CBC BANCORP, INC.
PART I
ITEM 1. BUSINESS
GENERAL
CBC Bancorp, Inc. (the "Company") is a registered bank holding company.
The Company's principal subsidiary is Connecticut Bank of Commerce (the
"Bank"), a Connecticut chartered commercial bank. The Company also owns
an immaterial subsidiary, Amity Loans, Inc.
The Bank is a full-service commercial bank with its main office in
Woodbridge, Connecticut, and with three other branch offices located
in Branford, Norwalk and Stamford, Connecticut. From its main office
and other branch 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. All deposits
in the Bank are insured by the Federal Deposit Insurance Corporation
("FDIC") to the extent permitted by law.
In the second quarter of 1994, the Bank established a financial lease
program. Under its financial lease program, the Bank provides short-
term financial leases, which are subsequently placed with permanent
lenders, purchases accounts receivable resulting from lease transactions,
interests in pools of financial lease receivables and acquires equipment
for financial lease transactions, both available for lease and subject to
existing leases. Since the program's inception, the Bank has disbursed
approximately $40 million in financial lease related transactions. As of
December 31, 1995, $25.6 million in funds deployed in financial lease
transactions have been repaid and $14.4 million in funds remain
outstanding. The Bank anticipates continuing its participation in
financial lease transactions in the future.
EMPLOYEES
On December 31, 1995, the Company and its subsidiary had 40 employees, 39
on a full-time equivalent basis. On December 31, 1994, the Company and
its subsidiary had 50 employees, 49 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
In General
The Company is a legal entity separate and distinct from the Bank. There
are legal limitations to the extent to which the Bank can lend or otherwise
supply funds to the Company or certain affiliates. Federal law limits the
ability of the Company to borrow from, or sell its securities to, its
subsidiary bank unless the loans are secured by specified collateral and
such loans and extensions of credit by the subsidiary bank are generally
limited to 10% of the subsidiary bank's capital and surplus. The Company
and its affiliates, including the Bank, are in full compliance with each
of these legal limitations.
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 payments on its
subordinated capital notes or other debt securities in accordance with
the policy.
Under the terms of a written agreement (the "Written Agreement") between
the Company and the Federal Reserve Bank of Boston ("Reserve Bank"),
effective as of November 2, 1994, the holding company is required to
obtain the written approval of the Reserve Bank prior to the 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 certain plans and agreements for Reserve Bank approval
and to revise or develop select policies. All such actions required by
the Written Agreement have been taken by the Company.
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 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.
Cash dividends by the Bank to the Company represent the primary source of
cash income to the Company. The payment of dividends to the Company by
the Bank is subject to various regulatory limitations. In general, the
Bank must obtain the approval of the Banking Commissioner if the total
of all dividends declared by the Bank in any calendar year exceeds the
Bank's net profits (as defined) for the current year combined with its
retained net profits for the preceding two calendar years. The ability
of the Bank to pay dividends could be affected by its financial condition,
including the maintenance of adequate capital and other factors. The FDIC
and Banking Commissioner also have the statutory authority to prohibit
the Bank from paying dividends if they deem such payment to represent an
unsafe or unsound practice in light of the financial condition of the Bank.
The FDIC Improvement Act of 1991 ("FDIC Improvement Act") and the FDIC's
regulations promulgated thereunder prohibit and 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
to Cease and Desist ("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.
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 on the Bank's approved 1996 Capital
Plan. See "The Bank's 1994 and 1996 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 1995, neither the Company nor the Bank
paid any cash dividends.
In connection with the September 1993 FDIC regulatory examination of the
Bank, the FDIC required that affirmative action be taken by the Bank and
its Board of Directors with respect to certain bank policies, practices
and alleged violations of law. The Bank and its Board of Directors believe
that the Bank has taken all such required actions.
Regulatory Capital Requirements
The Federal Reserve Board and the FDIC have issued substantially similar
risk-based and leverage capital guidelines applicable to bank holding
companies and state-chartered nonmember banks. The Federal Reserve
Board's capital adequacy guidelines are not applicable to bank holding
companies with consolidated assets of under $150 million. Thus, until
the Company's consolidated assets reach or exceed this level, the
Federal Reserve Board's capital guidelines are not applicable to the
Company. The FDIC's capital adequacy guidelines are applicable to the
Bank irrespective of the Bank's asset size.
Under the FDIC's risk-based capital guidelines applicable to nonmember
banks, the minimum 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 requires the Bank to maintain a
Leverage Ratio of at least 6 percent for as long as the 1991 Order
remains in effect; however, under the terms of the Bank's approved 1996
Capital Plan, the Bank has until December 31, 1997 to achieve the 6
percent Leverage Ratio in the 1991 Order. See "The Bank's 1994 and 1996
Capital Plans." Furthermore, the FDIC has 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, 1995, the Bank complies with the Tier 1 Capital to
risk-weighted assets requirement and the Leverage Ratio requirement of
the FDIC regulations but does not comply with the Total Capital to Risk-
Weighted Assets requirement. 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." The following table sets forth the regulatory capital ratios of the
Bank as of December 31, 1995 and 1994:
Year Ended December 31, 1995 1994
Capital Ratios of the Bank:
Tier 1 risk-based capital <F1> 5.67% 5.97%
Total risk-based capital <F1> 6.94% 7.26%
Tier 1 Leverage Ratio <F2> 4.38% 3.95%
<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>
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. The Bank's violation of
the 1991 Order or the Bank's failure to comply with the 1996 Capital Plan
or applicable FDIC regulatory capital requirements could result in a
determination by the FDIC to commence such termination proceedings.
In 1994, the FDIC adopted a risk-based insurance assessment system to
replace the existing flat-rate system. Under the risk-based system,
insurance premiums are imposed based upon a matrix that takes into
account a bank's capital level and supervisory rating. During 1994
and until November 1995, the assessment rate imposed on banks ranged
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). In November 1995, the FDIC lowered the
assessment rate to a range of zero for well capitalized banks with the
highest of three supervisory ratings to 27 cents for inadequately
capitalized banks. The Company does not believe that the recent changes
in the insurance premiums will have a material effect on the Bank's or
the Company's earnings. If the Bank Insurance Fund decreases due to the
increased number of bank failures in the future, deposit insurance
premiums would in all likelihood be increased. The Bank would lessen
the impact of any future increases 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.
The Bank submitted, and the FDIC approved, the 1994 and 1996 Capital Plans.
See "The Bank's 1994 and 1996 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 Bank's 1996 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.
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 1994 and 1996 Capital Plans
Under the terms of the Bank's 1994 Capital Restoration Plan ("1994 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. On July 11, 1995, the Bank received approval from the
FDIC for a modification to the 1994 Capital Plan. The $200,000 infusion
was completed by December 31, 1994. The modification called for an
extension until September 30, 1995 to complete the securities registration
and to raise a minimum of $1,200,000 in new capital. The modification also
provided that the Company's majority shareholder would acquire such number
of unsold securities in the offering as needed to achieve minimum net
proceeds of $1,200,000. The Bank requested additional modifications to
the Capital Plan which called for the injection of $400,000 of capital
by the majority shareholder in October 1995 and the injection of the
remaining amount necessary for the Bank to achieve the $1.2 million of
new equity by December 31, 1995.
On October 20, 1995, the Company issued $400,000 of Short-Term Senior
Notes to a company controlled by the majority shareholder in exchange
for equity securities with a market value of $400,000. The notes were
offered pursuant to the Company's effective registration statement dated
August 15, 1995. The equity securities were immediately sold by the
Company and the proceeds contributed to the Bank. On December 28, 1995,
the Company issued 86 shares of Series III Preferred Stock with a stated
value of $860,000 to a company controlled by the majority shareholder for
$579,000 in cash and equity securities with a market value of $281,000.
The equity securities were liquidated during January 1996 for a net gain
of $16,000.
As a result of the 1995 FDIC regulatory examination, the Bank was required
to file a revised capital plan ("1996 Capital Plan"). The 1996 Capital
Plan was approved by the FDIC and the Banking Commissioner on March 21,
1996. The provisions of the 1996 Capital Plan call for the Bank to
maintain a Tier 1 Leverage Ratio above 4% during 1996 through projected
earnings and to reach a Tier 1 Leverage Ratio of 6% by December 31, 1997
through the injection of additional capital in the amount of $800,000 or
that amount necessary to bring the Bank into compliance with the 6%
Tier 1 Leverage Ratio requirement. The capital is anticipated to be
raised through the Company's existing effective shelf registration.
The Bank will be required to submit a revised capital plan if the Bank's
Tier 1 Leverage Ratio were to fall below the minimum requirement of 4%.
Notwithstanding the foregoing, the ability of the Company and the Bank
to maintain regulatory levels and continue as a going concern is dependent
upon, among other factors, the Bank's attaining profitability, the future
levels of nonperforming assets and the local and 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.
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 and Stamford, 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 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 17(b) 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 1995 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,
were traded on the NASDAQ Small-Cap Market under the symbol "CBCB"
until June 22, 1995, when the stock was delisted for failure to meet
listing requirements.
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
1995 1994
Common Stock Prices (Bid)<F1> Low High Low High
First Quarter $.75 $.75 $1.25 $2.50
Second Quarter<F2> .25 .75 1.25 1.25
Third Quarter -- -- 1.25 1.25
Fourth Quarter -- -- .75 1.00
<FN>
<F1> Prices have been adjusted to reflect the one-for-five reverse stock
split, which was effective July 25, 1994.
<F2> As of June 22, 1995, the Company's Common Stock was delisted from
the NASDAQ Small Cap Market.
HOLDERS OF COMMON STOCK
At March 15, 1996, there were approximately 245 registered and 351
beneficial shareholders of the Company's common stock.
DIVIDENDS
The Company has omitted the cash dividend on its common stock and
preferred stock since the third quarter of 1990 in order to preserve
capital. In addition, the Bank has been restricted by the terms of
the 1991 Order and by certain regulatory provisions from paying any
dividends to the Company. Since dividends from the Bank represent
the exclusive source of funds for the Company's payment of dividends
on its common and preferred stock and debt service on its capital notes,
the Company does not anticipate having the ability to pay cash dividends
on its preferred or common stock or to pay interest on its capital notes
in the foreseeable future. The Company is also subject under separate
regulatory restrictions which may restrict such payments in the
foreseeable future. See discussion of dividend restrictions on the
Company and the Bank in Item 1, "Business -- Regulation and Supervision
- -- Federal Reserve System Regulation, Connecticut Regulation, FDIC
Regulation and the FDIC Improvement Act."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
($ in thousands, except share data)
Years ended December 31, 1995 1994 1993 1992 1991
Condensed Statement Of Operations:
Net interest income $2,548 $4,093 $5,673 $6,768 $6,063
Provision for loan losses 575 1,773 6,298 3,533 6,541
Net interest income (loss) after 1,973 2,320 (625) 3,235 (478)
provision for losses
Investment securities gains (losses) (16) (811) 49 421 457
Other operating income 1,386 1,053 5,078 1,775 2,031
Other real estate owned expense 717 990 3,558 3,331 1,334
Other operating expense 4,224 5,461 7,366 6,944 6,508
Net (loss) ($1,598) ($3,889) ($6,422) ($4,844) ($5,832)
Common Stock Per Share Data <F1>:
Book value - at year end ($5.72) ($4.16) ($1.80) $2.00 $13.60
Net (loss) primary (1.41) (2.17) (4.14) (7.46) (29.75)
Net income fully diluted -- -- -- -- --
Cash dividends -- -- -- -- --
At year end:
Total assets $83,280 $92,722 $123,359 151,125 $171,518
Net loans 56,382 59,070 84,215 106,728 128,006
Allowance for loan losses 2,070 2,637 5,012 3,291 4,319
Securities 7,582 14,189 13,200 27,751 25,223
Deposits 79,045 87,474 121,081 141,192 159,928
Short-term borrowings 548 -- -- -- 812
Stockholders' equity 56 1,457 (2,627) 3,688 3,703
Outstanding shares 1,961,761 2,012,514 2,012,514 1,344,707 198,706
Financial Ratios:
Yield on interest-bearing assets 8.63% 8.54% 8.17% 9.38% 10.66%
Cost of funds 4.62 3.80 3.94 5.08 7.40
Interest rate spread 4.01 4.74 4.23 4.30 3.26
Net interest margin 3.68 4.58 4.48 4.55 3.67
Earnings to fixed charges -- -- -- -- --
with interest
Earnings to fixed charges 0.53 -- -- 0.33 0.50
without interest
Combined fixed charges with interest -- -- -- -- --
Combined fixed charges without 0.13 -- -- 0.32 0.49
interest
Return on average assets (1.89) (3.75) (4.57) (2.96) (3.21)
Return on average equity (211.10) -- (110.17) (98.18) (72.80)
Average equity to average assets (0.89) (1.47) 4.15 2.98 4.41
Cash dividend to primary EPS N/A N/A N/A N/A N/A
Cash dividend to net income N/A N/A N/A N/A N/A
At year end:
Loans (net) to deposits 71.33 67.53 69.55 75.59 80.04
Nonperforming loans to total 11.95 15.56 13.66 10.15 11.12
loans (net)
Allowance for loan losses to 30.72 28.69 43.59 30.39 30.34
nonperforming loans
Capital Ratios of Bank:
Total risk-based 6.94 7.26 (2.53) 5.73 4.88
Tier 1 risk-based 5.67 5.97 (2.53) 3.52 2.57
Tier 1 leverage 4.38 3.95 (1.82) 2.61 2.06
<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, 1995, including notes thereto, and other
financial information included elsewhere in this report.
During 1995, the Company successfully completed a shelf registration of
equity and debt securities. The registration enabled the Company to
raise $400,000 of new capital for the Bank. Furthermore, the registration
can be used in the future to access capital markets to fund asset growth.
The Company reported a net loss of $1,598,000 for the year ended December
31, 1995 compared to a net loss of $3,889,000 in 1994. This significant
reduction in loss is largely attributed to the Company's continued focus
on reducing nonperforming assets, increasing operating efficiency and
increased commitment to its financial lease program. The level of
nonperforming assets was reduced by $4,052,000 or 30% from 1994 to
1995, operating expenses decreased $1,510,000 or 23% from 1994 to 1995
and other income related to the financial lease program increased from
$567,000 in 1994 to $682,000 in 1995.
Under the Bank's financial lease program (the "Program"), the Bank
provides short-term financial leases, which are subsequently placed
with permanent lenders, purchases accounts receivable resulting from
lease transactions, invests in pools of financial lease receivables,
and acquires equipment for financial lease transactions, both available
for lease and subject to existing leases. Since the program's inception,
the Bank has disbursed approximately $40 million in financial lease
related transactions. As of December 31, 1995, $25.6 million in funds
deployed in financial lease transactions have been repaid and $14.4
million in funds remain outstanding, which include $6,860,000 of short-
term financial leases, accounts receivable resulting from lease
transactions and interest in pools of financial lease receivables.
Assets held for lease include $7,300,000 of medical equipment subject
to existing leases or available for lease. Financial arrangements for
this equipment extend over a maximum of five years under specified terms,
including certain guaranteed minimum investment returns on the equipment
and other financial terms.
The Bank's 1994 and 1996 Capital Plans
A detailed discussion of the Bank's 1994 and 1996 Capital Plans appears
in Item 1. The 1996 Capital Plan provides for the Bank's attainment of
the 6 percent Tier 1 Leverage Ratio contained in the 1991 Order by
December 31, 1997. The ability of the Company and the Bank to complete
the required equity offering or to otherwise maintain and increase
regulatory capital as projected in the 1996 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 Bank believes it is in compliance with every provision of the 1991
Order (see Item 1, "Regulatory Capital Requirements") except that, as
a result of the recorded 1995 loss of $1,400,000 which included a
provision for loan losses of $575,000 and OREO expenses of $717,000,
the Bank's capital ratios were not in compliance with the minimum
requirements under the FDIC regulations and the 1991 Order.
Capital Resources
At December 31, 1995, the Bank's total risk-based capital ratio was less
than 8 percent; 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, 1995, are set forth in
Item 8, Note 11 to the Company's Consolidated Financial Statements.
See Item 1, "Business -- Regulation and Supervision -- FDIC Regulation"
and Item 14, Note 11 to the Company's Consolidated Financial Statements.
Under the terms of the Bank's 1996 Capital Plan, the Bank's Tier 1 capital
is projected to be augmented in the amount of $800,000 by December 31, 1997.
The additional $800,000 of equity capital is to be raised in an equity
offering undertaken by the Bank's parent holding company. Upon completion
of this equity offering, the Bank's Total Capital to risk-weighted assets
ratio is projected to exceed 8%, thereby resulting in the Bank being deemed
"adequately capitalized" as defined in the FDIC Improvement Act. In
addition, the Bank's Tier 1 Leverage Ratio is projected to be above 6%.
Management and the Board of Directors of the Company and Bank are currently
considering various actions to augment the capital beyond the 1996 Capital
Plan. These other plans include increased fee income, cost control,
continued improvement of asset quality, asset sales and pursuing
additional capital. If, however, the Bank does not comply with the
approved 1996 Capital Plan or otherwise achieve the minimum regulatory
capital levels or comply with the 1991 Order, further regulatory action
could result, as described in Item 1, "Regulation and Supervision, FDIC
Regulation and The FDIC Improvement Act," and in Item 14, Note 11 to the
Company's Consolidated Financial Statements.
LOANS
Loans consisted of the following:
December 31, 1995 1994 1993
($ in thousands) % of % of % of
Amount Total Amount Total Amount Total
Commercial collateralized $30,083 51% $34,044 55% $43,119 49%
by real estate
Commercial Other 9,021 15% 11,051 18% 15,832 18%
Lease financing 6,860 12% 1,706 3% -- 0%
Real estate mortgage - residential 10,797 19% 12,663 20% 11,272 13%
Consumer 1,743 3% 2,331 4% 18,282 20%
Total loans - gross $58,504 100% $61,795 100% $88,505 100%
Average annual outstanding loans - $58,610 $74,283 $102,319
net of allowance
The table above illustrates the Company's emphasis on commercial, lease
financing and residential mortgage lending. At year end 1995, commercial
loans comprised 66% and lease financing comprised 12% of the total loan
portfolio compared with commercial loans of 73% and 67% and lease financing
of 3% and 0%, respectively, during the prior two years. The commercial
loan portfolio is made up principally of commercial loans collateralized
by real estate amounting to $30,083,000 in 1995, $34,044,000 in 1994,
and $43,119,000 in 1993. The lease financing portfolio increased from
$1,706,000 in 1994 to $6,860,000 in 1995. 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. While the total dollar
amount has decreased, residential mortgage loans have increased as a
percentage of the total loan portfolio from 13% in 1993 to 19% in 1995.
At December 31, 1995, the Bank's legal lending limit was $859,800.
Average annual net loans outstanding have consistently decreased over
the past three years, from $105,530 in 1993 to $56,385 in 1995. The
loan to deposits ratio for 1995 of 71.33% increased slightly compared
to 67.53% and 69.55% in 1994 and 1993, 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 10.25% at December 31, 1995. 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, $26,668,000 or 51% of the total $52,068,000 performing loan
portfolio is comprised of floating or adjustable interest rate loans.
At December 31, 1995 Time Remaining to Maturity
($ in thousands) of Total Performing Portfolio
Under One to Over
One Year Five Years Five Years Total
Loans with adjustable rates
Commercial and commercial $3,001 $18,147 $0 $21,148
mortgage
All other 248 5,272 0 5,520
Total 3,240 23,419 0 26,668
Loans with fixed rates
Commercial and commercial 7,625 7,736 3,106 18,467
mortgage
All other 836 1,932 4,165 6,933
Total 8,461 9,668 7,271 25,400
Total performing portfolio $11,710 $33,087 $7,271 $52,068
NONPERFORMING ASSETS
The Bank's nonperforming assets are as follows:
December 31,
($ in thousands) 1995 1994 1993
Non-accrual and past due loans:
Non-accrual $6,383 $7,885 $10,218
Accruing loans past due 356 1,305 1,283
90 days or more
Total Non-accrual and past 6,739 9,190 11,501
due loans
OREO
Foreclosed properties 3,054 3,088 4,630
In-substance foreclosure -- 1,225 3,747
OREO allowance (341) -- --
Total OREO (net) 2,713 4,313 8,377
Total Non-performing assets $9,451 $13,503 $19,878
Non-performing assets to total 16.00% 21.30% 21.47%
loans (net) and OREO (net)
Allowance for loan losses to 30.72% 28.69% 43.59%
total loans past due
90 days or more
As a percentage of total loans:
Non-accrual and past due loans 11.51% 14.89% 12.89%
Allowance for loan losses 3.54% 4.27% 5.62%
The Bank has reduced the amount of nonperforming assets from $13,503,000
at December 31, 1994, to $9,451,000 at December 31, 1995, representing a
30% reduction. While $1,600,000 of the reduction is due to the Bank's sale
of OREO, total non-accrual and past due loans also declined by $2,451,000
or 27% as of December 31, 1995 from the level at December 31, 1994.
Approximately 95% of total loans delinquent 90 days or more were on a non-
accrual status at December 31, 1995. 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 $450,000, $764,000 and $794,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Actual interest received on a cash basis was $29,000 and $188,000 in
the years ended December 31, 1995 and 1994, respectively; no interest
was received for 1993.
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 a payment track record has
been reestablished.
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 $5,265,000, $3,954,000 and $3,308,000 at
December 31, 1995, 1994, and 1993, respectively. Had the original
terms been in force, interest income would have increased by approximately
$200,000 $150,000 and $109,000 in 1995, 1994 and 1993, respectively. The
Company has no commitments to lend additional funds to these borrowers.
OREO consisted of the following:
($ in thousands) December 31, 1995 Balance % of Total
1-4 Family Residential properties $569 21%
Multifamily residential properties 272 10%
Commercial real estate 1,151 42%
Construction and Land Development 721 27%
Total OREO $2,713 100%
In 1995, the Bank continued its focus on restructuring delinquent loans
and disposing of OREO and other nonperforming assets. As of the end of
1995, the Bank has reduced OREO by approximately $1,600,000 or 37% from
December 31, 1994.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges against income
and maintained at a level that management considers adequate to absorb
potential losses in the loan portfolio. Management's estimate of the
adequacy of the allowance for loan losses is based on evaluations of
individual loans, estimates of current collateral values and the results
of the most recent regulatory examination. Management also evaluates the
general risk characteristics inherent in the loan portfolio, prevailing
and anticipated conditions in the real estate market and the general
economy, and historical loan loss experience. Loans are charged against
the allowance for loan losses when management believes that collection is
unlikely. Any subsequent recoveries are credited back to the allowance
for loan losses when received.
The changes in the allowance for loan losses were as follows:
($ in thousands) December 31, 1995 1994 1993
Beginning Balance $2,637 $5,012 $3,291
Transfer of OREO/ISF allowance -- -- 500
Charge-offs:
Military installment loans (153) (1,919) (1,392)
Commercial and other loans (1,369) (2,921) (4,084)
Total Charge-offs (1,522) (4,840) (5,476)
Recoveries:
Military installment loans 52 667 350
Commercial and other loans 328 25 49
Total Recoveries 380 692 399
Net loan charge-offs (1,142) (4,148) (5,077)
Provision for loan losses 575 1,773 6,298
Ending balance 2,070 2,637 5,012
Net loan charge-offs to average 1.90% 5.58% 4.96%
loans outstanding (net)
The allowance for loan losses was allocated as follows:
($ in thousands) December 31, 1995 1994 1993
Military installment loans -- $35 $1,102
Commercial loans and other 2,070 2,602 3,910
Total $2,070 $2,637 $5,012
As a result of the September 1993 FDIC examination, the Banks was required
to charge off approximately $3,350,000 of loans. The Banks was examined
again in June of 1994 and required to charge off an additional $2 million
of loans. The FDIC completed its regulatory examination of the Bank on
October 31, 1995 and determined that the Bank's allowance for loan losses
was adequate after the Bank increased the provision by $225,000. The
provision for 1995 decreased from 1994 and 1993 due primarily to decreases
in the loan portfolio, the significant reduction in non-performing assets
and the sale of the Military loan portfolio. In 1994, the Bank incurred
a gross loss on the Military portfolio sale of $1,400,000 of which $600,000
was charged to the allowance for loan losses, resulting in a net charge to
income of approximately $800,000. Charge-offs relating to the Military
portfolio amounted to 10%, 40% and 25% of total charge-offs in 1995, 1994
and 1993, respectively.
Under the new management team, the credit review process has been enhanced.
The process includes evaluating loss potential utilizing a credit risk
grading process and specific reviews and evaluations of individual problem
credits. Management reviews the overall portfolio quality through an
analysis of current levels and trends in charge-off, delinquency and non-
accruing loan data. 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.
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan" as amended by SFAS No. 118, "Accounting for
Creditors for Impairment of a Loan -- Income Recognition and Disclosures"
(collectively referred to as "SFAS No. 114"). The specific accounting
policies pertaining to SFAS Nos. 114 and 118 are detailed in the Summary
of Accounting Policies to the Company's Consolidated Financial Statements
included in Item 14 of this Form 10-K. Additional information on impaired
loans is also included in Item 14, Note 3 to the Consolidated Financial
Statements.
SECURITIES
The book value of the securities portfolio totaled $7,584,000 at December
31, 1995, a decrease from $14,408,000 at December 31, 1994. The decrease
in the securities portfolio is attributed to the downsizing of the Bank and
management's decision to redistribute the mix of earning assets.
Securities consisted of the following:
($ in thousands) December 31, 1995 1994 1993
Investments Held-to-Maturity
U.S. Treasury securities -- $6,909 --
U.S. Government agency securities -- -- --
Marketable equity securities -- -- --
Other -- -- --
Total $0 $6,909 $0
Investments Available-for-Sale
U.S. Treasury securities $4,053 $6,294 $8,006
U.S. Government agency securities 3,000 -- 3,960
Marketable equity securities 281 205 564
Other 250 1,000 500
Total 7,584 $7,499 $13,030
Total Securities $7,584 $14,408 $13,030
Securities to total assets 9.11% 15.54% 10.56%
The summary of debt securities at December 31, 1995 by contractual maturity
is presented below. Expected maturities may differ from contractual
maturities because issuers have the right to call or repay obligations
with or without prepayment penalties.
($ in thousands) December 31, 1995
Securities Held Securities Held
to Maturity for Sale
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
Maturity:
Within one (1) year -- -- $7,303 $7,301
After one (1) but within -- __ __ __
five (5) years
Marketable equity securities -- -- 281 281
Totals -- -- $7,584 $7,582
Additional information on securities is also included in Item 14, Note 2
to the Consolidated Financial Statements.
DEPOSITS
Deposits totaled $79,045,000 at December 31, 1995, down $8,429,000, or
9.6% from $87,474,000 at year end 1994. 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 of time deposits in
amounts of $100,000 or more and of time deposits under $100,000 at
December 31, 1995.
December 31, 1995 CD's $100,000 and over CD's under $100,000
($ in thousands)
Time remaining to maturity:
Three months or less $1,477 $10,665
Over three months to six months 1,435 11,460
Over six months to twelve months 1,740 16,887
Over twelve months 514 10,330
Total $5,166 $49,342
A tightening in monetary policy by the Federal Reserve combined with
increased competition in the marketplace increased the rate of the Company's
average cost of interest-bearing deposits, which rose from 3.56% in 1994
to 4.40% in 1995. Also, an increase in borrowed funds by the Company
resulting from the Senior Notes issued in conjunction with the
recapitalization of the Bank produced an increase in the cost of interest-
bearing, non-deposit liabilities. The cost rose from 11.68% during
1994 to 15% in 1995. Average balances and rates paid were as follows:
December 31, 1995 1994 1993
($ in thousands) Average Average Average
Amount Yield Amount Yield Amount Yield
Interest-bearing deposits:
Time Certificates $55,250 5.14% $65,325 4.07% $80,992 4.44%
Savings, NOW and Money Market $17,093 2.01% $25,007 2.22% $33,757 2.63%
Total interest-bearing deposits $72,343 4.40% $90,332 3.56% $114,749 3.91%
Non-interest-bearing deposits $8,043 -- $9,986 -- $12,811 --
Total other interest-bearing $1,507 15% $2,749 11.68% $3,778 5.06%
liabilities
ASSET/LIABILITY MANAGEMENT
The Bank'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 Bank. As interest rates change
in the market, rates earned on assets do not necessarily move identically
with rates paid on liabilities. The origination of adjustable rate mortgage
loans in a decreasing interest rate environment is more difficult as
consumer demand for fixed rate mortgage loans increases. In addition,
originating consumer loans, while providing the Bank with increased
income, involves a greater risk of nonpayment. 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 Bank 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, 1995, the Bank almost had equality in
the matching of earning assets and interest bearing liabilities within
a 90 day period, resulting in a .19% cumulative GAP position.
Approximately 43% of interest sensitive assets and 35% 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 $16,573 or a 39%
variance of rate sensitive assets to rate sensitive liabilities.
Approximately 55% of interest sensitive assets and 75% of interest
sensitive liabilities are available to reprice within the one year
period. In an increasing rate environment, the short-term liability
sensitive position is expected to result in increasing deposit costs
in relationship to increases in market rates and negatively impacted
earnings. In a decreasing interest rate environment, the Bank's one year
cumulative liability sensitive position could positively impact earnings.
December 31, 1995 Maturity/Repricing Interval
($ in thousands) Less Than 4 to 6 7 to 12 1 to 5 Over 5 Years or
3 Months Months Months Years Non-Repricable Total
Earning Assets:
Loans $22,779 $3,207 $7,319 $11,492 $13,655 $58,452
Investment securities 281 0 4,301 3,000 0 7,582
Short-term investments 5,000 0 0 0 0 5,000
Assets held for lease 0 0 0 7,300 0 7,300
Total earning assets 28,060 3,207 11,620 21,792 13,655 78,334
Interest-bearing
liabilities:
Time deposit 12,142 12,895 18,558 10,913 0 54,508
All other rate- 15,865 0 0 0 0 15,865
sensitive deposits
Demand 0 0 0 0 8,672 8,672
Total interest-bearing $28,007 $12,895 $18,558 $10,913 $8,672 $79,045
liabilities
Periodic repricing GAP 53 (9,688) (6,938) 10,879 4,983 (711)
Cumulative repricing 53 (9,635) (16,573) (5,694) (711) --
GAP
Cumulative GAP variance
as a percent of rate 0.19% 31% 39% 9% 1%
sensitive assets
LIQUIDITY
Liquidity measures the ability of the Bank 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 continued to improve the overall liquidity position of
the Bank during 1995 by reducing volatile liabilities, which consist
primarily of time deposits of $100,000 or more, from $5,573,000 at
December 31, 1994 to $5,166,000 at December 31, 1995. At December 31,
1995, cash and investments maturing within three months totaled $5,281,000
and approximately $11,710,000 of performing loans are scheduled to mature
in one year or less.
The Bank 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
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. For additional information see Item 14,
Note 1 to the Company's Consolidated Financial Statements.
RESULTS OF OPERATIONS
General
During 1995, 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
1994 and 1993, these economic and business conditions affected the
Company's operating performance in 1995. 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 $1,598,000 or $0.79 per share for the year ended December 31, 1995
compared to a net loss of $3,889,000 or $1.93 per share in 1994 and a net
loss of $6,422,000 or $4.10 per share in 1993. The Bank attributes its
losses over the prior two years principally to (i) nonperforming assets,
(ii) its provision for loan losses, and (iii) expenses incurred in
connection with other real estate owned.
Net Interest Income
In 1995, net interest income totaled $2,548,000, down $1,545,000 from
$4,093,000, or 37.75% from 1994. This compares to a $1,580,000 or 27.85%
decrease from $5,673,000 in 1993 to $4,093,000 in 1994. In 1995, the
Company had a decrease in its net interest margin to 3.68% compared to
4.58% in 1994. As shown in the following table, the decrease in 1995 of
the net interest margin resulted from an 82 basis points increase in the
cost of funds combined with a decline in average loan volume of $17,898,000
or 24% from 1994 to 1995. The primary reasons for the increase in cost of
funds was the increase in the cost of time certificates.
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. 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 $26,710,000 or 30% from 1993 to 1994.
The primary reason for this decrease in cost of funds was the decrease
in the cost of time certificates.
The following table presents condensed average statements of condition,
total loans including non-accrual loans, the components of net interest
income and selected statistical data, with investment securities presented
on a tax equivalent basis:
Year ended December 31, 1995 1994 1993
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
($ in thousands)
Assets:
Loans $56,385 $5,244 9.30% $74,283 $6,886 9.27% $105,530 9,425 8.93%
Securities 8,070 457 5.66% 9,975 533 5.35% 19,493 874 4.48%
Federal funds sold 4,566 260 5.69% 5,057 206 4.08% 1,567 48 3.07%
Total earnings assets 69,201 5,961 8.63% 89,315 7,625 8.54% 126,590 10,347 8.17%
Cash and due from banks 2,173 -- -- 3,204 -- -- 2,604 -- --
Other assets 13,096 -- -- 11,444 -- -- 11,278 -- --
Total assets $84,470 -- -- $103,963-- -- $140,472 -- --
Liabilities and
stockholders' equity:
Interest-bearing
deposits:
Time certificates $55,250 $2,842 5.14% $65,325 $2,657 4.07% $80,992 3,594 4.44%
Savings deposits 17,093 343 2.01% 25,007 554 2.22% 33,757 889 2.63%
Total interest-bearing 72,343 3,185 4.40% 90,332 3,211 3.56% 114,749 4,483 3.91%
deposits
Other interest-bearing 1,507 228 15.00% 2,749 321 11.68% 3,778 191 5.06%
liabilities
Total interest-bearing 73,850 3,413 4.62% 93,081 3,532 3.80% 118,527 4,674 3.94%
liabilities
Demand Deposits 8,043 -- -- 9,986 -- -- 12,811 -- --
Other Liabilities 1,820 -- -- 2,417 -- -- 3,305 -- --
Stockholders' equity 757 -- -- (1,521) -- -- 5,829 -- --
Total liabilities and $84,470 -- -- $103,963-- -- $140,472 -- --
stockholders' equity
Net interest income/ -- 2,548 4.01% -- 4,093 4.74% -- 5,673 4.23%
rate spread
Net interest margin -- -- 3.68% -- -- 4.58% -- -- 4.48%
The following table presents the changes in interest income and expense
for each major category of interest-bearing assets and interest-bearing
liabilities, and the amount of the change attributable to changes in
average balances (volume) and rates. Changes attributable to both volume
and rate changes have been allocated in proportion to the relationship of
the absolute dollar of the changes in volume and rate. Investment
securities are presented on a tax equivalent basis.
Changes from 1994 to 1995 Changes from 1993 to 1994 Changes from 1992 to 1993
Attributable to: Attributable to: Attributable to:
($ in thousands) Volume Rate Total Volume Rate Total Volume Rate Total
Interest income:
Loans ($1,665)$23 ($1,642) ($2,914)$375 (2,539) ($1,565)($1,544)($3,109)
Securities (111) 35 (76) (567) 226 (341) (226) (207) (433)
Federal funds sold (17) 71 54 137 21 158 (40) (18) (58)
Total interest income (1,793) 129 (1,664) (3,344) 622 (2,722) (1,831) (1,769) (3,600)
Interest expense:
Deposits:
Time certificates (259) 444 185 (654) (283) (937) (1,033) (1,051) (2,084)
Savings deposits (163) (48) (211) (209) (126) (335) (154) (345) (499)
Total interest expense (422) 396 (26) (863) (409) (1,272) (1,187) (1,396) (2,583)
on deposits
Other interest-bearing (75) (18) (93) (34) 164 130 83 (5) 78
liabilities
Total interest expense (497) 378 (119) (897) (245) (1,142) (1,104) (1,401) (2,505)
Net interest income ($1,296)($249) ($1,545) ($2,447)$867 ($1,580) ($727) ($368) ($1,095)
The following are the consolidated ratios of earnings to fixed charges for
each of the years in the five-year period ended December 31, 1995.
Year ended December 31, 1995 1994 1993 1992 1991
Ratio of earnings to fixed charges<F1>:
Excluding interest on deposits -- -- -- -- --
Including interest on deposits 0.53 -- -- 0.33 0.50
Ratio of earnings to combined fixed
charges and preferred stock
dividends <F2>:
Excluding interest on deposits -- -- -- -- --
Including interest on deposits 0.13 -- -- 0.32 0.49
<FN>
<F1> The Company had insufficient earnings to cover fixed charges (excluding
interest on deposits) for each of the years ended December 31, 1995, 1994,
1993, 1992 and 1991. The Company also had insufficient earnings to cover
fixed charges (including interest on deposits) for the years ended
December 31, 1994 and 1993. The short-fall of earnings to fixed
charges (excluding interest on deposits) was $1,370,000, $3,568,000,
$6,231,000, $4,731,000, and $4,849,000 for the years ended December 31,
1995, 1994, 1993, 1992 and 1991, respectively. In addition, the short-
fall of earnings to fixed charges (including 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 (excluding interest on deposits) for each of
the years ended December 31, 1995, 1994, 1993, 1992, and 1991. The Company
also had insufficient earnings to cover combined fixed charges and preferred
stock dividends (including interest on deposits) for the years ended
December 31, 1994 and 1993. The deficiency of earnings to fixed charges
and preferred stock dividends (excluding interest on deposits) was
$2,604,000, $4,037,000, $6,301,000, $4,801,000 and $4,933,000, respectively,
for the years ended December 31, 1995, 1994, 1993, 1992, and 1991. The
amount of deficiency of earnings to fixed charges and preferred stock
dividends (including interest on deposits) was $826,000 and $1,818,000
for the years ended December 31, 1994 and 1993, respectively.
</FN>
COMPOSITION OF NON-INTEREST INCOME
Year Ended December 31, 1995 1994 1993
($ in thousands) Amount % Change Amount % Change Amount % Change
Service fees on deposits $422 (19.7%) $525 (36.4%) $826 8.7%
Processing and transfer fees -- (100.0%) 58 (40.2%) 97 (45.8%)
Net gain (loss) on sale of securities (16) 98.0% (811) (1755.1%) 49 (86.4%)
Net gain (loss) on sale of assets 59 114.6% (403) (112.5%) 3,226 100.0%
Credit life insurance -- (100.0%) 13 (61.0%) 354 (21.5%)
Income from leasing operations 682 20.0% 567 100.0% -- --
Other 223 21.0% 168 (170.8%) 575 11.6%
Total other non-interest income $1,370 466.1% $242 (95.3%) $5,127 133.5%
The increase in non-interest income of $1,128,000 from 1994 to 1995 was
largely attributable to a second quarter loss in 1994 of $852,000 incurred
on the sale of securities comprising the $5 million equity contribution
resulting from a decline in market value between the contribution date
and the sale of securities 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. In 1995
income from leasing-related activities increased $115,000 or 20% from 1994.
COMPOSITION OF NON-INTEREST EXPENSE
Year Ended December 31, 1995 1994 1993
($ in thousands) Amount % Change Amount % Change Amount % Change
Salaries and Employee Benefits $2,148 (10.3%) $2,394 (17.3%) $2,895 7.7%
Occupancy 381 (18.7%) 469 (28.4%) 655 12.2%
Supplies and communications 172 (20.3%) 216 (34.3%) 329 7.9%
Professional services 508 (57.7%) 1,201 (36.4%) 1,888 9.4%
Depreciation furniture and equipment 223 (6.7%) 239 5.3% 227 (14.0%)
Credit life insurance -- (100.0%) 18 (58.1%) 43 4.9%
FDIC insurance 259 (24.7%) 344 (18.9%) 424 16.8%
Other insurance 80 (26.6%) 109 (7.6%) 118 (65.1%)
Other real estate owned 717 (27.6%) 990 (72.2%) 3,558 6.8%
Other 453 (3.8%) 471 (40.2%) 787 24.2%
Total other non-interest expense $4,941 (23.4%) $6,451 (40.9%) $10,924 6.3%
Operating expenses decreased by $1,510,000 or 23% in 1995. Salaries and
employee benefits decreased $246,000 or 10% due to staff reductions.
Professional services decreased $693,000 or 58% from 1994 to 1995 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 28% from $990,000 in 1994 to $717,000 in
1995 due primarily to the Bank's successful efforts in disposing of the
OREO portfolio.
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.
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. The adoption of SFAS No. 114 on the consolidated statement of
financial condition at January 1, 1995 did not result in an allocation of
the allowance for probable loan losses to be specifically related to the
approximately $6,383,000 of principal for impaired loans, as defined.
Prior financial statements have not been restated to apply the provisions
of SFAS No. 114.
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.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 allows companies to continue to account for
their stock option plans in accordance with APB Opinion 25 but encourages
the adoption of a new accounting method based on the estimated fair market
value of employee stock options. Companies electing not to follow the new
fair value based method are required to provide expanded footnote
disclosures, including pro forma net income and earnings per share,
determined as if the company had applied the new method. SFAS No. 123
is required to be adopted prospectively beginning January 1, 1996.
Management intends to continue to account for its stock option plans in
accordance with APB Opinion 25 and provide supplemental disclosures as
required by SFAS No. 123, beginning in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See also Item 14, "Exhibits, Financial Statement Schedules and Reports
on Form 8-K" for the Company's Consolidated Financial Statements.
Independent auditors' report
Consolidated financial statements:
Statements of financial condition
Statements of operations
Statements of changes in stockholders' equity (deficit)
Statements of cash flows
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, 1995 and 1994, 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, 1995
and 1994, 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 11, the Bank subsidiary, which
is the Company's primary asset (see Note 18), did meet the minimum
tier 1 risk-based capital requirements as of December 31, 1995;
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 consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty. 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 Bank has an approved
capital plan with the FDIC outlining its plans for attaining the required
levels of regulatory capital as described in Note 11.
As discussed in Note 1 to the financial statements, effective January 1,
1995, the Bank adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a
Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures".
February 9, 1996, except for Notes 5 and 11, which are as of March 21, 1996
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ in thousands, except share data)
December 31, 1995 1994
Assets
Cash and due from banks $1,937 $3,130
Federal funds sold 5,000 5,700
Investment securities 7,582 14,189
Loans receivable, net 56,382 59,070
Accrued interest receivable 782 858
Property and equipment 789 973
Assets held for lease 7,573 3,894
Other real estate owned 2,713 4,313
Other assets 522 595
$83,280 $92,722
Liabilities and Stockholders'
Equity
Liabilities:
Deposits $79,045 $87,474
Accrued interest payable 532 941
Accounts payable and accrued 1,789 1,392
expenses
Notes payable 768 368
Convertible debt 1,090 1,090
Total liabilities 83,224 91,265
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock 11,240 9,830
Common stock - $.01 par 19 20
value, shares authorized
20,000,000; issued and
outstanding 1,961,761
and 2,012,514
Additional paid-in capital 9,604 11,032
Unrealized gain (loss) (2) (218)
on investment securities
Accumulated deficit (20,805) (19,207)
Total stockholders' equity 56 1,457
$83,280 $92,722
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data)
Year ended December 31, 1995 1994 1993
Interest income:
Loans $5,244 $6,886 $9,425
Investment securities 457 533 874
Federal funds sold 260 206 48
Total interest income 5,961 7,625 10,347
Interest expense:
Deposits 3,186 3,211 4,483
Other 227 321 191
Total interest expense 3,413 3,532 4,674
Net interest income 2,548 4,093 5,673
Provision for loan losses 575 1,773 6,298
Net interest income (loss) after 1,973 2,320 (625)
provision for losses
Other income:
Fees for customer services 422 583 923
Gain (loss) on sales of investment (16) (811) 49
securities
Net gain (loss) on sale of assets 59 (404) 3,226
Credit life insurance 682 567 354
Other income 223 307 929
Total other income 1,370 242 5,127
Operating expenses:
Salaries and employee benefits 2,148 2,394 2,895
Professional fees 508 1,201 1,888
Other real estate owned 717 990 3,558
Supplies and communications 172 216 329
Net occupancy 381 469 655
Equipment rentals, depreciation and
maintenance 223 239 227
Deposit insurance premiums 259 344 424
Other insurance 80 109 118
Other expenses 453 489 830
Total operating expenses 4,941 6,451 10,924
Net loss (1,598) (3,889) (6,422)
Less preferred stock dividends (1,234) (469) (70)
Loss applicable to Common Stock $(2,832) $(4,358) $(6,492)
Weighted average common shares 2,007,230 2,012,514 1,567,209
outstanding
Net loss per common share $(1.41) $(2.17) $(4.14)
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1995, 1994 and 1993
Preferred Common stock Additional Unrealized gain (Accumulated Total
stock Number of Amount paid-in (loss) on deficit)
shares capital securities
Balance, December 31, 1992 $1,000 6,724 $67 $11,524 $(7) $(8,896) $3,688
Preferred dividends accrued - - - (70) - - (70)
($7.00 per share)
Change in unrealized gain on - - - - 177 - 177
investment securities
available for sale
Issuance of common stock - 3,337 33 (33) - - -
Net loss - - - - - (6,422) (6,422)
Balance, December 31, 1993 1,000 10,061 100 11,421 170 (15,318) (2,627)
Reverse stock split - (8,048) (80) 80 - - -
Preferred dividends accrued - - - (469) - - (469)
Issuance of preferred stock 8,830 - - - - - 8,830
Change in unrealized gain - - - - (388) - (388)
(loss) on investment
securities held for sale
Net loss - - - - - (3,889) (3,889)
Balance, December 31, 1994 9,830 2,013 20 11,032 (218) (19,207) 1,457
Preferred dividends - - - (1,234) - - (1,234)
Issuance of preferred stock 1,410 - - - - - 1,410
Stock issuance costs - - - (195) - - (195)
Common stock repurchase - (51) (1) 1 - - -
Change in unrealized gain - - - - (388) - (388)
on investment securities
held for sale
Net loss - - - - - (1,598) (1,598)
Balance, December 31, 1995 $11,240 1,962 $19 $9,604 $(2) $(20,805) $56
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1995 1994 1993
Cash flows from operating activities:
Net loss $(1,598) $(3,889) $(6,422)
Adjustments to reconcile net loss
to net cash provided
by operating activities:
Provision for loan losses 575 1,773 6,298
Provision for depreciation and 206 227 233
amortization
Decrease in deferred loan fees and 35 236 153
costs - net
Amortization of loan purchase
premiums - 435 674
Amortization (accretion) of 108 152 461
investment security
premiums (discounts), net
Loss (gain) on sale of investment 16 811 (49)
securities
Loss (gain) on disposal of 2 (218) 3
property and equipment
Loss on sale and provision for 332 829 3,121
write-downs of other
real estate owned
Increase in OREO reserve 342 - -
Loss (gain) on sale of loans - 818 (3,294)
Changes in operating assets
and liabilities:
Other assets (64) 216 1,169
Deferred charges - (138) -
Accrued interest payable (410) (892) (1,140)
Account payable and accrued (285) (158) (930)
expenses
Net cash provided by operating (741) 202 277
activities
Cash flows from investing activities:
Net (increase) decrease in Federal 700 4,950 (10,375)
funds sold
Proceeds from sales and maturities 11,367 15,511 11,826
of investment securities (includes
maturities of $2,250, $4,208 and
$5,348 in 1995, 1994 and 1993,
respectively)
Purchases of investment securities (3,988) (13,383) (483)
Principal payments on mortgage- - 491 2,969
backed securities
Proceeds from sale of loans - 8,801 7,650
Net decrease in loans 1,444 12,498 7,338
Proceeds from sale of other 1,631 3,749 1,825
real estate owned
Purchases of property and equipment (146) (130) (320)
Proceeds from sale of property and 72 240 10
equipment
Net increase in assets held for lease (3,679) (3,894) -
Net cash provided by investing 7,401 28,833 20,440
activities
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1995 1994 1993
Cash flows from financing activities:
Net decrease in deposit accounts $(4,780) $(17,141) $(4,670)
Net decrease on time deposits (3,649) (16,465) (15,442)
Net increase (decrease) in treasury - (442) 442
demand note account
Proceeds from issuance of capital - - 220
notes
Proceeds from issuance of preferred 576 200 -
stock
Proceeds from issuance of senior debt - 3,638 -
Net cash used by financing activities (7,853) (30,210) (19,450)
Increase (decrease) in cash and (1,193) (1,175) 1,267
due from banks
Cash and due from banks, beginning of 3,130 4,305 3,038
year
Cash and due from banks, end of year $1,937 $3,130 $4,305
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest on deposits and borrowed $3,595 $4,103 $5,813
money
Income taxes $2 $2 $12
Noncash investing activities:
Transfer of in-substance $782 $- $-
foreclosure property
to loans per
SFAS No. 114
Transfers of loans to other $705 $515 $3,698
real estate owned
Dividends declared and unpaid $681 $469 $70
Stock dividends paid $553 $- $-
Unrealized gain (loss) on $216 $(389) $170
valuation of investments
- available for sale
Noncash financing activity:
Issuance of preferred stock in $- $3,630 $-
exchange for debt
Issuance of senior notes for $- $140 $-
accrued interest payable
Issuance of senior debt in exchange $400 $- $-
for marketable securities
Issuance of preferred stock in $281 $5,000 $-
exchange for marketable
securities
Reduction of capital for deferred $(138) $- $-
charges - issuance costs
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
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 four branches in Connecticut, grants business,
consumer and real estate secured loans and accepts deposits primarily
in New Haven and Fairfield Counties and surrounding communities.
Although lending activities are diversified, a majority of the Company's
business activity is with customers located within the State of Connecticut,
with approximately 69% of the Company's loans collateralized by real estate
in the Connecticut market.
Investment Securities
Debt and equity securities are classified into one of the following
categories: held-to-maturity, available-for-sale, or trading.
Investments classified as 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. Presently, the Bank does not maintain a portfolio of trading or
held-to-maturity securities.
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.
Effective January 1, 1995, the Bank adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting for
Creditors for Impairment of a Loan - Income Recognition and Disclosures"
(collectively referred to as "SFAS No. 114").
Under SFAS No. 114, a loan is considered to be impaired when it is probable
that the Bank will be unable to collect all principal and interest amounts
according to the contractual terms of the loan agreement.
The Bank defines a loan as being impaired when it is determined by
management to be nonperforming (see below). The entire loan portfolio
is regularly reviewed by management to identify loans that meet this
definition of impairment. Such review includes the maintenance of a
current classified and criticized loan list and the regular reporting
of delinquent loans to management.
The allowance for probable loan losses related to loans identified as
impaired is primarily based on the excess of the loan's current
outstanding principal balance over the estimated fair market value of
the related collateral. For impaired loans that are not collateral
dependent, the allowance for probable loan losses is recorded at the
amount by which the outstanding recorded principal balance exceeds the
current best estimate of the future cash flows on the loan, discounted
at the loan's effective interest rate. Prior to 1995, the allowance
for probable loan losses for loans which would qualify as impaired
under SFAS No. 114 was primarily based upon the estimated fair market
value of the related collateral.
The adoption of SFAS No. 114 on the consolidated statement of financial
condition at January 1, 1995 did not result in an allocation of the
allowance for probable loan losses to be specifically related to the
approximately $6,383,000 of principal for impaired loans, as defined.
Prior financial statements have not been restated to apply the provisions
of SFAS No. 114.
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 is
included in other real estate owned at the lower of cost or fair value
minus estimated costs to sell. 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
Taxes on Income
Deferred income taxes provide for 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 more inclusive in nature than "timing differences" as determined
under previously applicable accounting principles.
Statements of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks.
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:
(a) 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.
(b) 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.
(c) 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 discount rates 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.
(d) 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.
(e) Long-Term Debt
Fair values are estimated by discounting contractual cash flows
using discount rates for like borrowings with the same remaining
maturity.
(f) 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.
(g) 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.
Stock Options
The Bank applies APB Opinion 25, "Accounting for Stock Issued to Employees",
and related interpretations in accounting for its two fixed stock-based
compensation plans. Accordingly, no compensation cost is recognized for
the plans.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 allows companies to continue to account for
their stock option plans in accordance with APB Opinion 25 but encourages
the adoption of a new accounting method based on the estimated fair value
of employee stock options. Companies electing not to follow the new fair
value based method are required to provide expanded footnote disclosures,
including pro forma net income and earnings per share, determined as if
the company had applied the new method. SFAS No. 123 is required to be
adopted prospectively beginning January 1, 1996. Management intends to
continue to account for its stock option plans in accordance with APB
Opinion 25 and provide supplemental disclosures as required by SFAS
No. 123, beginning in 1996.
Reclassifications
Certain amounts in the 1994 and 1993 consolidated financial statements
have been reclassified to conform with the current year presentation.
2. Investment Securities
At December 31, 1995, the amortized cost and estimated fair value of
investment securities were as follows:
Available-for-Sale
Gross Gross Estimate
Amortized unrealized unrealized fair
($ in thousands) cost gain loss value
U.S. Treasury Notes $4,053 $- $(2) $4,051
U.S. Agency Notes 3,000 - - 3,000
State of Israel Bond 250 - - 250
Marketable equity 281 - - 281
securities
$7,584 $- $(2) $7,582
At December 31, 1994, the amortized cost and estimated fair value of
investment securities were as follows:
(a) Held-to-Maturity
Gross Gross Estimate
Amortized unrealized unrealized fair
($ in thousands) cost gain loss value
U.S. Treasury Notes $6,908 $- $(39) $6,869
(b) Available-for-Sale
Gross Gross Estimate
Amortized unrealized unrealized fair
($ in thousands) cost gain loss value
U.S. Treasury Notes $6,294 $- $(195) $6,099
Certificate of deposit 500 - - 500
State of Israel Bond 500 - - 500
Marketable equity 205 - (23) 182
securities
$7,499 $- $(218) $7,281
The amortized cost and estimated fair value of securities available-for-sale,
by contractual maturity, at December 31, 1995 are as follows:
Securities
available-for-sale
Amortized Estimated
($ in thousands) cost fair value
Due in one year or less $7,303 $7,301
Due from one to five years - -
Due from one to ten years - -
Equity securities 281 281
$7,584 $7,582
At December 31, 1995, investment securities with a carrying value of
approximately $500,000 and fair value of approximately $506,000 were
pledged to secure public deposits, the treasury demand note and for
other purposes as required or permitted by law.
Proceeds and gross realized gains and losses from the sale of investment
securities were as follows:
Year ended December 31, 1995 1994 1993
($ in thousands)
Sales proceeds $8,517 $11,404 $6,478
Realized gains 1 55 50
Realized losses 17 866 1
3. Loans Receivable
Loans receivable are summarized as follows:
1995 1994
($ in thousands)
Commercial - collateralized by real estate $30,083 $34,044
Commercial - other 9,021 11,051
Lease financing 6,860 1,706
Residential and real estate mortgage 10,797 12,663
Consumer 1,743 2,331
Total - gross 58,504 61,795
Unearned income (22) (49)
Deferred loan fees (30) (39)
Allowance for loan losses (2,070) (2,637)
Total - net $56,382 $59,070
At December 31, 1995 and 1994, the carrying values of loans with fixed
interest rates were approximately $24,745,000 and $17,740,000, respectively.
Loans on which the accrual of interest has been discontinued amounted to
approximately $6,383,000, $7,884,000 and $10,218,000 at December 31, 1995,
1994 and 1993, respectively. At December 31, 1995, 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 $450,000, $764,000 and $794,000 for
the years ended December 31, 1995, 1994 and 1993, respectively.
Loans for which the terms were restructured as defined in Statement of
Financial Accounting Standards No. 15, "Troubled Debt Restructurings",
totaled $5,265,000, $3,953,000 and $3,308,000 at December 31, 1995, 1994
and 1993, respectively. Had the original terms been in force, interest
income would have increased by approximately $200,000, $150,000 and
$109,000 in 1995, 1994 and 1993, respectively.
Information regarding impaired loans at December 31, 1995 is as follows:
December 31, 1995
Principal balance for which there is $6,383,000
a related allowance for loan losses
Principal balance for which there is -
no related allowance for loan losses
Total principal balance of impaired loans $6,383,000
Average total principal balance $7,134,000
for the year ended December 31, 1995
Interest income recognized on a cash basis $188,000
for the year ended December 31, 1995
The allowance for loan losses is summarized as follows:
1995 1994 1993
($ in thousands)
Balance, beginning of year $2,637 $5,012 $3,291
Provision charged to expense 575 1,773 6,298
Loans charged off (1,522) (4,840) (4,976)
Recoveries 380 692 399
Balance, end of year $2,070 $2,637 $5,012
4. Property and Equipment
At December 31, 1995 and 1994, property and equipment are summarized
as follows:
1995 1994
($ in thousands)
Land $136 $136
Buildings and improvements 981 1,049
Furniture and equipment 1,552 1,718
Software 214 235
Total cost 2,883 3,138
Less: Accumulated depreciation 2,094 2,165
Total - net $789 $973
5. Assets Held for Lease
Under the Company's financial lease program (the "Program"), the Company
provides short-term financial leases, which are subsequently placed with
permanent lenders, purchases accounts receivable resulting from lease
transactions, invests in pools of financial lease receivables, and
acquires equipment for financial lease transactions, both available
for lease and subject to existing leases. As of December 31, 1995,
the Company's assets under the Program are as follows:
* Included in loans are $6,860,000 of short-term financial leases,
accounts receivable resulting from lease transactions and interests
in pools of financial lease receivables.
* Assets held for lease include $7,300,000 of medical equipment
subject to existing leases or available for lease. Financial
arrangements for this equipment extend over a maximum of 5 years
under specified terms including certain guaranteed minimum
investment returns on the equipment and other financial terms.
In March 1996, the unleased equipment was disposed of for
$1,000,000. Financial arrangements for the remaining $6,300,000
of leased equipment consist of a guaranty of $2,200,000 plus an
additional guaranty of $2,000,000 secured by a pledge of financial
leases and equipment interests with an appraised value of
approximately $14,000,000.
6. Other Real Estate Owned
Changes in the other real estate owned (OREO) are summarized as follows:
($ in thousands) 1995 1994
Beginning balance $4,313 $8,377
Transfers in 705 515
Proceeds from sales and write-downs (1,963) (4,579)
Reserve (342) -
Ending balance $2,713 $4,313
The carrying costs of other real estate owned were approximately $297,000,
$160,000 and $674,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
7. Deposits
Deposits (in thousands) are summarized as follows:
December 31, 1995 1994
Demand deposits $8,672 $9,248
Money market deposits 2,546 5,090
NOW checking accounts 3,757 4,013
Savings deposits 9,562 10,966
Certificates of deposit 49,342 52,584
Certificates in excess of $100,000 5,166 5,573
$79,045 $87,474
Maturities of time deposits (in thousands) at December 31, 1995 were
as follows:
Maturing within twelve months $43,664
After twelve months 10,844
$54,508
Deposits with the Bank at December 31, 1995, which are directly or
indirectly with directors and stockholders, were approximately $992,000.
Such deposits carry the same terms, including interest rates, as those
prevailing at the time of comparable transactions with others.
8. Income Taxes
There were no taxes on income for 1995, 1994 or 1993.
Temporary differences which give rise to net deferred tax assets at
December 31, 1995 and 1994 are as follows:
($ in thousands) 1995 1994
Deferred tax assets:
NOL carryforward $6,219 $4,853
Allowance for loan losses - 140
OREO basis 319 484
Other 181 215
Gross deferred tax assets 6,719 5,692
Deferred tax liabilities:
Allowance for loan losses (84) -
Depreciation (496) -
Gross deferred tax liabilities (580) -
Valuation allowance (6,139) (5,692)
Total $- $-
For income tax return purposes, the Company has Federal net operating
loss carryforwards of approximately $15.6 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 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 $14.6 million can be used
without limitation and expires as follows: $2.8 million in 2007, $4.3
million in 2008, $4.3 million in 2009 and $3.2 million in 2010.
The Company has state net operating loss carryforwards of approximately
$19.1 million which expire in year 1996 through 2000.
9. Borrowings
Notes Payable
During 1993, the Company sold $220,000 of capital notes to an entity
affiliated with the Company's majority stockholder, the proceeds of
which were contributed to the Bank as additional paid-in capital.
The capital notes are due March 31, 1999 and bear interest at 15%
payable quarterly. The capital notes are subordinated to all senior
indebtedness.
In October 1995, the Company sold $400,000 of senior notes, bringing
the total amounts of senior notes outstanding to $548,000. The senior
notes are due and payable in cash to the majority stockholder and an
affiliated company on September 1, 1996 and bear interest quarterly at
an annual rate equal to 5% above the prime rate (as defined). The senior
notes have no conversion rights or features.
Accordingly, at December 31, 1995 and 1994, notes payable consisted of
the following:
($ in thousands) 1995 1994
Capital Notes $220 $220
Senior Notes 548 148
$768 $368
Mandatory Convertible Capital Notes
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.
10. Stockholders' Equity and Earnings (Loss) Per Common Share
Common Stock
At December 31, 1995, approximately 392,000 shares were reserved for
outstanding stock options and 46,000 shares were reserved for conversion
of Preferred Series I stock. This does not include shares which may be
issued under the Mandatory Convertible Capital notes (Note 9) or the
Preferred Series III stock (see below). 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. The majority shareholder
and affiliates own the majority of preferred stock.
Preferred Series I
The Preferred Series I Stock as of December 31, 1995 consists of
23,000 shares of its nonvoting, no par value Preferred Series I
Stock at a stated value of $100 per share.
The Preferred Series I shares of the Company are cumulative as to
dividends. The average dividend rate for the year ended December
31, 1995 was 8.81% per annum. At December 31, 1995, there were
$527,345 in dividends accrued and unpaid. See Note 11 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
The Preferred Series II stock as of December 31, 1995 consists of
50,000 shares of its nonvoting, no par value Preferred Series II
stock at a stated value of $74 per share.
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, 1995, there were $787,792 in dividends accrued and unpaid.
Preferred Series III
The Preferred Series III stock as of December 31, 1995 consists
of 524 shares of its nonvoting, no par value Preferred Series III
stock at a stated value of $10,000 per share.
The Preferred Series III shares are nonvoting and 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, 1995, there were $14,898 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, 1995 was 2,007,230.
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, 1995, diluted earnings per share are not presented for the year.
11. 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 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 all such terms, except for the 6 percent leverage ratio.
Under the Bank's approved Capital Restoration Plan (the "1996 Capital
Plan"), which was approved by the FDIC and the Banking Commissioner on
March 21, 1996, the Bank has until December 31, 1997 to achieve the 6
percent Tier 1 leverage capital ratio mandated by the 1991 Order.
In connection with the 1994 FDIC regulatory examination of the Bank, the
Bank was required to submit a revised Capital Restoration Plan (the "1994
Capital Plan"); the 1994 Capital Plan was approved by the FDIC and the
Banking Commissioner in December 1994. The capital infusions required
by the 1994 Capital Plan and the subsequent amendments thereto were
completed during 1995. The capital infusions were accomplished as follows:
* On October 20, 1995, the Company issued $400,000 of short-term
senior notes, which were offered pursuant to the Company's August
14, 1995 Prospectus, to an affiliate of the majority shareholder
in exchange for equity securities with a market value of $400,000.
The equity securities were immediately sold by the Company and the
proceeds contributed to the Bank.
* On December 28, 1995, the Company issued 86 shares of Series III
Preferred Stock with a stated value of $860,000 to an affiliate of
the majority shareholder in exchange for equity securities with a
market value of $281,000 and $579,000 in cash. The equity
securities were liquidated during January 1996 for a net gain
of $16,000.
Under the terms of a written agreement (the "Agreement") between the
Holding Company and the Federal Reserve Bank of Boston ("FRB") effective
November 2, 1994, written approval of the FRB is necessary prior to paying
dividends, increasing borrowings, engaging in material transactions with
the Bank, or making cash disbursements in excess of agreed upon amounts.
As of June 22, 1995, the Company was notified by NASDAQ that the Company's
common stock will no longer be listed on the NASDAQ SmallCap Market due to
listing criteria. The Company is in the process of completing steps which
will enable its common stock to be quoted on the Over-the-Counter Bulletin
Board.
At December 31, 1995, the minimum regulatory capital requirements of the
Bank were as follows:
Minimum Actual capital
capital December 31,
required 1995 1994
($ in thousands)
Total risk-based capital 8.00% 6.94% 7.26%
percentage
Total risk-based capital $5,080 $4,409 $4,590
Tier 1 risk-based capital 4.00% 5.67% 5.97%
percentage
Tier 1 risk-based capital $2,540 $3,599 $3,777
Leverage (per order) percentage 6.00% 4.38% 3.95%
Leverage (per order) $4,927 $3,599 $3,799
Notwithstanding the foregoing, the ability of the Company and the Bank
to maintain regulatory levels and continue as a going concern is
dependent upon, among other factors, the Bank's attaining profitability,
the future levels of nonperforming assets and the condition of the economy
in which it operates. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
During 1995, the Company successfully registered equity and debt
securities which has improved the ability to raise capital. In
addition, management feels that the introduction of new product
lines and planned growth will enhance future profitability.
12. Stock Options
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. No options have been granted
under the 1995 plan.
The following summarizes the activity of the Company's original stock
option plan (adjusted to reflect the one-for-five reverse stock split)
for the years ended December 31, 1995 and 1994.
1995 1994
Options outstanding and exercisable, January 1 1,338 2,343
Options expired - (1,005)
Options outstanding and exercisable December 31 1,338 1,338
Price range per share of options outstanding $12.50 $12.50
to to
$80.00 $80.00
A separate stock option plan has been created for the President and Chief
Executive Officer (see Note 14(b)).
13. 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. As amended in 1995, the Plan leaves
employer matching to the discretion of the Board of Directors. During
1995, contributions were not matched by the Company. During 1994 and
1993, the Company contributed approximately $22,500 and $58,100,
respectively, to the Plan.
14. 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, 1995, the
cash surrender value of the life insurance policy was $346,000
with an accrued deferred compensation liability of $275,000. For
the years ended December 31, 1995, 1994 and 1993, deferred
compensation expense, including interest was approximately
$28,000, $24,000 and $86,000, 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. On January 18, 1996, the agreement was amended to reduce
the option price to $.10 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.
15. 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
$172,000, $241,000 and $340,000 in 1995, 1994 and 1993, respectively.
As of December 31, 1995, future minimum rental payments required under
non-cancelable operating leases are as follows:
($ in thousands)
Year ending December 31, 1996 $179
1997 153
1998 139
1999 125
2000 76
Thereafter 709
Total $1,381
16. Fair Value of Financial Instruments
The estimated fair values of the Bank's financial instruments are as
follows:
December 31, 1995 1994
Carrying Estimated Carrying Estimated
amount fair value amount fair value
($ in thousands)
Financial assets:
Cash and short-term $6,937 $6,937 $8,830 $8,830
investments
Investment securities 7,582 7,582 14,189 14,150
Loans receivable 56,382 55,791 59,070 55,000
Other assets held for 7,573 7,573 3,894 3,894
lease
Financial liabilities:
Deposits:
Demand 8,672 8,672 9,248 9,248
Money market 6,303 6,303 9,103 9,103
Savings 9,562 9,562 10,966 10,966
Time deposits 54,508 54,805 58,158 57,710
17. 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 letters of credit.
Commitments to extend credit were $3,052,000 at December 31, 1995.
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 $100,000 at December 31, 1995. 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's management believes that the allegations of wrongdoing
set forth in the plaintiffs' amended complaint are without merit
and intends 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 resolution 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, 1995 was approximately
$200,000.
18. CBC Bancorp, Inc. (Parent Company Only) Financial Information
The condensed financial statements of the Company are as follows:
Balance Sheet Information
December 31, 1995 1994
($ in thousands)
Assets:
Cash on deposit with Connecticut Bank of Commerce $1 $1
Investment in Connecticut Bank of Commerce 3,598 3,581
Other assets - 138
Total assets $3,599 $3,720
Liabilities and stockholders' equity (deficit):
Accrued interest $355 $156
Dividend payable 1,330 649
Debt 1,858 1,458
Accumulated stockholders' equity (deficit) 56 1,457
Total liabilities and stockholders' equity (deficit) $3,599 $3,720
Statement of Operations Information
Year ended December 31, 1995 1994 1993
($ in thousands)
Interest - net $(199) $(284) $(15)
Operating expenses - (862) (21)
Other income - - 338
Income (loss) before taxes and equity in (199) (1,146) 302
undistributed earnings (loss)
of subsidiaries
Equity in loss of subsidiaries (1,399) (2,743) (6,724)
Net loss $(1,598) $(3,889) $(6,422)
Cash Flow Information
Year ended December 31, 1995 1994 1993
($ in thousands)
Operating activities:
Net loss $(1,593) $(3,889) $(6,422)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Loss in investments - 852 -
Equity in loss of subsidiaries 1,399 2,743 6,724
Increase in other assets - (138) (324)
Increase in accrued expenses 199 292 11
Net cash provided by (used - (140) (11)
in) operating activities
Investing activities:
Capital contribution to Bank (576) (7,849) (220)
Proceeds from sale of investments - 4,149 -
Net cash used in investing activities (576) (3,700) (220)
Financing activities:
Proceeds from issuance of - - 220
subordinated debentures
Proceeds from issuance of preferred stock 576 200 -
Proceeds from issuance of debt - 3,638 -
Net cash provided by financing activities 576 3,838 220
Net decrease in cash - (2) (11)
Cash, beginning of year 1 3 14
Cash, end of year $1 $1 $3
Supplemental disclosures of cash flow
information:
Issuance of preferred stock in exchange $281 $5,000 $-
for marketable securities
Dividends declared and unpaid $681 $469 $70
Issuance of preferred stock in exchange $553 $- $-
for debt
Issuance of senior notes for $- $140 $-
accrued interest payable
Issuance of senior debt in exchange for $400 $- $-
marketable securities
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 11,
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
None
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 1996 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 1996 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 1996 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 1996 Annual Meeting of Shareholders is incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Financial Statements:
See "Index to Consolidated Financial Statements" on Page F-1.
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, 1995
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 21st day of March, 1996.
CBC BANCORP, INC.
(Registrant)
By: /s/ RANDOLPH W. LENZ
Randolph W. Lenz
Chairman
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 21st day of March, 1996.
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/ STEVEN LEVINE
Steven Levine Director
/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 (Filed as Exhibit 3(a)(6)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
3(a)(7) Amendment to Article Third of the Certificate of
Incorporation of the Company (Filed as Exhibit 3(a)(7)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference).
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 (Filed as
Exhibit 4(g) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference).
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 (Filed as Exhibit 10(g) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
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 (Filed as
Exhibit 10(i) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference).
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 (Filed as Exhibit 10(l) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference).
10(m) Agreement by and between the Company and EQ Corporation,
dated January 18, 1995, canceling the Option (Filed as
Exhibit 10(m) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994 and incorporated
herein by reference).
11 Calculation of Earnings Per Share data for the fiscal years
ended December 31, 1995, 1994 and 1993. *
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.