CBC BANCORP, INC.
PART I
ITEM 1. BUSINESS
GENERAL
CBC Bancorp, Inc. (the "Company") is a registered bank holding company.
The Company's subsidiary is Connecticut Bank of Commerce (the "Bank"), a
Connecticut chartered commercial bank.
The Bank is a full-service commercial bank with its main office in
Woodbridge, Connecticut, and with four other offices located in Branford,
Greenwich, Norwalk and Stamford, Connecticut. All deposits in the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") to the
extent permitted by law. From its main office and other offices, the Bank
provides a broad range of commercial and consumer banking services to
businesses and consumers located in New Haven and Fairfield Counties and
throughout Connecticut, including checking and savings accounts and loans
to small and medium-sized businesses, professional organizations and
individuals.
In the second quarter of 1994, the Bank established a financial lease
program. The Bank's leasing business includes providing short-term
financing of leases, which are subsequently placed with permanent lenders,
purchasing accounts receivable resulting from leasing transactions and
purchasing equipment for lease to prospective lessees. During 1994, the
Bank disbursed $15.2 million in financial lease related transactions. As
of December 31, 1994, $9.6 million in funds deployed in financial lease
transactions have been repaid and $5.6 million in funds remain
outstanding. The Bank anticipates continuing its participation in
financial lease transactions in the future.
In efforts to strengthen the financial condition of the Bank, on October
26, 1994 the Bank sold $9.6 million of installment loans made to overseas
U.S. military personnel, representing substantially all of the remaining
portfolio of this type of extension of credit. While the transaction
resulted in a net loss of approximately $818,000, the transaction permits
the Bank to exit this line of business, significantly improves the Bank's
short-term liquidity and is expected to reduce loan charge-offs and
operating costs over the long-term.
EMPLOYEES
On December 31, 1994, the Company and subsidiaries had 50 employees, 49
on a full-time equivalent basis. On December 31, 1993, the Company and
subsidiaries had 76 employees, 72 on a full-time equivalent basis.
COMPETITION
The banking industry in Connecticut is highly competitive. The Bank faces
strong competition in attracting deposits and in making commercial and
consumer loans from regulated and unregulated financial services
organizations. Other commercial banks, savings banks, savings
institutions and credit unions actively compete with the Bank for deposits
and money market funds and brokerage houses offer deposit-like services.
These institutions, as well as consumer and commercial financial
companies, mortgage banking companies, national retail chains and
insurance companies, are important competitors for various types of loans.
Interest rates, convenience of office locations and marketing are
significant factors in the Bank's competition for deposits. The Bank does
not rely upon any individual, group or entity for a material portion of
its deposits nor does the Bank obtain any deposits through deposit brokers.
Factors which affect competition for loans include the interest rates and
loan fees charged and the efficiency and quality of services.
Competition for loans is also affected by the availability of credit,
general and local economic conditions, current interest rates, volatility
in the mortgage markets and various other factors. The majority of the
Bank's lending activities are concentrated in the State of Connecticut.
REGULATION AND SUPERVISION
As a bank holding company, the Company is subject to the regulation and
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). The Company is also subject to regulation by
the Connecticut Banking Commissioner (the "Banking Commissioner").
The Bank is a Connecticut chartered, FDIC insured commercial bank, which
is not a member of the Federal Reserve System (a "nonmember bank"). As a
Connecticut chartered nonmember bank, the Bank is principally subject to
regulation and supervision by the FDIC and the Banking Commissioner. The
Bank is also subject to various regulatory requirements of the Federal
Reserve Board applicable to all federally insured financial institutions.
Federal Reserve System Regulation
The Company, as a bank holding company, is subject to extensive regulation
and supervision by the Federal Reserve Board. The Federal Reserve Board
has established capital adequacy guidelines for bank holding companies
that are nearly identical to the FDIC capital requirements described
below. These capital adequacy guidelines are not applicable to bank
holding companies with consolidated assets of under $150 million. Until
the Company's consolidated assets reach or exceed this level, the Federal
Reserve Board's capital guidelines are not applicable to the Company.
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Capital Resources."
Federal Reserve Board policy requires every bank holding company to act as
a source of financial strength to its subsidiary bank and to commit
resources in support of such subsidiary. The Federal Reserve Board could
seek to restrict the Company from paying cash dividends on the Company's
common or preferred stock or interest on its subordinated capital notes
or other indebtedness in accordance with this policy.
In addition, in an effort to restore and maintain the financial soundness
of the Company, the Company entered into a written agreement (the
"Written Agreement") with the Federal Reserve Bank of Boston (the
"Reserve Bank"), effective as of November 2, 1994. The Written Agreement
requires the Company to seek the prior written approval of the Reserve
Bank prior to the Company's declaration or payment of dividends on its
outstanding common or preferred stock, increasing its outstanding
borrowings or incurring additional holding company indebtedness, engaging
in material transactions with the Bank (other than capital contributions)
or making cash disbursements in excess of certain agreed upon amounts.
The Written Agreement also requires the Company to submit (i) a tax
allocation agreement between the Company and the Bank, (ii) a debt
service plan and (iii) a capital restoration plan for the Bank. The
Federal Reserve Bank approved the proposed tax allocation agreement as of
December 23, 1994 and approved the debt service and capital restoration
plans as of December 30, 1994. In addition, the Written agreement also
required the Company to revise or develop certain select policies. All
such actions required by the Written Agreement have been taken by the
Company.
The Company is required to filed periodic and annual reports with the
Federal Reserve Board on the operations of the Company and its
subsidiaries. In addition, the Company is registered with the Banking
Commissioner under the Connecticut Bank Holding Company Act.
Under the BHC Act, bank holding companies may not directly or indirectly
acquire ownership or control of more than five percent of the voting
shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board. In
addition, bank holding companies are generally prohibited under the BHC
Act from engaging in nonbanking activities, subject to certain exceptions.
The Connecticut Interstate Banking Act specifically permits Connecticut
bank holding companies and banks to acquire or be acquired by banks or
bank holding companies in other states with reciprocal interstate banking
laws. The recently enacted Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 is expected to greatly facilitate interstate
acquisitions and mergers involving Connecticut bank holding companies and
Connecticut banks and out-of-state bank holding companies and out-of-state
banks. See "The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994." The BHC Act requires the prior approval of the Federal
Reserve Board of any acquisition of control of a bank or bank holding
company by a company. Under the Change in Bank Control Act (the "Control
Act"), any person acquiring control of a bank holding company must provide
advance notice to, and obtain the prior approval of, the Federal Reserve
Board. No further approval is necessary for the acquisition of additional
voting securities by a company or person that has received the approval
under the BHC Act or the Control Act. In addition to the BHC Act and
the Control Act, federal antitrust laws place limitations on the
acquisition of banks and other businesses.
Under the BHC Act, the Company, the Bank and any other subsidiaries of the
Company are prohibited or restricted in connection with any extension of
credit or provision of any property or services. The Bank is subject to
certain restrictions imposed by the Federal Reserve Act on making any
investments in the stock or other securities of the Company or any of its
subsidiaries, and the taking of such stock or securities as collateral for
loans to any borrower. The Bank is also subject by the Federal Reserve
Act to certain collateralization requirements and restrictions on the
amount of loans it can make to the Company. The amount of such loans may
not exceed (when aggregated with certain other transactions between the
Bank and the Company) 10 percent of the capital stock and surplus of the
Bank.
Connecticut Regulation
The Banking Commissioner and the Connecticut Department of Banking
regulate the Bank's internal operations as well as its deposit, lending
and investment activities. The approval of the Banking Commissioner is
required, among other things, for the establishment of branch offices and
business combination transactions. In addition, the Banking Commissioner
conducts periodic examinations of the Bank. Many of the areas regulated
by the Banking Commissioner are subject to similar and concurrent
regulation by the FDIC.
Connecticut banking laws grant Connecticut chartered banks broad lending
authority. Subject to certain limited exceptions, however, total secured
and unsecured loans made to any one obligor pursuant to this statutory
authority may not exceed 25 percent of a bank's capital, surplus,
undivided profits and loss reserves.
The Bank is prohibited by Connecticut banking law from paying dividends
except from its net profits, which are defined as the remainder of all
earnings from current operations plus actual recoveries on loans and
investments and other assets after deducting from the total thereof all
current operating expenses, actual losses, accrued dividends on preferred
stock, if any, and all federal and state taxes. The total of all
dividends declared by the Bank in any calendar year may not, unless
specifically approved by the Banking Commissioner, exceed the total of its
net profits for that year combined with its retained net profits for the
preceding two years.
The ability of the Bank to pay dividends is also limited by provisions of
federal law and by the terms of the Cease and Desist Order, effective as
of July 19, 1991 (the "1991 Order"). See "FDIC Regulation" and "The FDIC
Improvement Act". The Federal Deposit Insurance Corporation Improvement
Act of 1991 (the "FDIC Improvement Act") and the FDIC's regulations
promulgated thereunder prohibit any bank from making capital distributions
if to do so would leave the institution undercapitalized as defined in the
FDIC Improvement Act. Under the terms of the 1991 Order, the Bank is
prohibited from paying any cash dividends to the Company without the prior
written approval of the FDIC and the Banking Commissioner. It should be
noted that cash dividends by the Bank to the Company represent the
primary source of cash income to the Company. These statutory and
regulatory restrictions -- coupled with the requirement in the Written
Agreement that the Company obtain the prior approval of the Reserve Bank
before declaring or paying dividends -- effectively prevent the Company
from paying cash dividends on its outstanding common or preferred stock or
interest on the Company's subordinated capital notes or other debt
instruments in the foreseeable future. The Company does not anticipate
that it will be permitted, nor does the Company anticipate that the Bank
will be permitted, to pay cash dividends until the Bank has reported net
profits, has attained the capital levels mandated in the 1991 Order, has
reduced significantly the level of nonperforming loans and has otherwise
complied with the terms of the Bank's Revised Capital Plan. See "The
Bank's Initial and Revised Capital Plans." There can be no assurance,
however, that the Company and the Bank will receive such regulatory
approvals even after the Bank achieves the foregoing financial and
operational benchmarks. During 1994, neither the Company nor the Bank
paid any dividends.
FDIC Regulation
As an FDIC-insured nonmember bank, the Bank is subject to extensive
supervision and examination by the FDIC, covering nearly every aspect of
its business and operations, including capital adequacy. The FDIC has
adopted risk-based capital requirements for nonmember banks. The minimum
guidelines for the ratio of total capital ("Total Capital") to risk-
weighted assets (including certain off-balance sheet items, such as
standby letters of credit) is 8 percent. At least half of the Total
Capital is to be comprised of common stock, retained earnings, minority
interests in the equity accounts of consolidated subsidiaries,
noncumulative preferred stock, less goodwill and certain other intangibles
("Tier 1 Capital"). The remainder may consist of other preferred stock,
certain other instruments, limited amounts of subordinated debt and a
limited amount of loan and lease loss allowances ("Tier 2 Capital"). A
nonmember bank's total "risk-weighted assets" are determined by assigning
the nonmember bank's assets and off-balance sheet items to one of four
risk categories based upon their relative credit risk ranging from 100
percent risk weight for assets with the greatest risk to zero percent risk
weight for assets with little or no risk. The higher the percentage of
riskier assets an institution has the more Tier 1 and Total Capital
required for the institution to satisfy the risk-based capital
requirements.
In addition, the FDIC has established a minimum leverage ratio requirement
for nonmember banks. The FDIC regulations provide for a minimum ratio of
Tier 1 Capital to total average assets, less goodwill (the "Leverage
Ratio") of 3 percent for nonmember banks that meet certain specified
criteria, including having the highest regulatory rating. All other
nonmember banks generally are required to maintain a Leverage Ratio of at
least 3 percent plus an additional cushion of 100 to 200 basis points with
a minimum Leverage Ratio of 4 percent. The FDIC regulations also provide
that nonmember banks experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above
the minimum supervisory levels without significant reliance on intangible
assets. The 1991 Order currently requires the Bank to maintain a Leverage
Ratio of at least 6 percent for as long as the 1991 Order remains in
effect. Furthermore, the FDIC recently adopted regulations implementing
the prompt corrective action provisions of the FDIC Improvement Act. The
FDIC Improvement Act and its impact on the Company and the Bank are
discussed below. See "The FDIC Improvement Act."
At December 31, 1994, the Bank complies with the Tier 1 Capital to risk-
weighted assets requirement, but does not comply with the Total Capital to
risk-weighted assets requirement or the Leverage Ratio requirement of the
FDIC regulations or the 1991 Order. Accordingly, the Bank was deemed to
be in the "undercapitalized" category as defined by the FDIC Improvement
Act. As an "undercapitalized" nonmember bank, the Bank is subject to
certain restrictions on its operations mandated by the FDIC Improvement
Act and the FDIC's regulations promulgated thereunder. See "The FDIC
Improvement Act." In addition, with a Tier 1 Leverage Ratio of 3.95
percent for the last quarter of 1994 (4.08 percent at December 31, 1994),
the Bank does not comply with the 6 percent Tier 1 Leverage Ratio set
forth in the 1991 Order. Because the Bank is deemed "undercapitalized"
and is not in compliance with the Tier 1 Leverage Ratio mandated by the
1991 Order, the FDIC directed the Bank to revise its previously approved
March 21, 1994 Capital Plan (the "Initial Capital Plan"). The Bank
submitted its revised capital plan (the "Revised Capital Plan") to the
FDIC and the Banking Commissioner on December 13, 1994. On December 28,
1994, the FDIC approved the Bank's Revised Capital Plan. On December 29,
1994, the Banking Commissioner also approved the Revised Capital Plan.
See "The Bank's Initial and Revised Capital Plans."
The following table sets forth the regulatory capital ratios of the Bank
as of December 31, 1994 and 1993:
Year Ended December 31, 1994 1993
Tier 1 risk-based capital <F1> 5.97% (2.53%)
Total risk-based capital <F1> 7.26% (2.53%)
Tier 1 Leverage Ratio <F2> 3.95% (1.82%)
<FN>
<F1>
Under the FDIC risk-based capital regulations, regulatory required
minimums are 4% and 8% for Tier 1 and Total Capital ratios, respectively.
<F2>
The FDIC capital regulations require a minimum Tier 1 Leverage Ratio
of 4%. The 1991 Order mandates a 6% Tier 1 Leverage Ratio. The Bank's
Tier 1 Leverage Ratio on a spot-basis at December 31, 1994 was 4.08%.
</FN>
Further, in connection with the September 1993 FDIC regulatory examination
of the Bank, the FDIC issued an additional order to cease and desist in
December 1993 (the "1993 Order"). The Bank consented to the issuance of
the 1993 Order. Among other things, the 1993 Order required that
affirmative action be taken by the Bank and its Board of Directors to
correct certain bank policies, practices and alleged violations of law.
The Bank and its Board of Directors believe that the Bank has complied
fully with each of the terms of the 1993 Order.
The FDIC is empowered to terminate FDIC insurance of deposits, after
notice and hearing, upon a finding by the FDIC that the nonmember bank has
engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations or has violated any applicable law,
regulation, rule or order of, or conditions imposed by, the FDIC.
Violation of the 1991 Order or failure to meet regulatory capital
requirements could result in a determination by the FDIC to commence such
termination proceedings.
The FDIC recently adopted a risk-based insurance assessment system to
replace the existing flat-rate system. The new system imposes insurance
premiums based upon a matrix that takes into account a bank's capital
level and supervisory rating. Under this risk-based system, the
assessment rate imposed on banks ranges from 23 cents for each $100 of
domestic deposits (for well-capitalized banks with the highest of three
supervisory rating categories) to 31 cents (for inadequately capitalized
banks with the lowest of the three supervisory rating categories). The
Company does not believe that the implementation of the risk-based system
will have a material effect on the Bank's or the Company's earnings.
Because of decreases in the reserves of the Bank Insurance Fund due to the
increased number of bank failures in recent years, it is possible that
deposit insurance premiums will be further increased. The Bank expects to
lessen the impact of any changes in insurance premiums through the pricing
of products.
The FDIC Improvement Act
On December 19, 1991, the FDIC Improvement Act was enacted. The FDIC
Improvement Act substantially revises the depository institution
regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes. Among other
things, the FDIC Improvement Act requires the federal banking regulators
to take prompt corrective action in respect of depository institutions
that do not meet minimum capital requirements. The FDIC Improvement Act
establishes five capital tiers: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Under recently adopted regulations of the
FDIC, a nonmember bank, such as the Bank, is defined to be well
capitalized if it maintains a Leverage Ratio of at least 5 percent, a
risk-adjusted Tier 1 Capital Ratio of at least 6 percent and a risk-
adjusted Total Capital Ratio of at least 10 percent and is not otherwise
in a "troubled condition" as specified by the FDIC. A bank is defined to
be adequately capitalized if it is not deemed to be well capitalized but
meets all of its minimum capital requirements. A bank will be considered
undercapitalized if it fails to meet any one of the minimum required
capital measures, significantly undercapitalized if it is significantly
below such measures and critically undercapitalized if it fails to
maintain a level of tangible equity equal to not less than 2 percent of
total assets. A bank may be deemed to be in a capitalization category
lower than that indicated by its capital position if the institution
receives an unsatisfactory examination rating.
The FDIC Improvement Act further provides that a bank cannot accept
brokered deposits unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank that
cannot receive brokered deposits also cannot offer "pass-through"
insurance on certain employee benefit accounts. In addition, a bank that
is not well capitalized cannot offer rates of interest on deposits which
are more than 75 basis points above prevailing rates. The Company
anticipates that the application of these restrictions will not have a
material adverse effect on the Bank's operations.
Undercapitalized banking institutions are subject to restrictions on
borrowing from the Federal Reserve System, as well as certain growth
limitations, and are required to submit capital restoration plans, a
portion of which must be guaranteed by the institution's holding company.
As indicated earlier, the Bank submitted, and the FDIC approved, the
Initial and Revised Capital Plans. See "The Bank's Initial and Revised
Capital Plans." The Company provided the required guaranties mandated by
the FDIC Improvement Act. Significantly undercapitalized banking
institutions may be subject to a number of other requirements and
restrictions, including orders to sell sufficient voting stock to become
adequately capitalized, reduce total assets and cease taking deposits from
other banks. Critically undercapitalized banking institutions are subject
to appointment of a receiver or conservator.
The FDIC Improvement Act generally prohibits a bank from making any
capital distribution (including payment of a dividend) to its holding
company or paying any management fees to any person with control over the
bank if, after making the distribution or paying the fee, the bank would
thereafter be undercapitalized. Until the second phase of the Bank's
Capital Plan is completed, the Bank is prohibited by the FDIC Improvement
Act from making any capital distribution to the Company or paying any
management fees to the Company or any other entity or person with control
over the Bank. In addition, the Federal Reserve Board may impose
restrictions against the holding companies of significantly
undercapitalized banks, such as prohibiting holding company dividends or
requiring divestiture of holding company affiliates or banks.
Apart from the prescribed restrictions contained in the FDIC Improvement
Act and implementing regulations, the FDIC is empowered to issue a prompt
corrective action directive ("PCA directive") imposing certain other
restrictions on undercapitalized, significantly undercapitalized and
critically undercapitalized banks. Among the discretionary requirements
that could be imposed include recapitalization of the bank, dismissal of
officers and directors and divestiture of subsidiaries. Before issuing a
PCA directive, the FDIC, in the case of a nonmember bank, and the Federal
Reserve Board, in the case of a bank holding company, must provide the
banking organization with notice and opportunity to comment on the
proposed action. A banking organization's response to a letter of intent
to issue a PCA directive may include the reasons why the directive should
not be issued, modifications to the directive or mitigating circumstances
to support the banking organization's position regarding the directive. A
PCA directive is enforceable as a final order in federal district court
and civil money penalties may be assessed for violating a PCA directive.
Based on the findings of the FDIC's regulatory examination of the Bank
commenced in September 1993, the Bank, as of December 31, 1993
significantly increased its provision for loan losses and reduced the
carrying values of certain loans and foreclosed assets, thereby seriously
depleting its regulatory capital. In December 1993, the FDIC issued a
Prompt Corrective Action directive to the Bank informing the Bank that it
was "critically undercapitalized", requiring the prompt recapitalization
of the Bank and prohibiting, among other things, the payment of capital
distributions or management fees to the Company or to any company
controlled by a controlling shareholder of the Bank. The PCA directive
also required the Bank to obtain the prior approval of the FDIC before
entering into any material transaction other than in the ordinary course
of business, including the purchase and sale of assets and the payment of
interest on the Bank's subordinated debentures. The PCA directive further
required the Bank to submit an acceptable capital restoration plan setting
forth the Bank's specific plans and timing for recapitalization.
The Bank submitted its Initial Capital Plan on March 21, 1994. The FDIC
approved the Initial Capital Plan on March 24, 1994. The Bank's Initial
Capital Plan provided for the recapitalization of the Bank in two stages.
See "The Bank's Initial and Revised Capital Plans." The Bank implemented
the Initial Capital Plan during the first three quarters of 1994 raising
approximately $8.9 million in additional Tier 1 Capital. As a result of
the Bank's improved regulatory capital position, the PCA restrictions on
the Bank's operations set forth in the PCA directive applicable to
"significantly undercapitalized" and "critically undercapitalized"
institutions were eliminated.
Subsequent to completion of the Bank's recapitalization as provided in the
Initial Capital Plan, during the third quarter of 1994, the FDIC completed
its periodic examination of the Bank. Based on the findings of the 1994
FDIC examination, the Bank's capital was reduced by $1,752,000, caused
principally by an increase in the Bank's provision for loan losses of
approximately $1,457,000 resulting from the reduction in the carrying
values of certain loans and foreclosed real estate of approximately
$2,030,000. In addition, on October 26, 1994, the Bank sold the bulk of
its remaining overseas U.S. military installment loan portfolio resulting
in a net loss of $818,000. The Bank also recorded as of December 31,
1994 a loss of $90,000 associated with the Bank's closure of its Greenwich
branch, which closure is expected to be completed by March 1, 1995. As a
consequence, the Bank became "undercapitalized" as defined in the FDIC
Improvement Act and was not in compliance with the 6 percent Tier 1
Leverage Ratio contained in the 1991 Order.
In accordance with the provisions of the FDIC Improvement Act, the Bank
was required to submit an acceptable Revised Capital Plan to the FDIC.
The Bank's Revised Capital Plan was submitted to the FDIC and the Banking
Commissioner on December 13, 1994. Both the FDIC and the Banking
Commissioner approved the Bank's Revised Capital Plan in late December
1994. See "The Bank's Initial and Revised Capital Plans."
Until the second equity offering contained in the Bank's Revised Capital
Plan is completed, the Bank is prohibited by the FDIC Improvement Act from
making any capital distribution to the Company or paying any management
fees to the Company or any other entity or person with control over the
Bank.
The Company cannot determine the ultimate effect that the FDIC Improvement
Act and the FDIC's implementing regulations will have upon its and the
Bank's financial condition or operations.
The Bank's Initial and Revised Capital Plans
On March 24, 1994, the FDIC approved the Initial Capital Plan of the Bank.
The Initial Capital Plan provided for the recapitalization of the Bank in
two parts. The first part consisted of: (i) the modification of the terms
of the existing mandatory convertible subordinated debentures of the Bank
("Bank Debentures") to convert the Bank Debentures into, or exchange the
Bank Debentures for (the "Exchange"), mandatory convertible subordinated
capital notes of the Company ("Company Capital Notes"), with substantially
similar terms as the Bank Debentures; (ii) the injection of $5 million of
additional equity capital into the Bank by Mr. Randolph W. Lenz, the
majority shareholder of the Company (the "Investor") through the Investor's
exchange of marketable securities for 13,000 shares of Company Series I
preferred stock and 50,000 shares of Series II perpetual preferred stock
(collectively, the "Company Securities") and the Investor's separate
purchase for cash of a warrant to purchase shares of Company common stock
(the "Warrant"); and (iii) the sale of the Bank's leasehold interest
("Leasehold Interest") in a parcel of land adjacent to the Bank's main
office for cash. The Exchange was approved by the holders of the Bank
Debentures sufficient to effect a conversion of 100 percent of the Bank
Debentures. The Exchange was deemed to occur on March 23, 1994, resulting
in the immediate increase in the Bank's Tier 1 Capital by $1,090,000 (the
principal amount of the Bank Debentures at the time of the Exchange). The
Investor's $5 million equity contribution and the issuance to the Investor
of the Company Securities occurred on March 24, 1994. The Investor's
purchase of the Warrant from Company also occurred on March 24, 1994. The
Bank and the purchaser of the Leasehold Interest executed a definitive
Agreement to Convey and Assign on March 25, 1994 and the closing occurred
as of March 31, 1994.
The $5 million equity contribution made to the Company by the Investor was
recognized as additional equity capital by the Bank subsequent to the
March 24, 1994 transaction as the marketable securities were sold by the
Company. Under federal law, the Bank is precluded from investing in these
marketable securities. Accordingly, the Company was required to sell the
marketable securities for cash and contribute the net proceeds from such
sale to the Bank as additional paid-in capital. All of the marketable
securities were sold within the second quarter of 1994. Subsequent to the
equity contribution, the market value of the securities declined,
resulting in a loss on the sale in the amount of $852,000.
The Warrant, issued to the Investor on March 24, 1994, and amended as of
July 25, 1994, entitles the Investor to purchase from the Company, at an
exercise price of $0.05 per share (adjusted to reflect the one for five
reverse stock split effective July 25, 1994), in the aggregate, such
number of shares of Company Common Stock ownership equal to 51 percent of
the issued and outstanding shares of Company Common stock on a fully
diluted basis (the "Threshold Level"). The Warrant was restated as of
March 24, 1994 to correct certain drafting errors. In addition, the
Warrant was amended and restated as of July 25, 1994, to lower the
Threshold Level in the Warrant from 66 percent to 51 percent. The Company
anticipates that the amended terms of the Warrant will facilitate the
issuance of additional Common Stock in the future, particularly in light
of the $1 million equity offering proposed in the Revised Capital Plan.
The Warrant is exercisable by the Investor at any time commencing on July
26, 1994 (the "Initial Exercise Date") (the first business day following
the reduction in the number of issued and outstanding shares of Common
Stock resulting from the reverse stock split) and continuing until the
date ten years following the Initial Exercise Date (the "Warrant Exercise
Period") provided, however, that a Triggering Event has occurred or the
Company is on notice that a Triggering Event will occur within thirty days
thereof, whichever is earlier. The Warrant defines a Triggering Event to
include any of the following: (i) the Company has entered into an
agreement to issue additional shares of Common Stock for cash or other
consideration which would result in the Investor's ownership falling below
the Threshold Level; or (ii) one or more holders of the Company's Common
Stock warrants, options or rights gives notice of exercise, or exercises,
any such warrant, option or rights which, upon exercise thereof, would
cause the Investor's ownership of Common Stock to fall below the Threshold
Level; or (iii) one or more holders of the Company's equity or debt
instruments convertible or exchangeable into Common Stock, gives notice of
exercise or exercises, any conversion of exchange right, or such
instrument by its terms converts through the happening of certain events
or at maturity or otherwise into Common Stock, which, in either case,
after giving effect to any such conversion or exchange, would cause the
Investor's ownership of Common Stock to fall below the Threshold Level; or
(iv) any other issuance of Common Stock which would directly or indirectly
cause or result in the Investor's ownership of Common Stock to fall below
the Threshold Level. The holder of the Warrant is required to receive any
necessary regulatory approval prior to exercising the Warrant.
The second part of the recapitalization as set forth in the Bank's Initial
Capital Plan was completed on September 2, 1994. On that date, the
Investor purchased, for cash, $3,638,000 of the Company's short-term
senior notes (the "Senior Notes"). The Company immediately contributed
$3,500,000 of the proceeds from the sale of the Senior Notes to the Bank
as additional paid-in capital. The Senior Notes are due on September 1,
1996 and bear interest payable quarterly at the annual rate of five
percentage points above the Wall Street Journal Prime Rate. In the event
the Company is unable to pay the interest on the Senior Notes due to the
absence of dividends from the Bank or a regulatory restriction on the
Company's payment of interest on its senior indebtedness, the unpaid
interest will accrue until the Company has the resources or regulatory
approval to make such payments. The failure of the Company to pay cash
interest on the Senior Notes on these grounds will not result in a default
thereunder. Subsequent to the sale of the Senior Notes, the Investor
agreed to exchange $260,000 of principal amount of the Senior Notes for
26 shares of the Company's Series III preferred stock. The exchange was
deemed to occur as of September 2, 1994. Further, pursuant to an Exchange
Agreement by and between the Company and the Investor, dated and effective
as of December 31, 1994, the Investor exchanged the $3,378,000 remaining
outstanding principal amount of the Senior Notes for 337 shares of the
Company's Series III nonvoting cumulative convertible preferred stock.
The accrued and unpaid interest on the Senior Notes from the date of
issuance until December 31, 1994 (the effective date of the exchange) was
evidenced by a Senior Note in that amount. Because of certain changes to
the terms of the Series III preferred stock, the existing 46 shares of
Series III preferred stock were converted into and exchanged for the new
Series III preferred stock effective as of December 31, 1994.
Subsequent to the completion of the Initial Capital Plan, the Bank's
equity capital was reduced below the minimum level required by the FDIC
regulations and the 1991 Order as a result of the adverse impact of the
FDIC's 1994 regulatory examination of the Bank, the sale of the overseas
U.S. military installment loan portfolio and the closure of the Greenwich
branch. The FDIC directed the Bank to submit a Revised Capital Plan on or
before December 14, 1994. As indicated earlier, the Bank's Revised
Capital Plan was submitted to the FDIC and the Banking Commissioner on
December 13, 1994 and approved by the FDIC and Banking Commissioner on
December 28 and 29, 1994, respectively.
Under the terms of the Bank's Revised Capital Plan, the Bank's Tier 1
capital was projected to be augmented in the amount of $200,000 by
December 31, 1994 and in the amount of $1 million by June 30, 1995. The
additional $1.2 million of equity capital is to be raised in two separate
equity offerings undertaken by the Bank's parent holding company. Upon
completion of these two equity offerings, the Bank's Total Capital to
risk-weighted assets ratio is projected to exceed 8 percent, thereby
resulting in the Bank being deemed "adequately capitalized" as defined in
the FDIC Improvement Act. In addition, the Bank's Tier 1 Leverage Ratio
is projected to be above 5 percent. Thereafter, the Revised Capital Plan
provides for the Bank's attainment of the 6 percent Tier 1 Leverage Ratio
contained in the 1991 Order by December 31, 1996 through retained
earnings.
On December 30, 1994, the Bank successfully completed the first of two
required equity offerings contained in the Revised Capital Plan when the
Company sold 20 shares of Company Series III preferred stock for $200,000
to an entity substantially owned by the Company's majority shareholder and
contributed the proceeds of this equity offering to the Bank as additional
paid-in capital. Notwithstanding the foregoing, the ability of the
Company and the Bank to complete the second required equity offering or to
otherwise maintain and increase regulatory capital as projected in the
Revised Capital Plan is dependent upon, among other factors, the market
conditions for the Company's equity securities, the Bank's ongoing
profitability, the future levels of nonperforming assets and the local and
the regional economy in which the Bank and its customers operate. See
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Capital Resources."
The Riegle-Neal Interstate Banking and Branching Efficiency Act
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Banking Act") became law. The
Interstate Banking Act provides that, effective September 29, 1995,
adequately capitalized and managed bank holding companies will be
permitted to acquire banks in any state. State laws prohibiting
interstate banking or discriminating against out-of-state banks will be
preempted as of the effective date. States cannot enact laws opting out
of this provision; however, states may adopt a minimum age restriction
requiring that target banks located within the state be in existence for a
period of years, up to a maximum of five years, before such bank may be
subject to the Interstate Banking Act. The Interstate Banking Act
establishes deposit caps which prohibit acquisitions that would result in
the acquirer controlling 30% or more of the deposits of insured banks and
thrift institutions held in the state in which the target maintains a
branch or 10% or more of the deposits nationwide. States will have the
authority to waive the 30% deposit cap. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state
acquirers, and the federal deposit caps apply only to initial entry
acquisitions.
In addition, the Interstate Banking Act provides that as of June 1, 1997,
adequately capitalized and managed banks will be able to engage in
interstate branching by merging banks in different states. States may
enact legislation authorizing interstate mergers earlier than June 1,
1997, or, unlike the interstate banking provision discussed above, states
may opt out of the application of the interstate merger provision by
enacting specific legislation before June 1, 1997. If a state does opt
out of this provision, banks will be required to comply with the state's
laws regarding branching across state lines. Effective with the date of
enactment of the Interstate Banking Act, states can also choose to permit
out-of-state banks to open new branches within their borders. In
addition, if a state chooses to allow interstate acquisition of branches,
then an out-of-state bank may similarly acquire branches by merger.
Interstate branches that primarily siphon off deposits without servicing
a community's credit needs will be prohibited. If loans are less than 50%
of the average of all institutions in the state, the branch will be
reviewed to see if it is meeting community needs. If the branch is
determined not to be meeting community needs, the branch may be closed and
the bank will be restricted from opening a new branch in the state.
Further, the Interstate Banking Act modifies certain controversial
provisions of the FDIC Improvement Act. Specifically, the Interstate
Banking Act modifies the safety and soundness provisions contained in
Section 39 of the FDIC Improvement Act which required the federal banking
agencies to write regulations governing such topics as internal loan
controls, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation and fees and whatever else the agencies
determined to be appropriate. The Interstate Banking Act exempts bank
holding companies from these provisions and requires the federal banking
agencies to write guidelines, as opposed to regulations, dealing with
these areas. The federal banking agencies are also given more discretion
with regard to prescribing standards for banks' asset quality, earnings
and stock evaluation.
The Interstate Banking Act also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks
will be examined every 18 months. Other provisions of the Interstate
Banking Act address paperwork reduction and regulatory improvements, small
business and commercial real estate loan securitization, truth-in-lending
amendments on high cost mortgages, strengthening of the independence of
certain financial regulatory agencies, money laundering, flood insurance
reform and extension of certain statutes of limitation.
At this time, the Company and the Bank are unable to predict how the
Interstate Banking Act may affect their operations.
Effect of Government Policy
Banking is a business that depends on interest rate differentials. One of
the most significant factors affecting the earnings of the Bank is the
difference between the interest rate paid by the Bank on its deposits and
other borrowings, on the one hand, and the interest rates received by the
Bank on loans extended to its customers and securities held in its
portfolio, on the other hand. The value and yields of its assets and the
rate paid on its liabilities are sensitive to changes in prevailing market
rates of interest. Thus, the earnings and growth of the Bank will be
influenced by general economic conditions, the monetary and fiscal
policies of the federal government and policies of regulatory agencies,
particularly the Federal Reserve Board, which implements national monetary
policy. The nature and impact of any future changes in monetary policies
cannot be predicted.
The present bank regulatory environment is undergoing significant change,
both as it affects the banking industry itself and as it affects
competition between banks and non-banking financial institutions. There
have been significant changes in the regulation and operation of capital
stock associations, in the bank merger and acquisition area, in the
products and services banks can offer and in the non-banking activities
in which bank holding companies can engage. In part as a result of these
changes, banks are now actively competing with other types of depository
institutions and with non-banking financial institutions, such as money
market funds, brokerage firms, insurance companies and with other
financial service enterprises. It is not possible at this time to assess
what impact these changes in the regulatory scheme will ultimately have on
the Company or the Bank.
Moreover, certain legislative and regulatory proposals that could affect
the Company, the Bank and the banking business in general are pending, or
may be introduced, before the United States Congress, the Connecticut
General Assembly and various governmental agencies. These proposals
include measures that may further alter the structure, regulation and
competitive relationship of financial institutions and that may subject
the Company and the Bank to increased regulation, disclosure and reporting
requirements. In addition, the various banking regulatory agencies
frequently propose rules and regulations to implement and enforce already
existing legislation, such as the FDIC Improvement Act. It cannot be
predicted whether or in what form any legislation or regulations will be
enacted or the extent to which the business of the Company and the Bank
will be affected thereby.
STATISTICAL INFORMATION
The supplementary information required under Guide 3 (Statistical
Disclosure by Bank Holding Companies) is set forth in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and in Item 14, "Exhibits, Financial Statement Schedules
and Reports on Form 8-K."
ITEM 2. PROPERTIES
The Company, operating through the Bank, conducts its banking business at
various owned and leased premises. The executive offices of the Company
and the Bank and the Bank's main office are situated in a 6,300 square
foot two-story building owned by the Bank and located at 128 Amity Road,
Woodbridge, Connecticut. The main office building has a banking floor,
executive offices and two drive-up teller facilities. On March 31, 1994,
the Bank sold for cash its leasehold interest in the property adjacent to
the Bank headquarters' building. The Bank owns its branch office in
Branford, Connecticut, which is located at 620 West Main Street. The
Branford office is a one-story 1,484 square foot structure with three
drive-up teller facilities. The Bank's branch offices in Norwalk,
Stamford and Greenwich, Connecticut, are walk-in facilities with leases of
varying terms and amounts. The Bank also leases approximately 4,600
square feet of office space for the consumer lending division and
operations department at a building located in Woodbridge, Connecticut.
The owned and leased properties and facilities being employed by the
Company and the Bank are suitable and adequate for the Company's and
Bank's use.
ITEM 3. LEGAL PROCEEDINGS
The information required by Item 3 appears in Note 15 of the Company's
Consolidated Financial Statements. See Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of 1994 or thereafter through the date
of this Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
The shares of the Company's common stock, par value $0.01 per share, are
traded on the NASDAQ Small-Cap Market under the symbol "CBCB".
Over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not necessary represent
actual transactions.
QUARTERLY MARKET PRICES
1994 1993
Common Stock Prices (Bid) <F1> Low High Low High
In dollars
First Quarter 1.25 2.50 5.00 8.75
Second Quarter 1.25 1.25 6.25 12.50
Third Quarter 1.25 1.25 5.00 10.00
Fourth Quarter .75 1.00 1.85 5.00
<FN>
<F1>
Prices have been adjusted to reflect the one-for-five reverse stock
split, which was effective July 25, 1994.
</FN>
HOLDERS OF COMMON STOCK
At February 6, 1995, there were approximately 259 registered shareholders
of the Company's common stock.
DIVIDENDS
The Company has omitted the cash dividend on its common stock and
preferred stock since the third quarter of 1990 in order to preserve
capital. In addition, the Bank has been restricted by the terms of the
1991 Order and by certain regulatory provisions from paying any dividends
to the Company. Since dividends from the Bank represent the exclusive
source of funds for the Company's payment of dividends on its common and
preferred stock and debt service on its capital notes, the Company does
not anticipate having the ability to pay cash dividends on its preferred
or common stock or to pay interest on its capital notes in the foreseeable
future. The Company is also subject under separate regulatory
restrictions which may restrict such payments in the foreseeable future.
See discussion of dividend restrictions on the Company and the Bank in
Item 1, "Business -- Regulation and Supervision -- Federal Reserve System
Regulation, Connecticut Regulation, FDIC Regulation and the FDIC
Improvement Act."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Condensed Statement Of Operations:
($ in thousands, except per share data)
Years Ended December 31, 1994 1993 1992
1991 1990
Net interest income 4,093 5,673
6,768 6,063 6,457
Provision for loan losses 1,773 6,298
3,533 6,541 6,320
Net interest income (loss) after provision for losses 2,320 (625)
3,235 (478) 137
Investment securities gains (losses) (811) 49
421 457 5
Other operating income 1,053 5,078
1,775 2,031 2,022
Other real estate owned expense 990 3,558
3,331 1,334 20
Other operating expense 5,461 7,366
6,944 6,508 6,220
Net income (loss) before income taxes (3,889) (6,422)
(4,844) (5,832) (4,076)
Provision (benefit) for income taxes 0 0
0 0 (1,469)
Net income (loss) (3,889) (6,422)
(4,844) (5,832) (2,607)
Common Stock Per Share Data <F1>:
Years Ended December 31, 1994 1993 1992
1991 1990
Book value at year end (4.16) (1.80)
2.00 13.60 48.10
Net income (loss) primary (1.93) (4.10)
(7.45) (29.75) 13.65
Net income fully diluted 0 0
0 0 0
Cash dividends 0 0
0 0 0.50
At year end ($ in thousands):
Years Ended December 31, 1994 1993 1992
1991 1990
Total assets 92,722 123,359
151,125 171,518 188,040
Net loans 59,070 84,215
106,728 128,006 140,916
Allowance for loan losses 2,637 5,012
1,291 4,319 4,547
Securities 14,189 13,200
27,751 25,223 25,913
Deposits 87,474 121,081
141,192 159,928 161,573
Short-term borrowings 0 0
0 812 7,664
Stockholders' equity 1,465 (2,627)
3,688 3,703 9,554
Outstanding shares
Years Ended December 31, 1994 1993
1992 1991 1990
Outstanding shares 2,012,514 2,012,514
1,344,707 198,706 198,706
Financial Ratios (as a percentage):
Years Ended December 31, 1994 1993 1992
1991 1990
Yield on interest-bearing assets 8.54 8.17
9.38 10.66 11.71
Cost of funds 3.80 3.94
5.08 7.40 8.80
Interest rate spread 4.74 4.23
4.30 3.26 2.91
Net interest margin 4.58 4.48
4.55 3.67 3.75
Earnings to fixed charges with interest 0 0
20.66 5.84 8.59
Earnings to fixed charges without interest 0 0
0.33 0.50 .72
Combined fixed charges with interest 0 0
12.76 5.38 7.94
Combined fixed charges without interest 0 0
0.32 0.49 0.71
Return on average assets (3.75) (4.57)
(2.96) (3.21) 1.32
Return on average equity 0 (110.17)
(98.18) (72.80) (22.26)
Average equity to average assets (1.47) 4.15
2.98 4.41 5.93
Cash dividend to primary EPS 0 0
0 0 0
Cash dividend to net income 0 0
0 0 0
Loans (net) to deposits 67.53 69.55
75.59 80.04 87.22
Nonperforming loans to total loans (net) 15.56 13.66
10.15 11.12 9.15
Allowance for loan losses to nonperforming loans 28.67 43.59
30.39 30.34 35.28
Capital Ratios of Bank (as a percentage):
Years Ended December 31, 1994 1993 1992
1991 1990
Total risk-based 7.26 (2.53) 5.73
4.88 7.45
Tier 1 risk-based 5.97 (2.53) 3.52
2.57 4.52
Tier 1 leverage 3.95 (1.82) 2.61
2.06 3.70
<FN>
<F1>
The per share data and the outstanding shares of Common Stock have
been adjusted to reflect the one-for five reverse stock split, which was
effective July 25, 1994
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the consolidated financial statements of the Company and subsidiaries for
the year ended December 31, 1994, including notes thereto, and other
financial information included elsewhere in this report.
The Company is a registered bank holding company, headquartered in
Woodbridge, Connecticut. The Company operates the Bank, a Connecticut
chartered bank and trust company. The operations of the Company are not
significant. The principal business of the Bank is to attract deposits
from the general public and to invest these deposits in loans and certain
investment securities. The Bank operates under Connecticut law and is
subject to supervision, examination and regulation by the Banking
Commissioner. Deposits are insured by the FDIC. The FDIC has supervisory
and regulatory authority over the Bank. In addition, the Federal Reserve
Board, acting through the Reserve Bank, has supervisory and regulatory
authority over the Company.
During 1994, the local real estate market and the Connecticut economy
continued to have an adverse impact on the customers of the Company and
the value of collateral supporting many of the Company's loans. As in
1993 and 1992, these economic and business conditions affected the
Company's operating performance in 1994. However, the impact was offset
by a combination of income from lease-related transactions and a reduction
in operating expenses and OREO expenses due to management's focus on
decreasing the level of nonperforming assets. The Company reported a net
loss of $3,889,000 or $1.93 per share for the year ended December 31, 1994
compared to a net loss of $6,422,000 or $4.10 per share in 1993 and a net
loss of $4,844,000 or $7.45 per share in 1992. The Bank attributes its
losses over the prior two years principally to (i) an increasing level of
nonperforming assets, (ii) its provision for loan losses, and (iii)
expenses incurred in connection with other real estate owned.
The Bank's Initial and Revised Capital Plans
A detailed discussion of the Bank's Initial and Revised Capital Plans
appears in Item 1. The Revised Capital Plan provides for the Bank's
attainment of the 6 percent Tier 1 Leverage Ratio contained in the 1991
Order by December 31, 1996. The ability of the Company and the Bank to
complete the second required equity offering or to otherwise maintain and
increase regulatory capital as projected in the Revised Capital Plan is
dependent upon, among other factors, the market conditions for the
Company's equity securities, the Bank's ongoing profitability, the future
levels of nonperforming assets and the local and the regional economy in
which the Bank and its customers operate.
Regulatory and Current Operating Matters
The 1991 Order required that by July 19, 1992, the Bank have a Tier 1
Leverage Ratio at or in excess of five percent and by July 19, 1993, have
a Leverage Ratio of at least six percent. The 1991 Order also requires
the Bank to maintain its Leverage Ratio at or above such level while the
1991 Order is in effect. The 1991 Order prohibits the Bank from payment
of, or declaration of, any dividends without the prior written consent of
the FDIC and the Banking Commissioner. This provision effectively
prohibits the Company from paying any cash dividends on its outstanding
common or preferred stock at this time. This provision also effectively
prevents the Company from paying interest on its subordinated capital
notes at this time. The 1991 Order, moreover, restricts the Bank's
lending to specified borrowers, directed the Bank to correct certain
technical exceptions and mandated the reduction of certain concentrations
of credit. The 1991 Order required management to develop specific
programs and prepare and submit for approval written plans, reports and
assessments relating to various areas of the Bank's operation.
Substantially, all such plans, programs and assessments have been
submitted to the FDIC. The 1993 Order similarly required the Bank to
implement or modify certain policies and practices and to correct alleged
violations of law.
The Bank believes it is in compliance with every provision of the 1991
Order and the 1993 Order except that, as a result of the recorded 1994
loss of $2,743,000 which included a provision for loan losses of
$1,773,000, OREO expenses of $990,000, and an $818,000 loss on the sale of
the U.S. Military Portfolio, the Bank's capital ratios were not in
compliance with the minimum requirements under the FDIC regulations and
the 1991 Order.
The possible consequences of non-compliance with the 1991 Order or the
1993 Order include modification of the 1991 Order or the 1993 Order,
respectively, the imposition of civil money penalties against the Bank or
institution-affiliated parties, further cease and desist proceedings and,
in the most severe case, revocation of deposit insurance or appointment of
a conservator or receiver. No such actions are pending or anticipated at
this time.
The enactment in recent years of such major banking legislation as the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the FDIC Improvement Act have added significantly to the
regulatory and enforcement powers of the FDIC. FIRREA significantly
expanded the authority of the FDIC to initiate enforcement proceedings
against banks and thrifts that do not maintain minimum required capital
ratios or that have engaged, are engaging, or are about to engage in an
unsafe or unsound practice. For a discussion of the FDIC Improvement Act
see Item 1, "Regulation and Supervision - The FDIC Improvement Act," and
"Capital Resources" in this Item 7. Under these rules, the Bank as of
December 31, 1994, is in the "undercapitalized" category, and therefore
is subject to certain mandatory provisions of the FDIC Improvement Act.
Capital Resources
The Bank is subject to the capital adequacy rules of the FDIC. Because
the consolidated assets of the Company are less than $150 million, the
Company is not subject to the capital adequacy rules of the Federal
Reserve Board. Effective December 19, 1992, each federal banking agency
issued final rules to carry out the Prompt Corrective Action provisions
(the "PCA regulations") of the FDIC Improvement Act. The PCA regulations
adopted by the FDIC for nonmember banks such as the Bank, define capital
measures and the capital thresholds for each of the five capital
categories established in the statute and establish a uniform schedule for
the filing of capital restoration plans by undercapitalized institutions
and other matters. The following table identifies the capital and
thresholds as defined under the FDIC and PCA regulations.
Total Risk-Based
Capital Categories Capital (RBC) Tier 1 (RBC) Leverage
Ratio Ratio Ratio
Well Capitalized (A) not <10% not < 6% not < 5%
Adequately Capitalized (A) not < 8% not < 4% not < 4%
Undercapitalized (B) < 8% < 4% < 4%
Significantly Undercapitalized < 6% < 3% < 3%
Critically Undercapitalized (C)
(A) applies if all three criteria are met
(B) applies if any of the three criteria are met
(C) institution's tangible equity to total assets ratio is < or = 2%
At December 31, 1994, the Bank's total risk-based capital ratio was less
than 8 percent and the leverage ratio was 3.95% for the last quarter of
1994 (4.08% as of December 31, 1994); accordingly, the Bank was deemed to
be undercapitalized. The minimum regulatory capital requirements
applicable to the Bank and the Bank's regulatory capital at December 31,
1994, are set forth in Item 8, Note 17 to the Company's Consolidated
Financial Statements. See Item 1, "Business -- Regulation and Supervision
- -- FDIC Regulation" and Item 14, Note 17 to the Company's Consolidated
Financial Statements.
Management and the Board of Directors of the Company and Bank are
currently considering various actions to augment the capital beyond the
Revised Capital Plan. These other plans include increased fee income,
cost control, continued improvement of asset quality, asset sales and
pursuing additional capital. If, however, the Bank does not comply with
the approved Revised Capital Plan or otherwise achieve the minimum
regulatory capital levels or comply with the 1991 Order, further
regulatory action could result, as described in Item 1, "Regulation and
Supervision, FDIC Regulation and The FDIC Improvement Act," and in Item
14, Note 17 to the Company's Consolidated Financial Statements.
LOANS
Loans consisted of the following:
December 31, 1994 1993
1992
($ in thousands) % of % of
% of
Amount Total Amount Total Amount Total
Commercial collateralized 34,044 55 43,119 49
53,562 50
by real estate
Commercial Other 12,757 21 15,832 18
20,082 18
Real estate mortgage - residential 12,663 21 11,272 13
1,813 2
Consumer 2,331 3 18,282 20
33,406 30
Total loans - gross 61,795 100 88,505 100
108,863 100
Average annual outstanding loans -
net of allowance 74,283 102,319
117,801
The table above illustrates the Company's emphasis on commercial, consumer
and residential mortgage lending. At year end 1994, commercial loans
comprised 76% and consumer loans comprised 3% of the total loan portfolio
compared with commercial loans of 67% and 68% and consumer loans of 20%
and 30%, respectively, during the prior two years. The commercial loan
portfolio is made up principally of commercial loans collateralized by
real estate amounting to $34,044,000 in 1994, $43,119,000 in 1993, and
$53,562,000 in 1992. In prior years, the consumer loan portfolio
primarily consisted of loans to military personnel within the U.S. and
abroad. These installment loans were generally collateralized by
automobiles. In October 1994, the Company sold substantially all of the
Military Loan Portfolio. The elimination of this line of business improved
the Bank's liquidity in the short-term, and in the long-term will reduce
loan charge-offs and operating costs. The table also reflects the
significant increase in residential mortgage loan originations from 1992
to 1994, which was due to the Bank's continued emphasis on this type of
lending. Residential mortgage loans have increased as a percentage of the
total loan portfolio from 2% in 1992 to 21% in 1994.
Average annual net loans outstanding, have consistently decreased over
the past three years, from $117,801 in 1992 to $74,283 in 1994. The loan
to deposits ratio for 1994 of 70.13% increased slightly compared to 69.55%
and 75.59% in 1993 and 1992, respectively.
As part of its interest rate risk management program, the Company centers
its lending activities on adjustable-rate loans. The interest rates
charged on a majority of these loans generally adjust on a monthly basis
based upon the Bank's base rate set by the management of the Bank. The
base rate has historically exceeded the prime rate and was 10% at December
31, 1994. It is anticipated that this base rate will move in relation to
decreases and increases in prime. By focusing on adjustable-rate lending,
the Company can partially mitigate the adverse impact of increases in its
cost of funds.
As the following table shows, $32,299,000 or 60% of the total $53,911,000
performing loan portfolio is comprised of floating or adjustable
interest rate loans.
At December 31, 1994 Time Remaining to
Maturity
($ in thousands) of Total Performing
Portfolio
Under One to Over
One Year Five Years Five Years Total
Commercial and commercial mortgage 10,428 7,152 7,857
25,437
All other loans with adjustable 388 317 6,157
6,862
rates
Total loans with adjustable rates 10,816 7,469 14,014
32,299
Commercial and commercial mortgage 2,731 7,061 3,723
13,515
All other loans with fixed rates 1,293 1,455 5,349
8,097
Total loans with fixed rates 4,024 8,516 9,072
21,612
Total performing portfolio 14,840 15,985 23,086
53,911
NONPERFORMING ASSETS
The Bank's nonperforming assets are as follows:
($ in thousands)
December 31, 1994 1993 1992
Non-accrual loans 7,885 10,218
10,117
Accruing loans past due 90 days or more 1,305 1,283
714
Total Non-accrual and past due loans 9,190 11,501
10,831
Foreclosed properties 3,088 4,630
7,238
In-substance foreclosure 1,225 3,747
2,887
OREO allowance 0 0
(500)
Total OREO (net) 4,313 8,377
9,625
Total non-performing assets 13,503 19,878
20,456
Ratios
Non-performing assets to total loans (net) 21.30 21.47
17.58
and OREO (net)
Allowance for loan losses to total loans
past due 90 days or more 28.69 43.59
30.39
As a percentage of total loans:
Non-accrual and past due loans 14.89 12.89
9.84
Allowance for loan losses 4.27 5.62
2.99
The Bank has reduced the amount of nonperforming assets from $19,878,000
at December 31, 1993, to $13,503,000 at December 31, 1994, representing a
32% reduction. While $4,064,000 of the reduction is due to the Bank's sale
of OREO, total non-accrual and past due loans also declined by $2,311,000
or 20% as of December 31, 1994 from the level at December 31, 1993.
Approximately 86% of total loans delinquent 90 days or more were on a
non-accrual status at December 31, 1994. Generally, the Company
discontinues the accrual of interest income on commercial and residential
real estate loans whenever reasonable doubt exists as to the ultimate
collectability of the loan, or when the loan is past due 90 days or more.
If interest income on non-accrual loans had been recorded on an accrual
basis, these loans would have generated an additional $764,000, $794,000
and $939,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
When the accrual of interest income is discontinued, all previously
accrued interest income is generally reversed against the current period's
interest income. A non-accrual loan is restored to an accrual status when
it is no longer delinquent and collectability of interest and principal is
no longer in doubt.
Restructured loans, that is, loans whose original contractual terms that
have been restructured to provide for a reduction or deferral of interest
or principal payments due to a weakening in the financial condition of the
borrower, amounted to $3,954,000, $3,308,000 and $4,342,000 at December
31, 1994, 1993, and 1992, respectively. Had the original terms been in
force, interest income would have increased by approximately $150,000,
$109,000 and $401,000 in 1994, 1993 and 1992, respectively. The Company
has no commitments to lend additional funds to these borrowers.
OREO consisted of the following:
($ in thousands) December 31, 1994 Balance % of Total
1-4 Family Residential properties 1,233 29
Multifamily residential properties 331 7
Commercial real estate 1,846 43
Construction and Land Development 903 21
Total OREO 4,313 100
In 1994, the Bank increased its focus on restructuring delinquent loans
and disposing of OREO and other nonperforming assets. As of the end of
1994, the Bank has reduced OREO by approximately $4,064,000 or 49% from
December 31, 1993.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges against
income and maintained at a level that management considers adequate to
absorb potential losses in the loan portfolio. Management's estimate of
the adequacy of the allowance for loan losses is based on evaluations of
individual loans, estimates of current collateral values and the results
of the most recent regulatory examination. Management also evaluates the
general risk characteristics inherent in the loan portfolio, prevailing
and anticipated conditions in the real estate market and the general
economy, and historical loan loss experience. Loans are charged against
the allowance for loan losses when management believes that collection is
unlikely. Any subsequent recoveries are credited back to the allowance
for loan losses when received.
The changes in the allowance for loan losses were as follows:
($ in thousands) December 31, 1994 1993 1992
Beginning Balance 5,012 3,219 4,319
Transfer of OREO/ISF allowance 0 500 0
Charge-offs:
Military installment loans (1,919) (1,392) (2,421)
Commercial loans (2,921) (4,084) (3,136)
Total Charge-offs (4,840) (5,476) (5,557)
Recoveries 692 399 996
Net loan charge-offs (4,148) (5,077) (4,561)
Provision for loan losses 1,773 6,298 3,533
Ending balance 2,637 5,012 3,291
Ratios:
Net loan charge-offs to average 5.58 4.96 3.87
loans outstanding (net)
The allowance for loan losses was allocated as follows:
($ in thousands) December 31, 1994 1993 1992
Military installment loans 35 1,102 825
Commercial loans and other 2,602 3,910 2,466
Total 2,637 5,012 3,291
While the Company believes its year end allowance for loan losses is
adequate in light of present economic conditions and the current
regulatory environment, there can be no assurance that the Company's
banking subsidiary will not be required to make future adjustments to its
allowance and charge-off policies in response to changing economic
conditions or future regulatory examinations.
SECURITIES
The book value of the securities portfolio totaled $14,408,000 at December
31, 1994, up from $13,030,000 at December 31, 1993. The increase in the
securities portfolio is largely attributed to the investment of proceeds
from the Military Loan Portfolio sale in U. S. Treasury securities. At
December 31, 1994, $6,909,000 of securities were classified as held to
Maturity.
Securities consisted of the following:
($ in thousands) December 31, 1994 1993 1992
Investments Held-to-Maturity
U.S. Treasury securities 6,909 0 9,989
U.S. Government agency securities 0 0 10,000
Marketable equity securities 0 0 642
Other 0 0 750
Total 6,909 0 21,381
Investments Available-for-Sale
U.S. Treasury securities 6,294 8,006 6,370
U.S. Government agency securities 0 3,960 0
Marketable equity securities 205 564 0
Other 1,000 500 0
Total 7,499 13,030 6,370
Total Securities
Total Securities 14,408 13,030 27,751
Ratios:
Securities to total assets 15.54 10.56 18.36
The summary of debt securities at December 31, 1994 by contractual
maturity is presented below. Expected maturities may differ from
contractual maturities because issuers have the right to call or repay
obligations with or without prepayment penalties.
($ in thousands) December 31, 1994
Securities Held Securities Held
to Maturity for Sale
Amortized Estimated Amortized
Estimated
Cost Market Value Cost
Market Value
Maturity:
Within one (1) year 6,909 6,869
2,811 2,872
After one (1) but within five (5) years 0 0
4,483 4,226
Marketable equity securities 0 0
205 182
Totals 6,909 6,869
7,499 7,280
As of December 31, 1993, the Company adopted the requirements of Statement
of Financial Accounting Standards No. 115 (SFAS No. 115) "Accounting for
Certain Investments in Debt and Equity Securities." The specific
accounting policies pertaining to SFAS No. 115 are detailed in the Summary
of Accounting Policies to the Company's Consolidated Statements included
in Item 14 of this Form 10-K.
Additional information on securities is also included in Item 14, Note 1
to the Consolidated Financial Statements.
DEPOSITS
Deposits totaled $87,475,000 at December 31, 1994, down $33,607,000, or
27.76% from $121,081,000 at year end 1993. The decrease is due to a
combination of migration of customer deposits to other markets and
management's intention to downsize the Bank.
The Company's deposit acquisition strategies aim at attracting long-term
retail deposit relationships that are generally less sensitive to market
interest rate changes, along with attracting low cost transaction and
demand deposits. In keeping with this strategy, the Company does not
accept highly volatile brokered deposits.
The table below sets forth the maturity distribution and weighted average
yield of time deposits in amounts of $100,000 or more and of time deposits
under $100,000 at December 31, 1994.
December 31, 1994 CD's $100,000 and over CD's
under $100,000
($ in thousands) Balance Yield Balance
Yield
(Yield - as percentage)
Time remaining to maturity:
Three months or less 2,040 3.77 14,654
3.92
Over three months to six months 1,311 4.25 14,026
4.20
Over six months to twelve months 1,622 4.80 16,150
4.59
Over twelve months 600 4.90 7,754
5.24
Total 5,573 4.30 52,584
4.39
A tightening in monetary policy by the Federal Reserve tempered the rate
of decline in the Company's average cost of interest-bearing deposits,
which fell from 3.91% in 1993 to 3.56% in 1994. Also, an increase in
borrowed funds by the Company resulting from the Senior Notes issued in
conjunction with the recapitalization of the Bank produced a large
increase in the cost of interest bearing non-deposit liabilities, for the
period prior to the exchange of senior notes for preferred stock. The
cost rose from 5.06% during 1993 to 11.68% in 1994.
Average balances and rates paid were as follows:
December 31, 1994 1993
1992
($ in thousands) Average Average
Average
(Yield - as percentage) Amount Yield Amount Yield
Amount Yield
Interest-bearing deposits:
Time Certificates 65,325 4.07 80,992 4.44
101,490 5.59
Savings, NOW and Money Market 25,007 2.22 33,757 2.63
38,415 3.61
Total interest-bearing deposits 90,332 3.56 114,749 3.91
139,905 5.05
Non-interest-bearing deposits 9,986 0.00 12,811 0.00
12,434 0.00
Total other interest-bearing 2,749 11.68 3,778 5.06
1,400 8.07
liabilities
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability management program focuses on minimizing
interest rate risk by maintaining what management considers to be an
appropriate balance between the volume of assets and liabilities maturing
or subject to repricing within the same time interval. Interest rate
sensitivity has a major impact on the earnings of the Company. As
interest rates change in the market, rates earned on assets do not
necessarily move identically with rates paid on liabilities. Proper asset
and liability management involves the matching of short-term interest
sensitive assets and liabilities to reduce interest rate risk. Interest
rate sensitivity is measured by comparing the dollar difference between
the amount of assets repricing within a specified time period and the
amount of liabilities repricing within the same time period. This dollar
difference is referred to as the rate sensitivity or maturity "GAP."
Management's goal is to maintain a cumulative one year GAP in a range
between plus or minus 15% of assets. The Company concentrates on
adjustable rate loans in order to reduce interest rate risk.
The table below illustrates the ratio of rate sensitive assets to rate
sensitive liabilities as they mature and or reprice within the periods
indicated. As of December 31, 1994, the Company had equality in the
matching of earning assets and interest bearing liabilities within a 90
day period, resulting in a 0% cumulative GAP position. Approximately 43%
of interest sensitive assets and 42% of interest sensitive liabilities are
available to reprice within ninety days. With the one year period, the
Company had a liability sensitive balance sheet resulting in a negative
cumulative GAP of $17,349 or a 25 % variance of rate sensitive assets to
rate sensitive liabilities. Approximately 61% of interest sensitive
assets and 80% of interest sensitive liabilities are available to reprice
within the one year period. In an increasing rate environment, the short-
term liability sensitive position is expected to result in increasing
deposit costs in relationship to increases in market rates and negatively
impacted earnings. In a decreasing interest rate environment, the
Company's one year cumulative liability sensitive position could
positively impact earnings.
December 31, 1994 Maturity/Repricing Interval
($ in thousands) Less Than 4 to 6 7 to 12 Over 1
Year or
3 Months Months Months Non-Repricable
Total
Earning Assets:
Loans 25,847 2,454 4,124
$29,281 61,706
Investment securities 500 1,992 7,189
4,508 14,189
Short-term investments 10,363 0 0
0 10,363
Total earning assets 36,710 4,446 11,313
33,789 86,258
Interest-bearing liabilities:
Time deposit 16,668 15,336 17,772 8,382
58,158
All other rate-sensitive 20,042 0 0 0
20,042
deposits
Demand 0 0 0 9,248
9,248
Total interest-bearing 36,710 15,336 17,772 17,630
87,448
liabilities
Repricing GAPs
Periodic repricing GAP 0 (10,890) (6,459) 16,159
(1,190)
Cumulative repricing GAP 0 (10,890) (17,349) (1,190)
0
Cumulative GAP variance as a percent of rate sensitive assets to rate
sensitive liabilities
Cumulative GAP variance 0 21 25 1
LIQUIDITY
Liquidity measures the ability of the Company to meet its maturing
obligations and existing commitments, to withstand fluctuations in its
deposit levels, to fund its operations and to provide for customers'
credit needs. The principal sources of liquidity include vault cash,
Federal Funds sold, short-term and maturing investments and loan
repayments.
Management has improved the overall liquidity position of the Company
during 1994 by reducing volatile liabilities, which consist primarily of
time deposits of $100,000 or more, from $5,863,000 at December 31, 1993 to
$5,573,000 at December 31, 1994. Further, management improved the quality
and liquidity of the investment securities by investing in U.S. Treasury
issues. At December 31, 1994, cash and investments maturing within three
months totaled $9,325,000 and approximately $14,840,000 of performing
loans are scheduled to mature in one year or less.
The Company has developed a formal asset/liability management policy in
order to achieve and maintain a reasonable short-term maturity GAP that
will accommodate the Company's liquidity needs.
The Company believes its present liquidity position is adequate to meet
its current and future needs.
DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
In December 1991 the Financial Accounting Standards Board adopted
Statement of Financial Standards No. 107 ("SFAS 107"), requiring
disclosures about the Fair Values of Financial Instruments, beginning
on December 31, 1992. SFAS and the Bank's policy for adopting this
Statement are described in Item 14, Note 15 to the Company's Consolidated
Financial Statements. SFAS 107 provides only limited guidance for
estimating fair value when quoted market prices are not available and for
disclosing methodologies and assumptions. Because of the subjectivity of
the fair value estimation process, there will likely be considerable
variance among institutions in the initial implementation of SFAS 107.
The primary balance sheet categories covered by SFAS 107 are investments,
loans and deposits. The fair value of demand, savings and money market
deposits equals book value, while the fair value of time deposits exceeds
book value. The fair value of most loans approximates book value.
However, non-accrual loans have a fair value below book value, reflecting
their higher potential for loss. Under the 1991 Order, the Bank is
working to reduce all classified assets, including substandard loans.
Except for cash and investment securities the Bank expects to hold its
financial instruments until maturity. The fair value of these instruments
is highly dependent on interest rates, which frequently change due to
market conditions. Therefore, the current fair value of financial
instruments is not normally a component of management's operating
strategies, and its planning processes for earnings, liquidity and capital
resources. Further, the process of analyzing current market conditions
and making the numerous estimates required to establish fair values is
too burdensome and imprecise to be a regular or valuable contribution to
normal management processes. SFAS 107 also excludes foreclosed assets and
other significant balance sheet accounts. This accounting standard does
not address the total value of present and projected business activities.
NET INTEREST INCOME
In 1994, net interest income totaled $4,093,000, down $1,580,000 from
$5,673,000, or 27.85% from 1993. This compares to a $1,095,000 or 16.18%
decrease from $6,768,000 in 1992 to $5,673,000 in 1993. In 1994, the
Company had a slight increase in its net interest margin to 4.58% compared
to 4.48% in 1993. As shown in the following table, the increase in 1994
of the net interest margin resulted from a 14 basis points decrease in the
cost of funds and a 37 basis points increase in the yield on earning
assets. The increase in spread is also attributed to the significant
decrease in nonperforming assets of $6,375,000 or 32% from 1993 to 1994.
This increase was tempered by a decline in average loan volume of
$26,710,000 or 30% from 1993 to 1994. The primary reasons for the
decrease in cost of funds was the decrease in the cost of time
certificates.
The following table presents condensed average statements of condition,
total loans including non-accrual loans, the components of net interest
income and selected statistical data, with investment securities presented
on a tax equivalent basis:
Year ended December 31,
1994 1993 1992
Avg Avg Avg Avg Avg Avg
Bal Int Rate Bal Int Rate Bal Int Rate
($ in thousands)
(Rate as a percentage)
Assets:
Loans 74,283 6,886 9.27 105,530 9,425 8.93 121,853 12,534
10.29
Securities 9,975 533 5.35 19,493 874 4.48 24,092 1,307
5.43
Federal funds sold 5,057 206 4.08 1,567 48 3.07 2,779 106
3.81
Total earnings 89,315 7,625 8.54 126,590 10,347 8.17 148,724 13,947
9.38
assets
Cash and due from 3,204 0 0 2,604 0 0 3,242 0
0
banks
Other assets 11,444 0 0 11,278 0 0 11,826 0
0
Total assets 103,963 0 0 140,472 0 0 163,792 0
0
Liabilities and stockholders' equity:
Time certificates 65,325 2,657 4.07 80,992 3,594 4.44 101,490 5,678
5.59
Savings deposits 25,007 554 2.22 33,757 889 2.63 38,415 1,388
3.61
Total interest- 90,332 3,211 3.56 114,749 4,483 3.91 139,905 7,066
5.05
bearing deposits
Other interest- 2,749 321 11.68 3,778 191 5.06 1,400 113
8.07
bearing
liabilities
Total interest- 93,081 3,532 3.80 118,527 4,674 3.94 141,305 7,179
5.08
bearing
liabilities
Demand Deposits 9,986 0 0 12,811 0 0 12,434 0
0
Other Liabilities 2,417 0 0 3,305 0 0 5,169 0
0
Stockholders' (1,521) 0 0 5,829 0 0 4,884 0
0
equity
Total liabilities 103,963 0 0 140,472 0 0 163,792 0
0
and stockholders'
equity
Net interest
Net interest income/ 0 4,093 4.74 0 5,673 4.23 0 6,768
4.30
rate spread
Net interest margin 0 0 4.58 0 0 4.48 0 0
4.55
The following table presents the changes in interest income and expense
for each major category of interest-bearing assets and interest-bearing
liabilities, and the amount of the change attributable to changes in
average balances (volume) and rates. Changes attributable to both volume
and rate changes have been allocated in proportion to the relationship of
the absolute dollar of the changes in volume and rate. Investment
securities are presented on a tax equivalent basis.
Changes from 1993 to 1994 Changes from 1992 to 1993
Changes from 1991 to 1992
Attributable to: Attributable to:
Attributable to:
($ in thousands) Volume Rate Total Volume Rate
Total Volume Rate Total
Loans (2,914) 375 (2,539) (1,565) (1,544)
(3,109) (1,954) (1,258) (3,212)
Securities (567) 226 (341) (226) (207)
(433) 18 (537) (519)
Federal funds sold 137 21 158 (40) (18)
(58) 47 (25) 22
Total interest income (3,344) 622 (2,722) (1,831) (1,769)
(3,600) (1,889) (1,820) (3,709)
Time certificates (654) (283) (937) (1,033) (1,051)
(2,084) (1,066) (2,232) (3,298)
Savings deposits (209) (126) (335) (154) (345)
(499) 303 (528) (225)
Total interest expense (863) (409) (1,272) (1,187) (1,396)
(2,583) (763) (2,760) (3,523)
on deposits
Other interest-bearing (34) 164 130 83 (5)
78 (621) (250) (871)
liabilities
Total interest expense (897) (245) (1,142) (1,104) (1,401)
(2,505) (1,384) (3,010) (4,394)
Net interest income (2,447) 867 (1,580) (727) (368)
(1,095) (505) 1,190 685
The following are the consolidated ratios of earnings to fixed charges for
each of the years in the five-year period ended December 31, 1994.
Year ended December 31, 1994 1993 1992 1991
1990
Ratio of earnings to fixed charges:<F1>
Excluding interest on deposits 0 0 20.66 5.84
8.59
Including interest on deposits 0 0 0.33 0.50
0.72
Ratio of earnings to combined fixed charges
and preferred stock dividends:<F2>
Excluding interest on deposits 0 0 12.76 5.38
7.94
Including interest on deposits 0 0 0.32 0.49
0.71
<FN>
<F1>
The Company had insufficient earnings to cover fixed charges (including
interest on deposits) for each of the years ended December 31, 1994, 1993,
1992, 1991 and 1990. The Company also had insufficient earnings to cover
fixed charges (excluding interest on deposits) for the years ended
December 31, 1994 and 1993. The short-fall of earnings to fixed charges
(including interest on deposits) was $3,568,000, $6,231,000, $4,731,000,
$4,849,000 and $2,867,000 for the years ended December 31, 1994, 1993,
1992, 1991 and 1990, respectively. In addition, the short-fall of
earnings to fixed charges (excluding interest on deposits) was $357,000
and $1,748,000 for the years ended December 31, 1994 and 1993,
respectively.
<F2>
The Company had insufficient earnings to cover combined fixed charges and
preferred stock dividends (including interest on deposits) for each of
the years ended December 31, 1994, 1993,1992, 1991 and 1990. The
Company also had insufficient earnings to cover fixed charges and
preferred stock dividends (excluding interest on deposits) for the years
ended December 31, 1994 and 1993. The deficiency of earnings to fixed
charges and preferred stock dividends (including interest on deposits)
was $3,568,000, $6,231,000, $4,731,000, $4,849,000 and $2,867,000,
respectively, for the years ended December 31, 1994, 1993, 1992, 1991 and
1990. The amount of deficiency of earnings to fixed charges and
preferred stock dividends (excluding interest on deposits) was $826,000
and $1,818,000 for the years ended December 31, 1994 and 1993,
respectively.
</FN>
COMPOSITION OF NON-INTEREST INCOME
Year Ended December 31, 1994 1993
1992
($ in thousands) Amount % Change Amount %
Change Amount % Change
Service fees on deposits 525 (36.4) 826
8.7 760 7.2
Processing and transfer fees 58 (40.2) 97
(45.8) 179 (40.3)
Net gain (loss) on sale of securities (811) (1,755.1) 49
(86.4) 421 (7.9)
Net gain (loss) on sale of assets (403) (112.5) 3,226
100.0 0 --
Credit life insurance 138 (61.0) 354
(21.5) 451 (1.5)
Insurance commissions 0 0 0
(100.0) 66 (61.6)
Income from leasing operations 567 100.0 0
0 0 --
Other 168 170.8 575
11.6 319 (18.6)
Total other non-interest income 242 (95.3) 5,127
133.5 2,196 (11.7)
The decrease in non-interest income of $4,885,000 from 1993 to 1994 was
largely attributable to a non-operating gain on the sale of the rights to
recoveries of charged-off loans of $2,700,000 in the first quarter of 1993
as opposed to a non operating loss of $1,670,000 resulting from a second
quarter loss in 1994 of $852,000 incurred on the sale of securities
comprising the $5 million equity contribution and a third quarter loss of
$818,000 from the sale of the Military Loan Portfolio. These losses were
offset by a first quarter gain of approximately $227,000 on the sale of
the Bank's leasehold interest in a parcel of land adjacent to the Bank's
main office and income from leasing related transactions of $567,000.
In July 1994 in connection with the Bank's establishment of its financial
lease program, the Company issued an option to an unaffiliated company
with extensive experience and expertise in leasing, to acquire shares of
Company Common Stock. By mutual agreement the option was canceled in
January 1995.
COMPOSITION OF NON-INTEREST EXPENSE
Year Ended December 31, 1994 1993
1992
($ in thousands) Amount % Change Amount %
Change Amount % Change
Salaries and Employee Benefits 2,394 (17.3) 2,895 7.7
2,688 (6.6)
Occupancy 469 (28.4) 655 12.2
584 (12.4)
Supplies and communications 216 (34.3) 329 7.9
305 1.7
Professional services 1,201 (36.4) 1,888 9.4
1,725 96.5
Depreciation furniture and equipment 239 5.3 227
(14.0) 264 (32.0)
Credit life insurance 18 (58.1) 43 4.9
41 (37.9)
FDIC insurance 344 (18.9) 424 16.8
363 3.4
Other insurance 109 (7.6) 118
(65.1) 338 10.8
Other real estate owned 990 (72.2) 3,558 6.8
3,331 149.7
Other 471 (40.2) 787 24.2
636 (5.9)
Total other non-interest expense 6,451 (40.9) 10,924 6.3
10,275 31.0
Operating expenses decreased by $4,473,000 or 41% in 1994. Salaries and
employee benefits decreased $501,000 or 17% due to staff reductions.
Professional services decreased $687,000 or 36% from 1993 to 1994
primarily due to decreased legal and accounting expenses associated with
loan workouts and related matters. Expense associated with the
foreclosure and carrying of OREO decreased significantly from $3,558,000
in 1993 to $990,000 in 1994 due primarily to the Bank's successful efforts
in disposing of the OREO portfolio.
Operating expenses increased by $651,000 or 41% in 1993. Salaries and
employee benefit expenses increased $207,000 or 7.7% due to a increase in
salaries. Professional services increased $163,000 or 9.4% from 1992 to
1993 primarily due to increased legal and accounting expenses associated
with loan workouts and related matters. Expense associated with the
foreclosure and carrying of OREO increased from $3,331,000 in 1992 to
$3,557,000 in 1993 due primarily to the increased cost to carry OREO,
legal expense and the decrease in property values.
IMPACT OF INFLATION
The Company's financial statements and related data are prepared in
accordance with generally accepted accounting principles which require
the measurement of financial position and operating results in terms of
historic dollars, without considering changes in the relative purchasing
power of money over time due to inflation.
Unlike most businesses, virtually all of the assets and liabilities of
financial institutions are monetary in nature. As a result, interest
rates have a more direct impact on a bank's performance than general
levels of inflation. Interest rates do not necessarily move in the same
direction of, or change to the same degree as, the prices of goods and
services. In the current interest rate environment, liquidity and the
maturity structure of the Bank's assets and liabilities are critical to
the maintenance of acceptable performance levels. Notwithstanding the
above, inflation can directly affect the value of loan collateral, in
particular real estate. Sharp decreases in real estate prices, as
discussed previously have resulted in significant loan losses and losses
on other real estate owned. Deflation, or disinflation, could continue
to significantly affect the Bank's earnings in future periods.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 112, "Employers' Accounting for Post Employment
Benefits" effective for year ends beginning after December 15, 1993.
The Company generally does not provide benefits to former or inactive
employees after employment but before retirement. Accordingly, this
Statement will not have a material effect on the Consolidated Financial
Statements.
In May 1993 and October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Nos. 114 and 118
(SFAS Nos. 114 and 118) "Accounting by Creditors for Impairment of a
Loan." These statements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's observable market price or at the
fair value of collateral, if the loan is collateral dependent. SFAS Nos.
114 and 118 are effective for fiscal years beginning after December 15,
1994. Management believes adoption of these statements will not have a
material effect on the financial position or results of operations of the
Bank.
In October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard 119 ( SFAS No. 119) "Disclosure About
Derivative Financial Instruments and Fair Value of Financial Instruments"
effective for year ends beginning after December 15, 1994, except for
entities with less than $150 million in total assets in the current
statement of financial position. For these entities, the statement shall
be effective for financial statements issued for fiscal years ending after
December 15, 1995. The Company does not hold or issue any derivative
financial instruments and, accordingly, the statement will not have a
material effect on the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CBC Bancorp, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
Contents
Independent auditors' report
Consolidated financial statements:
Statements of financial condition
Statements of operations
Statements of changes in stockholders' equity (deficit)
Statements of cash flows
Summary of accounting policies
Notes to consolidated financial statements
Independent Auditors' Report
To the Board of Directors
CBC Bancorp, Inc. and Subsidiaries
We have audited the accompanying consolidated statements
of financial condition of CBC Bancorp, Inc. and subsidiaries
(the "Company") as of December 31, 1994 and 1993, and the
related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years
then ended. These financial statements are the responsibility
of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of CBC Bancorp, Inc. and
subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows
for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have
been prepared assuming that CBC Bancorp, Inc. and
subsidiaries will continue as a going concern. As discussed
in Note 17, the Bank subsidiary, which is the Company's
primary asset (see Note 16), did meet the minimum tier 1 risk-
based capital requirements as of December 31, 1994; however,
it did not meet the minimum leverage and total risk-based
capital requirements. The Bank also has suffered recurring
losses from operations. These matters raise substantial doubt
about the ability of the Bank to continue as a going concern.
The ability of the Bank to continue as a going concern is
dependent on many factors including regulatory action and
ultimate achievement of its capital plan. Management's plans in
regard to these matters are described in Note 17. The
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty. The Bank has filed a capital plan with the FDIC
outlining its plans for attaining the required levels of
regulatory capital. The FDIC approved the Bank's capital plan
on December 28, 1994.
BDO Seidman
January 27, 1995
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 1994 1993
Assets
Cash and due from banks $3,130 $4,305
Federal funds sold 5,700 10,650
Investment securities 14,189 13,200
Loans receivable, net 59,070 84,215
Accrued interest receivable 858 1,075
Property and equipment 973 1,082
Other assets held for lease 3,894 -
Other real estate owned 4,313 8,377
Other assets 595 455
----------------------
$92,722 $123,359
Liabilities and Stockholders' Equity (Deficit)
Liabilities:
Deposits $87,474 $121,081
Accrued interest payable 941 1,972
Accounts payable and accrued expenses 1,392 1,623
Notes payable 368 -
Total liabilities 90,175 124,676
Convertible debt 1,090 1,310
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock 9,830 1,000
Common stock - $.01 par value, shares
authorized 20,000,000; issued and
outstanding 2,012,514 and 10,061,068 20 100
Additional paid-in capital 11,032 11,421
Unrealized gain (loss) on (218) 170
investment securities
Accumulated deficit (19,207) (15,318)
Total stockholders' equity (deficit) 1,457 (2,627)
-----------------------
$92,722 $123,359
Year ended December 31, 1994 1993 1992
Interest income:
Loans $6,886 $9,425 $12,534
Investment securities 533 874 1,307
Federal funds sold 206 48 106
Total interest income 7,625 10,347 13,947
Interest expense:
Deposits 3,211 4,483 7,066
Other 321 191 113
Total interest expense 3,532 4,674 7,179
Net interest income 4,093 5,673 6,768
Provision for loan losses 1,773 6,298 3,533
Net interest income (loss) after 2,320 (625) 3,235
provision for losses
Other income:
Fees for customer services 583 923 760
Gain (loss) on sales (811) 49 421
of investment securities
Net gain (loss) on sale of assets (404) 3,226 -
Credit life insurance 138 354 451
Other income 736 575 564
Total other income 242 5,127 2,196
Operating expenses:
Salaries and employee benefits 2,394 2,895 2,688
Professional fees 1,201 1,888 1,725
Other real estate owned 990 3,558 3,331
Supplies and communications 216 329 305
Net occupancy 469 655 584
Equipment rentals, depreciation 239 227 264
and maintenance
Deposit insurance premiums 344 424 338
Other insurance 109 118 363
Other expenses 489 830 677
Total operating expenses 6,451 10,924 10,275
Net loss $(3,889) $(6,422) $(4,844)
Net loss per common share $(1.93) $(4.10) $(7.45)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
($ in thousands)
Years ended December 31, 1994, 1993 and 1992
Common stock
-------------------------------- Additional
Unrealized (Accumulated
Preferred Number of Amount paid-in gain
(loss) deficit) Total
stock shares capital on
securities
Balance, December 31, 1991 1,000 994 2,484 4,333
(62) (4,052) 3,703
Preferred dividends accrued 0 0 0 (70)
0 0 (70)
($7.00 per share)
Change in unrealized loss on 0 0 0 0
55 0 55
marketable equity securities
Change in par value 0 0 (2,474) 2,474
0 0 0
- common stock
Issuance of common stock, net 0 5,730 57 4,787
0 0 4,844
of $156 of issuance costs
Net loss 0 0 0 0
0 (4,844) (4,844)
Balance, December 31, 1992 1,000 6,724 67 11,524
(7) (8,896) 3,688
Preferred dividends accrued 0 0 0 (70)
0 0 (70)
(7.00 per share)
Change in unrealized gain 0 0 0 0
177 0 177
(loss) on investment
securities available
for sale
Issuance of common stock 0 3,337 33 (33)
0 0 0
Net loss 0 0 0 0
0 (6,422) (6,422)
Balance, December 31, 1993 1,000 10,061 100 11,421
170 (15,318) (2,627)
Reverse stock split 0 (8,048) (80) 80
0 0 0
Preferred dividends accrued 0 0 0 (469)
0 0 (469)
Issuance of preferred stock 8,830 0 0 0
0 0 8,830
Change in unrealized gain 0 0 0 0
(388) 0 (388)
(loss) on investment
securities held for sale
Net loss 0 0 0 0
0 (3,889) (3,889)
Balance, December 31, 1994 9,830 2,013 20 11,032
(218) (19,207) 1,457
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1994 1993 1992
Cash flows from operating activities:
Net loss (3,889) (6,422) (4,844)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for loan losses 1,773 6,298 3,533
Provision for depreciation and amortization 227 233 272
Decrease (increase) in deferred loan fees 236 153 (64)
and costs - net
Amortization of loan purchase premiums 435 674 982
Amortization (accretion) of investment 152 461 351
security premiums (discounts), net
(Gain) loss on sale of investment securities 811 (49) (421)
Loss (gain) on disposal of property and (218) 3 (14)
equipment
Loss on sale and provision for write-downs
of other real estate owned 829 3,121 3,037
(Gain) loss on sale of loans 818 (3,294) -
Changes in operating assets and liabilities:
Prepaid and other assets 216 1,169 1,551
Deferred charges (138) - -
Income tax refund receivable - - 1,016
Accrued interest payable (892) (1,140) (103)
Account payable and accrued expenses (158) (930) (297)
Net cash provided by operating activities 202 277 4,999
Cash flows from investing activities:
Net (increase) decrease in Federal funds 4,950 (10,375) (275)
sold
Proceeds from sales and maturities of 15,511 11,826 34,780
investment securities (includes
maturities of $4,208, $5,348 and
$8,003 in 1994, 1993 and 1992,
respectively)
Purchases of investment securities (13,383) (483) (37,708)
Principal payments on mortgage-backed
securities 491 2,969 525
Proceeds from sale of loans 8,801 7,650 422
Net decrease in loans 12,498 7,338 11,125
Proceeds from sale of other real estate 3,749 1,825 875
owned
Purchases of property and equipment (130) (320) (121)
Proceeds from sale of property and 240 10 -
equipment
Purchase of assets held for lease (3,894) - -
Net cash provided by investing activities 28,833 20,440 9,623
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1994 1993 1992
Cash flows from financing activities:
Net increase (decrease) in deposit (17,141) (4,670) 1,056
accounts
Net decrease on time deposits (16,465) (15,442) (19,792)
Net increase (decrease) in treasury (442) 442 (500)
demand note account
Proceeds from issuance of common stock - - 4,844
- net
Repayment of line of credit borrowings - - (812)
Proceeds from issuance of capital notes - 220 -
Proceeds from issuance of preferred stock 200 - -
Proceeds from issuance of senior debt 3,638 - -
Net cash used by financing activities (30,210) (19,450) (15,204)
Increase (decrease) in cash and due (1,175) 1,267 (582)
from banks
Cash and due from banks, beginning of year 4,305 3,038 3,620
Cash and due from banks, end of year 3,130 4,305 3,038
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest on deposits and borrowed money 4,103 5,813 7,282
Income taxes 2 12 (891)
Noncash investing activities:
Issuance of preferred stock in exchange 5,000 - -
for marketable securities
Transfers of loans to other real estate 515 3,698 3,854
owned
Dividends declared and unpaid 469 70 70
Unrealized gain (loss) on valuation of (389) 170 55
investments - available for sale
Noncash financing activity:
Issuance of preferred stock in exchange 3,630 - -
for debt
Issuance of Senior Notes for accrued 140 - -
interest payable
Principles of Consolidation
The consolidated financial statements include the accounts of CBC Bancorp,
Inc. (the "Company") and its subsidiaries, Connecticut Bank of Commerce
(the "Bank"), and Amity Loans, Inc., an immaterial subsidiary. The Bank
operates as a Connecticut state chartered bank and trust company. These
financial statements are prepared in conformity with generally accepted
accounting principles and with general practices within the banking
industry. All material intercompany accounts and transactions have been
eliminated in consolidation.
Operations
The Bank, which has five branches in Connecticut, grants business,
consumer and real estate secured loans and accepts deposits primarily in
New Haven and Fairfield Counties and surrounding communities. Virtually
all of the Company's business activity is with customers located within
the State of Connecticut, with approximately 75% of the Company's loans
collateralized by real estate in the Connecticut market. Although
lending activities are diversified, a substantial portion of the
Company's customers' net worth is dependent on local real estate values;
such values generally declined significantly during the past three years.
Investment Securities
Investments are recorded in accordance with Statement of Financial
Accounting Standards No. 115 ("SFAS No. 115") "Accounting for Certain
Investments in Debt and Equity Securities". This statement requires
entities to classify debt and equity securities into one of the following
categories: held to maturity, available for sale, or trading. Investments
held-to-maturity are stated at cost adjusted for amortization of premiums,
and accretion of discount on purchase using the level yield method.
Investments classified as trading or available-for-sale are stated at
fair value. Changes in fair value of trading investments are included in
current earnings while changes in fair value of available-for-sale
investments are excluded from current earnings and reported, net of taxes
as a separate component of stockholders' equity.
Loans and Allowance for Loan Losses
Loans are stated at their unpaid principal balances adjusted for deferred
loan fees, deferred loan costs, unearned income and allowance for loan
losses. Interest is recognized using the simple interest method or a
method which approximates the simple interest method.
Nonrefundable loan origination and commitment fees in excess of certain
direct costs associated with the originating or acquiring loans are
deferred and amortized over the contractual life of the loan using the
interest method.
The allowance for loan losses is established through a provision for
loan losses charged to expense. The allowance is maintained at an amount
that management currently believes will be adequate to absorb potential
losses in the loan portfolio. Management's estimate of the adequacy of the
allowance for loan losses is based on evaluations of the collectibility
of loans and prior loan loss experience. The evaluations take into
consideration such factors as changes in the nature and volume of the
loan portfolio, overall portfolio quality, review of specific loans,
appraisals for significant properties and current economic conditions
that may affect borrowers' ability to repay. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses. Such agencies may
recommend that management recognize additions to the allowance based on
their judgements of information available to them at the time of their
examinations. Loans are charged against the allowance for loan losses
when management believes that collection is unlikely. Any subsequent
recoveries are credited to the allowance for loan losses when realized.
In May 1993 and October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards Nos. 114 and 118
("SFAS Nos. 114 and 118") "Accounting by Creditors for Impairment of a
Loan". These statements require that impaired loans be measured based on
the present value of expected future cash flows discounted at the
loan's effective interest rate or at the loan's observable
market price or at the fair value of collateral, if the loan is
collateral dependent. SFAS Nos. 114 and 118 are effective for
fiscal years beginning after December 15, 1994. Management
believes adoption of this statement will not have a material
effect on the financial position or results of operations of
the Bank.
Nonperforming Loans
Commercial and residential real estate loans are generally placed on
nonaccrual status when: (1) principal or interest is past due 90 days or
more; (2) partial chargeoffs are taken; or (3) there is reasonable doubt
that interest or principal will be collected. Accrued interest is
generally reversed when a loan is placed on nonaccrual status. Interest
and principal payments received on nonaccrual loans are generally applied
to the recovery of principal and then to interest income. Loans are not
restored to accruing status until principal and interest are current and
the borrower has demonstrated the ability for continued performance.
Consumer loans are not placed in nonperforming status, but are charged-
off when they become over 180 days past due.
Other Real Estate Owned
Real estate acquired by foreclosure or deed in lieu of foreclosure and
properties which are classified as insubstance foreclosures are included
in other real estate owned at the lower of cost or fair value minus
estimated costs to sell. Insubstance foreclosures represent loans in which
a borrower with little or no equity in the underlying collateral
effectively abandons control of the property or has no economic interest
to continue involvement in the property based on the borrower's current
financial condition. Substantially all other real estate owned is located
in the Connecticut market. Upon classification as other real estate owned,
the excess of the recorded investment over the estimated fair value of the
collateral, if any, is charged to the allowance for loan losses.
Subsequent valuations are periodically performed by management and the
carrying value is adjusted by a charge to other real estate owned expense
to reflect any subsequent decreases in the estimated fair value. Further,
regulatory agencies may recommend write-downs on other real estate owned
at the time of periodic examination. Routine holding costs are charged to
expense as incurred. Expenditures to complete or improve properties are
capitalized only if reasonably expected to be recovered, otherwise they
are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation or amortization is provided over the
estimated useful lives of the assets or, for leasehold improvements, the
lease term if shorter, principally using the straight-line method as
follows:
Buildings 25 years
Improvements 3 - 25 years
Furniture 3 - 25 years
Credit Life Insurance
Revenues from premiums on credit life insurance are deferred and
recognized as income over the term of the loan when using a method which
approximates the interest method. Losses resulting from credit life
insurance claims are recognized as incurred.
Dealers' Reserves
In connection with the purchase of retail installment contracts from
consumer products dealers, the Company, depending on the agreement with
the dealer, allowed the dealer to share in the gross finance income on
contracts originated by them and held back a portion of the proceeds of
the loan to a reserve account for each dealer. Such "dealer reserves" were
charged with losses on the related loans. Under the terms of the
agreements, any balance remaining in the dealer's reserve account was
available to the dealer, subject to the Company's assessment of the
adequacy of the reserve account to absorb potential losses on the
remaining portfolio. To the extent that the Company considered the
dealers' reserve account to be deficient, an addition was made to the
allowance for loan losses. During 1994, substantially all of this
portfolio was sold.
Taxes on Income
Deferred income taxes for 1994 and 1993 are provided on the differences
between the financial reporting and income tax basis of assets and
liabilities based upon statutory tax rates enacted for future periods.
The 1992 consolidated financial statements reflect income taxes based on
the previously used deferral method, whereby deferred income taxes were
provided on the difference in earnings determined for tax and financial
reporting purposes.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks.
Reclassification
Certain amounts in the 1993 and 1992 consolidated financial statements
have been reclassified to conform with the current year presentation.
1. Investment Securities
At December 31, 1994, the amortized cost and estimated fair value of
investment securities were as follows:
(a) Held-to-Maturity
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
U.S. Treasury 6,908,545 - 39,171 6,869,374
Notes
(b) Available-for-Sale
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
U.S. Treasury 6,293,521 - 194,911 6,098,610
Notes
Certificate of 500,000 - - 500,000
deposit
State of 500,000 - - 500,000
Israel Bond
Marketable 205,000 - 23,000 182,000
equity
securities
Total 7,498,521 - 217,911 7,280,610
The amortized cost and estimated fair value of securities held-to-maturity
and available-for-sale, by contractual maturity, at December 31, 1994 are
as follows:
Securities Securities
held-to-maturity available-for-sale
---------------------- ----------------------
Amortized Estimated Amortized Estimated
cost fair value cost fair value
Due in one year or 6,908,545 6,869,374 2,810,851 2,772,188
less
Due from one to five - - 4,482,670 4,326,422
years
Due from one to ten - - - -
years
Equity securities - - 205,000 182,000
Total 6,908,545 6,869,374 7,498,521 7,280,610
At December 31, 1994, investment securities with a carrying value of
approximately $600,000 were pledged to secure public deposits, the
treasury demand note and for other purposes as required or permitted by
law.
In connection with an agreement entered into in August 1994 to acquire a
residual interest in equipment having a market value of approximately
$5,000,000 as of August 1994, for $3,700,000. The Bank has secured its
obligation to perform on the agreement with securities having a carrying
value of $4,500,000 at December 31, 1994. See Note 15(d).
A summary of investment securities, all of which were available-for-sale,
at December 31, 1993 follows:
($ in thousands) Gross unrealized
--------------------
Amortized Gains Losses Estimated
cost market value
Taxable:
U.S. Treasury Securities $8,006 $115 $- $8,121
U.S. Government Agency 3,960 70 - 4,030
mortgage-backed
securities
Marketable equity 564 - 15 549
securities
Other 500 - - 500
Total investment $13,030 $185 $15 $13,200
securities
Proceeds and gross realized gains and losses from the sale of investment
securities were as follows:
Year ended December 31, 1994 1993 1992
($ in thousands)
Sales proceeds $11,404 $6,478 $26,777
Realized gains 55 50 421
Realized losses 14 1 -
2. Loans Receivable
Loans receivable are summarized as follows:
($ in thousands) 1994 1993
Commercial - collateralized by real estate $34,044 $43,119
Commercial - other 12,757 15,832
Residential and real estate mortgage 12,663 11,272
Consumer 2,331 18,282
Total - gross 61,795 88,505
Unearned income (49) (134)
Deferred loan fees (39) (190)
Deferred loan costs - 1,046
Allowance for loan losses (2,637) (5,012)
Total - net $59,070 $84,215
At December 31, 1994 and 1993, the carrying value of loans with fixed
interest rates were approximately $17,740,000 and $37,639,000,
respectively.
Loans on which the accrual of interest has been discontinued amounted
to approximately $7,884,000, $10,218,000 and $10,117,000 at December 31,
1994, 1993 and 1992, respectively, At December 31, 1994, there were no
commitments to extend additional credit to borrowers in
nonaccrual status. If these loans had been current throughout
their terms, interest income would have increased by
approximately $764,000, $794,000 and $939,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
Loans for which the terms were restructured as defined in Statement
of Financial Accounting Standards No. 15, "Troubled Debt Restructurings",
totaled $3,953,000, $3,308,000 and $4,342,000 at December 31, 1994,
1993 and 1992, respectively. Had the original terms been in
force, interest income would have increased by approximately $150,000,
$109,000 and $401,000 in 1994, 1993 and 1992, respectively.
The allowance for loan losses is summarized as follows:
($ in thousands) 1994 1993 1992
Balance, beginning of year $5,012 $3,291 $4,319
Provision charged to expense 1,773 6,298 3,533
Loans charged off (4,840) (4,976) (5,557)
Recoveries 692 399 996
Balance, end of year $2,637 $5,012 $3,291
3. Property and Equipment
At December 31, 1994 and 1993, property and equipment are summarized as
follows:
($ in thousands) 1994 1993
Land $136 $136
Buildings and improvements 1,049 1,178
Furniture and equipment 1,718 1,715
Software 235 193
Total cost 3,138 3,222
Less: Accumulated depreciation 2,165 2,140
Total - net $973 $1,082
4. Other Real Estate Owned
Changes in the other real estate owned (OREO) are summarized as follows:
($ in thousands) 1994 1993
Beginning balance $8,377 $9,625
Transfers in 515 3,698
Proceeds from sales and (4,579) (4,946)
write-downs
Ending balance $4,313 $8,377
The carrying costs of other real estate owned were approximately $160,000,
$674,000 and $294,000 for the years ended December 31, 1994, 1993 and
1992, respectively.
5. Deposits
Deposits (in thousands) are summarized as follows:
December 31, 1994 1993
Demand deposits 9,248 14,350
Money market deposits 5,090 9,935
NOW checking accounts 4,013 5,939
Savings deposits 10,966 16,233
Certificates of deposit 52,584 68,761
Certificates in excess of $100,000 5,573 5,863
Total Deposits $87,474 $121,081
6. Income Taxes
There were no taxes on income for 1994, 1993 or 1992.
The 1993 consolidated financial statements reflect adoption of the
liability method of accounting for income taxes pursuant to Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"), issued February 1992. There was no cumulative
effect of this change in accounting method as the Bank had no
deferred income taxes at December 31, 1992.
Deferred income taxes for 1994 and 1993 reflect the impact of temporary
differences between amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws. These
temporary differences are determined in accordance with SFAS 109 and are
more inclusive in nature than "timing differences" as
determined under previously applicable accounting principles.
Temporary differences which give rise to deferred tax assets at
December 31, 1994 and 1993 are as follows:
1994 1993
NOL carryforward $4,853,000 $2,672,000
Allowance for loan losses 140,000 827,000
OREO basis 484,000 847,000
Other 215,000 215,000
Total 5,692,000 4,561,000
Valuation allowance (5,692,000) (4,561,000)
Total $- $-
At December 31, 1994, there is a deferred tax asset of approximately
$5,692,000 consisting of Federal net operating loss carryforwards and the
impact of temporary differences between amounts of assets and liabilities
for financial reporting purposes and such amounts as measured by tax laws.
This deferred tax asset is fully offset by a valuation allowance of the
same amount.
For income tax return purposes, the Company has capital loss carryforwards
of approximately $850,000 expiring in 1999 and Federal net operating loss
carryforwards of approximately $14.3 million, of which
approximately $1 million is subject to limitation under the
change of ownership rules outlined in Section 382 of the
Internal Revenue Code. The amount of future income which can be
offset with net operating losses incurred prior to a change in
ownership of a corporation is limited under Section 382. The
Company's net operating loss subject to limitation can be
utilized to the extent of approximately $65,000 per year and
expires in 2007. The remaining net operating loss carryforward
of approximately $13.3 million can be used without limitation
and expires as follows: $2.8 million in 2007, $4.3 million in
2008 and $6.2 million in 2009.
The Company has state capital loss and net operating loss carryforwards
of approximately $20.1 million which expire in years 1995 through 1999.
7. Borrowings
Notes Payable
In connection with the majority stockholder's capital infusion on
September 1, 1994, floating interest rate senior notes (the "Senior
Notes") due September 1, 1996 in the amount of $3,638,000 were issued by
the Company. The Senior Notes bear interest at a floating rate
equal to 5% above the prime rate (as defined), payable
quarterly. On September 2, 1994, an exchange agreement was
entered into between the Company and the majority stockholder
whereby 26 shares of Preferred Series III Stock of the Company,
with a stated value of $10,000 per share, were exchanged for
$260,000 of Senior Notes (see Note 17). Further, on
December 31, 1994, $3,370,000 of Senior Notes were exchanged
for 337 shares of Preferred Series III Stock of the Company
with a stated value of $10,000 per share (see Note 17).
During 1993, the Company sold $220,000 of
capital notes to an entity substantially owned by the Company's
majority stockholder, the proceeds of which were contributed to
the Bank as additional paid-in capital. The notes are due March
31, 1999 and bear interest at 15% payable quarterly. The notes
are subordinated to all senior indebtedness.
Accordingly, at December 31, 1994, notes payable consisted of the
following:
Capital Notes 220,000
Senior Notes issued September 2, 1994 8,000
Senior Notes issued December 31, 1994 140,000
in exchange for accrued interest
Total notes payable 368,000
Mandatory Convertible Capital Notes
In connection with the capital restoration plan (see Note 17) $1,090,000
of convertible subordinated debentures of the Bank were exchanged for
$1,090,000 of mandatory convertible capital notes (the "Notes")
of the Company.
The principal amount of the Notes is due July 1, 1997 and will be
converted into 1) shares of Company common stock with a market value
equal to the principal amount at such date plus accrued and unpaid
interest if any; or 2) at the option of the Company and subject to
receipt of any necessary regulatory approvals, shares of perpetual
preferred stock or other primary equity securities of the Company with
a market value equal to the principal amount at such date plus
accrued and unpaid interest, if any.
The Notes bear interest at the floating rate equal to 1% above the
daily prime rate (as defined) plus an additional 25% of this rate.
Interest is payable on a quarterly basis. The Notes are subordinated to
the senior indebtedness of the Company.
8. Stockholders' Equity (Deficit) and Earnings (Loss) Per Common Share
Common Stock
At December 31, 1994, approximately 22,000 shares were reserved for
outstanding stock options, 1,601,000 shares were reserved for conversion
of the remaining convertible capital notes (Notes 7 and 18) and 5,780,000
shares were reserved for conversion of preferred stock. On June 28,
1994, the Company stockholders voted to approve a one-for-five
reverse stock split, which was effective as of July 25, 1994.
Preferred Stock
The Board of Directors of the Company is authorized to issue up to 100,000
shares of preferred stock without par value in series and to determine the
designation of each series, dividend rates, redemption provisions,
liquidation preferences and all other rights.
Preferred Series I
The Preferred Series I Stock as of December 31, 1994 consists of 23,000
shares of its nonvoting, no par value Preferred Series I Stock at a stated
value of $100 per share. In 1994, 13,000 of these shares were issued to
the principal stockholder (see Note 17).
The Preferred Series I shares of the Company are cumulative as to
dividends. The average dividend rate for the year ended December 31,
1994 was 7.15% per annum. At December 31, 1994, there were $324,656 in
dividends accrued and unpaid. See Note 17 for discussion of the dividends
restriction.
This series of preferred stock is redeemable, at the option of the
Company, at $100 per share plus all accumulated and unpaid dividends.
The preferred shares are convertible, at the option of the holders, into
common stock of the Company, at the rate of two shares of common per
each share of preferred (as adjusted for reverse stock split).
Preferred Series II
On March 24, 1994, in connection with the capital restoration plan (see
Note 17), the Company issued 50,000 shares of nonvoting Preferred
Series II Stock with a stated value of $74 per shares to the majority
stockholders.
The Preferred Series II shares are cumulative as to dividends at a rate
equal to 4% above the prime rate (as defined). At December 31, 1994, there
were $313,729 in dividends accrued and unpaid.
Preferred Series III
On September 2, 1994, December 30, 1994 and December 31, 1994, the Company
issued 26 shares, 20 shares and 337 shares, respectively, of its
nonvoting, no par value Preferred Series III Stock with a stated value
of $10,000 per share to the majority stockholder.
The Preferred Series III shares are convertible into Company common stock,
preferred stock or any other capital instrument of the Company or, at the
option of the holders, into a combination of such shares and shares of
common stock, preferred stock or other capital instrument of
the Bank, with a market value equal to the stated value, and
cumulative as to dividends at a rate equal to 5% above the
prime rate (as defined). At the option of the holder, the
Company shall pay accrued and unpaid dividends in shares of
Company common or preferred stock with a market value at the
time of payment equal to the dividend being paid. At
December 31, 1994, there were $10,836 in dividends accrued and
unpaid.
Warrant
The Warrant, issued March 24, 1994 and amended as of July 25, 1994,
entitles the majority stockholder to purchase from the Company, at an
exercise price of $0.05 (adjusted to reflect the reverse one for five
stock split effective July 25, 1994) per share, in aggregate, such number
of shares of Company common stock as may be necessary for the
majority stockholder to maintain a level of common stock
ownership equal to 51 percent of the issued and outstanding
shares of Company common stock on a fully diluted basis (the
"threshold level"). The Company anticipates that the amended
terms of the Warrant will facilitate the issuance of additional
common stock in the future. The Warrant is exercisable at any
time following the one-for-five reverse stock split and
continuing until the date ten years after provided, however,
that the majority stockholder's ownership level fall below the
threshold level due to the issuance of additional shares of
common stock. The holder of the Warrant is required to receive
any necessary regulatory approval prior to exercising the
Warrant.
Earnings (Loss) Per Share of Common Stock
Primary earnings per share amounts are computed by dividing net income
(loss), as adjusted for preferred stock dividends, by the weighted average
number of shares outstanding plus the shares that would be outstanding
assuming the exercise of dilutive stock options, which are
considered common stock equivalents using the treasury stock
method. The weighted average number of common and common
equivalent shares outstanding (adjusted to reflect the one-for-
five reverse stock split) for the year ended December 31, 1994
was 2,012,514.
Fully diluted earnings per share amounts are based on the increase number
of shares that would be outstanding assuming conversion of the Company's
convertible capital notes and convertible preferred stock when the result
is dilutive. Since the Company reported a net loss for the year
ended December 31, 1994, diluted earnings per share are not
presented for the year.
9. Stock Options (See Note 12(b))
The Company, in prior years, has adopted two incentive stock option plans.
Under the terms of these plans, the option price equals the market value
of the shares on the dates granted and the plans provide for an adjustment
for stock dividends and stock splits. Options granted are generally
exercisable only in accordance with specific vesting provisions as
determined by the Board of Directors.
The following summarizes the combined activity of both plans' stock option
information (adjusted to reflect the one-for-five reverse stock split) for
the years ended December 31, 1994, 1993 and 1992.
1994 1993
Options outstanding and exercisable, 2,343 10,606
January 1
Options expired (1,005) (8,263)
Options outstanding and exercisable, 1,338 2,343
December 31
Price range per share of options $12.50 $12.50
outstanding to $80.00 to $80.00
10. Employee Benefit Plan
In June 1988, the Company adopted a Savings Plan (the "Plan") under
Section 401(k) of the Internal Revenue Code. The Plan covers all
employees who meet certain eligibility requirements. The Plan requires
the Company to match 50% of employee contributions up to the first 10%
(amended to 6% effective July 1, 1994) of each employee's compensation
contributed to the Plan. In 1992, and prior thereto, participants were
immediately vested in the Company's contributions. The Plan was amended
in February 1993 whereby new participants vest over a two year period, and
again in November 1993 whereby participants vest over a five year period.
Prior to one year's employment, contributions are not matched by the
employer but, employees may contribute to the Plan after ninety days.
uring 1994, 1993 and 1992, the Company contributed approximately $22,500,
$58,100 and $52,800, respectively, to the Plan.
11. Related Party Transactions
Changes in loans outstanding to related parties during 1994 and 1993 were
as follows:
($ in thousands) 1994 1993
Balance, beginning of year $85 $198
Additional loans 10 20
Loans repaid (10) (67)
Other (29) (66)
Balance, end of year $56 $85
The amount noted above as "other" primarily represents loans to officers
who resigned during the years presented, and members of their immediate
families or associates and, therefore, are no longer considered related
parties.
12.Employment Agreements
(a) The Company has a deferred compensation agreement with a former
President and Chief Executive Officer, to provide for the payment of
$520,000 over a ten-year period to him or his estate commencing in 1994.
The Company has purchased a life insurance policy to fund the deferred
compensation obligation. At December 31, 1994, the cash surrender value
of the life insurance policy was $311,000 with an accrued deferred
compensation liability of $299,000. For the years ended December 31,
1994, 1993 and 1992, deferred compensation expense, including interest
was approximately $24,000, $86,000 and $78,000, respectively.
(b) On December 13, 1994, the Company entered into a stock option
agreement with its President and Chief Executive Officer. Under the
agreement, the Company granted an option to purchase in the aggregate such
number of shares of $.01 par value common stock as shall represent 5
percent of the total common stock issued and outstanding at the time of
exercise at a price of $1.25 per share. The number of shares of common
stock that may be received upon exercise of the option is subject to
further adjustment. The option vests and is exercisable by the individual
at the rate of 1 percent of the issued and outstanding shares of common
stock for each year of employment. The individual's option will be fully
vested on the fifth anniversary of the individual's employment.
13. Leases
The Bank leases certain land, building, office space and equipment for use
in its operations. The leases generally provide that the Bank pay taxes,
insurance and maintenance expenses related to the leased property. Some of
the leases contain renewal options, and rent payments change in
accordance with changes in the Consumer Price Index. Rental
expense relating to cancelable and noncancelable operating
leases amounted to $241,000, $340,000 and $320,000 in 1994,
1993 and 1992, respectively.
As of December 31, 1994, future minimum rental payments required under
non-cancelable operating leases are as follows:
Year ending December 31,
($ in thousands)
1995 $185
1996 157
1997 141
1998 133
1999 119
Thereafter 221
Total $956
14. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("SFAS No. 107"), requires that the
Bank disclose estimated fair values for its financial instruments.
The methods and assumptions used to estimate the fair values of each class
of financial instruments are as follows:
Cash, Due from Banks and Federal Funds Sold
These items are generally short term in nature and, accordingly, the
carrying amounts reported in the balance sheet are reasonable
approximations of their fair value.
Investments and Mortgage-Backed Securities
The carrying amount for short-term investments approximate fair value
because they mature in three months or less and do not present
unanticipated credit concerns. The fair value of longer term investments
and mortgage-backed securities is estimated based on bid prices
published in financial newspapers or bid quotations received
from securities dealers.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial,
commercial real estate, residential mortgage, and consumer. Each loan is
further segmented into fixed and adjustable rate interest terms, and by
performing, and nonperforming categories.
The fair value of performing loans, except residential mortgage loans, is
calculated by discounting contractual cash flows using the estimated
market discountrates which reflect the credit and interest risk inherent
in the loan. For performing residential mortgage loans, fair value
is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary
market sources adjusted to reflect differences in servicing and
credit costs.
Fair value for nonperforming loans is based on estimated cash flows
discounted using a rate commensurate with the risk associated with the
estimated cash flows. Assumptions regarding credit risk, cash flow, and
discount rates are judgmentally determined using available
market information and specific borrower information.
Deposit Liabilities
The fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, savings and NOW accounts, and money market and
checking accounts, is equal to the amount payable on demand. The fair
value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining
maturities.
Long-Term Debt
Fair values are estimated by discounting contractual cash flows using
discount rates for like borrowings with the same remaining maturity.
The estimated fair values of the Bank's financial instruments are as
follows:
December 31, 1994
($ in thousands)
Carrying Estimated
amount fair value
Financial assets:
Loans, net $59,070 $55,000
Investment securities 14,189 14,150
Cash and short-term investments 8,830 8,830
Financial liabilities:
Deposits:
Demand 9,248 9,248
Savings 10,966 10,966
Money market deposit accounts 9,103 9,103
Time deposits 58,158 57,710
December 31, 1993
($ in thousands)
Carrying Estimated
amount fair value
Financial assets:
Loans, net $84,215 $77,455
Investment securities 13,200 13,200
Cash and short-term investments 14,955 14,955
Financial liabilities:
Deposits:
Demand 14,350 14,350
Savings 22,172 22,172
Money market deposit accounts 9,935 9,935
Time deposits 74,623 74,919
Convertible debt 1,310 1,100
Commitments to Extend Credit, and Standby Letters of Credit
The estimated fair value of off-balance sheet financial instruments is not
material and there are no estimated losses.
Limitations of the Estimation Process
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument. In addition, these estimates
do not reflect any premium or discount that could result in an
equity offering by the Bank, since SFAS 107 specifies that fair
values of financial instruments be calculated independently
based on the value of one unit without regard to such factors
as concentrations of ownership, possible tax ramifications or
transaction costs. Because no market exists for a significant
portion of the Bank's financial instruments, fair value
estimates are based on judgements regarding further expected
loss experience, current economic conditions, risk
characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgement and,
therefore, cannot be determined with exact precision. Also,
changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Other significant assets
and liabilities that are not considered financial instruments
include premises and equipment, real estate held for
investment, foreclosed real estate, and advances from borrowers
for taxes and insurance. In addition, the tax ramifications
related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have
not been considered in many of the estimates.
15. Commitments, Contingencies, and Financial Instruments with Off-
Balance Sheet Risk
(a) Off-Balance Sheet Risk
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 and standby letters of credit.
Commitments to extend credit were $192,000 at December 31, 1994.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any conditions established in the contract.
Since many of the commitments are expected to expire without being
drawn on, the total commitment amounts do not necessarily
represent future cash requirements or credit risk.
Letters of credit totaled $224,000 at December 31, 1994. Letters of
credit are commitments issued by the Bank to guarantee the performance of
a customer to a third party. These guarantees are generally payable only
if the customer fails to perform some specified contractual
obligation. Letters of credit are generally unconditional and
irrevocable, and are generally not expected to be drawn upon.
For the above types of financial instruments, the Bank evaluates each
customer's creditworthiness on a case-by-case basis, and collateral is
obtained, if deemed necessary, based on the Bank's credit
evaluation. In general, the Bank uses the same credit policies
for these financial instruments as it does in making funded
loans.
(b) Legal Proceedings
In June 1992, two stockholders brought a civil action against the
Company and certain of its officers in the U.S. District Court for the
District of Connecticut. The amended complaint alleges violations of the
anti-fraud provisions of the Federal securities laws for purported
misrepresentations or omissions in certain public filings as
well as various claims under state law. The Company and the
individual defendants have filed motions to dismiss the amended
complaint. The U.S. District Civil Court for the District of
Connecticut denied the Company's and individuals' motions. The
defendants believe that the allegations of wrongdoing set forth
in the plaintiffs' amended complaint are without merit and
intend to contest all claims vigorously.
The Company and the Bank are also involved in various legal proceedings
which have arisen in the ordinary course of business. Management, after
consultation with legal counsel, does not anticipate that the ultimate
liability, if any, resulting from the settlement of the amended
complaint and other pending and threatened lawsuits will have a
material effect of the financial condition or results of
operations of the Company.
(c) Required Reserve Balances
The Bank is required to maintain certain average cash reserve balances as
specified by the Federal Reserve Bank. The amount of the reserve balance
at December 31, 1994 was approximately $246,000.
(d) Purchase and Sale Agreement
The Bank entered into an agreement in August 1994 to acquire certain
interest on equipment for $3,700,000 within one year from the date of the
agreement. The Bank has the right to terminate the agreement at any time
within the one-year period. Investment securities in the amount of
$4,500,000 at December 31, 1994 have been pledged in connection with
this agreement.
16. CBC Bancorp, Inc. (Parent Company Only) Financial Information
The condensed financial statements of the Company are as follows:
Balance Sheet Information
December 31, 1994 1993
($ in thousands)
Assets:
Cash on deposit with Connecticut Bank $1 $3
of Commerce
Investment in Connecticut Bank of Commerce 3,581 -
Other assets 138 7
Total assets $3,720 $10
Liabilities and stockholders' equity (deficit):
Accrued interest $156 $11
Dividend payable 649 180
Debt 1,458 220
Accumulated stockholders' 1,457 (401)
equity (deficit)
Total liabilities and
stockholders' equity (deficit) $3,720 $10
At December 31, 1993, investment in Connecticut Bank of Commerce has not
been reduced below zero.
Statement of Operations Information
Year ended December 31, 1994 1993 1992
($ in thousands)
Interest - net $(284) $(15) $-
Operating expenses (862) (21) (13)
Other income - 338 -
Income (loss) before taxes (1,146) 302 (13)
and equity in undistributed
earnings (loss) of
subsidiaries
Equity in loss of subsidiaries (2,743) (6,724) (4,831)
Net loss $(3,889) $(6,422) $(4,844)
Cash Flow Information
Year ended December 31, 1994 1993 1992
($ in thousands)
Operating activities:
Net loss $(3,889) $(6,422) $(4,844)
Adjustments to reconcile
net loss to net cash
provided by operating
activities:
Loss in investments 852 - -
Amortization of organization
costs - - 13
Equity in loss of 2,743 6,724 4,831
subsidiaries
(Increase) decrease in other (138) (324) 12
assets
Increase in accrued expenses 292 11 -
Net cash provided by (used in) (140) (11) 12
operating activities
Investing activities:
Capital contribution to Bank (7,849) (220) (4,844)
Proceeds from sale of 4,149 - -
investments
Net cash used in investing (3,700) (220) (4,844)
activities
Financing activities:
Proceeds from issuance of - 220 -
subordinated debentures
Proceeds from issuance of - - 4,844
common stock - net
Proceeds from issuance of 200 - -
preferred stock
Proceeds from issuance of 3,638 - -
debt
Net cash provided by financing 3,838 220 4,844
activities
Increase (decrease) in cash (2) (11) 12
Cash, beginning of year 3 14 2
Cash, end of year $1 $3 $14
Supplemental disclosures of
cash flow information:
Issuance of preferred stock $5,000 $- $-
in exchange for marketable
securities
Dividends declared and unpaid $469 $70 $70
Issuance of preferred stock $3,630 $- $-
in exchange for debt
Issuance of Senior Notes for $140 $- $-
accrued interest payable
Supplemental Disclosures of Cash Flow Information
The Company's principal asset is its investment in its wholly-owned
subsidiary, Connecticut Bank of Commerce. As described in Note 18, under
certain regulatory orders, the Bank is precluded from paying further
dividends to the Company without obtaining prior regulatory approval.
Under Federal Reserve regulations, the Bank is limited as to the amount
it may loan to the Company or members of its affiliated group, unless such
loans are collateralized by specific obligations.
17. Regulatory Actions
Under the terms of the July 1991 Cease and Desist Order (the "1991
Order"), the Bank must obtain the prior approval of the Federal Deposit
Insurance Corporation ("FDIC") and the Connecticut Banking Commissioner
(the "Banking Commissioner") before paying any cash dividends to the
Company. The 1991 Order also requires the Bank to maintain a Tier 1
leverage ratio of 6 percent. In connection with the September 1993 FDIC
regulatory examination of the Bank, the FDIC issued an additional order
to cease and desist in December 1993 (the "1993 Order"). Among other
things, the 1993 Order required affirmative action be taken by the Bank
to correct certain Bank policies, practices and alleged violations of
law. The Bank and its Board of Directors believe that the Bank has
complied fully with each of the terms of the 1991 and 1993 Orders, except
for the 6 percent leverage ratio. Under the Bank's Revised Capital
Restoration Plan, which was approved by the FDIC and the Banking
Commissioner in December 1994, the Bank has until December 31, 1996 to
achieve the 6 percent Tier 1 leverage capital ratio mandated by the 1991
Order.
Further, as of December 31, 1993, the Bank increased its provision for
loan losses and reduced the carrying values of certain loans and
foreclosed real estate, thereby seriously depleting its regulatory
capital. In December 1993, the FDIC issued a Prompt Corrective Action
("PCA") directive to the Bank informing the Bank that it was
"critically undercapitalized", requiring the prompt
recapitalization of the Bank and prohibiting, among other
things, the payment of capital distributions or management fees
to the Company or to any company controlled by a controlling
shareholder of the Bank. In addition, the PCA directive
required the Bank to submit an acceptable capital restoration
plan setting forth the Bank's specific plans and timing for
recapitalization.
On March 24, 1994, FDIC approved the Capital Restoration Plan ("Initial
Capital Plan") of the Bank. The Initial Capital Plan provided for the
recapitalization of the Bank in two parts. The first part consisted of (1)
modification of the terms of the existing mandatory convertible
subordinated debentures of the Bank ("Bank Debentures") to
convert the Bank Debentures into, or exchange the Bank
Debentures for (the "Exchange"), mandatory convertible
subordinated capital notes of Bancorp ("Company Capital Notes")
with substantially similar terms as the Bank Debentures; (2)
the injection of $5 million of additional equity capital into
the Bank by the majority stockholder of Bancorp through the
exchange of marketable securities for 13,000 shares of Company
Series I preferred stock and 50,000 shares of Series II
preferred stock (collectively, the "Company Securities") and
the majority stockholder's separate purchase for cash of a
warrant to purchase shares of Company common stock (the
"Warrant"); and (3) the sale of the Bank's leasehold interest
("Leasehold Interest") in a parcel of land adjacent to the
Bank's main office for cash.
The Exchange was deemed to occur on March 24, 1994, resulting in the
immediate increase in the Bank's Tier 1 capital by $1,090,000 (the
principal amount of the Bank Debentures at the time of the Exchange).
The majority stockholder's $5 million equity contribution and the issuance
of the Company securities also occurred on March 24, 1994. The
$5 million equity contribution made to the Company by the
majority stockholder was recognized as additional equity
capital by the Bank subsequent to the March 24, 1994
transaction as the marketable securities were sold by the
Company. The Company was required to sell the securities in
order for the Bank to recognize the value or the equity
contribution made by the majority stockholder. Under Federal
law, the Bank is precluded from investing in these marketable
securities. Accordingly, the Company was required to sell the
marketable securities for cash and contribute the net proceeds
from such sale to the Bank as additional paid-in capital. All
of the marketable securities were sold within the second
quarter of 1994. Subsequent to the equity contribution, the
market value of the securities declined and resulted in a loss
on the sale of the amount of $852,000. The Bank and the
purchaser of the leasehold interest executed a definitive
Agreement to Convey and Assign on March 25, 1994 and the
closing occurred as of March 31, 1994.
On September 2, 1994, the majority stockholder lent $3,638,000 to the
Company, of which $3,500,000 was contributed to the Bank as additional
paid-in capital. The Company's obligation was evidenced by the senior
notes. This transaction completed the second part of the recapitalization
in accordance with the approved Initial Capital Plan.
Subsequent to completion of the Bank's recapitalization as provided in
the Initial Capital Plan, during the third quarter of 1994, the FDIC
completed its periodic examination of the Bank. Based on the findings of
the 1994 FDIC examination, results of operations, the sale of the
U.S. Military installment loan portfolio and closure of the
Greenwich branch, the Bank became "under capitalized" as
defined in the FDIC Improvement Act and was not in compliance
with the 6% Tier 1 Leverage Ratio contained in the 1991 Order.
In accordance with provisions of the FDIC Improvement Act, the
Bank was required to submit an acceptable Revised Capital Plan
to the FDIC. The Bank's Revised Capital Plan was submitted to
the FDIC and the Banking Commissioner on December 13, 1994.
Both the FDIC and the Banking Commissioner approved the Bank's
Revised Capital Plan in late December 1994.
Under the terms of the Bank's Revised Capital Plan, the Bank's Tier 1
capital is projected to be augmented in the amount of $200,000 by
December 31, 1994 and in the amount of $1 million by June 30, 1995.
The additional $1.2 million of equity capital is to be raised in two
separate equity offerings undertaken by the Bank's parent holding
company. Upon completion of these two equity offerings, the
Bank's Total Capital to risk-weighted assets ratio is projected
to exceed 8%, thereby resulting in the Bank being deemed
"adequately capitalized" as defined in the FDIC Improvement
Act. In addition, the Bank's Tier 1 Leverage Ratio is projected
to be above 5%. Thereafter, the Revised Capital Plan provides
for the Bank's attainment of the 6% Tier 1 Leverage Ratio
contained in the 1991 order by December 31, 1996 through
retained earnings.
On December 31, 1994, the Bank successfully completed the first of two
required equity offerings contained in the Revised Capital Plan when the
Company sold 20 shares of Company Series III preferred stock of
$200,000 and contributed the proceeds of this equity offering
to the Bank as additional paid-in capital.
Further, pursuant to an exchange agreement by and between the Company and
the majority stockholder, dated and effective as of December 31, 1994, the
majority stockholder exchanged the $3,378,000 remaining
outstanding principal amount of the Senior Notes for 337 shares
of the Company's Series III nonvoting, cumulative, convertible
preferred stock. The accrued and unpaid interest on the Senior
Notes from the date of issuance until December 31, 1994 (the
effective date of the exchange) and $8,000 of principal was
evidenced by a new Senior Note in the same amount. Because of
certain changes to the terms of the Series III preferred stock,
the existing 46 shares of Series III preferred stock were
converted into and exchanged for the new Series III preferred
stock effective as of December 31, 1994.
In an effort to restore and maintain the financial soundness of
the Company, a written agreement (the "Agreement") was entered into with
the Federal Reserve Bank of Boston ("FRB") effective November 2, 1994. The
Agreement requires the Company to seek written approval of the FRB prior
to declaring or paying dividends, increasing borrowings or
incurring debt, engaging in material transactions with the
Bank, or making cash disbursements in excess of agreed upon
amounts.
At December 31, 1994, the minimum regulatory capital
requirements of the Bank were as follows:
($ in thousands) Minimum Actual capital
capital December 31,
required 1994 1993
Total risk-based capital percentage 8.00% 7.26% (2.53)%
Total risk-based capital $5,059 $4,590 $(2,397)
Tier 1 risk-based capital percentage 4.00% 5.97% (2.53)%
Tier 1 risk-based capital $2,530 $3,777 $(2,397)
Leverage (per order) percentage 6.00% 3.95% (1.82)%
Leverage (per order) $5,725 $3,799 $(2,397)
Notwithstanding the foregoing, the ability of the Company and the Bank to
maintain regulatory levels is dependent upon, among other factors, the
Bank's ongoing profitability, the future levels of nonperforming
assets and the condition of the economy in which it operates.
The ability of the Bank to continue as a going concern is dependent on
many factors including regulatory action and ultimate achievement of its
capital plan. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
INDEPENDENT AUDITORS' REPORT
The Board of Director's and Shareholders of Amity Bancorp Inc.
We have audited the accompanying consolidated statement of operations,
changes in shareholders' equity and cash flows of CBC Bancorp, Inc. and
Subsidiaries ("the Company"), formerly Amity Bancorp Inc. and Subsidiaries
for the year ended December 31, 1992. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
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 consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of CBC Bancorp, Inc. and Subsidiaries, formerly Amity Bancorp
Inc. and Subsidiaries for the year ended December 31, 1992, in coformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed
in Note 3 to the 1992 financial statements, the Company and its wholly-
owned subsidiary (the "Bank") have incurred significant losses from
operations and, as of December 31, 1992, did not meet the minimum
regulatory leverage, and tier 1 and total risk-based capital requirements
established by the Federal Reserve Board and the Federal Deposit Insurance
Corporation and are therefore subject to the mandatory provisions of the
FDIC Improvement Act and Prompt Corrective Action regulations including,
among other items, submission of a capital restoration plan. In addition,
the Bank is subject to a Cease and Desist Order (the "Order") with banking
regulators which requires, among other things, that it achieve and
maintain certain minimum capital ratios. These matters raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 3. The consolidated financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
Coopers & Lybrand
Hartford, Connecticut
April 19, 1993
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
The information required by Regulation S-K Item 304 is as follows:
(a) Previous independent Accountants-
(i) By letter dated December 15, 1993, Coopers & Lybrand, the
independent auditors for the Company and its subsidiaries for the
fiscal year ended December 31, 1992, notified the Company in
writing that the client-auditor relationship had ceased. The
Company is not aware of any disagreements, disputes or other
matters pertaining to the Company or its financial statements
which would have prompted or caused the cessation of Coopers &
Lybrand's relationship as the Company's independent accountant
(See responses to Item 9(a)(iv) and (v) below). Information
pertaining to the resignation of Coopers & Lybrand and other
matters required by Item 304(a) of Registration S-K has previously
been filed on Form 8-K and Form 8, dated December 21, 1993 and
January 11, 1994, respectively.
(ii) The report of Coopers & Lybrand on the financial statements of the
Company and its subsidiaries for the fiscal year ended December
31, 1992 contained an explanatory paragraph pertaining to the
uncertainty involving the ability of the Company and its principal
subsidiary, the Bank, to comply with regulatory capital
requirements imposed by federal banking law and by the terms of
the 1991 Order issued by the FDIC and effective as of July 19,
1991. See Form 8-K and Form 8, dated December 21, 1993 and
January 11, 1994, respectively.
(iii) The Company's Audit Committee and Board of Directors accepted the
resignation of Coopers & Lybrand as the Company's independent
auditors.
(iv) In connection with Coopers & Lybrand's audit of the Company for
the 1992 fiscal year up through December 15, 1993, there were no
disagreements with Coopers & Lybrand on any matters of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved
to the satisfaction of Coopers & Lybrand would have caused them
to make reference thereto in their report on the financial
statements for such year. See Form 8-K and Form 8, dated December
21, 1993 and January 11, 1994, respectively.
(v) During the two most recent fiscal years and through January 25,
1995, there have been no reportable events (as defined in
Regulation S-K Item 304(a)(1)(v).
(vi) The Company requested that Coopers & Lybrand furnish it with a
letter addressed to the Securities and Exchange Commission stating
whether it agrees with the above statements and, if not, stating
the respects in which it does not agree. A copy of such letter
was filed by the Company on Form 8 on January 11, 1994. See
Exhibit 16(c) and 16(d) to the Company's Annual Report and Form
10-K for the fiscal year ended December 31, 1993.
(b) New independent accountants
The Company engaged BDO Seidman as its new independent accountants for
the fiscal year ended December 31, 1993. During the 1992 and 1993
fiscal years and through January 12, 1994, the Company did not consult
with BDO Seidman on items which (1) were or should have been subject to
SAS 50 or (2) concerned the subject matter of a disagreement or a
reportable event with the former accountants (as described in Regulation
S-K Item 304(a)(2), with respect to items (1) and (2)).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The material responsive to such item in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Shareholders is incorporated by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statement Schedules:
Financial statement schedules are omitted since the required information
is either not applicable, not deemed material or is shown in the
respective financial statements or in the notes thereto.
Listing of Exhibits:
See Exhibit Index on page E-1.
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1994 or thereafter through the date of this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 in
Woodbridge, Connecticut, on the 16th day of February, 1995.
CBC BANCORP, INC.
(Registrant)
By:/s/ CHARLES PIGNATELLI
Charles Pignatelli
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of
the registrant and in the capacities indicated on this 16th day of
February, 1995.
Signature Title
/s/ RANDOLPH W. LENZ
Randolph W. Lenz Chairman of the Board
/s/ JACK WM. DUNLAP
Jack Wm. Dunlap Director
/s/ MARCIAL CUEVAS
Marcial Cuevas Director
/s/ CHARLES PIGNATELLI
Charles Pignatelli Director
President and Chief Executive Officer
(Principal executive officer)
/s/ DAVID MUNZER
David Munzer Senior Vice President and Chief Financial Officer
of Connecticut Bank of Commerce
(Principal financial officer)
/s/ BARBARA VAN BERGEN
Barbara H. Van Bergen Vice President of Finance of CBC Bancorp, Inc.
(Principal accounting officer)
EXHIBIT INDEX
Exhibit Number Description
2 Stock Purchase Agreement, dated as of March 16, 1992,
by and between Amity Bancorp Inc. and Randolph W. Lenz
(Filed as Exhibit A to the Company's 8-K filed March 26,
1992 and incorporated herein by reference).
3(a)(1) Articles of Incorporation of the Company (Filed as
Exhibit 3(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987 and
incorporated herein by reference).
3(a)(2) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(2)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 and incorporated
herein by reference).
3(a)(3) Amendment to Article First of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(3) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
3(a)(4) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(4)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
3(a)(5) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(5)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
3(a)(6) Amendment to Article Third of the Certificate of
Incorporation of the Company. *
3(a)(7) Amendment to Article Third of the Certificate of
Incorporation of the Company. *
3(b) Bylaws of the Company (Filed as Exhibit 3(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
4(a) Debentures Agreement (Filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein
by reference).
4(b) Preferred Stock Agreement (Filed as Exhibit 4(b) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
4(c) Capital Note, dated March 31, 1993, due March 31, 1999
(Filed as Exhibit 4(c) to the Company's Registration
Statement on Form S-2, Registration No. 33-55201, filed
August 19, 1994 and incorporated herein by reference).
4(d) Form of Mandatory Convertible Subordinated Capital Note,
due July 1, 1997 (Filed as Exhibit 4(d) to the Company's
Registration Statement on Form S-2, Registration No.
33-55201, filed August 19, 1994 and incorporated herein
by reference).
4(e) Form of Series I Preferred Stock Certificate (Filed as
Exhibit 4(e) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
4(f) Form of Series II Preferred Stock Certificate (Filed as
Exhibit 4(g) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
4(g) Form of Series III Preferred Stock Certificate. *
9 Voting Trust Agreement (Filed as Exhibit 9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference).
10(a) Incentive Stock Option Plan (Filed as Exhibit 10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987 and incorporated herein by
reference.)
10(b) Employment Agreement, by and between the Bank and an
executive officer of the Bank and the Company, effective
January 1, 1989 (Filed as Exhibit 10(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference).
10(c) Deferred Compensation Agreement, by and between the Bank
and an executive officer of the Bank and the Company,
dated as of February 8, 1990 (Filed as Exhibit 10(c) to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
10(d) Amended Employment Agreement, by and between the Bank and
an executive officer of the Bank and the Company, dated as
of October 30, 1992 (Filed as Exhibit 10(d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10(e) Consulting Agreement, by and between the Bank and a
company affiliated with a director of the Company, dated
as of December 1, 1992 (Filed as Exhibit 10(e) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992 and incorporated herein by
reference).
10(f) Employment Agreement, by and between the Bank and an
executive officer of the Bank and Company, dated as of
July 21, 1994 (Filed as Exhibit 10(f) to the Company's
Registration Statement on Form S-2, Registration No.
33-55201, dated August 19, 1994 and incorporated herein
by reference).
10(g) Stock Option Agreement, by and between the Company and an
executive officer of the Company and the Bank, dated as of
December 13, 1994. *
10(h) Stock Option Agreement, by and between the Company and EQ
corporation, dated as of June 23, 1994 (Filed as Exhibit
4(h) to the Company's Registration Statement on Form S-2,
Registration No. 33-55201, filed August 19, 1994 and
incorporated herein by reference).
10(i) 1994 Incentive Stock Option Plan of the Company. *
10(j) Amended and Restated Warrant, dated as of July 25, 1994
(Filed as Exhibit 4(g) to the Company's Registration
Statement on Form S-2, Registration No. 33-55201, filed
August 19, 1994 and incorporated herein by reference).
10(k) Company Short-Term Senior Notes due September 1996 (Filed
as Exhibit 4(i) to the Company's Registration Statement on
Form S-2, Registration No. 33-55201, filed August 19, 1994
and incorporated herein by reference).
10(l) Exchange Agreement, by and between the Company and the
Company's principal shareholder, dated and effective as of
December 31, 1994. *
10(m) Agreement by and between the Company and EQ Corporation,
dated January 18, 1995, canceling the Option. *
16(a) Letter dated October 23, 1992 from Deloitte & Touche
regarding resignation of certifying accountants (Filed as
Exhibit 16(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 and
incorporated herein by reference).
16(b) Letter dated November 6, 1992 from Deloitte & Touche
regarding comments on Form 8-K of the Company dated
October 22, 1992 (Filed as Exhibit 16(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference).
16(c) Letter dated December 15, 1993 from Coopers & Lybrand
regarding resignation of certifying accountants. (Filed
as Exhibit 16(c) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.)
16(d) Letter dated January 11, 1994 from Coopers & Lybrand
regarding comments on Form 8-K of the Company dated
December 15, 1993. (Filed as Exhibit 16(d) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by
reference.)
22(a) Subsidiaries of the Registrant (Filed as Exhibit 22 to
the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference).
22(b) Subsidiaries of the Registrant (Filed as Exhibit 22(b)
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated
herein by reference).
27 Financial Data Schedule
* Filed herewith.