<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended Commission file number
March 31, 1997 0-13287
- --------------------- ----------------------
CIVIC BANCORP
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0022322
- ---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2101 Webster Street, Oakland, California 94612
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (510) 836-6500
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of April 30, 1997: 4,394,026
The total number of pages in this form is 17
--
The index of exhibits appears on page 16
--
1
<PAGE>
CIVIC BANCORP
AND
SUBSIDIARY
<TABLE>
<CAPTION>
Index to Form 10-Q Page Number
- ------------------ -----------
<S> <C>
PART I. Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1997, March 31, 1996
and December 31, 1996 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1997 and
March 31, 1996 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1997 and
March 31, 1996 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II. Other Information 16
SIGNATURES 17
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIVIC BANCORP AND SUBSIDIARY
----------------------------
CONSOLIDATED BALANCE SHEETS
----------------------------
<TABLE>
<CAPTION>
(In thousands except shares)
March 31 March 31 December 31
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 13,546 $ 13,465 $ 16,929
Federal funds sold 4,600 8,850 29,300
-------- -------- --------
Total cash and cash equivalents 18,146 22,315 46,229
Securities available for sale 30,784 7,908 26,871
Securities held to maturity
(market value of $37,097, $49,030
and $41,667, respectively) 37,131 48,539 41,311
Other securities 1,780 1,576 1,761
Loans:
Commercial 106,488 76,600 92,756
Real estate-construction 8,243 3,934 6,608
Real estate-other 65,154 55,887 64,272
Installment and other 19,285 17,067 19,757
-------- -------- --------
Total loans 199,170 153,488 183,393
Less allowance for loan losses 5,041 5,076 4,969
-------- -------- --------
Loans - net 194,129 148,412 178,424
Interest receivable and other assets 5,094 3,825 4,921
Leasehold improvements and equipment - net 1,435 1,656 1,463
Foreclosed assets 973 712 923
Other assets held for sale 232 275 275
-------- -------- --------
TOTAL ASSETS $289,704 $235,218 $302,178
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 75,934 $ 64,257 $ 84,337
Interest-bearing:
Checking 22,322 21,971 26,245
Money market 86,684 71,250 85,035
Time and savings 67,919 45,376 70,830
-------- -------- --------
Total deposits 252,859 202,854 266,447
Accrued interest payable and other liabilities 2,404 1,952 1,584
-------- -------- --------
Total liabilities 255,263 204,806 268,031
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,
4,392,326, 4,514,203 and 4,431,895 shares 31,222 36,914 31,739
Retained deficit - (6,486) -
Retained earnings, (subsequent to July 1, 1996
date of quasi-reorganization, total deficit
eliminated $5.5 million) 3,290 - 2,240
Net unrealized (loss) gain on securities
available for sale (71) (16) 168
-------- -------- --------
Total shareholders' equity 34,441 30,412 34,147
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $289,704 $235,218 $302,178
======== ======== ========
</TABLE>
3
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
(In thousands except shares and per share amounts)
Three Months Ended March 31,
-------------------------------
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Loans $4,707 $4,132
Securities available for sale, securities held
to maturity and other securities 994 933
Tax exempt securities 138 3
Federal funds sold 80 24
--------- ---------
Total interest income 5,919 5,092
INTEREST EXPENSE:
Deposits 1,634 1,122
Other borrowing 1 14
--------- ---------
Total interest expense 1,635 1,136
--------- ---------
NET INTEREST INCOME 4,284 3,956
Provision for loan losses 25 225
--------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,259 3,731
--------- ---------
NONINTEREST INCOME:
Customer service fees 188 135
Other 29 44
--------- ---------
Total noninterest income 217 179
NONINTEREST EXPENSE:
Salaries and employee benefits 1,651 1,534
Occupancy 240 249
Equipment 219 214
Foreclosed asset expense 24 80
Goodwill and core deposit amortization 57 64
Telephone and postage 79 56
Data processing services 78 64
Marketing 47 55
Legal fees 69 45
Consulting fees 45 60
FDIC insurance 7 1
Other 330 368
--------- ---------
Total noninterest expense 2,846 2,790
--------- ---------
INCOME BEFORE INCOME TAXES 1,630 1,120
Income tax expense 580 195
--------- ---------
NET INCOME $1,050 $ 925
========= =========
NET INCOME PER COMMON SHARE $ 0.23 $ 0.20
========= =========
Weighted average shares outstanding used
to compute net income per common share 4,583,348 4,569,171
========= =========
</TABLE>
4
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,050 $ 925
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 25 225
Depreciation and amortization 276 239
Write-down of foreclosed assets - 58
Increase (decrease) in deferred loan fees 92 (42)
Change in assets and liabilities:
(Increase) decrease in interest receivable and other assets (119) 24
Increase in accrued interest payable and other liabilities 868 571
--------- --------
Net cash provided by operating activities 2,192 2,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (131) (80)
Paydown on assets held for sale 43 -
Net (increase) decrease in loans (15,897) 1,141
Expenditures on foreclosed assets 25 -
Activities in securities held to maturity:
Proceeds from maturing securities 5,008 5,067
Purchases of securities (836) (2,290)
Activities in securities available for sale:
Proceeds from maturing securities - 5,000
Purchases of securities (4,382) (3,000)
--------- --------
Net cash (used in) provided by investing activities (16,170) 5,838
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 64 163
Purchase of common stock (581) -
Net decrease in deposits (13,588) (17,244)
--------- --------
Net cash used in financing activities (14,105) (17,081)
--------- --------
Net decrease in cash and cash equivalents (28,083) (9,243)
Cash and cash equivalents at beginning of period 46,229 31,558
--------- --------
Cash and cash equivalents at end of period $ 18,146 $ 22,315
========= ========
Cash paid during year for:
Interest $ 1,516 $ 1,184
========= ========
Income taxes $ 37 $ 30
========= ========
Supplemental schedule of non-cash investing activity:
Loans transferred to foreclosed assets $ 75 -
========= ========
</TABLE>
5
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Civic BanCorp and
subsidiary (the Company) have been prepared in accordance with generally
accepted accounting principles and with the instructions to Form 10-Q. In
the opinion of management, all necessary adjustments have been made to
fairly present the financial position, results of operations and cash flows
for the interim periods presented. These unaudited consolidated financial
statements should be read in conjunction with the Company's Annual Report
on Form 10-K for the year ended December 31, 1996. The results of
operations and cash flows are not necessarily indicative of those expected
for the complete fiscal year. Net income per common share computed on a
primary and fully diluted basis is substantially the same.
2. NEW PRONOUNCEMENT
In February, the Financial Accounting Standards Board issues Statement of
Financial Accounting Standards No. 128, (FAS128), Earnings Per Share. This
statement specifies the computation, presentation and disclosure
requirements for earnings per share and is effective for both interim and
annual periods ending after December 15, 1997. Earlier application is not
permitted. The Company does not believe FAS 128 will have a material effect
on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
OVERVIEW
For the three months ended March 31, 1997, the Company reported net income of
$1,050,000, or $.23 per share compared to a net income of $925,000 or $.20 per
share for the same period of the prior year. The annualized return on average
assets was 1.47% for the three months ended March 31, 1997 compared to 1.57% for
the same period of the prior year. The annualized return on average
shareholders' equity for the three months ended March 31, 1997 and 1996 was
12.19% and 12.37%, respectively.
RESULTS OF OPERATIONS
Net interest income for the three months ended March 31, 1997 was $4.3 million,
increasing $300,000 or 8.3% from net interest income of $4.0 million for the
same period in 1996. The increase in net interest income is primarily due to an
increase in the volume of earning assets offset by an increase in the volume of
interest bearing liabilities.
Total interest income for the first three months of 1997 equaled $5.9 million,
an increase of $800,000 from interest income earned in the same period in 1996.
The increase in total interest income is primarily attributed to the increase in
volume of earning assets. Average earning assets increased $47.8 million or
21.9% to $266.5 million for the first quarter of 1997 compared to $218.7 million
for the first quarter of 1996.
Total interest expense for the first three months of 1997 equaled $1.6 million
and increased $.5 million or 43.9% from the $1.1 million for the three months
ended March 31, 1996 due to an increase of $39.3 million or 28.4% in the volume
on interest bearing deposits. Savings and time deposits as a percentage of total
deposits increased to 27.0% from 21.3% for the three months ended 1997 and 1996.
6
<PAGE>
The following table presents an analysis of the components of net interest
income for the first quarter of 1997 and 1996.
<TABLE>
<CAPTION>
Three months ended March 31.
----------------------------------------------------------------------------------
1997 1996
-------------------------------------- ---------------------------------------
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/2/ Paid Balance Expense/2/ Paid
---------- ---------- --------- --------- ---------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale $ 30,977 $ 491 6.43% $ 6,162 $ 90 5.86%
Securities held to maturity:
U.S. Treasury securities 8,559 125 5.94% 10,767 164 6.14%
U.S. Government agencies 19,150 351 7.44% 38,411 649 6.80%
Municipal securities/(1)/ 11,888 213 7.26% 333 5 6.28%
Commercial paper 0 0 0.00% 483 7 5.85%
Other securities 1,774 27 6.20% 1,623 23 5.69%
Federal funds sold and securities
purchased under agreements to resell 6,025 80 5.39% 1,819 24 5.40%
Loans:/2,3/
Commercial 96,648 2,462 10.33% 76,470 2,025 10.65%
Real estate-construction 7,338 186 10.26% 3,976 104 10.47%
Real estate-other 64,995 1,595 9.95% 61,515 1,572 10.28%
Installment and other 19,178 464 9.82% 17,151 431 10.10%
-------- ------ ------- -------- ------ --------
Total Loans 188,159 4,707 10.15% 159,112 4,132 10.45%
-------- ------ ------- -------- ------ --------
Total Earning Assets 266,532 5,994 9.12% 218,710 5,094 9.37%
Cash and due from banks 17,611 15,558
Leasehold improvements and equipment - net 1,496 1,703
Interest receivable and other assets 4,845 3,598
Foreclosed assets 943 758
Assets held for sale 232 275
Less allowance for loan loss (4,988) (5,062
-------- --------
TOTAL ASSETS $286,671 $235,540
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 22,457 52 0.93% 22,396 52 0.94%
Money market 87,283 742 3.45% 71,486 557 3.14%
Time and savings 67,598 840 5.04% 43,284 513 4.77%
Other borrowed funds 105 1 5.49% 995 14 5.64%
-------- ------- ------- -------- ------ --------
Total interest bearing liabilities 177,443 1,635 3.74% 138,161 1,136 3.31%
Demand deposits 72,731 65,624
Other liabilities 2,029 1,844
Shareholders' equity 34,468 29,911
-------- --------
TOTAL LIABILITIES AND $286,671 $235,540
SHAREHOLDER'S EQUITY ======== ========
Net Interest Income $4,359 $3,958
======= ======
Net Interest Margin 6.63% 7.27%
======== =========
Tax Equivalent Adjustment/(1)/ $ 75 $ 2
======= ======
</TABLE>
- --------------------------------------------------------------------------------
(1) Tax-exempt interest income on municipal securities is computed using a
Federal income tax rate of 35%. Interest on municipal securities was $138 and $3
for March 31, 1997 and 1996, respectively. (2) Non-performing loans have been
included in the average loan balances. Interest income is included on
non-accrual loans only to the extent cash payments have been received. (3)
Interest income includes loan fees on commercial loans of $105,000 and $105,000
for March 31, 1997 and 1996, respectively; fees on real estate loans of $93,000
and $126,000 for March 31, 1997 and 1996, respectively; and fees on installment
and other loans of $6,000 and $8,000 for March 31, 1997 and 1996, respectively.
7
<PAGE>
The following table sets forth changes in interest income and interest expense
for each major category of interest-earning assets and interest-bearing
liabilities, and the amount of change attributable to volume and rate changes
for the three month period ended March 31, 1997.
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense
Due to Change in 1997 over 1996
Volume/1/ Rate/2/ Total
---------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Securities available for sale $ 357 $ 44 $ 401
Securities held to maturity:
U.S. Treasury securities (35) (4) (39)
U.S. government agency (328) 30 (298)
Municipal securities 179 29 208
Commercial paper (7) 0 (7)
Other securities 2 2 4
Federal funds sold 56 (0) 56
Loans:
Commercial 515 (78) 437
Real estate-construction 86 (4) 82
Real estate-other 75 (52) 23
Installment and other 47 (14) 33
------ ------ ------
Total Loans 723 (148) 575
------ ------ ------
Total increase (decrease) $ 947 $ (47) $ 900
------ ------ ------
(Increase) decrease in interest expense:
Deposits:
Interest bearing checking $ (1) $ 1 $ (0)
Money market (118) (67) (185)
Savings and time (282) (45) (327)
Other borrowed funds 13 0 13
------ ------ ------
Total decrease $(388) $(111) $(499)
------ ------ ------
Total change in net interest income $ 559 $(158) $ 401
====== ====== ======
</TABLE>
(1) Changes not solely attributed to rate or volume have been allocated to
volume.
(2) Loan fees are reflected in rate variances.
Net Interest Margin
The net interest margin declined 64 basis points to 6.63% for the first quarter
of 1997 from 7.27% for the same period of the prior year. The decrease in the
margin is attributed to the decline in average rate earned on earning assets of
25 basis points and the increase in the average rate paid on interest bearing
deposits of 43 basis points. The decline in the yield on earning assets
8
<PAGE>
was due to a lower average reference rate for the first quarter of 1997 as
compared to the first quarter of the prior year. The average reference rate was
8.25% for the first quarter of 1997 as compared to an average rate of 8.42% for
the first quarter of 1996. Approximately 90% of the loans in the portfolio have
adjustable interest rates based on the Bank's reference rate. The increase in
the average rate paid on interest bearing deposits reflects a higher interest
rate environment for deposits and an increase in time deposits as a percentage
of interest bearing deposits to 38.1% for the first quarter of 1997 from 31.1%
for the same quarter of the prior year.
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 1997 was
$25,000, a decrease of $200,000 or 88.9% from the three months ended March 31,
1996. The amount of the provision was reduced because management believed the
reserve for loan loss is adequate and because loan recoveries exceeded
charge-offs by $47,000 during the first quarter of 1997. Charge-offs exceeded
recoveries by $109,000 for the first quarter of 1996.
Non-Interest Income
Non-interest income for the three months ended March 31, 1997 was $217,000, an
increase of $38,000 or 21.2% from the three months ended March 31, 1996. The
increase in customer service fees is attributed to the increase in deposits and
an increase in foreign trade transaction volume.
Non-Interest Expense
Salaries and employee benefits for the three months ended March 31, 1997
increased $117,000 or 7.6% from the same period in 1996 due to an increase in
incentive accruals and normal merit increases. Full time equivalent personnel
numbered 103 on March 31, 1997 compared to 102 on March 31, 1996.
Non-interest expense totaled $2.8 million for the three months ended March 31,
1997 and 1996, respectively. FDIC assessments increased $6,000 or 600.0% for the
first quarter of 1997 as compared to the prior year due to the addition of a
FICO assessment. The Company reduced the volume of external marketing consulting
in 1997 from 1996 which reduced the level of consulting expenses.
For the three months ended March 31, 1997 the Company had no write-downs
associated with foreclosed assets and incurred $24,000 in expenses associated
with managing, maintaining and liquidating foreclosed assets compared to a
write-down of $50,000 and expenses of $30,000 for the three months ended March
31, 1996.
The following table summarizes the significant components of noninterest expense
for the dates indicated.
9
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31, Dollar %
(Dollars in thousands) 1997 1996 Change Change
------------- ------------- ------- ------
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,651 $1,534 $ 117 7.6%
Occupancy 240 249 (9) -3.6%
Equipment 219 214 5 2.3%
Goodwill and core deposit amortization 57 64 (7) -10.9%
Data processing services 78 64 14 21.9%
FDIC insurance 7 1 6 600.0%
Telephone and postage 79 56 23 41.1%
Consulting fees 45 60 (15) -25.0%
Legal fees 69 45 24 53.3%
Marketing 47 55 (8) -14.5%
Foreclosed asset expenses 24 80 (56) -70.0%
Other 330 368 (38) -10.3%
------ ------ ------- -----
TOTAL NONINTEREST EXPENSE $2,846 $2,790 $ 56 2.0%
====== ====== ======= =====
</TABLE>
Provision for Income Taxes
The provision for income taxes for the first quarter of 1997 increased to
$580,000 from $195,000 for the same quarter of the prior year. These provisions
represent effective tax rates of 36% and 17%, respectively. The 1997 provision
represents a more normalized effective tax rate as compared to the 1996
provision which included the tax benefits of prior period operating losses and
tax carryforward items. Beginning July 1, 1996, the effective date of the
quasi-reorganization, certain tax benefits which arose prior to the date of the
quasi-reorganization, are being reported as a direct adjustment to common stock.
FINANCIAL CONDITION
Loans
Average loans increased $29 million or 18.3% to $188.2 million for the three
months ended March 31, 1997 from $159.1 million for the same period in 1996. The
increase in average loans is attributed to an improving economic environment and
an overall increase in loan demand.
Real estate construction loans as a percentage of total loans outstanding were
4.1% at March 31, 1997 compared to 2.6% at March 31, 1996. Risks associated with
real estate construction lending are generally considered to be higher than
risks associated with other forms of lending and accordingly, the Bank continues
to fund real estate construction commitments on a limited basis with more
stringent underwriting criteria.
Other real estate loans consist of mini-perm loans and land acquisition loans
which are primarily owner-occupied and are generally granted based on the rental
or lease income stream generated by the property. Other real estate loans
totaled $65.2 million at March 31, 1997, an increase of $9.3 million or 16.6%
from March 31, 1996.
The following table sets forth the amount of loans outstanding in each category
and the percentage of total loans outstanding for each category as of the date
indicated.
10
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
--------------------- ----------------------- ------------------------
Amount Percent Amount Percent Amount Percent
--------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $106,488 53.5% $ 92,756 50.6% $ 76,600 49.9%
Real estate - construction 8,243 4.1% 6,608 3.6% 3,934 2.6%
Real estate - other 65,154 32.7% 64,272 35.0% 55,887 36.4%
Installment and other 19,285 9.7% 19,757 10.8% 17,067 11.1%
-------- ----- -------- ----- -------- -----
TOTAL $199,170 100.0% $183,393 100.0% $153,488 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Foreclosed Assets
Foreclosed assets totaled $973,000 at March 31, 1997, an increase of $261,000 or
36.7% from March 31, 1996, and consist of two parcels of raw land and one
finished lot.
Non-Performing Assets
The following table provides information with respect to the Company's past due
loans and components of non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
1997 1996 1996
------------------- ------------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C>
Loans 90 days or more past due and still accruing $ 341 $ 322 $ 497
Non-accrual loans 2,945 2,811 2,920
Other assets held for sale 232 275 275
Foreclosed assets 973 923 712
------- ------- ------
Total non-performing assets $4,491 $4,331 $4,404
======= ======= ======
Non-performing assets to period end loans,
other assets held for sale plus foreclosed assets 2.24% 2.35% 2.85%
======= ======= ======
</TABLE>
At March 31, 1997, the recorded investment in loans considered to be impaired
under 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 was $2,945,000 all of which were on a non-accrual
basis. Included in this amount was $13,000 of impaired loans for which the
related allowance for loan losses was $9,000 and $2,932,000 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 quarter ended March 31,
1997, the average recorded investment in impaired loans was $2,940,000 and no
interest income was recognized on impaired loans. If interest income on those
loans had been recognized, such income would have approximated $52,000.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management of the
Company considers to be adequate for losses that can be reasonably anticipated
in relation to the risk of future losses inherent in the loan portfolio. The
allowance is increased by charges to operating expenses and reduced by net
charge-offs.
11
<PAGE>
In assessing the adequacy of the allowance for loan losses, management relies on
its ongoing review of the loan portfolio to identify potential problem loans in
a timely manner, ascertains whether there are probable losses which must be
charged off and assesses the aggregate risk characteristics of the portfolio.
Factors which influence management's judgment include the impact of forecasted
economic conditions, historical loan loss experience, the evaluation of risks
which vary with the type of loan, creditworthiness of the borrower and the value
of the underlying collateral. Management believes the allowance for loan losses
was adequate at March 31, 1997.
The following table summarizes the changes in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Year Three Months
Ended Ended Ended
3-31-97 12-31-96 3-31-96
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, at beginning of period $4,969 $4,960 $4,960
Charge-offs:
Commercial 16 95 95
Real estate - construction -- 370 --
Real estate - other -- 477 50
Installment and other 3 127 9
------ ------ ------
Total charge-offs 19 1,069 154
Recoveries:
Commercial 4 242 26
Real estate - construction 37 56 2
Real estate - other 21 140 15
Installment and other 4 40 2
------ ------ ------
Total recoveries 66 478 45
------ ------ ------
Net (recoveries) charge-offs (47) 591 109
Provision charged to operations 25 600 225
------ ------ ------
Balance, at end of period $5,041 $4,969 $5,076
====== ====== ======
Ratio of net (recoveries) charge-offs to average
loans (annualized) -0.10% 0.36% 0.27%
====== ======= =======
Allowance at period end to total loans
outstanding 2.53% 2.71% 3.31%
====== ====== =======
</TABLE>
Potential Problem Loans
At March 31, 1997 there were no loans classified for regulatory purposes as
loss, doubtful, substandard or special mention that have not been disclosed in
the discussion above that (i) represented or resulted from trends or
uncertainties which management anticipated would have a material impact on
future operating results, liquidity, capital resources or (ii) represented
material credits about which management was aware of information that would
cause serious doubt as to the ability of the borrower to comply with the loan
repayment terms.
12
<PAGE>
Investment Portfolio
The Company's investment portfolio is used primarily for liquidity purposes and
secondarily for investment income. The portfolio is primarily composed of U.S.
Treasury and U.S. government agency instruments and investment grade municipal
obligations. The company has increased its investment in municipal securities to
benefit from higher after-tax yields available on bank-qualified municipal
securities.
The table below summarizes the book value and estimated market values of
investment securities at the dates indicated.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------------------ --------------------------------
Book Market Book Market
Value Value Value Value
-------------- ---------------- -------------- --------------
(Dollars in thousands)
SECURITIES HELD TO MATURITY:
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,905 $ 5,873 $10,882 $10,886
U.S. government agencies and
corporation 19,022 19,197 19,029 19,310
Municipal securities 12,084 11,903 128 134
Collateralized mortgage obligations 120 124 11,272 11,337
------- ------- ------- -------
TOTAL $37,131 $37,097 $41,311 $41,667
======= ======= ======= =======
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $12,039 $12,040 $12,042 $12,207
U.S. government agencies and
corporation 18,864 18,744 14,551 14,664
------- ------- ------- -------
TOTAL $30,903 $30,784 $26,593 $26,871
======= ======= ======= =======
</TABLE>
Deposits
For the three months ended March 31, 1997 average deposits totaled $250.1
million, an increase of $47.3 million or 23.3% from $202.8 million for the same
period in 1996. Management attributes the increase in deposits to an improving
economic environment.
For the three months ended March 31, 1997, average demand deposits totaled $72.7
million, an increase of $7.0 million or 10.8% from the same period in 1996.
Average demand deposits as a percentage of total deposits decreased to 29.1% for
the first quarter of 1997 from 32.4% for the same period of the prior year.
Average interest-bearing deposits increased $40.2 million or 29.3% for the three
months ended March 31, 1997 from the same period in 1996. Average
interest-bearing deposits comprised 70.9% of average total deposits for the
three months ended March 31, 1997 and 67.6% of average total deposits for the
three months ended March 31, 1996.
The table below sets forth information regarding the Bank's average deposits by
amount and percentage of total deposits for the three months ended March 31,
1997 and 1996.
13
<PAGE>
<TABLE>
<CAPTION>
Average Deposits
----------------------------------------------------------------------------------
Three Months Ended March 31,
----------------------------------------------------------------------------------
1997 1996
-------------------------------- ------------------------------------------
Amount Percentage Amount Percentage
------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Demand accounts $ 72,731 29.1% $ 65,624 32.4%
Interest-bearing checking 22,457 9.0% 22,396 11.0%
Money market 87,283 34.9% 71,486 35.3%
Savings and time 67,598 27.0% 43,284 21.3%
--------- ------- --------- ------
Total $250,069 100.0% $202,790 100.0%
========= ======= ========= ======
</TABLE>
Certificates of deposit over $100,000 are generally considered a higher cost and
less stable form of funding than lower denomination deposits and may represent a
greater risk of interest rate and volume volatility than small retail deposits.
Time certificates of $100,000 or more at March 31, 1997 had the following
schedule of maturities:
<TABLE>
<CAPTION>
(In thousands)
---------------
<S> <C>
Three months or less $25,823
After three months through six months 12,552
After six months through twelve months 3,626
After twelve months 784
-------
Total $42,785
=======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management refers to the Bank's ability to acquire funds to meet loan
demand, fund deposit withdrawals and to service other liabilities.
To augment liquidity, the Bank has informal federal funds borrowing arrangements
with correspondent banks totaling $24.0 million and is a member of the Federal
Home Loan Bank of San Francisco and through membership has the ability to pledge
qualifying collateral for short term (up to six months) and long term (up to
five years) borrowing. At March 31, 1997 the Bank had no outstanding borrowings
against these arrangements. Additionally, at March 31, 1997, unpledged
government securities that are available to secure additional borrowing in the
form of reverse repurchase agreements totaled approximately $46.6 million. At
March 31, 1997 the Bank had no reverse repurchase agreements.
The liquidity position of the Company declined during the first quarter of 1997
from December 31, 1996 as cash flows required for financing and investing
activities exceeded the funds provided by operating activities by $28.1 million.
Cash and cash equivalents of $14.1 million were required to accommodate deposit
withdrawals and cash and cash equivalents of $16.2 million were required to fund
investing activities which were partially funded by operating activities, which
provided $2.2 million of cash and cash equivalents.
The liquidity position of the Company may be expressed as a ratio defined as (a)
cash, Federal funds sold, other unpledged short term investments and marketable
securities, including those maturing after one year, divided by (b) total assets
less pledged securities. Using this definition at March 31, 1997, the Company
had a liquidity ratio of 28.1% as compared to 36.5% at December 31, 1996. The
liquidity ratio at December 31, 1996 included $29.3 million of over-night
Federal Funds sold which is an unusually
14
<PAGE>
high level. Federal Funds sold at March 31, 1997 were $4.6 million which is a
more typical level. The liquidity ratio at March 31, 1997 is considered
adequate.
Capital Resources
Total shareholders' equity increased to $34.4 million at March 31, 1997 from
$34.1 million at December 31, 1996 resulting from retained income of $1,050,000
for the first quarter of 1997 offset by the market adjustment of securities
available for sale and a net reduction of $517,000 in common stock due to stock
repurchases.
The Company and the Bank are subject to capital adequacy guidelines issued by
the Federal Reserve Board of Governors which require a minimum risk-based
capital ratio of 8%. At least 4% must be in the form of "Tier 1" capital and
consists of common equity, non-cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries. "Tier 2" capital
consists of cumulative and limited-life preferred stock, mandatory convertible
securities, subordinated debt and, subject to certain limitations, the allowance
for loan losses. General loan loss reserves included in Tier 2 capital cannot
exceed 1.25% of risk-weighted assets.
At March 31, 1997 the Company's risk-based capital ratio was 16.00%. The
following table presents the Company's risk-based capital and leverage ratios as
of March 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
Minimum Capital
Requirements To Be
Considered Well Capitalized
Minimum Under Prompt Corrective
Actual Capital Requirements Action Provisions
--------------------------- -------------------------- ------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital
(to Risk Weighted Assets) 36,282 15.97% 18,176 > 8.00% 22,721 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 33,415 14.71% 9,088 > 4.00% 13,632 6.00%
Tier 1 Capital
(to Average Assets) 33,415 11.75% 11,375 > 4.00% 14,219 5.00%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) 35,412 16.10% 17,594 > 8.00% 21,993 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 32,635 14.84% 8,797 > 4.00% 13,196 6.00%
Tier 1 Capital
(to Average Assets) 32,635 11.27% 11,580 > 4.00% 14,475 5.00%
</TABLE>
15
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
CIVIC BANCORP
-------------
(Registrant)
Date: May 7, 1997 By: /s/ Herbert C. Foster
--------------------------------
Herbert C. Foster
President
Chief Executive Officer
By: /s/ Gerald J. Brown
--------------------------------
Gerald J. Brown
Chief Financial Officer
Principal Accounting Officer
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1996
<CASH> 13,546 13,465
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 4,600 8,850
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 30,784 7,908
<INVESTMENTS-CARRYING> 37,131 48,539
<INVESTMENTS-MARKET> 37,097 49,030
<LOANS> 199,170 153,488
<ALLOWANCE> 5,041 5,076
<TOTAL-ASSETS> 289,704 235,218
<DEPOSITS> 252,859 202,854
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 2,404 1,952
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 31,222 36,914
<OTHER-SE> 3,219 (6,502)
<TOTAL-LIABILITIES-AND-EQUITY> 289,704 235,218
<INTEREST-LOAN> 4,707 4,132
<INTEREST-INVEST> 1,212 960
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 5,919 5,092
<INTEREST-DEPOSIT> 1,634 1,122
<INTEREST-EXPENSE> 1,635 1,136
<INTEREST-INCOME-NET> 4,284 3,956
<LOAN-LOSSES> 25 225
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 2,846 2,790
<INCOME-PRETAX> 1,630 1,120
<INCOME-PRE-EXTRAORDINARY> 1,630 1,120
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,050 925
<EPS-PRIMARY> .23 .20
<EPS-DILUTED> .23 .20
<YIELD-ACTUAL> .066 .073
<LOANS-NON> 2,945 2,920
<LOANS-PAST> 341 497
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,969 4,960
<CHARGE-OFFS> 19 154
<RECOVERIES> 66 45
<ALLOWANCE-CLOSE> 5,041 5,076
<ALLOWANCE-DOMESTIC> 5,041 5,076
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,258 1,325
</TABLE>
