<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 29, 2000
CIVIC BANCORP
---------------------
(Exact name of registrant as specified in its charter)
California 000-13287 680022322
---------------------- ------------------ ----------------------
State of Incorporation Commission File No. IRS Employer ID Number
2101 Webster Street, Oakland, California 94612
-----------------------------------------------
Address, including zip code, of registrant's principal executive office
(510) 836-6500
--------------------------------------------------
Registrant's telephone number, including area code
This amendment is filed to include the financial statements of the acquired
business and the pro forma financial statements reflecting the acquisition.
<PAGE>
Item 2. Acquisition or Disposition of Assets.
At the close of business on February 29, 2000, Civic BanCorp acquired East
County Bank of Antioch, California, by the merger of East County Bank with and
into CivicBank of Commerce. The purchase price was approximately $14,250,000 in
cash, or approximately 1.8 times shareholders' equity of East County Bank. The
Company is paying the purchase price from cash on hand of the combined banks.
CivicBank of Commerce will operate the East County Bank as offices of CivicBank
of Commerce.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. The financial
-----------------------------------------
statements of East County Bank as of and for the year ended December 31, 1999
are included with this report.
(b) Pro Forma Financial Information. Pro forma financial statements
-------------------------------
reflecting the acquisition of East County Bank are included with this report.
(c) Exhibits.
--------
No. Description
-- -----------
2. Agreement and Plan of Merger among CivicBank of Commerce,
Civic BanCorp and East County Bank dated as of October 18,
1999 (incorporated by reference from exhibit 2.1 to the
Company's Form 10-Q for the quarter ended September 30,
1999).
23 Consent of Moss Adams, LLP.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has caused this current report to be signed on its behalf by the
undersigned duly authorized person.
Date: March 21, 2000 Civic BanCorp
By: /s/ Gerald Brown
---------------------------
Its Chief Financial Officer
2
<PAGE>
EAST COUNTY BANK
FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1999 and 1998
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
BALANCE SHEETS 4
STATEMENTS OF EARNINGS 5
STATEMENT OF SHAREHOLDERS' EQUITY 6
STATEMENTS OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 9
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Shareholders
East County Bank
We have audited the accompanying balance sheet of East County Bank as of
December 31, 1999, and the related statements of earnings, shareholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements as of and for the year ended December 31, 1998 were audited by
another auditor whose report dated January 22, 1999 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of East County Bank at December
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ Moss Adams LLP
Stockton, California
January 14, 2000
<PAGE>
EAST COUNTY BANK
BALANCE SHEETS
December 31,
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash and due from banks (note B) $ 4,545,175 $ 3,043,010
Federal funds sold 7,860,000 4,240,000
----------- -----------
Total cash and cash equivalents 12,405,175 7,283,010
Securities available-for-sale (note C) 15,669,061 14,998,431
Loans held for sale (note E) 1,549,267 436,784
Loans held for investment (note D) 46,715,667 47,564,816
Bank premises and equipment, net (note F) 510,858 496,407
Interest receivable and other assets (note G) 1,711,517 1,335,704
----------- -----------
$78,561,545 $72,115,152
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits (note H)
Non interest-bearing demand deposits $18,878,596 $18,184,957
Interest-bearing demand deposits 4,656,695 5,610,002
Time certificates, under $100,000 19,622,776 15,152,033
Time certificates, $100,000 and over 10,848,815 10,452,116
NOW deposits 9,284,138 7,628,763
Savings deposits 8,355,655 8,453,691
----------- -----------
Total deposits 71,646,675 65,481,562
Interest payable and other liabilities 687,758 762,351
----------- -----------
Total liabilities 72,334,433 66,243,913
Commitments and contingencies (note L) - -
Shareholders' equity
Preferred stock, no par value, 10,000,000 shares
authorized, none issued or outstanding - -
Common stock, no par value, 20,000,000 shares
authorized, 563,442 and 542,942 shares issued and
outstanding in 1999 and 1998, respectively 5,345,910 5,242,160
Accumulated other comprehensive income, net of tax (229,613) 13,367
Retained earnings 1,110,815 615,712
----------- -----------
Total shareholders' equity 6,227,112 5,871,239
----------- -----------
$78,561,545 $72,115,152
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
EAST COUNTY BANK
STATEMENTS OF EARNINGS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Interest income
Interest and fees on loans $4,960,794 $4,589,583
Interest on securities available-for-sale 874,615 957,288
Interest on federal funds sold 401,341 356,452
---------- ----------
Total interest income 6,236,750 5,903,323
---------- ----------
Interest expense
Interest-bearing demand, savings and
other time deposits 1,406,929 1,297,472
Time certificates, $100,000 and over 425,069 437,096
---------- ----------
Total interest expense 1,831,998 1,734,568
---------- ----------
Net interest income 4,404,752 4,168,755
Provision for credit losses 714,050 275,000
---------- ----------
Net interest income after
provision for credit losses 3,690,702 3,893,755
Other income
Service fees on deposit accounts 460,544 467,913
Gain on sale of loans 349,107 161,664
Loan servicing 217,363 236,824
Other 10,557 11,667
---------- ----------
1,037,571 878,068
Other expenses
Salaries and employee benefits 2,251,069 2,104,344
Occupancy and equipment 545,959 530,866
Professional fees 352,301 363,941
Deposit and other insurance 57,687 56,812
Promotion and advertising 134,919 135,292
Other 554,235 565,541
---------- ----------
3,896,170 3,756,796
---------- ----------
Earnings before income taxes 832,103 1,015,027
Income taxes 337,000 414,000
---------- ----------
NET EARNINGS $ 495,103 $ 601,027
========== ==========
Net earnings per common share - basic (note M) $ .89 $ 1.11
========== ==========
Net earnings per common share - assuming dilution (note M) $ .84 $ 1.03
========== ==========
</TABLE>
5
<PAGE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
EAST COUNTY BANK
STATEMENT OF SHAREHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Common Other
Stock Comprehensive Retained Comprehensive
------------------------------
Shares Amount Income Earnings Income Total
--------------- ----------- ------------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances,
January 1, 1998 543,142 $ 5,245,374 $ 14,685 1,056 $5,261,115
Stock retired (200) (3,214) - - (3,214)
Comprehensive income:
Net earnings - - $ 601,027 601,027 - 601,027
Other comprehensive income,
net of tax of $8,556
Unrealized gains
on securities - - 12,311 - 12,311 12,311
--------------- ----------- ------------- ------------- -------------- ----------
Comprehensive income $ 613,338
=============
Balances,
December 31, 1998 542,942 5,242,160 615,712 13,367 5,871,239
Stock options exercised 20,500 103,750 - - 103,750
Comprehensive income:
Net earnings - - $ 495,103 495,103 - 495,103
Other comprehensive income,
net of tax of $168,851
Unrealized loss on securities - - (242,980) - (242,980) (242,980)
--------------- ----------- ------------- ------------- -------------- ----------
Comprehensive income - - $ 252,123 - - -
=============
Balances,
December 31, 1999 563,442 $ 5,345,910 $ 1,110,815 $ (229,613) $6,227,112
=============== =========== ============= ============= ==========
</TABLE>
7
<PAGE>
The accompanying notes are an integral part of this statement.
8
<PAGE>
EAST COUNTY BANK
STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 495,103 $ 601,027
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 240,336 202,113
Gain on sale of loans (349,107) (161,664)
Loss on disposal of other assets 5,781 -
Provision for credit losses 714,050 275,000
Increase in interest receivable and other assets (6,962) (205,817)
(Decrease) increase in interest payable and other
liabilities (74,593) 109,481
Originations of loans held for sale (5,654,264) (2,024,243)
Proceeds from sales of loans held for sale 4,890,888 2,269,185
----------- ------------
Net cash provided by operating activities 261,232 1,065,082
Cash flows from investing activities:
Proceeds from maturities and calls of securities
available-for-sale 4,475,904 15,775,000
Purchase of securities available-for-sale (5,587,289) (16,045,633)
Net increase in loans held for investment (64,901) (10,629,425)
Purchase of equipment (231,644) (163,750)
----------- ------------
Net cash used in investing activities (1,407,930) (11,063,808)
Cash flows from financing activities:
Retirement of common stock - (3,214)
Proceeds from exercise of stock options 103,750 -
Net increase in demand and interest-
bearing deposits 1,297,671 3,683,827
Net increase in time deposits 4,867,442 6,515,170
----------- ------------
Net cash provided by financing activities 6,268,863 10,195,783
Net increase in cash and cash equivalents 5,122,165 197,057
Cash and cash equivalents, beginning of year 7,283,010 7,085,953
----------- ------------
Cash and cash equivalents, end of year $12,405,175 $ 7,283,010
=========== ============
</TABLE>
9
<PAGE>
EAST COUNTY BANK
STATEMENTS OF CASH FLOWS - CONTINUED
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,731,518 $1,734,632
Income taxes $ 386,800 $ 467,729
</TABLE>
Noncash investing and financing activities:
The Bank foreclosed on loans with balances of $200,000 and $0 in 1999 and
1998, respectively.
10
<PAGE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES
East County Bank (the "Bank") was organized as an association for the purpose
of banking under the laws of the United States, on January 6, 1986. On October
9, 1998, the Bank converted from a national bank to a state bank chartered by
the State of California. On this date, each share of the Bank's common stock
was automatically converted to no par value common stock. The Articles of
Incorporation provide for the issuance of 20,000,000 shares of common stock,
no par value and 10,000,000 shares of preferred stock, no par value as
authorized by the Bank's Board of Directors.
The Bank operates as a commercial bank with offices in the cities of Antioch,
Concord, Walnut Creek, and Sacramento, California. The Bank provides
traditional commercial banking services to individuals and small and medium-
sized businesses through three branches and one loan production office serving
the nine county San Francisco Bay Area. The Walnut Creek branch was opened in
November 1999. The accounting and reporting policies of the Bank conform to
generally accepted accounting principles and general practice within the
banking industry.
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows:
1. Fair values of financial instruments
The financial statements include various estimated fair value information as
of December 31, 1999 and 1998. Such information, which pertains to the Bank's
financial instruments, does not purport to represent the aggregate net fair
value of the Bank. Further, the fair value estimates are based on various
assumptions, methodologies and subjective considerations, which vary widely
among different financial institutions and which are subject to change. The
following methods and assumptions are used by the Bank.
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
12
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
Securities: Fair values for securities are based on quoted market prices,
where available. If quoted market prices are not available, fair values are
based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying values.
The fair values for other loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Off-balance-sheet instruments: Fair values for the Bank's off-balance-sheet
lending commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
credit standing of the counterparties.
Deposit liabilities: The fair values estimated for demand deposits (interest
and non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposit
approximate their fair values at the reporting date. Fair values for fixed-
rate certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates to a schedule of the aggregate expected monthly maturities on
time deposits. The carrying amount of accrued interest payable approximates
its fair value.
2. Cash and cash equivalents
The Bank has defined cash and cash equivalents to include cash, due from banks
and federal funds sold. Generally, federal funds are sold for one-day
periods.
3. Securities available-for-sale
Available-for-sale securities consist of bonds, notes and debentures not
classified as trading securities or held-to-maturity securities. Unrealized
holding gains and losses, net of tax, are reported as a net amount in a
separate component of shareholders' equity, accumulated other comprehensive
income, until realized. Gains and losses on the sale of available-for-sale
securities are determined using the specific identification method. The
amortization of premiums and accretion of discounts are recognized as
adjustments to interest income over the period to maturity. The Bank's
portfolio consists only of securities available-for-sale as of December 31,
1999 and 1998.
13
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
4. Sale of SBA loans
The Bank originates loans to customers under the Small Business Administration
("SBA") program that generally provides for SBA guarantees of a portion of
each loan. The Bank sells the guaranteed portion of certain loans to a third
party and retains only the unguaranteed portion in its portfolio. Loans held
for sale are recorded at the lower of cost or market.
The Bank's investment in the SBA loan is allocated among the retained portion
of the loan and the sold portion of the loan based on the relative fair market
value of each portion. A gain is recognized on the sold portion based on its
allocated fair value and the rate differential between the rate paid by the
borrower to the Bank and the rate paid by the Bank to the purchaser by
reducing the carrying value of the retained portion which increases the future
yield. The Bank recognizes a servicing asset relating to the servicing of SBA
loans sold which is amortized over the period of estimated net servicing
income. The servicing asset was not material as of December 31, 1999 and 1998.
5. Loans held for investment
Loans held for investment are stated at the principal amount outstanding, net
of the allowance for credit losses and net of deferred loan fees. Interest on
loans is calculated by using the simple interest method on the daily balance
of the principal amount outstanding. Loan fees and certain origination costs
are deferred and amortized to interest income as yield adjustments over the
contractual term of the related loans.
Loans on which the accrual of interest has been discontinued are designated
non-accrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full and timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to interest or principal. When a loan is placed on non-accrual
status, all interest previously accrued but not collected is reversed against
current period interest income. Income on such loans is then recognized only
to the extent that cash is received and where the future collection of
principal is probable. 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.
14
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
6. Allowance for credit losses
The allowance for credit losses is maintained at a level deemed appropriate by
management to provide for known and inherent risks in the loan portfolio and
commitments to extend credit. The allowance is based upon management's
continuing assessment of various factors affecting the collectibility of loans
and commitments to extend credit, including current and projected economic
conditions, past credit experience, the value of the underlying collateral,
and such other factors which in management's judgment deserve current
recognition in estimating potential credit losses. Loans deemed uncollectible
are charged off and deducted from the allowance. Subsequent recoveries are
credited to the allowance.
Impaired loans, as defined, are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, the fair value of the collateral if the loan is collateral dependent. The
Bank considers a loan impaired when it is probable that all amounts of
principal and interest due, according to the contractual terms of the loan
agreement, will not be collected, which is the same criteria used for the
transfer of loans to non-accrual status. Interest income is recognized on
impaired loans in the same manner as non-accrual loans.
7. Premises and equipment
Premises and equipment consist primarily of leasehold improvements, furniture
and equipment and are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on a straight-line basis over the
shorter of the estimated useful lives of the related assets or the lease
terms.
Equipment 3 - 5 years
Furniture and fixtures 3 - 5 years
Leasehold improvements 5 - 10 years
Automobiles 3 years
Leasehold improvements are amortized over the lesser of the useful life of the
asset or the term of the lease. The straight-line method of depreciation is
followed for all assets for financial reporting purposes, but accelerated
methods are used for tax purposes. Deferred income taxes have been provided
for the resulting temporary differences.
15
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
8. Income taxes
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through
the provision for income taxes.
9. Foreclosed real estate
Real estate properties acquired through, or in lieu of, loan foreclosure are
to be sold and are initially recorded at the lower of carrying amount or fair
value at the date of foreclosure. After foreclosure, valuations are
periodically performed by management. Any subsequent revisions in estimates of
fair value less cost to sell are reported as adjustments to the carrying
amount of the real estate provided that the adjusted carrying amount does not
exceed the original carrying amount at the date of foreclosure. Revenue and
expenses from operations and changes in the valuation allowance are included
in other operating expenses.
10. Stock based compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation," requires entities to disclose the fair value of
their employee stock options, but permits entities to continue to account for
employee stock options under Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." The Bank has determined that
it will continue to use the method prescribed by APB Opinion No. 25, which
recognizes compensation cost to the extent of the difference between the
quoted market price of the stock at the date of grant and the amount an
employee must pay to acquire the stock. The Bank grants stock options to
employees with an exercise price equal to the quoted market price of the stock
at the date of grant. Accordingly, no compensation cost is recognized for
stock option grants. Disclosure requirements in accordance with SFAS No. 123
are included at Note J.
16
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES - CONTINUED
11. Statement of Financial Accounting Standards No. 133
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, by
requiring that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. In June 1999,
the FASB issued SFAS No. 137, which defers the effective date of SFAS No. 133.
The Bank will adopt SFAS No. 133 as of July 1, 2000 and has made no assessment
of the potential impact of adopting SFAS No. 133 at this time.
12. Reclassifications
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
NOTE B - CASH AND DUE FROM BANKS
Cash and due from banks includes balances with the Federal Reserve and other
correspondent banks. The Bank is required to maintain specified reserves by
the Federal Reserve Bank. The average reserve requirements are based on a
percentage of the Bank's deposit liabilities. In addition, the Federal Reserve
requires the Bank to maintain a certain minimum balance at all times.
NOTE C - SECURITIES
The amortized cost and estimated fair value of debt securities as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Obligations of US government
agencies $14,272,340 $ - $(375,406) $13,896,934
Municipalities 1,508,846 5,269 (19,038) 1,495,077
Other 277,050 - - 277,050
----------- ---------- --------- -----------
$16,058,236 $ 5,269 $(394,444) $15,669,061
=========== ========== ========= ===========
</TABLE>
17
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
There were no sales of securities during 1999.
18
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE C - SECURITIES - CONTINUED
The amortized cost and estimated fair value of debt securities at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Available-for-sale securities:
Obligations of US government
agencies $14,709,125 $ 58,603 $ (35,947) $14,731,781
Other 266,650 - - 266,650
----------- ---------- ---------- -----------
$14,975,775 $ 58,603 $ (35,947) $14,998,431
=========== ========== ========== ===========
</TABLE>
There were no sales of securities during 1998.
The amortized cost and estimated fair value of debt securities at December 31,
1999 by contractual maturity or call date are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right
to call or pre-pay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------- -----------
<S> <C> <C>
Available-for-sale securities:
Due in one year or less $ 115,000 $ 114,747
Due after one year through five years 12,862,623 12,485,939
Due after five years through ten years 2,020,024 1,975,475
Due after ten years 783,539 815,850
Other 277,050 277,050
----------- -----------
$16,058,236 $15,669,061
=========== ===========
</TABLE>
Securities are pledged to secure public deposits as required or permitted by
law. Pledged securities at December 31, 1999 and 1998 had a carrying value and
estimated fair value of $6,640,862 and $3,899,295, respectively.
19
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE D - LOANS HELD FOR INVESTMENT
Loans held for investment at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Commercial $17,954,736 $21,124,875
Consumer and other 6,800,219 7,500,729
Real estate 16,768,517 14,542,097
SBA 6,363,049 5,490,845
----------- -----------
47,886,521 48,658,546
Deferred loan fees and costs (92,680) (120,239)
Allowance for credit losses (1,078,174) (973,491)
----------- -----------
Total $46,715,667 $47,564,816
=========== ===========
</TABLE>
Changes in the allowance for credit losses are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Balance, January 1 $ 973,491 $ 838,225
Provision charged to operations 714,050 275,000
Loans charged off (647,222) (158,362)
Recoveries 37,855 18,628
---------- ---------
Balance, December 31 $1,078,174 $ 973,491
========== =========
</TABLE>
Loans on which accrual of interest has been discontinued, reduced or
renegotiated amounted to $521,487 and $402,733 at December 31, 1999 and 1998,
respectively. Interest income would have increased approximately $41,083 and
$75,400 in 1999 and 1998, respectively, if the contractual rate of interest on
these loans had been accrued. At December 31, 1999 and 1998, there were no
commitments to lend additional funds to borrowers whose loans are classified
as non-accrual or renegotiated.
20
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE D - LOANS HELD FOR INVESTMENT - CONTINUED
Impaired loans at December 31, 1999 aggregated approximately $518,000. The
average investment in impaired loans during 1999 was $383,650. The allowance
for credit losses relating to impaired loans was approximately $101,000 at
December 31, 1999. Impaired loans charged off during 1999 approximated
$530,000 and recoveries of amounts previously charged off amounted to
approximately $14,000. Total cash collected on impaired loans during 1999
approximated $680,000, of which $658,000 was credited to the principal balance
outstanding and $23,000 was recognized as interest income. The provision
charged to operations for impaired loans during 1999 approximated $500,000.
Interest income that would have been recognized on impaired loans was
approximately $39,000 for the year ended December 31, 1999.
Impaired loans at December 31, 1998 aggregated approximately $943,000. The
average investment in impaired loans during 1998 was $690,600. The allowance
for credit losses relating to impaired loans was approximately $112,000 at
December 31, 1998. There is no allowance for credit losses recorded for
impaired loans approximating $290,000. Impaired loans charged off during 1998
approximated $128,000 and recoveries of amounts previously charged off
amounted to approximately $11,000. Total cash collected on impaired loans
during 1998 approximated $76,000, of which $67,000 was credited to the
principal balance outstanding and $9,000 was recognized as interest income.
The provision charged to operations for impaired loans during 1998
approximated $144,000. Interest income that would have been recognized on
impaired loans was approximately $6,000 for the year ended December 31, 1998.
Approximately 51% of the Bank's loans are for general commercial and SBA uses
including professional, retail and small businesses. The SBA loans consist of
the unguaranteed portions that the Bank holds for investment. Approximately
14% of the Bank's loans are consumer loans and 35% are for real estate.
Generally, real estate loans are collateralized by real property and other
loans are collateralized by funds on deposit, business or personal assets.
Repayment is generally expected from the cash flows of the borrower.
NOTE E - LOANS SOLD AND HELD FOR SALE
The Bank originates SBA loans with the general intent of selling the
guaranteed portion of such loans, usually at a price in excess of par, and
retaining the remaining unguaranteed portion in its loans held for investment.
When the Bank sells the guaranteed portion of such loans, it transfers the SBA
guarantee to the buyer and retains the servicing function. The
21
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
Bank allocates its recorded investment in such loans between the portion sold
and the portion retained based upon approximations of their relative fair
values at the time of sale.
22
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE E - LOANS SOLD AND HELD FOR SALE - CONTINUED
The Bank is servicing the sold guaranteed portion of SBA loans amounting to
$16,176,842 and $16,830,467 at December 31, 1999 and 1998, respectively. The
portion of these loans sold is not reflected in the accompanying balance
sheets. Servicing SBA loans for other investors consists of collecting
payments, disbursing payments to investors and foreclosure processing. The
Bank earns servicing income over the life of the loans as it services such
loans on behalf of investors. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain charges
from borrowers, such as late payment fees.
NOTE F - PREMISES AND EQUIPMENT
Premises and equipment at December 31, consist of the following:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Furniture and equipment $ 1,237,620 $1,087,783
Leasehold improvements 300,015 275,487
----------- ----------
Total 1,537,635 1,363,270
Accumulated depreciation and amortization (1,026,777) (866,863)
----------- ----------
Total premises and equipment $ 510,858 $ 496,407
=========== ==========
Depreciation and amortization expense is $211,412 and $218,302 for 1999 and 1998, respectively.
NOTE G - OTHER ASSETS
Other assets at December 31, are as follows:
1999 1998
----------- ----------
Interest income receivable $ 676,580 $ 636,912
Deferred income tax asset 463,000 409,000
Prepaid expenses 174,783 183,355
Other real estate owned 200,000 -
Other 197,154 106,437
----------- ----------
</TABLE>
23
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
<TABLE>
<S> <C> <C>
$ 1,711,517 $1,335,704
=========== ==========
</TABLE>
24
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE H - TIME DEPOSITS
Certificates of deposit and their remaining maturities at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
2000 $28,012,945
2001 1,494,082
2002 56,300
2003 876,264
2004 -
Thereafter 32,000
-----------
$30,471,591
===========
</TABLE>
NOTE I - INCOME TAXES
The components of the provision for income taxes for the years ended December
31, are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Current
Federal $255,000 $362,000
State 122,000 106,000
-------- --------
Total 377,000 468,000
Deferred
Federal (5,000) (44,000)
State (35,000) (10,000)
-------- --------
Total (40,000) (54,000)
-------- --------
$337,000 $414,000
======== ========
</TABLE>
25
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE I - INCOME TAXES - CONTINUED
The components of the Bank's deferred tax assets and liabilities (included in
other assets on the balance sheet) at December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $333,000 $305,000
State income tax 30,000 42,000
Accumulated depreciation 72,000 51,000
Other 28,000 14,000
-------- --------
463,000 412,000
-------- --------
Deferred tax liabilities:
Accumulated accretion on securities - (3,000)
-------- --------
Net deferred income tax asset $463,000 $409,000
======== ========
</TABLE>
The Bank believes, based upon the available information, that all deferred tax
assets will be realized in the normal course of operations. Accordingly,
these assets have not been reduced by a valuation allowance.
NOTE J - EMPLOYEE STOCK OPTION PLAN
On May 6, 1992, the shareholders approved the East County Bank 1992 Stock
Option Plan (the "1992 Plan") under which options to purchase a maximum of
120,000 shares of Common Stock may be granted to selected officers, directors
and key full-time salaried employees of the Bank. On September 3, 1998, the
shareholders approved an increase in the number of shares available under the
1992 Plan to 162,943 shares. Under the 1992 Plan, options may, at the
discretion of the Board of Directors, be granted either as Incentive Stock
Options (as defined in the Internal Revenue Code of 1986, as amended) or as
Nonstatutory Stock Options. The options will have an exercise price of not
less than the fair market value of the Common Stock on the date the option is
granted and, unless otherwise provided by the Board of Directors, will vest
over a four-year period, with 25% of the shares exercisable at the end of each
year the grantee has completed as a director or employee of the Bank and have
a term of ten years.
26
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE J - EMPLOYEE STOCK OPTION PLAN - CONTINUED
The fixed stock option plan is accounted for under APB Opinion No. 25 and
related Interpretations. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS No. 123, the Bank's net earnings and earnings per share would
have been reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C> <C>
Net earnings As reported $495,103 $601,027
Pro forma $449,953 $532,540
Basic earnings per share As reported $ .89 $ 1.11
Pro forma $ .81 $ .98
Diluted earnings per share As reported $ .84 $ 1.03
Pro forma $ .77 $ .91
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Binomial options-pricing model with the following weighted-average
assumptions used for grants in 1998: expected volatility of 17.89 percent;
risk-free interest rate of 5.78 percent; and expected lives of 8.0 years. No
options were granted in 1999.
The total compensation expense associated with the options granted in 1998 is
approximately $140,000. At December 31, 1999 the amount remaining to be
included in subsequent years proforma disclosures approximated $50,000.
27
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE J - EMPLOYEE STOCK OPTION PLAN - CONTINUED
A summary of the status of the Bank's fixed stock option plan as of December
31, 1999 and 1998 and changes during the years then ended are presented below.
<TABLE>
<CAPTION>
1999 1998
----------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 95,600 $8.47 69,600 $ 6.55
Granted - $ - 26,500 $13.49
Exercised 20,500 $5.06 - $ -
Forfeited - $ - (500) $ 7.50
------- -------
Outstanding at end of year 75,100 $9.40 95,600 $ 8.47
======= =======
Options exercisable at year end 66,350 $8.92 76,175 $ 7.64
Weighted-average fair value of
options granted during the year $ - $ 5.33
</TABLE>
The following information applies to options outstanding at December 31, 1999:
<TABLE>
<S> <C>
Number outstanding 75,100
Range of exercise prices $5.00 to $16.25
Weighted-average exercise price $9.40
Weighted-average remaining contractual life 5.33 years
</TABLE>
NOTE K - EMPLOYEE BENEFIT PLAN
In 1989, the Bank adopted a 401(k) plan ("the Plan") which was available to
all employees who had completed one year of service with the Bank except: 1)
an employee who had not worked at least 1,000 hours during the year, 2) a
leased employee, 3) an employee who has not attained age 21, 4) an employee
covered by a collective bargaining agreement. Eligible employees could
contribute up to 15 percent of gross compensation to the Plan. The Bank could
elect to make a matching contribution equal to a percentage of the employee
contribution, or a profit sharing contribution which would be allocated to
each Plan participant based on compensation relative to other participants.
Vesting of Bank
28
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
contributions to the Plan occurs at a rate of 20 percent per year starting in
the third year of service.
29
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE K - EMPLOYEE BENEFIT PLAN - CONTINUED
Effective July 1, 1998, the Plan was amended to allow eligible employees to
participate in the Plan in the quarter following the start of employment.
Employees who have completed one year of service with the Bank are eligible to
participate in the employer contribution. Other Plan provisions were
unchanged. Bank matching contributions to the Plan amounted to $25,760 and
$20,615 for the years ended December 31, 1999 and 1998, respectively.
NOTE L - COMMITMENTS AND CONTINGENCIES
The Bank is a defendant in certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected
to have a material adverse effect on the financial condition of the Bank.
The Bank leases its premises under noncancelable operating leases with initial
terms expiring in 2003. Certain of these leases contain renewal options and
escalation clauses that provide for increased rentals. The future minimum
lease commitments at December 31, 1999 under the noncancelable leases are as
follows:
Year ending December 31,
------------------------
2000 $280,553
2001 284,481
2002 250,229
2003 103,995
2004 -
--------
$919,258
========
Rental expenses under these leases are $225,058 for 1999 and $204,816 for
1998.
30
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE M - EARNINGS PER SHARE
The Bank calculates earnings per share (EPS) in accordance with SFAS No. 128,
"Earnings per Share." SFAS No. 128 requires the presentation of basic EPS
and diluted EPS, which considers all dilutive common stock equivalents.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
<S> <C> <C> <C>
Net earnings $495,103
-----------
Basic EPS
Net earnings available to
common stockholders 495,103 553,400 $ .89
=========
Effect of Dilutive Securities
Stock options - 34,365
----------- ------------
Diluted EPS
Net earnings available to common
stockholders $495,103 587,765 $ .84
=========== ============ =========
For the Year Ended December 31, 1998
--------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
Net earnings $601,027
-----------
Basic EPS
Net earnings available to
common stockholders 601,027 543,115 $1.11
=========
Effect of Dilutive Securities
Stock options - 40,899
----------- ------------
Diluted EPS
Net earnings available to common
stockholders $601,027 584,014 $1.03
=========== ============ =========
</TABLE>
31
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE M - EARNINGS PER SHARE - CONTINUED
Options to purchase 4,000 shares of common stock at $16.25 a share were
granted during 1998. They were not included in the computation of diluted EPS
in 1999 nor in 1998 because the options' exercise price was greater than the
average market price of the common shares. The options, which expire on
December 17, 2008, were still outstanding at December 31, 1999.
NOTE N- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. 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 Bank's 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 Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's 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 I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal Reserve
Bank 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 I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions or events
since that notification that management believes have changed the Bank's
category.
32
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE N - REGULATORY MATTERS - CONTINUED
The Bank's actual capital amounts and ratios are also presented in the
following table.
<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes: action provisions:
------------------ ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999:
Total capital (to Risk
Weighted Assets) $7,173,623 12.6% $4,559,244 *8.0% $5,699,055 *10.0%
Tier I capital (to Risk
Weighted Assets) $6,456,725 11.3% $2,279,622 *4.0% $3,419,433 * 6.0%
Tier I capital (to
Average Assets) $6,456,725 8.2% $3,148,350 *4.0% $3,935,437 * 5.0%
As of December 31, 1998:
Total capital (to Risk
Weighted Assets) $6,549,000 11.9% $4,395,000 *8.0% $5,494,000 *10.0%
Tier I capital (to Risk
Weighted Assets) $5,858,000 10.7% $2,197,000 *4.0% $3,296,000 * 6.0%
Tier I capital (to
Average Assets) $5,858,000 7.5% $3,141,000 *4.0% $3,926,000 * 5.0%
</TABLE>
NOTE O - FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit in the form
of loans or through standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest-rate risk in excess of the
amount recognized in the balance sheet.
* = more than or equal to
33
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE O - FINANCIAL INSTRUMENTS - CONTINUED
The Bank's exposure to credit loss is represented by the contractual amount of
those instruments and is usually limited to amounts funded or drawn. The
contract or notional amounts of these agreements, which are not included in
the balance sheets, are an indicator of the Bank's credit exposure.
Commitments to extend credit generally carry variable interest rates and are
subject to the same credit standards used in the lending process for on-
balance-sheet instruments. Additionally, the Bank periodically reassesses the
customer's creditworthiness through ongoing credit reviews. The Bank
generally requires collateral or other security to support commitments to
extend credit.
Contract
Amount
----------
Financial instruments whose contract
amounts represent credit risk:
Undisbursed loan commitments $8,511,389
Standby letters of credit 192,000
----------
$8,703,389
==========
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and income-
producing commercial and residential properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
34
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE O - FINANCIAL INSTRUMENTS - CONTINUED
The following table provides summary information on the estimated fair value
of financial instruments at December 31, 1999:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------- -------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 12,405,175 $ 12,405,175
Securities available-for-sale 15,669,061 15,669,061
Loans held for sale 1,549,267 1,549,267
Loans held for investment 47,886,521 47,489,972
Accrued interest receivable 676,580 676,580
Financial liabilities:
Deposits (71,646,675) (71,400,153)
Accrued interest payable (58,445) (58,445)
Off-balance-sheet liabilities:
Undisbursed loan commitments and
standby letters of credit - (85,000)
</TABLE>
The following table provides summary information on the estimated fair value
of financial instruments at December 31, 1998:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
------------- -------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 7,283,010 $ 7,283,010
Securities available-for-sale 14,998,431 14,998,431
Loans held for sale 436,784 436,784
Loans held for investment 48,658,546 48,787,211
Accrued interest receivable 636,912 636,912
Financial liabilities:
Deposits (65,481,562) (65,371,443)
Accrued interest payable (54,395) (54,395)
Off-balance-sheet liabilities:
Undisbursed loan commitments and
standby letters of credit - (134,000)
</TABLE>
35
<PAGE>
EAST COUNTY BANK
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended December 31, 1999 and 1998
NOTE O - FINANCIAL INSTRUMENTS - CONTINUED
The carrying amounts include $521,487 and $402,733 of non-accrual loans (loans
that are not accruing interest) at December 31, 1999 and 1998, respectively.
Management has determined that primarily because of the uncertainty and the
difficulty of predicting the timing of such cash flows excessive amounts of
time and money would be incurred to estimate the fair values of nonperforming
assets. The following aggregate information is provided at December 31, about
the contractual provisions of these assets:
1999 1998
---------- ----------
Aggregate carrying amount $521,487 $402,733
Effective rate 11.25% 11.42%
Average term to maturity 26 months 58 months
NOTE P - RESTRICTIONS ON RETAINED EARNINGS
Under current California state banking laws, the Bank may not pay cash
dividends in an amount which exceeds the lesser of retained earnings of the
Bank or the Bank's net earnings for its last three fiscal years, (less the
amount of any distributions to shareholders made during that period). If the
above requirements are not met, cash dividends may only be paid with the prior
approval of the Commissioner of the Department of Financial Institutions, in
an amount not exceeding the Bank's net earnings for its last fiscal year or
the amount of its net earnings for its current fiscal year. Accordingly, the
future payment of cash dividends will depend on the Bank's earnings and its
ability to meet its capital requirements.
NOTE Q - ACQUISITION
In October of 1999, the Bank entered into a definitive agreement with Civic
Bancorp to merge East County Bank with Civic Bank of Commerce. The merger
agreement is subject to approval by the Federal Reserve, Department of
Financial Institutions and the shareholders of East County Bank. The Bank
will be acquired by Civic Bancorp in a cash transaction expected to close by
February 29, 2000.
36
<PAGE>
HISTORICAL AND PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet at
December 31, 1999, and pro forma condensed combined statement of income for the
year ended December 31, 1999 combine the historical balance sheets of Civic
BanCorp and Subsidiary and East County Bank as if the Merger had been effective
on December 31, 1999, and the income statements of Civic BanCorp and East County
Bank as if the Merger had been effective on the beginning of the period
presented. The pro forma information also gives effect to the cancellation of
587,765 shares of East County Bank common stock, no par value, outstanding at
February 29, 2000, with an aggregate value (Exchange Amount) equal to $23.98 per
share in exchange for cash consideration. The pro forma adjustments are based
upon available information and upon certain assumptions that management believes
are reasonable under the circumstances. The Merger is accounted for under the
purchase method of accounting, after giving effect to the pro forma adjustments
described in the accompanying notes. Under this method of accounting, the
purchase price has been allocated to the assets and liabilities of East County
Bank based on preliminary estimates of fair values as of the date of
acquisition. The actual fair values will be determined following consummation of
the Merger.
These unaudited pro forma combined financial statements should be read
in conjunction with the historical consolidated financial statements and the
related notes thereto of Civic BanCorp and the historical financial statements
of East County Bank. The unaudited pro forma combined statements of income are
not necessarily indicative of financial condition or operating results which
would have been achieved had the Merger been consummated on the respective dates
indicated and should not be construed as representative of future operations.
<PAGE>
CIVIC BANCORP AND SUBSIDIARY AND EAST COUNTY BANK
- -------------------------------------------------
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(In Thousands Except Shares and Per Share Amounts)
- -------------------------------------------------
<TABLE>
<CAPTION>
East County Pro Forma Adjustments
Civic BanCorp Bank Debits Credits
--------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 24,421 $ 4,961
Investment secudities 4,399 875
Federal funds sold 1,312 401 803 (a)
--------------- ----------- -------------- ------------
Total Interest Income 30,132 6,237 803
INTEREST EXPENSE:
Deposits 8,194 1,832
Other borrowings 23 -
--------------- ----------- -------------- ------------
Total Interest Expense 8,217 1,832
--------------- ----------- -------------- ------------
NET INTEREST INCOME 21,915 4,405 803
Provision for loan losses 315 714
--------------- ----------- -------------- ------------
Net Interest Income After
Provision for Loan Losses 21,600 3,691 803
NON-INTEREST INCOME:
Customer service fees 971 461
Disposition of client warrants 333 -
Gain on sale of other assets held for sale 67 349
Other 156 227
--------------- ----------- -------------- ------------
Total Non-Interest Income 1,527 1,037 -
NON-INTEREST EXPENSE:
Salaries and employee benefits 8,330 2,251
Occupancy and equipment 2,157 546
Professional fees 487 352
Marketing 248 135
Goodwill and core deposit amortization 168 - 559 (C)
Other 2,271 612
--------------- ----------- -------------- ------------
Total Non-Interest Expense 13,661 3,896 559
--------------- ----------- -------------- ------------
INCOME BEFORE INCOME TAXES 9,466 832 (1,362)
Income tax expense 3,616 337 557
--------------- ----------- -------------- ------------
NET INCOME $ 5,850 $ 495 $ (805)
--------------- ----------- -------------- ------------
BASIC INCOME PER SHARE $ 1.24 $ 0.89
--------------- ----------- ------------
DILUTED INCOME PER SHARE $ 1.21 $ 0.84
--------------- ----------- ------------
Weighted average shares outstanding used
to compute basic net income per common share 4,713,181 553,400 (553,400)
Dilutive effects of stock options 138,722 34,365 (34,365)
--------------- ----------- -------------- ------------
Total diluted weighted average shares outstanding
used to compute diluted net income per common share 4,851,903 587,765 (587,765)
=============== =========== ============== ============
<CAPTION>
Pro Forma
Combined
-----------------
<S>
INTEREST INCOME:
Loans $ 29,382
Investment secudities 5,274
Federal funds sold 910
-----------------
Total Interest Income 35,566
INTEREST EXPENSE:
Deposits 10,026
Other borrowings 23
-----------------
Total Interest Expense 10,049
-----------------
NET INTEREST INCOME 25,517
Provision for loan losses 1,029
-----------------
Net Interest Income After
Provision for Loan Losses 24,488
NON-INTEREST INCOME:
Customer service fees 1,432
Disposition of client warrants 333
Gain on sale of other assets held for sale 416
Other 383
-----------------
Total Non-Interest Income 2,564
NON-INTEREST EXPENSE:
Salaries and employee benefits 10,581
Occupancy and equipment 2,703
Professional fees 839
Marketing 383
Goodwill and core deposit amortization 727
Other 2,883
-----------------
Total Non-Interest Expense 18,116
-----------------
INCOME BEFORE INCOME TAXES 8,936
Income tax expense 3,396
-----------------
NET INCOME $ 5,540
-----------------
BASIC INCOME PER SHARE $ 1.18
-----------------
DILUTED INCOME PER SHARE $ 1.14
-----------------
Weighted average shares outstanding used
to compute basic net income per common share 4,713,181
Dilutive effects of stock options 138,722
-----------------
Total diluted weighted average shares outstanding
used to compute diluted net income per common share 4,851,903
=================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CIVIC BANCORP AND SUBSIDIARY AND EAST COUNTY BANK
- -------------------------------------------------
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINDED BALANCE SHEET
AS OF DECEMBER 31, 1999
(In Thousands Except Shares)
- --------------------------- Civic East County Pro Forma Adjustments Pro Forma
BanCorp Bank Debit Credit Combined
---------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 12,205 $ 4,545 $ 16,750
Federal funds sold 7,500 7,860 14,605 755
---------- ----------- ---------- -----------
Total cash and cash equivalents 19,705 12,405 $ 14,605 17,505
Securities available for sale 31,665 15,669 47,334
Securities held to maturity 43,416 - 43,416
Other securities 2,126 - 2,126
Total loans 285,537 49,343 334,880
Less allowance for loan losses 4,850 1,078 5,928
---------- -----------
Loans - net 280,687 48,265 328,952
Interest receivable and other assets 6,151 1,712 7,863
Intangible Assets - - 8,378 (b) 8,378
Leasehold improvements and equipment - net 1,621 511 2,132
---------- ----------- ------- ---------- -----------
TOTAL ASSETS $ 385,371 $ 78,562 $ 8,378 $ 14,605 $ 457,706
---------- ----------- ------- ---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Noninterest bearing $ 65,277 $ 18,879 $ 84,156
Interest-bearing:
Checking 11,851 9,284 21,135
Money market 160,432 4,657 165,089
Time and savings 97,154 38,827 135,981
---------- ----------- -----------
Total deposits 334,714 71,647 406,361
Accrued interest payable and other liabilities 4,453 688 5,141
---------- ----------- -----------
Total liabilities 339,167 72,335 411,502
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock no par value; authorized 34,751 5,346 5,346 (b) 45,443
Retained earnings, (subsequent to July 1,1996 11,701 1,111 1,111 (b) 11,701
Accumulated other comprehensive (loss) income, net (248) (230) 230 (248)
---------- ----------- ------- ---------- -----------
Total shareholders' equity 46,204 6,227 6,227 230 46,204
---------- ----------- ------- ---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 385,371 $ 78,562 $ 6,227 230 $ 457,706
---------- ----------- ------- ---------- -----------
Shares Outstanding 4,674,411 563,442 563,442 4,674,411
</TABLE>
<PAGE>
CIVIC BANCORP AND SUBSIDIARY AND EAST COUNTY BANK
- -------------------------------------------------
UNAUDITED PRO FORMA COMBINDED BALANCE SHEET AND INCOME STATEMENT
AS OF DECEMBER 31, 1999
NOTES
(Dollars in thousands)
(a) Purchase price is $14,605,250 which will originate from Federal funds sold.
$14,605,250 at 5.5% will impute an opportunity cost of $803,000.
<TABLE>
<S> <C>
(b) Purchase price $ 14,605
Less: Common Stock (5,346)
Retained Earnings (1,111)
Accumulated comprehensive income 230
------------
Goodwill $ 8,378
(c) Goodwill to be amortized over 15 years.
Goodwill $ 8,378
Amortization period 15
Annual Amortization Expense $ 558
</TABLE>
<PAGE>
Exhibit Index
No. Description Page
- -- ----------- ----
23.2 Consent of Moss Adams LLP
<PAGE>
EXHIBIT 23.2
The Board of Directors and Shareholders
East County Bank
We consent to incorporation by reference on Form 8-K of Civic BanCorp of our
report dated January 14, 2000, relating to the Balance Sheets, Statements of
Earnings, Statement of Shareholders' Equity, and Statements of Cash Flows of
East County Bank as of December 31, 1999 which report appears in the December
31, 1999 Audited Financial Statements.
/s/ Moss Adams LLP
Stockton, California
March 24, 2000
