FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities and Exchange Act of 1934
For the Quarter Ended Commission file number
March 31, 1996 0-13287
- ------------------------ ----------------------
CIVIC BANCORP
-----------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0022322
- ------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2101 Webster Street, Oakland, California 94612
------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (510) 836-6500
------------------
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 the number of shares outstanding of each of the
registrant's classes of common stock, as of April 30, 1996: 4,514,203
The total number of pages in this form is 19
----
The index of exhibits appears on page 18
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1
CIVIC BANCORP
AND
SUBSIDIARY
Index to Form 10-Q Page Number
-----------
PART I. Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1996, March 31, 1995
and December 31, 1995 3
Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and
March 31, 1995 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and
March 31, 1995 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6
PART II. Other Information 18
SIGNATURES 19
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
CIVIC BANCORP AND SUBSIDIARY
----------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands except shares)
March 31 March 31 December 31
1996 1995 1995
--------- ---------- -----------
ASSETS
- ------
Cash and due from banks $13,465 $13,578 $16,758
Federal funds sold 8,850 32,000 14,800
--------- ---------- ----------
Total cash and cash equivalents 22,315 45,578 31,558
Securities available for sale 7,908 10,123 10,021
Securities held to maturity
(market value of $49,030, $54,729
and $52,163, respectively) 48,539 54,923 51,199
Other securities 1,576 1,509 1,636
Loans:
Commercial 76,600 69,168 70,417
Real estate-construction 3,934 4,177 4,067
Real estate-other 55,887 56,364 61,752
Installment and other 17,067 19,704 18,460
--------- ---------- ----------
Total loans 153,488 149,413 154,696
Less allowance for loan losses 5,076 3,242 4,960
--------- ---------- ----------
Loans - net 148,412 146,171 149,736
Interest receivable and other assets 3,825 4,464 3,914
Leasehold improvements and equipment - net 1,656 2,011 1,730
Foreclosed assets 712 795 770
Other assets held for sale 275 306 275
--------- ---------- ----------
TOTAL ASSETS $235,218 $265,880 $250,839
========= =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $64,257 $74,761 $73,149
Interest-bearing:
Checking 21,971 22,237 24,791
Money market 71,250 92,817 68,151
Time and savings 45,376 47,546 54,007
--------- ---------- ----------
Total deposits 202,854 237,361 220,098
Accrued interest payable and other liabilities 1,952 1,653 1,381
--------- ---------- ----------
Total liabilities 204,806 239,014 221,479
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock no par value; authorized,
10,000,000 shares; none issued or outstanding - - -
Common stock no par value; authorized,
10,000,000 shares; issued and outstanding,
4,514,203, 4,447,945 and 4,488,485 shares 36,914 36,467 36,751
Retained deficit (6,486) (9,641) (7,411)
Net unrealized (loss) gain on securities
available for sale (16) 40 20
--------- ---------- ----------
Total shareholders' equity 30,412 26,866 29,360
--------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $235,218 $265,880 $250,839
========= ========== ==========
3
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands except shares and per share amounts)
Three Months Ended March 31,
-----------------------------
1996 1995
INTEREST INCOME: ------------ -----------
Loans $4,132 $3,985
Securities available for sale, securities
held for investment and other securities 933 1,048
Tax exempt securities 3 4
Federal funds sold 24 174
------------ -----------
Total interest income 5,092 5,211
INTEREST EXPENSE:
Deposits 1,122 1,305
Other borrowing 14 -
------------ -----------
Total interest expense 1,136 1,305
------------ -----------
NET INTEREST INCOME 3,956 3,906
Provision for loan losses 225 300
------------ -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,731 3,606
------------ -----------
NONINTEREST INCOME:
Customer service fees 135 147
Other 44 43
------------ -----------
Total noninterest income 179 190
NONINTEREST EXPENSE:
Salaries and employee benefits 1,534 1,532
Occupancy 249 248
Equipment 214 223
Goodwill and core deposit amortization 64 72
Data processing services 64 71
FDIC insurance 1 126
Telephone and postage 56 65
Consulting fees 60 90
Legal fees 45 34
Marketing 55 58
Foreclosed asset expense 80 50
Other 368 412
------------ -----------
Total noninterest expense 2,790 2,981
------------ -----------
INCOME BEFORE INCOME TAXES 1,120 815
Income tax expense 195 35
------------ -----------
NET INCOME $ 925 $ 780
============ ===========
NET INCOME PER COMMON SHARE $0.20 $0.18
============ ===========
Weighted average shares outstanding used
to compute net income per common share 4,569,171 4,448,033
============ ===========
4
CIVIC BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
Three Months Ended March 31,
----------------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 925 $ 780
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 225 300
Depreciation and amortization 239 311
Write-down of foreclosed assets 58 20
(Decrease) increase in deferred loan fees (42) 2
Change in assets and liabilities:
Decrease in interest receivable and other assets 24 757
Increase in accrued interest payable
and other liabilities 571 469
-------- -------
Net cash provided by operating activities 2,000 2,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (80) (63)
Net decrease in loans 1,141 4,565
Expenditures on foreclosed assets - (29)
Proceeds from sales of foreclosed assets - 276
Activities in securities held to maturity:
Proceeds from maturing securities 5,067 6,062
Purchases of securities (2,290) (3,025)
Activities in securities available for sale:
Proceeds from maturing securities 5,000 5,000
Purchases of securities (3,000) (5,107)
-------- -------
Net cash provided by investing activities 5,838 7,679
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 163 -
Net (decrease) increase in deposits (17,244) 3,530
-------- -------
Net cash (used in) provided by financing activities (17,081) 3,530
-------- -------
Net (decrease) increase in cash and cash equivalents (9,243) 13,848
Cash and cash equivalents at beginning of period 31,558 31,730
-------- -------
Cash and cash equivalents at end of period $22,315 $45,578
======== =======
Cash paid during year for:
Interest $ 1,184 $ 1,282
======= =======
Income taxes $ 30 -
======= =======
Supplemental schedule of non-cash investing activity:
Loans transferred to foreclosed assets - $ 462
5
CIVIC BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements of Civic Bancorp and subsidiary
(the Company) have been prepared in accordance with generally accepted
accounting principles and with the instructions to Form 10-Q. In the opinion of
management, all necessary adjustments have been made to fairly present the
financial position, results of operations and cash flows for the interim
periods presented. These unaudited consolidated financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. The results of operations and cash flows are not
necessarily indicative of those expected for the complete fiscal year. Net
income per common share computed on a primary and fully diluted basis is
substantially the same.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Overview
For the three months ended March 31, 1996, the Company reported net income of
$925,000, or $.20 per share compared to a net income of $780,000 or $.18 per
share for the same period of the prior year. The annualized return on average
assets was 1.57% for the three months ended March 31, 1996 compared to 1.23% for
the same period of the prior year. The annualized return on average
shareholders' equity for the three months ended March 31, 1996 and 1995 was
12.37% and 11.79%, respectively.
RESULTS OF OPERATIONS
Net interest income for the three months ended March 31, 1996 was $4.0 million,
increasing $50,000 or 1.3% from net interest income of $3.9 million for the same
period in 1995. Net interest income was consistent with the prior year as the
positive impacts of a more favorable mix of earning assets and a decrease in the
volume of interest bearing liabilities were offset by the negative impact of a
decrease in the volume of earning assets.
Total interest income for the first three months of 1996 equaled $5.1 million, a
decrease of $119,000 from interest income earned in the same period in 1995. The
decrease in total interest income was attributed to the decrease in total
average earning assets which was partially offset by a shift in earning assets
to higher yielding loans from Federal funds sold and investment securities.
Average earning assets decreased $14.3 million or 6.1% to $218.7 million for the
first quarter of 1996 from $233.0 million for the same period of the prior year.
Offsetting the
6
decline in earning assets was an increase in the average loan
volume of $7.6 million which has a higher rate of return than that of Federal
fund sold and securities.
Total interest expense for the first three months of 1996 equaled $1.1 million
and decreased 13.0% from the $1.3 million for the three months ended March 31,
1995 due to a decline of $21.9 million or 13.7% in the volume of interest
bearing liabilities.
The net interest margin increased 47 basis points to 7.27% for the first quarter
of 1996 from 6.80% for the same period of the prior year. The increase in the
margin is primarily attributed to the shift in earning assets to higher yielding
loans, as previously discussed, and a shift in the proportion of total assets
funded by interest-free liabilities. The proportion of total assets funded by
demand deposits and capital increased to 41.3% for the first quarter of 1996
from 37.0% for the first quarter of 1995. Conversely, the proportion of total
assets funded by interest-bearing liabilities decreased to 58.7% from 63.0% from
the same period, respectively.
7
The following table presents an analysis of the components of net interest
income for the three month periods ended March 31, 1996 and 1995.
Three months ended March 31,
----------------------------------------------------------------------
1996 1995
--------------------------------- ---------------------------------
Interest Rates Interest Rates
Average Income/ Earned/ Average Income/ Earned/
Balance Expense/2/ Paid Balance Expense/2/ Paid
--------- ----------- -------- --------- ----------- --------
ASSETS
Securities available for sale $ 6,162 $ 90 9.86% $ 11,508 $ 169 5.97%
Securities held for investment:
U.S. Treasury securities 10,747 164 6.14% 14,603 186 5.16%
U.S. Government agencies 38,411 649 6.80% 39,834 649 6.61%
Municipal securities/1/ 333 3 4.08% 228 4 6.39%
Commercial paper 483 7 5.85 1,422 21 6.07%
Other securities 1,623 23 5.69% 1,558 23 5.93%
Federal funds sold and securities
purchased under agreements to resell 1,819 26 5.40% 12,290 174 5.66%
Loans:/2/,/3/
Commercial 76,470 2,025 10.65% 70,302 1,940 11.19%
Real estate-construction 3,976 104 10.47% 5,938 130 8.87%
Real estate-other 61,515 1,872 10.28% 59,161 1,398 10.28%
Installment and other 17,151 431 10.10% 20,153 517 10.40%
--------- -------- -------- --------- -------- -------
Total Loans 159,112 4,132 10.45% 151,554 3,985 10.66%
--------- -------- -------- --------- -------- -------
Total Earning Assets 218,710 5,092 5.36% 232,997 5,211 9.07%
Cash and due from banks 15,558 15,989
Leasehold improvements and equipment - net 1,703 2,047
Interest receivable and other assets 3,598 4,996
Foreclosed assets 758 997
Assets held for sale 275 306
Less allowance for loan loss (5,062) 3,260
--------- ---------
TOTAL ASSETS $235,540 $254,072
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking $ 22,396 52 0.94% $ 22,170 69 1.26
Money market 72,486 557 3.14% 88,750 721 3.29
Time and savings 43,284 513 4.77% 19,172 515 4.25
Other borrowed funds 995 14 5.64% - - -
--------- -------- -------- --------- -------- -------
Total interest bearing liabilities 138,161 1,136 3.31% 160,092 1,305 3.20
Demand deposits 65,624 66,049
Other liabilities 1,844 1,462
Shareholders' equity 29,911 26,649
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $235,540 $254,072
========= =========
Net Interest Income $3,956 $3,906
======== ========
Net Interest Margin 7.27% 6.80%
======== =======
- -----------------
(1) Tax-exempt interest income has not been adjusted to a fully taxable
equivalent basis.
(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 loan fees on commercial loans of $105,000 and
$112,000 for March 31, 1996 and 1995, respectively; fees on real estate
loans of $126,000 and $79,000 for March 31, 1996 and 1995, respectively; and
fees on installment and other loans of $8,000 and $5,000 for March 31, 1996
and 1995, respectively.
8
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 three month period ended March 31, 1996.
Analysis of Changes in Interest Income and Expense
Increase (Decrease) Due to Change in
1996 over 1995
Volume 1 Rate 2 Total
--------- -------- -------
(In thousands)
Increase (decrease) in interest
income:
Securities available for sale $ (77) $ (2) $ (79)
Securities held to maturity:
U.S. Treasury securities (48) 26 (22)
U.S. government agency (18) 18 0
Municipal securities 1 (2) (1)
Commercial paper (14) 0 (14)
Other securities 1 (1) 0
Federal funds sold (149) (1) (150)
Loans:
Commercial 187 (102) 85
Real estate-construction (42) 16 (26)
Real estate-other 174 0 174
Installment and other (74) (12) (86)
--------- -------- -------
Total Loans 245 (98) 147
--------- -------- -------
Total increase (decrease) $ (59) $ (60) $(119)
--------- -------- -------
(Increase) decrease in interest
expense:
Deposits:
Interest bearing checking $ (1) $ 18 $ 17
Money market 136 28 164
Savings and time 58 (56) 2
Other borrowed funds (14) 0 (14)
--------- -------- -------
Total increase (decrease) $ 179 $ (10) $ 169
--------- -------- -------
Total change in net interest
income $120 $ (70) $ 50
========= ======== =======
(1) Changes not solely attributed to rate or volume have been allocated to
volume.
(2) Loan fees are reflected in rate variances.
(3) Tax-exempt interest income has not been adjusted to a fully taxable
equivalent basis.
9
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 1996 was
$225,000, a decrease of $75,000 or 25.0% from the three months ended March 31,
1995. The amount of the provision was reduced due to a decline in the level of
net loan charge-offs.
Non-Interest Income
Non-interest income for the three months ended March 31, 1996 was $179,000, a
decrease of $11,000 or 5.79% from the three months ended March 31, 1995. The
decrease in customer service fees is attributed to the decline in deposits.
Non-Interest Expense
Non-interest expense totaled $2.8 million and $3.0 million for the three months
ended March 31, 1996 and 1995, respectively. FDIC assessments declined $125,000
or 99.2% for the first quarter of 1996 as compared to the prior year due to
declines in the assessment rates. The Company reduced the volume of external
marketing consulting in 1996 from 1995 which reduced the level of consulting
expenses.
For the three months ended March 31, 1996 the Company recorded a write-down on
one foreclosed property of $50,000 and incurred $30,000 in expenses associated
with managing, maintaining and liquidating foreclosed assets compared to a
write-down of $20,000 and expenses of $30,000 for the three months ended March
31, 1995.
The following table summarizes the significant components of noninterest expense
for the dates indicated.
Quarter Ended March 31 Dollar %
(Dollars in thousands) 1996 1995 Change Change
--------- -------- ------ -------
Salaries and employee benefits........... $1,534 $1,532 $2 0.1%
Occupancy............................... 249 248 1 0.4%
Equipment............................... 214 223 (9) -4.0%
Goodwill and core deposit amortization.. 64 72 (8) -11.1%
Data processing services................ 64 71 (7) -9.9%
FDIC insurance.......................... 1 126 (125) -99.2%
Telephone and postage................... 56 65 (9) -13.8%
Consulting fees......................... 60 90 (30) -33.3%
Legal fees.............................. 45 34 11 32.4%
Marketing............................... 55 58 (3) -5.2%
Foreclosed asset expenses............... 80 50 30 60.0%
Other................................... 368 412 (44) -10.7%
--------- -------- ------ -------
TOTAL NONINTEREST EXPENSE............... $2,790 $2,981 ($191) -6.4%
========= ======== ====== =======
10
Provision for Income Taxes
At December 31, 1995 the Company had approximately $1.1 million of state net
operating loss carryforwards which begin to expire in 1998 and $455,000 of tax
credit carryforwards which begin to expire in 2006. Due to the utilization of
such carryforwards, the Company recorded a provision for income taxes of
$195,000 for Federal and state alternative minimum taxes for the three months
ended March 31, 1996.
FINANCIAL CONDITION
Loans
Average loans increased $7.6 million or 4.9% to $159.1 million for the three
months ended March 31, 1996 from $151.6 million for the same period in 1995. The
increase in average loans is attributed to an improving economic environment and
an overall increase in loan demand.
Real estate construction loans as a percentage of total loans outstanding were
2.6% at March 31, 1996 compared to 2.8% at March 31, 1995. The relatively low
level of real estate construction loans reflects management's decision to
curtail real estate construction loan commitments because the risks associated
with real estate construction loans are generally considered to be higher than
risks associated with other forms of lending.
Other real estate loans consist of mini-perm loans and land acquisition loans
which are primarily owner-occupied and are generally granted based on the rental
or lease income stream generated by the property. The decline in the real
estate-other category from December 31, 1995 to March 31, 1996 is due to the
pay-off of one large loan.
The following table sets forth the amount of loans outstanding in each category
and the percentage of total loans outstanding for each category as of the date
indicated.
March 31 Dec. 31 March 31
----------------- ------------------ ----------------
1996 1995 1995
----------------- ------------------ ----------------
Amount Percent Amount Percent Amount Percent
--------- ------- -------- -------- -------- -------
(Dollars in thousands)
Commercial...................... $ 76,600 49.9% $ 70,417 45.5% $ 69,168 46.3%
Real estate - construction...... 3,934 2.6% 4,067 2.6% 4,177 2.8%
Real estate - other............. 55,887 36.4% 61,753 39.9% 56,364 37.7%
Installment and other........... 17,067 11.1% 18,460 11.9% 19,704 13.2%
--------- ------- --------- -------- -------- -------
TOTAL......................... $153,488 100.0% $154,696 100.0% $149,413 100.0%
========= ======= ========== ======= ======== ======
Foreclosed Assets
Foreclosed assets totaled $712,000 at March 31, 1996, a decrease of $83,000 or
10.4% from March 31, 1995, and consist of two parcels of raw land and one
finished lot.
11
Non-Performing Assets
The following table provides information with respect to the Company's past due
loans and components of non-performing assets at the dates indicated.
March 31 Dec. 31 March 31
1996 1995 1995
-------- ------- --------
(Dollars in thousands)
Loans 90 days or more past due and still accruing.... $ 497 $ 325 $ 367
Non-accrual loans.................................... 2,920 2,859 2,979
Other assets held for sale........................... 275 275 306
Foreclosed assets.................................... 712 770 795
-------- ------- --------
Total non-performing assets........................ $4,404 $4,229 $4,447
======== ======= ========
Non-performing assets to period end loans,
other assets held for sale plus foreclosed
assets 2.85% 2.70% 2.95%
======== ======== ========
At March 31, 1996, the recorded investment in loans considered to be impaired
under Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan" as amended by Statement of Financial
Accounting Standards No. 118 was $2,920,000 all of which were on a non-accrual
basis. Included in this amount was $97,000 of impaired loans for which the
related allowance for loan losses was $77,000 and $2,823,000 of impaired loans
which approximate the fair value of the supporting collateral and accordingly do
not have an associated allowance for loan loss. For the quarter ended March 31,
1996, the average recorded investment in impaired loans was $2,950,000 and no
interest income was recognized on impaired loans. If interest income on those
loans had been recognized, such income would have approximated $111,000.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level that management of the
Company considers to be adequate for losses that can be reasonably anticipated
in relation to the risk of future losses inherent in the loan portfolio. The
allowance is increased by charges to operating expenses and reduced by net
charge-offs.
In assessing the adequacy of the allowance for loan losses, management relies on
its ongoing review of the loan portfolio to identify potential problem loans in
a timely manner, ascertains whether there are probable losses which must be
charged off and assesses the aggregate risk characteristics of the portfolio.
Factors which influence management's judgment include the impact of forecasted
economic conditions, historical loan loss experience, the evaluation of risks
which vary with the type of loan, creditworthiness of the borrower and the value
of the underlying collateral. Management believes the allowance for loan losses
was adequate at March 31, 1996.
12
The following table summarizes the changes in the allowance for loan losses for
the periods indicated:
Three months Year Three Months
Ended Ended Ended
3-31-96 12-31-95 3-31-95
------------ -------- ------------
(Dollars in thousands)
Balance, at beginning of period.......... $4,960 $3,216 $3,216
Charge-offs:
Commercial............................. 95 188 50
Real estate - construction............. - 884 345
Real estate - other.................... 50 33 -
Installment and other.................. 9 310 58
------------ -------- ------------
Total charge-offs.................... 154 1,415 453
Recoveries:
Commercial............................. 26 336 140
Real estate - construction............. 2 144 -
Real estate - other.................... 15 34 -
Installment and other.................. 2 80 30
------------ -------- ------------
Total recoveries..................... 45 594 179
------------ -------- ------------
Net charge-offs.......................... 109 821 274
Provision charged to operations.......... 225 2,565 300
------------ -------- ------------
Balance, at end of period................ $5,076 $4,960 $3,242
============ ======== ============
Ratio at net charge-offs to average
loans (annualized))..................... 0.27% 0.55% 0.72%
============ ======== ============
Allowance at period end to total loans
outstanding............................ 3.31% 3.21% 2.17%
============ ======== ============
The balance in the allowance for loan losses at March 31, 1996 was $5.1 million
or 3.31% of total loans compared to $3.2 million or 2.17% at March 31, 1995.
Potential Problem Loans
At March 31, 1996 there were no loans which represented material credits about
which management has serious doubts as to the ability of the borrowers to comply
with the original terms and conditions.
At March 31, 1996 there were no loans classified for regulatory purposes as
loss, doubtful, substandard or special mention that have not been disclosed in
the discussion above that (i) represented or resulted from trends or
uncertainties which management anticipated would have a material impact on
future operating results, liquidity, capital resources or (ii) represented
material credits about which management was aware of information that would
cause serious doubt as to the ability of the borrower to comply with the loan
repayment terms.
13
Investment Portfolio
The Company's investment portfolio is used primarily for liquidity purposes and
secondarily for investment income. The portfolio is primarily composed of U.S.
Treasury and U.S. government agency instruments and investment grade municipal
obligations. The total of securities available for sale and held to maturity
declined $4.8 million as funds provided by maturing securities were used to
accommodate deposit withdrawals.
The table below summarizes the book value and estimated market values of the
Company's portfolio of securities held to maturity, securities available for
sale and other securities.
March 31, 1996 December 31, 1995
------------------ --------------------
Bank Market Book Market
Value Value Value Value
-------- ------- ------- -------
(Dollars in thousands)
SECURITIES HELD TO MATURITY:
U.S. Treasury securities............. $10,787 $10,831 $10,756 $10,924
U.S. government agencies and
corporation........................ 35,162 35,670 40,272 41,058
Municipal securities................. 2,425 2,357 171 181
Collateralized mortgage obligations.. 165 172 - -
-------- ------- ------- -------
TOTAL.............................. $48,539 $49,030 $51,199 $52,163
======== ======= ======= =======
SECURITIES AVAILABLE FOR SALE:
U.S. Treasury securities............. $ - $ - $5,005 $5,011
U.S. government agencies and
corporation........................ 7,924 7,908 4,996 5,010
-------- ------- ------- -------
TOTAL.............................. $7,924 $7,908 $10,001 $10,021
======== ======= ======= =======
Deposits
For the three months ended March 31, 1996 average deposits totaled $202.8
million, a decrease of $23.4 million or 10.3% from $226.1 million for the same
period in 1995. Management attributes the decline in deposits, particularly
money market deposits, to increased competition from and availability of
nondeposit products such as mutual funds.
For the three months ended March 31, 1996, average demand deposits totaled $65.6
million, a decrease of $425,000 or 0.6% from the same period in 1995. Average
demand deposits as a percentage of total deposits increased to 32.4% for the
first quarter of 1996 from 29.2% for the same period of the prior year. Average
interest-bearing deposits decreased $22.9 million or 14.3% for the three months
ended March 31, 1996 from the same period in 1995. Average interest-bearing
deposits comprised 67.6% of
14
average total deposits for the three months ended March 31, 1996 and 70.8% of
average total deposits for the three months ended March 31, 1995.
The table below sets forth information regarding the Bank's average deposits by
amount and percentage of total deposits for the three months ended March 31,
1996 and 1995.
Average Deposits
---------------------------------------------
Three Months Ended March 31,
---------------------------------------------
1996 1995
---------------------- ---------------------
Amount Percentage Amount Percentage
--------- ---------- --------- ----------
Demand accounts............. $ 65,624 32.4% $ 66,049 29.2%
Interest-bearing checking... 22,396 11.0% 22,170 9.8%
Money market................ 71,486 35.3 88,750 39.2%
Savings and time............ 43,284 21.3% 49,172 21.7%
-------- ----- -------- -----
Total.................. $202,790 100.0 $226,141 100.0%
======== ===== ======== =====
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.
Time certificates of $100,000 or more at March 31, 1996 had the following
schedule of maturities:
(In thousands)
--------------
Three months or less.................... $17,104
After three months through six months... 2,637
After six months through twelve months.. 1,404
After twelve months..................... 455
--------------
Total............................... $21,600
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity management refers to the Bank's ability to acquire funds to meet loan
demand, fund deposit withdrawals and to service other liabilities.
Cash and cash equivalents declined $9.2 million at March 31, 1996 from December
31, 1995 as the cash flows required for financing activities exceeded the funds
provided by operating and investing activities. Cash and cash equivalents of
$17.1 million were required to accommodate deposit withdrawals which were
partially funded by a combination of operating activities, which provided $2
million of cash and cash equivalents, and investing activities, principally
maturing loans and maturing securities, which provided $5.8 million of cash and
cash equivalents.
To augment liquidity, the Bank has informal Federal funds borrowing arrangements
with correspondent banks totaling $24.0 million and maintains a credit
arrangement with the
15
Federal Reserve Bank of San Francisco for open window borrowing. At March 31,
1996 the Bank had no outstanding borrowings against these arrangements.
Additionally, at March 31, 1996, unpledged government securities that are
available to secure additional borrowing in the form of reverse repurchase
agreements totaled approximately $48.5 million. At March 31, 1996 the Bank had
no reverse repurchase agreements.
The Bank is a member of the Federal Home Loan Bank of San Francisco and through
membership has the ability to pledge qualifying collateral for short term (up to
six months) and long term (up to five years) borrowing. At March 31, 1996 there
were no outstanding advances.
The liquidity position of the Company may be expressed as a ratio defined as (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 March 31, 1996, the Company
had a liquidity ratio of 31.8% as compared to 40.2% at March 31, 1995.
Capital Resources
Total shareholders' equity increased to $30.4 million at March 31, 1996 from
$29.4 million at December 31, 1995 reflecting retained income of $925,000 for
the first quarter of 1996 and $163,000 resulting from the exercise of employee
stock options.
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 and
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.
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At March 31, 1996 the Company's risk-based capital ratio was 18.27%. The
following table presents the Company's risk-based capital and leverage ratios as
of March 31, 1996 and December 31, 1995.
RISK-BASED CAPITAL RATIOS
--------------------------------------
(Dollars in thousands)
March 31, 1996 December 31, 1995
---------------- -------------------
Amount Ratio Amount Ratio
------- ------ ------- ------
Company Capital Ratios:
Tier 1 Capital............... $29,234 17.02% $28,102 16.04%
Tier 1 minimum requirement... 6,871 4.00% 7,008 4.00%
------- ------ ------- ------
Excess....................... $22,363 13.02% $21,094 12.04%
======= ====== ======= ======
Total Capital................ $31,381 18.27% $30,29 17.29%
Total Capital minimum
requirement................ 13,742 8.00% 14,016 8.00%
------- ------ ------ ------
Excess....................... $17,639 10.27% $16,276 9.29%
======= ====== ======= ======
Risk-adjusted assets $171,777 $175,194
======= =======
Leverage ratio............... 12.17% 10.99%
Leverage ratio minimum....... 4.00% 4.00%
------ ------
Leverage ratio excess........ 8.17% 6.99%
======= =======
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K - None
18
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
CIVIC BANCORP
-------------
(Registrant)
Date: May 9, 1996 By: /s/ Herbert C. Foster
- ----------------- ----------------------------
Herbert C. Foster
President
Chief Executive Officer
19