -------- --------
LOANS-NET $149,736 $151,500 $168,125
======== ======== ========
</TABLE>
Commercial Loans - As of December 31, 1995, the Bank had outstanding commercial
loans totalling $70.4 million, representing 45.5% of the Bank's total loan
portfolio. The Bank lends primarily to businesses with annual gross revenues of
$500,000 to $30 million and to professionals and other individuals located in
Alameda and Contra Costa counties. The Bank offers a variety of commercial
lending services, including revolving lines of credit, working capital loans,
equipment financing, letters of credit and inventory financing. Typically,
commercial loans are floating rate obligations and are priced based on the
Bank's reference rate.
The Bank's commercial loans are made on a short term basis with the majority of
such loans maturing within one year. Commercial loans are typically secured by
several types of collateral, including qualifying accounts receivable,
equipment, inventory, and real estate. No single commercial account customer
accounted for more than 4.00% of total outstanding loans at December 31, 1995.
Real Estate Loans - As of December 31, 1995, the Bank had outstanding real
estate construction loans totalling $4.1 million representing 2.6% of the Bank's
loan portfolio. The Bank makes loans to finance the construction of residential,
commercial and industrial properties and to finance land development.
Other real estate loans, consisting of loans for land development and
"mini-perm" loans totalled $61.8 million at December 31, 1995, of which $53.2
million were mini-perms.
Neither the Bank nor the Company has taken an equity participation in connection
with any real estate acquisition, development and construction loan held by the
Bank.
Installment Loans - Installment loans include loans to individual and business
customers. Personal lines of credit extended to individuals were
3
<PAGE>
$3.9 million or 21.1% of total installment loans at December 31, 1995. The
remainder includes home equity loans, automobile loans and other personal loans.
BANKING SERVICES
To retain existing customers and attract new customers, the Bank offers a broad
range of services, including automated teller machines, automated accounting
services, daily courier services, account reconciliation and access to mutual
funds, annuities and similar instruments. In addition, the Bank maintains close
relationships with its customers by providing direct access to senior
management, rapid response to customer requests and specialized market area
knowledge of Alameda and Contra Costa counties.
HUMAN RESOURCES
At December 31, 1995, the Bank employed a total of 111 persons, consisting of
100 full time employees and 11 part time employees.
COMPETITION
The Bank actively competes for all types of deposits and loans with other banks
and financial institutions located in its service area, and increased
deregulation of financial institutions has increased competition. Many of the
Bank's competitors have greater financial resources and facilities than the Bank
and may offer certain services, such as trust services, that the Bank does not
presently offer. In addition, California and federal law permit various forms of
nationwide interstate banking with few restrictions. See "Regulation and
Supervision - Interstate Banking". The Company believes that this will further
increase competition as out-of-state financial institutions enter the California
market.
The Bank's strategy for meeting competition has been to maintain a sound capital
base and liquidity position, employ experienced management, and concentrate on
particular segments of the market, particularly businesses with annual revenues
of $500,000 to $30 million and professionals, by offering customers a degree of
personal attention that, in the opinion of management, is not generally
available through the Bank's larger competitors.
REGULATION AND SUPERVISION
THE COMPANY
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and is registered as such with
the Federal Reserve Board ("FRB"). A bank holding company is required to file
with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. It is also subject to examination by
the FRB and is required to obtain FRB approval before acquiring, directly or
indirectly, ownership or control of any voting shares of any bank, if after such
acquisition it would directly or indirectly own or control more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of that bank. The BHC Act further provides that the FRB shall not approve any
such acquisition that would result in or further
4
<PAGE>
the creation of a monopoly, or the effect of which may be substantially to
lessen competition, unless the anticompetitive effects of the proposed
transaction are clearly outweighed by the probable effect in meeting the
convenience and needs of the community to be served.
Furthermore, under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or (ii) engaging in any activity other than managing or controlling banks. With
the prior approval of the FRB, however, a bank holding company may own shares of
a company engaged in activities which the FRB has determined to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto.
The FRB has by regulation determined that certain activities are so closely
related to banking as to be a proper incident thereto within the meaning of the
BHC Act. These activities include, but are not limited to: operating an
industrial loan company, industrial bank, Morris Plan Bank, savings association,
mortgage company, finance company, credit card company or factoring company;
performing certain data processing operations; providing investment and
financial advice; operating a trust company in certain instances, selling
traveler's checks, United States savings bonds and certain money orders;
providing certain courier services; providing management consulting advice to
nonaffiliated depository institutions in some instances; acting as insurance
agent for certain types of credit-related insurance; leasing property or acting
as agent, broker or advisor for leasing property on a "full pay-out basis";
acting as a consumer financial counselor, including tax planning and return
preparation; performing futures and options advisory services, check guarantee
services and discount brokerage activities; operating a collection or credit
bureau; or performing real and personal property appraisals. The Bank provides
customers with access to mutual funds, annuities and similar investments, and it
may seek the necessary authority to offer discount brokerage services and
courier services. Except for these activities, the Company has no present
intention to engage in any of such permitted activities.
The FRB has also determined that certain activities are not so closely related
to banking to be a proper incident thereto within the meaning of the BHC Act.
Such activities include real estate brokerage and syndication; land development;
property management; underwriting of life insurance not related to credit
transactions; and with certain exceptions, securities underwriting and equity
funding. In the future, the FRB may add to or delete from the list of activities
permissible for bank holding companies.
Historically, the BHC Act has prohibited bank holding companies and their bank
subsidiaries from owning banks or branches in more than one state unless the
laws of each state expressly permit or in case of certain emergencies arising
from a bank failure or prospective failure. California and federal law permit
various forms of nationwide interstate banking with few restrictions. See
"Regulation and Supervision -Legislation and Proposed Regulatory Changes -
Interstate Banking".
Regulations and policies of the FRB require a bank holding company to serve as a
source of financial and managerial strength to its subsidiary banks. It is the
FRB's policy that a bank holding company should stand ready to use available
resources to provide adequate capital funds to a
5
<PAGE>
subsidiary bank during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting a subsidiary bank. Under certain conditions,
the FRB may conclude that certain actions of a bank holding company, such as
payment of cash dividends, would constitute an unsafe and unsound practice
because they violate the FRB's "source of strength" doctrine.
A bank holding company and its subsidiaries are prohibited from certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions, a bank
may not condition an extension of credit on a promise by its customer to obtain
other services provided by it, its holding company or other subsidiaries, or on
a promise by its customer not to obtain other services from a competitor. In
addition, federal law imposes certain restrictions on transactions between the
Company and its subsidiaries, including the Bank. As an affiliate of the Bank,
the Company is subject, with certain exceptions, to provisions of federal law
imposing limitations on, and requiring collateral for, extensions of credit by
the Bank to its affiliates.
Directors of the Company, and the companies with which they are associated, have
had and will continue to have banking transactions with the Bank in the ordinary
course of the Bank's business. It is the firm intention of the Company that any
loans and commitments to loan included in such transactions be made in
accordance with applicable law, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of similar creditworthiness, and on terms not
involving more than the normal risk of collectibility or presenting other
unfavorable features. At December 31, 1995, loans to directors totalled $4.2
million or 14.4% of the Company's shareholders' equity. Company policy precludes
loans to officers and employees of the Company or of the Bank.
THE BANK
The Bank is a member of the FDIC which currently insures the deposits of each
member bank to a maximum of $100,000 per depositor. For this protection, the
Bank pays a semi-annual assessment and is subject to the rules and regulations
of the FDIC pertaining to deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by the
California State Banking Department (the "Department"). In addition, because the
Bank is a member of the Federal Reserve System, it is subject to regulation,
supervision and examination by the FRB. The regulations of these agencies govern
most aspects of the Bank's business, including the making of periodic reports by
the Bank and the Bank's activities relating to investments, loans, borrowings,
certain check-clearing activities, branching, mergers and acquisitions, reserves
against deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Banks (the
"Superintendent"), the Bank may invest in capital stock, obligations or other
securities of other corporations, provided such corporations are not insurance
companies, agents or brokers. In addition, the Bank may acquire any or all of
the securities of a company that engages in activities that the Bank may engage
in directly under California law
6
<PAGE>
without the prior approval of the FRB. California state-chartered banks are also
specifically authorized to provide real estate appraisal services, management
consulting and advisory services and electronic data processing services. FRB
and FDIC regulations restrict the ability of the Bank to engage in real estate
development and investment activities.
The Company's primary potential source of income (other than interest earned on
Company capital) is the receipt of dividends and management fees from the Bank.
The ability of the Bank to pay management fees and dividends to the Company and
its affiliates is subject to restrictions set forth in the California Financial
Code and is subject to approval of the Department.
The board of directors of a state-chartered bank may declare a dividend out of
so much of net profits as such board deems appropriate, subject to California
law which restricts the amount available for cash dividends to the lesser of
retained earnings or the bank's net income for its last three fiscal years (less
any distributions to shareholders made during such period). In the event that a
bank has no retained earnings or net income for the prior three fiscal years,
cash dividends may be paid out of net income for such bank's last preceding
fiscal year or current fiscal year upon the prior approval of the Department.
Although there are no specific regulations restricting dividend payments by bank
holding companies other than state corporation law, supervisory concern focuses
on the holding company's capital position, its ability to meet its financial
obligations as they come due and the capacity to act as a source of financial
strength to its subsidiary banks.
The FRB and the Superintendent have authority to prohibit a bank from engaging
in business practices which are considered to be unsafe or unsound. Depending
upon the financial condition of the Bank and upon other factors, the FRB or
Superintendent could assert that the payments of dividends or other payments by
the Bank to the Company might be such an unsafe or unsound practice. Also, if
the Bank were to experience either significant loan losses or rapid growth in
loans or deposits, or some other event resulting in a depletion or deterioration
of the Bank's capital account were to occur, the Company might be compelled by
federal banking authorities to invest additional capital in the Bank necessary
to return the capital account to a satisfactory level. See "Management's
Discussion and Analysis - Regulatory Agreements".
FRB regulations require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The regulations generally require that reserves of 3.0% must be
maintained against net transaction accounts of $47.7 million or less, plus 10%
against that portion of total transaction accounts in excess of $47.7 million.
The first $4.3 million of otherwise reservable balances (subject to adjustment
by the FRB) are exempted from the reserve requirements. Because required
reserves must be maintained in the form of either vault cash, a non-interest-
bearing account at a Federal Reserve Bank or a pass-through account as defined
by the FRB, the effect of reserve requirements is to reduce interest-earning
assets.
INSURANCE PREMIUMS AND ASSESSMENTS
The FDIC has authority to impose a special assessment on members of the
7
<PAGE>
Bank Insurance Fund ("BIF") to insure there will be sufficient assessment income
for repayment of BIF obligations and for any other purpose which it deems
necessary. The FDIC is authorized to set semi-annual assessment rates for BIF
members at levels sufficient to increase the BIF's reserve ratio to a designated
level of 1.25% of insured deposits. The BIF achieved this level in mid-1995.
Congress is considering various proposals to merge the BIF with the Savings
Association Insurance Fund or otherwise to require banks to contribute to the
insurance funds for savings associations. Adoption of any of these proposals
might increase the cost of deposit insurance for all banks, including the Bank.
Pursuant to FDICIA, the FDIC has developed a risk-based assessment system, under
which the assessment rate for an insured depository institution will vary
according to the level of risk incurred in its activities. An institution's risk
category is based upon whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. Each insured depository
institution is also to be assigned to one of the following "supervisory
subgroups,." subgroup A, B, or C. Subgroup A institutions are financially sound
institutions with few minor weaknesses; Subgroup B institutions are institutions
that demonstrate weaknesses which, if not corrected, could result in a
significant deterioration; and Subgroup C institutions are institutions for
which there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness. The FDIC assigns each BIF member institution an annual FDIC
assessment rate which, as of the date of this document, varies between 0.00% per
annum with a $2,000 minimum (for well capitalized Subgroup A institutions,
reduced from 0.23% in August 1995 and 0.04% in November 1995) and 0.27% per
annum (for undercapitalized Subgroup C institutions). The assessment rate may
increase in the future. At December 31, 1995, the Bank's annual assessment rate
was 0.00%.
The FDIC has "prompt corrective action" authority to (1) request the appropriate
regulatory agency to take any enforcement action against an institution, based
upon an examination by the FDIC or the agency, (2) if no action is taken within
60 days and the FDIC determines the institution is in an unsafe and unsound
condition or failure to take the action will result in continuance of unsafe or
unsound practices, order the action against the institution, and (3) exercise
this enforcement authority under "exigent circumstances" merely upon
notification to the institution's appropriate regulatory agency. The FDIC has
the same enforcement powers with respect to any institution and its subsidiaries
as the appropriate agency has with respect to those entities.
Federal banking agencies are required to take corrective action with respect to
depository institutions that do not meet minimum capital requirements and to
take such actions promptly in order to minimize losses to the FDIC.
Federal banking agencies have established capital measures (including both a
leverage measure and a risk-based capital measure) and specified for each
capital measure the levels at which depository institutions will be considered
"well-capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" or "critically undercapitalized". See "Regulation and
Supervision - Capital Adequacy Guidelines". The appropriate federal banking
agency, after notice and an opportunity for a hearing, may treat a well
capitalized, adequately capitalized or undercapitalized depository institution
as if it has a
8
<PAGE>
lower capital-based classification if it is in an unsafe or unsound condition or
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions (provided that a capital restoration plan cannot be required of the
institution) described below and an undercapitalized institution can be subject
to the restrictions applicable to significantly undercapitalized institutions
described below. As of December 31, 1995, based upon its applicable capital
ratios, the Bank is classified as "well capitalized".
The appropriate federal regulatory agency must require an insured depository
institution that (i) is significantly undercapitalized or (ii) is
undercapitalized and either fails to submit an acceptable capital restoration
plan within the time period allowed by regulation or fails in any material
respect to implement a capital restoration plan accepted by the appropriate
federal banking agency to take one or more of the following actions: (i) sell
enough shares, including voting shares to become adequately capitalized; (ii)
merge with (or be sold to) another institution (or holding company), but only if
grounds exist for appointing a conservator or receiver; (iii) restrict certain
transactions with banking affiliates as if the "sister bank" exception to the
requirements of Section 23A of the Federal Reserve Act did not exist; (iv)
otherwise restrict transactions with bank or nonbank affiliates; (v) restrict
interest rates that the institution pays on deposits to "prevailing rates" in
the institution's "region"; (vi) restrict asset growth or reduce total assets;
(vii) alter, reduce or terminate activities; (viii) hold a new election of
directors; (ix) dismiss any director or senior executive officer who held office
for more than 180 days before the institution became undercapitalized; provided
that in requiring dismissal of a director or senior executive officer, the
agency must comply with certain procedural requirements, including the
opportunity for an appeal in which the director or officer will have the burden
of proving his or her value to the institution; (x) employ "qualified" senior
executive officers; (xi) cease accepting deposits from correspondent depository
institutions; (xii) divest certain nondepository affiliates which pose a danger
to the institution; (xiii) be divested by a parent holding company; and (xiv)
take any other action which the agency determines would better carry out the
purposes of the prompt corrective action provisions.
In addition to the foregoing sanctions, without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval. Furthermore, in
the case of an undercapitalized institution that has failed to submit or
implement an acceptable capital restoration plan, the appropriate federal
banking agency cannot approve any such bonuses.
Not later than 90 days after an institution becomes critically undercapitalized,
the appropriate federal banking agency for the institution must appoint a
receiver or, with the concurrence of the FDIC, a conservator, unless the agency,
with the concurrence of the FDIC, determines that the purposes of the prompt
corrective action provisions would be better served by another course of action.
Any alternative determination must be "documented" and reassessed on a periodic
basis. Notwithstanding the foregoing, a receiver must be appointed after 270
days unless the FDIC determines that the institution has positive net
9
<PAGE>
worth, is in compliance with a capital plan, is profitable or has a sustainable
upward trend in earnings and is reducing its ratio of non-performing loans to
total loans and the head of the appropriate federal banking agency and the
chairperson of the FDIC certify that the institution is viable and not expected
to fail.
The FDIC is required, by regulation or order, to "restrict the activities" of
such critically undercapitalized institutions. The restrictions must include
prohibition on the institution's doing any of the following without prior FDIC
approval: entering into material transactions not in the usual course of
business, extending credit for highly leveraged transactions; engaging in any
"covered transactions" (as defined in Section 23A of the Federal Reserve Act)
with an affiliate, paying "excessive compensation or bonuses"; and paying
interest on "new or renewed liabilities" that would increase the institution's
average cost of funds to a level significantly exceeding prevailing rates in the
market.
A bank cannot accept brokered deposits (which term is defined to include payment
of an interest rate more than 75 basis points above prevailing rates) unless (i)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A bank is defined to be well capitalized for purposes of
this restriction if it maintains a Tier 1 leverage ratio of at least 5%, a Tier
1 risk-based capital ratio of 6.0% and a total risk-based capital ratio of at
least 10.0% and is not otherwise in a "troubled condition" as specified by its
appropriate federal regulatory agency. A bank is defined to be adequately
capitalized if it meets all of its minimum capital requirements. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. In addition, a bank that is "adequately
capitalized" may not pay an interest rate on any deposits in excess of 75 basis
points over certain prevailing market rates. There are no such restrictions on a
bank that is "well capitalized".
A Federal Reserve Bank may not make advances to an undercapitalized institution
(including institutions with the lowest regulatory rating) for more than 60 days
in any 120-day period without a viability certification by a federal banking
agency or by the Chairman of the FRB (after an examination by the FRB). If an
institution is deemed critically undercapitalized, an extension of Federal
Reserve Bank credit cannot continue for five days without demand for payment
unless the FRB is willing to accept responsibility for any resulting loss to the
FDIC. As a practical matter, this provision is likely to mean that Federal
Reserve Bank credit will not be extended beyond the limitations in this
provision.
CAPITAL ADEQUACY GUIDELINES
The FRB has adopted risk-based capital requirements for member banks and bank
holding companies which require a minimum risk-based capital ratio of 8.00% (at
least 4% in the form of Tier 1 capital). "Tier 1" capital excludes goodwill 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, allowance for
loan losses. General loan loss reserves can make up no more than 1.25% of risk-
weighted assets.
10
<PAGE>
The requirements make regulatory capital requirements more sensitive to the
differences in risk profiles among banking institutions, take off-balance sheet
items into account when assessing capital adequacy and minimize disincentives to
holding liquid low-risk assets. In addition, the requirements may require some
banking institutions to increase the level of their common shareholders' equity.
The Company's total risk-based capital ratio at December 31, 1995 was 17.29%.
The guidelines have not had a material adverse effect on the Company's financial
condition or results of operations to date. In the fourth quarter, 1993 the
Company raised $10.1 million in new capital to ensure continuing compliance with
capital guidelines.
The FRB has also instituted minimum leverage ratio guidelines for state member
banks. The leverage ratio guidelines require maintenance of a minimum ratio of
4% Tier 1 capital to total assets for the most highly rated bank holding company
organizations. Institutions that are less highly rated, anticipating significant
growth or subject to other significant risks will be required to maintain
capital levels ranging from 1% to 2% above the 4% minimum. The Company's
leverage ratio at December 31, 1995 was 10.99%. See "Management's Discussion and
Analysis - Liquidity and Capital Resources".
THE COMMUNITY DEVELOPMENT BANKING BILL
In September, 1994 President Clinton signed into law The Community Development,
Credit Enhancement and Regulatory Improvement Act of 1994 which contains
provisions concerning high cost and reverse mortgages, bank regulation,
community development banking, money laundering and national flood insurance.
Community Development and Financial Institutions Act of 1994.
This bill authorizes spending $382 million over four years under the auspices of
the Community Development Financial Institutions Fund, a wholly-owned government
corporation, to fund federal matching grants to expand a fledgling network of
community-development institutions and to fund the Bank Enterprise Act of 1991
to encourage bank and thrift investment in qualified distressed communities.
National Flood Insurance Reform Act. These provisions increase the
responsibility of mortgage lenders to ensure that homeowners in flood plains
have purchased flood insurance. The bill also contains a program to encourage
communities to mitigate future flood damage.
INTERSTATE BANKING
THE RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") was signed by President
Clinton in September 1994. Generally, provisions of this Act authorize
interstate banking and interstate branching, subject to certain state options.
Interstate acquisition of banks will be permitted in all states on and after
September 29, 1995; state law cannot vary this rule. However, states may
continue to prohibit acquisition of banks that have been in existence less than
five years and interstate chartering of new banks.
11
<PAGE>
Interstate mergers of affiliated or unaffiliated banks will be permitted June 1,
1997, unless a state adopts legislation before June 1, 1997 to "opt out" of
interstate merger authority, provided any limitations do not discriminate
against out-of-state banks. Individual states may enact legislation to permit
interstate mergers earlier than that date.
Interstate acquisition of branches will be permitted to a bank only if the law
of the state where the branch is located expressly permits interstate
acquisition of a branch without acquiring the entire bank.
Interstate de novo branching will be permitted to a bank only if a state adopts
legislation to "opt in" to interstate de novo branching authority.
Limitations on Concentrations. An interstate banking application may not be
approved if the applicant and its depository institution affiliates would
control more than 10% of insured deposits nationwide or more than 30% of insured
deposits in the state in which the bank to be acquired is located. These limits
do not apply to mergers solely between affiliates. States may waive the 30% cap
on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market
share of a depository institution and its affiliates are not affected.
Agency Authority. A bank subsidiary of a bank holding company will be authorized
to receive deposits, renew time deposits, close loans, service loans and receive
payments on loans as an agent for a depository institution affiliate without
being deemed a branch of the affiliate. A bank will not be permitted to engage,
as an agent for an affiliate, in any activity as agent that it could not conduct
as a principal, or to have an affiliate, as its agent, conduct any activity that
it could not conduct directly, under federal or state law.
Host State Regulation. Out-of-state banks seeking to acquire or establish a
branch will be required to comply with any nondiscriminatory filing requirements
of the host state where the branch is located. The host state may set
notification and reporting requirements for a branch of an out-of-state bank. A
branch of an out-of-state bank will be subject to all of the laws of the host
state regarding intrastate branching,consumer protection,fair lending and
community reinvestment. A branch of an out-of-state bank will not be permitted
to conduct any activities at the branch which are not permissible for a bank
chartered by the host state.
Community Reinvestment Act. Community Reinvestment Act ("CRA") evaluations will
be required for each state in which an interstate bank has a branch. Interstate
banks will be prohibited from using out-of-state branches "primarily for the
purpose of deposit production." Federal banking agencies are required to adopt
regulations by June 1, 1997 to ensure that interstate branches are being
operated with a view to the needs of the host communities.
Foreign Banks. Foreign banks will be able to branch to the same extent as U.S.
domestic banks. Interstate branches acquired by foreign banks will be subject to
the CRA to the extent the acquired branch was subject to CRA before the
acquisition.
California Law. On September 28, 1995, California's Governor Wilson signed a
bill enacting state legislation in accordance with the authority under the
Riegle-Neal Act. This new state law permits banks headquartered outside
California to acquire or merge with California banks that have
12
<PAGE>
been in existence for at least five years, and thereby establish one or more
California branch offices. An out-of-state bank may not enter California by
acquiring one or more branches of a California bank or other operations
constituting less than the whole bank. The law authorizes waiver of the 30%
limit on state-wide market share for deposits as permitted by the Riegle-Neal
Act. This law also authorizes California state-licensed banks to conduct certain
banking activities (including receipt of deposits and loan payments and
conducting loan closings) on an agency basis on behalf of out-of-state banks and
to have out-of-state banks conduct similar agency activities on their behalf.
Before this new legislation, California law allowed California banks and bank
holding companies to be acquired by banking organizations in other states on a
reciprocal basis (i.e., provided the other state's laws permitted California
banking organizations to acquire banking organizations in that state on
substantially the same terms and conditions applicable to banking organizations
whose operations were principally conducted within the state).
Exposure to and Management of Risk - The FRB and OCC have announced proposals to
examine bank holding companies and national banks with respect to their exposure
to and management of different categories of risk. Categories of risk identified
by the FRB include legal risk, operational risk, market risk, credit risk,
liquidity risk and reputation risk. Categories of risk identified by the OCC
include interest rate risk, price risk, foreign exchange risk, transaction risk,
compliance risk, strategic risk, credit risk, liquidity risk, and reputation
risk. If adopted, this approach would cause bank regulators to focus on risk
management procedures, rather than simply examining every asset and transaction.
This approach, if adopted, would supplement rather than replace existing rating
systems based on evaluation of an institution's capital, assets, management,
earnings and liquidity. Although the FDIC has not announced its intention to
adopt this approach to risk evaluation, it is likely that the different bank
regulatory agencies will eventually adopt similar approaches to this issue. No
assurance can be given as to the effect, if any, that this examination approach
would have on the Company.
IMPACT OF ECONOMIC CONDITIONS AND MONETARY POLICIES
The earnings and growth of the Company are and will be affected by general
economic conditions, both domestic and international, and by the monetary and
fiscal policies of the United States Government and its agencies, particularly
the FRB. One function of the FRB is to regulate the national supply of bank
credit in order to mitigate recessionary and inflationary pressures. Among the
instruments of monetary policy used to implement those objectives are open
market transactions in United States Government securities, changes in the
discount rate on borrowings and changes in reserve requirements held by
depository institutions. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. However, the effect, if any, of such
policies on the future business and earnings of the Company cannot be accurately
predicted.
NEW ACCOUNTING PRONOUNCEMENTS
In May 1993 the Financial Accounting Standards Board ("FASB") issued
13
<PAGE>
Statement of Financial Accounting Standards ("FAS") No. 114 "Accounting by
Creditors for Impairment of a Loan" and in October 1994 also issued FAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures". FAS No. 114 and FAS No. 118 provide in part that if it is probable
that a creditor is unable to collect all amounts due according to the
contractual terms of a loan, future cash flows from the loan should be
discounted at the loan's effective interest rate and the resultant present value
amount should be compared with the loan's current carrying amount to determine
if there is impairment to be recognized. The Company has adopted FAS No. 114 and
FAS No. 118 for the year ended December 31, 1995.
On December 31, 1994 the Bank adopted FAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments". Under certain
circumstances, the Bank will structure variable rate loans to include embedded
interest rate floors. Such floors are designed to mitigate interest rate risk to
the Bank in a declining interest rate environment. As of December 31, 1995, the
Bank had outstanding loans totalling $54.0 million that were subject to interest
rate floors.
In March 1995, the FASB issued FAS No. 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
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 No. 122, "Accounting for Mortgage Servicing
Rights". This statement amends FAS No. 65 "Accounting for Certain Mortgage
Banking Activities", to require that, for mortgage loans originated for sale,
rights to service these 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 value of those rights.
The Company is required to adopt FAS No. 121 and FAS No. 122 for the year ended
December 31, 1996. Based on the information available as of December 31 1995 and
managements interpretation of FAS No. 121 and FAS No. 122, the statements will
not have a material effect on its financial statements.
In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based
Compensation" which permits a company to choose either a new fair value based
method of accounting for its stock-based compensation (stock options), or the
current Accounting Principles Board Opinion 25 (APB 25) intrinsic value based
method of accounting for its stock based compensation. FAS No. 123 requires pro-
forma disclosures of net income and earnings per share computed as if the fair
value based method had been applied in financial statements of companies that
continue to follow current practice in accounting for such arrangements under
APB 25. The Company has decided it will not adopt the recognition provisions of
FAS No. 123 but will adopt the disclosure requirements in 1996.
LEGISLATION AND PROPOSED CHANGES
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible
14
<PAGE>
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory agencies. No prediction can be made as to the
likelihood of any major changes or the impact such changes might have on the
Company. Certain changes of potential significance to the Company which have
been enacted recently or others which are currently under consideration by
Congress or various regulatory or professional agencies are discussed below.
ITEM 2 - PROPERTIES
The Company's office, together with the Bank's corporate headquarters, is
located in a multi-story office building at 2101 Webster Street, Oakland,
California. The Bank occupies approximately 19,000 rentable square feet of space
on the 14th floor under a sublease with a term of six years five months,
commencing April 7, 1991 and ending on September 6, 1996. Various support and
operating functions were relocated to this space in April, 1991.
The headquarters banking office is located on the ground floor of 2101 Webster
Street, Oakland, California. The headquarters banking office occupies
approximately 2,830 rentable square feet of ground floor space. The lease with
respect to this space provides for a term of ten years ending April 30, 2004.
The lease with respect to the ground floor at 2101 Webster Street includes the
second floor premises of approximately 21,587 square feet to be occupied by the
Bank upon termination of the sub-lease for the 14th floor on September 6, 1996.
The lease with respect to this space commences on September 7, 1996 and ends on
April 30, 2004.
A regional office of the Bank is located at 2999 Oak Road, Walnut Creek,
California; the Bank leases approximately 6,810 square feet on the ground floor
of a multi-story office building. The lease provides for a term of ten years
ending on June 30, 2004; the Bank has two options to renew for five year
periods.
An office of the Bank is located at 2251 Alvarado Street, San Leandro,
California; the Bank leases approximately 3,500 square feet on the lobby level
of a one story office building for a term ending in December of 1996 with one
option to renew for an additional period of five years.
An office of the Bank is located at 2201 Walnut Avenue, Fremont, California. The
Bank has a lease agreement for 2,824 square feet of space for a term ending
January 1, 2001 with one option to renew for a period of five years.
On April 30, 1992 the Bank assumed a lease for the Rossmoor Office, located at
1940 Tice Valley Boulevard, Walnut Creek. This space includes 6,900 square feet
of frontage space located in a shopping center known as the Rossmoor Shopping
Center. The lease term ends December 31, 1998.
Rental expense for all leases of premises was approximately $955,000 for the
year ended December 31, 1995. Rental expense for leases of premises for 1996 is
estimated to be approximately $1.0 million.
15
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
From time to time the Company is party to claims and legal proceedings arising
in the ordinary course of business. After taking into consideration information
furnished by counsel to the Company as to the current status of various claims
and proceedings to which the Company is a party, management is of the opinion
that the ultimate aggregate liability represented thereby, if any, will not have
a material adverse effect on the consolidated financial condition or results of
operations of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote of
security holders of the Company through solicitation of proxies or otherwise.
16
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is listed on the Nasdaq National Market
quotation service under the symbol "CIVC".
The following table sets forth the high and low sales prices for the
Company's Common Stock based on information obtained from Nasdaq. These
prices reflect high and low sale prices reported during the periods
specified.
<TABLE>
<CAPTION>
Sales Price
------------------
High Low
-------- -------
<S> <C> <C>
1994
- ----
First Quarter.......................... $6.25 $4.75
Second Quarter......................... 5.50 4.63
Third Quarter.......................... 5.63 5.25
Fourth Quarter......................... 6.13 5.25
1995
- ----
First Quarter.......................... $6.88 $5.50
Second Quarter......................... 7.44 6.25
Third Quarter.......................... 8.13 7.00
Fourth Quarter......................... 7.84 6.88
1996
- ----
First Quarter (through March 1, 1996).. 7.63 6.84
</TABLE>
As of March 1, 1996, the shares of the Company were held by approximately 1,100
shareholders.
The Company has never declared a cash dividend on the Common Stock. Payments
of future dividends will be subject to the discretion of the board of
directors and will depend upon the elimination of the accumulated deficit,
regulatory restrictions on cash dividends, the Company's earnings, financial
condition, capital requirements, and such other factors as the board of
directors deems appropriate.
As a bank holding company without significant assets other than its equity
interest in the Bank, the Company's ability to pay dividends to its
shareholders primarily depends upon dividends and management fees it
receives from the Bank. Such dividends are subject to certain limitations.
See "Regulation and Supervision-The Bank" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Regulatory
Agreements".
17
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data of
the Company for each year of the five-year period ended December 31, 1995 and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, and with the consolidated
financial statements presented herein.
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992 1991
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in Thousands
except per share data)
Results of Operations:
Interest income $ 20,868 $ 18,296 $ 19,073 $ 26,544 $ 32,243
Interest expense 5,036 4,876 6,499 10,315 15,390
Net interest income 15,832 13,420 12,574 16,229 16,853
Provision for loan losses 2,565 375 825 5,540 3,050
Other income 1,096 1,505 1,955 1,829 1,132
Other expense 11,218 12,068 26,162 17,324 12,566
Income (loss) from
continuing operations
before income taxes 3,145 2,482 (12,458) (4,806) 2,369
Provision for income
taxes (benefit) 135 25 - (1,719) 698
Net income (loss) from
continuing operations 3,010 2,457 (12,458) (3,087) 1,671
Discontinued operations - (647) (434) 67 14
Net income (loss) $ 3,010 $ 1,810 $(12,892) $(3,020) $ 1,685
- --------------------------------------------------------------------------------------------------
Per-Share Data:
Net income (loss) per share
from continuing operations $ .67 $ .55 $(4.49) $(1.23) $ .68
Net (loss) income from
discontinued operations - (.14) (.16) .02 .01
Net income (loss) per share .67 .41 (4.65) (1.21) .69
Book value per share $ 6.54 $ 5.86 $ 5.45 $11.18 $12.38
Average shares
outstanding 4,516,478 4,454,784 2,773,273 2,505,517 2,433,036
- --------------------------------------------------------------------------------------------------
Balance Sheet at December 31:
Assets $250,839 $261,060 $263,598 $360,005 $382,660
Loans 154,696 154,716 172,496 224,447 264,952
Deposits 220,098 233,831 237,508 320,918 348,446
Shareholders' equity $ 29,360 $ 26,045 $ 24,231 $ 28,001 $ 31,021
- ---------------------------------------------------------------------------------------------------
Financial Ratios:
Return on average assets 1.23% .70% (4.18)% (.78)% .47%
Return on average
shareholders' equity 10.92% 7.25% (51.83)% (10.33)% 5.51%
Average shareholders'
equity to average assets 11.22% 9.69% 8.07% 7.58% 8.55%
- ---------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company reported net income of $3.0 million or $.67 per share for the year
ended December 31, 1995, compared to a net income of $1.8 million or $.41 per
share for the year ended December 31, 1994. The increase in net income resulted
from an increase in net interest income and a reduction in non-interest expenses
the benefits of which were partially offset by an increase in the provision for
loan losses.
The Company reported net income of $1.8 million or $.41 per share for the year
ended December 31, 1994, compared to a net loss of $12.9 million or $(4.65) per
share for the year ended December 31, 1993. The increase in net income was due
to a reduction in non-interest expenses associated with foreclosed assets
incurred in 1993.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income represents the excess of interest
income and loan fees earned by the Company on its earning assets over the
interest expense paid on its interest-bearing liabilities and other borrowed
money. Interest income is the Company's primary source of income. Net interest
income as a percentage of average earning assets is referred to as net interest
margin.
The level of net interest income is affected by the levels and mix of both
interest-earning assets and interest-bearing liabilities as well as changes in
interest rates. During periods of rapidly changing interest rates, the Company's
earnings can be significantly affected, as interest rates on the majority of its
earning assets reflect changes in interest rates immediately, while the interest
rates paid on liabilities, such as time certificates of deposit, change only at
the maturity of the deposit certificate.
Net interest income for 1995 totalled $15.8 million compared to $13.4 million
for 1994. Total interest income increased $2.6 million primarily due to an
increase in the rate earned on earning assets which increased 112 basis points
to 9.21% from 8.09% for 1994. Average earning assets were essentially consistent
at $226.6 million and $226.2 million for 1995 and 1994, respectively. Interest
expense increased $160,000 to $5.0 million in 1995 from $4.9 million in 1994 as
the increase in the rate paid on interest bearing deposits was offset by a
decline in the volume of interest bearing deposits. Average interest bearing
liabilities declined $16.6 million to $150.3 million in 1995 from $166.9 million
in 1994 while the rate paid on interest bearing deposits increased 43 basis
points to 3.35% for 1995 from 2.92% in 1994.
Net interest income for 1994 totalled $13.4 million compared to $12.6 million
for 1993. Total interest income decreased $777,000 to $18.3 million in 1994
compared to $19.1 million in 1993 primarily due to a decline in the volume of
earning assets which was offset by an increase on the rate earned on earning
assets. Average earning assets declined $27.2 million to $226.2 millon in 1994
from $253.4 million in 1993. Average loans, the largest component of earning
assets declined $39.6 million due to a decline in loan demand as a result of the
economic recession and the Company's decision to curtail real estate
construction lending. The average rate earned on earning assets increased 56
basis points to 8.09% for 1994 from 7.53% for 1993. Total interest expense for
1994 declined $1.6 million to $4.9 million from $6.5 million due to the
decreased volume of interest-bearing liabilities. Average interest bearing
liabilities declined $48.8 million to $166.9 million from $215.7 million for
1993. The decline in interest bearing liabilities included a reduction in
average borrowing of $11.4 million for 1994 to $.5 million from $11.9 million in
1993. The average rate paid on interest bearing liabilities was 2.92% in 1994 as
compared to 3.01% in 1993.
19
<PAGE>
The net interest margin increased to 6.99% for 1995 from 5.93% for 1994 due to a
greater increase in the rate earned on earning assets of 112 basis points as
compared to the increase in the rate paid on interest bearing deposits of 43
basis points.
The net interest margin for 1994 increased 97 basis points to 5.93% for 1994
from 4.96% for 1993. The increase was primarily attributed to the increase in
the rate earned on earning assets which increased 56 basis points while the rate
paid on interest bearing liabilities fell 9 basis points.
20
<PAGE>
The following table presents an analysis of the components in net interest
income for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------- ----------------------------- ---------------------------------
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/Earned/ Average Income/ Earned/
Balance Expense/2/ Paid Balance Expense/2/ Paid Balance Expense/2/ Paid
--------------------------------- ----------------------------- ---------------------- ---------
ASSETS (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Time deposits-other financial
institutions $ - $ - . -% $ 332 $ 9 2.71%$ 1,908 $ 48 2.52%
Securities available for sale
for sale 10,438 648 6.21 11,912 491 4.12 - - -
Securities held to maturity
U.S. Treasury securities 12,694 707 5.57 24,347 1,053 4.32 38,390 1,428 3.72
U.S. Government agency/CMO's 41,299 2,728 6.61 15,472 912 5.89 2,837 171 6.03
Municipal securities/1/ 151 10 6.35 1,142 74 6.49 2,079 131 6.30
Other securities 2,470 146 5.91 1,989 104 5.23 1,915 70 3.66
Federal funds sold 10,846 630 5.81 10,927 464 4.25 6,598 185 2.80
Loans/2, 3/
Commercial 68,358 7,672 11.22 77,428 7,414 9.58 104,489 9,246 8.85
Real estate - construction 4,804 491 10.23 9,677 773 7.99 14,136 1,592 11.26
Real estate - other 56,679 5,843 10.31 50,359 5,070 10.07 54,841 4,202 7.66
Installment and other 18,823 1,993 10.59 22,599 1,932 8.55 26,189 2,000 7.64
-------- ------- ----- -------- ------- -------------- ------- -----
Loans - net 148,664 15,999 10.76 160,063 15,189 9.49 199,655 17,040 8.53
-------- ------- ----- -------- ------- -------------- ------- -----
Total Earning Assets 226,562 20,868 9.21 226,184 18,296 8.09 253,382 19,073 7.53
-------- ------- -------- ------- -------- -------
Cash and due from banks 16,007 16,047 19,828
Leasehold improvements and
equipment 1,947 2,197 2,516
Interest receivable and
other assets 4,064 5,323 7,735
Assets held for sale 290 348 674
Foreclosed assets 761 1,512 10,498
Discontinued operations/4/ - 9,762 18,481
Less allowance for loan
losses (3,990) (3,953) (4,881)
-------- -------- -------
TOTAL ASSETS $245,641 $257,420 $308,233
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY
LIABILITIES:
Deposits:
Interest-bearing:
Checking $ 21,499 240 1.12 $ 22,233 279 1.25 $ 23,032 381 1.65
Money market 82,403 2,665 3.23 91,277 2,647 2.90 106,265 3,002 2.83
Time and savings 46,227 2,120 4.59 52,880 1,932 3.65 74,494 2,733 3.67
Other borrowed funds 181 11 6.01 513 18 3.58 11,910 383 3.22
-------- ------- -------- ------- -------------- ------- -------
Total Interest-Bearing
Liabilities 150,310 5,036 3.35 166,903 4,876 2.92 215,701 6,499 3.01
-------- ------- -------- ------- -------- -------
Demand deposits 66,372 64,888 66,333
Other liabilities 1,394 673 1,326
Shareholders' equity 27,565 24,956 24,873
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $245,641 $257,420 $308,233
======== ======== ========
Net Interest Income $15,832 $13,420 $12,574
======= ======= =======
Net Interest Margin 6.99% 5.93% 4.96%
===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
(1) Tax-exempt interest income has not been adjusted to a fully taxable
equivalent basis. Interest on municipal securities was $10,000, $29,000, and
$74,000 for 1995, 1994 and 1993, respectively.
(2) Non-performing loans have been included in the average loan balances.
Interest income is included on non-accrual loans only to the extent cash
payments have been received.
(3) Interest income includes amortized loan fees on commercial loans of
$428,000, $430,000, and $638,000 for 1995, 1994 and 1993 respectively; fees on
real estate loans of $323,000, $600,000 and $523,000 for 1995, 1994 and 1993
respectively; and fees on installment and other loans of $19,000, $23,000 and
$53,000 for 1995, 1994 and 1993, respectively.
(4) On September 30, 1994 the Bank sold servicing rights and related assets of
its mortgage division. Discontinued operations reflect the assets of mortgage
division. See Note 15 to the consolidated financial statements.
21
<PAGE>
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume change". Net interest income is also affected by changes in yields
earned on interest-earning assets and rates paid on interest-bearing deposits
and other borrowed funds, referred to as "rate change". 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 years ended December 31,
1995 and 1994.
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense
Increase (Decrease) Due to Change in
1995 Over 1994 1994 Over 1993
----------------------------------- -----------------------------------
Average Average Average Average
Volume/1/ Rate/2/ Total Volume/1/ Rate/2/ Total
----------------------------------- -----------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in
interest and fee income:
Time deposits-other
financial institutions $ (9) $ - $ (9) $ (40) $ 1 $ (39)
Securities available
for sale: (61) 218 157 491 - 491
Securities held to maturity:
U.S. Treasury securities (503) 158 (345) (521) 146 (375)
U.S. Government agency/CMO's 1,520 296 1,816 763 (22) 741
Municipal securities/3/ (44) (20) (64) (59) 2 (57)
Other securities 58 (17) 41 4 30 34
Federal funds sold (4) 170 166 121 158 279
Loans:
Commercial (867) 1,125 258 (2,395) 563 (1,832)
Real estate-construction (390) 108 (282) (502) (317) (819)
Real estate-other 636 137 773 (344) 1,212 868
Installment and other (323) 384 61 (274) 206 (68)
------ -------- -------- --------- -------- ----------
Total increase (decrease) $ 13 $ 2,559 $ 2,572 $ (2,756) $ 1,979 $ (777)
------ -------- -------- --------- -------- ----------
Increase (decrease) in
interest expense:
Deposits:
Interest-bearing checking $ (9) $ (30) $ (39) $ (13) $ (89) $ (102)
Money market (257) 275 18 (428) 73 (355)
Savings and time (244) 432 188 (793) (8) (801)
Other borrowed funds (11) 4 (7) (367) 2 (365)
------ -------- -------- --------- --------- ----------
Total increase (decrease) $ (521) $ 681 $ 160 $ (1,601) $ (22) $ (1,623)
------ -------- -------- --------- --------- ----------
Total change in net
interest income $ 534 $ 1,878 $ 2,412 $ (1,155) $ 2,001 $ 846
====== ======== ======== ========= ========= ==========
</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.
22
<PAGE>
Provision for Loan Losses. The provision for loan losses which is charged to
operations is based on the growth of the loan portfolio, the amount of net loan
losses incurred and management's estimation of potential future losses based on
an ongoing evaluation of the portfolio risk and economic conditions. Loan losses
are charged against the allowance when management believes the collectibility of
principal is unlikely.
The provision for loan losses in 1995 was $2,565,000, compared with $375,000 in
1994 and $825,000 in 1993. The increase in the provision in 1995 from 1994 was
due to a special provision in the second quarter of 1995 following the
completion of a regular examination by Federal examiners. Components of the
special provision included amounts attributable to a change in the methodology
of assessing the adequacy of the allowance which included increasing the
provisions for unclassified loans, increasing the provision for loans classified
as "special mention" and downgrading certain classified loans. The decrease in
the provision in the provision in 1994 from 1993 was due to a reduction in the
level of non-performing loans and a reduction in the volume of loans
outstanding. The ratio of the allowance for loan losses to period end loans
equalled 3.21%, 2.08% and 2.53% at December 31, 1995, 1994 and 1993,
respectively.
Net charge-offs were $.8 million, $1.5 million and $1.5 millon in 1995, 1994 and
1993, respectively and represented .55%, .96%, and .77% of average loans
outstanding for 1995, 1994 and 1993, respectively. The decrease in the volume of
net charge-offs was due to an increase in the overall quality of the loans in
the portfolio. See "Analysis of Loan Losses" for further discussion.
Non-Interest Income. Non-interest income for 1995 was $1.1 million as compared
to $1.5 million and $2.0 million for 1994 and 1993 respectively. Customer
service fees were $595,000 for 1995 as compared to $628,000 for 1994 and
$761,000 for 1993. The decline in service fees in 1995 and 1994 was due to the
decline in the number of deposit accounts. Other non-interest income for 1995
was $501,000 as compared to $877,000 and $1,194,000 for 1994 and 1993
respectively. Included in other non-interest income were non-recurring items in
1995 of $132,000 of recoveries relating to the disposition of the mortgage
division, interest earned on income tax refunds of $57,000 and gains on the
disposal of foreclosed assets of $155,000. Non-recurring income in 1994 included
interest earned on income tax refunds of $126,000, rental income on foreclosed
assets of $164,000 and gains on the disposal of foreclosed assets of $415,000.
Non-recurring income in 1993 included gains on the disposal of foreclosed assets
of $592,000 and gains on the disposal of other assets held for sale of $246,000.
Non-Interest Expense. Non-interest expense for 1995 totalled $11.2 million, a
decrease of $850,000 or 7.0% from 1994. Non-interest expense totalled $12.1
million in 1994, a decrease of $14.1 million or 53.9% from 1993.
Salaries and employee benefits in 1995 increased $364,000 or 6.4% from 1994.
Full time equivalent personnel numbered 108 on December 31, 1995 compared to 110
on December 31, 1994. The increase in salaries and employee benefits relates to
accrued severance expenses relating to certain terminated employees and normal
salary increases. FDIC insurance decreased $366,000 or 58.5% to $260,000 for
1995 from $626,000 for 1994 due to a reduction in assessment rates. Expenses
related to foreclosed assets and loss on sales of foreclosed assets declined a
total of $859,000 due to the reduction in foreclosed assets in 1995.
Non-interest expense for 1994 totalled declined $14.1 million or 53.9% to $12.1
million from $26.2 million of 1993. Salaries and employee benefits declined
$354,000 or 5.8% from 1993. Full time equivalent employees were 110 on December
31, 1994 as compared to 115 on December 31, 1993. Occupancy expense decreased
$544,000. In July, 1994 the lease for the main office of the Bank expired and
the office was relocated to the corporate headquarters location. See
"Description of Business - Properties". In conjunction with the relocation, the
master lease on the corporate office was renegotiated which resulted in non-
recurring recapture of deferred rental expense totalling $125,000. In August,
1994 the Concord and Walnut Creek offices were consolidated into one location.
Expenses associated with
23
<PAGE>
foreclosed assets decreased $9.2 million or 90.4% from 1993. Write-downs on
other assets held for sale totalled $39,000 in 1994 compared to $3.2 million in
1993. FDIC insurance premiums decreased $218,000 or 25.6% due to a reduction in
the level of deposits and a reduction in the assessment to $.23 per $100 in
deposits from $.29 per $100 in deposits. See "Regulation and Supervision -
Insurance Premiums and Assessments".
The following table summarizes the significant components of non-interest
expense for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Non-Interest Expense
Dollar Percent
1995 1994 Change Change
--------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and employee benefits........... $ 6,096 $ 5,732 $ 364 6.4%
Occupancy................................ 995 1,076 (81) (7.5)
Equipment................................ 881 912 (31) (3.4)
Goodwill and core deposit amortization... 286 403 (117) (29.0)
Data processing services................. 270 251 19 7.6
FDIC insurance........................... 260 626 (366) (58.5)
Telephone and postage.................... 252 261 (9) (3.4)
Consulting fees.......................... 246 336 (90) (26.8)
Legal fees............................... 202 175 27 15.4
Marketing................................ 189 221 (32) (14.5)
Foreclosed asset expense................. 115 974 (859) (88.2)
Write-down on assets held for sale....... - 39 (39) (100.0)
Other.................................... 1,426 1,062 364 34.3
------- ------- -------- ------
TOTAL................................... $11,218 $12,068 $ (850) (7.0)%
======= ======= ======== ======
</TABLE>
<TABLE>
<CAPTION>
Non-Interest Expense
Dollar Percent
1994 1993 Change Change
--------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Salaries and related benefits............ $ 5,732 $ 6,086 $ (354) (5.8)%
Occupancy................................ 1,076 1,620 (544) (33.6)
Equipment................................ 912 943 (31) (3.3)
Goodwill and core deposit amortization... 403 383 20 5.2
Data processing services................. 251 323 (72) (22.3)
FDIC insurance........................... 626 844 (218) (25.8)
Telephone and postage.................... 261 281 (20) (7.1)
Consulting fees.......................... 336 285 51 17.9
Legal fees............................... 175 239 (64) (26.8)
Marketing................................ 221 142 79 55.6
Foreclosed asset expense................. 974 10,192 (9,218) (90.4)
Write-down on assets held for sale....... 39 3,166 (3,127) (98.8)
Other.................................... 1,062 1,658 (596) (35.9)
------- ------- -------- -----
TOTAL................................... $12,068 $26,162 $(14,094) (53.9)%
======= ======= ======== =====
</TABLE>
Provision for Income Taxes. Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards (FAS) No. 109, "Accounting for
Income Taxes" which changed the accounting for income taxes from a deferred
method to an asset and liability method of computing deferred taxes. Under this
method, deferred taxes are recognized by applying enacted tax rates applicable
to future years to temporary differences between the tax bases of existing
assets and liabilities and the respective carrying values for financial
reporting purposes. Deferred tax assets are subject to a valuation allowance if
it is more likely than not that some of the deferred tax asset will not be
realized. The cumulative effect of the change in accounting for income taxes
for the years ended prior to January 1, 1993 was not material.
Due to the loss incurred in 1993, deferred tax benefits in the form of
operating loss carryforwards were generated. At December 31, 1995 the Company
had approximately $1,080,000 in state net operating loss carryforwards and
$455,000 in tax credits. The Company recorded tax provisions in the amount of
$135,000 and $25,000 for 1995 and 1994, respectively for alternative minimum
taxes. See Note 10 of the Notes to the Consolidated Financial Statements.
24
<PAGE>
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating loss carryforwards
if an "ownership change", as defined in the Internal Revenue Code, has occurred.
Should there be an ownership change, the Company's ability to utilize its
operating loss carryforwards could be significantly limited.
DISCONTINUED OPERATIONS
In the second quarter of 1993, the Bank announced its intention to seek
potential buyers of the mortgage division in San Diego, California and
accordingly, the consolidated statement of operations has been restated to
reflect the mortgage division as a discontinued operation for all periods
presented. See Note 15 of the Notes to the Consolidated Financial Statements.
On September 30, 1994 the Bank entered into an agreement and completed the sale
of servicing rights and related assets of the mortgage division. The sales price
was $3.1 million, subject to certain post-closing contingencies related to
volume and performance of the servicing portfolio.
Included in the results of discontinued operations for 1994 is a loss on the
disposal of approximately $200,000 relative to the sale and included in other
non-interest in 1995 are $132,000 of recoveries resulting from the disposition
certain mortgage division assets. Total revenues for the mortgage division were
$1.7 million in 1994.
FINANCIAL CONDITION
Loans. Commercial loans totalled $70.4 million at December 31, 1995, a decrease
of $3.7 million or 5.1% from December 31, 1994. The decrease is attributed to a
decline in loan demand, loan payoffs and more stringent underwriting
requirements imposed by the Company.
Real estate construction loans as a percentage of total loans outstanding were
2.6% at December 31, 1995 compared to 3.9% at December 31, 1994 and 6.7% at
December 31, 1993. The decrease in real estate construction loans is due to the
decline in the demand for residential real estate and management's decision to
sharply curtail new real estate construction loan commitments.
Risks associated with real estate construction loans are generally considered to
be higher than risks associated with other forms of lending and the net
operating losses experienced by the Company in 1993 were a result of a decline
in the overall real estate market which resulted in foreclosures on collateral
supporting real estate construction loans. The Company is continuing to fund
real estate construction commitments on a limited basis with more stringent
underwriting requirements.
Other real estate loans, consisting of loans for land development and "mini-
perm" loans totalled $61.8 million at December 31, 1995 compared to $53.7
million at December 31, 1994 and $50.0 at December 31, 1993. Mini-perm loans are
generally available for completed commercial and retail projects that are
primarily owner occupied. Mini-perm loans typically have a term of three to five
years and provide for principal and interest payments based on a 15 to 25 year
amortization schedule with a balloon payment due at the end of the term. They
may be made pursuant to a commitment by the Company or, upon satisfaction of
underwriting criteria, at the maturity of a construction loan if the borrower
has been unable to secure permanent financing from other sources. Mini-perm
loans generally are granted based on the rental or lease income stream generated
by the owner occupied business or other tenants of 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.
25
<PAGE>
Installment loans include loans to individuals and business customers. Personal
lines of credit extended to individuals were $3.9 million or 21.1% of total
installment loans at December 31, 1995 compared to $5.9 million or 28.2% at
December 31, 1994. The remainder includes home equity loans, automobile loans
and other personal loans.
The following table summarizes the year end loan balances for the periods shown:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial.................. $ 70,417 $ 74,164 $ 87,235 $131,162 $138,637
Real estate - construction.. 4,067 5,977 11,353 15,633 41,631
Real estate - other......... 61,752 53,715 50,022 48,576 54,346
Installment and other....... 18,460 20,860 23,886 29,076 30,338
-------- -------- -------- -------- --------
Total loans................. $154,696 $154,716 $172,496 $224,447 $264,952
======== ======== ======== ======== ========
</TABLE>
The following table shows the amount of total loans outstanding as of December
31, 1995, both by category of loan, as well as fixed versus floating interest
rate which, based upon remaining scheduled repayments of principal, are due
within the periods indicated.
<TABLE>
<CAPTION>
Maturity of Loans
-------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Commercial.................. $ 66,195 $ 3,253 $ 969 $ 70,417
Real estate - construction.. 4,067 - - 4,067
Real estate - other......... 46,757 10,012 4,983 61,752
Installment and other....... 17,755 500 205 18,460
-------- ------- ------ --------
TOTAL...................... $134,774 $13,765 $ 6,157 $154,696
======== ======= ====== ========
Loans with fixed
interest rates............. $ 3,574 $12,902 $ 5,172 $ 21,648
Loans tied to floating
interest rates............. 131,200 863 985 133,048
-------- ------- ------ --------
TOTAL..................... $134,774 $13,765 $ 6,157 $154,696
======== ======= ====== ========
</TABLE>
The amounts presented in the table represent the contractual maturities of the
related loans and do not consider rollovers (renewals) of loans. The Company
does not have a policy to automatically renew loans, rather it considers the
request for a renewal in substantially the same manner in which it considers the
request for an initial extension of credit.
Foreclosed Assets. Foreclosed assets totalled $ 770,000 at December 31, 1995 as
compared to $600,000 at December 31, 1994, and $5.4 million at December 31,
1993. During 1995, the Company transferred $462,000 in real estate loans to
foreclosed assets compared to $1.7 million during 1994. At December 31, 1995,
other real estate owned consisted of one finished lot and two parcels of raw
land, one totalling 4.7 and the other 7.7 acres.
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 risks 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 judgement 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.
26
<PAGE>
Analysis of the Allowance for Loan Losses. The following table summarizes the
changes in the allowance for loan losses for the periods shown:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year...... $3,216 $4,371 $5,092 $5,104 $3,542
Charge-offs:
Commercial....................... 188 786 579 1,979 506
Real estate - construction....... 884 205 452 1,980 1,148
Real estate - other.............. 33 560 815 1,355 -
Installment and other............ 310 512 372 449 140
------ ------ ------ ------ ------
Total charge-offs............... 1,415 2,063 2,218 5,763 1,794
Recoveries:
Commercial....................... 336 399 485 203 306
Real estate - construction....... 144 1 - - -
Real estate - other.............. 34 116 143 - -
Installment and other............ 80 17 44 8 -
------ ------ ------ ------ ------
Total recoveries................ 594 533 672 211 306
------ ------ ------ ------ ------
Net charge-offs................... 820 1,530 1,546 5,552 1,488
Provision charged to operations... 2,565 375 825 5,540 3,050
------ ------ ------ ------ ------
Balance at end of year............ $4,960 $3,216 $4,371 $5,092 $5,104
====== ====== ====== ====== ======
Ratio of net charge-offs to
average loans.................... .55% .96% .77% 2.17% .57%
</TABLE>
The balance in the allowance for loan losses at December 31, 1995 was $5.0
million or 3.21% of total loans compared to $3.2 million or 2.07% of total loans
at December 31, 1994. The allowance for loan losses at December 31, 1993 was
$4.4 million or 2.53% of total loans.
Net charge-offs for the year ended December 31, 1995 totalled $820,000 compared
with $1.5 million in 1994 and $1.5 million in 1993. The decrease in net
chargeoffs was due to an increase in the overall quality of the loans in the
portfolio.
The table below sets forth the allocation of the allowance for loan losses by
loan type and the percentage of loans in each category to total loans as of the
dates specified. Management believes that any breakdown or allocation of the
allowance for loan losses into loan categories lends an appearance of exactness
which does not exist, in that the allowance is utilized as a single unallocated
allowance available for all loans.
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
December 31
1995 1994 1993
---------------- ----------------- ------------------
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial........................ $2,487 45.5% $1,625 47.9% $2,456 50.6%
Real estate - construction........ 95 2.6 285 3.9 615 6.6
Real estate - other............... 1,833 40.0 885 34.7 683 29.0
Installment and other............. 545 11.9 421 13.5 617 13.8
------ ----- ------ ----- ------ -----
Total............................ $4,960 100.0% $3,216 100.0% $4,371 100.0%
====== ===== ====== ===== ====== =====
Allocation of the Allowance for Loan Losses
December 31
1992 1991
---------------- -----------------
Amount % Amount %
(Dollars in thousands)
Commercial........................ $1,938 58.4% $2,286 52.3%
Real estate - construction........ 1,545 7.0 1,675 15.7
Real estate - other............... 1,041 21.6 518 20.5
Installment and other............. 568 13.0 625 11.5
------ ----- ------ -----
Total............................ $5,092 100.0% $5,104 100.0%
====== ===== ====== =====
</TABLE>
The Company conducts a systematic detailed review of the loan portfolio on an
ongoing basis. Considering historical experience, management's evaluation of
current economic conditions, the detailed review of the loan portfolio and
trends in the overall level of delinquent and
27
<PAGE>
classified loans, management believes the allowance for loan losses was adequate
at December 31, 1995.
Non-Performing Assets. The Company's policy is to recognize interest income on
an accrual basis unless the full collectibility of the principal and interest is
uncertain. Loans are placed on a nonaccrual status when principal or interest is
90 days past due and any accrued but uncollected interest is reversed, unless
the loans are well secured and in the process of collection. Thereafter interest
is recognized on a cash basis as it is collected. A non-accrual loan may be
returned to accrual status when all delinquent principal and interest are
brought current and the loan is judged by management to be fully collectable.
The Company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" as amended by Statement of
Financial Accounting Standards No. 118 (collectively referred to as FAS 114) on
January 1, 1995. FAS 114 requires entities to measure certain impaired loans
based on the present value of future cash flows discounted at the loan's
effective interest rate or at the loan's market value or the fair value of the
collateral, if the loan is secured. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. If the measurement of the
impaired loan is less than the recorded investment in the loan, impairment is
recognized by creating or adjusting the existing allocation of the allowance for
loan losses. Impaired loans are treated as nonaccrual loans for accounting and
reporting purposes. For the year ended December 31, 1995, interest income that
would have been recorded on nonaccrual loans had they performed in accordance
with their original terms was $244,000. There was no interest income recognized
on nonaccrual loans in 1995.
The following table provides information with respect to all non-performing
assets.
<TABLE>
<CAPTION>
Non-Performing Assets
December 31
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans 90 days or more
past due and still accruing.... $ 325 $ 491 $1,774 $ 3,650 $ 760
Non-accrual and impaired loans 2,859 3,412 1,978 5,058 1,092
Other assets held for sale...... 275 306 489 - -
Foreclosed assets............... 770 600 5,389 21,160 17,569
------ ------ ------ ------- -------
Total non-performing assets.... $4,229 $4,809 $9,630 $29,868 $19,421
====== ====== ====== ======= =======
Non-performing assets to
period end loans plus other
real estate owned and
foreclosed assets ............. 2.70% 3.09% 5.40% 12.16% 7.33%
==== ==== ==== ===== ====
</TABLE>
The decrease in non-performing assets at December 31, 1995 compared to December
31, 1994 is due to the decline in non-accrual and impaired assets. The decrease
in non-performing assets at December 31, 1994 compared to December 31, 1993 is
due to the decline in foreclosed assets and loans 90 days or more past due and
still accruing. During 1995, the Company transferred $460,000 in real estate
loans to foreclosed assets compared to $1.7 million in 1994.
Non-accrual loans included $2.3 million in real estate loans, $470,000 in
commercial loans, and $69,000 in consumer loans. Loans past due 90 days or more
and still accruing included two commercial loans. In management's opinion, there
are no loans included in loans past due 90 days or more and still accruing on
December 31, 1995 that present significant exposure to the Company because they
are well secured and in process of collection.
Potential Problem Loans. At December 31, 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
28
<PAGE>
or 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 Bank invests excess funds in a variety of instruments
in order to manage liquidity and enhance profitability. A portion of available
funds are invested in liquid investments such as overnight federal funds with
the balance invested in investment securities such as U.S. Treasury and Agency
securities, as well as tax-exempt municipal bonds. See "Liquidity".
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. See Note 1 of the Notes to the
Consolidated Financial Statements.
The composition of the Company's portfolio of securities available for sale,
securities held to maturity and other securities is shown in the table below at
book value.
<TABLE>
<CAPTION>
Securities Available for Sale
----------------------------------
December 31
1995 1994 1993
------ ------ -------
(In thousands)
<S> <C> <C> <C>
U. S. Treasury obligations...... $ 5,011 $ 9,965 $10,120
Obligations of governmental
agencies....................... 5,010 - -
------- ------- -------
Total........................... $10,021 $ 9,965 $10,120
======= ======= =======
<CAPTION>
Securities Held to Maturity
----------------------------------
December 31
1995 1994 1993
------ ------ -------
(In thousands)
<S> <C> <C> <C>
U. S. Treasury obligations...... $10,756 $19,838 $28,227
Obligations of governmental
agencies....................... 40,272 37,738 -
Collateralized mortgage
obligations.................... 171 205 292
Municipal securities............ - 229 1,868
------- ------- -------
Total........................... $51,199 $58,010 $30,387
======= ======= =======
<CAPTION>
Other Securities
----------------------------------
December 31
1995 1994 1993
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Federal Reserve Bank stock...... $ 823 $ 725 $ 927
Federal Home Loan Bank stock.... 813 826 1,118
------- ------- -------
Total........................... $ 1,636 $ 1,551 $ 2,045
======= ======= =======
</TABLE>
As a result of losses incurred in 1992 and 1993, the Company cannot utilize tax
benefits arising from investing in tax exempt municipal securities. As
municipal securities matured, the funds were invested in taxable securities.
The following tables summarize the maturities and yields of the Company's
investment securities at December 31, 1995. Yields have been computed by
dividing annual interest income, adjusted for amortization of premium and
accretion of discount, by the average book value of the securities. Yields on
tax-exempt securities have not been adjusted to a fully tax equivalent basis.
There were no scheduled maturities greater than ten years.
<TABLE>
<CAPTION>
Securities Available for Sale
Maturing
----------------------------------------------------------------------
After One
Within But Within After
<S> <C> <C> <C>
</TABLE>
29
<PAGE>
<TABLE>
One Year Five Years Five Years Total
------------------- -------------- --------------- ---------------
(Dollars in thousands)
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations.... $ 5,011 6.85% $ - . - $ - . -% $ 5,011 6.85%
Obligations of governmental
agencies................... 5,010 5.79 - . - - . - 5,010 5.79
-------- ---- ----- ------ ------ ------ -------- -----
Total........................ $10,021 6.32% $ - . -% $ - . -% $10,021 6.32%
======== ==== ===== ====== ====== ====== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Securities Held to Maturity
Maturing
--------------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
------------------ --------------- ------------- ----------------
(Dollars in thousands)
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations. $ - . -% $10,756 6.13% $ - . -% $10,756 6.13%
Obligations of
governmental agencies....... 19,224 6.02 21,048 7.29 - . - 40,272 6.68
Collateralized mortgage
obligations................. - . - - . - 171 8.89 171 8.89
------- ---- ------- ---- ---- ---- ------- ----
Total........................ $19,224 6.02% $31,804 6.90% $171 8.89% $51,199 6.57%
======= ==== ======= ==== ==== ==== ======= ====
</TABLE>
As of December 31, 1995 securities of no single issuer in the investment
portfolio exceeded ten percent of the Company's shareholders' equity.
Deposits. The table below sets forth certain information regarding trends in the
Bank's average deposits for 1995, 1994, and 1993.
<TABLE>
<CAPTION>
Deposits
----------------------------------------------------
Year Ended December 31
1995 1994 1993
-------------- ---------------- ----------------
Amount % Amount % Amount %
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand............ $ 66,372 30.7% $ 64,888 28.0% $ 66,333 24.6%
Interest-bearing
checking......... 21,499 9.9 22,223 9.6 23,032 8.5
Money market...... 82,403 38.0 91,277 39.5 106,265 39.3
Savings and time.. 46,227 21.4 52,880 22.9 74,494 27.6
-------- ----- -------- ----- -------- -----
Total............ $216,501 100.0% $231,268 100.0% $270,124 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Average deposits decreased $14.8 million or 6.4% in 1995 to $216.5 million from
$231.3 million in 1994 and decreased $38.8 million or 14.4% from 1993 of $270.1
million. The decline in deposits is attributed to a decline in market rates of
interest paid for deposits and a reduction in average deposits maintained by
various loan customers. Average loans outstanding declined $11.4 million or
7.1% in 1995 and $39.6 million or 19.8% in 1994 compared to 1993. These loan
customers also had established deposit relationships which decreased as loans
were reduced or paid off.
Average time certificates of deposit over $100,000 constituted 13.8%, 12.4%, and
11.9% of total average deposits for 1995, 1994, and 1993, respectively. Average
public time deposits constituted 2.0%, 2.1%, and 3.4% of average total deposits
for 1995, 1994, and 1993, respectively. All public time certificates of deposit
are from local government agencies located in Alameda and Contra Costa counties.
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.
The Company has never had brokered deposits and does not intend to solicit such
deposits.
At December 31, 1995, certificates of deposit over $100,000 totalling $29.1
million or 13.2% of total deposits were scheduled to mature within a year. At
December 31, 1994, certificates of deposit over $100,000 totalling $17.0 million
or 7.3% of total deposits were scheduled
30
<PAGE>
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.
Time certificates of deposit over $100,000 or more at December 31, 1995 had the
following schedule of maturities.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less................... $21,265
Over three months through six months... 6,324
Over six months through twelve months.. 1,549
Over twelve months..................... 553
-------
Total................................. $29,691
=======
</TABLE>
Interest Rate Sensitivity. The operating income and net income of the Company
depend to a substantial extent on "rate differentials", i.e., the difference
between the income the Company receives from loans, securities and other earning
assets, and the interest expense it pays on deposits and other liabilities.
The interest rate sensitivity of the Company is measured over time and is based
on the Company's ability to reprice its assets and liabilities. The opportunity
to reprice assets in the same dollar amounts and at the same time as liabilities
would minimize interest rate risk in any interest rate environment. The
difference between the amount of assets and liabilities repriced at the same
time is referred to as the "gap". This gap represents the risk, or opportunity,
in repricing. If more assets than liabilities are repriced at a given time in a
rising rate environment, net interest income would improve, and in a declining
rate environment, net interest income would deteriorate. If more liabilities
than assets are repriced under the same conditions, the opposite results would
prevail. The Company is asset sensitive and its near term performance will be
negatively affected by falling interest rates and enhanced by rising rates.
The table below sets forth the distribution of repricing of the earning assets
and interest-bearing liabilities for the respective periods at December 31,
1995.
<TABLE>
<CAPTION>
Assets or Liabilities Which Mature or Reprice
Next day Over one
and within but within Over
Immediately one year five years five years Total
----------- ---------- ---------- ---------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
U.S. Treasury securities. $ - $ 5,011 $10,756 $ - $ 15,767
government agencies. 24,235 21,047 45,282
Collateralized mortgage
obligations................... - - - 171 171
Other securities............... - 1,636 - - 1,636
Federal funds.................. 14,800 - - - 14,800
Loans:
Commercial loans............... - 66,195 3,253 969 70,417
Real estate - construction - 4,067 - - 4,067
Real estate other.............. - 46,757 10,012 4,983 61,752
Installment and other.......... - 17,755 500 205 18,460
------- -------- ------- ------- --------
Total......................... $14,800 $165,656 $45,568 $ 6,328 $232,352
======= ======== ======= ======= ========
Interest-bearing liabilities:
Checking....................... $24,791 $ - $ - $ - $ 24,791
Money market................... - 68,738 - - 68,738
Time and savings............... - 50,873 3,134 - 54,007
------- -------- ------- ------- --------
Total....................... $24,791 $119,611 $ 3,134 $ - $147,536
======= ======== ======= ======= ========
Interest rate sensitivity
gap........................... $(9,991) $ 46,045 $42,434 $ 6,328 $ 84,816
======= ======== ======= ======= ========
Cumulative interest rate
sensitivity gap............... $(9,991) $ 36,054 $78,488 $84,816
======= ======== ======= =======
Interest rate sensitivity
gap ratio (as percent of
Total earning assets)......... (4.30)% 19.82% 18.26% 2.72% 36.50%
</TABLE>
31
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Cumulative interest rate
sensitivity gap ratio
(as percent of total
earning assets).............. (4.30)% 15.52% 33.78% 36.50%
</TABLE>
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 December 31, 1995 and 1994, the Bank had no
outstanding borrowings against these arrangements.
Additionally, the Bank is a member of the Federal Home Loan Bank 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 December 31, 1995 and
December 31, 1994 there were no outstanding advances.
The liquidity position of the Bank as of December 31, 1995 was consistent with
the prior year as cash and cash equivalents provided from operating and
investing activities offset the cash and cash equivalents required by the
decrease in deposit volumes. Cash and cash equivalents provided by operations
and investment activities were $8.3 million and $5.0 million respectively. Cash
and cash equivalents totalling $13.7 million were used in the Company's
financing activities to fund declines in deposit volumes.
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 December 31, 1995,
the Company had a liquidity ratio of 37.6% compared to 36.6% at December 31,
1994.
Part of the Bank's normal lending activity involves making commitments to extend
credit. One risk associated with loan commitments is the demand on the Bank's
liquidity that would result if a significant portion of the commitments were
unexpectedly funded at one time. The Bank assesses the likelihood of projected
funding requirements by reviewing historical patterns, current and forecasted
economic conditions and individual client funding needs. Further, management
maintains unpledged U.S. government securities that are available to secure
additional borrowing in the form of reverse repurchase agreements. At December
31, 1995, U.S. government securities available for reverse repurchase agreements
totalled approximately $44.1 million. Management believes that this provides the
Bank with the necessary liquid assets to satisfy funding requirements in the
unlikely event of substantially higher than projected client funding
requirements.
Capital Resources. Shareholders' equity was $29.4 million at December 31, 1995,
an increase of $3.3 million or 12.7% compared with $26.0 million at December 31,
1994.
A common stock rights offering was completed in November, 1993 as part of a
Restructuring Plan announced by the Company in July, 1993. The offering raised
$10.1 million and resulted in 1,933,143 new shares issued. The net proceeds of
$9.1 million were used to restore capital depleted as a result of write-downs of
non-performing assets.
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 which
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
32
<PAGE>
allowance for loan losses. General loan loss reserves included in Tier 2 capital
cannot exceed 1.25% of risk-weighted assets.
At December 31, 1995, the Company's risk-based capital ratio was 17.29%. The
following table sets forth the Company's regulatory capital position as of
December 31, 1995.
<TABLE>
<CAPTION>
RISK-BASED CAPITAL RATIOS
--------------------------
(Dollars in thousands)
Amount Ratio
-------- -----
<S> <C> <C>
Tier 1 Capital $ 28,102 16.04%
Tier 1 minimum requirement 7,008 4.00
-------- -----
Excess $ 21,094 12.04%
======== =====
Total Capital $ 30,292 17.29%
Total Capital minimum requirement 14,016 8.00
-------- -----
Excess $ 16,276 9.29%
======== =====
Risk-adjusted assets $175,194
========
Leverage ratio 10.99%
Leverage ratio minimum requirement 4.00
-----
Excess 6.99%
=====
</TABLE>
The leverage ratio guidelines effectively require maintenance of a minimum ratio
of 4% Tier 1 capital to total assets for the most highly-rated bank holding
company organizations. The leverage guidelines operate in tandem with and are in
addition to the risk-based ratio requirements. At December 31, 1995, the
Company's leverage ratio was 10.99%. The Company has not been advised by any
regulatory agency that it is deficient with respect to the Tier 1 or the
leverage ratio. Management is unaware of any current recommendations by
regulatory authorities which, if implemented, would have a material adverse
impact on future operating results, liquidity or capital resources.
QUARTERLY DATA
The following table sets forth unaudited data regarding the Company's operations
for each quarter of 1995 and 1994. This information, in the opinion of
management, includes all adjustments necessary to present fairly the Company's
results of operations for such periods, consisting only of normal recurring
adjustments for the periods indicated. The operating results for any quarter are
not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
Dec. 31, Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31,
1995 1995 1995 1995 1994 1994 1994 1994
-------- -------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income... $5,203 $5,142 $5,313 $5,210 $4,916 $4,761 $4,455 $4,164
Total interest expense.. 1,213 1,215 1,303 1,305 1,262 1,204 1,197 1,213
Net interest income..... 3,990 3,927 4,010 3,905 3,654 3,557 3,258 2,951
Provision for loan
losses................ 200 625 1,440 300 150 75 75 75
Net income.............. 985 875 370 780 683 503 323 301
Earnings per share:
Primary............... .22 .19 .08 .18 .16 .11 .07 .07
Fully-diluted......... .22 .19 .08 .18 .16 .11 .07 .07
</TABLE>
REGULATORY AGREEMENTS
On September 16, 1992 the Board of Directors of the Company entered into a
memorandum of understanding with the Federal Reserve Bank of San Francisco
("FRB"). Simultaneously, the board of directors of the Bank entered into a
written agreement with the FRB and a memorandum of understanding with the
California State Banking Department. The boards entered into these agreements to
address certain matters arising from a joint examination conducted by the FRB
and the Superintendent of Banks in March, 1992. On September 7, 1994 the
California State Banking Department terminated the memorandum of understanding
with the Bank. On December 27, 1995 the Federal Reserve Bank terminated the
memorandum with the Company and the agreement with the Bank.
33
<PAGE>
EFFECTS OF INFLATION
Assets and liabilities of financial institutions are principally monetary in
nature. Accordingly, interest rates, which generally move with the rate of
inflation, have a potentially significant effect on the Company's net interest
income. The Company attempts to limit inflation's impact on rates and net income
margins through continuing asset/liability management programs.
34
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Financial Statements and Schedules included on page 36 of this
report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 28, 1994 the Company filed Form 8-K. Deloitte & Touche LLP, independent
public accountants for Civic BanCorp since its inception in 1984, advised the
Company in a letter dated April 28, 1994 that the auditor-client relationship
between Deloitte & Touche LLP and the Company had ceased and the firm declined
to stand for re-election.
None of Deloitte & Touche LLP reports on the financial statements of the Company
for the past two years contained an adverse opinion or disclaimer of opinion, or
was qualified or modified as to uncertainty, audit scope or accounting
principles, except for the adoption of FAS No. 109 and FAS No. 115 in the
Company's 1993 Annual Report on Form 10-K.
In the Company's two most recent fiscal years and the subsequent interim period,
there were no disagreements between the Company and Deloitte & Touche LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report.
In the Company's two most recent fiscal years and subsequent interim period,
there has been no reportable event as described in paragraph (a) (1) (v) of Item
304 of Regulation S-K.
The Company engaged KPMG Peat Marwick LLP as its independent public accountants
by letter dated June 14, 1994 between KPMG Peat Marwick LLP and the Audit
Committee of the Board of Directors of the company. The Company has had no
disagreements with its accountants with respect to accounting principles or
practices of financial statement disclosure.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers of the Company is
incorporated by reference from the section entitled "Election of Directors" of
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 11 - EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference from
the section entitled "Election of Directors - Executive Compensation" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference from the section entitled "Election of
Directors - Security Ownership of Management" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the last fiscal year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference from the section entitled "Election of Directors -
Transactions with Directors and Officers" of the Company's definitive Proxy
Statement to be filed within 120 days after the end of the last fiscal year.
35
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statement Schedule
The following is an index of the financial statements filed in this report:
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Independent Auditors' Report - KPMG Peat Marwick LLP................ F-1
Independent Auditors' Report - Deloitte & Touche LLP................ F-2
Consolidated Balance Sheets as of December 31, 1995
and December 31, 1994............................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1995, December 31, 1994 and December 31, 1993.......... F-4
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1995, December 31, 1994 and
December 31, 1993................................................... F-6
Consolidated Statements of Cash Flow for the years ended
December 31, 1995, December 31, 1994 and December 31, 1993.......... F-7
Notes to Consolidated Financial Statements.......................... F-9
</TABLE>
Information required in the schedules for which provision is made in the
applicable regulations of the Securities and Exchange Commission either is not
applicable or is shown in the Consolidated Financial Statements or Notes
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31,
1995.
(c) Exhibits
The exhibits listed below are filed or incorporated by reference, as part of
this report pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
Exhibit
Number Exhibit
- --------- --------
<S> <C> <C>
3.1 (5) Restated Articles of Incorporation of the Company............. -
3.2 (1) Bylaws of the Company......................................... -
3.3 (2) Amendment to Article Five of bylaws adopted January 20, 1988.. -
3.4 (7) Amendment to Article Four of the bylaws adopted July 15, 1992. -
10.1 (1)* 1984 Stock Option Plan and Form of Stock Option Agreement..... -
10.2 (2)* Amendment to 1984 Stock Option Plan adopted November 20, 1985. -
10.3 (3)* Amendment No. 2 to 1984 Stock Option Plan adopted February
18, 1988...................................................... -
10.4 (3)* Amendment No. 3 to 1984 Stock Option Plan adopted May 7, 1988. -
10.5 (7)* Amendment No. 4 to 1984 Stock Option Plan adopted May 3, 1990. -
10.6 (4) Lease for Bank premises in San Leandro dated December 1, 1986
between Bank and Peterson Investment Co. as lessor............ -
10.7 (6) Lease for bank premises in Oakland dated December 21, 1989
between Bank and Blue Cross of California as sublessor........ -
10.8 (7) Lease for Bank premises in Fremont dated November 14, 1990
between Bank and Fremont Center Associates, a California
general partnership, as lessor.................................. -
10.9 (8) Lease for Bank premises in Rossmoor dated March 29, 1973
between Wells Fargo Bank, Trustee and Rossmoor Bank & Trust..... -
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
-----------
<S> <C> <C>
10.10 Lease for Bank premises in Oakland dated April 13, 1994 between
Bank and Webster Street Partners, Ltd., a California limited
partnership, as lessor...........................................
10.11 Lease for Bank premises in Walnut Creek dated April 15, 1994
between Bank and Oak Court Partners, a California general
partnership, as lessor...........................................
10.12*(8) Employment agreement between the Bank and Herbert C. Foster
dated December 31, 1992.......................................... -
10.13*(9) 1994 Stock Option Plan........................................... -
10.14(10) Servicing Rights and Servicing Contracts Purchase Agreement dated
as of September 1, 1994 between the Bank and United National
Mortgage Corporation............................................. -
10.15(12) 1995 Non-employee Director Stock Option Plan..................... -
10.16(13) CivicBank of Commerce Profit Sharing Retirement Plan
16. (11) Letter dated May 2, 1994 from Deloitte & Touche regarding its
concurrence or disagreement with statements made on report Form
8-K.............................................................. -
21. List of Subsidiaries.............................................
23.1 Consent of KPMG Peat Marwick LLP as to incorporation by reference
of report on financial statements in Form S-8....................
23.2 Consent of Deloitte & Touche LLP as to incorporation by reference
of report on financial statements in Form S-8....................
</TABLE>
* Management contract, compensation plan or arrangement
______________________________________
(1) Incorporated by reference from the exhibits included with the
Form S-1 Registration Statement (Registration Number 2-91493)
previously filed with the Commission.
(2) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31,
1985, previously filed with the Commission.
(3) Incorporated by reference from the exhibits included with the
Company's Form S-8 Registration Statement (Registration Number
33-15783) filed with the Commission on July 13, 1988.
(4) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31, 1986,
previously filed with the Commission.
(5) Incorporated by reference from the exhibits included with the
Company's S-2 Registration Statement (Registration Number
33-31355) filed with the Commission on October 3, 1989.
(6) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 30, 1989,
previously filed with the Commission.
(7) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31, 1990,
previously filed with the Commission.
(8) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31, 1992,
previously filed with the Commission.
(9) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-82460)
previously filed with the Commission.
(10) Incorporated by reference from the exhibits included with the
Form 8-K Current Report dated September 30, 1994.
(11) Incorporated by reference from the exhibits included with the
37
<PAGE>
Form 8-K Current Report dated April 28, 1994.
(12) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-94566)
previously filed with the commission.
(13) Incorapted by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-65309)
previously filed with the commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CIVIC BANCORP
BY:/s/ Herbert C. Foster
-------------------------------------
Herbert C. Foster
President and Chief Executive Officer
DATE: March 20, 1996
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Herbert C. Foster /s/ Gerald J. Brown
- ------------------------------- --------------------------------
Herbert C. Foster Gerald J. Brown
President Chief Financial Officer and
Chief Executive Officer and Principal Accounting Officer
Director
/s/ C. Donald Carr /s/ David L. Cutter
- ------------------------------- --------------------------------
C. Donald Carr, Director David L. Cutter, Director
/s/ John W. Glenn /s/ Paul R. Handlery
- ------------------------------- --------------------------------
John W. Glenn, Director Paul R. Handlery, Director
/s/ Paul C. Kepler /s/ James C. Johnson
- ------------------------------- --------------------------------
Paul C. Kepler, Director James C. Johnson, Director
/s/ Edward G. Mein /s/ Dale D. Reed
- ------------------------------- --------------------------------
Edward G. Mein, Director Dale D. Reed, Director
/s/ Edward G. Roach /s/ Barclay Simpson
- ------------------------------- --------------------------------
Edward G. Roach, Director Barclay Simpson, Director
38
<PAGE>
Date: March 20, 1996
--------------------
39
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors
Civic BanCorp
We have audited the accompanying consolidated balance sheets of Civic BanCorp
and subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
accompanying consolidated statements of operations, changes in shareholders'
equity, and cash flows of Civic BanCorp and subsidiary for the year ended
December 31, 1993 were audited by other auditors whose report thereon dated
January 26, 1994, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1995 and 1994 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Civic
BanCorp and subsidiary as of December 31, 1995 and 1994, and the results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 17, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Shareholders and Board of Directors
Civic BanCorp
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Civic BanCorp and Subsidiary (the
"Company") for the year ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the results of the Company's operations and its cash flows
for the year ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, during 1993 the
Company changed its method of accounting for income taxes and certain
investments in debt and equity securities to conform with Statements of
Financial Accounting Standards No. 109 and No. 115, respectively.
Deloitte & Touche LLP
San Francisco, California
January 26, 1994
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994 (In Thousands Except Shares)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,758 $ 13,730
Federal funds sold 14,800 18,000
-------- --------
Total cash and cash equivalents 31,558 31,730
Securities available for sale 10,021 9,965
Securities held to maturity
(market value of $52,163 and
$56,914, respectively) 51,199 58,010
Other securities 1,636 1,551
Loans:
Commercial 70,417 74,164
Real estate - construction 4,067 5,977
Real estate - other 61,752 53,715
Installment and other 18,460 20,860
-------- --------
Total loans 154,696 154,716
Less allowance for loan losses 4,960 3,216
-------- --------
Loans - net 149,736 151,500
Interest receivable and other assets 3,914 5,293
Leasehold improvements and equipment - net 1,730 2,105
Foreclosed assets 770 600
Other assets held for sale 275 306
-------- --------
TOTAL ASSETS $250,839 $261,060
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Noninterest-bearing $ 73,149 $ 78,024
Interest-bearing:
Checking 24,791 23,388
Money market 68,151 87,216
Time and savings 54,007 45,203
-------- --------
Total deposits 220,098 233,831
Accrued interest and other liabilities 1,381 1,184
-------- --------
Total liabilities 221,479 235,015
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,
4,488,485 and 4,447,945 shares, respectively 36,751 36,467
Retained deficit (7,411) (10,421)
Net unrealized (loss) gain on
securities available for sale 20 (1)
-------- --------
Total shareholders' equity 29,360 26,045
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $250,839 $261,060
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARES AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $15,999 $15,189 $17,040
Securities available for sale,
securities held to maturity, and
other securities 4,229 2,605 1,726
Tax exempt securities 10 29 74
Federal funds sold 630 464 185
Interest-bearing deposits with banks - 9 48
--------- --------- ---------
Total interest income 20,868 18,296 19,073
INTEREST EXPENSE:
Deposits 5,025 4,858 6,116
Other borrowings 11 18 383
--------- --------- ---------
Total interest expense 5,036 4,876 6,499
--------- --------- ---------
NET INTEREST INCOME: 15,832 13,420 12,574
Provision for loan losses 2,565 375 825
--------- --------- ---------
Net interest income after
Provision for loan losses 13,267 13,045 11,749
NON-INTEREST INCOME:
Customer service fees 595 628 761
Other 501 877 1,194
--------- --------- ---------
Total non-interest income 1,096 1,505 1,955
NON-INTEREST EXPENSE:
Salaries and employee benefits 6,096 5,732 6,086
Occupancy 995 1,076 1,620
Equipment 881 912 943
Goodwill and core deposit amortization 286 403 383
Data processing services 270 251 323
FDIC insurance 260 626 844
Telephone and postage 252 261 281
Consulting fees 246 336 285
Legal fees 202 175 239
Marketing 189 221 142
Foreclosed asset expense 115 619 8,689
Loss on sale of foreclosed assets - 355 1,503
Write-down other assets held for sale - 39 3,166
Other 1,426 1,062 1,658
--------- --------- ---------
Total non-interest expense 11,218 12,068 26,162
--------- --------- ---------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 3,145 2,482 (12,458)
Income tax expense 135 25 -
--------- --------- ---------
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ 3,010 $ 2,457 $ (12,458)
--------- --------- ---------
(Continued)
</TABLE>
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARES AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
DISCONTINUED OPERATIONS:
Loss from operations and sale
in 1994 of discontinued
mortgage division - (647) (434)
--------- --------- ---------
NET INCOME (LOSS) $ 3,010 $ 1,810 $ (12,892)
========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
FROM CONTINUING OPERATIONS $ .67 $ .55 $ (4.49)
FROM DISCONTINUED OPERATIONS $ - $ (.14) $ (0.16)
------- ------- -------
NET INCOME (LOSS) PER COMMON SHARE $ .67 $ .41 $ (4.65)
======= ======= =======
Weighted average shares outstanding
used to compute net income
(loss) per common share 4,516,478 4,454,784 2,773,273
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In Thousands Except Shares)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETAINED
....COMMON STOCK.... EARNINGS UNREALIZED
SHARES AMOUNT (DEFICIT) GAIN (LOSS) TOTAL
--------- ------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1993 2,505,500 $27,340 $661 - $28,001
STOCK OPTIONS
EXERCISED 9,000 54 - - 54
STOCK ISSUED 1,933,143 9,062 - - 9,062
NET LOSS - - (12,892) - (12,892)
UNREALIZED GAIN ON
SECURITIES AVAILABLE
FOR SALE - - - $ 6 6
--------- ------- --------- ------- -------
BALANCE,
DECEMBER 31, 1993 4,447,643 36,456 (12,231) 6 24,231
STOCK ISSUED AND
OPTIONS EXERCISED 302 11 - - 11
NET INCOME - - 1,810 - 1,810
UNREALIZED LOSS ON
SECURITIES AVAILABLE
FOR SALE - - - (7) (7)
--------- ------- --------- ------- -------
BALANCE,
DECEMBER 31, 1994 4,447,945 36,467 (10,421) (1) 26,045
STOCK OPTIONS
EXERCISED 40,540 284 - - 284
NET INCOME - - 3,010 - 3,010
UNREALIZED GAIN ON
SECURITIES AVAILABLE
FOR SALE - - - 21 21
--------- ------- --------- ------- -------
BALANCE,
DECEMBER 31, 1995 4,488,485 $36,751 $ (7,411) $ 20 $29,360
========= ======= ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,010 $ 1,810 $ (12,892)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for loan losses 2,565 375 825
Depreciation and amortization 1,806 1,340 529
(Gain) write-down on foreclosed assets (135) 2 9,130
Write-down and loss on sale of other
assets held for sale - 39 2,666
Loss on sale of discontinued operations - 200 -
Net loss (gain) on other assets owned 39 106 (229)
Increase (decrease) in deferred loan fees 57 (140) (148)
Other non-cash expense 21 - -
Net cash provided by (used in)
discontinued operations - 14,548 (5,024)
Change in assets and liabilities net of effects
of acquisitions:
Decrease in interest receivable
and other assets 745 923 156
Increase (decrease) in accrued interest
and other liabilities 197 (675) 773
-------- -------- --------
Net cash provided by (used in) operating activities 8,305 18,528 (4,214)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (300) (657) (226)
Paydown on assets held for sale 31 40 752
Net (increase) decrease in loans (1,320) 14,835 43,639
Expenditures on foreclosed assets (23) (333) (1,100)
Proceeds from sales of foreclosed assets 450 6,780 10,992
Activity in securities held to maturity:
Proceeds from maturing securities 17,288 21,485 29,725
Purchase of securities (11,126) (48,855) (20,336)
Activity in securities available for sale:
Proceeds from maturing securities 10,000 30,145 -
Purchase of securities (10,007) (29,904) -
Proceeds from sale of mortgage division - 2,795 -
-------- -------- --------
Net cash (used in) provided by investing activities 4,993 (3,669) 63,446
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (13,733) (3,667) (83,410)
Decrease in other borrowing - - (10,000)
Proceeds from stock issued and exercise
of stock options 263 11 54
Proceeds from sale of stock,
net of issuance costs - - 9,062
-------- -------- --------
Net cash used by financing activities (13,470) (3,666) (84,294)
(Continued)
</TABLE>
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (172) 11,193 (25,062)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 31,730 20,537 45,599
------- ------- -------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 31,558 $31,730 $20,537
======== ======= =======
OTHER CASH FLOW INFORMATION:
Cash paid for interest $ 4,896 $ 4,967 $ 6,770
Cash paid for income taxes 85 1 1
</TABLE>
During 1995, 1994, and 1993, the Bank transferred $462,000, $1,660,000, and
$3,251,000 in loans to foreclosed assets.
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of Civic BanCorp and subsidiary (the
Company) are prepared in conformity with generally accepted accounting
principles and prevailing practices within the banking industry. The
following is a summary of the significant accounting and reporting policies
used in preparing the consolidated financial statements.
Principles of consolidation - The consolidated financial statements include
---------------------------
the accounts of Civic BanCorp (BanCorp) and its wholly owned subsidiary,
CivicBank of Commerce (Bank). All material intercompany transactions and
accounts have been eliminated in consolidation.
Cash and cash equivalents - Cash and cash equivalents include cash on hand,
-------------------------
amounts due from banks and federal funds sold with maturities less than 90
days.
Investment securities - The Company accounts for its securities in
---------------------
accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS
No. 115) as follows:
Securities available for sale are held for indefinite periods of time.
Management intends to use these securities as part of its asset/liability
management, and may sell these securities in response to changes in
interest rates and other factors. These securities are carried at market
value, with unrealized gains and losses, after applicable income taxes,
recorded as a separate component of shareholders' equity. Gains on the sale
of securities available for sale, determined on the specific cost
identification basis, are recorded in other income at the time of sale.
Specific cost is determined by using historical cost adjusted for any
previously recorded unrealized losses.
Held to maturity securities are those securities which management has the
ability and intent to hold to maturity. These securities are stated at
cost, adjusted for amortization of premiums to call date and accretions of
discount to maturity using methods approximating the interest method.
Other securities - Other securities include stock in the Federal Reserve
----------------
Bank and Federal Home Loan Bank, and are carried at the lower of cost or
market.
Loans - Loans are stated at the principal amount outstanding, reduced by
-----
the allowance for loan losses. Interest on loans is calculated by using the
simple interest method on the daily balance of the principal amount
outstanding.
Loans are placed on nonaccrual status when principal or interest is past
<PAGE>
due for 90 days, unless the loan is well secured and in the process of
collection. From the time a loan is placed on nonaccrual status, interest
is recorded only when cash is received and any interest income previously
accrued but not collected is reversed. Interest accruals are resumed on
such loans only when they are brought fully current with respect to
interest and principal and when, in the judgment of management, the loans
are estimated to be fully collectible as to both principal and interest.
All nonrefundable loan origination fees and commitment fees, net of related
costs, are deferred and amortized over the term of the loan, or until the
loan is sold, as an adjustment to the yield of the related loan.
Allowance for loan losses - The allowance for loan losses is established
-------------------------
through a provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Management believes the
allowance for possible loan losses is adequate. While management uses
available information to determine the allowance for possible losses on
loans, future additions to the allowance may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for possible loan losses. Such agencies may require the Bank to
recognize additions to the allowance for possible loan losses based on
their judgements of information available to them at the time of their
examination.
The Company adopted Statement of Financial Accounting Standards No. 114
"Accounting by Creditors for Impairment of a Loan" as amended by SFAS No.
118 (collectively referred to as SFAS No. 114) on January 1, 1995. SFAS 114
requires entities to measure certain impaired loans based on the present
value of future cash flows discounted at the loan's effective interest
rate, or at the loans market value or the fair value of the collateral if
the loan is secured. A loan is considered impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement, including scheduled interest payments. If the measurement of the
impaired loan is less than the recorded investment in the loan, impairment
is recognized by creating or adjusting the existing allocation of the
allowance for loan losses.
Leasehold improvements and equipment - Leasehold improvements and equipment
------------------------------------
are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization expenses are computed on a straight-line
basis over the shorter of the estimated useful lives of the assets or the
lease terms. Costs of improvements are capitalized, and maintenance,
repairs and minor improvements are expensed as incurred.
Intangibles - Goodwill is amortized on a straight-line basis over fifteen
-----------
years. The portion of the acquisition cost allocated to values associated
with acquired deposits is being amortized on an accelerated method over ten
years. Management assesses the value of its intangibles and believes the
amortized value appropriately represents the ongoing value to the Company.
<PAGE>
Foreclosed assets - Foreclosed assets are stated at the lower of the
-----------------
recorded investment in the property or its fair value minus estimated costs
to sell. Immediately upon foreclosure, the value of the underlying loan is
written down to the fair value of the real estate acquired by a charge to
the allowance for loan losses, if necessary. Any subsequent write-downs are
charged against operating expenses. Operating expenses of such properties
are included in non-interest expenses, while any rental revenues are
included in non-interest income. Gains and losses on their disposition are
included in non-interest income and non-interest expenses, respectively.
Other assets held for sale - Other assets held for sale include non-
--------------------------
performing loans which are reported at the lower of cost or market.
Income taxes - BanCorp and the Bank file consolidated federal income tax
------------
and combined California franchise tax returns.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (FAS) No. 109, "Accounting for Income Taxes", which changed the
accounting for income taxes from a deferred method to a liability method of
computing deferred taxes. The cumulative effect of this change in
accounting for income taxes prior to January 1, 1993 was not material. The
1995, 1994 and 1993 provisions for federal and state income taxes are based
on taxes currently payable and deferred taxes expected to be payable in the
future. Deferred taxes are recognized by applying enacted tax rates
applicable to future years to temporary differences between the tax bases
of existing assets and liabilities and their respective carrying values for
financial reporting purposes. Deferred tax assets are subject to a
valuation allowance if it is more likely than not that some of the deferred
tax asset will not be realized.
Net income (loss) per common share - Net income (loss) per common share is
----------------------------------
calculated using the weighted average number of common shares and dilutive
stock options outstanding during the year.
New 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.
The Company is required to adopt FAS 121 and FAS 122 for the year ended
December 31, 1996. Based on the information available as of December 31,
1995 and managements interpretation of FAS 121 and FAS 122, the
<PAGE>
statements will not have a material effect on its financial statements.
In October 1995, the FASB issued FAS 123, "Accounting for Stock-Based
Compensation." which permits a company to choose either a new fair value
based method of accounting for its stock-based compensation (stock
options), or the current Accounting Principles Board Opinion 25 intrinsic
value based method of accounting for its stock based compensation. FAS 123
requires pro-forma disclosures of net income and earnings per share
computed as if the fair value based method had been applied in financial
statements of companies that continue to follow current practice in
accounting for such arrangements under APB 25. The Company has decided it
will not adopt the recognition provisions of FAS 123 but will adopt the
disclosure requirements in 1996.
2. SECURITIES
The amortized cost and estimated market values of securities available for
sale, securities held to maturity and other securities as of December 31,
1995 and 1994 are summarized as follows(in thousands):
<TABLE>
<CAPTION>
Securities Available for Sale
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury obligations $ 5,005 $ 6 $ - $ 5,011
U.S. agency securities 4,996 14 - 5,010
------- ---- --- -------
Total $10,001 $ 20 - $10,021
======= ==== === =======
December 31, 1994:
U.S. Treasury obligations $ 9,966 $ 22 $23 $ 9,965
======= ==== === =======
<CAPTION>
Securities Held to Maturity
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury obligations $10,756 $ 168 $ - $10,924
U.S. agency securities 40,272 786 - 41,058
Collateralized mortgage
obligations 171 10 - 181
------- ---- ------ -------
Total $51,199 $964 - $52,163
======= ==== ====== =======
December 31, 1994:
U.S. Treasury obligations $19,838 $ - $242 $19,596
U.S. agency securities 37,738 - 856 36,882
Collateralized mortgage
obligations 205 - 1 204
Municipal securities 229 3 - 232
------- ---- ------ -------
Total $58,010 $ 3 $1,099 $56,914
======= ==== ====== =======
<CAPTION>
Other Securities
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
Federal Reserve Bank stock $ 823 $ - $ - $ 823
Federal Home Loan
Bank stock 813 - - 813
------ ---- ---- ------
Total $1,636 $ - $ - $1,636
====== ==== ==== ======
December 31, 1994:
Federal Reserve Bank stock $ 725 $ - $ - $ 725
Federal Home Loan
Bank stock 826 - - $ 826
------ ---- ---- ------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Total $1,551 $ - $ - $1,551
======= ==== ==== ======
</TABLE>
Total securities required and pledged under state regulation to secure
certain deposits and for other purposes amounted to approximately
$8,979,000 and $8,975,000 at December 31, 1995 and 1994.
The amortized cost and estimated market values of securities at December
31, 1995 and 1994 by contractual maturity are shown below (in thousands).
Expected maturities will differ from contractual maturities as certain
issuers have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
1995 1994
----------------- -----------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Securities available for sale:
Within one year $10,001 $10,021 $ 9,966 $ 9,965
======= ======= ======= =======
Securities held to maturity:
Within one year $19,224 $19,318 $17,205 $17,085
After one year but
within five years 31,804 32,664 40,600 39,624
After five years but
within ten years 171 181 - -
Over ten years - - 205 205
------- ------- ------- -------
Total $51,199 $52,163 $58,010 $56,914
======= ======= ======= =======
</TABLE>
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the years ended December
31, 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of year $3,216 $4,371 $5,092
Provision charged to expense 2,565 375 825
Loans charged off (1,416) (2,063) (2,218)
Recoveries 595 533 672
------ ------ ------
Balance, end of year $4,960 $3,216 $4,371
====== ====== ======
</TABLE>
At December 31, 1995, the recorded investment in loans considered to be
impaired under FAS #114 as amended by FAS #118 was $2,859,000 all of which
were on a non-accrual basis. Included in this amount was $136,000 of
impaired loans for which the related allowance for loan losses is $5,000
and $2,723,000 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 year ended December 31, 1995, the average recorded
investment in impaired loans was $3,024,000 and no interest income was
recognized on impaired loans. If interest income on those loans had been
accrued, such income would have approximated $244,000.
Loans on non-accrual amounted to $3,412,000 and $1,978,000 on December 31,
1994 and 1993. If interest on these loans had been accrued, such income
would have approximated $301,000 and $102,000 for the years ended
<PAGE>
December 31, 1994 and 1993.
4. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
A summary as of December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
------ ------
<S> <C> <C>
Leasehold improvements $ 930 $ 967
Furniture and fixtures 1,091 1,173
Equipment 2,814 2,996
------ ------
4,835 5,136
Less accumulated depreciation
and amortization 3,105 3,031
------ ------
Leasehold improvements and equipment, net $1,730 $2,105
====== ======
</TABLE>
5. OTHER ASSETS
A summary of Interest receivable and other assets as of December 31, 1995
and 1994 is as follows:
(in thousands)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Interest receivable $2,191 $2,232
Intangible assets 1,455 2,089
Prepaid expense and other assets 268 972
------ ------
Total and interest receivable other assets $3,914 $5,293
====== ======
</TABLE>
Amortization expense relative to these intangible assets was $286,000,
$403,000, and $383,000 for the years ended December 31, 1995, 1994 and
1993.
6. DEPOSITS
The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $29,691,000, $17,619,000, and $22,516,000 at December
31, 1995, 1994, and 1993. Interest expense incurred on certificates of
deposit in denominations of $100,000 or more was $955,000, $687,000, and
$1,052,000 for the years ended December 31, 1995, 1994, and 1993.
7. STOCK OPTIONS
BanCorp has a stock option plan which provides for incentive stock options
(ISO) and nonqualified stock options. In 1995, the Company adopted the Non-
Employee Director Stock Option Plan which reserved 110,000 shares of the
1994 stock option plan for grants to eligible directors. The plan was
amended in 1994 to increase the shares available for grant to 650,000.
Outstanding options for the purchase of common shares, which expire at
various dates through 2005, have been granted under the plan at prices
ranging from $5.25 to $14.06 per share (restated for stock dividends).
These prices correspond to the market value of the stock on the dates the
options were granted. The plan provides that the option vesting schedule
may be established at the discretion of the plan committee on the day of
grant.
<PAGE>
Option activity is summarized below:
<TABLE>
<CAPTION>
Nonqualified
.....Number of Shares.....
<S> <C> <C> <C> <C>
Shares under option at Price per Share 1995 1994 1993
--------------- ------- -------- -------
beginning of year $ 6.00-$8.23 24,130 27,348 37,986
Optionsgranted $ 6.00-$6.50 51,903 24,130 16,216
Options exercised $ 6.50 (24,130) - -
Options cancelled $ 6.00-$8.23 - (27,348) (26,854)
------- -------- -------
Shares under option at
end of year $6.50 51,903 24,130 27,348
==== ======= ======== =======
Options exercisable $6.50 51,903 24,130 27,348
==== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
ISO
.....Number of Shares.....
<S> <C> <C> <C> <C>
Price Per Share 1995 1994 1993
--------------- ------- -------- -------
Shares under option at
beginning of year $5.25-$14.06 421,058 252,402 264,972
Options granted $5.25-$ 7.75 18,547 362,820 81,666
Options exercised $5.75-$ 6.50 (16,411) (302) (9,000)
Options cancelled $5.63-$14.06 (86,753) (193,862) (85,236)
------- -------- -------
Shares under option
at end of year $5.25-$14.06 336,441 421,058 252,402
============ ======= ======== =======
Options exercisable $6.00-$14.06 162,230 137,902 159,838
============ ======= ======== =======
</TABLE>
Shares available for future grants under the incentive stock option plan
total 205,885 and 189,580 shares at December 31, 1995 and 1994. Included in
the shares available for 1995 are 70,000 shares which are reserved for non-
employee directors.
8. REGULATORY MATTERS
BanCorp is subject to regulation under the Bank Holding Company Act of 1956
and to regulation by the Federal Reserve Board. The regulations require the
maintenance of cash reserve balances at the Federal Reserve Bank for
transaction accounts. The average reserve requirement for the Bank was
$3,311,000 and $3,514,000 for the years ended December 31, 1995 and 1994,
respectively.
BanCorp is required by the Board of Governors of the Federal Reserve System
to maintain minimum risk-based capital ratios of 4.0% and 8.0% for tier one
risk-based and total risk-based capital, and a minimum leverage capital
ratio of 4.0%. At December 31, 1995, the BanCorp's risk-based capital
ratios (16.04% for tier one risk-based capital and 17.29% for total risk-
based capital) and leverage capital ratio (10.99%) were in excess of these
requirements.
On September 16, 1992, the board of directors of the Company entered into a
Memorandum of Understanding (MOU) with the Federal Reserve Bank (FRB) of
San Francisco. Simultaneously, the board of directors of the Bank entered
into a written agreement with FRB and a memorandum of understanding with
the California State Banking Department. The boards entered into these
agreements to address certain matters arising from a joint examination
conducted by the FRB and the Superintendent of Banks in March 1992. On
September 7, 1994 the California State Banking Department terminated the
memorandum of understanding with the Bank. On
<PAGE>
December 27, 1995, the FRB terminated the memorandum with the Bancorp and
the agreement with the Bank.
9. BENEFIT PLANS
The Bank has a discretionary defined contribution retirement plan (the
Plan), which covers all employees with over one year of continuous service.
The Plan consists of a 401(k) salary deferral component and a profit
sharing component. Under the 401(k) salary deferral component, an employee
may contribute up to 12% of pretax salary to the Plan. Employer
contributions to the 401(k) salary deferral component are made at the
discretion of the Board of Directors.
The profit sharing component provides for contributions of pretax profits
of the Bank to all employees with one year of continuous service subject to
certain eligibility requirements. The contributions to the profit sharing
component are made the following year at the discretion of the Board of
Directors.
The following is a summary of the related expenses for the years ended
December 31, 1995, 1994 and 1993, which are included in salaries and
employee benefits
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
401(k) Salary deferral component $155 $ 67 $ 67
</TABLE>
10. INCOME TAXES
The provision for income taxes reflected in the consolidated statements of
income for the years ended December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Current provision (benefit):
Federal $ 97 $ 23 $(760)
State 38 2 -
----- ----- -----
Total 135 25 (760)
Deferred - federal - - 760
----- ----- -----
Total $ 135 $ 25 $ -
===== ===== =====
</TABLE>
The temporary differences and tax carryforwards which created deferred tax
assets and liabilities are detailed below:
(In Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Loan loss and foreclosed
asset reserves not
currently deductible $ 1,542 $ 1,028 $ 946
Deferred rent 79 72 130
Deferred loan fees 53 67 176
Core deposits 393 400 -
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Tax credits 455 455 193
Book over tax depreciation 53 - -
Other write-downs 516 573 -
Net operating loss carryforwards 82 1,939 4,803
------- ------- -------
Total 3,173 4,534 6,248
------- ------- -------
Deferred tax liabilities:
Tax over book depreciation - (20) (143)
Core deposits - - (261)
Other (49) (35) (162)
------- ------- -------
Total (49) (55) (566)
------- ------- -------
Net deferred tax asset 3,124 4,479 5,682
Valuation allowance (3,124) (4,479) (5,682)
------- ------- -------
Net deferred tax asset $ - $ - $ -
======= ======= =======
</TABLE>
The net change in the valuation allowance for deferred tax assets was a
decrease of $1,355,000 in 1995 and $1,203,000 in 1994. The net change to
the valuation allowance in 1994 reflects the impact of certain adjustments
arising from an Internal Revenue Service examination.
The effective tax rate differs from the federal statutory income tax rate
for the years ended December 31, 1995, 1994 and 1993 as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate 34 % 34 % (34)%
State franchise tax, less federal
income tax effect - - (3)
Change in valuation allowance and
utilization of net operating losses (30) (33) 38
Other permanent differences - - (1)
---- ---- ----
Effective income tax rate 4 % 1 % - %
==== ==== ====
</TABLE>
At December 31, 1995, the Bank had approximately $1,080,000 of state net
operating loss carryforwards which begin to expire in 1998. At December 31,
1995, the Bank had approximately $455,000 tax credit carryforwards which
begin to expire in 2006.
The Tax Reform Act of 1986 and the California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating loss
carryforwards if an "Ownership Change", as defined in the Internal Revenue
Code, has occurred. Management of the Company does not believe that the
changes in the ownership of the Company's stock which occurred in 1993
resulted in an "Ownership Change" under the appropriate tax laws. Should
there be an ownership change, the Company's ability to utilize its
operating loss carryforwards could be significantly limited.
11. RELATED PARTY TRANSACTIONS
Certain directors and companies with which they are associated are
customers of and have banking transactions with the Bank in the ordinary
course of business. It is the Bank's policy that all loans and commitments
to lend to directors be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers.
The activity is summarized as follows for the years ended
December 31, 1995 and 1994:
<PAGE>
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Balance, January 1 $ 4,777 $ 3,949
Loan proceeds disbursed 3,066 2,163
Loan repayments (3,619) (1,233)
Reductions due to changes in directors - (102)
------- -------
Balance, December 31 $ 4,224 $ 4,777
======= =======
</TABLE>
12. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Bank is involved in legal actions arising from normal business
activities. Management, upon the advice of legal counsel handling such
actions, believes that the ultimate resolution of these actions will not
have a material adverse effect on the financial position of the BanCorp.
In the normal course of business, to meet the financing needs of its
customers and manage its own exposure to fluctuations in interest rates,
the Bank is a party to financial instruments, including commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit, interest rate and liquidity risk in
excess of the amount recognized in the consolidated balance sheets. The
contract or notional amounts of these instruments, which are not included
in the consolidated balance sheets, are an indicator of the extent of the
Company's activities in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Bank controls
the credit risk of these transactions through credit approvals, limits and
monitoring procedures, and generally requires collateral or other security
to support commitments to extend credit. The Bank's exposure to credit loss
is usually limited to amounts funded or drawn. A summary of these financial
instruments at December 31, 1995 and 1994 follows:
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Commitments to extend credit $88,250 $75,154
Standby letters of credit $ 1,599 $ 3,142
</TABLE>
13. OPERATING LEASES
BanCorp and the Bank lease their banking and office facilities under
noncancelable operating leases. These leases expire from September 1996 to
April 2004. Certain leases contain options to extend. Rental expense for
the years ended December 31, 1995, 1994 and 1993 was $955,000, $1,026,000,
and $1,551,000.
Total future minimum rental payments under these operating leases at
December 31, 1995 are as follows:
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31:
1996 $1,080
</TABLE>
<PAGE>
<TABLE>
<S> <C>
1997 948
1998 950
1999 812
2000 815
Later years 2,597
------
Total future minimum rentals $7,202
======
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with FAS 107, "Disclosures About Fair Value of Financial
Instruments", the estimated fair value amounts of financial instruments
have been determined by the Bank using available market information and
appropriate valuation methodologies. However, considerable judgement is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value
amounts.
The summary of these financial instruments and their related fair values at
December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In Thousands):
1995 1994
---------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 31,558 $ 31,558 $ 31,730 $ 31,730
Securities available for sale 10,021 10,021 9,965 9,965
Securities held to maturity 51,199 52,163 58,010 56,914
Other securities 1,636 1,636 1,551 1,551
Loans 149,736 145,940 151,500 148,937
Liabilities:
Noninterest-bearing deposits 73,149 73,149 78,024 78,024
Interest-bearing deposits 146,949 146,806 155,807 155,458
</TABLE>
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practical to estimate
that value.
Cash and cash equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Securities available for sale, held to maturity, and other securities - The
fair value of securities is based on quoted market prices, dealer quotes
and prices obtained from independent pricing services.
Loans - The fair value of performing loans is estimated by discounting the
future cash flows using the current interest rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
The estimated fair value of certain nonperforming loans has been determined
on an individual basis, taking into account management's
<PAGE>
plans regarding potential foreclosure and subsequent sale of collateral and
the borrower's plan for the continuance of principal and interest payments.
Foreclosed assets are not considered financial instruments under FAS 107
and therefore are not included in the schedule above.
Demand deposits and time deposits - The fair value of demand deposits,
savings accounts, and certain money market deposits is the amount payable
on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
Commitments to extend credit and standby letters of credit - The fair value
of commitments and standby letters of credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Management estimates that there is no material difference
between the notional amount and estimated fair value of commitments to
extend credit and standby letters of credit.
The Bank adopted Statement of Financial Accounting Standards No. 119,
"Disclosures about Derivative Financial Instruments and Fair Value of
Financial Instruments", on December 31, 1994. Under certain circumstances,
the Bank will structure variable rate loans to include embedded interest
rate floors. Such floors are designed to mitigate interest rate risk to the
Bank in a declining interest rate environment. As of December 31, 1995, the
Bank had outstanding loans totaling $54,000,000 that were subject to
interest rate floors.
15. SALE OF THE MORTGAGE DIVISION
In the second quarter of 1993, the Bank announced its intention to seek
potential buyers of the mortgage division in San Diego, California. Net
assets of the mortgage division at December 31, 1993 were $17,800,000.
On September 30, 1994, the Bank entered into an agreement for the sale of
servicing rights and related assets of its mortgage division. The sales
price was $3.1 million, subject to certain post-closing contingencies
related to volume and performance of the servicing portfolio.
Included in the results of discontinued operations for 1994 is a loss on
disposal of approximately $200,000 relative to such sale. Total revenues
for the mortgage division were $1.7 million in 1994.
16. FINANCIAL STATEMENTS OF CIVIC BANCORP (PARENT COMPANY ONLY)
The condensed financial statements of Civic BanCorp (parent company only)
are presented below:
BALANCE SHEETS
As of December 31, 1995 and 1994
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
1995 1994
-------- --------
ASSETS
<S> <C> <C>
Cash (on deposit with the Bank) $ 894 $ 650
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Securities available for sale - 35
Other assets 17 17
Investment in Bank at equity in
underlying net assets 28,476 25,348
------- -------
Total assets $29,387 $26,050
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 27 $ 5
Shareholders' equity 29,360 26,045
------- -------
Total liabilities and
shareholders' equity $29,387 $26,050
======= =======
</TABLE>
STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income $ 60 $ 16 $ 14
Less administration expense 135 93 104
-------- -------- --------
Loss from operations (75) (77) (90)
Equity in income (loss)
of Bank 3,085 2,534 (12,368)
Equity in (loss) income
of discontinued operations - (647) (434)
-------- -------- --------
Net income (loss) $ 3,010 $ 1,810 $(12,892)
======== ======== ========
</TABLE>
STATEMENTS OF CASH FLOWS
for the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 3,010 $ 1,810 $(12,892)
Adjustments to reconcile net
income (loss) to cash (used in)
provided by operating activities:
Equity in net (income) loss
of Bank (3,085) (1,887) 12,802
Gain on sale of securities
available for sale (33) - -
Other non-cash expense 21 - -
Change in assets and liabilities 22 (111) 97
------- ------- --------
Net cash (used in) provided by
operating activities (65) (188) 7
Cash flows from investing
activities:
Proceeds from sale of securities
available for sale 46 - -
Capital contribution to Bank - - (8,900)
------- ------- --------
Cash used by investing activities 46 - (8,900)
------- ------- --------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cash flows from financing
activities:
Proceeds from stock sale, net - 9 9,062
Proceeds from exercise of stock
options 263 2 54
------- ------- --------
Net cash provided by
financing activities 263 11 9,116
------- ------- --------
Net (decrease) increase in cash 244 (177) 223
Cash at beginning of year 650 827 604
------- ------- --------
Cash at end of year $ 894 $ 650 $ 827
======= ======= ========
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors
Civic BanCorp:
We consent to incorporation by reference in the registration statements
(No. 33-94566 and 33-65309) on Form S-8 of Civic BanCorp of our report dated
January 17, 1996, relating to the consolidated balance sheets of Civic BanCorp
and subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1995, which report
appears in the December 31, 1995 annual report on Form 10-K of Civic BanCorp.
/s/ KPMG Peat Marwick LLP
San Francisco, California
March 28, 1996
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF DELOITTE & TOUCHE LLP]
INDEPENDENT AUDITORS' CONSENT
Civic BanCorp:
We consent to the incorporation by reference in the Registration Statements
No. 33-94566 and No. 33-65309 of Civic BanCorp on Form S-8 of our report dated
January 26, 1994 appearing in the Annual Report on Form 10-K of Civic BanCorp
for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
March 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 16,758 13,690
<INT-BEARING-DEPOSITS> 0 40
<FED-FUNDS-SOLD> 14,800 18,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 10,021 9,965
<INVESTMENTS-CARRYING> 51,199 58,010
<INVESTMENTS-MARKET> 52,163 56,914
<LOANS> 154,696 154,716
<ALLOWANCE> 4,960 3,216
<TOTAL-ASSETS> 250,839 261,060
<DEPOSITS> 220,098 233,831
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,381 1,184
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 36,751 36,467
<OTHER-SE> (7,391) (10,422)
<TOTAL-LIABILITIES-AND-EQUITY> 250,839 261,060
<INTEREST-LOAN> 15,999 15,189
<INTEREST-INVEST> 4,239 2,634
<INTEREST-OTHER> 630 473
<INTEREST-TOTAL> 20,868 18,296
<INTEREST-DEPOSIT> 5,025 4,858
<INTEREST-EXPENSE> 5,036 4,876
<INTEREST-INCOME-NET> 15,832 13,420
<LOAN-LOSSES> 2,565 375
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 11,218 12,068
<INCOME-PRETAX> 3,145 2,482
<INCOME-PRE-EXTRAORDINARY> 3,145 2,457
<EXTRAORDINARY> 0 (647)
<CHANGES> 0 0
<NET-INCOME> 3,010 1,810
<EPS-PRIMARY> .67 .41
<EPS-DILUTED> .67 .41
<YIELD-ACTUAL> .069 .059
<LOANS-NON> 2,859 3,412
<LOANS-PAST> 325 491
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 3,216 4,371
<CHARGE-OFFS> 1,416 2,063
<RECOVERIES> 595 533
<ALLOWANCE-CLOSE> 4,960 3,216
<ALLOWANCE-DOMESTIC> 4,960 3,216
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,334 797
</TABLE>
