<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to
_________________
Commission File No. 0-13287
CIVIC BANCORP
2101 Webster Street, 14th Floor
Oakland, CA 94612
(510) 836-6500
Incorporated in California I.R.S. Employer Identification No.
68-0022322
The number of shares of common stock outstanding as of the close of business on
November 4, 1997.
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 4,611,259
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 ________
-------
1
<PAGE>
CIVIC BANCORP
AND
SUBSIDIARY
Index to Form 10-Q Page Number
-----------
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1997, September 30, 1996
and December 31, 1996 3
Consolidated Statements of Operations -
Three Months Ended September 30, 1997 and
September 30, 1996 and Nine Months Ended
September 30, 1997 and September 30, 1996 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and
September 30, 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>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CIVIC BANCORP AND SUBSIDIARY
------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------
(In thousands except shares)
September 30, September 30, December 31,
1997 1996 1996
---------------- ---------------- -----------------
ASSETS
- ------
<S> <C> <C> <C>
Cash and due from banks $ 20,352 $ 12,469 $ 16,929
Federal funds sold 7,400 19,400 29,300
---------------- ---------------- -----------------
Total cash and cash equivalents 27,752 31,869 46,229
Securities available for sale 31,133 26,751 26,871
Securities held to maturity
(market value of $30,467, $45,901
and $41,667, respectively) 30,107 45,611 41,311
Other securities 1,949 1,717 1,761
Loans:
Commercial 119,556 88,621 92,756
Real estate-construction 15,479 3,160 6,608
Real estate-other 64,954 56,628 64,272
Installment and other 20,280 19,316 19,757
---------------- ---------------- -----------------
Total loans 220,269 167,725 183,393
Less allowance for loan losses 4,638 5,133 4,969
---------------- ---------------- -----------------
Loans - net 215,631 162,592 178,424
Interest receivable and other assets 5,229 4,185 4,921
Leasehold improvements and equipment - net 1,324 1,563 1,463
Foreclosed assets 570 308 923
Other assets held for sale 205 275 275
---------------- ---------------- -----------------
TOTAL ASSETS $313,900 $274,871 $302,178
================ ================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 77,380 $ 65,358 $ 84,337
Interest-bearing:
Checking 5,023 31,717 26,245
Money market 98,367 82,091 85,035
Time and savings 92,607 61,088 70,830
---------------- ---------------- -----------------
Total deposits 273,377 240,254 266,447
Accrued interest payable and other liabilities 3,352 2,035 1,584
---------------- ---------------- -----------------
Total liabilities 276,729 242,289 268,031
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,
4,391,123, 4,515,883 and 4,431,895 shares 31,278 31,423 31,739
Retained earnings, (subsequent to July 1, 1996
date of quasi-reorganization, total deficit
eliminated $5.5 million) 5,665 1,050 2,240
Net unrealized gain on securities available for sale 228 109 168
---------------- ---------------- -----------------
Total shareholders' equity 37,171 32,582 34,147
---------------- ---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $313,900 $274,871 $302,178
---------------- ---------------- -----------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands except shares and per share amounts)
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
------------------------------ -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 5,618 $ 4,209 $ 15,612 $ 12,394
Securities available for sale,
securities held to maturity
and other securities 912 949 2,828 2,807
Tax exempt securities 159 68 438 102
Federal funds sold 90 239 222 282
---------- ---------- ---------- ----------
Total interest income 6,779 5,465 19,100 15,585
INTEREST EXPENSE:
Deposits 1,934 1,417 5,328 3,654
Other borrowings 7 - 39 31
---------- ---------- ---------- ----------
Total interest expense 1,941 1,417 5,367 3,685
---------- ---------- ---------- ----------
NET INTEREST INCOME 4,838 4,048 13,733 11,900
Provision for loan losses 25 75 75 525
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,813 3,973 13,658 11,375
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Customer service fees 222 150 581 430
Other 26 18 108 95
---------- ---------- ---------- ----------
Total noninterest income 248 168 689 525
NONINTEREST EXPENSE:
Salaries and employee benefits 1,744 1,475 5,146 4,500
Occupancy 269 251 760 753
Equipment 210 219 664 647
Foreclosed asset expense 9 101 72 254
Goodwill and core deposit amortization 57 64 172 193
Telephone and postage 76 62 220 188
Data processing services 83 59 246 184
Marketing 59 52 160 168
Legal fees 74 44 217 134
Consulting fees 45 30 135 150
FDIC insurance 8 1 23 2
Other 367 298 1,037 942
---------- ---------- ---------- ----------
Total other expenses 3,001 2,656 8,852 8,115
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,060 1,485 5,495 3,785
Income tax expense 810 435 2,070 825
---------- ---------- ---------- ----------
NET INCOME $ 1,250 $ 1,050 $ 3,425 $ 2,960
========== ========== ========== ==========
NET INCOME PER COMMON SHARE $ 0.27 $ 0.23 $ 0.74 $ 0.64
========== ========== ========== ==========
Weighted average shares outstanding
used to compute net income per
common share 4,644,089 4,630,746 4,610,346 4,603,160
========== ========== ========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CIVIC BANCORP AND SUBSIDIARY
---------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------
(In thousands)
Nine Months Ended Sept. 30,
--------------------------
1997 1996
----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,425 $ 2,960
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 75 525
Depreciation and amortization 835 597
Loss on sale of fixed assets - 30
Loss on sale of foreclosed assets - 43
Write-down of foreclosed assets 15 27
Increase (Decrease) in deferred loan fees 42 (149)
Change in assets and liabilities:
Increase in interest receivable and other assets (378) (464)
Increase in accrued interest
payable and other liabilities 1,827 654
-------- --------
Net cash provided by operating activities 5,841 4,223
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (303) (355)
Paydown on assets held for sale 70 -
Expenditures on foreclosed assets 35 -
Proceeds from sales of foreclosed assets 1,063 467
Net increase in loans (38,084) (13,307)
Activities in securities held to maturity:
Proceeds from maturing securities 12,019 14,098
Purchases of securities (1,005) (8,392)
Activities in securities available for sale:
Proceeds from maturing securities - 10,000
Purchases of securities (4,382) (26,752)
-------- --------
Net cash used in investing activities (30,587) (24,241)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 193 173
Purchase of common stock (854) -
Net increase in deposits 6,930 20,156
-------- --------
Net cash provided by financing activities 6,269 20,329
-------- --------
Net (decrease) increase in cash and cash equivalents (18,477) 311
Cash and cash equivalents at beginning of period 46,229 31,558
-------- --------
Cash and cash equivalents at end of period $ 27,752 $ 31,869
======== ========
Cash paid during year for:
Interest $ 5,138 $ 3,601
======== ========
Income taxes $ 1,483 $ 1,322
======== ========
Supplemental schedule of non-cash
investing activity:
Loans transferred to foreclosed assets $ 760 $ 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 PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board, ("FASB"), issued
Statement of Financial Accounting Standards No. 128, ("FAS 128"), "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 consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, ("FAS 130"), "Reporting Comprehensive Income". This statement
establishes standards for reporting and displaying comprehensive income and its
components in the consolidated financial statements. It does not require a
specific format for the statement, but requires the Company to display an
amount representing total comprehensive income for the period in that financial
statement. This statement is effective for fiscal years beginning after
December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, ("FAS 131"), "Disclosures About Segments of an Enterprise and Related
Information". This statement establishes standards for the way public business
enterprises are to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. This statement is effective for financial statements for periods
beginning after December 31, 1997. The Company does not believe it has any
separate reportable business segments.
The Securities and Exchange Commission, ("SEC"), has approved rule amendments
to clarify and expand existing disclosure requirements for derivative
instruments. The amendments require enhanced disclosure of accounting policies
for derivative financial instruments in the notes to the financial statements
and expand existing disclosure requirements to include quantitative and
qualitative information about market risk inherent in market risk sensitive
instruments. The required quantitative and qualitative information should be
disclosed outside the financial statements and related notes thereto. The
enhanced accounting policy disclosure requirements are effective for the
quarterly period ended September 30, 1997 and the required expanded disclosure
of quantitative and qualitative information about market risk are effective
with the 1997 Form 10-K. As the Company does not engage in derivative
instruments, no further interim period disclosure has been provided.
3. SUBSEQUENT EVENT
On October 15, 1997, at a regularly scheduled meeting of the Board of
Directors of Civic BanCorp, the Directors declared a 5% stock dividend to
shareholders of record on October 29, 1997, payable on November 12, 1997.
Fractional shares will be paid in cash.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
For the nine months ended September 30, 1997, the Company reported net income of
$3,425,000, or $.74 per share compared to a net income of $2,960,000 or $.64 per
share for the same period of the prior year. The annualized return on average
assets was 1.53% for the nine months ended September 30, 1997 compared to 1.61%
for the same period of the prior year. The annualized return on average
shareholders' equity for the nine months ended September 30, 1997 and 1996 was
12.94% and 12.78%, respectively.
RESULTS OF OPERATIONS
Net interest income for the nine months ended September 30, 1997 was $13.7
million, increasing $1.8 million or 15.4% from net interest income of $11.9
million for the same period in 1996. The increase in net interest income is
primarily due to an increase in the volume of average earning assets the
benefits of which were partially offset by an increase in the volume of interest
bearing liabilities.
Total interest income for the first nine months of 1997 equaled $19.1 million,
an increase of $3.5 million from interest income earned for the same period in
1996. The increase in total interest income is primarily attributed to the
increase in volume of earning assets. Total average earning assets increased
$51.7 million or 22.8% to $278.9 million for the first nine months of 1997
compared to $227.2 million for the same period in 1996.
Total interest expense for the first nine months of 1997 was $5.4 million an
increase of $1.7 million or 45.6% from the $3.7 million for the first nine
months of 1996. The increase in interest expense was due to increases in both
the average volume and the average rate paid on interest bearing liabilities.
Average interest bearing liabilities were $187.4 million for the first nine
months of 1997 as compared to $145.2 million for the same period of the prior
year, an increase of $42.2 million or 29.1%. The average rate paid on these
liabilities increased 44 basis points to 3.83% for the first nine months of 1997
from 3.39% for the same period of 1996. The increase in the average rate is
attributed to a shift in the mix of interest bearing liabilities to savings and
time deposits. Savings and time deposits as a percentage of average total
interest bearing liabilities increased to 41.9% from 32.5% for the first nine
months of 1997 and 1996, respectively.
Net Interest Margin
Net interest margin declined 32 basis points to 6.72% for the nine months ended
September 30, 1997 from 7.04% for the same period of the prior year. The
decrease in the margin is attributed to the slight decrease in average rate
earned on loans of 17 basis points and the increase in the average rate paid on
interest bearing deposits of 44 basis points. Management attributes the decline
in the yield on average loans to the Company's efforts to transact loans with
lower risk. Terms which would reduce the level of risk on a loan include
stronger sources of repayment, higher levels of collateralization and other
terms which are considered more favorable to the Bank. Higher quality loans
generally have a lower risk premium over the Bank's reference rate.
Additionally, there is increased competition for such higher quality loans from
other financial institutions. However, no assurance can be given that the
effort to make loans with lower risk will result in fewer delinquencies and
lower loan losses in the future. The increase in the average rate paid on
interest bearing deposits reflects a higher interest rate environment for
deposits and a shift in the mix of interest bearing liabilities toward savings
and time deposits which have higher interest rates.
7
<PAGE>
The following table presents an analysis of the components of net interest
income for the first nine months ended September 30, 1997 and 1996.
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
--------------------------------------------------
1997
--------------------------------------------------
Interest Rates
Dollars in thousands Average Income\ Earned\
Balance Expense /2 / Paid
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Securities available for sale $ 30,901 $ 1,478 6.40%
Securities held to maturity:
U.S. Treasury securities 6,788 303 5.97%
U.S. Government agencies 17,325 964 7.44%
Municipal securities /(1)/ 12,013 731 8.13%
Commercial paper - - -%
Other securities 1,860 83 5.95%
Federal funds sold and securities
purchased under agreements to resell 5,466 222 5.43%
Loans: /2,3/
Commercial 108,487 8,458 10.42%
Real estate-construction 10,879 829 10.19%
Real estate-other 64,867 4,823 9.94%
Installment and other 20,362 1,502 9.86%
---------- ---------- ----------
Total Loans 204,595 15,611 10.20%
---------- ---------- ----------
Total Earning Assets 278,948 19,392 9.29%
Cash and due from banks 17,271
Leasehold improvements and equipment - net 1,418
Interest receivable and other assets 4,891
Foreclosed assets 608
Assets held for sale 205
Less allowance for loan loss (4,882)
----------
TOTAL ASSETS $298,459
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 14,734 175 1.59%
Money market 93,247 2,149 3.08%
Time and savings 78,489 3,004 5.12%
Other borrowed funds 896 39 5.85%
---------- ---------- ----------
Total interest bearing 187,366 5,367 3.83%
liabilities
Demand deposits 73,051
Other liabilities 2,742
Shareholders' equity 35,300
----------
TOTAL LIABILITIES AND SHAREHOLDERS' $298,459
EQUITY ==========
Net Interest Income $14,025
==========
Net Interest Margin 6.72%
==========
Tax Equivalent Adjustment /(1)/ $ 292
==========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
--------------------------------------------------
Dollars in thousands 1996
--------------------------------------------------
Interest Rates
Average Income\ Earned\
Balance Expense /2 / Paid
------------ ----------- ------------
<S> <C> <C> <C>
ASSETS
Securities available for sale $ 10,832 $ 497 6.13%
Securities held to maturity:
U.S. Treasury securities 10,799 495 6.12%
U.S. Government agencies 33,241 1,711 6.88%
---------- ---------- ----------
Municipal securities /(1)/ 2,983 170 7.60%
Commercial paper 777 32 5.42%
Other securities 1,648 72 5.86%
Federal funds sold and securities
purchased under agreements to resell 7,278 282 5.18%
Loans: /2,3/
Commercial 79,478 6,285 10.56%
Real estate-construction 3,151 237 10.04%
Real estate-other 59,506 4,546 10.20%
Installment and other 17,492 1,326 10.12%
---------- ---------- ----------
Total Loans 159,627 12,393 10.37%
---------- ---------- ----------
Total Earning Assets 227,185 15,652 9.20%
Cash and due from banks 16,832
Leasehold improvements and equipment-net 1,643
Interest receivable and other assets 3,531
Foreclosed assets 613
Assets held for sale 275
Less allowance for loan loss (5,030)
----------
TOTAL ASSETS $245,049
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 24,343 172 0.94%
Money market 72,969 1,782 3.26%
Time and savings 47,161 1,700 4.82%
Other borrowed funds 745 31 5.59%
---------- ---------- ----------
Total interest bearing liabilities 145,218 3,685 3.39%
Demand deposits 67,135
Other liabilities 1,837
Shareholders' equity 30,887
----------
TOTAL LIABILITIES AND SHAREHOLDERS' $245,077
EQUITY ==========
Net Interest Income $11,967
=========
Net Interest Margin 7.04%
==========
Tax Equivalent Adjustment /(1)/ $67
=========
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax-exempt interest income on municipal securities is computed using a
Federal income tax rate of 40%. Interest on municipal securities was $438,000
and $102,000 for the nine months ended September 30, 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 of
$330,000 and $313,000 on commercial loans for the nine months ended September
30, 1997 and 1996, respectively; fees of $298,000 and $343,000 on real estate
loans for the nine months ended September 30, 1997 and 1996, respectively; and
fees of $25,000 and $25,000 on installment and other loans for the nine months
ended September 30, 1997 and 1996, respectively.
8
<PAGE>
The following table sets forth changes in interest income and interest expense
for each major category of interest-earning assets and interest-bearing
liabilities, and the amount of change attributable to volume and rate changes
for the nine month periods ended September 30, 1997 and 1996 .
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense
Increase (Decrease) Due to Change in
in thousands
Volume /1 / Rate /2 / Total
------------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Securities available for sale $ 920 $ 61 $ 981
Securities held to maturity:
U.S. Treasury securities (185) (7) (192)
U.S. Government agencies (820) 73 (747)
Municipal securities 512 48 560
Commercial paper (32) - (32)
Other securities 9 2 11
Federal funds sold (70) 10 (60)
Loans:
Commercial 2,287 (114) 2,173
Real estate-construction 581 11 592
Real estate-other 403 (126) 277
Installment and other 217 (41) 176
------------- ---------- -----------
Total Loans 3,488 (270) 3,218
------------- ---------- -----------
Total increase (decrease) $ 3,822 $ (83) $ 3,739
------------- ---------- -----------
(Increase) decrease in interest expense:
Deposits:
Interest bearing checking $ 68 $ (71) $ (3)
Money market (493) 126 (367)
Savings and time (1,127) (177) (1,304)
Other borrowed funds (6) (2) (8)
------------- ---------- -----------
Total increase (decrease) $(1,558) $(124) $(1,682)
------------- ---------- -----------
Total change in net interest income $ 2,264 $(207) $ 2,057
============= ========== ===========
</TABLE>
(1) Changes not solely attributed to rate or volume have been allocated to
volume.
(2) Loan fees are reflected in rate variances.
Provision for Loan Losses
The provision for loan losses for the nine months ended September 30, 1997 was
$75,000, a decrease of $450,000 or 85.7% from the nine months ended September
30, 1996. The amount of the provision was reduced because management believed
the allowance for loan losses is adequate.
Non-Interest Income
Non-interest income for the nine months ended September 30, 1997 was $689,000,
an increase of $164,000 or 31.2% from the nine months ended September 30, 1996.
Customer service fees have increased $151,000 or $35.1% to $581,000 from
$430,000 due to the increase in deposit activity and an increase in foreign
trade transaction volume.
9
<PAGE>
Non-Interest Expense
Non-interest expense totaled $8.9 million and $8.1 million for the nine months
periods ended September 30, 1997 and 1996, respectively. Salaries and employee
benefits for the nine months ended September 30, 1997 increased $646,000 or
14.4% from the same period in 1996. The increase in salaries and employee
benefits is related to increases in the management incentive accrual, employer
contributions to the 401K plan and staffing levels. Full time equivalent
personnel numbered 108 on September 30, 1997 compared to 100 on September 30,
1996.
Foreclosed asset expenses have decreased as foreclosed properties have been sold
and increased data processing expenses are related to increased loan and deposit
activity combined with general cost escalation. Legal expenses have increased
due to increased legal activity to recover prior period loan charge-offs and the
FDIC assessments increased by $21,000 for the first nine months of 1997 as
compared to the prior year due to the addition of a regulatory FICO assessment.
The following table summarizes the significant components of noninterest expense
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September September Dollar %
(Dollars in thousands) 1997 1996 Change Change
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Salaries and related benefits $5,146 $4,500 $ 646 14.4%
Occupancy 760 753 7 0.9%
Equipment 664 647 17 2.6%
Foreclosed asset expenses 72 254 (182) -71.7%
Goodwill and core deposit amortization 172 193 (21) -10.9%
Telephone and postage 220 188 32 17.0%
Data processing services 246 184 62 33.7%
Marketing 160 168 (8) -4.8%
Legal fees 217 134 83 61.9%
Consulting fees 135 150 (15) -10.0%
FDIC insurance 23 2 21 1050.0%
Other 1,037 942 95 10.1%
------- ------- ------- -------
TOTAL NONINTEREST EXPENSE $8,852 $8,115 $ 737 9.1%
======= ======= ======= =======
</TABLE>
Provision for Income Taxes
The provision for income taxes for the first nine months of 1997 increased to
$2,070,000 from $825,000 for the same period of the prior year. These provisions
represent effective tax rates of 38% and 22%, 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 $45.0 million or 28.2% to $204.6 million for the nine
months ended September 30, 1997 from $159.6 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.
10
<PAGE>
Real estate construction loans as a percentage of total loans outstanding were
7.0% at September 30, 1997 compared to 1.9% at September 30, 1996. Risks
associated with real estate construction lending are generally considered to be
higher than risks associated with other forms of lending however, 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 $65.0 million at September 30, 1997, an increase of $8.3 million or
14.7% from September 30, 1996.
The following table sets forth the amount of loans outstanding in each category
and the percentage of total loans outstanding for each category at the dates
indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
---------------------- -------------------------- --------------------------
1997 1996 1996
---------------------- -------------------------- --------------------------
Amount Percent Amount Percent Amount Percent
----------- --------- ------------ ----------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $119,556 54.3% $ 92,756 50.6% $ 88,621 52.8%
Real estate - construction 15,479 7.0% 6,608 3.6% 3,160 1.9%
Real estate - other 64,954 29.5% 64,272 35.0% 56,628 33.8%
Installment and other 20,280 9.2% 19,757 10.8% 19,316 11.5%
-------- ------- -------- ------- -------- --------
TOTAL $220,269 100.0% $183,393 100.0% $167,725 100.0%
======= ====== ======== ====== ======== ======
</TABLE>
Foreclosed Assets
Foreclosed assets totaled $570,000 at September 30, 1997, as compared to
$923,000 at December 31, 1996. During the first nine months of 1997, the Company
sold three properties with proceeds of $1,063,000, but foreclosed on one single
family residence which is currently under contract and is the only foreclosed
asset as of September 30, 1997.
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>
Sept. 30 Dec. 31 Sept. 30
1997 1996 1996
-------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Loans 90 days or more past due and
still accruing $ 192 $ 322 $ 151
Non-accrual loans 3,465 2,811 3,200
Other assets held for sale 205 275 275
Foreclosed assets 570 923 308
-------- -------- ---------
Total non-performing assets $4,432 $4,331 $3,934
======== ======== =========
Non-performing assets to period end
loans, other assets held for sale plus
foreclosed assets 2.00% 2.35% 2.34%
======== ======== =========
</TABLE>
11
<PAGE>
At September 30, 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 $3,465,000 all of which were placed on a non-
accrual basis. For the nine months ended September 30, 1997, the average
recorded investment in impaired loans was $3,498,000 and no interest income has
been recognized on impaired loans. If interest income on those loans had been
recognized, such income would have approximated $459,000.
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.
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 September 30, 1997.
The following table summarizes the changes in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Nine Months Year Nine Months
Ended Ended Ended
9-30-97 12-31-96 9-30-96
----------- ----------- -----------
(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 300 370 270
Real estate - other 400 477 175
Installment and other 16 127 126
---------- ----------- ----------
Total charge-offs 732 1,069 666
Recoveries:
Commercial 11 242 125
Real estate - construction 37 56 54
Real estate - other 253 140 122
Installment and other 25 40 13
---------- ----------- ----------
Total recoveries 326 478 314
---------- ----------- ----------
Net charge-offs 406 591 352
Provision charged to operations 75 600 525
---------- ----------- ----------
Balance, at end of period $ 4,638 $ 4,969 $ 5,133
========== =========== ==========
Ratio of net charge-offs to average
loans (annualized) 0.26% 0.36% 0.29%
========== =========== ==========
Allowance at period end to total loans
outstanding 2.11% 2.71% 3.06%
========== =========== ==========
Allownace at period end to total
non-performing loans 126.8% 158.6% 153.2%
========== =========== ==========
</TABLE>
12
<PAGE>
Potential Problem Loans
At September 30, 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.
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 diverted liquidity from maturing U.S. government
agency securities to satisfy the growth of the higher yielding loan portfolio
and 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>
September 30,
--------------------------------------------------
1997 1996
------------------------- ----------------------
Book Market Book Market
Value Value Value Value
-------- -------- -------- ---------
(Dollars in
thousands)
<S> <C> <C> <C> <C>
SECURITIES HELD TO MATURITY:
U.S. Treasury securities $ 5,934 $ 5,952 $10,850 $10,847
U.S. government agencies and
corporation 12,013 12,095 26,042 26,361
Municipal securities 12,062 12,317 8,585 8,558
Collateralized mortgage obligations 98 103 134 135
-------- --------- -------- --------
TOTAL $30,107 $30,467 $45,611 $45,901
======== ========= ======== ========
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities $12,031 $12,215 $12,046 $12,130
U.S. government agencies and
corporation 18,722 18,918 14,596 14,621
-------- --------- -------- --------
TOTAL $30,753 $31,133 $26,642 $26,751
======== ========= ======== =========
</TABLE>
Deposits
For the nine months ended September 30, 1997 average deposits totaled $259.5
million, an increase of $47.9 million or 22.6% from $211.6 million for the same
period in 1996. Management attributes the increase in deposits to an improving
economic environment and an increase in loan demand. It is the Company's
objective to become the primary bank for its customers by servicing both the
loan and the deposit needs. Accordingly, a correlation is expected between loan
and deposit volumes such that deposit volumes will increase as loan activity
increases.
Average demand deposits totaled $73.1 million, an increase of $6.0 million or
8.9% from the same period in 1996, however as a percentage of total deposits,
demand deposits decreased to 28.1% for the nine months ended September 30, 1997
from 31.7% for the same period of the prior year. Average interest-bearing
deposits increased $42.0 million or 29.1% for the nine months ended September
30, 1997 from the same period in 1996. Average interest-bearing deposits
comprised 71.9% of average total deposits for the nine months ended September
30, 1997 and 68.3% of average total deposits for the nine months ended September
30, 1996.
13
<PAGE>
The increase in savings and time deposits, which had the greatest
level of growth of all deposit types, is attributed to the interest rate
environment wherein time deposit rates are comparable to interest rates on
investment securities and do not require broker commissions or other transaction
costs when purchased.
The table below sets forth information regarding the Bank's average deposits by
amount and percentage of total deposits for the nine months ended September 30,
1997 and 1996.
<TABLE>
<CAPTION>
Average Deposits
--------------------------------------------------------------
Nine Months Ended Sept. 30,
---------------------------------------------------------------
1997 1996
-------------------------------- ----------------------------
Amount Percentage Amount Percentage
----------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
Demand accounts $ 73,051 28.1% $ 67,135 31.7%
Interest-bearing checking 14,734 5.7% 24,343 11.5%
Money market 93,247 35.9% 72,969 34.5%
Savings and time 78,489 30.3% 47,161 22.3%
----------- --------------- ---------- ------------
Total $259,521 100.0% $211,608 100.0%
=========== =============== ========== ============
</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 September 30, 1997 had the following
schedule of maturities:
<TABLE>
<CAPTION>
(In thousands)
Sept. 30, 1997 Dec. 31, 1996
-------------- -------------
<S> <C> <C>
Three months or less $33,485 $15,318
After three months through six months 18,571 20,918
After six months through twelve months 11,885 8,898
After twelve months 3,042 668
--------- ---------
Total $66,983 $45,802
========= =========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management refers to the Bank's ability to acquire funds to meet loan
demand, to fund deposit withdrawals and to service other liabilities.
To augment liquidity, the Bank has informal federal funds borrowing arrangements
with correspondent banks totaling $30.0 million. The Bank is a member of the
Federal Home Loan Bank of San Francisco and through membership has the ability
to pledge qualifying collateral for short term (up to six months) and long term
(up to five years) borrowing. At September 30, 1997 the Bank had no outstanding
borrowings against these arrangements. Additionally, at September 30, 1997,
unpledged government securities that are available to secure additional
borrowing in the form of reverse repurchase agreements totaled approximately
$39.6 million. At September 30, 1997 the Bank had no reverse repurchase
agreements.
The liquidity position of the Company declined during the first nine months of
1997 from December 31, 1996 as cash flows required for investing activities
exceeded the funds provided by operating and financing activities by $18.5
million. Cash and cash equivalents of $30.6 million were required to
accommodate the growth in the loan portfolio. Deposit growth provided $6.3
million of cash and cash equivalents and operating activities provided by an
additional $5.8 million of cash and cash equivalents.
14
<PAGE>
The liquidity position of the Company may be expressed as a ratio defined as (a)
cash, Federal funds sold, other unpledged short term investments and marketable
securities, including those maturing after one year, divided by (b) total assets
less pledged securities. Using this definition at September 30, 1997, the
Company had a liquidity ratio of 26.6% as compared to 36.5% at December 31,
1996. Overnight Federal funds sold at September 30, 1997 were $7.4 million
compared to $29.3 million of overnight Federal funds sold at December 31, 1996
which is an unusually high level and was attributed to client year-end activity.
Capital Resources
Total shareholders' equity increased to $37.2 million at September 30, 1997 from
$34.1 million at December 31, 1996 reflecting retained income of $3,425,000 for
the first nine months of 1997 and an increase in the market adjustment of
securities available for sale offset by a net reduction of $661,000 in common
stock due to stock repurchases and option exercises.
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 allowance
for loan losses. General loan loss reserves included in Tier 2 capital cannot
exceed 1.25% of risk-weighted assets.
At September 30, 1997 the Company's total risk-based capital ratio was 15.08%.
The following table presents the Company's risk-based capital and leverage
ratios as of September 30, 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 September 30, 1997:
Total Capital
(to Risk Weighted Assets) $39,273 15.08% $20,840 greater than 8.00% $26,050 greater than 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 36,000 13.82% 10,420 greater than 4.00% 15,630 greater than 6.00%
Tier 1 Capital
(to Average Assets) 36,000 11.67% 12,341 greater than 4.00% 15,426 greater than 5.00%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $35,412 16.10% $17,594 greater than 8.00% $21,993 greater than 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 32,635 14.84% 8,797 greater than 4.00% 13,196 greater than 6.00%
Tier 1 Capital
(to Average Assets) 32,635 11.27% 11,580 greater than 4.00% 14,475 greater than 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: November 5, 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> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 20,352 12,469
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 7,400 19,400
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 31,133 26,751
<INVESTMENTS-CARRYING> 30,107 45,611
<INVESTMENTS-MARKET> 30,467 45,901
<LOANS> 220,269 167,725
<ALLOWANCE> 4,638 5,133
<TOTAL-ASSETS> 313,900 274,871
<DEPOSITS> 273,377 240,254
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 3,352 2,035
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 31,278 31,423
<OTHER-SE> 5,893 1,159
<TOTAL-LIABILITIES-AND-EQUITY> 313,900 274,871
<INTEREST-LOAN> 15,612 12,394
<INTEREST-INVEST> 3,488 3,191
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 19,100 15,585
<INTEREST-DEPOSIT> 5,328 3,654
<INTEREST-EXPENSE> 5,367 3,685
<INTEREST-INCOME-NET> 13,733 11,900
<LOAN-LOSSES> 75 525
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 8,852 8,115
<INCOME-PRETAX> 5,495 3,785
<INCOME-PRE-EXTRAORDINARY> 5,495 3,785
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,425 2,960
<EPS-PRIMARY> 0.24 0.23
<EPS-DILUTED> 0.24 0.23
<YIELD-ACTUAL> 6.72 7.04
<LOANS-NON> 3,465 3,200
<LOANS-PAST> 192 151
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,969 4,960
<CHARGE-OFFS> 732 666
<RECOVERIES> 326 314
<ALLOWANCE-CLOSE> 4,638 5,133
<ALLOWANCE-DOMESTIC> 4,638 5,133
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,790 1,968
</TABLE>
