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 March 31, 1997
Commission File Number 2-78788
CALIFORNIA COMMERCIAL BANKSHARES
--------------------------------
CALIFORNIA 95-3819471
------------------- --------------
(State of Other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
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 3,040,000.
1
CALIFORNIA COMMERCIAL BANKSHARES
INDEX
PART I. FINANCIAL INFORMATION
_________________________________________________
Item 1. Financial Statements.
Consolidated Condensed Statements of Income for three months
ended March 31, 1997 and March 31, 1996.
Consolidated Condensed Balance Sheets March 31, 1997 and
December 31, 1996.
Consolidated Statement of Cash Flow for the three months
ended March 31, 1997 and March 31, 1996.
Notes to Consolidated Financial Statements March 31, 1997.
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)
Three Months Ended March 31,
1997 1996
---- ----
INTEREST AND FEE INCOME:
Loans and Leases 5,193 4,770
Investment Securities 1,088 928
Federal Funds Sold 330 573
----- -----
Total Interest and Fee Income 6,611 6,271
INTEREST EXPENSE:
Deposits 1,473 1,664
Securities Sold Under Agreement
to Repurchase 6 0
Note Payable 43 59
----- -----
Total Interest Expense 1,522 1,723
NET INTEREST INCOME 5,089 4,548
PROVISION FOR LOAN/LEASE LOSSES 150 300
NET INTEREST INCOME AFTER PROVISION
FOR LOAN/LEASE LOSSES 4,939 4,248
OTHER INCOME:
Escrow Fees 155 121
Service Charges 276 291
Securities gains or (losses) 0 0
Other Income 233 291
----- -----
Total Other Income 664 703
OTHER EXPENSES:
Salaries and Employee Benefits 1,934 2,178
Occupancy, Furniture and Equipment 581 511
Data Processing 295 218
Supplies 91 97
Legal Fees 320 198
Regulatory Assessments 157 140
Losses on OREO 69 99
Other 590 726
----- -----
Total Other Expenses 4,037 4,167
INCOME BEFORE INCOME TAXES 1,566 784
INCOME TAXES 627 314
NET INCOME 939 470
EARNINGS PER COMMON SHARE $0.30 $0.16
3
CALIFORNIA COMMERCIAL BANKSHARES
CONSOLIDATED CONDENSED BALANCE SHEETS
(000'S Omitted)
ASSETS
March 31 December 31
1996 1995
-------- -----------
Cash and Due From Banks
Non Interest-bearing $31,282 $28,849
Investment Securities - Available for Sale 75,738 91,504
Federal Funds Sold 25,000 14,500
Loans, net of unearned interest:
Commercial 84,534 80,927
Real Estate - Construction 27,163 25,875
Real Estate - Equity Line 6,939 7,487
Real Estate - Mortgage 74,358 72,617
Installment and Other 22,012 19,706
Lease Contracts Receivable 2,245 2,663
-------- --------
217,251 209,275
Less: Deferred Loan Fees & Costs (330) (442)
-------- --------
216,921 208,833
Less: Reserve for Loan Loss (5,231) (5,417)
-------- --------
Total Loans, net 211,690 203,416
-------- --------
Loans Available for Sale 1,230 1,234
Real Estate Owned 3,333 2,657
Bank Premises, Furniture & Equipment 1,339 1,435
Accrued Interest Receivable 2,278 2,668
Deferred Income Taxes 2,541 2,541
Prepaid Expenses and Other Assets 1,669 2,660
--------- ---------
Total Assets $356,100 $351,464
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand Deposit
Non Interest Bearing $139,104 $146,257
Interest Bearing 87,095 72,845
Savings Deposits 46,079 46,179
Time Certificates $100,000 and over 33,365 32,324
Other Time Deposits 19,202 21,099
--------- ---------
Total Deposits 324,845 318,704
Securities Sold Under Agreement to Repurchase 600
Note Payable 350 2,350
Interest Payable 158 148
Other Liabilities 4,118 5,262
Shareholders Equity:
Capital Stock - Authorized 10,000,000 shares;
Issued and outstanding 3,040,000 in 1997 and
2,944,000 in 1996 14,680 14,382
Paid in Capital 497 497
Retained Earnings 11,184 10,244
Unrealized Gain (Loss) on investment securities
available for sale (net of tax) (332) (123)
-------- --------
Total Liabilities and Shareholders Equity 356,100 351,464
-------- --------
-------- --------
4
CALIFORNIA COMMERICAL BANKSHARES
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(000's Omitted)
(Unaudited)
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) 939 470
Adjustments to reconcile net income (loss) to net
cash from operating activities:
Depreciation and Amortization 128 104
Amortization of discounts and premiums on
investment securities available for sale (97) 140
Provision for loan and lease losses 150 300
Provision for selling expenses on other real
estate owned 43
Loss (gain) on sale of other real estate owned 20
(Gain) loss on sale of other real estate owned (35)
Decrease (increase) in accrued interest
receivable 390 145
(Decrease) increase in deferred loan fees (112) (202)
Increase (decrease) in unearned lease income (49) 24
(Increase) decrease in other assets 1,182 393
Net increase (decrease) in interest payable and
other liabilities (535) 575
------ ------
Net cash from operating activities 2,004 1,969
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities
available for sale 55,022 13,079
Purchase of investment securities available for
sale (39,558) (26,053)
Net (increase) decrease in loans and investment in
leases (9,180) (186)
Recoveries of loans and investment in leases 51 148
Purchases of property (31) (167)
Additions to other real estate owned (142)
Proceeds from sale of other real estate owned 186
------ --------
Net cash from investing activities 6,490 (13,321)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in deposits 6,141 (283)
(Decrease) increase in note payables (2,000) (1)
Proceeds from excercise of common stock options 298 70
------ --------
Net cash from financing activities 4,439 (214)
Net (Decrease) Increase In Cash And Cash Equivalents 12,933 (11,566)
Cash And Cash Equivalents At Beginning Of Year 43,349 73,549
Cash And Cash Equivalents At March 31 56,282 61,983
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 three months
ended March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997.
Note 2 - Earnings per share were computed based on the following weighted
average outstanding shares:
Three Months Ended March 31, 1997..........3,142,000
Three Months Ended March 31, 1996..........2,939,000
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:
Percent
March 31 March 31 Increase/
1997 1996 (Decrease)
-------- -------- ----------
(in thousands)
Averages for the Three Months Ended:
Total Assets $347,419 $329,468 5.45
Investment securities 73,997 63,136 17.20
Fed funds sold 25,989 43,330 (40.20)
Gross loans 212,817 195,141 9.06
Total deposits 314,649 303,405 3.71
Interest bearing deposits 178,686 183,370 (2.55)
Other interest bearing liabilities 2,642 2,350 12.43
Results of Operations:
Interest Income 6,611 6,271 5.42
Interest Expense 1,522 1,723 (11.67)
NET INTEREST INCOME 5,089 4,548 11.90
Provision for loan losses 150 300 (50.00)
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,939 4,248 16.27
Non-interest income 664 703 (5.55)
Non-interest expense 4,037 4,167 (3.12)
INCOME (LOSS) BEFORE INCOME
TAXES 1,566 784 99.74
Income tax expense (benefit) 627 314 99.68
NET INCOME (LOSS) 939 470 99.79
Ending Balance Sheet Data:
Assets 356,100 334,466 6.47
Securities 76,341 74,976 1.82
Loans, net of deferred fees
and costs 218,152 193,874 12.52
Allowance for loan losses 5,231 6,737 (22.35)
Deposits 324,845 308,223 5.39
Borrowed funds 350 2,350 (85.11)
Common shareholders' equity 26,029 21,389 21.69
7
Per Share Data and Other Selected Ratios:
Earnings (loss) per common and common
equivelant share .30 .16 87.50
Dividends declared per share 0 0 N/A
Book value per share 8.56 7.26 17.91
Shareholders' equity to assets
at period end 7.31 6.40 14.30
Return on average assets 1.10 .57 92.98
Return on average equity 14.73 8.87 66.07
Average equity/average assets 7.44 6.47 14.99
Net intertest margin 6.60 6.07 8.73
During the first quarter of 1997, the Company continued its efforts of
controlling costs and improving asset quality as well as maintaining projected
growth. The growth was achieved in total assets including total loans and total
earning assets as well as total deposits.
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 March 31,
1997 1996 Percent
Increase/ Yield
(in thousands) Amt Yld Amt Yld (Decrease) Diff
--- --- --- --- ----
Average Earning
Assets $312,803 8.32 $301,606 8.01 3.71 .31
Average interest
bearing liabilities $178,686 3.45 $185,720 3.73 (3.79) (.28)
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 $3,194,000 on March 31, 1997 as compared to
$15,144,000 on March 31, 1996. Other real estate owned totaled $3,333,000 on
March 31, 1997 as compared to $2,598,000 on March 31, 1996.
The Company follows SFAS 114 with respect to impaired loans which states - "A
loan is impaired when, based on current financial 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...All amounts due according to the
contractual terms means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as scheduled in the
loan agreement." (See Accounting Pronouncements)
A loan is not considered impaired during a period of delay in payment if the
Company expects to collect all amounts due including interest accrued at the
contractual interest rate for the period of delay. Six months is the maximum
period of delay allowed before a loan is considered impaired. As of March 31,
1997 the aggregate amount of impaired loans measured under present value method
and fair value methods were $4,901,000.
The following loans are exempt from SFAS 114 due to their characteristics as
smaller balance homogeneous loans: credit card loans, leases, overdraft
protection loans and consumer loans. Risk in these loans is accounted for by
applying an historic loss percentage to the loan pool.
Difference between non accrual and impaired loans:
8
Non Accrual Loans - These loans are on non accrual primarily for one of two
reasons; 1) the loan is past due in interest or principal payments for 90 days
or more but sufficient collateral is held to offset any potential loss, or 2)
full payment of all principal plus interest is doubtful.
Impaired Loan - A loan can be impaired also for two reasons; 1) a restructure of
the original note has occurred resulting in a reduced interest rate. The loan
is then considered impaired due to present value calculations, or 2) full
collection of all principal and interest as currently scheduled is not expected.
The Company's policy with respect to the recognition of interest income for
impaired loans is to recognize the income on an accrual basis for only those
loans that are not on non accrual. If the loan is on non accrual the interest
received is generally not recognized as income but instead is applied as
reduction to the principal. Income may be recognized on a cash basis on non
accrual only if the net principal balance is adequately covered by collateral
and has shown a minimum of six months performance since being restructured.
According to Company policy a loan that is not performing or has been non
performing for over 90 days is charged off unless sufficient collateral is held
to offset the loss amount. If collateral is held, then appropriate measures
should be taken to obtain possession of the collateral for immediate sale. This
policy applies to all types of loans including impaired loans.
The following table shows the total charge offs, recoveries and the net result
for the three months ended March 31, 1997 and 1996.
Three Months Ended:
March 31
1997 1996
---- ----
(in thousands)
Charge Offs 386 253
Recoveries 51 148
Net Charge Offs 335 105
For the three months ended March 31, 1997 and 1996 the Company added $150,000
and $300,000 respectively to its reserve for loan and lease losses. The reserve
balance as of March 31, 1997 was $5,147,000 which was 2.40% of total loans and
leases which compares with $6,736,000 and 3.47%, respectively, on March 31,
1996.
RESULTS OF OPERATIONS
INTEREST INCOME AND INTEREST EXPENSE
The Company's primary source of revenue is interest income. The average
interest earning assets increased to $312,803,000 in the first quarter of 1997
compared to $301,607,000 in the first quarter of 1996. The net interest income
without the loan fees increased from $4,284,00 to $4,892,000 from the first
quarter of 1996 to the same period of 1997. The net yield without the loan
fees increased from 5.71 to 6.34 as the yield on earning assets increased from
8.01% to 8.32% from the first quarter of 1996 to first quarter of 1997. This
was due to a significant reduction in nonperforming loans which declined from
$15,144,000 on March 31, 1996 to $3,194,000 on March 31, 1997. The Company
continued to focus 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.
9
The following table shows the average balances of interest earning assets and
interest bearing liabilities and interest (excluding loan fees and costs)
earned and paid on those balances.
1st Quarter 1997 1st Quarter 1996
---------------- ----------------
(in thousands except for interest rates)
Average Interest Average Interest
Balance Interest Rate Balance Interest Rate
Assets ------- -------- ---- ------- -------- -----
Securities 73,997 1,088 5.96 61,136 928 5.91
Fed Funds 25,989 330 5.15 43,330 573 5.32
Loans 212,817 4,996 9.52 195,141 4,505 9.29
------- ----- ---- ------- ----- ----
TOTAL 312,803 6,414 8.32 301,607 6,007 8.01
------- ----- ---- ------- ----- ----
Liabilities
Savings 127,081 858 2.74 119,168 843 2.85
Time 51,606 616 4.84 64,203 821 5.14
Other 2,642 49 7.52 2,350 59 10.09
------- ----- ---- ------- ----- -----
TOTAL 181,329 1,523 3.40 185,720 1,723 3.73
------- ----- ---- ------- ----- ----
Net Interest Income 4,891 4,284
Net Spread on Earning
Assets 6.34 5.71
In recent months, the continued recovery of the Southern California economy,
particularly in Orange County, has resulted in strong growth in deposits at the
Company, significantly above historical growth. Although the Company has also
seen continued improvement in loan demand consistent with overall market growth
during the continued recovery of the Southern California economy, the increase
in demand to date has not been sufficient to permit the Company fully to utilize
new deposits to fund loans, and accordingly the Company has increased its
relative holdings of securities investments. Management of the Company believes
that loan demand will continue to improve, but there can be no assurance that
there will be sufficient loan demand in the future to keep pace with increases
in deposits such that desirable levels of securities held relative to loans can
be maintained.
OTHER INCOME AND OTHER EXPENSES - Non-interest income decreased by $39,000 to
$664,000 in the first quarter of 1997 compared to $704,000 for the same period a
year ago. The decrease was largely due to decrease in Rental Income on
foreclosed properties which declined from $53,000 in the first quarter 1996 to
$14,000 in 1997.
Non-interest expense decreased by $130,000 from $4,167,000 in the first quarter
of 1996 to $4,037,000 in 1997. Following is a summary of changes in various
categories of non-interest expense for the first quarter of 1997 compared to the
same period of 1996.
Advertising $(23,000)
Loan Related Expense (36,000)
Salaries & Benefits (244,000)
Occupancy, Furniture & Eq. 70,000
Data Processing 77,000
Legal Fees 122,000
Regulatory Assessments 17,000
Losses on OREO (30,000)
Overdrafts & Credit Card Losses (58,000)
Other (25,000)
----------
Total $(130,000)
10
The major increases or decreases were in the following categories:
1. Salaries and benefits decreased due to reorganization of bank operations and
business development which resulted in reduced overhead.
2. Data Processing increased due to increases related to data processing
expenses that the Bank pays for its customers who maintain large profitable
accounts.
3. Legal fees remained high as the Bank continues to resolve litigation matters.
4. Occupancy expense increased due to increased rent and amortization of
upgraded equipment and software.
ACCOUNTING PRONOUNCEMENTS
On January 1, 1996, the Company adopted a Statement on Special Accounting
Standards ("SFAS") No. 121, "Accounting for the impairment of Long-Lived Assets
to Be Disposed Of." This Statement requires that long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, or to be disposed of, be reviewed for impairment based on the fair value
of the asset. Furthermore, this Statement requires that certain long-lived
assets and identifiable intangibles to be disposed of, be reported at the lower
of carrying amount of fair value less cost to sell. The Company has determined
that the impact of this Statement on its operations and financial position is
not material.
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock based compensation using the intrinsic value method prescribed in
Accounting Principal Board No. 25, "Accounting for Stock Issued to Employees,"
and related interpretations. Accordingly, compensation cost for stock options
is measured as the excess, if any, of the quoted market price of the Company's
stock on the date of the grant over the amount an employee must pay to acquire
the stock.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," as amended in December 1996 by SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of SFAS No. 125." This Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. SFAS No. 125 applies prospectively
to financial statements for fiscal years beginning after March 31, 1997.
However, SFAS No. 127 defers for one year the effective date of certain
provisions within SFAS No. 125. SFAS No. 125 does not permit earlier or
retroactive application. As of March 31, 1997, the Company has not adopted SFAS
No. 125, as amended by SFAS No. 127; however, the Company does not believe the
impact on its operations and financial position will be material upon adoption.
LIQUIDITY AND 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, 1997 were: Cash and Due From Banks
$31,282,000, Federal Funds Sold $25,000,000, and Investment Securities free of
collateral $66,000,000; totaling $122,282,000 or 34% 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.
11
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 Second Amendment
was supported by a Support Agreement between a shareholder and Director of the
Company and the Company whereby the shareholder 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) paid the
shareholder a standby fee of $23,500 in 1994 and 1995, and 1996 (2) issued to
the shareholder warrants to purchase 25,000 shares of common stock of the
Company at an exercise price of $6.74 per share which was equal to 80% of the
book value per share of the Company on December 31, 1996.
In March of 1996 the shareholder paid off the outstanding balance of $2,350,000
to the lending financial institution to allow the Company to contribute the
maximum amount from the proceeds of the stock offering into the capital of the
Bank. The new note bears an interest rate of 3% over prime rate with interest
only payable quarterly for the first year and thereafter $125,000 plus interest
payable quarterly. The remaining principal and interest is due on April 1,
1999.
In March of 1997 the Company paid down the shareholder $2,000,000, paid an
annual fee of $3,500 at 1% of the remaining $350,000 and issued 3,723 warrants
at an excersize price of $6.74 per share which was equal to 80% of the book
value per share of the Company on December 31, 1996.
On April 1, 1997 the Company paid the remaining $350,000 to the shareholder.
RISK-BASED CAPITAL STANDARDS AND OTHER REGULATORY MATTERS
On April 8, 1992, the Bank executed a Formal Agreement (the "Agreement") with
the Office of the Comptroller of the Currency (the "Comptroller"). On November
15, 1996 the Comptroller as a result of the examination as of September 30,
1996, determined that the continued existence of the Formal Agreement was no
longer necessary and the Agreement was terminated as of that date.
On May 27, 1993, the Company executed a Memorandum of Understanding (the
"Memorandum") with the Federal Reserve Bank of San Francisco (the "Fed"). On
March 13, 1997 the Fed as a result of the examination as of December 31, 1996,
determined that the memorandum was no longer necessary and the memorandum was
terminated as of that date.
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets, liabilities,
and certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings and
other factors.
12
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 to risk weighted assets, and of Tier I
capital to average assets. Management believes, as of March 31, 1997, and 1996
that the Bank meets all capital adequacy requirements to which it is subject.
As of March 31, 1997 and 1996 the most recent notification from the Comptroller
categorized the Bank as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risked-based, Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of March 31, 1997:
Total Capital (to Risk Weighted Assets)
Consolidated $29,541,000 11.70% $20,187,000 8.0% N/A
Subsidiary Bank $28,936,000 11.49% $20,131,000 8.0% $25,164,000 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $26,361,000 10.45% $10,094,000 4.0% N/A
Subsidiary Bank $25,765,000 10.24% $10,066,000 4.0% $15,098,000 6.0%
Tier I Capital (to Average Assets)
Consolidated $26,361,000 7.58% $13,910,000 4.0% N/A
Subsidiary Bank $25,765,000 7.41% $13,898,000 4.0% $17,373,000 5.0%
As of March 31, 1996:
Total Capital (to Risk Weighted Assets)
Consolidated $24,351,000 10.98% $17,710,000 8.0% N/A
Subsidiary Bank $25,749,000 11.62% $17,700,000 8.0% $22,125,000 10.0%
Tier I Capital (to Risk Weighted Assets)
Consolidated $21,535,000 9.73% $8,855,000 4.0% N/A
Subsidiary Bank $22,934,000 10.37% $8,850,000 4.0% $13,275,000 6.0%
Tier I Capital (to Average Assets)
Consolidated $21,535,000 6.53% $13,185,000 4.0% N/A
Subsidiary Bank $22,934,000 6.96% $13,175,000 4.0% $16,469,000 5.0%
LEGAL PROCEEDINGS
From time to time, the Company or the Bank is a party to claims and legal
proceedings arising in the ordinary course of business. Management of the
Company evaluates the Company's or Bank's exposure to the cases individually and
in the aggregate and provides for potential losses on such litigation if the
amount of the loss is determinable and if the incurrence of the loss is
probable. After taking into consideration information furnished by counsel to
the Company or the Bank as to the current status of various claims and legal
proceedings to which the Company or the Bank is a party, management has accrued
$950,000 as a reserve for various litigation pending as of December 31, 1996.
13
Set forth below is a brief summary of the status of litigation against the
Company or the Bank involving claims in excess of $750,000. Management believes
that the reserves which it has established for these matters is adequate at this
time. However, litigation is inherently uncertain and no assurance can be given
that this or any other litigation will not result in any loss which might be
material to the Company.
PDI LITIGATION. NATIONAL BANK OF SOUTHERN CALIFORNIA V. VINCENT E. GALEWICK,
PERFORMANCE DEVELOPMENT, INC. ET. AL (the "PDI Litigation") is an interpleader
action filed by the Bank on August 22, 1995 in the Orange County Superior Court.
The dispute arose from a demand by the California Department of Corporations
under California Government Code Section 7480 on August 17, 1995 for the
identification of account names and account numbers associated with Vincent
Galewick and Performance Development Inc. As a result of receipt of a
declaration by the California Department of Corporations under California
Financial Code Section 952, the Bank froze $12,301,113.01 in their accounts. On
August 21, 1995, a temporary restraining order was issued restraining
Performance Development, Inc., Vincent Galewick and others from transferring
funds. The Bank was thereafter threatened by various parties with lawsuits for
refusal to release the funds, and an attack was made on the applicability of the
temporary restraining order to the funds. The Bank deposited the funds with the
Orange County Superior Court and filed the interpleader action to allow the
court to determine the disposition of the funds. In response, the defendants
filed a cross complaint against the Bank alleging $25 million (the original
claim alleged $45 million and was reduced during discovery) in damages due to
lost opportunities, breach of contract, loss of goodwill and damage to their
reputation due to the inability to use the $12,301,113.01. Additional claims for
an unspecified amount of punitive damages, consequential damages and incidental
damages have been alleged. Discovery has not yet been completed.
A related action was filed by Larry Curran in the Orange County Superior Court
arising out of the same transaction. A request for dismissal, without
prejudice, was filed on behalf of the plaintiff in this action on January 31,
1997.
FIP LITIGATION. In December 1995, Financial Institutions Partners, L.P. ("FIP")
purchased 288,888 shares of the Company's Common Stock (the "Initial Shares") in
a private placement at $6.75 per share ($1,949,994 in the aggregate). Under the
terms of the Company's agreements with FIP, FIP agreed to purchase an additional
266,659 shares of the Company's Common Stock (the "Additional Shares") on or
prior to May 5, 1996, subject to satisfaction of certain closing conditions.
On April 11, 1996, FIP received confirmation from the Federal Reserve Bank of
San Francisco that no regulatory approval was required for the purchase of the
Additional Shares. On April 24, 1996, Hovde Financial, Inc., the corporate
general partner of FIP, purchased 53,909 shares of the Company's Common Stock in
the open market. FIP thereafter refused to purchase the Additional Shares on the
grounds that the PDI Litigation constituted a material adverse change in the
Company's financial condition and therefore the closing conditions were not, and
could not, be satisfied by the Company.
On June 11, 1996, FIP demanded that the Company either (a) extend the agreement
until December 31, 1996 at an increased purchase price based upon the earnings
of the Company from June 1, 1996 through November 30, 1996, or (b) repurchase
the Initial Shares for an amount equal to the purchase price, plus $6.00 per
share, plus nine percent interest, plus FIP's legal, accounting and due
diligence expenses. The Company had periodic discussions with FIP thereafter
regarding the purchase of the Additional Shares, but was unable to reach
agreement with FIP.
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FIP filed a complaint dated December 19, 1996 in the United States District
Court for the Central District of California against the Company, the Bank and
certain of their respective officers and directors alleging violation of Section
10 (b) (5) promulgated under the Securities Exchange Act of 1934, intentional
misrepresentation, negligent misrepresentation and suppression of fact and
rescission of FIP's purchase of the Initial Shares, consequential damages in
excess of $1,650,000 and punitive damages due to the alleged failure by the
Company to disclose all material facts regarding the PDI Litigation. In the
alternative, FIP seeks a declaratory judgement requiring the Company to sell the
Additional Shares to FIP at $6.75 per share if FIP determines it wishes to
purchase such shares following a review of all information regarding the PDI
Litigation.
FIRST PENSION LITIGATION. ROUSSEAU. ET. AL. V. RANCHO VISTA NATIONAL BANK AND
OTHERS is an action brought in the San Diego Superior Court on October 23, 1995
by a class of investors who invested pension funds with First Pension, a pension
plan administrator, alleging claims against various banks who dealt with First
Pension. The plaintiffs have stated claims for fraud and deceit, aiding and
abetting fraud and deceit, breach of fiduciary duty, constructive fraud and
aiding and abetting constructive fraud against a number of financial
institutions, including the Bank. The Bank and certain of its officers were
named as defendants, based on the fact that First Pension deposited investor
pension funds into an account at the Bank of which the Bank agreed to be
custodian. The plaintiffs allege losses of over $130 million due to the combined
alleged wrongdoing of the bank defendants. No specific damage claim was alleged
against the Bank.
In January 1997, the Bank offered to settle the matter or, in the alternative,
to seek an order from the court dismissing the action for failure to prosecute.
A tentative settlement has been reached whereby the Bank would pay $30,000 to be
distributed to the class, less certain fees and expenses. Before this settlement
would be final, a settlement agreement must be executed, the class certified and
the settlement agreement approved by the Court.
EVAN V. HOME BANK AND OTHERS is a suit brought by the receiver for First Pension
and related entities in the Central District of California based on the same
allegations as in the ROUSSEAU matter. The receiver alleges that the Bank
improperly delegated its fiduciary duties as a custodian of pension funds to
First Pension and failed to ensure that all pension assets were transferred to
the successor custodian. Plaintiffs have not alleged a specific damage claim
against the Bank. Discovery on this matter has just commenced.
RECENT DEVELOPMENTS
On December 18, 1996, the Board of Directors of the Company (with one director
absent) approved an Agreement and Plan of Reorganization (the "Merger
Agreement") with Monarch Bancorp ("Monarch"). The Merger Agreement provides
for the merger of the Company with and into Monarch, with Monarch as the
surviving corporation. In connection with the merger, each share of common
stock issued and outstanding at the effective time of the merger (other than
(a) shares which have not been voted in favor of the principal terms of the
merger and with respect to which dissenters' rights have been perfected in
accordance with California law, and (b) shares held directly or indirectly by
Monarch, other than shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted) will be converted into one share of Monarch
common stock. As a result of the merger, holders of common stock immediately
prior to the merger will own approximately 43% of the outstanding common
stock of Monarch.
As a condition to consummation of the merger, each of William H. Jacoby, Robert
L. McKay and Mark H. Stuenkel will be appointed to the Monarch Board of
Directors effective upon consummation of the merger. In addition, Monarch and
the Company have agreed to take all actions necessary to
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consummate the merger of Monarch Bank with and into NBSC, with NBSC as the
surviving corporation.
Consummation of the merger is subject to the satisfaction of certain conditions,
including, (a) the approval by the shareholders of the Company and Monarch of
the principal terms of the merger, (b) receipt of approvals and consents
required by law in connection with the approval of the merger, (c) designated of
the common stock of Monarch for listing on the NASDAQ National Market System,
(d) receipt of an opinion that the merger will be a tax-free reorganization, and
(e) confirmation that the merger may be accounted for as a pooling of interests
(a condition which may be waived by the parties).
More detailed information regarding the merger is set forth in the joint proxy
statement of the Company and Monarch dated May 12, 1997.
On April 29, 1997, Monarch executed an Agreement and Plan of Reorganization with
SC Bancorp which provides for the shareholders of SC Bancorp to receive shares
of Monarch common stock based on a purchase price of $14.25 per share of common
stock of SC Bancorp using a floating exchange ratio and a price range. If the
merger is consummated, shareholders of the Company (other than those perfecting
dissenters' rights) will be entitled to vote on the merger of Monarch and SC
Bancorp at a special meeting called for that purpose.
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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: May 12, 1997 William H. Jacoby
----------------- -------------------------
William H. Jacoby
President
Date: May 12, 1997 Abdul S. Memon
----------------- -------------------------
Abdul S. Memon
Chief Financial Officer
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