<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _________________
Commission File No. 0-13287
CIVIC BANCORP
2101 Webster Street, 14th Floor
Oakland, CA 94612
(510) 836-6500
Incorporated in California I.R.S. Employer Identification No.
68-0022322
The number of shares of common stock outstanding as of the close of business on
April 1, 1998:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock 4,620,635
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
1
<PAGE>
CIVIC BANCORP
AND
SUBSIDIARY
Index to Form 10-Q Page Number
-----------
PART I. Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998, March 31, 1997
and December 31, 1997 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and
March 31, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and
March 31, 1997 5
Consolidated Statements of Comprehensive
Income - Three Months Ended March 31, 1998
and March 31, 1997 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II. Other Information 18
SIGNATURES 19
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands except shares)
<TABLE>
<CAPTION>
March 31 March 31 December 31
1998 1997 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $18,178 $13,546 $16,503
Federal funds sold 25,100 4,600 13,230
----------------- ------------------ ------------------
Total cash and cash equivalents 43,278 18,146 29,733
Securities available for sale 34,982 30,784 31,097
Securities held to maturity
(market value of $24,437, $37,097
and $27,727, respectively) 24,080 37,131 27,280
Other securities 2,055 1,780 1,990
Loans:
Commercial 129,630 106,488 135,140
Real estate-construction 9,674 8,243 12,929
Real estate-other 64,172 65,154 64,430
Installment and other 17,899 19,285 20,478
----------------- ------------------ ------------------
Total loans 221,375 199,170 232,977
Less allowance for loan losses 4,073 5,041 4,351
----------------- ------------------ ------------------
Loans - net 217,302 194,129 228,626
Interest receivable and other assets 5,175 5,094 5,216
Leasehold improvements and equipment - net 1,336 1,435 1,435
Foreclosed assets 554 973 -
Other assets held for sale - 232 43
----------------- ------------------ ------------------
TOTAL ASSETS $328,762 $289,704 $325,420
================= ================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $80,398 $75,934 $89,823
Interest-bearing:
Checking 9,844 22,322 6,950
Money market 89,998 86,684 95,770
Time and savings 104,883 67,919 90,607
----------------- ------------------ ------------------
Total deposits 285,123 252,859 283,150
Accrued interest payable and other liabilities 3,823 2,404 3,583
----------------- ------------------ ------------------
Total liabilities 288,946 255,263 286,733
COMMITMENTS AND CONTINGENCIES - - -
SHAREHOLDERS' EQUITY
Preferred stock no par value; authorized,
10,000,000 shares; none issued or outstanding
Common stock no par value; authorized,
10,000,000 shares; issued and outstanding,
4,620,635, 4,392,326 and 4,619,768 shares 35,115 31,222 35,149
Retained earnings, (subsequent to July 1, 1996
date of quasi-reorganization, total deficit
eliminated $5.5 million) 4,462 3,290 3,287
Accumulated other comprehensive income - net 239 (71) 251
----------------- ------------------ ------------------
Total shareholders' equity 39,816 34,441 38,687
----------------- ------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $328,762 $289,704 $325,420
================= ================== ==================
</TABLE>
3
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
INTEREST INCOME:
Loans $5,627 $4,707
Securities available for sale, securities held
to maturity and other securities 709 994
Tax exempt securities 160 138
Federal funds sold 337 80
------------------ ------------------
Total interest income 6,833 5,919
INTEREST EXPENSE:
Deposits 2,015 1,634
Other borrowing - 1
------------------ ------------------
Total interest expense 2,015 1,635
------------------ ------------------
NET INTEREST INCOME 4,818 4,284
Provision for loan losses 38 25
------------------ ------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,780 4,259
------------------ ------------------
NONINTEREST INCOME:
Customer service fees 209 188
Other 28 29
------------------ ------------------
Total noninterest income 237 217
NONINTEREST EXPENSE:
Salaries and employee benefits 1,842 1,651
Occupancy 271 240
Equipment 212 219
Data processing services 89 78
Telephone and postage 66 79
Legal fees 55 69
Goodwill and core deposit amortization 48 57
Marketing 69 47
Consulting fees 60 45
Foreclosed asset expense 3 24
FDIC insurance 8 7
Other 324 330
------------------ ------------------
Total noninterest expense 3,047 2,846
------------------ ------------------
INCOME BEFORE INCOME TAXES 1,970 1,630
Income tax expense 795 580
------------------ ------------------
NET INCOME $ 1,175 $ 1,050
================== ==================
BASIC EARNINGS PER COMMON SHARE $ 0.25 $ 0.23
================== ==================
DILUTED EARNINGS PER COMMON SHARE $ 0.24 $ 0.22
================== ==================
Weighted average shares outstanding used
to compute basic earnings per common share 4,623,047 4,634,128
Dilutive effects of stock options 267,732 178,277
------------------ ------------------
Total weighted average shares outstanding used
to compute diluted earnings per common share 4,890,779 4,812,405
================== ==================
</TABLE>
4
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,175 $ 1,050
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 38 25
Depreciation and amortization 251 276
(Decrease) increase in deferred loan fees (28) 92
Change in assets and liabilities:
Decrease (increase) in interest receivable and other assets 193 (119)
Increase in accrued interest payable and other liabilities 130 868
----------------- -----------------
Net cash provided by operating activities 1,759 2,192
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (31) (131)
Paydown on assets held for sale 43 43
Net decrease (increase) in loans 10,760 (15,897)
Expenditures on foreclosed assets - 25
Activities in securities held to maturity:
Proceeds from maturing securities 4,005 5,008
Purchases of securities (870) (836)
Activities in securities available for sale:
Purchases of securities (3,979) (4,382)
----------------- -----------------
Net cash provided by (used in) investing activities 9,928 (16,170)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 71 64
Purchase of common stock (186) (581)
Net increase (decrease) in deposits 1,973 (13,588)
----------------- -----------------
Net cash provided by (used in) financing activities 1,858 (14,105)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 13,545 (28,083)
Cash and cash equivalents at beginning of period 29,733 46,229
----------------- -----------------
Cash and cash equivalents at end of period $43,278 $18,146
================= =================
Cash paid during year for:
Interest $ 1,664 $ 1,516
================= =================
Income taxes $ - $ 37
================= =================
Supplemental schedule of non-cash investing activity:
Loans transferred to foreclosed assets $ 554 $ 75
================= =================
</TABLE>
5
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands except shares and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Net Income $ 1,175 $ 1,050
Other Comprehensive Income:
Unrealized loss on securities available for sale (21) (397)
Income tax expense related to unrealized loss
on securities available for sale 9 158
------------------ ------------------
Other Comprehensive Income (12) (239)
------------------ ------------------
COMPREHENSIVE INCOME $ 1,163 $ 811
------------------ ------------------
</TABLE>
6
<PAGE>
CIVIC BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Civic BanCorp and
subsidiary (the Company) have been prepared in accordance with generally
accepted accounting principles and with the instructions to Form 10-Q. In the
opinion of management, all necessary adjustments have been made to fairly
present the financial position, results of operations, cash flows and
comprehensive income for the interim periods presented. These unaudited
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
The results of operations and cash flows are not necessarily indicative of
those expected for the complete fiscal year.
2. NEW PRONOUNCEMENTS
On January 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components in the consolidated financial
statements. It does not require a specific format for the statements, but
requires the Company to display an amount representing total comprehensive
income for the period in that financial statement.
In June 1997, the FASB issued FAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about operating segments in annual reports and in
interim financial reports issued to shareholders. The statement is effective
for fiscal years beginning after December 15, 1997. The Company has adopted
FAS No. 131 but does not have multiple industry segments as defined in FAS
No. 131.
In February 1998, the FASB issued FAS No. 132, "Employers' Disclosures About
Pensions and Other Post Retirement Benefits." FAS No. 132 changes disclosure
only on applicable defined benefit pension or post retirement plans. The
statement is effective for fiscal years beginning after December 15, 1997. At
this time, the Company does not have a defined benefit pension or post
retirement plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
OVERVIEW
For the three months ended March 31, 1998, the Company reported net income of
$1,175,000, or $.24 earnings per diluted share compared to a net income of
$1,050,000 or $.22 earnings per diluted share for the same period of the prior
year. The annualized return on average assets was 1.43% for the three months
ended March 31, 1998 compared to 1.47% for the same period of the prior year.
The annualized return on average shareholders' equity for the three months ended
March 31, 1998 and 1997 was 11.96% and 12.19%, respectively.
RESULTS OF OPERATIONS
Net interest income for the three months ended March 31, 1998 was $4.8 million,
increasing $534,000 or 12.5% from net interest income of $4.3 million for the
same period in 1997. The increase in net interest income is primarily due to the
increase in the volume of earning assets which was partially offset by an
increase in the volume of interest bearing liabilities.
7
<PAGE>
Total interest income for the first three months of 1998 equaled $6.8 million,
an increase of $914,000 from interest income earned in the same period in 1997.
The increase in total interest income is primarily attributed to the increase in
volume of earning assets. Average earning assets increased $40.9 million or
15.3% to $307.4 million in the first quarter of 1998 compared to $266.5 million
in the first quarter of 1997.
Total interest expense for the first three months of 1998 equaled $2.0 million
and increased $.4 million or 23.2% from the $1.6 million for the three months
ended March 31, 1997 due to an increase of $28.1 million or 15.8% in the volume
on interest bearing deposits. Average savings and time deposits as a percentage
of total average deposits increased to 36.3% from 27.0% for the three months
ended 1998 and 1997, respectively.
8
<PAGE>
The following table presents an analysis of the components of net interest
income for the first quarter of 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------------------------------------------------------
1998 1997
---------------------------------------- ---------------------------------------
Interest Rates Interest Rates
Average Income\ Earned\ Average Income\ Earned\
Balance Expense 2 Paid Balance Expense 2 Paid
--------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities available for sale $ 31,331 $ 496 6.42% $ 30,977 491 6.43%
Securities held to maturity:
U.S. Treasury securities 5,955 88 5.99% 8,559 125 5.94%
U.S. Government agencies 4,756 95 8.09% 19,150 351 7.44%
Municipal securities(1) 13,366 242 7.33 11,888 209 7.13%
Other securities 2,032 30 6.04% 1,774 27 6.20%
Federal funds sold and securities
purchased under agreements to resell 24,948 337 5.47% 6,025 80 5.39%
Loans: 2,3
Commercial 130,022 3,338 10.41% 96,648 2,462 10.33%
Real estate-construction 11,771 299 10.30% 7,338 186 10.26%
Real estate-other 64,118 1,523 9.63% 64,995 1,595 9.95%
Installment and other 19,141 467 9.90% 19,178 464 9.82%
--------- ------ --------- --------- ------ -----
Total Loans 225,052 5,627 10.14% 188,159 4,707 10.15%
--------- ------ --------- --------- ------ -----
Total Earning Assets 307,440 6,915 9.12% 266,532 5,990 9.11%
Cash and due from banks 19,040 17,611
Leasehold improvements and equipment - net 1,392 1,496
Interest receivable and other assets 4,896 4,845
Foreclosed assets 239 943
Assets held for sale 20 232
Less allowance for loan loss (4,245) (4,988)
--------- ---------
TOTAL ASSETS $ 328,782 $ 286,671
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 27,807 65 0.95% $ 22,457 52 0.93%
Money market 74,099 621 3.40% 87,283 742 3.45%
Time and savings 103,619 1,329 5.20% 67,598 840 5.04%
Other borrowed funds -- -- -- 105 1 5.49%
--------- ------ --------- --------- ----- -----
Total interest bearing liabilities 205,525 2,015 3.98% 177,443 1,635 3.74%
Demand deposits 80,134 72,731
Other liabilities 3,816 2,029
Shareholders' equity 39,307 34,468
--------- ---------
TOTAL LIABILITIES AND $ 328,782 $ 286,671
========= =========
SHAREHOLDERS' EQUITY
Net Interest Income 4,900 4,355
====== =====
Net Interest Margin 6.46% 6.63%
====== =====
Tax Equivalent Adjustment(1) 82 71
====== =====
</TABLE>
- -------------------------------------------------------------------------------
(1) Tax-exempt interest income on municipal securities is computed using a
Federal income tax rate of 34%. Interest on municipal securities was $160 and
$138 for March 31, 1998 and 1997, respectively. (2) Non-performing loans have
been included in the average loan balances. Interest income is included on non-
accrual loans only to the extent cash payments have been received. (3) Interest
income includes loan fees on commercial loans of $124,000 and $105,000 for March
31, 1998 and 1997, respectively; fees on real estate loans of $88,000 and
$93,000 for March 31, 1998 and 1997, respectively; and fees on installment and
other loans of $9,000 and $6,000 for March 31, 1998 and 1997, respectively.
9
<PAGE>
The following table sets forth changes in interest income and interest expense
for each major category of interest-earning assets and
interest-bearing liabilities, and the amount of change attributable to volume
and rate changes for the three month period ended March 31, 1998.
Analysis of Changes in Interest Income and Expense
Due to Change in 1998 over 1997
<TABLE>
<CAPTION>
Volume 1 Rate 2 Total
---------- ---------- -----------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in interest income:
Securities available for sale $6 $ (1) $5
Securities held to maturity:
U.S. Treasury securities (38) 1 (37)
U.S. government agency (264) 8 (256)
Municipal securities 26 7 33
Other securities 4 (1) 3
Federal funds sold 252 5 257
Loans:
Commercial 849 27 876
Real estate-construction 112 1 113
Real estate-other (21) (51) (72)
Installment and other (1) 4 3
---------- ---------- -----------
Total Loans 939 (19) 920
---------- ---------- -----------
Total increase (decrease) $925 $ (1) $924
---------- ---------- -----------
(Increase) decrease in interest expense:
Deposits:
Interest bearing checking $ (13) $ (1) $ (14)
Money market 112 10 122
Savings and time (447) (42) (489)
Other borrowed funds 1 0 1
---------- ---------- -----------
Total increase (decrease) $ (347) $ (33) $ (380)
---------- ---------- -----------
Total change in net interest income $578 $ (34) $ 544
========== ========== ===========
</TABLE>
(1) Changes not solely attributed to rate or volume have been allocated to
volume.
(2) Loan fees are reflected in rate variances.
Net Interest Margin
The net interest margin declined 17 basis points to 6.46% for the first quarter
of 1998 from 6.63% for the same period of the prior year. The decrease in the
margin is attributed primarily to the growth in time deposits. Average time
deposits as a percentage of total average interest bearing deposits increased to
50.4% for the first quarter of 1998 from 38.1% for the same quarter of the prior
year. Additionally, the average rate paid on time deposits increased to 5.20%
for the first quarter of 1998 from 5.04% for the same period of the prior year
due to a higher interest rate environment for deposits.
10
<PAGE>
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 1998 was
$38,000, an increase of $13,000 or 52.0% from the three months ended March 31,
1997. The increase in the provision was based on the growth in the loan
portfolio.
Non-Interest Income
Non-interest income for the three months ended March 31, 1998 was $237,000, an
increase of $20,000 or 9.2% from the three months ended March 31, 1997. The
increase in customer service fees, the largest component of other income, is
attributed to the increase in deposits and foreign trade transaction volume.
Non-Interest Expense
Non-interest expense totaled $3.0 million for the three months ended March 31,
1998, an increase of $201,000 or 7.1% from $2.8 million for the same period of
the prior year. Salaries and employee benefits, the largest component of
noninterest expense increased $191,000 or 11.6% due to additional staff, normal
merit increases, increased employee benefit costs and an increase in the
marketing and management incentive accruals. Full time equivalent personnel
numbered 107 on March 31, 1998 compared to 103 on March 31, 1997. Occupancy
expenses increased due to normal rent escalations and the addition of the Palo
Alto office in June 1997.
For the three months ended March 31, 1998 the Company incurred expenses of
$3,000 associated with managing, maintaining and liquidating foreclosed assets
compared to $24,000 for the three months ended March 31, 1997.
The following table summarizes the significant components of noninterest expense
for the dates indicated.
<TABLE>
<CAPTION>
Quarter Ended March 31, Dollar %
(Dollars in thousands) 1998 1997 Change Change
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,842 $1,651 $191 11.6%
Occupancy 271 240 31 12.9%
Equipment 212 219 (7) -3.2%
Data processing services 89 78 11 14.1%
Telephone and postage 66 79 (13) -16.5%
Legal fees 55 69 (14) -20.3%
Goodwill and core deposit amortization 48 57 (9) -15.8%
Marketing 69 47 22 46.8%
Consulting fees 60 45 15 33.3%
Foreclosed asset expenses 3 24 (21) -87.5%
FDIC insurance 8 7 1 14.3%
Other 324 330 (6) -1.8%
-------------- ---------------- -------------- --------------
TOTAL NONINTEREST EXPENSE $3,047 $2,846 $201 7.1%
============== ================ ============== ===============
</TABLE>
Provision for Income Taxes
The provision for income taxes for the first quarter of 1998 increased to
$795,000 from $580,000 for the same quarter of the prior year. These provisions
represent effective tax rates of 40% and 36%, respectively. The effective rate
has been increased for 1998 due to the reduced impact of tax exempt municipal
securities on the larger net income.
11
<PAGE>
FINANCIAL CONDITION
Loans
Average loans for the first quarter of 1998 increased $36.9 million or 19.6% to
$225.1 million compared to $188.2 million for the same quarter of 1997 due to an
improving economy and an overall increase in loan demand. However, loans
outstanding at March 31, 1998 have decreased $11.6 million to $221.4 million
from $233.0 million at December 31, 1997. The decrease in loans outstanding
during the first quarter was due to pay-offs of certain construction loans as
anticipated combined with delays in the scheduled funding of new construction
loans due to inclement weather from the El Nino weather system. Additionally,
the Bank continues to scrutinize the loan portfolio and has elected to
discontinue financing of certain commercial clients due to quality concerns.
Real estate construction loans as a percentage of total loans outstanding were
4.4% at March 31, 1998 compared to 4.1% at March 31, 1997. The Bank maintains a
limited portfolio of real estate constructions loans as the risks associated
with real estate construction lending are generally considered to be higher than
risks associated with other forms of lending. However, the Bank continues to
fund real estate construction commitments on a limited basis with stringent
underwriting criteria.
Other real estate loans consist of mini-perm loans and land acquisition loans
which are primarily owner-occupied and are generally granted based on the rental
or lease income stream generated by the property. Other real estate loans
totaled $64.2 million at March 31, 1998, a decrease of $1.0 million or 1.5%
from March 31, 1997.
The following table sets forth the amount of loans outstanding in each category
and the percentage of total loans outstanding for each category as of the date
indicated.
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997 March 31, 1997
---------------------------- -------------------------- ------------------------
Amount Percent Amount Percent Amount Percent
-------------- ---------- -------------- --------- ------------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $129,630 58.6% $135,140 58.0% $106,488 53.5%
Real estate - construction 9,674 4.4% 12,929 5.5% 8,243 4.1%
Real estate - other 64,172 29.0% 64,430 27.7% 65,154 32.7%
Installment and other 17,899 8.1% 20,478 8.8% 19,285 9.7%
-------------- ---------- -------------- ---------- ------------ ----------
TOTAL $221,375 100.0% $232,977 100.0% $199,170 100.0%
============== ========== ============== ========== ============ ==========
</TABLE>
Foreclosed Assets
Foreclosed assets totaled $554,000 at March 31, 1998, a decrease of $419,000 or
43.1% from March 31, 1997, and consists of a commercial leasehold interest in
property owned by the Port of Oakland.
Non-Performing Assets
The following table provides information with respect to the Company's past due
loans and components of non-performing assets at the dates indicated.
12
<PAGE>
<TABLE>
<CAPTION>
March 31 Dec. 31 March 31
1998 1997 1997
-------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Loans 90 days or more past due and still accruing $ 182 $ 496 $ 341
Non-accrual loans 3,238 3,465 2,945
Other assets held for sale - 43 232
Foreclosed assets 554 - 973
-------------- --------------- --------------
Total non-performing assets $3,974 $4,004 $4,491
============== =============== ==============
Non-performing assets to period end loans,
other assets held for sale plus foreclosed assets 1.80% 1.72% 2.24%
============== =============== ==============
</TABLE>
[TABLE]
At March 31, 1998, the recorded investment in loans considered to be impaired
was $3,238,000 all of which were on a non-accrual basis. For the quarter ended
March 31, 1998, the average recorded investment in impaired loans was $3,311,000
and no interest income was recognized on impaired loans. If interest income on
those loans had been recognized, such income would have approximated $128,000.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management of the
Company considers to be adequate for losses that can be reasonably anticipated
in relation to the risk of future losses inherent in the loan portfolio. The
allowance is increased by charges to operating expenses and reduced by net
charge-offs.
In assessing the adequacy of the allowance for loan losses, management relies on
its ongoing review of the loan portfolio to identify potential problem loans in
a timely manner, ascertains whether there are probable losses which must be
charged off and assesses the aggregate risk characteristics of the portfolio.
Factors which influence management's judgment include the impact of forecasted
economic conditions, historical loan loss experience, the evaluation of risks
which vary with the type of loan, creditworthiness of the borrower and the value
of the underlying collateral. Management believes the allowance for loan losses
was adequate at March 31, 1998.
13
<PAGE>
The following table summarizes the changes in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Year Three Months
Ended Ended Ended
3-31-98 12-31-97 3-31-97
------------- -------------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
Balance, at beginning of period $4,351 $4,969 $4,969
Charge-offs:
Commercial 171 16 16
Real estate - construction 150 564 -
Real estate - other 58 650 -
Installment and other - 16 3
------------- -------------- -------------
Total charge-offs 379 1,246 19
Recoveries:
Commercial 6 43 4
Real estate - construction 9 139 37
Real estate - other 15 280 21
Installment and other 33 66 4
------------- -------------- -------------
Total recoveries 63 528 66
------------- -------------- -------------
Net charge-offs (recoveries) 316 718 (47)
Provision charged to operations 38 100 25
------------- -------------- -------------
Balance, at end of period $4,073 $4,351 $5,041
============= ============== =============
Ratio of net charge-offs to average
loans (annualized) 0.56% 0.34% -0.10%
============= ============== =============
Allowance at period end to total loans
outstanding 1.84% 1.87% 2.53%
============= ============== =============
</TABLE>
Potential Problem Loans
At March 31, 1998 there were no loans classified for regulatory purposes as
loss, doubtful, substandard or special mention that have not been disclosed in
the discussion above that (i) represented or resulted from trends or
uncertainties which management anticipated would have a material impact on
future operating results, liquidity, capital resources or (ii) represented
material credits about which management was aware of information that would
cause serious doubt as to the ability of the borrower to comply with the loan
repayment terms.
Investment Portfolio
The Company's investment portfolio is used primarily for liquidity purposes and
secondarily for investment income. The portfolio is primarily composed of U.S.
Treasury and U.S. government agency instruments and investment grade municipal
obligations. The company has increased its investment in municipal securities to
benefit from higher after-tax yields available on bank-qualified municipal
securities.
14
<PAGE>
The table below summarizes the book value and estimated market values of
investment securities at the dates indicated.
March 31, 1998 December 31, 1997
----------------- ------------------
Book Market Book Market
Value Value Value Value
------- -------- -------- --------
(Dollars in thousands)
SECURITIES HELD TO MATURITY:
U.S. Treasury securities .......... $ 5,964 $ 5,981 $ 5,949 $ 5,968
U.S. government agencies and
corporation ..................... 4,001 4,010 8,004 8,036
Municipal securities .............. 14,031 14,357 90 94
Collateralized mortgage obligations 84 89 13,237 13,629
------- ------- ------- -------
TOTAL ........................... $24,080 $24,437 $27,280 $27,727
======= ======= ======= =======
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities .......... $12,024 $12,214 $12,028 $12,227
U.S. government agencies and
corporation ..................... 22,559 22,768 18,650 18,870
------- ------- ------- -------
TOTAL ........................... $34,583 $34,982 $30,678 $31,097
======= ======= ======= =======
Deposits
For the three months ended March 31, 1998 average deposits totaled $285.7
million, an increase of $35.6 million or 14.2% from $250.1 million for the same
period in 1997. Management attributes the increase in deposits to an improving
economic environment and an increase in loan demand. It is the Company's
objective to become the primary bank for it's customers by servicing both the
loans and deposit needs. Accordingly, a correlation is expected between the loan
and the deposit volumes such that deposit volumes are expected to increase as
the loan volume increases.
For the three months ended March 31, 1998, average demand deposits totaled $80.1
million, an increase of $7.4 million or 10.2% from the same period in 1997.
Average demand deposits as a percentage of total deposits decreased to 28.1% for
the first quarter of 1998 from 29.1% for the same period of the prior year.
Average interest-bearing deposits increased $28.2 million or 15.9% for the three
months ended March 31, 1998 from the same period in 1997. Average interest-
bearing deposits comprised 71.9% of average total deposits for the three months
ended March 31, 1998 and 70.9% of average total deposits for the three months
ended March 31, 1997.
The table below sets forth information regarding the Bank's average deposits by
amount and percentage of total deposits for the three months ended March 31,
1998 and 1997.
<TABLE>
<CAPTION>
Average Deposits
---------------------------------------------------------------------
Three Months Ended March 31,
---------------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
Amount Percentage Amount Percentage
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Demand accounts $ 80,134 28.1% $ 72,731 29.1%
Interest-bearing checking 5,506 1.9% 22,457 9.0%
Money market 96,400 33.7% 87,283 34.9%
Savings and time 103,619 36.3% 67,598 27.0%
------------- ----------- ------------- -----------
Total $285,659 100.0% $250,069 100.0%
============= =========== ============= ===========
</TABLE>
15
<PAGE>
Certificates of deposit over $100,000 are generally considered a higher cost and
less stable form of funding than lower denomination deposits and may represent a
greater risk of interest rate and volume volatility than small retail deposits.
Time certificates of $100,000 or more at March 31, 1998 had the following
schedule of maturities:
(In thousands)
----------------
Three months or less $39,527
After three months through six months 29,927
After six months through twelve months 5,476
After twelve months 3,809
----------------
Total $78,739
================
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management refers to the Bank's ability to acquire funds to meet loan
demand, fund deposit withdrawals and to service other liabilities.
To augment liquidity, the Bank has informal federal funds borrowing arrangements
with correspondent banks totaling $24.0 million and is a member of the Federal
Home Loan Bank of San Francisco and through membership has the ability to pledge
qualifying collateral for short term (up to six months) and long term (up to
five years) borrowing. At March 31, 1998 the Bank had no outstanding borrowings
against these arrangements. Additionally, at March 31, 1998, unpledged
government securities that are available to secure additional borrowing in the
form of reverse repurchase agreements totaled approximately $35.8 million. At
March 31, 1998 the Bank had no reverse repurchase agreements.
The liquidity position of the Company improved during the first quarter of 1998
due to the decline in loans. Funds provided by maturing loans contributed $9.9
million of cash and cash equivalents. Additionally, the increase in deposits
provided $1.9 million of cash and cash equivalents and net cash and cash
equivalents of $1.8 million were provided by operating activities.
The liquidity position of the Company may be expressed as a ratio defined as (a)
cash, Federal funds sold, other unpledged short term investments and marketable
securities, including those maturing after one year, divided by (b) total assets
less pledged securities. Using this definition at March 31, 1998, the Company
had a liquidity ratio of 29.8% as compared to 25.6% at December 31, 1997. The
increase in liquidity position reflects the increase in over-night Federal Funds
sold. Federal Funds sold at March 31, 1998 were $25.1 million compared to $13.2
million at December 31, 1997.
Capital Resources
Total shareholders' equity increased to $39.8 million at March 31, 1998 from
$38.7 million at December 31, 1997 reflecting retained income of $1,175,000 and
the recognition of $200,000 of deferred tax benefits from tax carryforward items
which arose prior to the date of the quasi-reorganization. These benefits were
partially offset by the market adjustment of securities available for sale and
the net reduction of $115,000 in common stock due to the repurchase of shares of
common stock in the market.
The Company and the Bank are subject to capital adequacy guidelines issued by
the Federal Reserve Board of Governors which require a minimum risk-based
capital ratio of 8%. At least 4% must be in the form of "Tier 1" capital and
consists of common equity, non-cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries. "Tier 2" capital
consists of cumulative and limited-life preferred stock, mandatory convertible
securities, subordinated debt and, subject to
16
<PAGE>
certain limitations, the allowance for loan losses. General loan loss reserves
included in Tier 2 capital cannot exceed 1.25% of risk-weighted assets.
At March 31, 1998 the Company's risk-based capital ratio was 15.73%. The
following table presents the Company's risk-based capital and leverage ratios as
of March 31, 1998 and December 31, 1997.
<TABLE>
<CAPTION>
Minimum Capital
Requirements To Be
Considered Well Capitalized
Minimum Under Prompt Corrective
Actual Capital Requirement Action Provisions
---------------------------- ---------------------------- -----------------------------
Amount Ratio Amount Ratio Amount Ratio
------------ ------------ ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total Capital
(to Risk Weighted Assets) $42,063 15.73% $21,388 8.00% $26,735 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 38,712 14.48% 10,694 4.00% 16,041 6.00%
Tier 1 Capital
(to Average Assets) 38,712 11.86% 13,058 4.00% 16,323 5.00%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $40,965 14.97% $21,894 8.00% $27,367 10.00%
Tier 1 Capital
(to Risk Weighted Assets) 37,533 13.71% 10,947 4.00% 16,420 6.00%
Tier 1 Capital
(to Average Assets) 37,533 12.01% 12,499 4.00% 15,624 5.00%
</TABLE>
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
18
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
CIVIC BANCORP
-------------
(Registrant)
Date: May 7, 1998 By: /s/ Herbert C. Foster
-------------------------------------
Herbert C. Foster
President
Chief Executive Officer
By: /s/ Gerald J. Brown
-------------------------------------
Gerald J. Brown
Chief Financial Officer
Principal Accounting Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM 10Q 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> MAR-31-1998 MAR-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 MAR-31-1997
<CASH> 18,178 13,546
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 25,100 4,600
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 34,982 30,784
<INVESTMENTS-CARRYING> 24,080 37,131
<INVESTMENTS-MARKET> 24,437 37,097
<LOANS> 221,375 199,170
<ALLOWANCE> 4,073 5,041
<TOTAL-ASSETS> 328,762 289,704
<DEPOSITS> 285,123 252,859
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 3,823 2,404
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 35,115 31,222
<OTHER-SE> 4,701 3,219
<TOTAL-LIABILITIES-AND-EQUITY> 328,762 289,704
<INTEREST-LOAN> 5,627 4,707
<INTEREST-INVEST> 1,206 1,212
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 6,833 5,919
<INTEREST-DEPOSIT> 2,015 1,634
<INTEREST-EXPENSE> 2,015 1,635
<INTEREST-INCOME-NET> 4,818 4,284
<LOAN-LOSSES> 38 25
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 3,047 2,846
<INCOME-PRETAX> 1,970 1,630
<INCOME-PRE-EXTRAORDINARY> 1,970 1,630
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,175 1,050
<EPS-PRIMARY> 0.25 0.23
<EPS-DILUTED> 0.24 0.22
<YIELD-ACTUAL> .065 .066
<LOANS-NON> 3,238 2,945
<LOANS-PAST> 182 341
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 4,351 4,969
<CHARGE-OFFS> 379 19
<RECOVERIES> 63 66
<ALLOWANCE-CLOSE> 4,073 5,041
<ALLOWANCE-DOMESTIC> 4,073 5,041
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 1,479 1,258
</TABLE>
