UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-K/A
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal
year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR F15(D) OF
THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 0-15600
CBC BANCORP, INC.
(Exact name of Registrant as specified in its charter)
CONNECTICUT
06-1179862
(State of Incorporation)
(IRS Employer Identification No.)
612 BEDFORD STREET
STAMFORD, CONNECTICUT 06901 (203)3569001
(Address of principal executive offices)
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Preferred Stock, Series I, stated value $100.00
Preferred Stock Series II, stated value $74.00 Preferred Stock, Series III,
stated value $10,000.00 Short-Term Senior Notes due December 31, 1997
Mandatory Convertible Subordinated Capital Notes due July 1,
1997
Subordinated Capital Notes due March 31, 1999
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in the definitive proxy or information statements incorporated by
reference in Part III of this Form 10K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 24, 1997 could not be determined as the stock was not
trading.
The number of shares of Registrant's Common Stock outstanding was 1,961,761 as
of December 31, 1996.
CBC BANCORP, INC.
PART 1
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 Stamford,
Connecticut, and with three other branch offices located in Branford, Norwalk
and Woodbridge, Connecticut. From its main office and other branch offices, the
Bank provides a broad range of commercial, consumer, and merchant banking
services primarily to businesses and consumers located 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 1994, the Bank established a financial lease program. Under this program the
Bank provides short-term financial leases, which are subsequently placed with
permanent lenders, and purchases interests in pools of financial lease
receivables. The Bank also acquires equipment for creditworthy lessees under
fully amortizing financial leases. Since the inception of the program
approximately $44 million in funds deployed in financial lease transactions have
been repaid and $11 million in funds remain outstanding at December 31, 1996.
During 1996, the Bank established a receivable purchase program. Under this
program, the Bank satisfies the working capital needs of selected corporations,
including Fortune 500 and 1,000 companies as well as privately-held concerns,
through the
acquisition of said companies accounts and contract receivables. The Bank
purchases receivables from companies which provide goods or services located
across the U.S. The obligors are typically large to mid-size corporations as
well as the U.S. Government, state and local municipalities
The Bank anticipates continuing its participation in both the financial lease
program and receivable purchase program.
EMPLOYEES
On December 31, 1996, the Company and its subsidiary had 36 employees, 34 on a
full-time equivalent basis. On December 31, 1995, the Company and its
subsidiary had 40 employees, 39 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 efforts 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 current business loan
portfolio is 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 (`the FRB") entered into in
November 1994, the Company is required to obtain the written approval of the FRB
prior to the declaration or payment of cash dividends on its outstanding common
or preferred stock, increasing its indebtedness, engaging in material
transactions with the Bank (other than capital contributions), or making cash
disbursements in excess of certain agreed-upon amounts. 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 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 any bank from making capital
distributions if to do so would leave the institution undercapitalized as
defined in the FDIC Improvement Act. Under the terms of the 1991 Order 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 FRB
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 further reduced the level of its
nonperforming loans and has otherwise complied with the terms on the Bank's
approved 1996 Capital Plan. See "1996 Capital Plan". 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 1996, 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 action.
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 asset
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 to consist 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 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 "1996 Capital Plan"). Furthermore, the FDIC has adopted
regulations implementing the prompt corrective action provision 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, 1996 the Bank complies with all of the ratio requirements of the
FDIC regulations, and as such, Management and the Board of Directors believe
that the Bank is "adequately" capitalized category as defined by the FDIC
Improvement Act. The Bank has not attained the Leverage Ratio of 6 percent as
mandated by the 1991 Order: however, the Bank's approved 1996 Capital Plan does
not require such attainment until December 1997. At December 31, 1995 the Bank
complied with the Tier 1 Capital to risk-weighted assets and the Leverage Ratio
requirements but did not comply with the Total Capital to Risk Weighted Assets
and as such was deemed to be in the "undercapitalized" category. The following
table sets forth the regulatory capital ratios of the Bank as of December 31,
1996 and 1995:
Year Ended December 31, 1996 1995
Capital Ratios of the Bank
Tier 1 risk-based capital<F1> 7.03% 5.67% Total risk-based capital<F1> 8.30%
6.94% Tier 1 Leverage ratio<F2> 5.36% 4.38% <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 I Leverage Ratio of 4%.
The 1991 Order mandates a 6% Tier 1 Leverage Ratio.
</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 have violated any applicable law regulation, rule or order of, or
conditions imposed by the FDIC. The Banks 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.
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 the FDIC's
regulations adopted pursuant to the FDIC Improvement Act, 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 1996 Capital Plan. (See "The Bank's 1996 Capital Plan.")
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.
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 1996 Capital Plan
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. In September 1996, the Company issued 170
shares of Preferred Series III stock to the majority stockholder in exchange for
$1.7 million of marketable equity securities. The Company contributed the new
capital to the Bank. In December 1996, the original subscription agreement was
amended to increase the guaranteed capitalization threshold to $2.4 million in
exchange for the issuance of an additional 69 shares of Preferred Series III
stock. The price was directly attributed to the appreciation of the marketable
equity securities originally contributed in September 1996. These transactions
were entered into in furtherance of the 1996 Capital Plan. During 1996, the Bank
maintained its Tier 1 Leverage Ratio in excess of $4%, the level set forth in
the 1996 Capital Plan. At December 31, 1996, the Bank's Tier 1 Leverage Ratio
equaled 5.36%. The Bank anticipates meeting the 6% Tier 1 Leverage Ratio set
forth in the 1996 Capital Plan through liquidation of marketable equity
securities as well as through earnings during fiscal year 1997.
Notwithstanding the foregoing, the ability of the Company and the Bank to
maintain regulatory capital 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, than 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-8K."
ITEM 2. PROPERTIES
The Company, operating through the Bank, conducts its banking business at
various owned and leased premises. During 1996, the executive offices of the
Company and the Bank and the Bank's main office were relocated from Woodbridge,
Connecticut to Stamford, Connecticut. The executive offices are now situated in
4,300 square feet of leased office space which have a banking floor, executive
and administrative offices. The bank owns a 6,300 square foot two-story
building located in Woodbridge which has a banking floor, two drive-up teller
facilities and additional office space to eventually house the operations
department of the Bank. The Bank is currently leasing approximately 4,600
square feet of office space for the operations department at a building also
located in Woodbridge, Connecticut. The operations department will be moved to
the Bank owned building in May 1997. The Bank also 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 leases its branch office in Norwalk which is a walk-in
facility.
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 16 of the Company's
Consolidated Financial Statements. See Item 14, "Exhibits, Financial Statement
Schedules and Reports on Form 8K."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no maters submitted to a vote of the Company's security holders
during the fourth quarter of 1996 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 necessarily
represent actual transactions.
QUARTERLY MARKET PRICES
1996 1995
Common Stock Prices (Bid) Low High Low High
First Quarter -- -- $.75 $.75
Second Quarter -- -- .25 .75
Third Quarter -- -- -- --
Fourth Quarter -- -- -- --
HOLDERS OF COMMON STOCK
At February 24, 1997 there were approximately 237 registered and 370 beneficial
shareholders of the Company's common stock.
DIVIDENDS
The Company has omitted the cash dividend on its common stock and preferred
stock since the third quarter of 1990 in order to preserve capital. In
addition, the Bank has been restricted by the terms of the 1991 Order and by
certain regulatory provisions from paying any dividends to the Company. Since
dividends from the Bank represent the exclusive source of funds for the
Company's payment of dividends on its common and preferred stock and debt
service on its capital notes, the Company does not anticipate having the
ability to pay cash dividends on its preferred or common stock or to pay
interest on its capital notes in the foreseeable future. The Company is also
subject under separate regulatory restrictions which may restrict such payments
in the foreseeable future. See discussion of dividend restrictions on the
Company and the Bank in Item 1, "Business Regulation and Supervision.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
($ in thousands, except per share data)
Years Ended December 31, 1996 1995 1994 1993 1992
Condensed Statement Of Operations:
Net interest income $2,411 $2,548 $4,093 $5,673 $6,768
Provision for loan losses 565 575 1,773 6,298 3,533
Net interest income (loss)
after provision for losses 1,846 1,973 2,320 (625) 3,235 Investment
securities
gains (losses) 10 (16) (811) 49 421
Other operating income 1,530 1,386 1,053 5,078 1,775
Other real estate
owned expense 580 717 990 3,558 3,331
Other operating expense 3,994 4,224 5,461 7,366 6,944 Net (loss)
($1,188) ($1,598) ($3,889) ($6,422) ($4,844)
Common Stock Per
Share Data <F1>:
Book value - at year end ($7.09) ($5.72) ($4.16) ($1.80) $2.00 Net (loss)
primary ($1.40) ($1.41) ($2.17) ($4.14) ($7.46)
Net income fully diluted -- -- -- -- --
Cash dividends -- -- -- -- --
At year end:
Total assets $82,029 $83,280 $92,722 $123,359 $151,125
Net loans 57,741 56,382 59,070 84,215 106,728
Allowance for loan losses 1,602 2,070 2,637 5,012 3,291
Securities 6,429 7,582 14,189 13,200 27,751
Deposits 76,296 79,045 87,474 121,081 141,192
Short-term borrowings 1,638 548 -- -- --
Stockholders' equity 2,462 56 1,457 (2,627) 3,688
Outstanding shares 1,961,761 1,961,761 2,012,514 2,012,514 1,344,707
Financial Ratios:
Yield on interest-
bearing assets 8.84% 8.63% 8.54% 8.17% 9.38%
Cost of funds 4.93 4.62 3.80 3.94 5.08
Interest rate spread 3.91 4.01 4.74 4.23 4.30
Net interest margin 3.65 3.68 4.58 4.48 4.55
Earnings to fixed
charges with interest -- -- -- -- --
Earnings to fixed
charges without interest 0.65 0.53 -- -- 0.33
Combined fixed
charges with interest -- -- -- -- --
Combined fixed
charges without interest 0.14 0.13 -- -- 0.32
Return on average assets (%)(1.49) (1.89) (3.75) (4.57) (2.96)
Return on average equity (%)(86.77) (211.10) -- (110.17) (98.18)
Average equity to
average assets 1.71 (0.89) (1.47) 4.15 2.98
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 75.68 71.33 67.53 69.55 75.59
Nonperforming loans
to total loans (net) 6.69 11.95 15.56 13.66 10.15
Allowance for loan losses
to nonperforming loans 41.47 30.72 28.69 43.59 30.39
Capital Ratios of Bank: (%)
Total risk-based 8.30 6.94 7.26 (2.53) 5.73
Tier 1 risk based 7.03 5.67 5.97 (2.53) 3.52
Tier 1 leverage 5.36 4.38 3.95 (1.82) 2.61
<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 DISCUSION 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, 1996, including notes thereto, and other financial
information included elsewhere in this report.
The Company reported a net loss of $1,188,000 for the year ended December 31,
1996 compared to a net loss of $1,598,000 in 1995. This reduction in loss is
largely attributed to the Company's continued focus on reducing nonperforming
assets, increasing operating efficiency and continued commitment to its
financial lease and asset purchase programs. The level of nonperforming assets
was reduced by $4,284,000 or 45% from 1995 to 1996, operating expenses decreased
$367,000 or 7.4% from 1995 to 1996.
Under the Bank's financial lease program (the "Program"), the Bank provides
short-term financial leases, which are subsequently placed with permanent
lenders, and purchases interests in pools
of financial lease receivables. The Bank also acquires equipment for credit
worthy lessees under fully amortizing financial leases. Since the program's
inception, the Bank has disbursed approximately $40 million in financial lease
related transactions. As of December 31, 1996, $44 million in funds deployed in
financial lease transactions have been repaid and $11 million in funds remain
outstanding, which include $4,877,000 of short-term financial leases, and
interest in pools of financial lease receivables. Assets held for lease include
$5,977,000 of medical equipment extended 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 1996 Capital Plans
A detailed discussion of the Bank's 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 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 and debt securities, the Bank's
ongoing profitability, the future levels of nonperforming assets, and the local
and regional economy in which the Bank and its customers operate.
Regulatory and Current Operating Matters
The Bank is currently operating under two Cease and Desist Orders dated July 9,
1991 and December 16, 1993. Under the 1991 Order, the Bank is required to reduce
adversely classified assets, achieve 6 percent Tier 1 Leverage Capital Ratio,
document Board approvals of loans or extensions of credit to previously
classified borrowers, and eliminate certain technical exceptions on loans. The
Bank is continuing its efforts to satisfy each and every provision of the 1991
Order. Under the 1993 Order the Bank was required to correct certain bank
policies, practices and alleged violations of law. The Bank and its Board of
Directors believe that the Bank has complied fully with each of the terms of the
1993 Order.
Capital Resources
At December 31, 1996 the Bank's capital ratios met the minimum regulatory
capital ratio requirements of the FDIC Improvement Act for the "adequately
capitalized" classification. However, because the Tier 1 leverage ratio was
below 6%, the minimum level required by the 1991 Order, the Bank's capital was
found to be inadequate. The minimum regulatory capital requirements applicable
to the Bank and the Bank's regulatory capital at December 31, 1996, are set
forth in Item 8, Note 11 to the Company's Consolidated Financial Statements.
See Item 1, "Business - Regulation and Supervision", 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 was
projected to be augmented in the amount of $800,000 by December 31, 1997. In
September 1996, the Company issued 170 shares of Preferred Series III stock to
the majority stockholder in exchange for $1.7 million. The Company contributed
the new capital, which consisted of marketable equity securities to the Bank.
In December 1996, the original subscription agreement was amended to increase
the amount of capital infusion to $2.4 million in exchange for the issuance of
an additional 69 shares of Preferred Series III stock. The increased
capitalization was directly attributed to the appreciation of the marketable
equity
securities originally contributed in September 1996. These transactions were
entered into in furtherance of the 1996 Capital Plan. The FDIC had determined
that the additional $687,000 capital injection does not qualify as Tier I
Capital and, as such, the Tier I Leverage Ratio was 5.36%. If the $687,000 had
been included as Tier I Capital as requested by the Bank, the Leverage Ratio
would have been 6.20% and the Bank would have met
the capital requirements of the 1991 Order. The $687,000 of additional capital
will be recognized by the Bank as Tier I Capital for regulatory capital purposes
upon liquidation of the marketable securities provided that the net proceeds
equal $2.4 million. Management and the Board of Directors of the Company and
Bank are currently considering various actions to increase the capital beyond
the 1996 Capital Plan. These other plans include increased fee income, cost
control, continued improvement of asset quality, asset sales and pursuing
additional capital. If, however, the Bank does not comply with the approved 1996
Capital Plan or otherwise achieve the minimum regulatory capital levels or
comply with the 1991 Order, further regulatory action could result, as described
in Item 1, "Business - Regulation and Supervision" and in Item 14, Note 11 to
the Company's Consolidated Financial Statements.
LOANS
December 31, 1996 1995 1994
($ in thousands) % of % of % of
Amount Total Amount Total Amount Total
Commercial collateralized
by real estate $22,995 39 $30,083 51 $34,044 55
Commercial Other 13,172 22 9,021 15 11,051 18
Lease financing 4,877 8 6,860 12 1,706 3
Accounts receivable
purchases 3,199 5 -- -- -- --
Residential real estate 13,690 23 10,797 19 12,663 20
Consumer 1,494 3 1,743 3 2,331 4
Total loans - gross $59,427 100 $58,504 100 $61,795 100
Average annual outstanding loans-
net of allowance $54,230 $56,385 $74,283
The table above illustrates the Company's emphasis on commercial, lease
financing, accounts receivable purchases, and residential mortgage lending. At
year end 1996, commercial loans constituted 61% of the total loan portfolio
compared with commercial loans of 66% and 73% respectively, during the prior two
years. The commercial loan portfolio is made up principally of commercial
loans collateralized by real estate amounting to $22,995,000 in 1996,
$30,083,000 in 1995, and 34,044,000 in 1994. The lease
financing portfolio increased from $1,706,000 in 1994 to $6,860,000 in 1995 and
decreased to $4,877,000 in 1996 as funding resources were reallocated to the
asset purchase program. Accounts receivables purchased and outstanding under
this program at December 31, 1996 were $3,199,000. 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. Residential mortgage loans have increased from
$10,797,000 in 1995 to $13,690,000 in 1996. At December 31, 1996 the Bank's
legal lending limit was $1,002,000.
Average annual net loans outstanding had consistently decreased over the past
several years, from $74,283 in 1994 to $54,230 in 1996. The Bank has begun to
increase its loan volume during the last half of 1996. The loan to deposits
ratio for 1996 of 75.68% increased slightly compared to 71.33% and 67.53% in
1995 and 1994, respectively.
As part of its interest rate risk management program, the Bank 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, 1996. 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, $31,848,000 or 56% of the total $56,602,000 performing loan
portfolio consists of floating or adjustable interest rate loans.
At December 31, 1996 Time Remaining to Maturity
($ in thousands) of Total Performing Portfolio
Under One to Over
One Year Five Years Five Years Total
Loans with adjustable rates
Commercial and Commercial mortgage $2,050 $17,190 $5,274 $24,514
All other 0 544 6,790 7,334
Total 2,050 17,734 12,064 31,848
Loans with fixed rates
Commercial and commercial mortgage 5,942 6,533 3,674 16,149
All other 836 2,730 5,793 8,605
Total 6,024 9,263 9,467 24,754
Total performing portfolio $8,074 $26,997 $21,531 $56,602
NONPERFORMING ASSETS
December 31,
($ in thousands) 1996 1995 1994
Non-accrual and past due loans
Non-accrual $2,825 $6,383 $7,885
Accruing loans past
due 90 days or more 1,038 356 1,305
Total Non-accrual and
past due loans 3,863 6,739 9,190
OREO
Foreclosed properties 1,517 3,054 3,088
In-substance foreclosure -- -- 1,225
OREO allowance (213) (341) --
Total OREO (net) 1,304 2,713 4,313
Total Non-performing assets $5,167 $9,451 $13,503
Non-performing assets to
total loans (net)and OREO (net) 8.75% 16.00% 21.30%
Allowance for loan losses to
loans pastdue 90 days or more 41.47% 30.72% 28.69%
As a percentage of total loans:
Non-accrual and past due loans 6.50% 11.51% 14.89% Allowance for
loan losses 2.70% 3.54% 4.27%
The Bank has reduced the amount of nonperforming assets from $9,451,000 at
December 31, 1995, to $5,167,000 at December 31, 1996, representing a 45%
reduction. While $1,409,000 of the reduction is due to the Bank's sale of OREO,
total non-accrual and past due loans also declined by $2,876,000 or 43% as of
December 31, 1996 from the level 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 $370,000, $450,000 and
$764,000 for the years ended December 31, 1996, 1995, and 1994 respectively.
Actual interest received on a cash basis was $82,000, $118,000 and $188,000 in
the years ended December 31, 1996, 1995, and 1994, respectively.
When the accrual of interest income is discontinued, all previously accrued
interest income is generally reversed against the current period's interest
income. A non-accrual loan is generally 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 payment due to a weakening in the financial condition of the borrower,
amounted to $4,676,000, 5,265,000 and $3,954,000 at December 31, 1996, 1995, and
1994, respectively. Had the original terms been in force, interest income would
have increased by approximately $175,000, $200,000 and $150,000 in 1996, 1995,
and 1994, respectively. The Company has no commitments to lend additional funds
to these borrowers.
OREO consisted of the following:
(S in thousands) December 31, 1996 Balance % of Total
1-4 Family Residential
properties $386 30% Commercial real estate 575
44% Construction and land Development 343 26%
Total OREO $1,304 100%
In 1996 the Bank continued its focus on restructuring delinquent loans and
disposing of OREO and other nonperforming assets. As of December 31, 1996 the
Bank reduced OREO by approximately $1,409,000 or 52% from December 31, 1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through charges against income and
maintained at a level that management considers adequate to absorb potential
losses in the loan portfolio. Management's estimate of the adequacy of the
allowance for loan losses is based on evaluations of individual loans, estimates
of current collateral values and the results of the most recent regulatory
examination. Management also evaluates the general risk characteristics
inherent in the loan portfolio, prevailing and anticipated conditions in the
real
estate market and the general economy, and historical loan loss experience.
Loans are charged against the allowance for loan losses when management believes
that collection is unlikely. Any subsequent recoveries are credited back to the
allowance for loan losses when received.
The changes in the allowance for loan losses were as follows:
($ in thousands) December 31, 1996 1995 1994
Beginning Balance $2,070 $2,637 $5,012
Charge-offs:
Military installment loans (51) (153) (1,919)
Commercial and other loans (1,457) (1,369) (2,921)
Total Charge-offs (1,508) (1,522) (4,840)
Recoveries:
Military installment loans 26 52 667
Commercial and other loans 449 328 25
Total Recoveries 475 380 692
Net loan charge-offs (1,033) (1,142) (4,148)
Provision for loan losses 565 575 1,773
Ending balance 1,602 2,070 2,637
Net loan charge-offs to
average loans outstanding (net) 1.90% 1.90% 5.58%
As a result of the June 1994 FDIC examination, the bank was required to charge
off approximately $2,000,000 of loans. The Banks was examined again in 1995 and
the FDIC determined that the Bank's allowance for loan losses was adequate after
the Bank increased the provision by $225,000. The FDIC has just completed an
examination of the Bank as of December 31, 1996. As a result of this
examination, the Bank charged-off approximately $1
million in loans through the loan loss reserve and as a result increased its
loan loss provision for the year by $250,000 to attain adequate reserve levels
at December 31, 1996. The required amounts of provision for 1996 and 1995
decreased from 1994 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 3%, 10% and 40% of
total charge-offs in 1996, 1995, and 1994, respectively.
Under the current 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." 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
SECURITIES
The book value of the securities portfolio totaled $6,425,000 at December 31,
1996, a decrease from $7,584,000 at December 31, 1995. The decrease in the
securities portfolio is primarily attributed to management's decision to
redistribute the mix of earning assets based on an increase in demand for loans.
Securities consisted of the following:
($ in thousands) December 31, 1996 1995 1994
Investments Held-to-Maturity
U.S. Treasury securities -- -- $6,909
U.S. Government agency securities -- -- --
Marketable equity securities -- -- --
Other -- -- --
Total $0 $0 $6,909
Investments Available-for Sale
U.S. Treasury Securities $4,005 $4,053 $6,294
U.S. Government agency securities -- 3,000 --
Marketable equity securities 2,420 281 205
Other -- 250 1,000
Total 6,425 7,584 7,499
Total Securities $6,425 $7,584 $14,408
Securities to total assets 7.83% 9.11% 15.54%
The summary of debt securities at December 31, 1996 by contractual maturity is
presented below. Expected maturities may differ from contractual maturities
because issuers have the right to call or repay obligations with or without
prepayment penalties.
($ in thousands)December 31, 1996 Securities Available
for Sale
Amortized Estimated
Cost Market Value
Maturity:
Within one (1) year -- --
After one (1) but
within five (5) years $4,005 $4,009
Marketable equity securities 2,420 2,420
Totals $6,425 $6,429
Additional information on securities is also included in Item 14, Note 2 to the
consolidated Financial Statements.
DEPOSITS
Deposits totaled $76,296,000 at December 31, 1996, down $2,749,000 or 3.5% from
$79,045,000 at year end 1995. The decrease is due to a combination of migration
of customer deposits to other markets and management's intention to downsize the
Bank during the first half of 1996.
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 $100,000 at December 31, 1996
December 31, 1996 CD's CD's
($ in thousands) $100,000 under
and over $100,000
Time remaining to maturity:
Three months or less $ 818 $12,229
Over three months to six months 1,342 10,414
Over six months to twelve month 2,301 18,751
Over twelve months 1,455 6,485
Total $5,916 $47,879
Increased competition in the marketplace increased the rate of the Company's
average cost of interest-bearing deposits, which rose from 4.40% in 1995 to
4.67% in 1996 Average balances and rates paid were as follows:
December 31, 1996 1995 1994
($ in thousands) Average Average Average
Amount Yield Amount Yield Amount Yield
Interest-bearing deposits:
Time Certificates $53,069 5.44% $55,250 5.14% $65,325 4.07%
Savings, NOW and Money Market $14,374 1.86% $17,093 2.01% $25,007 2.22% Total
interest-bearing deposits $67,443 4.67% $72,343 4.40% $90,332 3.56% Non-interest-
bearing deposits $8,055 -- $8,043 -- $9,986 --
Total other interest-
bearing liabilities $2,121 12.97% $1,507 15% $2,749 11.68%
ASSET/LIABILITY MANAGEMENT
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, 1996, within the one year period, the Company had
a liability sensitive balance sheet resulting in a negative cumulative GAP of
$6,068,000 or a 13% variance of rate sensitive assets to rate sensitive
liabilities. Approximately 59% of interest sensitive assets and 69% of interest
sensitive liabilities are available to reprice within the one year period. In
an increasing rate environment, the short-term liability sensitive position is
expected to result in increasing deposit costs in relationship to increases in
market rates and negatively impacted earnings. In a decreasing interest rate
environment, the Bank's one year cumulative liability sensitive position could
positively impact earnings.
December 31, 1996 Maturity/Repricing Interval
($ in thousands) Less Than 4 to 6 7 to 12 1 to 5 Over 5years
3 Months Months Months Years Non-Repricable Total
Earning Assets:
Loans $24,649 $3,647 $8,979 $11,469 $10,599 $59,343
Investment securities 2,420 0 0 4,008 0 6,428 Short-
term investments 6,328 0 0 0 0 6,328 Assets held
for lease 273 0 0 5,977 0 6,250 Total earning
assets 33,670 3,647 8,979 21,454 10,599 78,349
Interest-bearing liabilities:
Time deposit 13,047 11,756 21,052 7,940 0 53,795 All
other rate-
sensitive deposits 6,885 0 0 0 6,884 13,769
Demand 0 0 0 0 8,732 8,732 Total
interest-bearing
liabilities $19,932 $11,756 $21,052 $7,940 $15,616 $76,296
Periodic repricing GAP 13,738 (8,109) (12,073) 13,114 (5,017) 2,053
Cumulative repricing GAP 13,738 5,629 (6,444) 7,070 2,053 0
Cumulative GAP variance as a 41% 51% (14%) 10% 3%
Percent of rate 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 1996. At December 31, 1996, cash and investments maturing within three
months totaled $10,805,000 and approximately $8,074,000 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.
RESULTS OF OPERATIONS
General
During 1996 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 1995 these economic
and business conditions affected the Company's operating performance in 1996.
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 $1,118,000 or $0.57 per share (before preferred stock
dividends) for the year ended December 31, 1996 compared to a net loss of
$1,598,000 or $0.79 per share (before preferred stock dividends) in 1995 and a
net loss of $3,889,000 or $1.93 per share (before preferred stock dividends) in
1994. The Bank attributes its losses over the prior two years principally to
(i) nonperforming assets, (ii) its provision for loan losses, (iii) expenses
incurred in connection with other real estate owned, (iv) the sale of the
military loan portfolio in 1994.
Net Interest Income
In 1996, net interest income totaled $2,411,000, down $137,000 from $2,548,000
or 5% from 1995. This compares to a $1,545,000 or 37.75% decrease from
$4,093,000 in 1994 to $2,548,000 in 1995. In 1996, the Company had a slight
decrease in its net interest margin to 3.65% compared to 3.68% in 1995. As
shown in the
following table, the decrease in 1996 of the net interest margin resulted from a
31 basis points increase in the cost of funds which was tempered by a 21 basis
point increase in earning assets from 1995 to 1996. The primary reasons for the
increase in cost of funds was the increase in the cost of time certificates.
In 1995, net interest income totaled $2,548,000, down $1,545,000 from
$4,093,000, or 37.75% from 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 increased in the cost of funds combined with a decline in average loan
volume of $17,898,000 or 24% from 1994 to 1995. The primary reason for the
increase in cost of funds was the increase in the cost of time certificates.
The following table presents condensed average statements of condition, total
loans including non-accrual loans, the components of net interest income and
selected statistical data, with investment securities presented on a tax
equivalent basis:
Year ended December 31, 1996 1995 1994
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate ($
in
thousands)
Assets:
Loans $54,230 $5,178 9.55% $56,385 $5,244 9.30% $74,283 $6,886 9.2%
Securities 5,618 332 5.91% 8,070 457 5.66% 9,975 533 5.35%
Federal funds sold 6,218 329 5.29% 4,566 260 5.69% 5,057 206 4.08%
Total earnings assets 66,066 5,839 8.84% 69,201 5,961 8.63% 89,315 7,625 8.54%
Cash and due from banks 800 -- -- 2,173 -- -- 3,204 -- --
Other assets 12,050 -- -- 13,096 -- -- 11,444 -- --
Total assets $79,916 -- -- $84,470 -- -- $103,963 -- --
Liabilities and stockholders' equity:
Interest-bearing deposits:
Time certificates $53,069 $2,885 5.44% $55,250 $2,842 5.14% $65,325 $2,657 4.07%
Savings deposit 14,374 268 1.86% 17,093 343 2.01% 25,007 554 2.22%
Total interest-bearing
deposits 67,443 3,153 4.67% 72,343 3,185 4.40% 90,332 3,211 3.56%
Other interest-bearing
liabilities 2,121 275 12.97% 1,507 228 15.00% 2,749 321 11.68%
Total interest-bearing
liabilities 69,564 3,428 4.93% 73,850 3,413 4.62% 93,081 3,532 3.80%
Demand Deposits 7,954 -- -- 8,043 -- -- 9,986 -- --
Other Liabilities 1,029 -- -- 1,820 -- -- 2,417 -- --
Stockholders' equity 1,369 -- -- 757 -- -- (1,521) -- --
Total liabilities and
stockholders' equity $79,916 -- -- $84,470 -- -- $103,963 -- --
Net interest income/
rate spread 2,411 3.91% 2,548 4.01% 4,093 4.74%
Net interest margin 3.65% 3.68% 4.58%
The following table presents the change in interest income and
expense for each major category of interest-bearing assets and
interest-bearing liabilities, and the amount of the change attributable to
changes in average balances (volume) and rates. Changes attributable to both
volume and rate changes have been allocated in proportion the relationship of
the absolute dollar of the changes in volume and rate. Investment securities
are presented on a tax equivalent basis.
Changes from 1995 to 1996 Changes from 1994 to 1995 Changes from 1993 to 1994
Attributable to: Attributable to: Attributable to:
($ in thousands) Volume Rate Total Volume Rate Total Volume Rate Total
Interest income:
Loans (218) 152 (66) ($1,665) $23 ($1,642) ($2,914) $375 (2,539)
Securities (146) 21 (125) (111) 35 (76) (567) 226 (341)
Federal funds sold 85 (16) 69 (17) 71 54 137 21 158
Total interest income (279) 157 (122) (1,793) 129 (1,664) (3,344) 622 (2,722)
Interest expense:
Deposits:
Time certificate (100) 143 43 (259) 444 185 (654) (283) (937)
Savings deposits (52) (23) (75) (163) (48) (211) (209) (126) (335)
Total interest expense
on deposits (152) 120 (32) (422) 396 (26) (863) (409)(1,272)
Other interest-bearing
liabilities 72 (25) 47 (75) (18) (93) (34) 164 130
Total interest expense (80) 95 15 (497) 378 (119) (897) (245)(1,142)
Net interest income (199) 62 (137) ($1,296)($249) ($1,545) ($2,447) $867 ($1,580)
The following are the consolidated ratios of earnings to fixed
charges for each of the years in the five-year period ended December 31, 1996.
Year ended December 31, 1996 1995 1994 1993 1992
Ratio of earnings to fixed charges<F1>
Excluding interest on deposits -- -- -- -- --
Including interest on deposits 0.65 0.53 -- -- 0.33
Ratio of earnings to combined fixed charges and
Preferred stock dividends<F2>:
Excluding interest on deposits -- -- -- -- --
Including interest on deposits 0.14 0.13 -- -- 0.32 <FN>
<F1> The Company had insufficient earnings to cover fixed charges (excluding
interest on deposits) for each of the years ended December 31, 1996, 1995,
1994, 1993 and 1992. The Company also had insufficient earnings to cover
fixed charges (including interest on deposits) for years ended December 31,
1994 and 1993. The short-fall of earnings to fixed charges (excluding interest
on deposits) was $913,000, $1,370,000, $3,568,000, $6,231,000, and $4,731,000,
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
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, 1996, 1995, 1994, 1993, and 1992.
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 $2,465,000,
$2,604,000, $4,037,000, $6,301,000, and $4,801,000, respectively, for the
years ended December 31, 1996, 1995, 1994, 1993, and 1992. The amount of
deficiency of earnings to fixed charges and preferred stock dividends
(including interest on deposits) was $826,000 and $1,818,000 for the years
ended December 31. 1994 and 1993, respectively.
</FN>
COMPOSITION OF NON-INTEREST INCOME
Year Ended December 31, 1996 1995 1994
($ in thousands) Amount %Change Amount %Change Amount %Change
Service fees on deposits $718 70.1 $422 (19.7) $583 (29.4)
Net gain (loss) on
sale of securities 10 162.0 (16) 98.0 (811) (1755.1)
Net gain (loss) on
sale of assets 4 (93.2) 59 114.6 (403) (112.5)
Credit life insurance -- -- -- (100.0) 138 (61.0)
Income from leasing operations 645 (5.4) 682 20.0 567 100.0
Other 163 (26.9) 223 21.0 168 (170.8)
Total non-interest income $1,540 12.4 $1,370 466.1 $242 (95.3)
The increase in non-interest income of $170,000 from 1995 to 1996
was primarily attributable to the recovery of service charges in 1996 of
approximately $266,000 from dormant accounts. Other income in 1995 was higher
due to $62,000 recognized due on SBA loan sales.
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 $115,000 or 20% from 1994.
COMPOSITION OF NON-INTEREST EXPENSE
Year Ended December 31, 1996 1995 1994
($ in thousands) Amount %Change Amount %Change Amount %Change
Salaries
and Employee Benefits $1,924 (10.4) $2,148 (10.3) $2,394 (17.3)
Occupancy 352 (7.6) 381 (18.7) 469 (28.4)
Supplies and communications 157 (8.7) 172 (20.3) 216 (34.3)
Professional services 507 (.2) 508 (57.7) 1,201 (36.4)
Depreciation furniture
and equipment 232 .4 223 (6.7) 239 5.3
FDIC insurance 201 (22.4) 259 (24.7) 344 (18.9)
Other insurance 82 (.2) 80 (26.6) 109 (7.6)
Other real estate owned 580 (19.1) 717 (27.6) 990 (72.2)
Other 539 19.0 453 (3.8) 489 (37.9)
Total non-interest expense $4,574 (7.4) $4,941 (23.4) $6,451 (40.9)
Operating expenses decreased by $367,000 or 7% in 1996. Salaries
and employee benefits decreased $224,000 or 10% due to staff
reductions. Expense associated with the foreclosure and carrying of OREO
decreased 19% from $717,000 in 1995 to $580,000 in 1996 due primarily to the
Bank's continued success with disposition of the OREO portfolio. Other expenses
increased by $86,000 or 19% primarily due to settlement of outstanding
litigation.
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.
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 PRONOUNCEMENT
In June 1996, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 125 ("SFAS No. 125) "Accounting for
Transfer and Servicing of Financial Assets and Extinguishment of Liabilities".
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. Those standards
are based on consistent application of a financial-components approach that
focuses on control. This statement provides implementation guidance for
assessing isolation of transferred assets and for accounting for transfer of
partial interest, servicing of financial assets, securitizations, transfers of
sales-type and direct financing lease receivables, securities lending
transactions, factoring arrangements, transfers of receivables with recourse and
extinguishment of liabilities. This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996 and is to be applied prospectively. Management does not feel
this statement will have a material impact on the Company's financial
statements.
In February 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128") "Earnings
Per Share". This statement establishes
standards for computing and presenting earnings per share ( EPS) and applies to
entities with publicly held common stock or potential common stock. This
statement is effective for financial statements issued for periods ending after
December 15, 1997 with restatement of all prior-period EPS data presented. This
statement will not have a material effect on the Company's financial statement
presentation as losses have been incurred for all years currently presented.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See also Item 14, "Exhibits, Financial Statement Schedules and reports on
Form 8-K".
CBC Bancorp, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 1996, 1995 and 1994
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, 1996
and 1995, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for each of the three years in
the period ended December 31, 1996. 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, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 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 17), met the minimum tier 1 riskbased and total risk-based capital
requirements as of December 31, 1996; however, it did not meet the minimum
leverage 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.
/s/BDO SEIDMAN,LLP
NEW YORK, NEW YORK
February 21, 1997
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
($ in thousands, except share data)
December 31, 1996 1995
Assets
Cash and due from banks $2,057 $1,937
Federal funds sold 6,328 5,000
Investment securities 6,429 7,582
Loans receivable, net 57,741 56,382
Accrued interest receivable 727 782
Property and equipment 715 789
Assets held for lease 6,250 7,573
Other real estate owned 1,304 2,713
Other assets 478 522
$82,029 $83,280 Liabilities and
Stockholders' Equity
Liabilities:
Deposits $76,296 $79,045
Accrued interest payable 772 532
Accounts payable and accrued expenses 641 1,789
Notes payable 768 768
Convertible debt 1,090 1,090
Total liabilities 79,567 83,224
Commitments and contingencies
Stockholders' equity:
Preferred stock 16,380 11,240
Common stock - $.01 par value, shares
authorized 20,000,000; issued
and outstanding 1,961,761 19 19
Additional paid-in capital 8,052 9,604
Unrealized gain (loss) on
investment securities 4 (2)
Accumulated deficit (21,993) (20,805)
Total stockholders' equity 2,462 56
$82,029 $83,280
See accompanying notes to consolidated financial statements.
CBC BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share data)
Year ended December 31, 1996 1995 1994
Interest income:
Loans $5,178 $5,244 $6,886
Investment securities 332 457 533
Federal funds sold 329 260 206
Total interest income 5,839 5,961 7,625
Interest expense:
Deposits 3,153 3,186 3,211
Other 275 227 321
Total interest expense 3,428 3,413 3,532
Net interest income 2,411 2,548 4,093
Provision for loan losses 565 575 1,773
Net interest income
after provision for losses 1,846 1,973 2,320
Other income:
Fees for customer services 718 422 583
Net gain (loss) on sales of
investment securities 10 (16) (811)
Net gain (loss) on sale of assets 4 59 (404)
Lease asset income 645 682 567
Other income 163 223 307
Total other income 1,540 1,370 242
Operating expenses:
Salaries and employee benefits 1,924 2,148 2,394
Professional fees 507 508 1,201
Other real estate owned 580 717 990
Supplies and communications 157 172 216
Net occupancy 352 381 469
Equipment rentals, depreciation
and maintenance 232 223 239
Deposit insurance premiums 201 259 344
Other insurance 82 80 109
Other expenses 539 453 489
Total operating expenses 4,574 4,941 6,451
Net loss (1,188) (1,598) (3,889)
Less: Preferred stock dividend (1,552) (1,234) (469)
Net loss applicable to common stock$(2,740) $(2,832) $(4,358)
Weighted average common
shares outstanding 1,961,761 2,007,230 2,012,514
Net loss per common share $(1.40) $(1.41) $(2.17)
See accompanying notes to consolidated financial statements.
CBC BANCORP,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands)
Years ended December 31, 1996, 1995 and 1994
Common stock Unrealized
Additional gain (loss)
Preferred Number paid-in on Accumulated
stock of Shares Amount capital securities deficit Total
Balance, January 1, 1994 $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 loss on
investment securities
held for sale - - - - (388) - (388)
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 on
investment securities
held for sale - - - - 216 - 216
Net loss - - - - - (1,598) (1,598)
Balance, December 31, 1995 11,240 1,962 19 9,604 (2) (20,805) 56
Preferred dividends - - - (1,552) - - (1,552)
Issuance of preferred stock 5,140 - - - - - 5,140
Change in unrealized gain on
investment securities held
for sale - - - - 6 - 6
Net loss - - - - - (1,188) (1,188)
Balance, December 31, 1996 $16,380 1,962 $19 $8,052 $4 $(21,993) $2,462
See accompanying notes to consolidated financial statements.
CBC BANCORP,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1996 1995 1994
Cash flows from operating activities:
Net loss $(1,188) $(1,598) $(3,889)
Adjustments to reconcile net loss to
net cash provided by
(used in) operating activities:
Provision for loan losses 565 575 1,773
Provision for depreciation
and amortization 182 206 227
Decrease (increase) in deferred
loan fees and costs - net (14) 35 236
Amortization of loan purchase premiums - - 435
Amortization of investment
security premiums and discounts, net 25 108 152
Loss (gain) on sale of
investment securities (10) 16 811
Loss (gain)on disposal of property
and equipment (1) 2 (218)
Provision for losses on
foreclosed real estate 441 420 829
Loss (gain)on sale of loans (3) - 818
Changes in operating assets
and liabilities:
Other assets 98 (64) 216
Deferred charges - - (138)
Accrued interest payable 240 (410) (892)
Account payable and accrued expenses 21 (285) (158)
Net cash provided by (used in)
operating activities 356 (995) 202
Cash flows from investing activities:
Net (increase) decrease in Federal
funds sold (1,328) 700 4,950
Proceeds from sales and maturities of
investment securities (includes
maturities of $3,550, $2,250 and $4,208
in 1996, 1995 and 1994, respectively) 7,872 11,367 15,511
Purchases of investment securities (4,308) (3,988) (13,383)
Principal payments received on
mortgage-backed securities - - 491
Proceeds from sale of loans 582 - 8,801
Decrease (increase) in loans - net (2,528) 1,698 12,498
Proceeds from sale of other real
estate owned 1,460 1,631 3,749 Net
expenditures on foreclosed real
estate (453) - -
Purchases of property and equipment (111) (146) (130)
Proceeds from sale of property and
equipment 4 72 240
Net decrease (increase) in assets
held for lease 1,323 (3,679) (3,894)
Net cash provided
by investing activities 2,513 7,655 28,833
Cash flows from financing activities:
Net decrease in deposit accounts $(2,749) $(8,429) $(33,606) Net
decrease in treasury
demand note account - - (442)
Proceeds from issuance of preferred
stock - 576 200
Proceeds from issuance of senior debt - - 3,638
Net cash used in financing activities (2,749) (7,853) (30,210)
Increase (decrease) in cash and
due from banks 120 (1,193) (1,175)
Cash and due from banks,
beginning of year 1,937 3,130 4,305
Cash and due from banks,
end of year $2,057 $1,937 $3,130
Supplemental disclosures of
cash flow information:
Cash paid during the year for:
Interest on deposits and
borrowed money $3,189 $3,595 $4,103
Noncash investing activities:
Transfer of in-substance
foreclosure property to loans $ - $ 782 $ -
Transfers of loans to
other real estate owned $ 262 $ 705 $ 515
Mortgage loan recorded
as loan recovery $ 300 $ - $ -
Dividends declared $1,552 $ 681 $ 469
Stock dividends paid $2,720 $ 553 $ -
Unrealized gain (loss)
on valuation of investments
- -available for sale $ 6 $ 216 $ (388)
Noncash financing activity:
Issuance of preferred
stock in exchange for debt $ - $ - $3,630
Issuance of senior notes
for accrued interest payable $ - $ - $ 140
Issuance of senior debt in
exchange for marketable securities $ - $ 400 $ -
Issuance of preferred stock in
exchange for marketable securities $2,420 $ 281 $5,000
Reduction of capital for deferred
charges - issuance costs $ - $ (138) $ -
See accompanying 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 portfolio is with customers located within the State of
Connecticut, with approximately 58% 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-forsale 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 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.
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 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.
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 properties acquired through, or
in lieu of, loan foreclosure are to be sold and are initially recorded at fair
value at the date of foreclosure establishing a new cost basis. Substantially
all other real estate owned is located in the Connecticut market. After
foreclosure, valuations are periodically performed by management and the real
estate is carried at the lower of carrying amount or fair value less cost to
sell. Revenue and expenses from operations and changes in the valuation
allowance are included in loss on foreclosed real estate. 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 and improvements 3 - 25 years
Furniture and equipment 3 - 25 years
Software 3 - 5 years
Taxes on Income
The Company provides 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.
Stock Options
FASB Statement 123, "Accounting for Stock-
Based Compensation" 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.
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. The exercise price
of the Company's employee stock options equals the market price of the
underlying stock on the date of the grant. Accordingly, no compensation cost is
recognized for the plans.
Estimates
The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain amounts in the 1995 and 1994
consolidated financial statements have been reclassified to conform with the
current year presentation.
2. Investment Securities
At December 31,1996, the amortized cost and estimated fair value of investment
securities, all of which
were classified as available-for-sale, were as follows:
Gross Gross
Amortized unrealized unrealized Estimated cost
gain loss fair value
($ in thousands)
U.S. Treasury Notes $4,005 $4 $- $4,009
Marketable equity securities 2,420 - - 2,420
$6,425 $4 $- $6,429
At December 31, 1995, the amortized cost
and estimated fair value of investment securities, all of which
were classified as available-for-sale were as follows:
Gross Gross Estimated Amortized
unrealized unrealized fair
($ 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 securities 281 - - 281
$7,584 $- $(2) $7,582
The amortized cost and estimated fair value of
securities, by contractual maturity, at December 31, 1996 are as follows:
Amortized Estimated
cost fair value
($ in thousands)
Due from one to five years
$4,005 $4,009
Equity Securities 2,420 2,420
$6,425 $6,429
At December 31, 1996, investment securities with
a carrying value of $500,000 and fair value of $501,095 were pledged to secure
public deposits, the treasury demand note and for other purposes as required or
permitted by law.
Proceeds and gross realized gains and
losses from the sale of investment securities were as follows:
Year ended December 31, 1996 1995 1994
($ in thousands)
Sales proceeds $4,322 $9,117 $11,303 Realized gains
16 1 55
Realized losses (6) (17) (866)
3. Loans Receivable
Loans receivable are summarized as follows:
1996 1995
($ in thousands)
Commercial real estate $22,995 $30,083
Commercial - other 13,172 9,021
Lease financing 4,877 6,860
Accounts receivable purchases 3,199 Residential real estate
13,690 10,797
Consumer 1,494 1,743
Total - gross 59,427 58,504
Unearned income (8) (22)
Deferred loan fees (76) (30)
Allowance for loan losses (1,602) (2,070)
Total - net $57,741 $56,382
At December 31, 1996 and 1995, the carrying
values of loans with fixed interest rates were approximately $24,754,000 and
$24,745,000, respectively.
At December 31, 1996, there were
approximately $149,000 of loans to employees, directly or indirectly. Such loans
were made on the same general terms, including interest rates, as those
prevailing at the time of comparable transactions with others.
Impairment of loans having recorded
investments of $2,825,000 at December 31, 1996 and $6,383,000 at December 31,
1995 has been recognized. The average recorded investment in impaired loans
during 1996 and 1995 was approximately $4,562,000 and $7,134,000, respectively.
The total allowance for loan losses related to these loans was approximately
$506,000 and $750,000 on December 31, 1996 and 1995, respectively. Interest
income on impaired loans of approximately $82,000 and $118,000 was recognized
for cash payments received in 1996 and 1995, respectively.
The allowance for loan losses is summarized as follows:
1996 1995 1994 ($ in thousands)
Balance, beginning of year $2,070 $2,637 $5,012
Provision charged to expense 565 575 1,773
Loans charged off (1,508) (1,522) (4,840)
Recoveries 475 380 692
Balance, end of year $1,602 $2,070 $2,637
4. Property and Equipment
At December 31, 1996 and 1995, property and equipment are summarized as follows:
1996 1995
($ in thousands)
Land $ 136 $ 136
Buildings and improvements 1,013 981
Furniture and equipment 1,602 1,552
Software 216 214
Total cost 2,967 2,883
Less:
Accumulated depreciation 2,252 2,094
Total - net $ 715 $ 789
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, invests in pools of financial lease receivables, and
acquires equipment for financial lease transactions, subject to
existing leases. As of December 31, 1996, the Company's assets under the
Program are as follows:
Included in loans are $4,877,000 of short-term financial leases, accounts
receivable resulting from lease transactions and interests in pools of
financial lease receivables.
Assets held for lease include approximately $5,977,000 and $7,300,000 at
December 31, 1996 and 1995,respectively, of medical equipment subject to
existing leases. 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. The Bank has the title to the equipment
with an original appraised value of approximately $13,250,000,
has a guaranty of $2,200,000 and the
senior ownership interest and junior security interest in the residual
value of four cargo airplanes, estimated by an independent appraiser to
be approximately $3.9 million each in the year 2002.
The interests in the residual value of the four cargo airplanes also
collateralizes approximately $2.1 million of other loans.
6. Foreclosed Real Estate
Activity in the allowance for losses on
foreclosed real estate is as follows:
($ in thousands)
Balance at January 1, 1995 $129
Provision charged to income 420
Charge-offs, net of recoveries (207)
Balance at December 31, 1995 342
Provision charged to income 441
Charge-offs, net of recoveries (570)
Balance at December 31, 1996 $213
The carrying costs of other real estate
owned were approximately $152,000, $297,000 and $160,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
7. Deposits
Deposits (in thousands) are summarized as follows:
December 31, 1996 1995
Demand deposits $8,732 $8,672
Money market deposits 2,298 2,546
NOW checking accounts 3,534 3,757
Savings deposits 7,937 9,562
Certificates of deposit 47,879 49,342
Certificates in excess of $100,000 5,916 5,166 $76,296 $79,045
Maturities of time deposits (in thousands)
at December 31, 1996 were as follows:
Maturing within twelve months $45,855
After twelve months 7,940
$53,795
Deposits with the Bank at December 31,
1996, which are directly or indirectly with directors and stockholders, were
approximately $1,800,000. Such deposits carry the same terms, including interest
rates, as those prevailing at the time of comparable transactions with others.
8. Income Taxes
The Company paid no taxes on income for
1996, 1995 or 1994.
Temporary differences at December 31, 1996
and 1995 are as follows:
1996 1995
Deferred tax assets:
NOL carryforward $6,562,000 $6,219,000
Allowance for loan losses 545,000 703,000
OREO basis 305,000 319,000
Other 118,000 181,000
Gross deferred tax assets 7,530,000 7,422,000
Deferred tax liabilities:
Allowance for loan losses (833,000) (787,000)
Depreciation (1,173,000) (496,000)
Gross deferred tax liabilities (2,006,000) (1,283,000)
Valuation allowance (5,524,000) (6,139,000)
Total $ - $ -
For income tax return purposes, the Company
has Federal net operating loss carryforwards of approximately
$19.3 million, of which approximately $1 million is subject to limitation under
the change of ownership rules outlined in Section 382 of the Internal Revenue
Code. The 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 $18.3 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, $3.3 million in 2010 and $3.6 million in 2011.
The Company has state net operating loss
carryforwards of approximately $18.8 million which expire in year 1997 through
2001.
9. Borrowings
Notes Payable
Capital notes to an entity affiliated with
the Company's majority stockholder in the amount of $220,000 are due March 31,
1999 and bear interest at 15% payable quarterly. The capital notes are
subordinated to all senior indebtedness. Senior notes outstanding in the amount
of
$548,000 are due and payable to an affiliated company of the majority
stockholder on December 31, 1997 and bear interest quarterly at an annual rate
equal to 5% above the prime rate (as defined). Interest expense related to these
notes was $122,076, $78,753 and $44,366 for the years ended December 31, 1996,
1995 and 1994, respectively. The senior notes have no conversion rights or
features.
Mandatory Convertible Capital Notes
The principal amount of the notes is due
July 1, 1997 and will be converted at the option of the Company into either 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) 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 are subordinated to the senior indebtedness of the Company.
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. Interest expense related
to these notes was $126,883, $120,070 and $110,771 for the years ended December
31, 1996, 1995 and 1994, respectively.
10. Stockholders' Equity and Earnings (Loss) Per Common Share
Common Stock
At December 31, 1996, approximately 310,000
shares were reserved for outstanding stock options and 58,000
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, 1996 consists of 28,905 shares
of its nonvoting, no par value Preferred Series I Stock at a stated value of
$100 per share.
The Preferred Series I shares are cumulative as to dividends. The average
dividend rate for the year ended December 31, 1996 was 8.25% per annum. At
December 31, 1996, there were $139,000 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). The preferred stock
liquidation rights include distributions in the amount of $100 per share, plus
accrued and unpaid dividends.
Preferred Series II
The Preferred Series II stock as of December 31, 1996 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). The preferred stock liquidation rights
include distributions in the amount of
$74 per share, plus accrued and unpaid dividends. At December 31, 1996, there
were $13,355 in dividends accrued and unpaid.
Preferred Series III
The Preferred Series III stock as of December 31, 1996 consists of 979 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 at the option of
the holders into Company common stock, preferred stock or any other capital
instrument of the Company or 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, 1996, there were $8,780 in dividends accrued and unpaid. The
preferred stock liquidation rights include distributions in the amount of
$10,000 per share, plus accrued and unpaid dividends.
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 (as
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 during the ten-year period
commencing on July 25, 1994 and terminating on July 25, 2004 provided, however,
that the majority stockholder's ownership level is about to 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, 1996 was 1,961,761. 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, 1996, diluted
earnings per share are not presented for the year.
11. Regulatory Actions
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. The Bank is currently operating
under the terms of a July 1991 Cease and Desist Order which mandates a 6 percent
Tier I Leverage Capital Ratio. During 1996, the Bank submitted a capital
restoration plan which was approved by the Federal Deposit Insurance Company
("FDIC") and the Banking Commissioner on March 21, 1996. Under the terms of the
1996 plan, the Bank has until December 31, 1997 to achieve the 6 percent Tier I
Leverage Capital Ratio. In September 1996, the Company issued 170 shares of
Preferred
Series III stock to the majority stockholder in exchange for $1.7 million. The
Company contributed the new capital,
which consisted of marketable equity securities to the Bank.
In December 1996, the original subscription agreement was amended
to increase the amount of capital infusion to
$2.4 million in exchange for the issuance of an additional 69 shares
of Preferred Series III stock. The increased capitalization was directly
attributed
to the appreciation of the marketable equity securities originally contributed
in September 1996. These transactions were entered into in furtherance of the
capital restoration plan.
The FDIC completed an examination of the
Bank as of December 31, 1996. The Bank has not yet received the Report of
Examination; however, a presentation of preliminary results was made by the
examiners to the Board. For purposes of prompt corrective action, the Bank is
classified "adequately" capitalized. The FDIC did not recognize the additional
$687,000 capital injection as Tier I Capital and, as such, the Tier I Leverage
Ratio was 5.36% and as such did not meet the Tier I capital requirements of the
1991 order. If the $687,000 has been included as Tier I Capital, the Leverage
Ratio would have been 6.20% and the Bank would have met the capital requirements
of the 1991 Order. The additional capital will be recognized as Tier I Capital
by the FDIC upon liquidation of the marketable securities to the extent the net
proceeds equal $2.4 million.
Quantitative measures established by
regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table below) of total and
Tier I Capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I Leverage Capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the Bank meets all
capital adequacy requirements to which it is subject, with the exception of Tier
I Leverage Capital Ratio of 6% as required by the 1991 Order.
The Bank's actual capital amounts and
ratios are presented in the following table.
December 31, 1996
Actual For capital adequacy
purposes
Amount Ratio Amount Ratio
Total Capital (to risk-weighted assets) $5,183,000 8.30% $4,999,000 8.0%
Tier I Capital (to risk-weighted assets) 4,392,000 7.03 2,499,000 4.0
Tier I Leverage Capital
(to average assets) 4,392,000 5.36 4,914,000 6.0
December 31, 1995
Actual For capital adequacy
purposes
Amount Ratio Amount Ratio
Total Capital (to risk-weighted assets) $4,409,000 6.94% $5,080,000 8.0%
Tier I Capital (to risk-weighted assets) 3,599,000 5.67 2,534,000 4.0
Tier I Leverage Capital
(to average assets) 3,599,000 4.38 3,810,000 6.0
Under the terms of the 1991 Order, the Bank
must obtain the prior approval of the FDIC and the Connecticut
Banking Commissioner before paying any cash dividends to the Company
Under the terms of a written agreement (the
"Agreement") between the Company and Federal Reserve Bank of Boston (the "FRB")
entered into in November 1994, the Company is required to obtain the written
approval of the FRB prior to the declaration or payment of cash dividends on its
outstanding common or preferred stock, increasing its indebtedness, engaging in
material transactions with the Bank (other than capital contributions), or
making cash disbursements in excess of agreed-upon amounts. All such actions
required by the written Agreement have been taken by the Company.
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 applying for relisting. 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 believes 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, the Company Stock Plan and the 1994 Incentive
Stock Plan. 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. As of December 31, 1996, no options had been granted under the
1994 Incentive Stock Plan.
The following summarizes the activity of
the Company Stock Plan (adjusted to reflect the one-for-five reverse stock
split) for the years ended December 31, 1996 and 1995.
1996 1995
Options outstanding and exercisable, January 1 1,002 1,338
Options expired 342 336
Options outstanding and exercisable December 31 660 1,002
Price per share of options outstanding $12.50 $12.50
to$80.00
Under the terms of a stock option agreement
entered into in 1994 with the former President and CEO, the Company has granted
options to purchase in the aggregate such number of shares of $.01 par value
common stock as shall represent 2 percent of the total common stock issued and
outstanding at the time of exercise at a price of $.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 options expire at different times through the
year 2005. No new options were granted in 1996.
In July 1996, the Company entered into a
stock option agreement with its current President and CEO. 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 issued and
outstanding shares of common stock at the time of exercise at a price of $.05
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 at the rate of one and a quarter percent of the
issued and outstanding shares of common stock for each year of employment. The
options expire ten years after the date of
vesting. As of December 31, 1996, no shares had fully vested. The fair value of
the stock options at
grant is not material to the financial statements. Therefore, pro forma
information regarding net income and earnings per share as if compensation cost
for the Company's stock option plans had been determined, has not been provided.
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. In August
1996, the Company reinstated employer matching. During 1996 and 1994, the
Company contributed approximately $4,100 and $22,500, respectively, to the Plan.
14. Employment Agreements
(a) The Bank has an employment agreement with its President and Chief Executive
Officer, expiring December 31, 1999, which provides for
a base salary of $160,000 per year, performance award bonuses, stock options and
potential changes in control.
(b) 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, 1996, the cash surrender value
of the life insurance policy was $369,000 with an accrued
deferred compensation liability of $237,000. For the years ended December 31,
1996, 1995 and 1994, deferred compensation expense, including interest, was
approximately $26,000, $28,000 and $24,000, respectively.
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
$178,000, $172,000 and $241,000 in 1996, 1995 and 1994, respectively.
As of December 31, 1996, future minimum
rental payments required under non-cancelable operating leases
are as follows:
Year ending December 31,
($ in thousands)
1997 $153
1998 139
1999 125
2000 76
Thereafter 709
Total $1,202
16. 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 $2,113,000 at December 31, 1996.
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 $13,000 at December
31, 1996. 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
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 pending and threatened lawsuits will have a material effect
on 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, 1996 was approximately $200,000.
17. CBC Bancorp, Inc. (Parent Company Only) Financial Information The
condensed financial statements of the
Company are as follows:
Statement of Financial Condition Information December 31,
1996 1995
($ in thousands)
Assets:
Cash on deposit with
Connecticut Bank of Commerce $ 1 $ 1 Investment in
Connecticut
Bank of Commerce 5,083 3,598
Total assets $5,084 $3,599
Liabilities and stockholders' equity:
Accrued interest $ 603 $ 355
Dividend payable 161 1,330
Debt 1,858 1,858
Accumulated stockholders' equity 2,462 56 Total liabilities and
stockholders' equity $5,084 $3,599
Statement of Operations Information
Year ended December 31, 1996 1995 1994 ($ in thousands)
Interest - net $ (249) $ (199) $ (284)
Operating expenses - - (862)
Income (loss) before taxes
and equity in undistributed
loss of subsidiaries (249) (199) (1,146) Equity in loss of
subsidiaries (939) (1,399) (2,743) Net loss $(1,188)
$(1,598) $(3,889)
Cash Flow Information
Year ended December 31, 1996 1995 1994 ($ in thousands)
Operating activities:
Net loss $(1,188) $(1,598) $(3,889)
Adjustments to reconcile
net loss to net cash used in
operating activities:
Loss in investments - - 852
Equity in loss of subsidiaries 939 1,399 2,743
Increase in other assets - - (138)
Increase in accrued interest
payable 249 199 292
Net cash used in operating
activities - - (140)
Investing activities:
Capital contribution to Bank - (576) (7,849)
Proceeds from sale of investments - - 4,149
Net cash used in investing
activities - (576) (3,700)
Financing activities:
Proceeds from issuance of
preferred stock - 576 200
Proceeds from issuance of debt - - 3,638
Net cash provided by financing
activities - 576 3,838
Net decrease in cash - - (2)
Cash, beginning of year 1 1 3
Cash, end of year $ 1 $ 1 $ 1
Supplemental disclosures
of cash flow information:
Issuance of preferred stock
in exchange for
marketable securities $2,420 $ 281 $5,000
Dividends declared $1,552 $ 681 $ 469
Stock dividends paid $2,721 $ 553 $ -
Issuance of preferred stock
in exchange for debt $ - $ - $3,630
Issuance of senior notes
for accrued interest payable $ - $ - $ 140
Issuance of senior debt
in exchange for marketable
securities $ - $ 400 $ -
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 1997 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 1997 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 1997 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 1997 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 Exhibit 8
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, 1996 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, 1997.
CBC BANCORP, INC. (Registrant)
By: /s/ DENNIS POLLACK Dennis Pollack
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
and in the capacities indicated on this 21st day of March, 1997.
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/ DENNIS POLLACK
Dennis Pollack Director, President and Chief
Executive Officer
of CBC Bancorp, Inc. and Connecticut Bank of
Commerce
/s/ BARBARA H. VAN BERGEN
Barbara H. Van Bergen Senior Vice President and
Chief Financial Officer
of CBC Bancorp, Inc. and Connecticut Bank of
Commerce
(Principal financial 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 First 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 First 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 First 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, 1993 and incorporated herein by reference).
3(a)(7) Amendment to Article First 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, 1993 and incorporated herein by reference).
3(b) By-laws 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, 1993 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, 1993 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, 1993 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 Registration
Statement on Form 10K, 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 10K 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 effective 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
effective 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 of 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 of form S-2, Registration No. 3355201, 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 of Form 10-K for
the fiscal year ended December 31, 1994 and incorporated herein by
reference).
10(n) Employment Agreement, by and between the Bank
and an executive officer of the Bank and Company, dated as of July
23, 1996*
10(o) Stock Option Agreement, by and Between the
Company and an executive officer of the Company and the Bank,
dated as of July 23, 1996.*
11 Calculation of Earnings Per Share data for
the fiscal years ended December 31, 1996, 1995 and 1994.*
22(a) Subsidiaries for 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