SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the Fiscal Year Ended December 31, 2000
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the transition period from __________ to __________
Commission File No: 0-13287
CIVIC BANCORP
(Exact name of registrant as specified in its charter)
California 68-0022322
(State of Incorporation) (I.R.S. Identification Number)
2101 Webster Street, 14th Floor, Oakland, California 94612
(Address of Principal executive offices and zip code)
Registrant's telephone number, including area code: (510) 836-6500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class: Common Stock, no par value
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 (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 ___.
---
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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of Common Stock (no par value) held by non-
affiliates on December 31, 2000 based on closing price on March 1, 2001:
$49,300,000.00.
Number of shares of Common Stock (no par value) outstanding as of
March 1, 2001: 5,000,578.
Documents Incorporated by Reference:
Document Part of Form 10-K
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Proxy Statement for Annual Meeting of Shareholders
to be held May 3, 2001 Part III
PART I - DESCRIPTION OF BUSINESS
ITEM 1 - BUSINESS
General
Civic BanCorp (the "Company") is a California corporation incorporated in 1984
and is registered with the Board of Governors of the Federal Reserve System as a
bank holding company under the Bank Holding Company Act of 1956, as amended.
CivicBank of Commerce (the "Bank") is a wholly-owned subsidiary of the Company,
organized as a California banking corporation in 1984. At present, the Company
does not engage in any material business activities other than the ownership of
the Bank.
CivicBank of Commerce
The Bank is a state chartered bank and is a member of the Federal Reserve
System. Deposits in the Bank are insured to $100,000 by the Federal Deposit
Insurance Corporation ("FDIC"). The Bank is a full service commercial bank
dedicated to providing personalized services to independent businesses and
professional firms with annual sales of $500,000 to $30 million in Alameda, San
Francisco, Santa Clara and Contra Costa counties. The Bank also provides banking
services to individuals who are owners, partners or principals of these
businesses or professional practices, and other corporate executives and
professionals. The Bank offers its clients certain customary banking services,
such as checking, savings and interest-bearing demand, money market and time
deposit accounts; commercial, installment and real estate loans; safe deposit
boxes; automated cash management services; collection services; wire and
telephone transfer services; courier services; lockbox services; and account
reconciliation. The Bank has one operating subsidiary, Pasco Services, Inc.,
which acts as trustee to perform loan servicing and reconveyance services under
deeds of trust held by the Bank and other lenders.
The principal office of the Company and Bank is located at 2101 Webster Street,
Oakland, California, 94612. Their telephone number is (510) 836-6500. The Bank
has three banking offices in Walnut Creek and additional offices in Fremont,
Palo Alto, Concord, Antioch, and San Leandro. The Bank has a loan production
office in San Francisco.
On February 29, 2000, Civic BanCorp acquired the outstanding shares of East
County Bank for approximately $14.6 million in cash. Under the Agreement, East
County Bank was merged with and into CivicBank of Commerce. In addition to its
main office in Antioch, East County Bank had branches in Concord and Walnut
Creek. As of February 29, 2000, East County Bank had total assets of
approximately $79 million, loans of $48 million, deposits of $72 million and
shareholders' equity of $6 million.
Savings and Deposit Activities
The Bank offers customary banking services such as personal and business
checking, savings accounts, time certificates of deposit and IRA accounts. Most
of the Bank's deposits are obtained from commercial businesses, professionals
and individuals with high income or high net worth. At December 31, 2000, the
Bank had a total of 10,124 accounts, consisting of demand deposit accounts with
an average balance of approximately $45,000; savings, NOW and market rate
accounts with an average balance of approximately $29,000; time certificates of
$100,000 or more with an average balance of approximately $285,000; and other
time deposits with an average balance of approximately $23,000. The Bank has not
obtained any deposits through deposit brokers and has no present intention of
using brokered deposits as a source of funding. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Deposits".
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Lending Activities
The Bank concentrates its lending activities in commercial loans, real estate
construction loans and other forms of real estate loans made primarily to
businesses and individuals; it has no foreign loans.
The net loan portfolio as of December 31, 2000, totaled $371.5 million, which
represented 86.6% of total deposits and 74.6% of total assets. The following
table shows the mix of the loan portfolio as of December 31, 2000, 1999 and
1998.
December 31,
--------------------------------------
(In thousands) 2000 1999 1998
--------------------------------------
Commercial loans $ 235,532 $173,124 $146,216
Real estate construction loans 4,427 10,053 7,648
Real estate loans - other 115,693 85,470 62,328
Installment and other loans 22,467 16,890 17,019
--------------------------------------
Subtotal 378,119 285,537 233,211
Less allowance for loan losses 6,573 4,850 4,424
--------------------------------------
LOANS-NET $ 371,546 $280,687 $228,787
======================================
Commercial Loans - As of December 31, 2000, the Bank had outstanding commercial
loans totaling $235.5 million, representing 62.3% of the Bank's total loan
portfolio. The Bank lends primarily to businesses with annual gross revenues of
$500,000 to $30 million and to professionals and other individuals located in
Alameda, San Francisco, Santa Clara and Contra Costa counties. The Bank offers a
variety of commercial lending services, including revolving lines of credit,
working capital loans, equipment financing, letters of credit and inventory
financing. Typically, commercial loans are floating rate obligations and are
priced based on the Bank's reference rate.
The Bank's commercial loans are made on a short-term basis with the majority of
such loans maturing within one year. Commercial loans are typically secured by
several types of collateral, including qualifying accounts receivable,
equipment, inventory, and real estate. No single commercial account customer
accounted for more than 3.1% of total outstanding loans at December 31, 2000.
Real Estate Loans - As of December 31, 2000, the Bank had outstanding real
estate construction loans totaling $4.4 million representing 1.2% of the Bank's
loan portfolio. The Bank makes loans to finance the construction of residential,
commercial and industrial properties and to finance land development.
Other real estate loans, consisting of loans for land development and
"mini-perm" loans totaled $115.7 million at December 31, 2000, of which $101.7
million were mini-perms. Mini-perm loans are available for completed commercial
and retail projects with terms of three to five years and principal and interest
payments based on a 15 to 25 year amortization schedule with a balloon payment
due at the end of the term.
Neither the Bank nor the Company has taken an equity participation in connection
with any real estate acquisition, development and construction loan held by the
Bank.
Installment Loans - Installment loans include loans to individual and business
customers and include home equity loans, automobile loans and other personal
loans.
Banking Services
To retain existing customers and attract new customers, the Bank offers a broad
range of services, including automated teller machines, automated accounting
services, daily courier services and account reconciliation. In addition, the
Bank maintains close relationships with its customers by providing direct access
to senior
3
management, rapid response to customer requests and specialized market area
knowledge of Alameda and Contra Costa counties.
Human Resources
At December 31, 2000, the Bank employed a total of 167 persons, consisting of
144 full time employees and 23 part time employees. There were 158 full time
equivalent employees.
Competition
The Bank actively competes for all types of deposits and loans with other banks
and financial institutions located in its service area, and increased
deregulation of financial institutions has increased competition. Many of the
Bank's competitors have greater financial resources and facilities than the Bank
and may offer certain services, such as trust services, that the Bank does not
presently offer. In addition, California and federal law permit various forms of
nationwide interstate banking with few restrictions. See "Regulation and
Supervision - Interstate Banking". The Company believes that this will further
increase competition as out-of-state financial institutions enter the California
market.
The Bank's strategy for meeting competition has been to maintain a sound capital
base and liquidity position, employ experienced management, and concentrate on
particular segments of the market, particularly businesses with annual revenues
of $500,000 to $30 million and professionals, by offering customers a degree of
personal attention that, in the opinion of management, is not generally
available through the Bank's larger competitors.
See also the discussion below under "Regulation and Supervision - The Company -
Financial Services Modernization Legislation."
Regulation and Supervision
The Company
The Company is a bank holding company within the meaning of the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), and is registered as such with
the Federal Reserve Board ("FRB"). A bank holding company is required to file
with the FRB annual reports and other information regarding its business
operations and those of its subsidiaries. It is also subject to examination by
the FRB and is required to obtain FRB approval before acquiring, directly or
indirectly, ownership or control of any voting shares of any bank, if after such
acquisition it would directly or indirectly own or control more than 5% of the
voting stock of that bank, unless it already owns a majority of the voting stock
of that bank. The BHC Act further provides that the FRB shall not approve any
such acquisition that would result in or further the creation of a monopoly, or
the effect of which may be substantially to lessen competition, unless the
anticompetitive effects of the proposed transaction are clearly outweighed by
the probable effect in meeting the convenience and needs of the community to be
served.
Furthermore, under the BHC Act, a bank holding company is, with limited
exceptions, prohibited from (i) acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any company which is not a bank
or (ii) engaging in any activity other than managing or controlling banks. With
prior notice to the FRB (in the case of "well-capitalized" and "well-managed"
organizations) or with prior approval of the FRB in the case of other
organizations, however, a bank holding company may own shares of a company
engaged in activities which the FRB has determined to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The FRB has by regulation determined that certain activities are so closely
related to banking as to be a proper incident thereto within the meaning of the
BHC Act. These activities include, but are not limited to: operating an
industrial loan company, industrial bank, Morris Plan Bank, savings association,
mortgage company,
4
finance company, credit card company or factoring company; performing certain
data processing operations; providing investment and financial advice; operating
a trust company in certain instances, selling traveler's checks, United States
savings bonds and certain money orders; providing certain courier services;
providing management consulting advice to nonaffiliated depository institutions
in some instances; providing securities brokerage services and certain private
placement agent services; providing career counseling in financial services;
community development financing and investment; acting as insurance agent for
certain types of credit-related insurance; leasing property or acting as agent,
broker or advisor for leasing property on a "full pay-out basis"; acting as a
consumer financial counselor, including tax planning and return preparation;
performing futures and options advisory services, check guarantee services and
discount brokerage activities; operating a collection or credit bureau; or
performing real and personal property appraisals. The Company has no present
intention to engage in any of such permitted activities except as an incident to
its normal banking operations.
The FRB has also determined that certain activities are not so closely related
to banking to be a proper incident thereto within the meaning of the BHC Act.
Such activities include real estate brokerage and syndication; land development;
property management; underwriting of life insurance not related to credit
transactions; and with certain exceptions, securities underwriting and equity
funding. In the future, the FRB may add to or delete from the list of activities
permissible for bank holding companies.
Historically, the BHC Act has prohibited bank holding companies and their bank
subsidiaries from owning banks or branches in more than one state unless the
laws of each state expressly permit or in case of certain emergencies arising
from a bank failure or prospective failure. California and federal law now
permit various forms of nationwide interstate banking with few restrictions. See
"Regulation and Supervision - Legislation and Proposed Regulatory Changes -
Interstate Banking".
Regulations and policies of the FRB require a bank holding company to serve as a
source of financial and managerial strength to its subsidiary banks. It is the
FRB's policy that a bank holding company should stand ready to use available
resources to provide adequate capital funds to a subsidiary bank during periods
of financial stress or adversity and should maintain the financial flexibility
and capital-raising capacity to obtain additional resources for assisting a
subsidiary bank. Under certain conditions, the FRB may conclude that certain
actions of a bank holding company, such as payment of cash dividends, would
constitute an unsafe and unsound practice because they violate the FRB's "source
of strength" doctrine.
A bank holding company and its subsidiaries are prohibited from certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions, a bank
may not condition an extension of credit on a promise by its customer to obtain
other services provided by it, its holding company or other subsidiaries, or on
a promise by its customer not to obtain other services from a competitor. In
addition, federal law imposes certain restrictions on transactions between the
Company and its subsidiaries, including the Bank. As an affiliate of the Bank,
the Company is subject, with certain exceptions, to provisions of federal law
imposing limitations on, and requiring collateral for, extensions of credit by
the Bank to its affiliates.
Directors of the Company, and the companies with which they are associated, have
had and will continue to have banking transactions with the Bank in the ordinary
course of the Bank's business. It is the firm intention of the Company that any
loans and commitments to loan included in such transactions be made in
accordance with applicable law, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons of similar creditworthiness, and on terms not
involving more than the normal risk of collectibility or presenting other
unfavorable features. At December 31,
5
2000, loans to directors totaled $4,681,000 or 8.7% of the Company's
shareholders' equity. Company policy precludes loans to officers and employees
of the Company or of the Bank.
The Gramm-Leach-Bliley Act of 1999 (the "Modernization Act") became effective
March 11, 2000. The Modernization Act repeals the two provisions of the
Glass-Stegall Act: Section 20, which restricted the affiliation of the Federal
Reserve member banks with firms "engaged principally" in specified securities
activities; and Section 32, which restricts officer, directors or employee
interlocks between a member bank and any company or person "primarily engaged"
in specified securities activities. In addition, the Modernization Act also
expressly preempts any state law restricting the establishment of financial
affiliations, primarily related to insurance. The law establishes a
comprehensive framework to permit affiliations among commercial banks, insurance
companies, securities firms, and other financial service providers by revising
and expanding the BHC Act framework to permit a holding company system to engage
in a full range of financial activities through a new entity known as a
Financial Holding Company. "Financial Activities" is broadly defined to include
not only banking, insurance, and securities activities, but also merchant
banking and additional activities that the Federal Reserve, in consultation with
the Treasury, determines to be financial in nature, incidental to such financial
activities, or complementary activities that do not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally.
In order for the Company to take advantage of the ability provided by the
Modernization Act to affiliate with other financial service providers, it must
become a "Financial Holding Company." To do so, the Company would file a
declaration with the Federal Reserve, electing to engage in activities
permissible for Financial Holding companies and certifying that it is eligible
to do so because its insured depository institution subsidiary (the Bank) is
well-capitalized and well-managed. In addition, the Federal Reserve must also
determine that an insured depository institution subsidiary has at least a
"satisfactory" rating under the Community Reinvestment Act. The Company will
continue to monitor its strategic business plan to determine whether, based on
market conditions and other factors, the Company wishes to utilize any of its
expanded powers provided by the Modernization Act.
The Modernization Act also includes a new section of the Federal Deposit
Insurance Act governing subsidiaries of state banks that engage in "activities
as principal that would only be permissible" for a national bank to conduct in a
financial subsidiary. It expressly preserves the ability of a state bank to
retain all existing subsidiaries. Because California permits commercial banks
chartered by the state to engage in any activity permissible for national banks,
the Bank will be permitted to form subsidiaries to engage in the activities
authorized by the Modernization Act to the same extent as a national bank. In
order to form a financial subsidiary, the Bank must be well-capitalized, and the
Bank would be subject to the same capital deduction, risk management, and
affiliate transaction rules as applicable to national banks.
Under the Modernization Act, securities firms and insurance companies that elect
to become Financial Holding Companies may acquire banks and other financial
institutions. The Company does not believe that the Modernization Act will have
a material adverse effect on its operations in the near-term. However to the
extent that it permits banks, securities firms, and insurance companies to
affiliate, the financial services industry may experience further consolidation.
The Modernization Act is intended to grant to community banks certain powers as
a matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, this act may have the result of increasing the amount of
competition that the Company and the Bank face from larger institutions and
other types of companies offering financial products, many of which may have
substantially more financial resources that the Company or the Bank.
6
The Bank
The Bank is a member of the FDIC which currently insures the deposits of each
member bank to a maximum of $100,000 per depositor. For this protection, the
Bank pays a semi-annual assessment and is subject to the rules and regulations
of the FDIC pertaining to deposit insurance and other matters.
The Bank is subject to regulation, supervision and regular examination by the
California Department of Financial Institutions, formerly known as the State
Banking Department (the "Department"). In addition, because the Bank is a member
of the Federal Reserve System, it is subject to regulation, supervision and
examination by the FRB. The regulations of these agencies govern most aspects of
the Bank's business, including the making of periodic reports by the Bank and
the Bank's activities relating to investments, loans, borrowings, certain
check-clearing activities, branching, mergers and acquisitions, reserves against
deposits and numerous other areas.
Subject to the regulations of the California Superintendent of Financial
Institutions (the "Superintendent"), the Bank may invest in capital stock,
obligations or other securities of other corporations, provided such
corporations are not insurance companies, agents or brokers. In addition, the
Bank may acquire any or all of the securities of a company that engages in
activities that the Bank may engage in directly under California law without the
prior approval of the FRB. California state-chartered banks are also
specifically authorized to provide real estate appraisal services, management
consulting and advisory services and electronic data processing services.
However, FRB and FDIC regulations restrict the ability of the Bank to engage in
real estate development and investment activities and to engage, as principal,
in other activities not permitted to national banks.
The Company's primary potential source of income (other than interest earned on
Company capital) is the receipt of dividends and management fees from the Bank.
The ability of the Bank to pay management fees and dividends to the Company and
its affiliates is subject to restrictions set forth in the California Financial
Code and is subject to approval of the Department.
The board of directors of a state-chartered bank may declare a dividend out of
so much of net profits as such board deems appropriate, subject to California
law which restricts the amount available for cash dividends to the lesser of
retained earnings or the bank's net income for its last three fiscal years (less
any distributions to shareholders made during such period). In the event that a
bank has no retained earnings or net income for the prior three fiscal years,
cash dividends may be paid out of net income for such bank's last preceding
fiscal year or current fiscal year upon the prior approval of the Department.
Although there are no specific regulations restricting dividend payments by bank
holding companies other than state corporation law, supervisory concern focuses
on the holding company's capital position, its ability to meet its financial
obligations as they come due and the capacity to act as a source of financial
strength to its subsidiary banks.
The FRB and the Superintendent have authority to prohibit a bank from engaging
in business practices which are considered to be unsafe or unsound. Depending
upon the financial condition of the Bank and upon other factors, the FRB or
Superintendent could assert that the payments of dividends or other payments by
the Bank to the Company might be such an unsafe or unsound practice. Also, if
the Bank were to experience either significant loan losses or rapid growth in
loans or deposits, or some other event resulting in a depletion or deterioration
of the Bank's capital account were to occur, the Company might be compelled by
federal banking authorities to invest additional capital in the Bank necessary
to return the capital account to a satisfactory level.
FRB regulations require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts). The regulations generally require that reserves of 3.0% must be
maintained against net transaction accounts of $42.8 million or less, plus 10%
against
7
that portion of total transaction accounts in excess of $42.8 million. Up to
$5.5 million of otherwise reservable balances (subject to adjustment by the FRB)
are exempted from the reserve requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the FRB, the effect
of reserve requirements is to reduce interest-earning assets.
Insurance Premiums and Assessments
The FDIC has authority to impose a special assessment on members of the Bank
Insurance Fund ("BIF") to insure there will be sufficient assessment income for
repayment of BIF obligations and for any other purpose which it deems necessary.
The FDIC is authorized to set semi-annual assessment rates for BIF members at
levels sufficient to increase the BIF's reserve ratio to a designated level of
1.25% of insured deposits. The BIF achieved this level in mid-1995. Congress is
considering various proposals to merge the BIF with the Savings Association
Insurance Fund or otherwise to require banks to contribute to the insurance
funds for savings associations. Adoption of any of these proposals might
increase the cost of deposit insurance for all banks, including the Bank.
Pursuant to FDICIA, the FDIC has developed a risk-based assessment system, under
which the assessment rate for an insured depository institution will vary
according to the level of risk incurred in its activities. An institution's risk
category is based upon whether the institution is well capitalized, adequately
capitalized or less than adequately capitalized. Each insured depository
institution is also to be assigned to one of the following "supervisory
subgroups", subgroup A, B, or C. Subgroup A institutions are financially sound
institutions with few minor weaknesses; Subgroup B institutions are institutions
that demonstrate weaknesses which, if not corrected, could result in a
significant deterioration; and Subgroup C institutions are institutions for
which there is a substantial probability that the FDIC will suffer a loss in
connection with the institution unless effective action is taken to correct the
areas of weakness. The FDIC assigns each BIF member institution an annual FDIC
assessment rate which, as of the date of this document, varies between 0.00% per
annum with a $2,000 minimum (for well capitalized Subgroup A institutions) and
0.27% per annum (for undercapitalized Subgroup C institutions). The assessment
rate may increase in the future. At December 31, 1998, the Bank's annual BIF
FDIC assessment rate was 0.00%. At December 31, 2000 the Bank's annual BIF FICO
rate was 0.02%.
In February 2000, the FDIC announced that it was refining the system by which it
assesses the risks that are presented to the deposit insurance funds by certain
financial institutions. The refinements are intended to identify institutions
with atypical high-risk profiles from among those institutions in the best-rated
premium category, and to determine whether there are unresolved supervisory
concerns regarding the risk management practices of those institutions.
High-risk profiles include characteristics such as rapid asset growth,
(especially concentrated in risky, high yielding lending areas), significant
concentrations in high-risk assets, and recent changes in business mix. The FDIC
has noted that although such institutions may be well capitalized and record
good earnings when the economy is strong, they often experience deteriorating
financial conditions when economic conditions are less favorable. As a result,
institutions with practices determined to be risky traits under the refined risk
assessment system will be assessed higher insurance premiums. The Bank does not
expect this change to have an adverse effect on it.
The FDIC has "prompt corrective action" authority to (1) request the appropriate
regulatory agency to take any enforcement action against an institution, based
upon an examination by the FDIC or the agency, (2) if no action is taken within
60 days and the FDIC determines the institution is in an unsafe and unsound
condition or failure to take the action will result in continuance of unsafe or
unsound practices, order the action against the institution, and (3) exercise
this enforcement authority under "exigent circumstances" merely upon
notification to the institution's appropriate regulatory agency. The FDIC has
the same enforcement powers with respect to any institution and its subsidiaries
as the appropriate agency has with respect to those entities.
8
Federal banking agencies are required to take corrective action with respect to
depository institutions that do not meet minimum capital requirements and to
take such actions promptly in order to minimize losses to the FDIC.
Federal banking agencies have established capital measures (including both a
leverage measure and a risk-based capital measure) and specified for each
capital measure the levels at which depository institutions will be considered
"well-capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" or "critically undercapitalized". See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources". The appropriate federal banking agency, after notice and an
opportunity for a hearing, may treat a well capitalized, adequately capitalized
or undercapitalized depository institution as if it has a lower capital-based
classification if it is in an unsafe or unsound condition or engaging in an
unsafe or unsound practice. Thus, an adequately capitalized institution can be
subjected to the restrictions on undercapitalized institutions (provided that a
capital restoration plan cannot be required of the institution) described below
and an undercapitalized institution can be subject to the restrictions
applicable to significantly undercapitalized institutions described below. As of
December 31, 2000, the Bank met the capital ratio requirements for a "well
capitalized" bank.
The appropriate federal regulatory agency must require an insured depository
institution that (i) is significantly undercapitalized or (ii) is
undercapitalized and either fails to submit an acceptable capital restoration
plan within the time period allowed by regulation or fails in any material
respect to implement a capital restoration plan accepted by the appropriate
federal banking agency to take one or more of the following actions: (i) sell
enough shares, including voting shares to become adequately capitalized; (ii)
merge with (or be sold to) another institution (or holding company), but only if
grounds exist for appointing a conservator or receiver; (iii) restrict certain
transactions with banking affiliates as if the "sister bank" exception to the
requirements of Section 23A of the Federal Reserve Act did not exist; (iv)
otherwise restrict transactions with bank or nonbank affiliates; (v) restrict
interest rates that the institution pays on deposits to "prevailing rates" in
the institution's "region"; (vi) restrict asset growth or reduce total assets;
(vii) alter, reduce or terminate activities; (viii) hold a new election of
directors; (ix) dismiss any director or senior executive officer who held office
for more than 180 days before the institution became undercapitalized; provided
that in requiring dismissal of a director or senior executive officer, the
agency must comply with certain procedural requirements, including the
opportunity for an appeal in which the director or officer will have the burden
of proving his or her value to the institution; (x) employ "qualified" senior
executive officers; (xi) cease accepting deposits from correspondent depository
institutions; (xii) divest certain nondepository affiliates which pose a danger
to the institution; (xiii) be divested by a parent holding company; and (xiv)
take any other action which the agency determines would better carry out the
purposes of the prompt corrective action provisions.
In addition to the foregoing sanctions, without the prior approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to any senior executive officer or increase the rate of
compensation for such an officer without regulatory approval. Furthermore, in
the case of an undercapitalized institution that has failed to submit or
implement an acceptable capital restoration plan, the appropriate federal
banking agency cannot approve any such bonuses.
Not later than 90 days after an institution becomes critically undercapitalized,
the appropriate federal banking agency for the institution must appoint a
receiver or, with the concurrence of the FDIC, a conservator, unless the agency,
with the concurrence of the FDIC, determines that the purposes of the prompt
corrective action provisions would be better served by another course of action.
Any alternative determination must be "documented" and reassessed on a periodic
basis. Notwithstanding the foregoing, a receiver must be appointed after 270
days unless the FDIC determines that the institution has positive net worth, is
in compliance with a
9
capital plan, is profitable or has a sustainable upward trend in earnings and is
reducing its ratio of non-performing loans to total loans and the head of the
appropriate federal banking agency and the chairperson of the FDIC certify that
the institution is viable and not expected to fail.
The FDIC is required, by regulation or order, to "restrict the activities" of
such critically undercapitalized institutions. The restrictions must include
prohibition on the institution's doing any of the following without prior FDIC
approval: entering into material transactions not in the usual course of
business; extending credit for highly leveraged transactions; engaging in any
"covered transactions" (as defined in Section 23A of the Federal Reserve Act)
with an affiliate, paying "excessive compensation or bonuses"; and paying
interest on "new or renewed liabilities" that would increase the institution's
average cost of funds to a level significantly exceeding prevailing rates in the
market.
A bank cannot accept brokered deposits (which term is defined to include payment
of an interest rate more than 75 basis points above prevailing rates) unless (i)
it is well capitalized or (ii) it is adequately capitalized and receives a
waiver from the FDIC. A bank is defined to be well capitalized for purposes of
this restriction if it maintains a Tier 1 leverage ratio of at least 5.0%, a
Tier 1 risk-based capital ratio of 6.0% and a total risk-based capital ratio of
at least 10.0% and is not otherwise in a "troubled condition" as specified by
its appropriate federal regulatory agency. A bank is defined to be adequately
capitalized if it meets all of its minimum capital requirements. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts. In addition, a bank that is "adequately
capitalized" may not pay an interest rate on any deposits in excess of 75 basis
points over certain prevailing market rates. There are no such restrictions on a
bank that is "well capitalized."
A Federal Reserve Bank may not make advances to an undercapitalized institution
(including institutions with the lowest regulatory rating) for more than 60 days
in any 120-day period without a viability certification by a federal banking
agency or by the Chairman of the FRB (after an examination by the FRB). If an
institution is deemed critically undercapitalized, an extension of Federal
Reserve Bank credit cannot continue for five days without demand for payment
unless the FRB is willing to accept responsibility for any resulting loss to the
FDIC. As a practical matter, this provision is likely to mean that Federal
Reserve Bank credit will not be extended beyond the limitations in this
provision.
Capital Adequacy Guidelines
The FRB has adopted risk-based capital requirements for member banks and bank
holding companies. See "Management's Discussion and Analysis - Liquidity and
Capital Resources".
Interstate Banking
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "Riegle-Neal Act") authorized interstate
banking and interstate branching, subject to certain state options.
Interstate acquisition of banks became permitted in all states in 1995; state
law cannot vary this rule. However, states may continue to prohibit acquisition
of banks that have been in existence less than five years and interstate
chartering of new banks.
Interstate mergers of affiliated or unaffiliated banks became permitted June 1,
1997, unless a state adopted legislation before June 1, 1997 to "opt out" of
interstate merger authority, provided any limitations do not discriminate
against out-of-state banks. Individual states may enact legislation to permit
interstate mergers earlier than that date.
10
Interstate acquisition of branches is permitted to a bank only if the law of the
state where the branch is located expressly permits interstate acquisition of a
branch without acquiring the entire bank.
Interstate de novo branching is permitted to a bank only if a state adopts
legislation to "opt in" to interstate de novo branching authority.
Limitations on Concentrations. An interstate banking application may not be
approved if the applicant and its depository institution affiliates would
control more than 10% of insured deposits nationwide or more than 30% of insured
deposits in the state in which the bank to be acquired is located. These limits
do not apply to mergers solely between affiliates. States may waive the 30% cap
on a nondiscriminatory basis. Nondiscriminatory state caps on deposit market
share of a depository institution and its affiliates are not affected.
Agency Authority. A bank subsidiary of a bank holding company is authorized to
receive deposits, renew time deposits, close loans, service loans and receive
payments on loans as an agent for a depository institution affiliate without
being deemed a branch of the affiliate. A bank is not be permitted to engage, as
an agent for an affiliate, in any activity as agent that it could not conduct as
a principal, or to have an affiliate, as its agent, conduct any activity that it
could not conduct directly, under federal or state law.
Host State and Home State Regulation. The Riegle-Neal Amendments Act of 1997
amended Federal law to provide that branches of state banks that operate in
other states will be governed in most cases by the laws of the home state,
rather than the laws of the host state. Exceptions are that a host state may
apply its own laws of community reinvestment, consumer protection, fair lending
and interstate branching. Host states cannot supplement or restrict powers
granted by a bank's home state. The amendment will assure state chartered banks
with interstate branches uniform treatment in most areas of their operation.
Community Reinvestment Act. Community Reinvestment Act ("CRA") evaluations are
required for each state in which an interstate bank has a branch. Interstate
banks are prohibited from using out-of-state branches "primarily for the purpose
of deposit production". Federal banking agencies adopted regulations in 1997, to
ensure that interstate branches are being operated with a view to the needs of
the host communities.
Foreign Banks. Foreign banks are able to branch to the same extent as U.S.
domestic banks. Interstate branches acquired by foreign banks are subject to the
CRA to the extent the acquired branch was subject to CRA before the acquisition.
California Law. In September 1995, California enacted state legislation in
accordance with the authority under the Riegle-Neal Act. State law permits banks
headquartered outside California to acquire or merge with California banks that
have been in existence for at least five years, and thereby establish one or
more California branch offices. An out-of-state bank may not enter California by
acquiring one or more branches of a California bank or other operations
constituting less than the whole bank. The law authorizes waiver of the 30%
limit on statewide market share for deposits as permitted by the Riegle-Neal
Act. This law also authorizes California state-licensed banks to conduct certain
banking activities (including receipt of deposits and loan payments and
conducting loan closings) on an agency basis on behalf of out-of-state banks and
to have out-of-state banks conduct similar agency activities on their behalf.
Self-Test Privilege Under ECOA
In January 1998, the FRB revised its regulations under the Equal Credit
Opportunity Act ("ECOA") to create legal privilege for information developed by
creditors as a result of "self-tests" they voluntarily conduct to determine the
level of their compliance with ECOA. The privilege protects against use of such
information by a
11
government agency for examination purposes or by private litigants in any
proceeding alleging a violation of ECOA. The privilege applies only if the
institution takes appropriate corrective action to address possible violations
that are discovered in the test.
Exposure to and Management of Risk
Federal banking agencies have announced proposals to examine bank holding
companies and national banks with respect to their exposure to and management of
different categories of risk. Categories of risk identified by the FRB include
legal risk, operational risk, market risk, credit risk, liquidity risk and
reputation risk. If adopted, this approach would cause bank regulators to focus
on risk management procedures, rather than simply examining every asset and
transaction. This approach, if adopted, would supplement rather than replace
existing rating systems based on evaluation of an institution's capital, assets,
management, earnings and liquidity.
Proposed Legislation
From time to time, legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible activities or
affecting the competitive balance between banks and other financial
institutions. Proposals to change the laws and regulations governing the
operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory agencies. Typically, the intent of such
legislation is to strengthen the banking industry, even if it may on occasion
prove to be a burden on management's plans. No prediction can be made as to the
likelihood of any major changes or the impact such changes might have on the
Bank.
In May 1997 the Department of Treasury recommended in a report to Congress that
the separate charters for thrifts and banks be abolished. Various proposals to
eliminate the federal thrift charter, create a uniform financial institutions
charter, conform holding company regulation, and abolish the Office of Thrift
Supervision ("OTS") have been introduced from time to time in Congress.
There can be no assurance as to whether the legislation described above or any
other such legislation will be enacted, what the provisions of any such
legislation may be, or the extent to which the legislation would restrict,
disrupt or otherwise have a material effect on the Bank's operations.
Impact of Economic Conditions and Monetary Policies
The earnings and growth of the Company are and will be affected by general
economic conditions, both domestic and international, and by the monetary and
fiscal policies of the United States Government and its agencies, particularly
the FRB. One function of the FRB is to regulate the national supply of bank
credit in order to mitigate recessionary and inflationary pressures. Among the
instruments of monetary policy used to implement those objectives are open
market transactions in United States Government securities, changes in the
discount rate on borrowings and changes in reserve requirements held by
depository institutions. The monetary policies of the FRB have had a significant
effect on the operating results of commercial banks in the past and are expected
to continue to do so in the future. However, the effect, if any, of such
policies on the future business and earnings of the Company cannot be accurately
predicted.
Recent Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative
Financial Instruments and Hedging Activities - Deferral of Effective Date of
FASB Statement No. 133." Statement No. 137 defers the effective date of
Statement No. 133 "Accounting for Derivative Financial Instruments and Hedging
Activities" for one year. Statement No. 133 is now effective for fiscal quarters
beginning after June 15, 2000. This statement requires an
12
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. For
instruments existing as of the date of adoption, Statement No. 133 provides an
entity with the option of not applying this provision to hybrid instruments
entered into before January 1, 1998 and not modified substantially thereafter.
Consistent with the deferral of the effective date for one year, Statement No.
137 provides an entity the option of not applying this provision to hybrid
instruments entered into before January 1, 1998 or 1999 and not modified
substantially thereafter. The Company adopted this statement on January 1, 2001.
Year 2000
The Year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Time sensitive programs
could interpret a date using "00" as 1900 rather than the Year 2000 resulting in
major miscalculations or system failure.
The Company did not experience any failures of its computerized systems
resulting from Year 2000 issues, nor does it have any information that indicates
any of its customers or service providers were negatively impacted by Year 2000
issues.
ITEM 2 - PROPERTIES
The Bank's corporate headquarters and headquarter banking office are located in
a multi-story office building at 2101 Webster Street, Oakland, California. The
Bank occupies approximately 12,500 rentable square feet of space on the 14th
floor under a lease with a term of ten years, commencing December 9, 1996 and
ending on December 9, 2006. The headquarter banking office is located on the
ground floor of that building. The lease with respect to this space also
provides for a term of ten years ending December 9, 2006. The Bank occupies its
other offices under leases expiring at various dates through 2006. Rental
expense for all leases of premises was approximately $1.4 million for the year
ended December 31, 2000. Rental expense for leases of premises for 2001 is
estimated to be approximately $1.5 million.
ITEM 3 - LEGAL PROCEEDINGS
From time to time the Company is party to claims and legal proceedings arising
in the ordinary course of business. After taking into consideration information
furnished by counsel to the Company as to the current status of various claims
and proceedings to which the Company is a party, management is of the opinion
that the ultimate aggregate liability represented thereby, if any, will not have
a material adverse effect on the consolidated financial condition or results of
operations of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, no matters were submitted to a vote of
security holders of the Company through solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market quotation
service under the symbol "CIVC". The following table sets forth the high and low
bid quotations for the Company's Common Stock
13
based on information obtained from Nasdaq. Such over-the-counter quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
Sales Price
--------------------
High Low
--------------------
1999
First Quarter $ 12.93 $ 10.88
Second Quarter 14.05 10.88
Third Quarter 14.29 12.62
Fourth Quarter 16.79 12.38
2000
First Quarter $ 14.41 $ 11.91
Second Quarter 14.88 12.38
Third Quarter 16.25 14.25
Fourth Quarter 16.75 14.50
As of March 2, 2001, the shares of the Company were held by approximately 1,500
shareholders.
On March 15, 2000 the Company declared a 5% stock dividend to shareholders of
record on March 29, 2000, payable on April 12, 2000. On April 21, 1999 the
Company declared a 5% stock dividend to shareholders of record on April 30,
1999, payable on May 14, 1999. On October 15, 1997, the Company declared a 5%
stock dividend to shareholders of record on October 29,1997, payable on November
12, 1997. Fractional shares were paid in cash. Sales prices above have been
adjusted to reflect this stock dividend. There were no stock dividends declared
in 1998.
As a bank holding company without significant assets other than its equity
interest in the Bank, the Company's ability to pay cash dividends to its
shareholders primarily depends upon dividends and management fees it receives
from the Bank. Such dividends are subject to certain limitations. See
"Regulation and Supervision-The Bank".
Shareholders' Rights Plan
On October 16, 1996, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, no par value (the "Preferred Shares"), of the Company at a price of
$35.00 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment.
Initially, the Rights will be attached to all certificates representing common
shares then outstanding or later issued. The Rights will separate from the
common shares and a Distribution Date will occur upon the earlier of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 10% or more of the
outstanding common shares (other than a person or such a group that beneficially
owned 10% or more of the outstanding common shares at the time the plan was
adopted or who obtains the prior written approval of the Board of Directors) (an
"Acquiring Person"), or (ii) 10 business days (or later as determined by the
Board of Directors) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 10% or more of
such outstanding common shares (unless the Company's Board of Directors has
approved the offer).
14
Until the Distribution Date, the Rights will be transferred with and only with
the common shares. As soon as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the common shares. The Rights are not exercisable
until the Distribution Date. The Rights will expire on October 31, 2006 (the
"Final Expiration Date"), unless the Rights are earlier redeemed or exchanged by
the Company, in each case as described below. The Purchase Price payable, and
the number of Preferred Shares or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time under certain
circumstances to prevent dilution. Because of the nature of the Preferred
Shares' dividend, liquidation and voting rights, the value of the one
one-hundredth interest in a Preferred Share purchasable upon exercise of each
Right should approximate the value of one common share.
Following a Distribution Date, each holder of a Right, other than Rights
beneficially owned by an Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of common shares
(or, in the event that there are insufficient authorized common shares,
substitute consideration such as cash, property, or other securities of the
Company, such as Preferred Stock) having a market value of two times the
exercise price of the Right. In the event that the Company is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold, each holder of a Right will have
the right to receive, upon the exercise thereof at the then current exercise
price of the Right, that number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of two
times the exercise price of the Right.
At any time the acquisition by a person or group of affiliated or associated
persons of beneficial ownership 10% or more of the outstanding common shares and
prior to the acquisition by such person or group of 50% or more of the
outstanding common shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group which have become
void), in whole or in part, at an exchange ratio of one common share, or one
one-hundredth of a Preferred Share (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right (subject to adjustment).
At any time before a person becomes an Acquiring Person, the Board of Directors
of the Company may redeem the Rights in whole, but not in part, at a price of
$0.001 per Right (the "Redemption Price"). After the redemption period has
expired, the Company's rights of redemption may be reinstated if, prior to
completion of certain recapitalizations, mergers or other business combinations,
an Acquiring Person reduces its beneficial ownership to less than 10% of the
outstanding common shares in a transaction or series of transactions not
involving the Company. The terms of Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of the
Rights.
ITEM 6 - SELECTED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data of
the Company for each year of the five-year period ended December 31, 2000 and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations, and with the consolidated
financial statements presented herein.
15
As of and for the year ended December 31,
------------------------------------------------------------
(Dollars in thousands except per share data) 2000 1999 1998 1997 1996
------------------------------------------------------------
Results of Operations:
Interest income $ 41,024 $ 30,132 $ 28,809 $ 26,032 $ 21,535
Interest expense 11,575 8,217 8,770 7,346 5,398
Net interest income 29,449 21,915 20,039 18,686 16,137
Provision for loan losses 825 315 150 100 600
Other income 1,987 1,527 1,782 994 778
Other expense 19,684 13,661 12,511 11,920 10,905
Income before income taxes 10,927 9,466 9,160 7,660 5,410
Provision for income taxes 4,167 3,616 3,650 2,935 1,260
Net income 6,760 5,850 5,510 4,725 4,150
- ---------------------------------------------------------------------------------------------------------------------
Per-Share Data:
Basic net income $ 1.37 $ 1.18 $ 1.10 $ 0.93 $ 0.80
Diluted net income 1.33 1.15 1.04 0.89 0.78
Book value per share 10.85 9.41 8.53 7.60 6.66
Weighted average shares outstanding 4,945,657 4,948,840 5,031,703 5,090,357 5,212,514
Dilutive effects of stock options 133,214 145,658 247,255 243,614 112,057
Total diluted weighted average shares outstanding 5,078,871 5,094,498 5,278,958 5,333,971 5,324,571
- ---------------------------------------------------------------------------------------------------------------------
Balance Sheet at December 31:
Assets $ 498,295 $ 385,371 $ 389,580 $ 325,420 $ 302,178
Loans 378,119 285,537 233,211 232,977 183,393
Deposits 429,195 334,714 342,949 283,150 266,447
Shareholders' equity 53,782 46,204 41,814 38,687 34,147
- ---------------------------------------------------------------------------------------------------------------------
Financial Ratios:
Return on average assets 1.42% 1.51% 1.54% 1.56% 1.62%
Return on average shareholders' equity 13.56% 13.19% 13.64% 13.20% 13.22%
Average shareholders' equity to average assets 10.48% 11.42% 11.26% 11.79% 12.23%
- ---------------------------------------------------------------------------------------------------------------------
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain forward-looking statements that are subject to
risks and uncertainties and include information about possible or assumed future
results of operations. Many possible events or factors could affect the future
results and performance of the Company. This could cause results or performance
to differ materially from those expressed in our forward-looking statements.
Words such as "expects", "anticipates", "estimates", variations of such words
and other similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions which are difficult to
predict. Therefore, actual outcomes and results may differ materially from what
is expressed or forecasted in, or implied by, such forward looking statements.
Readers of the Company's Form 10-K should not rely solely on the forward-looking
statements and should consider all uncertainties and risks discussed throughout
this report. These statements are representative only on the date hereof, and
the Company undertakes no obligation to update any forward looking statements
made. The possible events or factors include the following: the Company's loan
growth is dependent on economic
16
conditions, as well as various discretionary factors, such as decisions to sell
or purchase certain loans. The rate of charge-offs and provision expense can be
affected by local, regional and international economic and market conditions,
concentrations of borrowers, industries, products, and geographic locations, the
mix of the loan portfolio and management's judgements regarding the
collectibility of loans. Liquidity requirements may change as a result of
fluctuations in assets and liabilities and off-balance sheet exposures, which
will impact the capital needs of the Company and the mix of funding sources.
Decisions to purchase, hold or sell securities are also dependent on liquidity
requirements and market volatility, as well as on- and off-balance sheet
positions. Factors that may impact interest rate risk include local, regional
and international economic conditions, levels, mix, maturities, and yields or
rates of assets and liabilities.
The Company is also exposed to the potential of losses arising from adverse
changes in market rates and prices which can adversely impact the value of
financial products, including securities, loans and deposits. In addition, the
banking industry in general is subject to various monetary and fiscal policies
and regulations, which include those determined by the Federal Reserve Board,
the Federal Deposit Insurance Corporation and the California Department of
Financial Institutions, whose policies and regulations could affect the
Company's results.
Other factors which could cause actual results to differ from the forward-
looking statements include the following: competition with other local and
regional banks, savings and loan associations, credit unions and other nonbank
financial institutions, such as investment banking firms, investment advisory
firms, brokerage firms, mutual funds and insurance companies, as well as other
entities which offer financial services; interest rate, market and monetary
fluctuations, inflation, market volatility, general economic conditions and
economic conditions in the geographic region and industries in which the Company
operates, introduction of new banking-related products, services and
enhancements, fee pricing strategies, mergers and acquisitions, and management's
ability to manage these and other risks.
Overview
The Company reported net income of $6.76 million or $1.33 per diluted share for
the year ended December 31, 2000, compared to $5.85 million or $1.15 per diluted
share for the year ended December 31, 1999. The increase in net income is
attributed to the growth in net interest income which was partially offset by
the growth in noninterest expenses.
The Company reported net income of $5.85 million or $1.15 per diluted share for
the year ended December 31, 1999, compared to net income of $5.51 million or
$1.04 per diluted share for the year ended December 31, 1998. The increase in
net income resulted primarily from an increase in net interest income.
Results of Operations
Net Interest Income. Net interest income is the Company's primary source of
income and represents the excess of interest income and loan fees earned by the
Company on its earning assets over the interest expense paid on its
interest-bearing liabilities and other borrowed money. Net interest income as a
percentage of average earning assets is referred to as net interest margin.
Net interest income for the year 2000 totaled $29.4 million compared to $21.9
million for 1999, an increase of $7.5 million or 34.3%. The increase in net
interest income was due to the growth in interest income which was partially
offset by the increase in interest expense. The growth in net interest income
was due to increases in both the volume and the rate of earning assets. Average
earning assets increased by $71.7 million or 19.5%, to $438.7 million for 2000
over earning assets of $260.6 million for 1999. The merger of East County Bank
on February 29, 2000 added approximately $50 million of average earning assets
for the year 2000. Further, there was a more favorable mix of earning assets in
the year 2000 as total loans represented 80.8% of earning assets
17
relative to 71.0% for the year 1999. Loans have a higher yield relative to other
earning assets and therefore a higher contribution to net interest income. The
weighted average yield on average earning assets increased to 9.47% for the year
2000 from 8.33% for the prior year. The increase in the yield on earning assets
is attributed to the aforementioned shift in the mix of earning assets and a
higher interest rate environment during the year 2000. The Bank's average
reference rate increased to 9.23% in the year 2000 from 8.00% in 1999.
Interest expense increased 40.9% or $3.4 million to $11.6 million for the year
2000 from $8.2 million for the year 1999. Average interest bearing liabilities
increased $55 million or 22.4% to $299.9 million for the year 2000 compared to
$244.9 million for the year 1999. The merger with East County Bank on February
29, 2000 added approximately $44 million of average interest bearing liabilities
to the total for the year 2000. The weighted average rate paid on interest
bearing liabilities increased 50 basis points to 3.86% for the year 2000 from
3.36% for the year 1999. The increase in the average rate paid was due to the
higher interest rate environment.
Net interest income for 1999 totaled $21.9 million compared to $20.0 million for
1998, an increase of $1.9 million or 9.4%. The increase in net interest income
can be attributed to an increase in the volume and an improvement in the mix of
earning assets, the benefits of which were partially offset by a reduction in
the weighted average yield earned on those earning assets. Average earning
assets increased $30.6 million or 9.1% to $367.0 million in 1999 compared to
$336.4 million in 1998. Further, the mix of earning assets improved by virtue of
the shift in balances from Federal fund investments to higher yielding loans.
Average Federal funds sold declined $26.7 million to represent 7.6% of total
average earning assets in 1999 relative to 16.2% for the prior year. Conversely,
average loans increased $38.8 million to represent 71% of average earning assets
in 1999 from 66% for the prior year. Loans have the highest yields while Federal
funds investments have the lowest yields. However, the average yield earned on
earning assets declined 34 basis points, and moreover, the weighted average
yield on loans declined 74 basis points in 1999 relative to 1998. Management
attributed the decline to a lower interest rate environment and the Company's
efforts to transact loans with lower risk. Terms, which would reduce the level
of risk on a loan, include stronger sources of repayment, higher levels of
collateralization and other terms that are considered more favorable to the
Bank. Higher quality loans generally have a lower risk premium over the Bank's
reference rate. The average reference rate declined to 8.00% in 1999 as compared
to 8.36% in 1998 which also reduced the yield on loans as the majority of the
Bank's loans have floating interest rates tied to the Bank's reference rate.
Total interest expense decreased $.6 million to $8.2 million in 1999 from $8.8
million in 1998 due to a decline in the average rate paid on interest bearing
liabilities which was partially offset by an increase in the volume of interest
bearing liabilities. The average rate paid on interest bearing deposits declined
50 basis points to 3.36% from 3.86% due to a lower interest rate environment.
Average interest bearing liabilities increased by $17.6 million, or 7.7%.
The net interest margin increased 74 basis points in the year 2000 to 6.83%
compared to 6.09% for the year 1999. The weighted average yield on earning
assets increased 114 basis points while the weighted average yield on interest
bearing liabilities increased 50 basis points. The Bank's average reference rate
applied to loans increased 123 basis points in the year 2000 relative the prior
year and as most of the Bank's loans have floating rate terms, they reprice as
changes in the reference rate occur. Interest rates on deposits however tend to
reprice slower and to a lessor amount relative to loan rates.
The net interest margin increased 2 basis points to 6.09% for 1999 from 6.07%
for 1998. The decline in the weighted average yield on earning assets of 34
basis points was offset by a decline of 50 basis points on the average rate paid
on interest bearing liabilities due to changes in the mix.
18
The following table presents an analysis of the components of net interest
income for 2000, 1999 and 1998.
2000 1999 1998
---------------------------------------------------------------------------------------
(Dollars in thousands) Interest Rates Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense(2) Paid Balance Expense(2) Paid Balance Expense(2) Paid
---------------------------------------------------------------------------------------
ASSETS
Securities available for sale $ 32,433 $ 2,107 6.50% $ 36,272 $ 2,235 6.16% $ 31,278 $ 1,976 6.32%
Securities held to maturity:
U.S. Treasury securities 773 49 6.40% - - - 5,204 310 5.96%
U.S. Government agency/CMO's 24,242 1,321 5.45% 22,142 1,192 5.38% 7,204 465 6.45%
Municipal securities/(1)/ 21,087 1,538 7.30% 17,923 1,277 7.13% 14,306 1,049 7.34%
Other securities 1,811 125 6.89% 2,320 129 5.56% 2,150 127 5.89%
Federal funds sold 3,775 230 6.10% 27,763 1,312 4.73% 54,481 2,837 5.21%
Loans:/2,3/
Commercial 213,913 22,308 10.43% 163,222 15,472 9.48% 132,964 13,532 10.18%
Real estate-construction 14,220 1,529 10.76% 9,429 899 9.53% 10,055 1,016 10.10%
Real estate-other 105,207 10,343 9.83% 72,436 6,657 9.19% 61,473 6,185 10.06%
Installment and other 21,243 1,997 9.40% 15,480 1,393 9.00% 17,266 1,679 9.72%
----------------- ----- ----------------- --------------------------- ------
Total Loans 354,583 36,177 10.20% 260,567 24,421 9.37% 221,758 22,412 10.11%
----------------- ----- ----------------- --------------------------- ------
Total Earning Assets 438,704 41,547 9.47% 366,987 30,566 8.33% 336,381 29,176 8.67%
Cash and due from banks 24,731 18,530 19,549
Leasehold improvements and equipment 2,230 1,596 1,368
Interest receivable and other assets 15,624 5,862 5,152
Foreclosed assets 145 - 449
Assets held for sale - - -
Less allowance for loan loss (6,090) (4,606) (4,304)
-------- -------- ---------
TOTAL ASSETS $475,344 $388,369 $ 358,595
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 37,492 210 0.56% 33,154 173 0.52% 27,593 263 0.95%
Money market 128,163 4,766 3.72% 101,667 3,339 3.28% 89,427 3,025 3.38%
Time and savings 128,059 6,178 4.82% 109,683 4,682 4.27% 110,295 5,482 4.97%
Other borrowed funds 6,155 421 6.84% 405 23 5.76% - - 0.00%
----------------- ----- ----------------- --------------------------- -----
Total interest bearing liabilities 299,869 11,575 3.86% 244,909 8,217 3.36% 227,315 8,770 3.86%
Demand deposits 120,090 94,044 86,077
Other liabilities 5,547 5,072 4,810
Shareholders' equity 49,838 44,344 40,393
-------- -------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $475,344 $388,369 $ 358,595
======== ======== =========
Net Interest Income $ 29,972 $ 22,349 $ 20,406
======== ======== ========
Net Interest Margin 6.83% 6.09% 6.07%
===== ===== =====
Tax Equivalent Adjustment/(1)/ $ 523 $ 434 $ 367
======== ======== ========
- --------------------------------------------------------------------------------
(1) Tax-exempt interest income on municipal securities is computed using a
Federal income tax rate of 34%. Interest on municipal securities was $1,015,000,
$843,000, and $682,000 for 2000, 1999, and 1998, respectively. (2) Non-
performing loans have been included in the average loan balances. Interest
income is included on non-accrual loans only to the extent cash payments have
been received. (3) Interest income includes amortized loan fees on commercial
loans of $425,000, $493,000, and $514,000 for 2000, 1999 and 1998, respectively;
fees on real estate loans of $452,000, $343,000, and $348,000 for 2000, 1999 and
1998, respectively; and fees on installment and other loans of $20,000, $16,000,
and $18,000 for 2000, 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
19
The following table sets forth changes in interest income and interest expense
for each major category of interest-earning assets and interest-bearing
liabilities, and the amount of change attributable to volume and rate changes
for the years ended December 31, 2000, 1999 and 1998.
Analysis of Changes in Interest Income and Expense
Due to Change in
------------------------------------------------------------------------
(Dollars in thousands) 2000 over 1999 1999 over 1998
---------------------------------- ------------------------------------
Average Average Average Average
Volume/1/ Rate/2/ Total Volume/1/ Rate/2/ Total
---------------------------------- ------------------------------------
Interest income:
Securities available for sale $ (237) $ 109 $ (128) $ 315 $ (56) $ 259
Securities held to maturity:
U.S. Treasury securities 49 - 49 (310) - (310)
U.S. Government agencies/CMO's 114 15 129 964 (237) 727
Municipal securities 225 36 261 265 (37) 228
Other securities (29) 25 (4) 9 (7) 2
Federal funds sold (1,134) 52 (1,082) (1,391) (134) (1,525)
Loans:
Commercial 4,805 2,031 6,836 3,079 (1,139) 1,940
Real estate-construction 456 174 630 (63) (54) (117)
Real estate-other 3,012 674 3,686 1,103 (631) 472
Installment and other 519 85 604 (174) (112) (286)
-------- -------- -------- -------- --------- ---------
Total Loans 8,792 2,964 11,756 3,945 (1,936) 2,009
-------- -------- -------- -------- --------- ---------
Total increase (decrease) $ 7,780 $ 3,201 $10,981 $ 3,797 $ (2,407) $ 1,390
-------- -------- -------- -------- --------- ---------
Interest expense:
Deposits:
Interest bearing checking $ (23) $ (14) $ (37) $ (53) $ 143 $ 90
Money market (870) (557) (1,427) (414) 100 (314)
Savings and time (784) (712) (1,496) 30 770 800
Other borrowed funds (398) - (398) (22) (1) (23)
-------- -------- -------- -------- --------- ---------
Total (increase) decrease (2,075) (1,283) (3,358) (459) 1,012 553
-------- -------- -------- -------- --------- ---------
Total change in net interest income $ 5,705 $ 1,918 $ 7,623 $ 3,338 $ (1,395) $ 1,943
======== ======== ======== ======== ========= =========
- --------------------------------------------------------------------------------
(1) Changes not solely attributed to rate or volume have been allocated to
volume. (2) Loan fees are reflected in rate variances.
- --------------------------------------------------------------------------------
Provision for Loan Losses. The provision for loan losses is charged to
operations and creates an allowance for future loan losses. The amount of the
provision is dependent on many factors which include the amount of the allowance
for loan losses, growth in the loan portfolio, net charges against the
allowance, changes in the composition of the portfolio, the number and dollar
amount of delinquent loans, assessment of the overall quality of the portfolio,
value of the collateral on problem loans, recommendations by regulatory
authorities and general economic conditions among others. The provision for loan
loss in the year 2000 was $825,000 compared to $315,000 in 1999 and $150,000 in
1998. The provision was increased in 2000 and 1999 due to the growth in average
loans outstanding. See "Allowance for Loan Losses".
Non-Interest Income. Non-interest income for 2000 was $2.0 million compared to
$1.5 million and $1.8 million for 1999 and 1998 respectively. Customer service
fees were $1,530,000 for the year 2000 compared to
20
$971,000 for 1999 and $764,000 for 1998. The increase in deposit service fees in
the year 2000 is attributed to the merger with East County Bank with a higher
proportion of retail customer depositors which generally pay higher service fees
per account. The increase in deposit service fees in 1999 is attributed to an
increase in the number of deposit accounts. Other non-interest income for 2000
was $456,000 compared to $156,000 and $103,000 for 1999 and 1998, respectively.
In the year 2000, the Company added two sources of non-interest income, SBA
servicing fees of $132,000 and earnings on the cash surrender value of bank
owned life insurance with income of $136,000. In 1999 the Company realized gains
on the disposal of stock warrants of $333,000. Non-recurring income in 1998
included gains on the disposal of foreclosed assets of $552,000 and gains on the
disposal of other assets held for sale of $363,000 during the third quarter of
1998.
Non-Interest Expense. Non-interest expense for 2000 increased $6.0 million to
$19.7 million from $13.7 million in 1999. The increase in 2000 non-interest
expenses is primarily related to the merger with East County Bank on February
29, 2000. Salaries and employee benefits in the year 2000 increased $3.8 million
or 45.7% to $12.1 million from $8.3 million for 1999. There were 158 FTE
employees at December 31, 2000 relative to 118 at December 31, 1999. The
increases in occupancy and equipment are related to the three East County
banking offices added to the year 2000 operations and $546,000 of East County
Bank goodwill was amortized in the year 2000. Included in consulting fees were
programming expenses of approximately $220,000 generated in the data processing
integration of East County Bank's computer data.
Non-interest expense for 1999 increased $1.2 million or 9.2% to $13.7 million
from $12.5 million in 1998. Salaries and employee benefits in 1999 increased
$780,000 or 10.3% from 1998 due to increases in staffing levels and enhanced
employee benefits. Full time equivalent employees were 118 on December 31, 1999
as compared to 111 on December 31, 1998. Equipment expenses increased $178,000
or 21% for 1999 and included incremental Y2K remediation expenses.
The following table summarizes the significant components of non-interest
expense for 2000, 1999, and 1998.
Non-Interest Expense
-------------------------------------------------------
Dollar Percent
(Dollars in thousands) 2000 1999 Change Change
-------------------------------------------------------
Salaries and related benefits $ 12,134 $ 8,330 $ 3,804 45.7%
Occupancy 1,528 1,113 415 37.3%
Equipment 1,404 1,044 360 34.5%
Goodwill and core deposit amortization 689 168 521 310.1%
Telephone and postage 519 349 170 48.7%
Consulting fees 473 295 178 60.3%
Data processing services 457 403 54 13.4%
Marketing 264 248 16 6.5%
Legal fees 240 192 48 25.0%
FDIC insurance 81 39 42 107.7%
Foreclosed asset expenses 36 1 35 3500.0%
Other 1,859 1,479 380 25.7%
-------------------------------------------------------
Total $ 19,684 $ 13,661 $ 6,023 44.1%
=======================================================
21
Non-Interest Expense
-----------------------------------------------------
Dollar Percent
(Dollars in thousands) 1999 1998 Change Change
-----------------------------------------------------
Salaries and related benefits $ 8,330 $ 7,550 $ 780 10.3%
Occupancy 1,113 1,084 29 2.7%
Equipment 1,044 866 178 20.6%
Data processing services 403 363 40 11.0%
Telephone and postage 349 325 24 7.4%
Marketing 295 262 33 12.6%
Consulting fees 248 265 (17) (6.4%)
Legal fees 192 238 (46) (19.3%)
Goodwill and core deposit amortization 168 193 (25) (13.0%)
FDIC insurance 39 33 6 18.2%
Foreclosed asset expenses 1 8 (7) (87.5%)
Other 1,479 1,324 155 11.7%
-----------------------------------------------------
Total $ 13,661 $ 12,511 $ 1,150 9.2%
=====================================================
Provision for Income Taxes - The provision for income taxes in 2000 was $4.17
million compared to $3.62 million in 1999 and $3.65 million in 1998. These
provisions represent effective tax rates of 38.1%, 38.2%, and 39.8%,
respectively. The differences in the effective rates reflect changes in the
amounts and impact of items having favorable tax treatment such as tax exempt
municipal securities.
Financial Condition
Loans. The Bank's primary lending focus is commercial loans to small businesses
and professionals. The Bank's commercial loans are generally made on a
short-term basis and are typically secured by accounts receivable, inventory or
real estate. The strong regional economy stimulated the demand for commercial
loans, however the competition for quality loans has been strong. Commercial
loans totaled $235.5 million at December 31, 2000, an increase of $62.4 million
or 36.0% from December 31, 1999. Approximately $24 million of commercial loans
were acquired in the merger with East County Bank on February 29, 2000.
Other real estate loans, consisting of loans for land development and
"mini-perm" loans, totaled $115.7 million at December 31, 2000 compared to $85.5
million at December 31, 1999. Approximately $17 million of real estate loans
were acquired in the acquisition of East County Bank on February 29, 2000.
Mini-perm loans are available for completed commercial and retail projects that
are primarily owner occupied and are generally granted based on the rental or
lease income which is the primary source of repayment to service the loan.
Mini-perm loans typically have a term of three to five years and provide for
principal and interest payments based on a 15 to 25 year amortization schedule
with a balloon payment due at the end of the term. The major risks associated
with the origination of mini-perm loans are the ability of the tenant or tenants
to maintain the rental or lease payments over the life of the loan and the
ability of the borrower to obtain other financing for the balloon payment at
maturity.
Real estate construction loans as a percentage of total loans outstanding were
1.2% at December 31, 2000 compared to 3.5% at December 31, 1999. Risks
associated with real estate construction lending are generally considered to be
higher than risks associated with other forms of lending and accordingly, the
Company continues to fund real estate construction commitments on a limited
basis with stringent underwriting criteria.
Installment loans include loans to individuals and business customers, home
equity loans, automobile loans and other personal loans.
The following table summarizes the year end loan balances for the dates shown.
22
December 31,
---------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
---------------------------------------------------------------
Commercial $ 235,532 $ 173,124 $ 146,216 $ 135,140 $ 92,756
Real estate - construction 4,427 10,053 7,648 12,929 6,608
Real estate - other 115,693 85,470 62,328 64,430 64,272
Installment and other 22,467 16,890 17,019 20,478 19,757
---------------------------------------------------------------
Total Loans $ 378,119 $ 285,537 $ 233,211 $ 232,977 $183,393
===============================================================
The following table shows the amount of total loans outstanding as of December
31, 2000, both by category of loan, as well as fixed versus floating interest
rate which, based upon remaining scheduled repayments of principal, are due
within the periods indicated.
Maturity of Loans
-------------------------------------------------
After One
Within But Within After
(Dollars in thousands) One Year Five Years Five Years Total
-------------------------------------------------
Commercial $ 216,770 $ 15,567 $ 3,195 $ 235,532
Real estate - construction 4,427 - - 4,427
Real estate - other 68,213 22,154 25,326 115,693
Installment and other 20,953 1,187 327 22,467
-------------------------------------------------
Total $ 310,363 $ 38,908 $ 28,848 $ 378,119
=================================================
Loans with fixed interest rates $ 11,064 $ 33,794 $ 28,848 $ 73,706
Loans tied to floating interest rates 299,299 5,114 - 304,413
-------------------------------------------------
Total $ 310,363 $ 38,908 $ 28,848 $ 378,119
=================================================
The amounts presented in the table represent the contractual maturities of the
related loans and do not consider rollovers (renewals) of loans. Demand loans,
loans with no stated schedule of repayments and no stated maturity, and
overdrafts are reported as maturing within one year. The Company does not have a
policy to automatically renew loans, rather it considers the request for a
renewal in substantially the same manner in which it considers the request for
an initial extension of credit.
Non-Performing Assets The Company's policy is to recognize interest income on an
accrual basis unless the loan becomes impaired. A loan is considered to be
impaired when it becomes probable that the Company will not recognize all
amounts due from the borrower under the original terms of the loan agreement. At
the time a loan is judged to be impaired, the accrual of interest is
discontinued and any accrued, but uncollected interest is reversed. Thereafter,
all payments received are applied against principal until the principal is fully
recovered with subsequent collections recognized as interest income as they are
received.
The following table provides information with respect to all non-performing
assets.
23
Non-Performing Assets
----------------------------------------------------------
December 31,
----------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
----------------------------------------------------------
Loans 90 days or more past due and
still accruing $ 389 $ 193 $ 112 $ 496 $ 322
Non-accrual and impaired loans 1,223 632 208 3,465 2,811
Other assets held for sale - - - 43 275
Foreclosed assets - - - - 923
----------------------------------------------------------
Total Non-Performing Assets $ 1,612 $ 825 $ 320 $ 4,004 $ 4,331
==========================================================
Non-performing assets to period end loans plus
assets held for sale and foreclosed assets 0.43% 0.29% 0.14% 1.72% 2.35%
==========================================================
At December 31, 2000, the recorded investment in loans considered to be impaired
was $1,223,000, all of which were on a non-accrual basis. Included in this
amount were $321,000 of impaired loans with an associated allowance of $61,000
and $902,000 of impaired loans with supporting collateral with fair values which
approximate the amount of the loans and accordingly do not have an associated
allowance for loan loss. For the year ended December 31, 2000, the average
recorded investment in impaired loans was $920,000 and no interest was
recognized on impaired loans. If interest income on those loans had been
recognized, such income would have approximated $103,000.
The Company has an active credit administration function that periodically
reviews all loans to identify potential problem credits using quality standards
and criteria similar to those of regulatory agencies. Loans receiving lesser
grades are considered to be classified and fall into "substandard," "doubtful,"
or "loss" categories. Substandard loans are characterized as having one or more
deficiencies and could result in a loss to the Company if the deficiencies are
not corrected. Doubtful loans have the weakness of substandard loans with the
added complication that those weaknesses are less likely to be remedied and are
of a character that increase the probability of a principal loss. A loan
classified as a loss is considered uncollectable and is discharged against the
allowance.
The following table sets forth the classified assets as of the dates indicated.
December 31,
-----------------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Substandard $ 8,530 $ 8,415 $ 4,307 $ 6,122 $ 8,455
Doubtful 205 45 110 1,082 559
Loss - - - - -
--------- --------- --------- ---------- ---------
Total Classified $ 8,735 $ 8,460 $ 4,417 $ 7,204 $ 9,014
========= ========= ========= ========= =========
Classified to Total Loans 2.31% 2.96% 1.89% 3.09% 4.92%
========= ========= ========= ========= =========
Classified to Allowance for Loan Loss 132.89% 174.43% 99.84% 165.57% 181.40%
========= ========= ========= ========= =========
Classified loans at December 31, 2000 consist primarily of five credits totaling
$5.0 million. These loans are supported by assets and personal or other third
party guarantees and the bank is working to remedy the loans respective credit
weaknesses. Management has reviewed the reserves specific for these loans and
believes they are adequate as of December 31, 2000.
Foreclosed Assets. There were no foreclosed assets at December 31, 2000 or 1999.
The Company acquired one foreclosed asset in the merger with East County Bank on
February 29, 2000 and disposed of that property in the current fiscal year.
24
Allowance for Loan Losses. The allowance for loan losses is established through
a provision for loan losses, the amount of which is based on many factors. See
"Provision for Loan Losses". The allowance is increased by a provision charged
against earnings and reduced by net loan charge-offs. Loans are charged off when
they are judged to be uncollectable. Recoveries of previously charged off loans
are recorded only when cash is received.
The policy of the Company is to review loans in the portfolio to identify
potential problem loans and to assess the credit quality of the loan portfolio.
Specific allocations are made for loans where the probability of a loss can be
defined and reasonably estimated while the balance of the allocations are based
on the size of the portfolio, delinquency trends, historical data, industry
averages and general economic conditions in the Company's market area. In
general, management believes a higher reserve ratio is warranted relative to
other institutions of a similar size because the Bank makes more business and
commercial loans which are generally larger than the retail loans originated by
other institutions of a similar size and a potential problem credit would have
more impact on the allowance for loan loss.
Although management believes that the allowance for loan losses is adequate for
both potential losses on identified credits and estimated losses inherent in the
portfolio, future provisions will be subject to continuing evaluations of the
portfolio. If the economy declines or the quality of the portfolio deteriorates,
additional provisions may be required.
The following table summarizes the changes in the allowance for loan losses for
the periods shown.
Year Ended December 31,
-----------------------------------------------------------
(Dollars in thousands) 2000 1999 1998 1997 1996
-----------------------------------------------------------
Balance at beginning of year $ 4,850 $ 4,424 $ 4,351 $ 4,969 $ 4,960
Charge-offs:
Commercial 245 800 200 16 95
Real estate - construction - - 150 564 370
Real estate - other 116 - 390 650 476
Installment and other 91 4 94 16 127
-----------------------------------------------------------
Total Charge-Offs 452 804 834 1,246 1,068
Recoveries:
Commercial 70 480 48 43 242
Real estate - construction - - 164 139 55
Real estate - other 88 351 487 280 140
Installment and other 84 84 58 66 40
-----------------------------------------------------------
Total Recoveries 242 915 757 528 477
-----------------------------------------------------------
Net charge-offs (recoveries) 210 (111) 77 718 591
Allowance acquired through merger 1,108 - - - -
Provision charged to operations 825 315 150 100 600
-----------------------------------------------------------
Balance at end of year $ 6,573 $ 4,850 $ 4,424 $ 4,351 $ 4,969
===========================================================
Ratio of net charge-offs (recoveries) to average loans 0.06% -0.04% 0.03% 0.34% 0.36%
Allowance at period end to total loans outstanding 1.74% 1.70% 1.90% 1.87% 2.71%
The table below sets forth the allocations of the allowance for loan loss as of
the dates indicated by loan category and the percentage of loans in each loan
category relative to total loans.
25
Allocation of the Allowance for Loan Losses
-----------------------------------------------------------------------
December 31,
-----------------------------------------------------------------------
2000 1999 1998
-----------------------------------------------------------------------
(Dollars in thousands) Percent of Percent of Percent of
loans in each loans in each loans in each
category to category to category to
Amount total loans Amount total loans Amount total loans
-------------------------------------------------------------------------
Commercial $ 3,752 62.3% $ 2,556 60.7% $ 1,955 62.7%
Real estate - construction 26 1.2% 84 3.5% 74 3.3%
Real estate - other 1,071 30.6% 774 29.9% 624 26.7%
Installment and other 251 5.9% 219 5.9% 327 7.3%
Unallocated 1,473 N/A 1,217 N/A 1,444 N/A
-------------------------------------------------------------------------
Total $ 6,573 100.0% $ 4,850 100.0% $ 4,424 100.0%
=========================================================================
Allocation of the Allowance for Loan Losses
--------------------------------------------------
December 31,
--------------------------------------------------
1997 1996
--------------------------------------------------
(Dollars in thousands) Percent of Percent of
loans in each loans in each
category to category to
Amount total loans Amount total loans
--------------------------------------------------
Commercial $ 1,487 58.0% $ 1,554 50.6%
Real estate - construction 137 5.5% 169 3.6%
Real estate - other 1,001 27.7% 1,162 35.0%
Installment and other 235 8.8% 274 10.8%
Unallocated 1,491 N/A 1,810 N/A
-------------------------------------------------
Total $ 4,351 100.0% $ 4,969 100.0%
=================================================
Investment Portfolio. The Bank invests excess funds in a variety of instruments
in order to manage liquidity and enhance profitability. A portion of available
funds is invested in liquid investments such as overnight federal funds with the
balance invested in investment securities such as U.S. Treasury and Agency
securities, as well as tax-exempt municipal bonds. The Company has increased its
investment in municipal securities to benefit from the higher after-tax yields
on bank qualified municipal securities.
The composition of the Company's portfolio of securities available for sale,
securities held to maturity and other securities are shown in the tables below
at carrying value.
26
Securities Available for Sale
-----------------------------
December 31,
-----------------------------
(In thousands) 2000 1999 1998
-----------------------------
U.S. Treasury obligations $ - $ 8,015 $ 12,228
Obligations of governmental agencies 28,369 23,650 18,641
-----------------------------
Total $ 28,369 $ 31,665 $ 30,869
=============================
Securities Held to Maturity
----------------------------
December 31,
-----------------------------
(In thousands) 2000 1999 1998
----------------------------
U.S. Treasury obligations $ 989 $ - $ -
Obligations of governmental agencies 24,141 24,277 16,290
Collateralized mortgage obligations 19 34 61
Municipal securities 21,218 19,105 16,152
----------------------------
Total $ 46,367 $ 43,416 $ 32,503
============================
Other Securities
----------------------------
December 31,
-----------------------------
(In thousands) 2000 1999 1998
----------------------------
Pacific Coast Bankers Bank stock $ 100 $ - $ -
Federal Home Loan Bank stock 190 1,195 1,016
CRA Fund Advisors 500 - -
Federal Reserve Bank stock 932 931 1,227
----------------------------
Total $ 1,722 $ 2,126 $ 2,243
============================
The following tables summarize the maturities and yields of the Company's
investment securities at December 31, 2000. Yields have been computed by
dividing annual interest income, adjusted for amortization of premium and
accretion of discount, by the average carrying value of the securities. The
weighted average yields on the tax-exempt securities have not been adjusted to a
fully tax equivalent basis.
Securities Available for Sale
-------------------------------------------------------------------------------------------------
Maturing
-------------------------------------------------------------------------------------------------
After One After Five
Within One Year But Within Five Years But Within Ten Years After Ten Years Total
-------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------
Obligations of governmental
agencies $ 4,469 5.59% $ 22,382 6.25% $ 1,518 7.91% $ - -% $ 28,369 6.23%
=================================================================================================
Securities Held to Maturity
-------------------------------------------------------------------------------------------------
Maturing
-------------------------------------------------------------------------------------------------
After One After Five
Within One Year But Within Five Years But Within Ten Years After Ten Years Total
-------------------------------------------------------------------------------------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------------------------------------------------------------------------------------------------
U.S. Treasury obligations $ - -% $ 989 6.42% $ - -% $ - -% $ 989 6.42%
Obligations of governmental
agencies 12,039 5.48% 12,102 5.45% - -% - -% 24,141 5.46%
Collateralized mortgage
obligations - -% 19 8.50% - -% - -% 19 8.50%
Municipal securities 369 6.86% 8,418 4.92% 7,563 4.82% 4,868 4.72% 21,218 4.87%
-------------------------------------------------------------------------------------------------
Total $ 12,408 5.52 $ 21,528 5.29% $ 7,563 4.82% $4,868 4.72% $ 46,367 5.35%
=================================================================================================
As of December 31, 2000 no securities of a single issuer in the investment
portfolio exceeded ten percent of the Company's shareholders' equity.
27
Deposits. The table below presents information regarding trends in the Bank's
average deposits for 2000, 1999, and 1998.
Average Deposits for the Year Ended December 31,
-------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------
(Dollars in thousands) Amount % Amount % Amount %
-------------------------------------------------------------------------
Demand $ 120,090 29.0% $ 94,044 27.8% $ 86,077 27.5%
Interest-bearing checking 37,492 9.1% 33,154 9.8% 27,593 8.8%
Money market 128,163 31.0% 101,667 30.0% 89,427 28.5%
Savings and time 128,059 30.9% 109,683 32.4% 110,295 35.2%
-------------------------------------------------------------------------
Total $ 413,804 100.0% $ 338,548 100.0% $ 313,392 100.0%
=========================================================================
Average deposits increased $75.3 million or 22.2% in 2000 to $413.8 million from
$338.5 million in 1999. The increase in 1999 was $25.2 million or 8.0% from 1998
of $313.4 million. The increase in deposits in 2000 was primarily attributed to
the merger of East County Bank on February 29, 2000. The increase in deposits in
1999 was attributed to an increase in average deposits maintained by various
loan customers.
Average time certificates of deposit over $100,000 constituted 19.1%, 21.6%, and
31.9% of total average deposits for 2000, 1999, and 1998, respectively. Average
public time deposits constituted .9%, 1.0%, and 1.0% of average total deposits
for 2000, 1999, and 1998, respectively. All public time certificates of deposit
were from local government agencies located in Alameda and Contra Costa
counties.
At December 31, 2000, certificates of deposit over $100,000 totaling $76.2
million or 17.8% of total deposits were scheduled to mature within a year. At
December 31, 1999, certificates of deposit over $100,000 totaling $72.1 million
or 21.5% of total deposits were scheduled to mature within a year. Certificates
of deposit over $100,000 are generally considered a higher cost and less stable
form of funding than lower denomination deposits and may represent a greater
risk of interest rate and volume volatility than small retail deposits.
Management believes that the presumed volatility of such deposits presents
acceptable risk and payment of such certificates of deposit would not have a
material impact on the liquidity position of the Company. The Company has no
brokered deposits and does not intend to solicit such deposits.
Time certificates of deposit over $100,000 or more at December 31, 2000 had the
following schedule of maturities.
(In thousands)
Three months or less $ 44,510
Over three months through six months 15,587
Over six months through twelve months 16,145
Over twelve months 3,024
--------
Total $ 79,266
========
Liquidity and Capital Resources
Liquidity. Liquidity management refers to the Bank's ability to acquire funds to
meet loan demand, fund deposit withdrawals and service other liabilities as they
come due. To augment liquidity, the Bank has informal Federal funds borrowing
arrangements with correspondent banks totaling $40.0 million, maintains a credit
arrangement with the Federal Reserve Bank of San Francisco for open window
borrowing and is a member of the Federal Home Loan Bank of San Francisco and
through such membership has the ability to pledge qualifying collateral for
short term (up to six months) and long term (up to five years) borrowing. At
December 31, 2000, the Bank had advanced $6.1 million in Federal funds.
Additionally, at December 31, 2000, unpledged U.S. Government Securities that
28
were available to secure additional borrowing in the form of reverse repurchase
agreements totaled approximately $42.5 million. At December 31, 2000 and 1999,
the Bank had no outstanding borrowings under such arrangements.
The liquidity position of the Company as of December 31, 2000 increased from the
prior year as cash and cash equivalents provided by operating and financing
activities exceeded those used by investing activities. The Consolidated
Statement of Cash Flows indicates that cash and cash equivalents provided by
operating and financing activities were $6.3 million and $93.2 million,
respectively.
The liquidity position of the Company may be expressed as the ratio of (a) cash,
Federal funds sold, other unpledged short term investments and marketable
securities, including those maturing after one year, divided by (b) total assets
less pledged securities. Using this definition, at December 31, 2000, the
Company had a liquidity ratio of 19.0% compared to 23.6% at December 31, 1999.
The decrease in the liquidity ratio at December 31, 2000 reflects the decline in
the volume of Federal funds sales to zero on December 31, 2000 as compared to
$7.5 million at December 31, 1999.
Part of the Bank's normal lending activity involves making commitments to extend
credit. One risk associated with loan commitments is the demand on the Bank's
liquidity that would result if a significant portion of the commitments were
unexpectedly funded at one time. The Bank assesses the likelihood of projected
funding requirements by reviewing historical patterns, current and forecasted
economic conditions and individual client funding needs.
On a stand-alone basis, the Company's primary source of liquidity is dividends
from the Bank. The ability of the Bank to pay dividends is subject to regulatory
restrictions.
Capital Resources. Shareholders' equity was $53.8 million at December 31, 2000,
an increase of $7.6 million or 16.4% from $46.2 million at December 31, 1999.
The principal increase in capital was the $6.76 million of net income for 2000.
The Company and the Bank are subject to capital adequacy guidelines issued by
the Federal Reserve Board of Governors which require a minimum risk-based
capital ratio of 8%. At least 4% must be in the form of "Tier 1" capital which
consists of common equity, non-cumulative perpetual preferred stock and minority
interests in the equity accounts of consolidated subsidiaries. "Tier 2" capital
consists of cumulative and limited-life preferred stock, mandatory convertible
securities, subordinated debt and, subject to certain limitations, the allowance
for loan losses. General loan loss reserves included in Tier 2 capital cannot
exceed 1.25% of risk-weighted assets.
At December 31, 2000, the Company's total risk-based capital ratio was 10.34%.
The following table sets forth the Company's regulatory capital position as of
December 31, 2000.
29
Civic BanCorp CivicBank of Commerce
--------------------------------- -----------------------------------
(Dollars in thousands) Amount Ratio Amount Ratio
--------------------------------- -----------------------------------
Tier 1 Capital $ 41,530 9.09% $ 41,192 9.02%
Tier 1 minimum requirement 18,275 4.00% 18,275 4.00%
--------------------------------- -----------------------------------
Excess $ 23,255 5.09% $ 22,917 5.02%
================================= ===================================
Total Capital $ 47,252 10.34% $ 46,914 10.27%
Total Capital minimum requirement 36,551 8.00% 36,551 8.00%
--------------------------------- -----------------------------------
Excess $ 10,701 2.34% $ 10,363 2.27%
================================= ===================================
Risk-adjusted assets $ 456,884 $ 456,884
============== ==============
Leverage ratio 8.59% 8.52%
Leverage ratio minimum requirement 4.00% 4.00%
-------------- ----------------
Excess 4.59% 4.52%
============== ================
The leverage ratio guidelines effectively require maintenance of a minimum ratio
of 4% Tier 1 capital to total assets for the most highly-rated bank holding
company organizations. The leverage guidelines operate in tandem with and are in
addition to the risk-based ratio requirements. At December 31, 2000, the
Company's leverage ratio was 8.59%. The Company has not been advised by any
regulatory agency that it is deficient with respect to its capital ratios.
Management is unaware of any current recommendations by regulatory authorities
which, if implemented, would have a material adverse impact on future operating
results, liquidity or capital resources.
Quarterly Data
The following table sets forth unaudited data regarding the Company's operations
for each quarter of 2000 and 1999. This information, in the opinion of
management, includes all adjustments necessary to present fairly the Company's
results of operations for such periods, consisting only of normal recurring
adjustments for the periods indicated. The operating results for any quarter are
not necessarily indicative of results for any future period.
Quarter Ended
--------------------------------------------------------------------------------------------
Dec 31, Sep 30, June 30, Mar 31, Dec 31, Sep 30, June 30, Mar 31,
(In thousands, except per share data) 2000 2000 2000 2000 1999 1999 1999 1999
--------------------------------------------------------------------------------------------
Total interest income $10,980 $10,897 $10,472 $ 8,675 $ 7,945 $ 7,639 $ 7,286 $ 7,262
Total interest expense 3,067 3,220 2,932 2,356 2,076 1,960 1,993 2,188
Net interest income 7,913 7,677 7,540 6,319 5,869 5,679 5,293 5,074
Provision for loan losses 225 225 225 150 150 75 45 45
Income before income taxes 3,130 3,050 2,306 2,441 2,467 2,710 2,230 2,060
Net income 1,951 1,885 1,419 1,505 1,525 1,675 1,375 1,275
Per Common Share:
Net income - basic $ 0.39 $ 0.38 $ 0.29 $ 0.31 $ 0.33 $ 0.36 $ 0.29 $ 0.26
Net Income - diluted $ 0.38 $ 0.37 $ 0.28 $ 0.30 $ 0.32 $ 0.35 $ 0.28 S 0.26
Effects of Inflation
Assets and liabilities of financial institutions are principally monetary in
nature. Accordingly, interest rates, which generally move with the rate of
inflation, have a potentially significant effect on the Company's net interest
income. The Company attempts to limit inflation's impact on rates and net income
margins through continuing asset/liability management programs.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial performance is impacted by market risk, among other
factors. Market Risk is the risk to the financial condition or earnings of an
institution resulting from adverse movements in interest rates, foreign exchange
rates, equity prices or commodity prices. Interest rate risk is the most
significant market risk
30
affecting the Company as foreign currency exchange rates, equity prices and
commodity price risk do not arise in the normal course of the Company's business
activities.
The Company's exposure to interest rate risk is reviewed monthly by the Risk
Management Committee composed of members of management and the Board of
Directors. Management realizes that certain risks are inherent in the financial
environment and the objective of the risk management process is to identify,
measure, and where possible minimize interest rate risk. Financial tools used in
this process include the standard gap report and an interest rate shock
simulation model. The condensed gap report as of December 31, 2000 summarizing
the Company's interest rate sensitivity follows.
Repricing
------------------------------------------------------------------------------
(Dollars in thousands) Within 3 Within 3 to 6 Within 6 to 12 Within 1 to 5 More than
Immediate Months Months Months Years 5 years Non-rate
--------------------------------------------------------------------------------------------
Assets
Cash $ - $ - $ - $ - $ - $ - $ 25,692
Short-term investments - - - - - - -
Other Investments - - - - - - 1,722
Investment Securities - 8,249 119 8,517 43,938 13,913 -
Loans 286,019 9,614 5,077 8,883 39,534 28,827 165
Reserve and Other assets - - - - - - 18,026
--------------------------------------------------------------------------------------------
Total Assets $286,019 $ 17,863 $ 5,196 $ 17,400 $ 83,472 $ 42,740 $ 45,605
============================================================================================
Liabilities and Capital
Demand Deposits $ - $ - $ - $ - $ - $ - $ 89,090
NOW, Savings and Market Rate 225,712 - - - - - -
Time Deposits - 59,528 25,109 25,195 4,537 24 -
Other Liabilities 6,100 - - - - - 9,218
Capital - - - - - - 53,782
--------------------------------------------------------------------------------------------
Total Liabilities and Capital $231,812 $ 59,528 $ 25,109 $ 25,195 $ 4,537 $ 24 $ 152,090
============================================================================================
Gap 54,207 (41,665) (19,913) (7,795) 78,935 42,716 (106,485)
Cumulative gap 54,207 12,542 (7,371) (15,166) 63,769 106,485 -
Estimated
Fair
Total Value 1999
--------------------------------
Cash $ 25,692 $ 25,692 $ 12,205
Short-term investments - - 7,500
Other Investments 1,722 1,722 2,126
Investment Securities 74,736 75,048 75,081
Loans 378,119 376,915 285,537
Reserve and Other assets 18,026 18,026 2,922
--------------------------------
Total Asssets $498,295 $497,403 $385,371
================================
Liabilities and Capital
Demand Deposits $ 89,090 $ 89,090 $ 65,277
NOW, Savings and Market Rate 225,712 225,712 172,283
Time Deposits 114,393 114,393 97,154
Other Liabilities 15,318 15,318 4,453
Capital 53,782 53,782 46,204
--------------------------------
Total Liabilities and Capital $498,295 $498,295 $385,371
================================
Gap -
Cumulative gap -
The gap report indicates the Company is asset sensitive having a higher volume
of assets reprice relative to liabilities in the immediate time-band due to the
high percentage of floating rate loans. The cumulative gap is largest in the
immediately repriceable time band and decreases over time through one year. Such
a scenario would suggest an immediate negative impact on the Company's net
interest margin from decreases in interest rates the magnitude of which declines
over time. Using the one-year cumulative gap, the projected impact on net
interest margin of a 1% rate shock is $151,660 or .05% of the net interest
margin reported for 2000 which is considered an acceptable level of risk.
However, the computation of forecasted effects of hypothetical interest rate
changes is based on numerous assumptions, including relative levels of market
interest rates, loan prepayments or refinancings, deposit decay and other
factors and therefore should not be relied upon as a forecast of future results.
Further, such computations do not include the impact of any actions that might
be undertaken by the Company in response to changes in interest rates.
Derivative financial instruments such as futures, forwards, interest rate swaps,
option contracts and other financial instruments with similar characteristics
may also be used to manage elements of interest rate risk. The Company does not
engage in trading activities or use derivative instruments to control interest
rate risk. However, the Company is party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financial
needs of its customers which include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. Commitments to extend credit are agreements to lend
to a customer as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates and may require
collateral from the borrower if deemed necessary by the Company. Standby letters
of credit are conditional commitments issued by the Company to guarantee the
performance of a customer to a third party up to a stipulated amount and with
specified terms and conditions. Commitments to extend credit and standby letters
of credit are not recorded as an asset or liability by the Company until the
instrument is exercised.
31
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See index to Financial Statements and Schedules included on page 33 of this
report.
PART III
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning directors and executive officers of the Company is
incorporated by reference from the section entitled "Election of Directors" of
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 11 - EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated by reference from
the section entitled "Election of Directors - Executive Compensation" of the
Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management is incorporated by reference from the section entitled "Election of
Directors - Security Ownership of Management" of the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A within 120 days after the end
of the last fiscal year.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is
incorporated by reference from the section entitled "Election of Directors -
Transactions with Directors and Officers" of the Company's definitive Proxy
Statement to be filed within 120 days after the end of the last fiscal year.
32
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statement Schedule
The following is an index of the financial statements filed in this report:
Consolidated Financial Statements
Page
----
Independent Auditors' Report - KPMG LLP................................... 37
Consolidated Balance Sheets as of December 31, 2000
and December 31, 1999................................................. 38
Consolidated Statements of Income for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998............ 39
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998............ 40
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2000, December 31, 1999 and
December 31, 1998..................................................... 41
Consolidated Statements of Cash Flow for the years ended
December 31, 2000, December 31, 1999 and December 31, 1998............ 42
Notes to Consolidated Financial Statements................................ 43
Information required in the schedules for which provision is made in the
applicable regulations of the Securities and Exchange Commission either is not
applicable or is shown in the Consolidated Financial Statements or Notes
thereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the three months ended December 31, 2000.
(c) Exhibits
The exhibits listed below are filed or incorporated by reference, as part of
this report pursuant to Item 601 of Regulation S-K.
Sequentially
Numbered
Page
------------
Exhibit
Number Exhibit
- -------- -------
2.1 (15) Agreement and Plan of Merger dated October 18, 1999, among
Civic BanCorp, CivicBank of Commerce and East County Bank........... -
3.1 (5) Restated Articles of Incorporation of the Company................... -
3.2 (1) Bylaws of the Company .............................................. -
3.3 (2) Amendment to Article Five of bylaws adopted January 20, 1988........ -
3.4 (7) Amendment to Article Four of the bylaws adopted July 15, 1992....... -
4 (14) Rights Agreement between Civic BanCorp and ChaseMellon
Shareholder Services LLC dated as of November 8, 1996 including
Form of Right Certificate attached thereto as Exhibit B............. -
10.1 (1)* 1984 Stock Option Plan and Form of Stock Option Agreement............ -
33
Sequentially
Numbered
Page
------------
Exhibit
Number Exhibit
- -------- -------
10.2 (2)* Amendment to 1984 Stock Option Plan adopted November 20, 1985....... -
10.3 (3)* Amendment No. 2 to 1984 Stock Option Plan adopted February 18,
1988................................................................ -
10.4 (3)* Amendment No. 3 to 1984 Stock Option Plan adopted May 7, 1988....... -
10.5 (7)* Amendment No. 4 to 1984 Stock Option Plan adopted May 3, 1990....... -
10.7 (6) Lease for bank premises in Oakland dated December 21, 1989
between Bank and Blue Cross of California as sublessor.............. -
10.10 Lease for Bank premises in Oakland dated April 13, 1994 between
Bank and Webster Street Partners, Ltd., a California limited
partnership, as lessor.............................................. -
10.12*(8) Employment agreement between the Bank and Herbert C. Foster
dated December 31, 1992............................................. -
10.13*(9) 1994 Stock Option Plan.............................................. -
10.14(10) Servicing Rights and Servicing Contracts Purchase Agreement dated
as of September 1, 1994 between the Bank and United
National Mortgage Corporation....................................... -
10.15(12) 1995 Non-employee Director Stock Option Plan........................ -
10.16(13) CivicBank of Commerce Profit Sharing Retirement Plan................ -
10.17(14) 2000 Employee Stock Option Plan..................................... -
21 List of Subsidiaries................................................ -
23.1 Consent of KPMG LLP as to incorporation by reference
of report on financial statements in Form S-8....................... -
27 Financial Data Schedule............................................. -
* Management contract, compensation plan or arrangement
- --------------------------------------------------------------------------------
(1) Incorporated by reference from the exhibits included with the
Form S-1 Registration Statement (Registration Number 2-91493)
previously filed with the Commission.
(2) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31,
1985, previously filed with the Commission.
(3) Incorporated by reference from the exhibits included with the
Company's Form S-8 Registration Statement (Registration
Number 33-15783) filed with the Commission on July 13, 1988.
(4) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31,
1986, previously filed with the Commission.
(5) Incorporated by reference from the exhibits included with the
Company's S-2 Registration Statement (Registration Number
33-31355) filed with the Commission on October 3, 1989.
(6) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 30,
1989, previously filed with the Commission.
(7) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31,
1990, previously filed with the Commission.
34
(8) Incorporated by reference from the exhibits included with the
Annual Report on Form 10-K for the year ended December 31,
1992, previously filed with the Commission.
(9) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-
82460) previously filed with the Commission.
(10) Incorporated by reference from the exhibits included with the
Form 8-K Current Report dated September 30, 1994.
(11) Incorporated by reference from the exhibits included with the
Form 8-K Current Report dated April 28, 1994.
(12) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-
94566) previously filed with the commission.
(13) Incorporated by reference from the exhibits included with the
Form S-8 Registration Statement (Registration Number 33-
65309) previously filed with the commission.
(14) Incorporated by reference from the exhibits included with the
Form 8-A Rights Agreement (Registration Number 0-13287).
(15) Incorporated by reference from the exhibits included with the
quarterly report on Form 10-Q for the quarter ended March 31,
2000 previously filed with the commission.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CIVIC BANCORP
By:/s/ Herbert C. Foster
-------------------------------------
Herbert C. Foster
President and Chief Executive Officer
Date: March 15, 2001
--------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Herbert C. Foster /s/ Gerald J. Brown
- --------------------------- --------------------------------
Herbert C. Foster Gerald J. Brown
President Chief Financial Officer and
Chief Executive Officer and Principal Accounting Officer
Director
/s/ C. Donald Carr /s/ David L. Cutter
- --------------------------- --------------------------------
C. Donald Carr, Director David L. Cutter, Director
/s/ John W. Glenn /s/ John L Lindstedt
- --------------------------- --------------------------------
John W. Glenn, Director John L. Lindstedt, Director
/s/ Paul C. Kepler /s/ James C. Johnson
- --------------------------- --------------------------------
Paul C. Kepler, Director James C. Johnson, Director
/s/ Edward G. Mein /s/ Dale D. Reed
- ---------------------------- --------------------------------
Edward G. Mein, Director Dale D. Reed, Director
/s/ Edward G. Roach /s/ Barclay Simpson
- --------------------------- --------------------------------
Edward G. Roach, Director Barclay Simpson, Director
/s/ Gordon Gravelle /s/ Craig Andersen
- --------------------------- --------------------------------
Gordon Gravelle, Director Craig Andersen, Director
/s/ Wayne Doiguchi
--------------------------------
Date: March 15, 2001 Wayne Doiguchi, Director
---------------------
36
- --------------------------------------------------------------------------------
CIVIC BANCORP AND SUBSIDIARY
----------------------------
Consolidated Financial Statements for the Three
Years in the Period Ended December 31, 2000,
with Independent Auditors' Report
- --------------------------------------------------------------------------------
CIVIC BANCORP AND SUBSIDIARY
----------------------------
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report 1
Consolidated Financial Statements:
Balance Sheets as of December 31, 2000 and 1999 2
Statements of Income for the years ended
December 31, 2000, 1999 and 1998 3
Statements of Comprehensive Income for the years ended
December 31, 2000, 1999 and 1998 4
Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998 5
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors Civic BanCorp:
We have audited the accompanying consolidated balance sheets of Civic BanCorp
and subsidiary (the Company) as of December 31, 2000 and 1999, and the related
consolidated statements of income, comprehensive income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 financial position of Civic BanCorp and
subsidiary as of December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
San Francisco, California
January 17, 2001
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(In Thousands Except Shares)
- ----------------------------
2000 1999
-------------------------------
ASSETS
- ------
Cash and due from banks $ 25,692 $ 12,205
Federal funds sold - 7,500
-------------------------------
Total cash and cash equivalents 25,692 19,705
Securities available for sale 28,369 31,665
Securities held to maturity (market value
of $46,679 and $42,468, respectively) 46,367 43,416
Other securities 1,722 2,126
Loans:
Commercial 235,532 173,124
Real estate-construction 4,427 10,053
Real estate-other 115,693 85,470
Installment and other 22,467 16,890
-------------------------------
Total loans 378,119 285,537
Less allowance for loan losses 6,573 4,850
-------------------------------
Loans - net 371,546 280,687
Intangible assets - net 12,092 607
Interest receivable and other assets 10,106 5,544
Leasehold improvements and equipment - net 2,401 1,621
-------------------------------
TOTAL ASSETS $ 498,295 $ 385,371
===============================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Deposits:
Noninterest bearing $ 89,090 $ 65,277
Interest-bearing:
Checking 9,090 11,851
Money market 210,178 160,432
Time and savings 120,837 97,154
-------------------------------
Total deposits 429,195 334,714
Federal funds purchased 6,100 -
Accrued interest payable and other liabilities 9,218 4,453
-------------------------------
Total liabilities 444,513 339,167
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock no par value; authorized
10,000,000 shares; none issued and outstanding - -
Common stock no par value; authorized
10,000,000 shares; issued and outstanding,
4,955,480 and 4,908,132 shares, respectively 38,227 34,751
Retained earnings, (subsequent to July 1,1996
date of quasi-reorganization, total deficit
eliminated $5.5 million) 15,395 11,701
Accumulated other comprehensive income (loss), net 160 (248)
-------------------------------
Total shareholders' equity 53,782 46,204
-------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 498,295 $ 385,371
===============================
See notes to consolidated financial statements.
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands Except Shares and Per Share Amounts)
- --------------------------------------------------
2000 1999 1998
------------------------------------------------------
INTEREST INCOME:
Loans $ 36,177 $ 24,421 $ 22,412
Taxable investment securities 3,602 3,556 2,878
Tax exempt securities 1,015 843 682
Federal funds sold 230 1,312 2,837
------------------------------------------------------
Total Interest Income 41,024 30,132 28,809
INTEREST EXPENSE:
Deposits 11,154 8,194 8,770
Other borrowings 421 23 -
------------------------------------------------------
Total Interest Expense 11,575 8,217 8,770
------------------------------------------------------
NET INTEREST INCOME 29,449 21,915 20,039
Provision for loan losses 825 315 150
------------------------------------------------------
Net Interest Income After
Provision for Loan Losses 28,624 21,600 19,889
NON-INTEREST INCOME:
Customer service fees 1,530 971 764
Disposition of client warrants - 333 -
Gain on sale of other assets held for sale 1 67 915
Other 456 156 103
------------------------------------------------------
Total Non-Interest Income 1,987 1,527 1,782
NON-INTEREST EXPENSE:
Salaries and employee benefits 12,134 8,330 7,550
Occupancy 1,528 1,113 1,084
Equipment 1,404 1,044 866
Goodwill and core deposit amortization 689 168 193
Telephone and postage 519 349 325
Consulting fees 473 295 265
Data processing services 457 403 363
Marketing 264 248 262
Legal fees 240 192 238
Other 1,976 1,519 1,365
------------------------------------------------------
Total Non-Interest Expense 19,684 13,661 12,511
------------------------------------------------------
INCOME BEFORE INCOME TAXES 10,927 9,466 9,160
Income tax expense 4,167 3,616 3,650
------------------------------------------------------
NET INCOME $ 6,760 $ 5,850 $ 5,510
======================================================
NET INCOME PER COMMON SHARE - BASIC $ 1.37 $ 1.18 $ 1.10
======================================================
NET INCOME PER COMMON SHARE - DILUTED $ 1.33 $ 1.15 $ 1.04
======================================================
Weighted average shares outstanding used
to compute basic net income per common share 4,945,657 4,948,840 5,031,703
Dilutive effects of stock options 133,214 145,658 247,255
------------------------------------------------------
Total diluted weighted average shares outstanding
used to compute diluted net income per common share 5,078,871 5,094,498 5,278,958
======================================================
See notes to consolidated financial statements.
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In thousands)
- --------------
2000 1999 1998
----------------------------------------------
Net Income $ 6,760 $ 5,850 $ 5,510
Other Comprehensive Income (Loss):
Change in unrealized gain / (loss) on securities available for sale 680 (903) 71
Income tax (expense) benefit related to unrealized gain (loss)
on securities available for sale (272) 361 (28)
----------------------------------------------
Other Comprehensive Income (Loss): 408 (542) 43
----------------------------------------------
COMPREHENSIVE INCOME $ 7,168 $ 5,308 $ 5,553
==============================================
See notes to consolidated financial statements
- --------------------------------------------------------------------------------
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands Except Shares)
- --------------------------------------------------------------------------------
ACCUMULATED
OTHER
COMMON STOCK RETAINED COMPREHENSIVE
SHARES AMOUNT EARNINGS INCOME (LOSS) TOTAL
------ ------ -------- ------------- -----
Balance, January 1, 1998 4,619,768 $ 35,149 $ 3,287 $ 251 $ 38,687
Stock options exercised 64,234 406 406
Tax benefit of stock options exercised 49 49
Stock repurchased (240,000) (3,859) (3,859)
Recognition of net deferred tax assets
originating prior to quasi-reorganization 978 978
Net Income 5,510 5,510
Net unrealized gain on securities available for sale 43 43
-----------------------------------------------------------------------
Balance, December 31, 1998 4,444,002 32,723 8,797 294 41,814
Stock options exercised 132,572 825 825
Tax benefit of stock options exercised 105 105
Stock repurchased (128,600) (1,845) (1,845)
5% stock dividend 226,437 2,943 (2,946) (3)
Net Income 5,850 5,850
Net unrealized (loss) on securities available for sale (542) (542)
-----------------------------------------------------------------------
Balance, December 31, 1999 4,674,411 34,751 11,701 (248) 46,204
Stock options exercised 45,394 295 295
Tax benefit of stock options exercised 118 118
5% stock dividend 235,675 3,063 (3,066) (3)
Net Income 6,760 6,760
Net unrealized gain on securities available for sale 408 408
-----------------------------------------------------------------------
Balance, December 31, 2000 4,955,480 $ 38,227 $ 15,395 $ 160 $ 53,782
=======================================================================
See notes to consolidated financial statements
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands)
2000 1999 1998
-----------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,760 $ 5,850 $ 5,510
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 825 315 150
Depreciation and amortization 1,518 1,247 1,015
Write-down (gain) on foreclosed assets 36 (67) (915)
Loss on disposal of fixed assets 62 - -
Amortization of deferred loan fees 184 137 (8)
Change in other assets and liabilities:
Increase in interest receivable and other assets (4,444) (321) (132)
Increase (decrease) in accrued interest and other liabilities 1,324 (580) 1,672
-----------------------------------------------
Net cash provided by operating activities 6,265 6,581 7,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,789) (691) (638)
Paydown on assets held for sale - - 406
Proceeds from sales of foreclosed assets 168 67 3,492
Net increase in loans (93,176) (52,352) (2,781)
Expenditures on foreclosed assets - - (62)
Proceeds from maturities of securities held to maturity 1,589 355 14,029
Purchases of securities held to maturity (4,322) (11,327) (19,513)
Proceeds from maturities available for sale 17,250 14,000 -
Purchases of securities available for sale (13,216) (15,974) -
-----------------------------------------------
Net cash used in investing activities (93,496) (65,922) (5,067)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 295 825 406
Purchase of common stock - (1,845) (3,859)
Cash paid in lieu of fractional shares (3) (3) -
Acquisition, net of cash acquired (7,655) - -
Proceeds from short-term borrowing 6,100 - -
Net increase (decrease) in deposits 94,481 (8,235) 59,799
-----------------------------------------------
Net cash provided (used) by financing activities 93,218 (9,258) 56,346
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,987 (68,599) 58,571
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,705 88,304 29,733
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,692 $ 19,705 $ 88,304
===============================================
OTHER CASH FLOW INFORMATION:
Cash paid for interest $ 11,253 $ 8,581 $ 8,235
Cash paid for income taxes 5,351 3,490 2,631
Transferred from retained earnings to
common stock due to stock dividend 3,066 2,946 -
Loans transferred to other real estate owned 200 - 2,478
Supplemental schedule of non-cash investing activity:
Fair value of assets acquired $ 87,219 - -
Liabilities assumed $ 72,614 - -
Cash paid for capital stock $ 14,605 - -
See notes to consolidated financial statements.
CIVIC BANCORP AND SUBSIDIARY
- ----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Civic BanCorp (BanCorp) is a registered bank holding company
headquartered in Oakland, California. BanCorp's principal line of
business is serving as a holding company for CivicBank of Commerce
(Bank), a commercial bank. BanCorp is tailored to providing
personalized services to independent businesses and professional firms
in Alameda, San Francisco, Santa Clara and Contra Costa counties.
The consolidated financial statements of BanCorp and Bank (collectively
the Company) are prepared in conformity with generally accepted
accounting principles and prevailing practices within the banking
industry. The following is a summary of the significant accounting and
reporting policies used in preparing the consolidated financial
statements.
Business Combination - On February 29, 2000, Civic BanCorp acquired
--------------------
East County Bank for approximately $14.6 million in cash. Unaudited
total assets of East County Bank were approximately $79 million. The
transaction was treated as a purchase for accounting purposes with the
resulting goodwill amortized on a straight-line basis over 15 years.
The results of operations of the acquired enterprise from March 1, 2000
through December 31, 2000 are included in the consolidated income
statement of Civic BanCorp.
The following unaudited pro-forma financial information presents the
combined results of operations of the Company and East County Bank as
if the acquisition had occurred on January 1, 1999, after giving effect
to certain adjustments, including the amortization of goodwill. The
pro-forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company and East
County Bank constituted a single entity during such periods.
Pro-forma results of operations:
(dollars in thousands except per share)
Unaudited
Year Ended December 31,
-------------------------
2000 1999
--------- ---------
Net Interest Income $ 30,198 $ 26,320
Net Income $ 6,804 $ 6,345
Dilued Earnings per Share $ 1.34 $ 1.25
Principles Of Consolidation - The consolidated financial statements
---------------------------
include the accounts of BanCorp and Bank. All material intercompany
transactions and accounts have been eliminated in consolidation.
Cash and Cash Equivalents - Cash and cash equivalents include cash on
-------------------------
hand, amounts due from banks and federal funds sold with original
maturities less than 90 days.
Investment Securities - Securities available for sale are held for indefinite
- ---------------------
periods of time. Management intends to use these securities as part of its
asset/liability management, and may sell these securities in response to changes
in interest rates and other factors. These securities are carried at market
value, with unrealized gains and losses, after applicable income taxes, recorded
as a separate component of shareholders' equity. Gains on the sale of securities
available for sale, determined on the specific cost identification basis, are
recorded in other income at the time of sale. Specific cost is determined by
using historical cost adjusted for any previously recorded unrealized losses.
Held to maturity securities are those securities which management has the
ability and intent to hold to maturity. These securities are stated at cost,
adjusted for amortization of premiums to call date and accretions of discount to
maturity using methods approximating the interest method.
Other securities include stock in the Federal Reserve Bank, Federal Home Loan
Bank, Pacific Coast Bankers Bank and CRA Fund Advisors and are carried at cost
which approximates market.
The Company does not engage in trading activities.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method. A
decline in the market value of a security deemed other than temporary would
result in a charge to earnings and the establishment of a new cost basis for the
security.
Loans - Loans are stated at the principal amount outstanding, reduced by the
- -----
allowance for loan losses and unamortized loan origination and commitment fees,
net of loan origination costs. Interest on loans is calculated by using the
simple interest method on the daily balance of the principal amount outstanding.
Loans are placed on nonaccrual status when the loan is considered to be
impaired. An impaired loan is one for which, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement, including
scheduled interest payments. When a loan is placed on nonaccrual status,
interest accruals are discontinued and any interest income previously accrued
but not collected is reversed. Any payments received on nonaccrual loans are
applied against principal until the principal is fully recovered with subsequent
collections recognized as interest income as they are received. Interest
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgment of management, the
loans are estimated to be fully collectible as to both principal and interest.
The Company measures certain impaired loans based on the present value of future
cash flows discounted at the loan's effective interest rate, or at the loans'
market value or the fair value of the collateral if the loan is secured. If the
measurement of the impaired loan is less than the recorded investment in the
loan, impairment is recognized by creating or adjusting the existing allocation
of the allowance for loan losses.
All nonrefundable loan origination fees and commitment fees, net of related
costs, are deferred and amortized over the term of the loan, or until the loan
is sold, as an adjustment to the yield of the related loan. At December 31, 2000
and 1999, the amount of unamortized loan fees was approximately $773,000 and
$957,000, respectively.
Allowance for Loan Losses - The allowance for loan losses is established through
- -------------------------
a provision for loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes that the collectibility of
the principal is unlikely. Recoveries of amounts previously charged-off are
credited to the allowance. While management uses available information to
determine the allowance for possible losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions or for other
reasons. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for loan losses.
Such agencies may require the Bank to recognize additions to the allowance for
loan losses based on their judgments of information available to them at the
time of their examination.
Leasehold Improvements and Equipment - Leasehold improvements and equipment are
- ------------------------------------
stated at cost less accumulated depreciation and amortization. Depreciation and
amortization expenses are computed on a straight-line basis over the shorter of
the estimated useful lives of the assets or the lease terms (generally 2-5
years). Costs of improvements are capitalized, and maintenance, repairs and
minor improvements are expensed as incurred.
Intangibles - Goodwill is amortized on a straight-line basis over fifteen years.
- -----------
The portion of the acquisition cost allocated to values associated with acquired
deposits is being amortized on an accelerated method over ten years. Management
assesses the value of its intangibles for other than temporary impairment. If
impaired, recoverability of the asset is assessed based on expected undiscounted
cash flows. Amortization expense relative to intangible assets was $689,000,
$168,000 and $193,000 for the years ended December 31, 2000, 1999, and 1998.
Foreclosed Assets - Foreclosed assets are stated at the lower of the recorded
- -----------------
investment in the property or its fair value minus estimated costs to sell.
Immediately upon foreclosure, the value of the underlying loan is written down
to the fair value of the real estate acquired by a charge to the allowance for
loan losses, if necessary. Any subsequent write-downs are charged against
operating expenses. Operating expenses of such properties are included in
non-interest expenses, while any rental revenues are included in non-interest
income. Gains and losses on their disposition are included in non-interest
income and non-interest expenses, respectively.
Income Taxes - BanCorp and the Bank file consolidated federal income tax and
- ------------
combined California franchise tax returns.
Provisions for federal and state income taxes are based on taxes currently
payable and deferred taxes expected to be payable in the future. Deferred taxes
are recognized by applying enacted tax rates applicable to future years to
temporary differences between the tax bases of existing assets and liabilities
and their respective carrying values for financial reporting purposes. Deferred
tax assets are subject to a valuation allowance if it is more likely than not
that some of the deferred tax asset will not be realized.
Stock Compensation Plans - Stock options issued under the Corporation's stock
- ------------------------
option plan have no intrinsic value at the grant date, and under Accounting
Principles Board Opinion No. 25 no compensation cost is recognized for them. The
Corporation has elected to continue with the accounting methodology in Opinion
No. 25 and, as a result, has provided pro forma disclosures of net income and
earnings per share and other disclosures as if the fair value based method of
accounting had been applied. The pro forma disclosures include the effects of
all awards granted on or after January 1, 1995.
Net Income Per Common Share - Basic earnings per share represents income
- ---------------------------
available to common stockholders divided by the weighted-average number of
common shares outstanding during the period. Diluted earnings per share reflects
additional common shares that would have been outstanding if dilutive potential
common shares had been issued, as well as an adjustment to income that would
result from the assumed issuance. Additionally, weighted average shares
outstanding and per share amounts for all periods presented have been adjusted
to give effect for 5% stock dividends paid in May 1999, and April 2000. There
were no stock dividends in 1998.
Quasi-reorganization - The Company, with the approval of the Board of Directors
- --------------------
and its shareholders, adjusted its July 1, 1996 balance sheet to fair value and
transferred the accumulated deficit of $5.5 million to common stock in
accordance with quasi-reorganization accounting principles. The Company's
deficit retained earnings were incurred primarily as a result of substantial
writedowns of real estate loans and foreclosed assets in 1992 and 1993 and the
conditions giving rise to those losses have substantially changed.
In a quasi-reorganization, assets and liabilities are restated to fair value at
the effective date. No adjustments were made to the assets and liabilities of
the Company since, in the opinion of management, the book value of the Company's
assets and liabilities approximated fair value at July 1, 1996. As part of the
quasi-reorganization, retained earnings have been dated to reflect only the
results of operations subsequent to the effective date of the
quasi-reorganization. Recognition of future income tax benefits resulting from
temporary differences, operating loss and tax credit carryforward items which
arose prior to the effective date of the quasi-reorganization are reported as a
direct adjustment to common stock as they are realized.
Shareholder Rights Plan - The Company has outstanding one preferred share
- -----------------------
purchase right, (a "Right"), for each outstanding share of common stock. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of series A Junior Participating Preferred Stock, no
par value, of the Company at a price of $35.00 per one one-hundredth of a
Preferred Share, subject to the provisions of the Shareholder Rights Plan.
Segment Reporting - Management approaches the Company's principal subsidiary,
- -----------------
the Bank, as one business enterprise which operates in a single economic
environment, since the products and services, types of customers and regulatory
environment all have similar economic characteristics.
Use of Estimates - The preparation of the 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, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reported period. Actual amounts could differ from those estimates.
Recent Accounting Pronouncements - In June 1999, the FASB issued SFAS No. 137,
- --------------------------------
"Accounting for Derivative Financial Instruments and Hedging Activities -
Deferral of Effective Date of FASB Statement No. 133." Statement No. 137 defers
the effective date of Statement No. 133 "Accounting for Derivative Instruments
and Hedging Activities" for one year. Statement No. 133 is now effective for
fiscal quarters of fiscal years beginning after June 15, 2000. This statement
requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. For instruments existing at
the date of adoption, Statement No. 133 provides an entity with the
option of not applying this provision to hybrid instruments entered
into before January 1, 1998 and not modified substantially thereafter.
Consistent with the deferral of the effective date for one year,
Statement No. 137 provides an entity the option of not applying this
provision to hybrid instruments entered into before January 1, 1998 or
1999 and not modified substantially thereafter. The Company adopted
this statement on January 1, 2001. As the Company does not have any
derivatives, no transition adjustment was required.
2. SECURITIES
The amortized cost and estimated market values of securities available
for sale, securities held to maturity and other securities as of
December 31, 2000 and 1999 are summarized as follows (in thousands):
Securities Available for Sale
-----------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
-----------------------------------------------
December 31, 2000:
U.S. agency securities $ 28,102 $ 315 $ (48) $28,369
===============================================
December 31, 1999:
U.S. Treasury obligations $ 8,003 $ 12 $ -- $ 8,015
U.S. agency securities 24,075 -- (425) 23,650
-----------------------------------------------
Total $ 32,078 $ 12 $ (425) $31,665
===============================================
Securities Held to Maturity
-----------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
-----------------------------------------------
December 31, 2000:
U.S. Treasury obligations $ 989 $ 19 $ -- $ 1,008
U.S. agency securities 24,141 13 (67) 24,087
Collateralized mortgage obligations 19 1 -- 20
Municipal securities 21,218 411 (65) 21,564
-----------------------------------------------
Total $ 46,367 $ 444 $ (132) $46,679
===============================================
December 31, 1999:
U.S. agency securities $ 24,277 $ -- $ (504) $23,773
Collateralized mortgage obligations 34 1 -- 35
Municipal securities 19,105 60 (505) 18,660
-----------------------------------------------
Total $ 43,416 $ 61 $ (1,009) $42,468
===============================================
Other Securities
-----------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gain Loss Value
-----------------------------------------------
December 31, 2000:
Pacific Coast Bankers Bank stock $ 100 $ -- $ -- $ 100
Federal Home Loan Bank stock 190 -- -- $ 190
CRA Fund Advisors 500 -- -- $ 500
Federal Reserve Bank stock 932 -- -- $ 932
-----------------------------------------------
Total $ 1,722 $ -- $ -- $ 1,722
===============================================
December 31, 1999:
Federal Home Loan Bank stock $ 1,195 -- -- 1,195
Federal Reserve Bank stock 931 -- -- 931
-----------------------------------------------
Total $ 2,126 $ -- $ -- $ 2,126
===============================================
Total securities required and pledged under state regulations to secure certain
deposits and for other purposes amounted to approximately $8,933,000 and
$7,976,000 at December 31, 2000 and 1999, respectively.
The amortized cost and estimated market values of securities at December 31,
2000 by contractual maturity are shown below (in thousands). Expected maturities
will differ from contractual maturities as certain issuers have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Market
Cost Value
--------------------
Securities available for sale:
Within one year $ 4,477 $ 4,469
After one year but within five years 22,144 22,382
After five years but within ten years 1,481 1,518
--------------------
Total $ 28,102 $28,369
====================
Securities held to maturity:
Within one year $ 12,408 $12,377
After one year but within five years 21,528 21,678
After five years but within ten years 7,563 7,784
After ten years 4,868 4,839
--------------------
Total $ 46,367 $46,679
====================
3. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses for the years ended
December 31, 2000, 1999 and 1998 is summarized as follows:
(In Thousands) 2000 1999 1998
----------------------------
Balance, beginning of year $4,850 $4,424 $4,351
Allowance acquired through merger 1,108 -- --
Provision charged to expense 825 315 150
Loans charged off (452) (804) (834)
Recoveries 242 915 757
----------------------------
Balance, end of year $6,573 $4,850 $4,424
============================
At December 31, 2000 and 1999, the recorded investment in loans
considered to be impaired and placed on a non-accrual status is as
follows:
(In Thousands) 2000 1999
---------------
Loans supported by collateral $ 902 $ 504
Loans not supported by collateral 321 128
---------------
Non-accrual loans $1,223 $ 632
===============
Related allowance for non-collateralized loans $ 61 $ 122
===============
For the years ended December 31, 2000, 1999 and 1998 the average
recorded investment in impaired loans was $920,000, $528,000 and
$1,796,000, respectively. There was no interest income recognized on
impaired loans for those years, however, if interest income had been
accrued under the original terms of the loans, such income would have
approximated $103,000, $91,000 and $224,000 for 2000, 1999 and 1998,
respectively.
4. LEASEHOLD IMPROVEMENTS AND EQUIPMENT
A summary of leasehold improvements and equipment as of December 31,
2000 and 1999 is as follows:
(In Thousands) 2000 1999
----------------------
Leasehold improvements $ 1,326 $ 1,147
Furniture and fixtures 1,574 1,084
Equipment 4,568 3,566
----------------------
7,468 5,797
Less accumulated depreciation 5,067 4,176
----------------------
Leasehold improvements and equipment, net $ 2,401 $ 1,621
======================
Depreciation expense was $943,000, $628,000 and $515,000 for the years
ended December 31, 2000, 1999 and 1998.
5. DEPOSITS
The aggregate amount of time certificates of deposit in denominations of
$100,000 or more was $79,266,000 and $72,244,000 at December 31, 2000
and 1999. Interest expense incurred on certificates of deposit in
denominations of $100,000 or more was approximately $4,080,000,
$3,605,000 and $4,168,000 for the years ended December 31, 2000, 1999
and 1998, respectively. Time deposits in denominations of $100,000 or
more in excess of one year at December 31, 2000 are $3,024,000.
6. STOCK OPTIONS
BanCorp has a stock option plan which provides for incentive stock
options (ISO) and nonqualified stock options. The plan was amended in
1998 and 2000 to increase the shares available for grant to 1,528,081.
In 1995, the Company adopted the Non-Employee Director Stock Option Plan
which reserved 115,500 shares of the 1994 Stock Option Plan for grants
to eligible directors. The Non-Employee Director Plan was amended in
1999 to increase the shares reserved for directors to 173,775.
Outstanding options for the purchase of common shares, which expire at
various dates through 2009, have been granted under the plan at prices
ranging from $4.86 to $17.01 per share (restated for stock dividends).
These prices correspond to the market value of the stock on the dates
the options were granted. The plan provides that the right to exercise
options vests at the discretion of the plan committee on the date of
grant which is generally 20% per year over 5 years. Options generally
expire within ten years of the date of grant.
Option activity is summarized below:
2000 1999 1998
-----------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-----------------------------------------------------------------------------
Shares under option at beginning of year 493,399 $ 10.27 516,089 $ 8.36 494,943 $ 6.56
Options granted 136,205 13.20 157,800 12.54 106,705 14.93
Options exercised (47,544) 6.19 (139,681) 5.74 (68,219) 5.76
Options cancelled (26,482) 12.75 (40,809) 10.50 (17,340) 7.61
-----------------------------------------------------------------------------
Shares under option at end of year 555,578 11.22 493,399 10.27 516,089 8.36
=============================================================================
Options exercisable 270,032 9.82 234,891 8.35 291,965 6.78
=============================================================================
Weighted-average fair value of
options granted during the periods
at exercise prices equal to market
price at grant date $ 6.49 $ 7.00 $ 6.73
======= ======== ========
The following table summarizes information about stock options outstanding at
December 31, 2000:
Options Outstanding Options Exercisable
------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------------------------------------------------- -----------------------------
$4.86 - $6.37 118,928 2.90 $ 5.40 102,029 $ 5.38
$6.48 - $12.02 157,195 6.56 $ 10.94 67,606 $ 10.37
$12.19 - $13.10 141,659 7.50 12.82 50,174 12.34
$13.12 - $16.27 111,344 8.16 14.49 27,079 14.67
$16.55 - $17.01 26,452 3.30 16.67 23,144 16.62
- ------------------------------------------------------------------- -----------------------------
$4.86 - $17.01 555,578 6.18 $ 11.22 270,032 $ 9.82
=========================================== =============================
The Company has elected to continue with the intrinsic value method and
accordingly does not recognize compensation cost equal to the value of the stock
options. If the Company had elected to recognize compensation cost based on the
fair value of the options granted net income and earnings per share would have
been reduced to the pro forma amounts in the following table:
(Dollars in thousands)
2000 1999 1998
-------------------------------
Net income - as reported $6,760 $5,850 $5,510
Net income - pro forma $6,319 $5,498 $5,245
Basic income per share - as reported $ 1.37 $ 1.18 $ 1.10
Basic income per share - pro forma $ 1.28 $ 1.11 $ 1.04
Diluted income per share - as reported $ 1.33 $ 1.15 $ 1.04
Diluted income per share - pro forma $ 1.24 $ 1.08 $ 0.99
The fair value of each option grant is estimated on the date of vesting
using the Black-Scholes option-pricing model with the following assumptions:
2000 1999 1998
------------------------------------------
Expected dividend yield 0% 0% 0%
Expected stock price volatility 29.52% 29.52% 29.52%
Risk-free interest rate 5.46-5.29% 6.09-6.68% 4.71-4.87%
Weighted average expected
life of options 7.50 years 7.50 years 7.50 years
7. REGULATORY MATTERS
BanCorp is subject to regulation under the Bank Holding Company Act of 1956
and to regulation by the Federal Reserve Board. The regulations require the
maintenance of cash reserve balances at the Federal Reserve Bank for
transaction accounts. The average reserve requirement for the Bank was
$261,000 and $746,000 for the years ended December 31, 2000 and 1999,
respectively.
BanCorp and the Bank are required by the Board of Governors of the Federal
Reserve System to maintain minimum risk-based capital ratios. Failure to
meet minimum capital requirements can initiate certain mandatory-and
possibly additional discretionary-actions by regulators that, if undertaken,
could have a 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 judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December
31, 2000, that BanCorp and the Bank met all capital adequacy requirements to
which they are subject.
As of December 31, 2000, the most recent notification from the Federal
Reserve Bank of San Francisco 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 1 risk-based, Tier 1 leverage ratios as set forth in the
following table. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Company's actual capital amounts and ratios are also presented in the
following table:
Minimum
Actual Actual Minimum Capital
Ratio Amount Ratio Requirement
------- ---------- -------- -------------
(In thousands)
As of December 31, 2000:
Total risk-based capital ratio
Company 10.34% $ 47,252 8.00% $ 36,551
Bank 10.27% $ 46,914 8.00% $ 36,551
Tier 1 risk-based capital ratio
Company 9.09% $ 41,530 4.00% $ 18,275
Bank 9.02% $ 41,192 4.00% $ 18,275
Tier 1 Leverage
Company 8.59% $ 41,530 4.00% $ 19,339
Bank 8.52% $ 41,192 4.00% $ 19,339
As of December 31, 1999:
Total risk-based capital ratio
Company 14.48% $ 50,070 8.00% $ 27,666
Bank 14.42% $ 49,909 8.00% $ 27,666
Tier 1 risk-based capital ratio
Company 13.23% $ 45,741 4.00% $ 13,833
Bank 13.17% $ 45,576 4.00% $ 13,833
Tier 1 leverage ratio
Company 11.80% $ 45,741 4.00% $ 15,505
Bank 11.69% $ 45,576 4.00% $ 15,505
8. BENEFIT PLANS
The Bank has a discretionary defined contribution retirement plan (the
Plan), which covers all employees with over one year of continuous service.
The Plan consists of a 401(k) salary deferral component and a profit sharing
component. Under the 401(k) salary deferral component, an employee may
contribute up to 12% of pretax salary to the Plan. Employer contributions to
the 401(k) salary deferral component are made at the discretion of the Board
of Directors.
The profit sharing component provides for contributions of pretax profits of
the Bank to all employees with one year of continuous service subject to
certain eligibility requirements. The contributions to the profit sharing
component are made the following year at the discretion of the Board of
Directors.
The following is a summary of the related expenses for the years ended
December 31, 2000, 1999 and 1998, which are included in salaries and
employee benefits.
(In Thousands) 2000 1999 1998
-----------------------------------
401(k) salary deferral component $ 255 $ 178 $ 159
Profit sharing component 270 234 220
-----------------------------------
$ 525 $ 412 $ 379
===================================
9. INCOME TAXES
Total income taxes for the years ended December 31, 2000, 1999 and 1998
were recorded as follows:
(In Thousands) 2000 1999 1998
-----------------------------------
Income taxes applicable to income before income tax expense $4,167 $3,616 $3,650
Tax benefit of stock options exercised
recorded in shareholders' equity (118) (105) (49)
Tax effect of the change in net unrealized gain (loss)
on investment securities recorded in shareholders' equity 272 (361) (28)
Recognition of net deferred tax assets originating prior to
quasi-reorganization recorded in shareholders' equity -- -- (978)
-----------------------------------
Income taxes net of shareholders' equity adjustments $4,321 $3,150 $2,595
===================================
The provision for income taxes reflected in the consolidated statements of
income for the years ended December 31, 2000, 1999 and 1998 is as follows:
(In Thousands) 2000 1999 1998
-----------------------------------
Current provision (benefits):
Federal $3,380 $2,815 $2,624
State 984 776 734
-----------------------------------
Total 4,364 3,591 3,358
Deferred
Federal (153) 30 194
State (44) (5) 98
-----------------------------------
Total $4,167 $3,616 $3,650
===================================
The temporary differences which created deferred tax assets and liabilities are
detailed below:
(In Thousands) 2000 1999 1998
--------------------------------
Deferred tax assets:
Loan loss and foreclosed asset
allowances not currently deductible $1,787 $1,092 $941
Deferred rent 26 33 43
Deferred loan fees 25 50 75
Core deposits 208 238 294
Book over tax depreciation 283 228 188
Other write-downs -- -- 39
Accrued Payables 255 263 234
State tax 366 252 267
Other 7 -- --
Net unrealized loss on securities available for sale -- 165 --
--------------------------------
Gross deferred tax asset 2,957 2,321 2,081
Valuation Allowance -- -- --
--------------------------------
Total deferred tax asset $2,957 $2,321 $2,081
--------------------------------
Deferred tax liabilities:
Net unrealized gain on securities available for sale (107) -- (196)
Leases (338) (118) --
Other -- (40) (58)
--------------------------------
Total deferred tax liability (445) (158) (254)
--------------------------------
Net Deferred Tax Asset $2,512 $2,163 $1,827
================================
Management periodically reevaluates the realizability of the deferred tax assets
and adjusts the valuation allowance so that the resulting level of net deferred
tax assets will more likely than not be realized. As of December 31, 2000,
management estimates that the Company will more likely than not realize the
$2,512,000 net deferred tax asset. Accordingly, no valuation allowance has been
provided for at December 31, 2000. In 1998, $978,000 of deferred tax benefits
were recognized in shareholders' equity as a result of reductions in the
valuation allowance in each of these years. These tax benefits originated prior
to the quasi-reorganization that took place on July 1, 1996.
Amounts for the current year are based upon estimates and assumptions as of the
date of this report and could vary from amounts shown on the tax return as
filed. Accordingly, the variances from amounts reported for 1999 and 1998 are
primarily the result of adjustments to conform to the 1999 and 1998 filed tax
returns.
The effective tax rate differs from the federal statutory income tax rate for
the years ended December 31, 2000, 1999 and 1998 as follows:
2000 1999 1998
----------------------------
Federal statutory income tax rate 34% 34% 34%
State franchise tax, less federal
income tax effect 6% 5% 6%
Tax-exempt income (3%) (3%) (2%)
Other permanent differences 1% 2% 2%
----------------------------
Effective income tax rate 38% 38% 40%
============================
10. RELATED PARTY TRANSACTIONS
Certain directors and companies with which they are associated are
customers of and have banking transactions with the Bank in the ordinary
course of business. It is the Bank's policy that all loans and commitments
extended to directors be made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for
comparable transactions with other borrowers.
The activity is summarized as follows for the years ended December 31,
2000 and 1999:
(In Thousands) 2000 1999
--------------------------------
Balance, beginning of year $ 808 $ 1,307
Loan proceeds disbursed 6,626 1,461
Loan repayments (2,753) (1,960)
--------------------------------
Balance, end of year $ 4,681 $ 808
--------------------------------
11. COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET RISK
The Bank is involved in legal actions arising from normal business
activities. Management, upon the advice of legal counsel handling such
actions, believes that the ultimate resolution of these actions will not
have a material adverse effect on the financial position of BanCorp.
In the normal course of business, to meet the financing needs of its
customers and manage its own exposure to fluctuations in interest rates,
the Bank is a party to financial instruments, including commitments to
extend credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit, interest rate and liquidity risk in
excess of the amount recognized in the consolidated balance sheets. The
contract or notional amounts of these instruments, which are not included
in the consolidated balance sheets, are an indicator of the extent of the
Company's activities in particular classes of financial instruments. The
Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Bank controls
the credit risk of these transactions through credit approvals, limits and
monitoring procedures, and generally requires collateral or other security
to support commitments to extend credit. The Bank's exposure to credit loss
is usually limited to amounts funded or drawn. A summary of these financial
instruments at December 31, 2000 and 1999 follows:
(In Thousands) 2000 1999
------------- ------------
Commitments to extend credit $ 194,803 $ 166,880
Standby letters of credit $ 11,349 $ 10,859
12. OPERATING LEASES
BanCorp and the Bank lease their banking and office facilities under
noncancelable operating leases. These leases expire from August 2001 to
December 2006. Certain leases contain options to extend. Rental expense for
the years ended December 31, 2000, 1999 and 1998 was $1,412,000,
$1,088,000, and $1,055,000, respectively.
Total future minimum rental payments under these operating leases at
December 31, 2000 are as follows:
(Dollars In Thousands)
Year ending December 31:
2001 $ 1,499
2002 1,478
2003 1,319
2004 826
2005 563
Thereafter 531
----------
Total Future Minimum Rentals $ 6,216
==========
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments have been
determined by the Bank using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily
required to interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative
of the amounts the Bank could realize in a current market exchange. The use
of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
The summary of these financial instruments and their related fair values at
December 31, 2000 and 1999 are as follows:
(In Thousands) 2000 1999
---------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------------------------------------------------------------------
Assets:
Cash and cash equivalents $ 25,692 $ 25,692 $ 19,705 $ 19,705
Securities available for sale 28,369 28,369 31,665 31,665
Securities held to maturity 46,367 46,679 43,416 42,468
Other securities 1,722 1,722 2,126 2,126
Loans 371,546 370,042 280,687 279,737
Liabilities:
Noninterest-bearing deposits 89,090 89,090 65,277 65,277
Interest-bearing deposits 340,105 340,095 269,437 269,357
The following methods and assumptions were used to estimate fair value of
each class of financial instruments for which it is practical to estimate
that value:
Cash and cash equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Securities available for sale, held to maturity, and other securities - The
fair value of securities is based on quoted market prices, dealer quotes
and prices obtained from independent pricing services.
Loans - The fair value of performing loans is estimated by discounting the
future cash flows using the current interest rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities. The estimated fair value of certain nonperforming
loans has been determined on an individual basis, taking into account
management's plans regarding potential foreclosure and subsequent sale of
collateral and the borrower's plan for the continuance of principal and
interest payments.
Noninterest and interest bearing deposits - The fair value of demand
deposits, savings accounts, and certain money market deposits is the amount
payable on demand at the reporting date. The fair value of fixed-maturity
certificates of deposit is estimated using the rates currently offered for
deposits of similar remaining maturities.
Commitments to extend credit and standby letters of credit - The fair value
of commitments and standby letters of credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Management estimates that the estimated fair value of
commitments to extend credit and standby letters of credit is not
significant. The Bank may structure variable rate loans to include embedded
interest rate floors. Such floors are designed to mitigate interest rate
risk to the Bank in a declining interest rate environment. As of December
31, 2000, the Bank had outstanding loans totaling approximately $22,000,000
that were subject to interest rate floors.
14. FINANCIAL STATEMENTS OF CIVIC BANCORP (parent company only) The condensed
financial statements of Civic BanCorp (parent company only) are presented
below (in thousands):
BALANCE SHEET
As of December 31, 2000 and 1999
2000 1999
----------------------------------
ASSETS
Cash on deposit with Bank subsidiary $ 388 $ 170
Investment in Bank at equity in underlying assets 53,444 46,040
----------------------------------
Total assets $ 53,832 $ 46,210
==================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities $ 50 $ 6
Shareholders' equity 53,782 46,204
----------------------------------
Total liabilities and shareholders' equity $ 53,832 $ 46,210
==================================
STATEMENTS OF INCOME
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------------------------------------------
Dividend From Bank Subsidiary $ 14,610 $ 1,000 $ 3,000
Interest income 13 26 26
Gain on Disposal of Warrants - 333 -
Less administration expense 132 206 111
----------------------------------------------
Income from operations 14,491 1,153 2,915
Income Taxes - 94 -
Equity in undistributed (loss) income of Bank (7,731) 4,791 2,595
----------------------------------------------
Net income $ 6,760 $ 5,850 $ 5,510
==============================================
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STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
-------------------------------------------------
Cash flows from operating activities:
Net income $ 6,760 $ 5,850 $ 5,510
Adjustments to reconcile net income
to cash used in operating activities:
Equity in undistributed net income of Bank (6,879) (5,791) (5,595)
Contributed Capital - (168) -
Change in assets and liabilities 45 16 (23)
-------------------------------------------------
Net cash used in operating activities (74) (93) (108)
-------------------------------------------------
Cash flows from financing activities:
Dividends received from subsidiary bank 14,610 1,000 3,000
Cash paid in lieu of fractional shares (3) (3) -
Stock repurchase - (1,845) (3,859)
Proceeds from exercise of stock options 295 825 406
Capital contributions to bank (14,610) - -
-------------------------------------------------
Net cash provided by (used) in financing activities 292 - (23) (453)
-------------------------------------------------
Net increase (decrease) in cash 218 (116) (561)
Cash at beginning of year 170 286 847
--------------------------------------------------
Cash at end of year $ 388 $ 170 $ 286
==================================================
25