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________________________________________________________________________________
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, 1996 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, 1997: $55,110,100.00
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of March 1, 1997: 4,408,808
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Proxy Statement for Annual Meeting of Shareholders (Part III),
Scheduled for May 8, 1997.
________________________________________________________________________________
THIS REPORT CONTAINS A TOTAL OF 59 PAGES
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EXHIBIT INDEX ON PAGE 33
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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, San
Francisco, Santa Clara 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 two banking offices in Walnut Creek and additional offices in
Fremont and San Leandro. The Bank has loan production offices at 595 Market
Street, 28th Floor, San Francisco, California, 94577, telephone number (415)
977-1690 and at 1731 Technology Drive, Suite 595, San Jose, California, 95110,
telephone number (408) 467-5547.
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, 1996, the
Bank had a total of 6,419 accounts, consisting of demand deposit accounts with
an average balance of approximately $41,000; savings, NOW and market rate
accounts with an average balance of approximately $34,000; time certificates of
$100,000 or more with an average balance of approximately $324,000; and other
time deposits with an average balance of approximately $30,000. 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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Deposits".
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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, 1996, totaled $178.4 million, which
represented 67.0% of total deposits and 59.0% of total assets. The table below
shows the mix of the loan portfolio as of December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
December 31
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(In thousands) 1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Commercial loans $ 92,756 $ 70,417 $ 74,164
Real estate construction loans 6,608 4,067 5,977
Real estate loans - other 64,272 61,752 53,715
Installment and other loans 19,757 18,460 20,860
------------------------------------
Subtotal 183,393 154,696 154,716
Less allowance for loan losses 4,969 4,960 3,216
------------------------------------
LOANS-NET $178,424 $149,736 $151,500
====================================
</TABLE>
Commercial Loans - As of December 31, 1996, the Bank had outstanding commercial
loans totaling $92.8 million, representing 50.6% 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, San Francisco, Santa Clara 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 3.29% of total outstanding loans at December 31, 1996.
Real Estate Loans - As of December 31, 1996, the Bank had outstanding real
estate construction loans totaling $6.6 million representing 3.6% 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 totaled $64.2 million at December 31, 1996, of which $53.1 million
were mini-perms. Mini-perm loans are available for completed commercial and
retail projects with terms of three to five years and principal and interest
payments based on a 15 to 25 year amortization schedule with a balloon payment
due at the end of the term.
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 $3.1 million or
15.8% of total installment loans at December 31, 1996. The remainder includes
home equity loans, automobile loans and other personal loans.
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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 and account reconciliation. 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, 1996, the Bank employed a total of 103 persons, consisting of 98
full time employees and 5 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 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.
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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 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 now
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 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
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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, 1996, loans to directors totaled $723,000
or 2.1% 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 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. However, FRB and FDIC regulations restrict
the ability of the Bank to engage in real estate development and investment
activities and to engage, as principal, in other activities not permitted to
national banks.
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
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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 $49.3 million or less, plus 10%
against that portion of total transaction accounts in excess of $49.3 million.
The first $4.4 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 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
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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) and 0.27% per annum (for undercapitalized
Subgroup C institutions). The assessment rate may increase in the future. At
December 31, 1996, 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 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, 1996, the Bank
meets the capital ratio requirements for a "well capitalized" bank.
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
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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 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".
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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. 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.
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.
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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 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
11
<PAGE>
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
Federal banking agencies 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.
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 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 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.
12
<PAGE>
The Company adopted FAS 121 and FAS 122 on January 1, 1996. The adoption of
these accounting standards did not have a material effect on the financial
position or results of operations of the Company.
In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based
Compensation" which requires a company to choose either a new fair value based
method or continue to use the current Accounting Principles Board Opinion 25
(APB 25) intrinsic value based method of accounting for its stock based
compensation, (stock options). For companies electing to continue with the
intrinsic value based method, FAS 123 requires pro-forma disclosures of net
income and earnings per share under the fair value based method. The Company has
elected to continue with the intrinsic value method.
In June 1996, the FASB issued FAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities." The statement
requires that after a transfer of financial assets, an entity recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished. This statement also provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The FAS becomes effective for transactions
occurring after December 31, 1996. The adoption of this standard has not had and
is not expected to have a material effect on the financial position or results
of operations of the Company.
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 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.
ITEM 2 - PROPERTIES
The Banks corporate headquarters and headquarters banking office are located in
a multi-story office building at 2101 Webster Street, Oakland, California. The
Bank occupies approximately 12,500 rentable square feet of space on the 14th
floor under a sublease with a term of ten years, commencing December 9, 1996 and
ending on December 9, 2006. 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 7,130 rentable square feet of ground floor space. The lease with
respect to this space provides for a term of ten years ending December 9, 2006.
A regional office of the Bank is located at 2999 Oak Road, Suite 100, Walnut
Creek, California; the Bank leases approximately 6,810 square feet on the ground
floor of a multi-story office building.
2251 Alvarado Street, San Leandro, California; the Bank leases approximately
4,218 square feet on the lobby level of a one story office building.
13
<PAGE>
2201 Walnut Avenue, Fremont, California. The Bank has a lease agreement for
2,824 square feet of space.
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.
On September 1, 1996 the Bank assumed a lease for the San Francisco Loan
Production Office, located at 595 Market Street, 28th Floor, San Francisco. The
Bank leases approximately 1,612 square feet of space.
On October 1, 1996 the Bank assumed a lease for the San Jose Loan Production
Office, located at 1731 Technology Drive, Suite 595, San Jose. The Bank leases
approximately 1,139 square feet of space.
Rental expense for all leases of premises was approximately $1,008,000 for the
year ended December 31, 1996. Rental expense for leases of premises for 1997 is
estimated to be approximately $1.0 million.
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 1996, no matters were submitted to a vote of
security holders of the Company through solicitation of proxies or otherwise.
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.
14
<PAGE>
<TABLE>
<CAPTION>
Sales Price
High Low
--------------------
<S> <C> <C>
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 $ 7.63 $ 6.75
Second Quarter 8.75 7.50
Third Quarter 9.00 7.25
Fourth Quarter 10.63 8.63
1997
First Quarter (through March 1, 1997) $13.00 $10.13
</TABLE>
As of March 1, 1997, 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".
Shareholders' Rights Plan
On October 16, 1996, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, no par value (the "Preferred Shares"), of the Company at a price of
$35.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment.
Initially, the Rights will be attached to all certificates representing common
shares then outstanding or later issued. The Rights will separate from the
common shares and a Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 10% or more of the
outstanding common shares (other than a person or such a group that beneficially
owned 10% or more of the outstanding common shares at the time the plan was
adopted or who obtains the prior written approval of the Board of Directors) (an
"Acquiring Person"), or (ii) 10 business days (or later as determined by the
Board of Directors) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 10% or more of
such outstanding common shares (unless the Company's Board of Directors has
approved the offer).
Until the Distribution Date, the Rights will be transferred with and only with
the common shares. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the common shares. The Rights are not exercisable
until the Distribution Date. The Rights will expire on October 31, 2006 (the
"Final Expiration Date"), unless the Rights are earlier redeemed or exchanged by
the Company, in each case as described below. The Purchase Price payable, and
the number of Preferred Shares or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time under certain
circumstances to prevent dilution. Because of the nature of the Preferred
Shares' dividend, liquidation and voting rights, the value of the one one-
hundredth interest in a Preferred Share purchasable upon exercise of each Right
should approximate the value of one common share.
Following a Distribution Date, each holder of a Right, other than Rights
beneficially owned by an Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of common shares
(or, in the event that there are insufficient authorized common shares,
substitute consideration such as cash, property, or other securities of the
Company, such as Preferred Stock) having a market value of two times the
exercise price of the Right. In the event that the Company is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, each holder of a Right will have
the right to receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the acquiring
company which at time of such transaction will have a market value of two times
the exercise price of the Right.
At any time the acquisition by a person or group of affiliated or associated
persons of beneficial ownership 10% or more of the outstanding common shares and
prior to the acquisition by such person or group of 50% or more of the
outstanding common shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one common share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
At any time before a person becomes an Acquiring Person, the Board of Directors
of the Company may redeem the Rights in whole, but not in part, at a price of
$0.001 per Right (the "Redemption Price"). After the redemption period has
expired, the Company's rights of redemption may be reinstated if, prior to
completion of certain recapitalizations, mergers or other business combinations,
an Acquiring Person reduces its beneficial ownership to less than 10% of the
outstanding common shares in a transaction or series of transactions not
involving the Company. The terms of Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.
A copy of the Rights Agreement describing the Rights has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
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, 1996 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.
15
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992
----------------------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Interest income $ 21,535 $ 20,868 $ 18,296 $ 19,073 $ 26,544
Interest expense 5,398 5,036 4,876 6,499 10,315
Net interest income 16,137 15,832 13,420 12,574 16,229
Provision for loan losses 600 2,565 375 825 5,540
Other income 778 1,096 1,505 1,955 1,829
Other expense 10,905 11,218 12,068 26,162 17,324
Income (loss) from continuing operations
before income taxes 5,410 3,145 2,482 (12,458) (4,806)
Provision for income taxes (benefit) 1,260 135 25 - (1,719)
Net income (loss) from
continuing operations 4,150 3,010 2,457 (12,458) (3,087)
Discontinued operations - - (647) (434) 67
Net income (loss) $ 4,150 $ 3,010 $ 1,810 $ (12,892) $ (3,020)
- ---------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Net income (loss) per share from
continuing operations $ 0.90 $ 0.67 $ 0.55 $ (4.49) $ (1.23)
Net (loss) income from
discontinued operations - - (0.14) (0.16) 0.02
Net income (loss) per share 0.90 0.67 0.41 (4.65) (1.21)
Book value per share $ 7.70 $ 6.54 $ 5.86 $ 5.45 $ 11.18
Average shares outstanding 4,611,462 4,516,478 4,454,784 2,773,273 2,505,517
- ---------------------------------------------------------------------------------------------------------------------
Balance Sheet at December 31:
Assets $ 302,178 $ 250,839 $ 261,060 $ 263,598 $ 360,005
Loans 183,393 154,696 154,716 172,496 224,447
Deposits 266,447 220,098 233,831 237,508 320,918
Shareholders' equity $ 34,147 $ 29,360 $ 26,045 $ 24,231 $ 28,001
- ---------------------------------------------------------------------------------------------------------------------
Financial Ratios:
Return on average assets 1.62% 1.23% 0.70% -4.18% -0.78%
Return on average shareholders' equity 13.22% 10.92% 7.25% -51.83% -10.33%
Average shareholders' equity to
average assets 12.23% 11.22% 9.69% 8.07% 7.58%
======================================================================================================================
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company reported net income of $4.15 million or $.90 per share for the year
ended December 31, 1996, compared to a net income of $3.01 million or $.67 per
share for the year ended December 31, 1995. The increase in net income resulted
from a reduction in the provision for loan losses, which was partially offset by
an increase in the provision for income tax expense.
The Company reported net income of $3.01 million or $.67 per share for the year
ended December 31, 1995, compared to a net income of $1.81 million or $.41 per
share for the year ended December 31, 1994. The increase in net income resulted
primarily from an increase in net interest income and a reduction in non-
interest expense the
16
<PAGE>
benefits of which were partially offset by an increase in the provision for loan
losses.
RESULTS OF OPERATIONS
Net Interest Income. Net interest income is the Company's primary source of
income and 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. Net interest income as a
percentage of average earning assets is referred to as net interest margin.
Net interest income is affected by the rate, volume and mix of interest-earning
assets and interest-bearing liabilities. 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 adjust to 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 1996 totaled $16.1 million compared to $15.8 million for
1995. Total interest income increased $700,000 primarily due to an increase in
volume of earning assets. Average earning assets increased $11.9 million to
$238.5 million in 1996 compared to $226.6 million in 1995 due to an increase in
average loans, the largest component of earning assets. Interest expense
increased $362,000 to $5.4 million in 1996 from $5.0 million in 1995 due to
increases in the volume and the rate paid on interest bearing deposits. Average
interest bearing liabilities increased $4.2 million to $154.5 million in 1996
from $150.3 million in 1995 while the rate paid on interest bearing deposits
increased 14 basis points to 3.49% for 1996 from 3.35% in 1995.
Net interest income for 1995 totaled $15.8 million compared to $13.4 million for
1994. Total interest income increased $2.6 million to $20.9 million in 1995
compared to $18.3 million in 1994 primarily due to an increase in the interest
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. Average loans, the
largest component of earning assets declined $11.4 million due to a decline in
loan demand as a result of the economic recession. Total interest expense for
1995 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 increase 43 basis
points to 3.35% for 1995 from 2.92% in 1994.
The net interest margin decreased 17 basis points to 6.82% for 1996 from 6.99%
for 1995 due to the decline in the average rate earned on earning assets of 13
basis points and the increase in the average rate paid on interest bearing
deposits of 14 basis points.
The net interest margin for 1995 increased 106 basis points to 6.99% for 1995
from 5.93% for 1994. The increase was primarily attributed 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 following table presents an analysis of the components of net interest
income for 1996, 1995 and 1994.
17
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------------------
Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
(Dollars in thousands) Balance Expense 2 Paid Balance Expense 2 Paid Balance Expense 2 Paid
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Time deposits-other financial
institutions $ - $ - .__% $ - $ - .__% $ 332 $ 9 2.71%
Securities available for Sale 14,829 926 6.24% 10,438 648 6.21% 11,912 491 4.12%
Securities held to maturity:
Treasury securities 10,815 660 6.10% 12,694 707 5.57% 24,347 1,053 4.32%
U.S. Government agency/CMO's 30,545 2,122 6.95% 41,299 2,728 6.61% 15,472 912 5.89%
Municipal securities 1 4,833 348 7.21% 151 15 9.77% 1,142 114 9.99%
Other securities 2,481 143 5.76% 2,470 146 5.91% 1,989 104 5.23%
Federal funds sold 11,371 596 5.24% 10,846 630 5.81% 10,927 464 4.25%
Loans: 2,3
Commercial 82,940 8,682 10.47% 68,358 7,672 11.22% 77,428 7,414 9.58%
Real estate-construction 3,424 360 10.52% 4,804 491 10.23% 9,677 773 7.99%
Real estate-other 59,289 6,006 10.13% 56,679 5,843 10.31% 50,359 5,070 10.07%
Installment and other 17,944 1,814 10.11% 18,823 1,993 10.59% 22,599 1,932 8.55%
-------- ------- ----- -------- ------- ----- -------- ------- ------
Loans - net 163,597 16,862 10.31% 148,664 15,999 10.76% 160,063 15,189 9.49%
-------- ------- ----- -------- ------- ----- -------- ------- ------
Total Earning Assets 238,471 21,657 9.08% 226,562 20,873 9.21% 226,184 18,336 8.11%
-------- ------- -------- ------- -------- -------
Cash and due from banks 17,094 16,007 16,047
Leasehold improvements and
equipment 1,614 1,947 2,197
Interest receivable and other
assets 3,644 4,064 5,323
Assets held for sale 275 290 348
Foreclosed assets 658 761 1,512
Discontinued operations 4 - - 9,762
Less allowance for loan losses (5,032) (3,990) (3,953)
-------- -------- --------
Total Assets $256,724 $245,641 $257,420
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:
Interest-bearing:
Checking $ 24,081 $ 227 0.94% $ 21,499 $ 240 1.12% $ 22,233 $ 279 1.25%
Money market 76,568 2,523 3.29% 82,403 2,665 3.23% 91,277 2,647 2.90%
Time and savings 53,297 2,617 4.91% 46,227 2,120 4.59% 52,880 1,932 3.65%
Other borrowed funds 557 31 5.59% 181 11 6.01% 513 18 3.58%
-------- ------- ----- -------- ------- ----- -------- ------- ------
Total Interest-Bearing
Liabilities 154,503 5,398 3.49% 150,310 5,036 3.35% 166,903 4,876 2.92%
-------- ------- -------- ------- -------- -------
Demand deposits 68,841 66,372 64,888
Other liabilities 1,991 1,394 673
Shareholders' equity 31,389 27,565 24,956
-------- -------- --------
Total liabilities and
Shareholders' Equity $256,724 $245,641 $257,420
======== ======== ========
Net Interest Income $16,259 $15,837 $13,460
======= ======= =======
Net Interest Margin 6.82% 6.99% 5.95%
===== ===== =====
Tax Equivalent Adjustment 1 $ 122 $ 5 $ 40
======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Tax-exempt interest income on municipal securities is computed using a
Federal income tax rate of 35%. Interest on municipal securities was $226,000,
$10,000, and $29,000 for 1996, 1995 and 1994, 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 $409,000, $428,000, and $430,000 for 1996, 1995 and 1994 respectively; fees
on real estate loans of $423,000, $323,000 and $600,000 for 1996, 1995 and 1994
respectively; and fees on installment and other loans of $34,000, $19,000 and
$23,000 for 1996, 1995 and 1994, respectively. (4) On September 30, 1994 the
Bank sold servicing rights and related assets of its mortgage division which are
reflected as discontinued operations.
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, 1996 and 1995.
18
<PAGE>
<TABLE>
<CAPTION>
Analysis of Changes in Interest Income and Expense
Increase (Decrease) Due to Change in
1996 over 1995 1995 over 1994
----------------------------------------------------------------------------------------------------
Average Average Average Average
(in thousands) Volume/1/ Rate/2/ Total Volume/1/ Rate/2/ Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest
and fee income:
Time deposits-other financial
institutions $ - $ - $ - $ (9) $ - $ (9)
Securities available for sale 273 5 278 (61) 218 157
Securities held to maturity:
U.S. Treasury securities (104) 57 (47) (503) 158 (345)
U.S. Government agency/CMO's (711) 105 (606) 1,520 296 1,816
Municipal securities 457 (124) 333 (79) (20) (99)
Other securities 1 (4) (3) 58 (17) 41
Federal funds sold 30 (64) (34) (4) 170 166
Loans:
Commercial 1,636 (626) 1,010 (867) 1,125 258
Real estate-construction (141) 10 (131) (390) 108 (282)
Real estate-other 270 (107) 163 636 137 773
Installment and other (93) (86) (179) (323) 384 61
----------------------------------------------------------------------------------------------------
Total increase (decrease) $1,618 $ (834) $ 784 $ (22) $2,559 $2,537
----------------------------------------------------------------------------------------------------
(Increase) decrease in
interest expense:
Deposits:
Interest-bearing checking $ (29) $ 42 $ 13 $ 9 $ 30 $ 39
Money market 189 (47) 142 257 (275) (18)
Savings and time (324) (173) (497) 244 (432) (188)
Other borrowed funds (22) 2 (20) 11 (4) 7
----------------------------------------------------------------------------------------------------
Total (increase) decrease $ (186) $ (176) $ (362) $ 521 $ (681) $ (160)
----------------------------------------------------------------------------------------------------
Total change in net interest $1,432 $(1,010) $ 422 $ 499 $1,878 $2,377
income
----------------------------------------------------------------------------------------------------
</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, 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 1996 was $600,000, compared with $2,565,000 in
1995 and $375,000 in 1994. The increase in the provision in 1995 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 ratio of the allowance
for loan losses to period end loans equaled 2.71%, 3.21% and 2.08% at December
31, 1996, 1995 and 1994, respectively.
Net charge-offs were $.6 million, $.8 million and $1.5 million in 1996, 1995 and
1994, respectively and represented .36%, .55%, and .96% of average loans
outstanding for 1996, 1995 and 1994, 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.
19
<PAGE>
Non-Interest Income. Non-interest income for 1996 was $.8 million as compared to
$1.1 million and $1.5 million for 1995 and 1994 respectively. Customer service
fees were $586,000 for 1996 as compared to $595,000 for 1995 and $628,000 for
1994. Other non-interest income for 1996 was $192,000 as compared to $501,000
and $877,000 for 1995 and 1994 respectively. Included in other non-interest
income were non-recurring items in 1996 of $35,000 on a legal settlement. Non-
recurring income in 1995 included $132,000 of recoveries relating to the
disposition of the mortgage division, interest earned on 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-Interest Expense. Non-interest expense for 1996 totaled $10.9 million, a
decrease of $313,000 or 3.0% from 1995. Non-interest expense totaled $11.2
million in 1995, a decrease of $850,000 or 7.0% from 1994.
Salaries and employee benefits in 1996 decreased $133,000 or 2.2% from 1995 due
to a reduction in staffing levels. Full time equivalent personnel numbered 103
on December 31, 1996 compared to 108 on December 31, 1995. FDIC insurance
decreased $258,000 or 99.2% to $2,000 for 1996 from $260,000 for 1995 due to a
reduction in assessment rates. Expenses related to foreclosed assets and loss on
sales of foreclosed assets increased $244,000 for 1996 from 1995 and was
primarily related to the payment of five years of related property taxes of
$202,000 on one foreclosed property.
Non-interest expense for 1995 declined $850,000 or 7.0% to $11.2 million from
$12.1 million in 1994. Salaries and employee benefits in 1995 increased $364,000
or 6.4% from 1994. Full time equivalent employees were 108 on December 31, 1995
as compared to 110 on December 31, 1994. The increase in salaries and employee
benefits related to accrued severance expenses associated with 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. Foreclosed asset expense declined $859,000 due to the
disposition of foreclosed assets in 1994.
The following table summarizes the significant components of non-interest
expense for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Non-Interest Expense
Dollar Percent
(Dollars in thousands) 1996 1995 Change Change
-----------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and related benefits $ 5,963 $ 6,096 ($133) -2.2%
Occupancy 1,037 995 42 4.2%
Equipment 883 881 2 0.2%
Foreclosed asset expenses 359 115 244 212.2%
Goodwill and core deposit amortization 258 286 (28) -9.8%
Telephone and postage 256 252 4 1.6%
Data processing services 242 270 (28) -10.4%
Marketing 219 189 30 15.9%
Legal fees 202 202 0 0.0%
Consulting fees 195 246 (51) -20.7%
FDIC insurance 2 260 (258) -99.2%
Other 1,289 1,426 (137) -9.6%
-----------------------------------------------------
Total $10,905 $11,218 ($313) -2.8%
=====================================================
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Non-Interest Expense
Dollar Percent
(Dollars in thousands) 1995 1994 Change Change
-----------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and related 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) -58.3%
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 expenses 115 974 (859) -88.2%
Write-down loans held for sale - 39 (39) -100.0%
Other 1,426 1,062 364 34.6%
-----------------------------------------------------
Total $11,218 $12,068 ($850) -7.0%
=====================================================
</TABLE>
PROVISION FOR INCOME TAXES
The income tax provision for 1996 increased to $1.26 million due to the reduced
operating loss carryforwards and the Companys quasi-reorganization in July 1996.
As a part of a quasi-reorganization, any future income tax benefits resulting
from temporary differences, operating loss and tax credit carryforward items
which arose prior to the effective date of the quasi-reorganization will be
reported as a direct adjustment to capital. Accordingly, the Companys tax
provision subsequent to the effective date of the quasi-reorganization
represents an income tax provision at statutory tax rates.
Due to the loss incurred in 1993, deferred tax benefits in the form of an
operating loss carryforward were generated. The Company utilized these benefits
in 1995 and 1994 by reducing the income tax provision to $135,000 and $35,000,
respectively, which represented alternative minimum taxes.
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. 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 income in 1995 are $132,000 of recoveries resulting from the
disposition of certain mortgage division assets. Total revenues for the mortgage
division were $1.7 million in 1994.
FINANCIAL CONDITION
Loans. Commercial loans totaled $92.8 million at December 31, 1996, an increase
of $22.3 million or 32% from December 31, 1995. The increase is attributed to a
recovering economy and an increase in loan demand.
21
<PAGE>
Other real estate loans, consisting of loans for land development and "mini-
perm" loans totaled $64.3 million at December 31, 1996 compared to $61.8 million
at December 31, 1995 and $53.7 at December 31, 1994. Mini-perm loans are
available for completed commercial and retail projects that are primarily owner
occupied and are generally granted based on the rental or lease income which is
the primary source of repayment to service the loan. 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. 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.
Real estate construction loans as a percentage of total loans outstanding were
3.6% at December 31, 1996 compared to 2.6% at December 31, 1995 and 3.9% at
December 31, 1994. Risks associated with real estate construction lending are
generally considered to be higher than risks associated with other forms of
lending and accordingly, the Company continues to fund real estate construction
commitments on a limited basis with more stringent underwriting criteria.
Installment loans include loans to individuals and business customers. Personal
lines of credit extended to individuals were $3.1 million or 15.8% of total
installment loans at December 31, 1996 compared to $3.9 million or 21.1% at
December 31, 1995. 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>
December 31
----------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial $ 92,756 $ 70,417 $ 74,164 $ 87,235 $131,162
Real estate-construction 6,608 4,067 5,977 11,353 15,633
Real estate-other 64,272 61,752 53,715 50,022 48,576
Installment and other 19,757 18,460 20,860 23,886 29,076
----------------------------------------------------------
Total Loans $183,393 $154,696 $154,716 $172,496 $224,447
==========================================================
</TABLE>
The following table shows the amount of total loans outstanding as of December
31, 1996, 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.
22
<PAGE>
<TABLE>
<CAPTION>
Maturity of Loans
-------------------------------------------------------
After One
Within But Within After
(In thousands) One Year Five Years Five Years Total
-------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 88,693 $ 3,943 $ 120 $ 92,756
Real estate - construction 6,608 - - 6,608
Real estate - other 48,279 9,248 6,745 64,272
Installment and other 18,985 586 186 19,757
-------------------------------------------------------
Total $162,565 $13,777 $7,051 $183,393
=======================================================
Loans with fixed interest rates $ 3,739 $12,228 $6,949 $ 22,916
Loans tied to floating interest rates 158,826 1,549 102 $160,477
-------------------------------------------------------
Total $162,565 $13,777 $7,051 $183,393
=======================================================
</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 totaled $923,000 at December 31, 1996 as
compared to $770,000 at December 31, 1995, and $600,000 at December 31, 1994.
During 1996, the Company transferred $675,000 in real estate loans to foreclosed
assets compared to $462,000 during 1995. At December 31, 1996, other real estate
owned consisted two parcels of raw land, one totaling 4.7 and the other 9.1
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 judgment include the impact of forecasted
economic conditions, historical loan loss experience, and the evaluation of
risks which vary with the type of loan, creditworthiness of the borrower and the
value of the underlying collateral.
Analysis of the Allowance for Loan Losses. The following table summarizes the
changes in the allowance for loan losses for the periods shown:
23
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $4,960 $3,216 $4,371 $5,092 $5,104
Charge-offs:
Commercial 95 188 786 579 1,979
Real estate - construction 370 884 205 452 1,980
Real estate - other 477 33 560 815 1,355
Installment and other 127 310 512 372 449
-----------------------------------------------------------------
Total Charge-Offs 1,069 1,415 2,063 2,218 5,763
Recoveries:
Commercial 242 336 399 485 203
Real estate - construction 56 144 1 - -
Real estate - other 140 34 116 143 -
Installment and other 40 80 17 44 8
-----------------------------------------------------------------
Total Recoveries 478 594 533 672 211
-----------------------------------------------------------------
Net charge-offs 591 821 1,530 1,546 5,552
Provision charged to operations 600 2,565 375 825 5,540
-----------------------------------------------------------------
Balance at end of year $4,969 $4,960 $3,216 $4,371 $5,092
=================================================================
Ratio of net charge-offs to average loans 0.36% 0.55% 0.96% 0.77% 2.17%
</TABLE>
The balance in the allowance for loan losses at December 31, 1996 was $5.0
million or 2.71% of total loans compared to $5.0 million or 3.21% of total loans
at December 31, 1995. The allowance for loan losses at December 31, 1994 was
$3.2 million or 2.07% of total loans.
Net charge-offs for the year ended December 31, 1996 totaled $591,000 compared
with $821,000 in 1995 and $1.5 million in 1994. The decrease in net chargeoffs
was attributed 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,
1996 1995 1994
------------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Commercial $2,470 50.6% $2,487 45.5% $1,625 47.9%
Real estate - construction 234 3.6% 95 2.6% 285 3.9%
Real estate - other 1,795 35.0% 1,833 40.0% 885 34.7%
Installment and other 470 10.8% 545 11.9% 421 13.5%
------------------------------------------------------------------------------------------------------
Total $4,969 100.0% $4,960 100.0% $3,216 100.0%
------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
December 31,
1993 1992
---------------------------------------------------------------------
(Dollars in thousands) Amount % Amount %
<S> <C> <C> <C> <C>
Commercial $2,456 50.6% $1,938 58.4%
Real estate - construction 615 6.6% 1,545 7.0%
Real estate - other 683 29.0% 1,041 21.6%
Installment and other 617 13.8% 568 13.0%
---------------------------------------------------------------------
Total $4,371 100.0% $5,092 100.0%
---------------------------------------------------------------------
</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 classified loans, management
believes the allowance for loan losses was adequate at December 31, 1996.
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, 1996, 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 1996.
The following table provides information with respect to all non-performing
assets.
25
<PAGE>
<TABLE>
<CAPTION>
Non-Performing Assets
December 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past due and
still accruing $ 322 $ 325 $ 491 $1,774 $ 3,650
Non-accrual and impaired loans 2,811 2,859 3,412 1,978 5,058
Other assets held for sale 275 275 306 489 -
Foreclosed assets 923 770 600 5,389 21,160
------ ------ ------ ------ -------
Total Non-Performing Assets $4,331 $4,229 $4,809 $9,630 $29,868
====== ====== ====== ====== =======
Non-performing assets to period end
loans plus other real estate owned
and foreclosed assets 2.35% 2.70% 3.09% 5.40% 12.16%
====== ====== ====== ====== =======
</TABLE>
Non-accrual and impaired loans included $2.2 million in real estate loans,
$441,000 in commercial loans, and $190,000 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, 1996 that present significant exposure to the Company
because they are well secured and in process of collection.
Potential Problem Loans. At December 31, 1996 there were no loans classified for
regulatory purposes as loss, doubtful, substandard or special mention that have
not been disclosed in the discussion above that (i) represented or resulted from
trends or uncertainties which management anticipated would have a material
impact on future operating results, liquidity 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. The Company has increased its
investment in municipal securities to benefit from the higher after-tax yields
on bank qualified municipal securities. See "Liquidity".
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
(In thousands) 1996 1995 1994
------------------------------------
<S> <C> <C> <C>
U.S. Treasury obligations $12,207 $ 5,011 $ 9,965
Obligations of governmental agencies 14,664 5,010 -
------------------------------------
Total $26,871 $10,021 $ 9,965
====================================
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Securities Held to Maturity
----------------------------------------
December 31
(In thousands) 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
U.S. Treasury obligations $10,882 $10,756 $19,838
Obligations of governmental agencies 19,029 40,272 37,738
Collateralized mortgage obligations 128 171 205
Municipal securities 11,272 - 229
----------------------------------------
Total $41,311 $51,199 $58,010
========================================
</TABLE>
<TABLE>
<CAPTION>
Other Securities
----------------------------------------
December 31
(In thousands) 1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Federal Reserve Bank stock $ 974 $ 823 $ 725
Federal Home Loan Bank stock 787 813 826
----------------------------------------
Total $1,761 $1,636 $1,551
========================================
</TABLE>
The following tables summarize the maturities and yields of the Company's
investment securities at December 31, 1996. 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
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 - -% $12,207 6.57% - -% $12,207 6.57%
Obligations of governmental - -% $14,664 6.31% - -% $14,664 6.31%
agencies
---------------------------------------------------------------------------------------------
Total - -% $26,871 6.36% - -% $26,871 6.36%
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Securities Available for Sale
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 $ 4,992 6.31% $ 5,890 6.12% - -% $10,882 6.21%
Obligations of governmental 10,991 7.04% 8,038 7.65% - -% $19,029 7.29%
agencies
Collateralized mortgage - -% - -% 128 8.90% $ 128 8.90%
obligations
Municipal securities - -% - -% 11,272 4.77% $11,272 4.77%
----------------------------------------------------------------------------------------------
Total $15,983 6.81% $13,928 7.00% $11,400 4.82% $41,311 6.32%
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Other Securities
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>
Federal Reserve Bank stock $ 974 5.29% - -% - -% $974 5.29%
Federal Home Loan Bank stock 787 6.00% - -% - -% 787 6.00%
----------------------------------------------------------------------------------------------
Total $ 1,761 5.68% - -% - -% $1,761 5.68%
==============================================================================================
</TABLE>
As of December 31, 1996 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 1996, 1995, and 1994.
27
<PAGE>
<TABLE>
<CAPTION>
Deposits
--------------------------------------------------------
1996 1995 1994
--------------------------------------------------------
(Dollars in thousands) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Demand $ 68,841 30.9% $ 66,372 30.7% $ 64,888 28.0%
Interest-bearing checking 24,081 10.8% 21,499 9.9% 22,223 9.6%
Money market 76,568 34.4% 82,403 38.1% 91,277 39.5%
Savings and time 53,297 23.9% 46,226 21.4% 52,880 22.9%
--------------------------------------------------------
Total $222,787 100.0% $216,500 100.0% $231,268 100.0%
========================================================
</TABLE>
Average deposits increased $6.3 million or 2.9% in 1996 to $222.8 million from
$216.5 million in 1995 and decreased $14.8 million or 6.4% from 1994 of $231.3
million. The increase in deposits is attributed to an increase in average
deposits maintained by various loan customers. Average loans outstanding
increased $14.9 million or 10.0% in 1996 and decreased $11.4 million or 7.1% in
1995 compared to 1994.
Average time certificates of deposit over $100,000 constituted 20.5%, 13.8%, and
12.4% of total average deposits for 1996, 1995, and 1994, respectively. Average
public time deposits constituted 1.5%, 2.0%, and 2.1% of average total deposits
for 1996, 1995, and 1994, respectively. All public time certificates of deposit
are from local government agencies located in Alameda and Contra Costa counties.
At December 31, 1996, certificates of deposit over $100,000 totaling $45.1
million or 16.9% of total deposits were scheduled to mature within a year. At
December 31, 1995, certificates of deposit over $100,000 totaling $29.1 million
or 13.2% of total deposits were scheduled to mature within a year. 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.
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. The Company has no
brokered deposits and does not intend to solicit such deposits.
Time certificates of deposit over $100,000 or more at December 31, 1996 had the
following schedule of maturities.
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Three months or less $15,318
Over three months through six months 20,918
Over six months through twelve months 8,898
Over twelve months 668
-------
Total $45,802
=======
</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
28
<PAGE>
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,
1996.
<TABLE>
<CAPTION>
Assets or Liabilities Which Mature or Reprice
Next day Over one
and within but within Over
(Dollars in thousands) Immediately one year five years five years Total
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning asets:
U.S. Treasury securities $ - $ 4,992 $18,098 $ - $ 23,090
U.S. government agencies - 10,991 22,701 - 33,692
Municipal securities - - - 11,272 11,272
Collateralized mortgage
obligations - - - 128 128
Other securities - 1,761 - - 1,761
Federal funds 29,300 - - - 29,300
Loans: Commercial loans - 88,693 3,943 120 92,756
Real estate - construction - 6,608 - - 6,608
Real estate other - 48,279 9,248 6,745 64,272
Installment and other - 18,985 586 186 19,757
----------------------------------------------------------------------------------
Total $29,300 $180,309 $54,576 $ 18,451 $282,636
----------------------------------------------------------------------------------
Interest-bearing liabilities:
Checking $26,245 $ - $ - $ - $ 26,245
Money market - 85,012 - - 85,012
Time and savings - 67,694 3,136 - 70,830
----------------------------------------------------------------------------------
Total $26,245 $152,706 $ 3,136 $ - $182,087
----------------------------------------------------------------------------------
Interest rate sensitivity gap $ 3,055 $ 27,603 $51,440 $ 18,451 $100,549
----------------------------------------------------------------------------------
Cumulative interest rate
sensitivity gap $ 3,055 $ 30,658 $82,098 $100,549
----------------------------------------------------------------------------------
Interest rate sensitivity gap
ratio (as percent of
total earning assets) 1.08% 9.77% 18.20% 6.53% 35.58%
Cumulative interest rate
sensitivity gap ratio
(as percent of total
earning assets) 1.08% 10.85% 29.05% 35.58%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. Liquidity management refers to the Bank's ability to acquire funds
to meet loan demand, fund deposit withdrawals and to service other liabilities
as they come due. To augment liquidity, the Bank has informal Federal Funds
borrowing arrangements with correspondent banks totaling $24.0 million,
maintains a credit arrangement with the Federal Reserve Bank of San Francisco
for open window borrowing and is a member of the Federal Home Loan Bank of San
Francisco and through such 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, 1996 there were no outstanding advances.
Additionally, at December 31, 1996, unpledged U.S. government securities that
are available to secure additional borrowing in the form of reverse repurchase
agreements
29
<PAGE>
totaled approximately $47.4 million. At December 31, 1996 and 1995, the Bank had
no outstanding borrowings under such arrangements.
The liquidity position of the Bank as of December 31, 1996 improved from the
prior year as cash and cash equivalents provided from operating and financing
activities exceeded cash and cash equivalents required by investing activities.
Cash and cash equivalents provided by operations and financing activities were
$5.7 million and $45.6 million respectively. Cash and cash equivalents totaling
$46.0 million were used in the Company's investing activities to fund the
growths in the loan portfolio and to purchase additional securities.
The liquidity position of the Company may be expressed as the ratio of (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, 1996,
the Company had a liquidity ratio of 36.5% compared to 37.6% at December 31,
1995.
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.
Capital Resources. Shareholders' equity was $34.1 million at December 31, 1996,
an increase of $4.8 million or 16.3% compared with $29.4 million at December 31,
1995.
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 December 31, 1996, the Company's risk-based capital ratio was 16.10%. The
following table sets forth the Company's regulatory capital position as of
December 31, 1996.
30
<PAGE>
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
------------------------------------
(Dollars in thousands) Amount Ratio
------------------------------------
<S> <C> <C>
Tier 1 Capital $ 32,635 14.84%
Tier 1 minimum requirement 8,797 4.00%
------------------------------------
Excess $ 23,838 10.84%
------------------------------------
Total Capital $ 35,412 16.10%
Total Capital minimum requirement 17,594 8.00%
------------------------------------
Excess $ 17,818 8.10%
------------------------------------
Risk-adjusted assets $219,928
------------------
Leverage ratio 11.27%
Leverage ratio minimum requirement 4.00%
--------
Excess 7.27%
--------
</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, 1996, the
Company's leverage ratio was 11.27%. The Company has not been advised by any
regulatory agency that it is deficient with respect to its capital ratios.
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 1996 and 1995. 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
1996 1996 1996 1996 1995 1995 1995 1995
---------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $5,950 $5,465 $5,028 $5,092 $5,203 $5,142 $5,313 $5,210
Total interest expense 1,713 1,417 1,132 1,136 1,213 1,215 1,303 1,305
Net interest income 4,237 4,048 3,896 3,956 3,990 3,927 4,010 3,905
Provision for loan losses 75 75 225 225 200 625 1,440 300
Net income 1,190 1,050 985 925 985 875 370 780
Earnings per share:
Primary $ 0.26 $ 0.23 $ 0.21 $ 0.20 $ 0.22 $ 0.19 $ 0.08 $ 0.18
Fully-diluted $ 0.26 $ 0.23 $ 0.21 $ 0.20 $ 0.22 $ 0.19 $ 0.08 $ 0.18
</TABLE>
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.
31
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Financial Statements and Schedules included on page 36 of this
report.
PART III
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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.
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
Consolidated Balance Sheets as of December 31, 1996
and December 31, 1995................................................ F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994........... F-3
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1996, December 31, 1995 and
December 31, 1994.................................................... F-5
Consolidated Statements of Cash Flow for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994........... F-6
Notes to Consolidated Financial Statements........................... F-8
</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, 1996.
(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
Exhibit Numbered
Number Exhibit Page
- ------- ------- ----
<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........ -
4 (14) Rights Agreement between Civic BanCorp and ChaseMellon
Shareholder Services LLC dated as of November 8, 1996 including
Form of Right Certificate attached thereto as Exhibit B.............. -
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........ -
10.7 (6) Lease for bank premises in Oakland dated December 21, 1989
between Bank and Blue Cross of California as sublessor............. -
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.................
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......................
</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.
33
<PAGE>
(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
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) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-65309)
previously filed with the commission.
(14) Incorporated by reference from the exhibits included with the
Form 8-A Rights Agreement (Registration Number 0-13287).
34
<PAGE>
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 19, 1997
--------------
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
Date: March 19, 1997
---------------
35
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors
Civic BanCorp
We have audited the accompanying consolidated balance sheets of Civic BanCorp
and subsidiary (the Company) as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
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.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Civic BanCorp and
subsidiary as of December 31, 1996 and 1995, and the results of their operations
and cash flows for each of the years in the three-year period ended December 31,
1996 in conformity with generally accepted accounting principles.
January 15, 1997
F-1
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1995 (IN THOUSANDS EXCEPT SHARES)
- -------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 16,929 $ 16,758
Federal funds sold 29,300 14,800
--------------------------
Total cash and cash equivalents 46,229 31,558
Securities available for sale 26,871 10,021
Securities held to maturity (market value
of $41,667 and $52,163, respectively) 41,311 51,199
Other securities 1,761 1,636
Loans:
Commercial 92,756 70,417
Real estate-construction 6,608 4,067
Real estate-other 64,272 61,752
Installment and other 19,757 18,460
--------------------------
Total loans 183,393 154,696
Less allowance for loan losses 4,969 4,960
--------------------------
Loans - net 178,424 149,736
Interest receivable and other assets 4,921 3,914
Leasehold improvements and equipment - net 1,463 1,730
Foreclosed assets 923 770
Other assets held for sale 275 275
--------------------------
TOTAL ASSETS $ 302,178 $ 250,839
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Noninterest bearing $ 84,337 $ 73,149
Interest-bearing:
Checking 26,245 24,791
Money market 85,035 68,151
Time and savings 70,830 54,007
--------------------------
Total deposits 266,447 220,098
Accrued interest payable and other liabilities 1,584 1,381
--------------------------
Total liabilities 268,031 221,479
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock no par value; authorized
10,000,000 shares; none issued and
outstanding
Common stock no par value; authorized
10,000,000 shares; issued and
outstanding, 4,431,895 and 4,488,485 shares,
respectively 31,739 36,751
Retained deficit - (7,411)
Retained earnings, (subsequent to July 1,1996
date of quasi-reorganization, total deficit
eliminated $5.5 million) 2,240 -
Net unrealized gain on securities
available for sale 168 20
--------------------------
Total shareholders' equity 34,147 29,360
--------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 302,178 $ 250,839
==========================
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS EXCEPT SHARES AND PER SHARES AMOUNTS)
- ---------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans $ 16,862 $ 15,999 $ 15,189
Securities available for sale,
securities held to maturity,
and other securities 3,851 4,229 2,605
Tax exempt securities 226 10 29
Federal funds sold 596 630 464
Interest-bearing deposits with banks - - 9
-------------------------------------
Total interest income 21,535 20,868 18,296
INTEREST EXPENSE:
Deposits 5,367 5,025 4,858
Other borrowings 31 11 18
------------------------------------
Total Interest Expense 5,398 5,036 4,876
------------------------------------
NET INTEREST INCOME 16,137 15,832 13,420
Provision for loan losses 600 2,565 375
------------------------------------
Net Interest Income After
Provision for Loan Losses 15,537 13,267 13,045
NON-INTEREST INCOME:
Customer service fees 586 595 628
Other 192 501 877
-------------------------------------
Total Non-Interest Income 778 1,096 1,505
NON-INTEREST EXPENSE:
Salaries and employee benefits 5,963 6,096 5,732
Occupancy 1,037 995 1,076
Equipment 883 881 912
Foreclosed asset expense 316 115 619
Goodwill and core deposit amortization 258 286 403
Telephone and postage 256 252 261
Data processing services 242 270 251
Marketing 219 189 221
Legal fees 202 202 175
Consulting fees 195 246 336
Loss on sale of foreclosed assets 43 - 355
FDIC insurance 2 260 626
Write-down on other assets held for - - 39
sale
Other 1,289 1,426 1,062
-------------------------------------
Total Non-Interest Expense 10,905 11,218 12,068
-------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,410 3,145 2,482
Income tax expense 1,260 135 25
-------------------------------------
Income from continuing operations $ 4,150 $ 3,010 $ 2,457
-------------------------------------
(Continued)
</TABLE>
F-3
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
(IN THOUSANDS EXCEPT SHARES AND PER SHARES AMOUNTS)
- ---------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INTEREST INCOME:
DISCONTINUED OPERATIONS:
Loss from operations and sale
of discontinued mortgage division - - (647)
---------------------------------------
Net Income $ 4,150 $ 3,010 $ 1,810
=======================================
NET INCOME PER COMMON SHARE:
From continuing operations $0.90 $0.67 $0.55
From discontinued operations $0.00 $0.00 ($0.14)
---------------------------------------
Net Income Per Common Share $0.90 $0.67 $0.41
=======================================
Weighted average shares outstanding
to compute net income per common
share 4,611,462 4,516,478 4,454,784
=======================================
See notes to consolidated financial
statements
</TABLE>
F-4
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(In Thousands Except Shares)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
.....COMMON STOCK...... RETAINED UNREALIZED
SHARES AMOUNT EARNINGS GAIN (LOSS) TOTAL
------ ------ -------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 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
Stock options exercised 43,410 277 277
Stock repurchase (100,000) (986) (986)
Transfer of retained earnings deficit
to paid-in capital to effect
quasi-reorganization as of July 1, 1996 (5,501) 5,501 -
Net income 4,150 4,150
Recognition of net deferred tax assets
originating prior to quasi-reorganization 1,198 1,198
Unrealized gain on securities
available for sale 148 148
--------- ------- -------- ---- -------
Balance, December 31, 1996 4,431,895 $31,739 $2,240 $168 $34,147
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,150 $ 3,010 $ 1,810
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 600 2,565 375
Depreciation and amortization 862 1,806 1,340
Write down (gain) on foreclosed assets 66 (135) 2
Write down on other assets held for sale - - 39
Loss on sale of discontinued operations - - 200
Net loss on other assets owned 50 39 106
Amortization deferred loan fees (36) 57 (140)
Other non-cash expense - 21 -
Net cash provided by discontinued operations - - 14,548
Change in other assets and liabilities:
(Increase) decrease in interest receivable and other assets (176) 745 923
Increase (decrease) in accrued interest and other liabilities 203 197 (675)
---------- --------- ---------
Net cash provided by operating activities 5,719 8,305 18,528
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (434) (300) (657)
Paydown on assets held for sale - 31 40
Net (increase) decrease in loans (29,927) (1,320) 14,835
Expenditures on foreclosed assets - (23) (333)
Proceeds from sales of foreclosed assets 456 450 6,780
Activity in securities held to maturity:
Proceeds from maturities 18,361 17,288 21,485
Purchase of securities (8,392) (11,126) (48,855)
Activity in securities available for sale:
Proceeds from maturities 10,000 10,000 30,145
Purchase of securities (26,752) (10,007) (29,904)
Proceeds from sale of mortgage division - - 2,795
---------- --------- ---------
Net cash (used in) provided by investing activities (36,688) 4,993 (3,669)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 46,349 (13,733) (3,677)
Proceeds from exercise of stock options 277 263 11
Purchase of common stock (986) - -
---------- --------- ---------
Net cash provided by (used in) financing activities 45,640 (13,470) (3,666)
(Continued)
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (CONTINUED)
(In Thousands)
- -----------------------------------------------------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 14,671 (172) 11,193
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 31,558 31,730 20,537
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $46,229 $31,558 $31,730
======= ======= =======
OTHER CASH FLOW INFORMATION:
Cash paid for interest $ 5,140 $ 4,896 $ 4,967
Cash paid for income taxes 1,882 85 1
Loans transferred to other real estate 675 462 1,660
owned
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Civic BanCorp (BanCorp) is a registered bank holding company headquartered
in Oakland, California. The BanCorps principal line of business is a
commercial bank. The BanCorp is tailored to providing personalized services
to independent businesses and professional firms in Alameda, San Francisco,
Santa Clara and Contra Costa counties.
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 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 (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" 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. The Bank is required to hold six percent of capital in Federal
Reserve Bank common stock.
F-8
<PAGE>
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
due for 90 days, unless the loan is well secured and in the process of
collection or if the loan is considered to be impaired. An impaired loan is
one which, 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. 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. 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 or for other reasons. 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 judgments of information available to
them at the time of their examination.
The Company adopted SFAS 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. 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.
F-9
<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.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". The 1996, 1995 and 1994 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 per common share - Net income per common share is calculated
---------------------------
using the weighted average number of common shares and dilutive stock
options outstanding during the year.
Quasi-reorganization - The Company, with the approval of the Board of
--------------------
Directors and its shareholders, adjusted its July 1, 1996 balance sheet to
fair value and transferred the accumulated deficit of $5.5 million to
common stock (paid-in capital) in accordance with quasi-reorganization
accounting principles. The Company's deficit retained earnings were
incurred primarily as a result of substantial writedowns of real estate
loans and foreclosed assets in 1992 and 1993 and the conditions giving rise
to those losses have substantially changed.
In a quasi-reorganization, assets and liabilities are restated to fair
value at the effective date. No adjustments were made to the assets and
liabilities of the Company since, in the opinion of management, the book
value of the Company's assets and liabilities approximated fair value at
July 1, 1996. As part of the quasi-reorganization, retained earnings have
been dated to reflect only the results of operations subsequent to the
effective date of the quasi-reorganization. Recognition of any future
income tax benefits resulting from temporary differences, operating loss
and tax credit carryforward items which arose prior to the effective date
of the quasi-reorganization will be reported as a direct adjustment to
common stock (paid-in capital) as they are realized.
F-10
<PAGE>
New accounting pronouncements - In March 1995, the Financial Accounting
-----------------------------
Standards Board (FASB) issued SFAS 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 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 SFAS No. 122, "Accounting for Mortgage
Servicing Rights." This statement amends SFAS No. 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 adopted SFAS No. 121 and SFAS No. 122 on January 1, 1996. The
adoption of these accounting standards did not have a material effect on
the financial position or results of operations of the Company.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which requires a company to choose either a new fair value
based method or the current Accounting Principles Board Opinion 25
intrinsic value based method of accounting for its stock based compensation
(stock options). For companies electing to continue with the intrinsic
value based method, SFAS No. 123 requires pro-forma disclosures of net
income and earnings per share under the fair value based method. The
Company has elected to continue the intrinsic value method (see note 7).
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,
1996 and 1995 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, 1996:
U.S. Treasury obligations $12,042 $165 $- $12,207
U.S. agency securities 14,551 113 - 14,664
------- ---- -- -------
Total $26,593 $278 $- $26,871
======= ==== == =======
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
======= ==== == =======
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Securities Held to Maturity
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury obligations $10,882 $ 4 $- $10,886
U.S. agency securities 19,029 281 - 19,310
Collateralized mortgage obligations 128 6 - 134
Municipal securities 11,272 65 - 11,337
------- ---- - -------
Total $41,311 $356 $- $41,667
======= ==== == =======
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
======= ==== == =======
</TABLE>
<TABLE>
<CAPTION>
Other Securities
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
--------- ---------- ---------- -----
<S> <C> <C> <C> <C>
December 31, 1996:
Federal Reserve Bank stock $ 974 $- $- $ 974
Federal Home Loan Bank stock 787 - - 787
------- - - ------
Total $1,761 $- $- $1,761
======= == == ======
December 31, 1995:
Federal Reserve Bank stock $ 823 $- $- 823
Federal Home Loan Bank stock 813 - - 813
------- - - ------
Total $1,636 $- $- $1,636
======= == == =======
</TABLE>
Total securities required and pledged under state regulation to secure certain
deposits and for other purposes amounted to approximately $9,138,000 and
$8,979,000 at December 31, 1996 and 1995, respectively.
The amortized cost and estimated market values of securities at December 31,
1996 and 1995 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.
F-12
<PAGE>
<TABLE>
<CAPTION>
1996 1995
------------------------- -----------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Securities available for sale:
After one year but
within five years $26,593 $26,871 $10,001 $10,021
======= ======= ======= =======
Securities held to maturity:
Within one year $15,983 $16,086 $19,224 $19,318
After one year but
within five years 13,928 14,110 31,804 32,664
After five years but
within ten years 11,400 11,471 171 181
------- ------- ------- -------
Total $41,311 $41,667 $51,199 $52,163
======= ======= ======= =======
</TABLE>
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Balance, beginning of year $ 4,960 $ 3,216 $ 4,371
Provision charged to expense 600 2,565 375
Loans charged off (1,068) (1,416) (2,063)
Recoveries 477 595 533
------- ------- -------
Balance, end of year $ 4,969 $ 4,960 $ 3,216
======= ======= =======
</TABLE>
At December 31, 1996 and 1995, the recorded investment in loans considered
to be impaired under SFAS No. 114 is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Non-accrual (impaired) loans $2,811 $2,859
Loans supported by collateral 2,776 2,723
Loans not supported by collateral 35 136
Related allowance for
non-collateralized loans 15 5
</TABLE>
For the years ended December 31, 1996 and 1995, the average recorded
investment in impaired loans was $3,102,000 and $3,024,000, respectively.
There was no interest income recognized on impaired loans for those years,
however, if interest income had been accrued under the original terms of
the loans, such income would have approximated $160,000 and $244,000 for
1996 and 1995, respectively.
F-13
<PAGE>
4. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
A summary as of December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
------ ------
<S> <C> <C>
Leasehold improvements $1,025 $ 930
Furniture and fixtures 1,015 1,091
Equipment 2,964 2,814
------ ------
5,004 4,835
Less accumulated depreciation 3,541 3,105
------ ------
Leasehold improvements and equipment, net $1,463 $1,730
====== ======
</TABLE>
5. OTHER ASSETS
A summary of interest receivable and other assets as of December 31, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
(In Thousands)
Interest receivable $2,318 $2,191
Intangible assets 1,198 1,455
Deferred tax benefit 1,088 -
Prepaid expense and other assets 317 268
------ ------
Total interest receivable and other assets $4,921 $3,914
====== ======
</TABLE>
Amortization expense relative to intangible assets was $257,000, $286,000, and
$403,000 for the years ended December 31, 1996, 1995 and 1994.
6. DEPOSITS
The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $45,802,000 and $29,691,000 at December 31, 1996 and 1995.
Interest expense incurred on certificates of deposit in denominations of
$100,000 or more was $1,467,000 and $955,000 for the years ended December 31,
1996 and 1995. Time deposits in excess of one year at December 31, 1996 are
$668,000.
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 2006, 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
right to exercise options vests at the discretion of the plan committee on the
date of grant and generally expire within ten years of the date of grant.
F-14
<PAGE>
Option activity is summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares under option at beginning of year 388,344 $6.27 445,188 $6.22 279,750 $8.22
Options granted 47,776 7.49 70,450 6.58 386,950 5.96
Options exercised (43,410) 6.38 (40,541) 6.47 (302) 6.50
Options cancelled (12,156) 7.13 (86,753) 6.16 (221,210) 9.06
------- ------- -------
Shares under option at end of year 380,554 6.37 388,344 6.27 445,188 6.22
======= ======= =======
Options exercisable 241,778 214,133 162,032
Weighted-average fair value of
options granted during the periods
at exercise prices equal to market
price at grant date $2.44 $2.74
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
----------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
$5.25 - $5.63 8,950 7.57 $5.53 4,420 $5.47
$5.75 - $5.75 138,000 7.25 5.75 55,200 5.75
$6.00 - $6.50 148,751 4.91 6.28 145,115 6.28
$6.63 - $14.10 84,853 6.88 7.61 37,043 8.08
</TABLE>
In accordance with the provision of SFAS No. 123, the Company has elected
to continue with the intrinsic value method and accordingly does not
recognize compensation cost. If the Company had elected to recognize
compensation cost based on the fair value of the options granted as
prescribed by SFAS No. 123, net income and earnings per share would have
been reduced to the pro forma amounts in the following table:
<TABLE>
<CAPTION>
(Dollars in thousands)
1996 1995
------ ------
<S> <C> <C>
Net income - as reported $4,150 $3,010
Net income - pro forma $4,038 $2,919
Earnings per share - as reported $ 0.90 $ 0.67
Earnings per share - pro forma $ 0.88 $ 0.65
</TABLE>
F-15
<PAGE>
The fair value of each option grant is estimated on the date of vesting
using the Black-Scholes option-pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
Expected dividend yield 0% 0%
Expected stock price volatility 38.90% 38.90%
Risk-free interest rate 5.58-6.59% 5.19-5.74%
Expected life of options 7.50 years 7.50 years
</TABLE>
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
$3,839,000 and $3,311,000 for the years ended December 31, 1996 and 1995,
respectively.
BanCorp is required by the Board of Governors of the Federal Reserve System
to maintain minimum risk-based capital ratios. Failure to meet minimum
capital requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken, could have a
direct material effect on the Banks financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Banks assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices.
The Banks capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1996,
that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank of San Francisco categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier 1 risk-based, Tier 1 leverage ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institutions category.
F-16
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the table:
<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 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%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) 30,292 17.29% 14,016 > 8.00% 17,519 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 28,102 16.04% 7,008 > 4.00% 10,512 6.00%
Tier 1 Capital
(to Average Assets) 28,102 10.99% 9,501 > 4.00% 11,877 5.00%
</TABLE>
On September 16, 1992, the board of directors of BanCorp 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 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.
F-17
<PAGE>
The following is a summary of the related expenses for the years ended
December 31, 1996, 1995 and 1994, which are included in salaries and
employee benefits
<TABLE>
<CAPTION>
(In Thousands)
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
401(k) salary deferral component $ 82 $ 80 $67
Profit sharing component 69 75 -
---- ---- ---
$151 $155 $67
==== ==== ===
</TABLE>
10. INCOME TAXES
The provision for income taxes reflected in the consolidated statements of
income for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------
<S> <C> <C> <C>
(In Thousands)
Current provision (benefits):
Federal $1,124 $ 97 $23
State 63 38 2
------ ---- ---
Total 1,187 135 25
Deferred
Federal (353) - -
State 426 - -
------ ---- ---
Total $1,260 $135 $25
====== ==== ===
</TABLE>
F-18
<PAGE>
The temporary differences and tax carryforwards which created deferred tax
assets and liabilities are detailed below:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------
(In Thousands)
<S> <C> <C> <C>
Deferred tax assets:
Loan loss and foreclosed
asset reserves not
currently deductible $ 1,313 $ 1,693 $ 1,028
Deferred rent 62 79 72
Deferred loan fees 81 77 67
Core deposits 373 392 400
Tax credits - 524 455
Book over tax depreciation 88 24 -
Other write-downs 477 477 573
Net operating loss
carryforwards - 66 1,939
State tax 21 10 -
------- ------- -------
Total $ 2,415 $ 3,342 $ 4,534
------- ------- -------
Deferred tax liabilities:
Net unrealized gain on securities
available for sale (110) - -
Tax over book depreciation - - (20)
Other (59) (49) (35)
------- ------- -------
Total (169) (49) (35)
------- ------- -------
Net deferred tax asset 2,246 3,293 4,499
Valuation allowance (1,158) (3,293) (4,499)
------- ------- -------
Net Deferred Tax Asset $ 1,088 $ - $ -
======= ======= =======
</TABLE>
As of December 31, 1996, management estimates that the Company will more
likely than not realize at least $1,088,000 of the $2,246,000 net deferred
tax asset. Accordingly, a valuation allowance of $1,158,000 has been
provided for the balance of the net deferred tax assets.
Amounts for the current year are based upon estimates and assumptions as of
the date of this report and could vary from amounts shown on the tax return
as filed. Accordingly, the variances from amounts reported for 1995 are
primarily the result of adjustments to conform to the 1995 filed tax
returns.
The effective tax rate differs from the federal statutory income tax rate
for the years ended December 31, 1996, 1995 and 1994 as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
--------------------
<S> <C> <C> <C>
Federal statutory income tax rate 34% 34% 34%
State franchise tax, less federal
income tax effect 6 - -
Change in valuation allowance
and utilization of net operating
losses (16) (30) (33)
Other permanent differences (1) - -
--------------------
Effective income tax rate 23% 4% 1%
====================
</TABLE>
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,
1996 and 1995:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
------- -------
<S> <C> <C>
Balance, January 1 $ 4,224 $ 4,777
Loans proceeds disbursed 1,636 3,066
Loan repayments (5,137) (3,619)
------- -------
Balance, December 31 $ 723 $ 4,224
======= =======
</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 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, 1996 and 1995 follows:
F-20
<PAGE>
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
-------- -------
<S> <C> <C>
Commitments to extend credit $101,190 $88,250
Standby letters of credit $ 2,757 $ 1,599
</TABLE>
13. OPERATING LEASES
BanCorp and the Bank lease their banking and office facilities under
noncancelable operating leases. These leases expire from December 1996 to
December 2006. Certain leases contain options to extend. Rental expense
for the years ended December 31, 1996, 1995 and 1994 was $1,008,000,
$955,000, and $1,026,000.
Total future minimum rental payments under these operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(Dollars In Thousands)
Year ending December 31:
<S> <C>
1997 $1,030
1998 1,001
1999 847
2000 818
2001 819
Later Years 2,950
------
Total Future Minimum Rentals $7,465
======
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 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 judgment 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, 1996 and 1995 are as follows:
F-21
<PAGE>
<TABLE>
<CAPTION>
(In Thousands) 1996 1995
----------------------------- ----------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
--------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 46,229 $ 46,229 $ 31,558 $ 31,558
Securities available for sale 26,871 26,871 10,021 10,021
Securities held to maturity 41,311 41,667 51,199 52,163
Other securities 1,761 1,761 1,636 1,636
Loans 178,424 176,538 149,736 145,940
Liabilities:
Noninterest-bearing deposits 84,337 84,337 73,149 73,149
Interest-bearing deposits 182,110 182,177 146,949 146,806
</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 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 SFAS No. 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 SFAS No. 119, "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments", on December 31, 1994.
Under certain circumstances, the Bank will structure
F-22
<PAGE>
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, 1996, the Bank had
outstanding loans totaling approximately $39,000,000 that were subject to
interest rate floors.
15. FINANCIAL STATEMENTS OF CIVIC BANCORP (PARENT COMPANY ONLY)
The condensed financial statements of Civic BanCorp (parent company only)
are presented below:
<TABLE>
<CAPTION>
BALANCE SHEETS
As of December 31, 1996 and 1995
(In Thousands Except Share Amounts)
1996 1995
------- -------
<S> <C> <C>
ASSETS
Cash (on deposit with the Bank) $ 103 $ 894
Other assets 1,105 17
Investment in Bank at equity in
underlying net assets 32,954 28,476
------- -------
Total assets $34,162 $29,387
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 15 $ 27
Shareholders' equity 34,147 29,360
------- -------
Total liabilities and
shareholders' equity $34,162 $29,387
======= =======
STATEMENTS OF INCOME
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
------ ------ ------
Interest income $ 44 $ 60 $ 16
Less administration expense 113 135 93
------ ------ ------
Loss from operations (69) (75) (77)
Equity in income of Bank 4,219 3,085 2,534
Equity in loss from
discontinued operations - - (647)
------ ------ ------
Net income $4,150 $3,010 $1,810
====== ====== ======
</TABLE>
F-23
<PAGE>
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 4,150 $ 3,010 $ 1,810
Adjustments to reconcile net
income to cash used in
operating activities:
Equity in net income of Bank (4,219) (3,085) (1,887)
Gain on sale of securities
available for sale - (33) -
Other non-cash expense - 21 -
Change in assets and liabilities (13) 22 (111)
------- ------- -------
Net cash used in operating activities (82) (65) (188)
------- ------- -------
Cash flows from investing
activities:
Proceeds from sale of securities
available for sale - 46 -
------- ------- -------
Cash provided by investing activities - 46 -
------- ------- -------
Cash flows from financing
activities:
Proceeds from stock sale, net - - 9
Stock repurchase (986) - -
Proceeds from exercise of stock
options 277 263 2
------- ------- -------
Net cash (used in) provided by
financing activities (709) 263 11
------- ------- -------
Net (decrease) increase in cash (791) 244 (177)
Cash at beginning of year 894 650 827
------- ------- -------
Cash at end of year $ 103 $ 894 $ 650
======= ======= =======
</TABLE>
F-24
<PAGE>
Exhibit 21
List of Subsidiaries
CivicBank of Commerce
P.A.S.C.O. Services, Inc.*
*Subsidiary of CivicBank of Commerce
<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
15, 1997, relating to the consolidated balance sheets of Civic BanCorp and
subsidiary as of December 31, 1996, and 1995, and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996, which report
appears in the December 31, 1996 annual report on Form 10-K of Civic BanCorp.
San Francisco, California
March 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 16,929 16,758
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 29,300 14,800
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 26,871 10,021
<INVESTMENTS-CARRYING> 41,311 51,199
<INVESTMENTS-MARKET> 41,667 52,163
<LOANS> 183,393 154,696
<ALLOWANCE> 4,969 4,960
<TOTAL-ASSETS> 302,178 250,839
<DEPOSITS> 266,447 220,098
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 1,584 1,381
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 31,739 36,751
<OTHER-SE> 2,408 (7,391)
<TOTAL-LIABILITIES-AND-EQUITY> 302,178 250,839
<INTEREST-LOAN> 16,862 15,999
<INTEREST-INVEST> 4,077 4,239
<INTEREST-OTHER> 596 630
<INTEREST-TOTAL> 21,535 20,868
<INTEREST-DEPOSIT> 5,367 5,025
<INTEREST-EXPENSE> 5,398 5,036
<INTEREST-INCOME-NET> 16,137 15,832
<LOAN-LOSSES> 600 2,565
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 10,905 11,218
<INCOME-PRETAX> 5,410 3,145
<INCOME-PRE-EXTRAORDINARY> 5,410 3,145
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,150 3,010
<EPS-PRIMARY> .90 .67
<EPS-DILUTED> .90 .67
<YIELD-ACTUAL> .068 .069
<LOANS-NON> 2,811 2,859
<LOANS-PAST> 322 325
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,960 3,216
<CHARGE-OFFS> 1,068 1,416
<RECOVERIES> 477 595
<ALLOWANCE-CLOSE> 4,969 4,960
<ALLOWANCE-DOMESTIC> 4,969 4,960
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,809 1,334
</TABLE>
