OAKLAND, Calif.-- Civic Bancorp's Claude B. Hutchinson Jr. was for many years one of Northern California's most prominent businessmen. In May, he began a year's term as head of the California Bankers Association. Now he's just another banker without a job.

Frustrated by a surge in problem loans, Civic's board of directors demanded last month that Mr. Hutchinson step down as chief executive. Although he was invited to remain as chairman, he resigned.

It was an unceremonious departure for the executive who started Oakland-based Civic eight years ago, built in to $408 million in assets, and made it one of the area's leading indpendent business banks. To many, Claude Hutchinson was Civic Bancorp.

"He was the biggest promoter of the bank and was long viewed as indispensable," says Campbell K. Chaney, an analyst with Sutro & Co., San Francisco. "This shows that everyone is expendable - even the bank's founder."

What happened to the 54-year-old Mr. Hutchison is an example of the growing willingness of bank directors to give CEOs the ax. Mr. Hutchison's case "is classic, and it's happening all over," says Larry D. Kurmel, executive director of the California Bankers Association.

Indeed, the association reckons that 47 bank CEOs have left their posts in the past year in Southern California alone, though not all resigned under pressure. (It is not yet clear whether Mr. Hutchison will remain president of the trade group.)

Banking experts say the rush to dump CEOs reflects the heat shareholders and regulators are putting on boards at a time when loan problems are rising and performance is suffering.

"It's just like baseball teams replacing the manager," says Victor J. Bacigalupi, a banking lawyer in San Francisco.

"The California economy is seriously impacting loan portfolios. Meanwhile regulators are putting increasing pressure on boards," and boards are responding by replacing top executives, he said.

Cause for Concern

Civic's board clearly had cause for concern. The bank's problem loans have surged dramatically during the past three years, and equated 10.29% of loans and foreclosed property at June 30. Following a tough regulatory exam, Civic posted a $3.3 million loss in the second quarter.

What's more, directors had a vested interest in the bank's performance. Counting stock options, outside directors together hold about 29% of the company's shares. For his part, Mr. Hutchison has a 4.9% stake when options are included. Civic's stock was trading Wednesday at $6.25, unchanged. It traded as high as $16 in 1989.

Still, Mr. Hutchison's case seems to have inspired dread among bank managers. The feeling is, if it could happen to Claude Hutchison, it could happen to anybody.

"I'e been contactted by numerous CEOs in the past few weeks, asking, |My God, what happened?'" says Civic president Dennis M. Fitzpatrick.

Ironically, Mr. Hutchison's departure reflects the independence of the board he assembled when he launched Civic in 1984.

To develop business, he recruited directors from the business communities he intended to serve. As a result, the 17-member board consisted mainly of owners and operators of small businesses in the Bay Area. Among them: Paul C. Kepler, president of a San Francisco leasing company, and Edward G. Roach, a local property developer.

"These were not Claude's rowing buddies," says an individual familiar with the group. Mr. Hutchison was on the University of California's rowing crew.

It was no easy matter to stand up to Mr. Hutchison. Civic's former chief cuts an impressive figure, both on paper and in the flesh.

His resume includes a business degree from Harvard University and a stint as a senior executive at Security Pacific Corp. In person, he is warm and well-spoken, genteel yet down-to-earth.

A man with a ready smile and firm handshake, Mr. Hutchison is a super salesman. His talents were key to Civic's spectacular growth.

Asked about his ouster, Mr. Hutchison said he had been advised by his attorney not to comment. But a source familiar with his thinking says he has spoken bitterly about the board's action. He is said to believe that while some directors were motivated by concern for the bank, others were driven by ego and a desire to win a power struggle.

The source says Mr. Hutchison accepts blame for failing to predict the depth and duration of California's real estate slump.

But Mr. Hutchison has argued that some of his differences with the board reflected the distinct responsibilities of managers and directors: While board members focused on short-term results, he felt obligated to cultivate customer relationships that would benefit the bank in the long run.

Directors strongly deny that personality or power issues motivated them to oust Mr. Hutchison. Several go out of their way to praise him.

Civic's new chairman, 71-year-old hotel executive Paul R. Handlery, declined to be interviewed for this article, citing ongoing settlement talks with Mr. Hutchison. But in an interview last month, Mr. Handlery called Civic's former chief "a very fineo person."

All the same, Mr. Handlery said, directors felt Mr. Hutchison had to take responsibility for the bank's credit woes. "The management that got us into this mess should have done a more diligent job of loan review," Mr. Handlery said.

According to interviews with bank insiders, Mr. Hutchison's ouster reflected long-simmering disagreements about the bank's direction.

While Civic has built a strong position as a business lender, only in 1990 did it produce a double-digit return on equity. Directors began questioning the bank's mediocre profit record severa years ago. Some members felt Mr. Hutchison's focus on growth was undermining profits.

"The board has been concerned that performance could be better for quite some time," said Mr. Kepler, who is chairman of the board's loan committee.

At a board retreat two years ago, directors decided to downplay growth in favor of profit, board members say. Some directors started complaining aggressively about the bank's track record. Mr. Kepler frequently distributed peer group statistical comparisons that showed Civic lagging behind rivals.

Last year, in what insiders say was a hotly debated and closely split vote, the board formed a specia strategic planning committee composed of Mr. Kepler and two other outside directors. The group was charged with developing a plan to put Civic in the top third of its peers in profitability.

Mr. Hutchison's argument that a member of management should sit on the committee was rejected. The group became a focus of opposition to the chief executive.

Another milestone occurred early this year when the board hired Alex Sheshunoff Management Services, a Texas consulting firm, to review loan underwriting standards.

The board's unhappiness reached a crisis point in the spring following a harsh examination by the San Francisco Federal Reserve Bank and a downward lurch in credit quality, mainly in the commercial real estate portfolio.

In mid-July, in a request relayed by Civic's general counsel, the board's strategic planning committee formally asked Mr. Hutchison to give up the CEO slot and stay on in the lesser role of chairman. The letter noted that the committee would direct bank operations through Mr. Fitzpatrick, the president, until a new CEO was named.

Resignation Tendered

Mr. Hutchison refused the offer. At a July 15 board meeting, he tendered his resignation as both chairman and CEO after it became apparent that the committee had the backing of the full board.

The following day, Civic announced Mr. Hutchison's resignation. At the same time, it reported its second-quarter loss, reflecting a loan-loss provision of $3.9 million.

To some, Mr. Hutchison's ouster was mainly the result of poor communication with directors. That's what Mr. Fitzpatrick says he is telling other bank CEOs who ask for advice.

But others see these kinds of episodes as the inevitable result of today's tough banking climate.

When loans go sour and losses mount, bank CEOs and their boards have to respond.

"You start getting an inward spiral," says Mr. Bacigalupi, the San Francisco attorney. "Then CEOs and boards have no place to look except at each other."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.