SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
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COMMISSION FILE NUMBER 2-78788
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CALIFORNIA COMMERCIAL BANKSHARES
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CALIFORNIA 95-3819471
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(STATE OF OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4100 NEWPORT PLACE, NEWPORT BEACH, CA 92660
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER (714) 863-2300
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR IF
CHANGED FROM LAST REPORT
INDICATE BY CHECK (X) WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: INDICATE THE NUMBER OF SHARES OUTSTANDING
OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE
DATE 2,425,000.
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1
CALIFORNIA COMMERCIAL BANKSHARES
INDEX
PART 1. FINANCIAL INFORMATION
_________________________________________________________________
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1995 AND 1994.
CONSOLIDATED CONDENSED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994.
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
SIX MONTHS ENDED JUNE 30, 1995 AND 1994.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS,
JUNE 30, 1995.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
2
CALIFORNIA COMMERCIAL BANKSHARES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(000'S OMITTED)
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
INTEREST AND FEE INCOME:
LOANS AND LEASES 10,219 8,941 5,151 4,541
INVESTMENT SECURITIES 1,539 1,759 729 1,027
FEDERAL FUNDS SOLD 419 262 341 142
------ ------ ----- -----
TOTAL INTEREST AND FEE INCOME 12,177 10,962 6,221 5,710
INTEREST EXPENSE:
DEPOSITS 3,360 2,981 1,734 1,525
SECURITIES SOLD UNDER AGREEMENT
TO REPURCHASE 8 2 0 2
NOTE PAYABLE 95 108 52 51
------ ------ ----- -----
TOTAL INTEREST EXPENSE 3,463 3,091 1,786 1,578
NET INTEREST INCOME 8,714 7,871 4,435 4,132
PROVISION FOR LOAN / LEASE LOSSES 1,000 1,620 225 1,020
NET INTEREST INCOME AFTER PROVISION
FOR LOAN / LEASE LOSSES 7,714 6,251 4,210 3,112
OTHER INCOME:
ESCROW FEES 86 186 59 91
SERVICE CHARGES 476 464 223 225
SECURITIES GAINS (72) 0 0 0
OTHER INCOME 449 382 248 197
------ ------ ----- -----
TOTAL OTHER INCOME 939 1,032 530 513
OTHER EXPENSES:
SALARIES AND EMPLOYEE BENEFITS 3,703 3,369 1,875 1,619
OCCUPANCY, FURNITURE AND EQUIPMENT 1,031 970 508 489
DATA PROCESSING 139 144 68 66
SUPPLIES 168 126 74 63
LEGAL FEES 494 311 376 156
REGULATORY ASSESSMENTS 415 496 207 265
LOSSES (GAIN) ON OREO 861 588 649 442
OTHER 1,139 950 631 499
------ ------ ----- -----
TOTAL OTHER EXPENSES 7,950 6,954 4,388 3,599
INCOME BEFORE INCOME TAXES 703 329 352 26
INCOME TAXES 280 115 139 13
NET INCOME 423 214 213 13
EARNINGS PER COMMON SHARE $0.17 $0.08 $0.09 $ 0.01
3
CALIFORNIA COMMERCIAL BANKSHARES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000'S OMITTED)
ASSETS
JUNE 30 DECEMBER 31
1995 1994
-------- -----------
CASH AND DUE FROM BANKS
NON INTEREST BEARING $ 22,894 $ 21,069
INTEREST BEARING 25 246
INVESTMENT SECURITIES - AVAILABLE FOR SALE 61,436 72,075
FEDERAL FUNDS SOLD 30,000 2,000
LOANS, NET OF UNEARNED INTEREST:
COMMERCIAL 74,101 82,600
REAL ESTATE - CONSTRUCTION 33,187 29,792
REAL ESTATE - EQUITY LINE 7,768 8,691
REAL ESTATE - MORTGAGE 68,361 66,102
INSTALLMENT AND OTHER 12,801 10,845
LEASE CONTRACTS RECEIVABLE 3,484 3,6152
-------- --------
199,702 201,645
LESS: DEFERRED LOAN FEES & COSTS (949) (782)
-------- --------
198,753 200,863
LESS: RESERVE FOR LOAN LOSS (4,999) (5,660)
-------- --------
TOTAL LOANS, NET 193,754 195,203
-------- --------
REAL ESTATE OWNED 5,868 2,676
BANK PREMISES, FURNITURE & EQUIPMENT 1,064 988
ACCRUED INTEREST RECEIVABLE 2,718 2,846
DEFERRED INCOME TAXES 1,400 1,400
PREPAID EXPENSES AND OTHER ASSETS 1,907 2,162
-------- --------
TOTAL ASSETS $321,066 $300,665
======== ========
LIABILITIES AND SHAREHOLDERS EQUITY
DEPOSITS:
DEMAND DEPOSIT
NON INTEREST BEARING $108,979 $ 98,733
INTEREST BEARING 79,288 79,695
SAVINGS DEPOSITS 44,605 40,504
TIME CERTIFICATES $100,000 AND OVER 31,060 28,896
OTHER TIME DEPOSITS 31,550 29,561
-------- --------
TOTAL DEPOSITS 295,482 277,389
NOTE PAYABLE 2,351 2,351
INTEREST PAYABLE 175 149
OTHER LIABILITIES 1,715 1,048
SHAREHOLDERS EQUITY:
CAPITAL STOCK - AUTHORIZED 10,000,000
SHARES; ISSUED AND OUTSTANDING 2,423,000
IN 1993 AND 1994 10,790 10,782
PAID IN CAPITAL 475 475
RETAINED EARNINGS 10,213 9,789
UNREALIZED GAIN (LOSS) ON INVESTMENT
SECURITIES AVAILABLE FOR SALE
(NET OF TAX) (135) (1,318)
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY 321,066 300,665
======== ========
4
CALIFORNIA COMMERCIAL BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30
(000'S OMITTED)
(UNAUDITED)
1995 1994
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME 423 214
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 251 301
NET AMORT. OF SECURITY DISCOUNTS AND PREMIUMS 402 412
PROVISION FOR LOAN AND LEASE LOSSES 1,000 1,620
PROVISION FOR LOSSES ON OTHER REAL ESTATE OWNED 118 223
LOSS (GAIN) ON SALE OF PROPERTY (12)
LOSS (GAIN) ON SALE OF OTHER REAL ESTATE OWNED 163 180
DECREASE (INCREASE) IN ACCRUED INTEREST RECEIVABLE 128 (265)
DECREASE (INCREASE) IN OTHER ASSETS (381) (293)
NET INCREASE (DECREASE) IN INTEREST AND ACCRUED
COMPENSATION PAYABLE, AND OTHER LIABILITIES 692 (221)
------- -------
TOTAL ADJUSTMENTS 2,373 1,945
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,796 2,159
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM MATURITY OF INVESTMENT SECURITIES 4,084 18,404
PURCHASE OF INVESTMENT SECURITIES (13,114) (62,304)
PROCEEDS FROM SALE OF INVESTMENT SECURITIES 21,088 19,978
NET (INCREASE) DECREASE IN LOANS AND LEASES (4,046) 12,365
INCREASE / (DECREASE) IN DEFERRED LOAN FEES 166 (114)
INCREASE / (DECREASE) IN UNEARNED LEASE INCOME (51) 12
RECOVERIES OF LOANS AND LEASES CHARGED OFF 137 439
PURCHASES OF PROPERTY (331) (142)
PROCEEDS FROM SALE OF PROPERTY 4 19
PROCEEDS FROM SALE OF OTHER REAL ESTATE OWNED 770 2,321
ADDITIONS TO REAL ESTATE OWNED (80)
------- -------
NET CASH USED IN INVESTING ACTIVITIES 8,707 (9,102)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE / (DECREASE) IN DEPOSITS 18,093 9,997
INCREASE / (DECREASE) IN SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
PROCEEDS FROM EXERCISE OF COMMON STOCK OPTIONS 8
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 18,101 9,997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29,604 3,054
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 23,315 26,781
------- -------
CASH AND CASH EQUIVALENTS ON JUNE 30, 1994 52,919 29,835
======= =======
5
CALIFORNIA COMMERCIAL BANKSHARES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
-----------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
THE ACCOMPANYING UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES FOR INTERIM FINANCIAL INFORMATION AND WITH THE INSTRUCTIONS
TO FORM 10-Q AND RULE 10-01 OF REGULATION S-X. ACCORDINGLY, THEY DO NOT
INCLUDE ALL OF THE INFORMATION AND FOOTNOTES REQUIRED BY GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES FOR COMPLETE FINANCIAL STATEMENTS. IN THE
OPINION OF MANAGEMENT, ALL ADJUSTMENTS (CONSISTING OF NORMAL RECURRING
ACCRUALS) CONSIDERED NECESSARY FOR A FAIR PRESENTATION HAVE BEEN
INCLUDED. OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1995 ARE
NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE EXPECTED FOR THE
YEAR ENDED DECEMBER 31, 1995.
NOTE 2 - EARNINGS PER SHARE WERE COMPUTED BASED ON THE FOLLOWING WEIGHTED
AVERAGE OUTSTANDING SHARES:
SIX MONTHS ENDED JUNE 30, 1995..........2,459,000
SIX MONTHS ENDED JUNE 30, 1994..........2,423,000
6
CALIFORNIA COMMERCIAL BANKSHARES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
THE PURPOSE OF THIS DISCUSSION IS TO PROVIDE ADDITIONAL INFORMATION ABOUT THE
COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS WHICH IS NOT OTHERWISE
APPARENT FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THIS INTERIM
REPORT. SINCE THE BANKING SUBSIDIARY REPRESENTS MOST OF THE COMPANY'S ACTIVITY
AND INVESTMENT, THE FOLLOWING DISCUSSION RELATES PRIMARILY TO THE FINANCIAL
CONDITION AND OPERATIONS OF THE BANK. IT SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO.
THE FOLLOWING CHART SHOWS COMPARATIVE DATA FOR SELECTED ITEMS OF THE FINANCIAL
STATEMENTS:
AVERAGES FOR THE THREE MONTHS ENDED
PERCENT
JUNE 30 JUNE 30 INCREASE/
1995 1994 (DECREASE)
-------- -------- ----------
(IN THOUSANDS)
TOTAL ASSETS: $300,452 $326,225 ( 7.90)
INVESTMENT SECURITIES: 52,717 82,382 (36.01)
FED FUNDS SOLD: 23,178 15,356 50.94
GROSS LOANS: 200,359 201,687 ( 1.10)
TOTAL DEPOSITS: 274,629 300,153 ( 8.50)
INTEREST BEARING DEPOSITS 180,263 197,674 ( 8.81)
OTHER INTEREST BEARING LIABILITIES: 2,351 2,463 ( 4.55)
AVERAGES FOR THE SIX MONTHS ENDED
PERCENT
JUNE 30 JUNE 30 INCREASE/
(IN THOUSANDS) 1995 1994 (DECREASE)
------- ------- ----------
TOTAL ASSETS: $296,979 $320,942 ( 7.47)
INVESTMENT SECURITIES: 56,992 73,014 (21.94)
FED FUNDS SOLD: 14,359 16,343 (12.14)
GROSS LOANS: 201,218 206,032 ( 2.34)
TOTAL DEPOSITS: 270,914 295,181 ( 8.22)
INTEREST BEARING DEPOSITS 178,954 198,099 ( 9.67)
OTHER INTEREST BEARING LIABILITIES: 2,600 2,407 8.01
7
THE DECREASE IN AVERAGE ASSETS, AVERAGE LOANS AND AVERAGE DEPOSITS FOR THE THREE
AND SIX MONTHS ENDING JUNE 30, 1995 COMPARED TO THE SAME PERIODS OF 1994
REFLECTS THE RECESSIONARY ECONOMY IN ORANGE COUNTY, INCREASED COMPETITION BY
MONEY MARKET MUTUAL FUNDS AND OTHER FINANCIAL INSTITUTIONS FOR DEPOSIT BALANCES,
INTENTIONAL RUNOFF OF HIGHER COST TIME DEPOSITS AND AN EMPHASIS BY THE BANK ON
IMPROVING ASSET QUALITY AND COLLECTING LOANS RATHER THAN ON GENERATING NEW
BUSINESS.
THE FOLLOWING TABLE SHOWS AVERAGE EARNING ASSETS AND INTEREST BEARING
LIABILITIES AND THEIR RELATIVE COST AND YIELD WITHOUT LOAN FEES AND LOAN COSTS.
FOR THE THREE MONTHS ENDED JUNE 30
1995 1994
-------------- --------------
PERCENT
INCREASE/ YIELD
AMT YLD AMT YLD (DECREASE) DIFF
-------- ---- -------- ---- ---------- ----
(IN THOUSANDS)
AVERAGE EARNING
ASSETS $276,255 8.69 $299,425 7.36 (7.74) 1.33
AVERAGE INTEREST
BEARING LIABILITIES $182,614 3.92 $200,137 3.16 (8.76) .76
FOR THE SIX MONTHS ENDED JUNE 30
1995 1994
-------------- --------------
PERCENT
INCREASE/ YIELD
AMT YLD AMT YLD (DECREASE) DIFF
-------- ---- -------- ---- ---------- ----
(IN THOUSANDS)
AVERAGE EARNING
ASSETS $272,569 8.70 $295,392 7.22 (7.73) .97
AVERAGE INTEREST
BEARING LIABILITIES $181,554 3.85 $198,099 3.15 (8.35) .70
8
ACCORDING TO COMPANY POLICY LOANS PAST DUE 90 DAYS OR MORE AS TO INTEREST OR
PRINCIPAL PAYMENTS ARE PLACED ON NON-ACCRUAL. LOANS ACCOUNTED FOR ON A NON-
ACCRUAL BASIS AMOUNTED TO $11,690,000 ON JUNE 30, 1995 AS COMPARED TO
$14,331,000 ON JUNE 30, 1994. OTHER REAL ESTATE OWNED TOTALED $5,868,000 ON
JUNE 30, 1995 AS COMPARED TO $4,049,000 ON JUNE 30, 1994.
THE FOLLOWING TABLE SHOWS THE TOTAL CHARGE OFFS, RECOVERIES AND THE NET RESULT
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994.
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
------------- -------------
JUNE 30 JUNE 30
1995 1994 1995 1994
----- ----- ----- -----
CHARGE OFFS 1,178 2,829 1,798 3,174
RECOVERIES 72 174 137 439
NET CHARGE OFFS
(RECOVERIES) 1,106 2,655 1,661 2,735
IN VIEW OF CONTINUED UNCERTAINTIES IN THE U.S. ECONOMY IN GENERAL AND REAL
ESTATE MARKET IN SOUTHERN CALIFORNIA, IN PARTICULAR, THE COMPANY HAS CONTINUED
ADDING SUBSTANTIAL AMOUNT TO ITS RESERVE FOR LOAN LOSSES. FOR THE THREE MONTHS
AND SIX MONTHS ENDED JUNE 30, 1995 THE COMPANY ADDED $225,000 AND $1,000,000
RESPECTIVELY TO ITS RESERVE WHICH COMPARES WITH $1,020,000 AND $1,620,000 FOR
THE SAME PERIODS IN 1994. THE RESERVE BALANCE AS OF JUNE 30, 1995 WAS
$4,999,000 WHICH WAS 2.52% OF TOTAL LOANS AND LEASES WHICH COMPARES WITH
$6,107,000 AND 3.15%, RESPECTIVELY, ON JUNE 30, 1994.
RESULTS OF OPERATIONS
INTEREST INCOME AND INTEREST EXPENSE
------------------------------------
THE COMPANY'S PRIMARY SOURCE OF REVENUE IS INTEREST INCOME. THE NET
YIELD WITHOUT THE LOAN FEES ON INTEREST EARNING ASSETS INCREASED TO 6.10% AND
6.14% FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1995 FROM 5.24% AND
5.11% DURING THE FIRST QUARTER OF 1995 FROM 4.96% FOR THE SAME PERIODS OF 1994.
THE NET INTEREST INCOME WITHOUT THE LOAN FEES INCREASED FROM $3,915,000 AND
$7,478,000 FOR THE THREE AND SIX MONTHS ENDING JUNE 30, 1994 TO
9
$4,198,000 AND $8,299,000 FOR THE SAME PERIODS OF 1995. THIS WAS LARGELY DUE TO
IMPROVED SPREADS IN INTEREST EARNINGS. THE AVERAGE YIELD ON EARNING ASSETS
INCREASED BY 1.33% FROM 7.36% IN THE SECOND QUARTER OF 1994 TO 8.69% IN 1995 AND
BY 1.48% FROM 7.22% FOR THE SIX MONTHS ENDING JUNE 30, 1994 TO 8.70% FOR THE
SAME PERIOD OF 1995. THE AVERAGE INTEREST RATE PAID ON INTEREST BEARING
LIABILITIES INCREASED BY .72% FROM 3.20% IN THE SECOND QUARTER OF 1994 TO 3.92%
IN 1995 AND BY .74% FROM 3.11% FOR THE SIX MONTHS ENDING JUNE 30, 1994 TO 3.85%
FOR THE SAME PERIODS OF 1995. THIS WAS PARTLY OFFSET BY CONTINUED DECLINE IN
AVERAGE OUTSTANDING LOANS AND OTHER EARNING ASSETS AS THE COMPANY FOCUSED ON
MONITORING THE PERFORMANCE OF THE OUTSTANDING LOANS, IDENTIFYING POTENTIAL
PROBLEMS AND COLLECTING IDENTIFIED PROBLEM LOANS AND REAL ESTATE OWNED. AT THE
SAME TIME, THE COMPANY HAS MAINTAINED ITS REFINED LOAN UNDERWRITING AND APPROVAL
PROCESS, SEEKING HIGHER QUALITY CREDITS WHICH REDUCED THE VOLUME OF LOANS
MEETING THE TIGHTENED CRITERIA.
THE FOLLOWING TABLE SHOWS THE AVERAGE BALANCES OF INTEREST EARNING ASSETS AND
INTEREST BEARING LIABILITIES AND INTEREST EARNED AND PAID ON THOSE BALANCES.
THREE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
AVERAGE INTEREST AVERAGE INTEREST
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- -------- ------- -------- --------
SECURITIES 52,717 730 5.55 82,382 1,027 5.00
FED FUNDS 23,178 341 5.91 15,356 143 3.74
LOANS 200,359 4,914 9.84 201,687 4,324 8.60
------- ----- ----- ------- ------ ----
TOTAL 276,254 5,985 8.69 299,425 5,494 7.36
------- ----- ----- ------- ------ ----
LIABILITIES
SAVINGS 119,744 850 2.85 119,809 756 2.53
TIME 60,519 885 5.86 77,864 770 3.97
OTHER 2,351 52 8.88 2,463 53 8.63
------- ----- ---- ------- ----- ----
TOTAL 182,614 1,787 3.92 200,136 1,579 3.20
-------- ----- ---- ------- ----- ----
NET INTEREST
INCOME 4,198 3,915
YIELD ON EARNING
ASSETS 6.10 5.24
10
SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
---------------------------- -------------------------
AVERAGE INTEREST AVERAGE INTEREST
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- -------- ------- -------- --------
SECURITIES 56,992 1,539 5.45 73,014 1,759 4.86
FED FUNDS 14,359 419 5.89 16,343 263 3.23
LOANS 201,218 9,804 9.83 206,032 8,547 8.37
------- ----- ---- ------- ------ ----
TOTAL 272,569 11,762 8.70 295,389 10,569 7.22
------- ------ ---- ------- ------ ----
LIABILITIES
SAVINGS 119,882 1,692 2.85 119,423 1,470 2.48
TIME 59,072 1,669 5.70 78,676 1,511 3.87
OTHER 2,600 102 7.95 2,407 110 9.25
------- ----- ---- ------- ----- ----
TOTAL 181,554 3,463 3.85 200,506 3,091 3.11
------- ----- ---- ------- ----- ----
NET INTEREST
INCOME 8,299 7,478
YIELD ON EARNING
ASSETS 6.14 5.11
OTHER INCOME AND OTHER EXPENSES - NON-INTEREST INCOME INCREASED SLIGHTLY BY
-------------------------------
$17,000 TO $530,000 IN THE SECOND QUARTER OF 1995 FROM $513,000 IN THE SECOND
QUARTER OF 1994. FOR THE SIX MONTHS ENDING JUNE 30, 1995, THE NON-INTEREST
INCOME DECREASED BY $93,000 TO $939,000 COMPARED TO $1,032,000 FOR THE SAME
PERIOD A YEAR AGO. THE DECLINE WAS LARGELY IN TWO CATEGORIES:
1. ESCROW FEES DECREASED BY $100,000 FROM $186,000 FOR THE SIX MONTHS OF 1994
TO $86,000 IN 1995. THE DECLINE WAS DUE TO CONTINUED SLOW ESCROW ACTIVITY AND
REORGANIZING THE ESCROW DIVISION.
2. DURING FIRST QUARTER OF 1995 THE COMPANY SOLD SOME SECURITIES IN THE AMOUNT
OF APPROXIMATELY $21,000,000 AT A LOSS OF $72,000. THESE SECURITIES WERE
ORIGINALLY PURCHASED WITH VERY SHORT MATURITIES TO MEET A PROJECTED CASH OUTFLOW
DURING THE FIRST QUARTER OF 1995.
11
NON-INTEREST EXPENSE INCREASED BY $789,000 FROM $3,599,000 IN THE SECOND QUARTER
OF 1994 TO $4,388,000 IN 1995. FOR THE SIX MONTHS ENDING JUNE 30, 1995 THE
EXPENSE INCREASED BY $996,000 FROM $6,954,000 IN 1994 TO $7,950,000 IN 1995.
FOLLOWING IS A SUMMARY OF INCREASE IN VARIOUS CATEGORIES OF NON-INTEREST EXPENSE
FOR THE SECOND QUARTER OF 1995 AND SIX MONTH ENDING JUNE 30, 1995 COMPARED TO
THE SAME PERIODS OF 1994.
SIX MONTHS THREE MONTHS
SALARIES & BENEFITS $334,000 $256,000
OCCUPANCY, FURNITURE & EQ. 61,000 19,000
DATE PROCESSING (5,000) 2,000
SUPPLIES 42,000 11,000
LEGAL FEES 183,000 220,000
REGULATORY ASSESSMENTS (81,000) (58,000)
LOSSES (GAIN) ON OREO 273,000 207,000
OTHER 189,000 132,000
-------- --------
TOTAL $996,000 $789,000
THE MAJOR INCREASES WERE IN THE CATEGORIES OF SALARIES AND BENEFITS WHICH WAS
DUE TO ADDITION TO THE STAFF TO MEET THE PROJECTED FUTURE GROWTH, AND LEGAL FEES
AND LOSSES ON OREO WHICH CONTINUES TO REMAIN HIGH AS THE BANK CONTINUES TO
RESOLVE PROBLEM LOANS AND DISPOSE OF FORECLOSURE PROPERTIES.
ACCOUNTING PRONOUNCEMENTS
-------------------------
IN MAY 1993, THE FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") ISSUED STATEMENT
ON FINANCIAL ACCOUNTING STANDARDS NO. 114 ("SFAS 114"), "ACCOUNTING BY CREDITORS
FOR IMPAIRMENT OF A LOAN" AS AMENDED BY SFAS 118, "ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN-INCOME RECOGNITION AND DISCLOSURES". UNDER THE PROVISIONS
OF SFAS 114, A LOAN IS CONSIDERED IMPAIRED WHEN, BASED ON CURRENT INFORMATION
AND EVENTS, IT IS PROBABLE THAT A CREDITOR WILL BE UNABLE TO COLLECT ALL AMOUNTS
DUE ACCORDING TO THE CONTRACTUAL TERMS OF THE LOAN AGREEMENT. SFAS 114, AS
AMENDED, REQUIRES CREDITORS TO MEASURE IMPAIRMENT OF A LOAN BASED ON THE PRESENT
VALUE OF EXPECTED FUTURE CASH FLOWS DISCOUNTED AT THE LOAN'S EFFECTIVE INTEREST
RATE. IF THE MEASURE OF THE IMPAIRED LOAN IS LESS THAN THE RECORDED INVESTMENT
IN THE LOAN, A CREDITOR WILL RECOGNIZE AN IMPAIRMENT BY CREATING A VALUATION
ALLOWANCE WITH A CORRESPONDING CHARGE TO BAD DEBT EXPENSE. THIS STATEMENT ALSO
APPLIES TO RESTRUCTURED LOANS AND ELIMINATES THE REQUIREMENT TO CLASSIFY LOANS
THAT ARE IN-SUBSTANCE FORECLOSURES AS FORECLOSED
12
ASSETS EXCEPT FOR LOANS WHERE THE CREDITOR HAS PHYSICAL POSSESSION OF THE
UNDERLYING COLLATERAL, BUT NOT LEGAL TITLE. THE COMPANY ADOPTED SFAS 114
EFFECTIVE JANUARY 1, 1995. THE COMPANY DOES NOT BELIEVE ADOPTION OF THIS
STATEMENT WILL HAVE A MATERIAL IMPACT ON ITS RESULTS OF OPERATIONS OR FINANCIAL
POSITION.
CAPITAL RESOURCES
-----------------
IT IS THE COMPANY'S POLICY TO ALWAYS MAINTAIN ADEQUATE LIQUIDITY IN CASH,
FEDERAL FUNDS AND IN READILY MARKETABLE GOVERNMENT SECURITIES. THE COMPANY'S
TOTAL LIQUID ASSETS ON MARCH 31, 1995 WERE: CASH AND DUE FROM BANKS
$22,894,000, FEDERAL FUNDS SOLD $30,000,000, AND INVESTMENT SECURITIES FREE OF
COLLATERAL $61,669,000; TOTALING $114,563,000 OR 36% OF TOTAL ASSETS.
ADDITIONALLY, THE MAJORITY OF THE COMPANY'S LOANS ARE ON A SHORT TERM BASIS,
MATURING IN APPROXIMATELY ONE YEAR, WHICH, COMBINED WITH LINES OF CREDIT WITH
CORRESPONDENT BANKS, PROVIDES ADDITIONAL LIQUIDITY.
IN DECEMBER 1988, THE COMPANY OBTAINED A $3,000,000 TERM LOAN FROM ANOTHER
FINANCIAL INSTITUTION FOR THE PURPOSE OF PROVIDING ADDITIONAL CAPITAL TO THE
BANK. THE CREDIT AGREEMENT FOR THIS LOAN WAS AMENDED PURSUANT TO A SECOND
AMENDMENT TO THE CREDIT AGREEMENT DATED AUGUST 25, 1994. THE LOAN, AS AMENDED,
BEARS INTEREST AT A FLUCTUATING RATE PER ANNUM EQUAL TO .75% IN EXCESS OF THE
LENDER'S REFERENCE RATE (9.00% AT MARCH 31, 1995). INTEREST IS PAYABLE MONTHLY
ON THE UNPAID PRINCIPAL BALANCE OF THE LOAN. PRINCIPAL IS TO BE REPAID ON
JANUARY 1, 1997. THE SECOND AMENDMENT WAIVES ALL FINANCIAL COVENANTS RELATING
TO THE TERM LOAN. AT JUNE 30, 1995 AND 1994, $2,351,000 REMAINED OUTSTANDING ON
THE LOAN.
THE SECOND AMENDMENT IS SUPPORTED BY A SUPPORT AGREEMENT BETWEEN A SHAREHOLDER
OF THE COMPANY AND THE COMPANY, WHEREBY THE SHAREHOLDER HAS GUARANTEED THE
PAYMENT OF THE LOAN.
TO COMPENSATE THE SHAREHOLDER FOR SIGNING THE SUPPORT AGREEMENT, THE COMPANY
SIGNED A HOLDING COMPANY SUPPORT AGREEMENT WHEREBY THE COMPANY: (1) HAS PAID
THE SHAREHOLDER A STANDBY FEE OF $23,500, (2) WILL PAY A STANDBY FEE EQUAL TO
ONE PERCENT OF THE UNPAID PRINCIPAL AMOUNT OF THE TERM LOAN ON EACH ANNIVERSARY
DATE OF THE CLOSING DATE OF THE HOLDING COMPANY SUPPORT AGREEMENT (3) WILL ISSUE
TO THE SHAREHOLDER ON OR PRIOR TO MARCH 31, 1997 WARRANTS TO PURCHASE 25,000
SHARES OF COMMON STOCK OF THE COMPANY AT AN EXERCISE PRICE PER SHARE EQUAL TO
80% OF THE BOOK VALUE PER SHARE OF THE COMPANY ON DECEMBER 31, 1996.
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ON DECEMBER 31, 1990, NEW RISK BASED CAPITAL REQUIREMENTS BECAME EFFECTIVE.
UNDER THE REQUIREMENTS, HOLDING COMPANIES AND BANKS ARE REQUIRED CURRENTLY TO
MAINTAIN MINIMUM RATIOS OF TOTAL CAPITAL AND "CORE" (TIER 1) CAPITAL TO RISK-
WEIGHTED ASSETS; HOWEVER, UNDER THE TERMS OF ITS FORMAL AGREEMENT WITH THE
COMPTROLLER, THE BANK IS REQUIRED TO MAINTAIN CAPITAL IN EXCESS OF THIS MINIMUM
REQUIREMENT. THE REGULATORY CAPITAL REQUIREMENTS, CAPITAL REQUIREMENTS UNDER THE
FORMAL AGREEMENT AND THE BANK AND COMPANY'S ACTUAL CAPITAL RATIOS ARE SHOWN IN
THE FOLLOWING TABLE AS OF THE DATES INDICATED:
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AT JUNE 30
1995 1994
---------------------------------------- ----------------------------------------
EXCESS EXCESS
PER EXCESS TO PER EXCESS TO
MINIMUM FORMAL TO FORMAL MINIMUM FORMAL TO FORMAL
STATU- AGREE- STATU- AGREE- STATU- AGREE- STATU- AGREE-
TORY MENT ACTUAL TORY MENT TORY MENT ACTUAL TORY MENT
------------------------------------------------------------------------------------------------------------
FOR THE BANK
RISK-BASED CAPITAL:
TIER 1 4.00% N/A 10.15% 6.15% N/A 4.00% N/A 10.04% 6.04% N/A
TOTAL RISK-BASED 8.00% 9.00% 11.40% 3.40% 2.40% 8.00% 9.00% 11.29% 3.29% 2.29%
TIER 1 LEVERAGE
RATIO(1) 4.00% 6.00% 7.18% 3.18% 1.18% 4.00% 6.00% 6.38% 2.38% .38%
FOR THE COMPANY
RISK-BASED CAPITAL:
TIER 1 4.00% N/A 9.38% 5.38% N/A 4.00% N/A 9.29% 5.29% N/A
TOTAL RISK-BASED 8.00% N/A 10.62% 2.62% N/A 8.00% N/A 10.53% 2.53% N/A
TIER 1 LEVERAGE
RATIO 4.00% N/A 6.69% 2.69% N/A 4.00% N/A 5.94% 1.94% N/A
_______________
(1) IN SOME CIRCUMSTANCES THIS MINIMUM RATIO MAY BE 3%.
AS OF JUNE 30, 1995 AND 1994, THE BANK AND THE COMPANY WERE IN COMPLIANCE WITH
STATUTORY RISK-BASED CAPITAL REQUIREMENTS AND THE BANK WAS IN COMPLIANCE WITH
THE MORE STRINGENT CAPITAL REQUIREMENTS IMPOSED BY THE FORMAL AGREEMENT.
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CALIFORNIA COMMERCIAL BANKSHARES
SIGNATURES:
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES AND EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
CALIFORNIA COMMERCIAL BANKSHARES
(REGISTRANT)
DATE: AUGUST 14, 1995 WILLIAM H. JACOBY
------------------ ----------------------------
WILLIAM H. JACOBY
PRESIDENT, CEO
DATE: AUGUST 14, 1995 ABDUL S. MEMON
----------------- ----------------------------
ABDUL S. MEMON
CHIEF FINANCIAL OFFICER
16