FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-12359
SECURITY CAPITAL BANCORP
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1354694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 WEST INNES STREET, SALISBURY, NORTH CAROLINA 28144
(Address of principal executive offices) (Zip Code)
(704) 636-3775
(Registrant's telephone number, including area code)
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
As of April 29, 1994, there were issued and outstanding 11,721,025 shares of the
Registrant's common stock, no par value per share.
Page 1 of 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements within
Item 1 include, in the opinion of management of Security Capital
Bancorp ("SCBC"), all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation
of such financial statements for the periods indicated.
2
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
Assets 1994 1993
(Dollars in Thousands)
Cash and due from banks $ 25,136 28,102
Interest-bearing balances in other banks 10,853 5,145
Federal funds sold 8,325 3,450
Investment securities held to maturity (market
value of $50,664 at March 31, 1994 and
$375,046 at December 31, 1993) (note 2) 50,741 368,353
Investment securities available for sale (note 2) 311,383 -
Loans, net of unearned income ($2,463 at March
31, 1994 and $2,698 at December 31, 1993) 485,217 473,202
Less allowance for loan losses 7,241 7,227
Loans, net 477,976 465,975
Loans held for sale 4,950 18,409
Premises and equipment, net 18,531 18,360
Other assets 20,423 21,141
Total assets $928,318 928,935
Liabilities and Stockholders' Equity
Deposit accounts:
Demand, noninterest-bearing 67,300 67,830
Interest-bearing 675,456 673,854
Time deposits over $100 41,154 42,772
Total deposit accounts 783,910 784,456
Advances from the Federal Home Loan Bank 7,000 8,000
Other borrowed money 1,981 1,764
Other liabilities 9,615 10,495
Total liabilities 802,506 804,715
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, no par value, 25,000,000 shares
authorized; 11,721,025 and 11,682,837 shares
issued and outstanding at March 31, 1994
and December 31, 1993, respectively 51,325 51,167
Retained earnings, substantially restricted 75,226 73,053
Unrealized loss on investment securities available
for sale (note 2) (739) -
Total stockholders' equity 125,812 124,220
Total liabilities and
stockholders' equity $928,318 928,935
See accompanying notes to consolidated financial statements.
3
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
1994 1993
(Dollars in Thousands, Except Share Data)
Interest income:
Loans $ 9,621 10,692
Investment securities
Taxable 5,029 5,332
Nontaxable 192 283
Other 226 191
Total interest income 15,068 16,498
Interest expense:
Deposit accounts 6,262 6,986
Borrowings 181 262
Total interest expense 6,443 7,248
Net interest income 8,625 9,250
Provision for loan losses 87 184
Net interest income after
provision for loan losses 8,538 9,066
Other income:
Loan servicing and other loan fees 409 282
Deposit and other service charge income 1,240 1,355
Gain on sales of loans, net 108 245
Brokerage commissions 508 369
Other 174 360
Total other income 2,439 2,611
Other expense:
Personnel 3,165 3,510
Net occupancy 893 840
Telephone, postage, and supplies 420 419
Federal and other insurance premiums 512 431
Professional and other services 138 177
Other 625 786
Total other expense 5,753 6,163
Income before income taxes 5,224 5,514
Income taxes (note 3) 1,762 1,545
Net income $ 3,462 3,969
Net income per share (note 4) $ .30 .33
Dividends per share $ .11 .095
Weighted average shares outstanding 11,705,567 11,840,617
See accompanying notes to consolidated financial statements.
4
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1994 and 1993
(Unaudited)
1994 1993
(Dollars in Thousands)
Cash flows from operating activities:
Net income $ 3,462 3,969
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 87 184
Depreciation 442 353
Amortization of premiums on securities held to maturity 46 435
Amortization of premiums on securities available for sale 695 -
Change in loans held for sale, net 13,459 (3,035)
Decrease in other assets 1,612 445
Increase (decrease) in other liabilities (880) 1,003
Net cash provided by operating activities 18,923 3,354
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,675 21,488
Proceeds from maturities of investment securities
available for sale 27,526 -
Purchases of investment securities held to maturity (13,908) (21,259)
Purchases of investment securities available for sale (10,936) -
Decrease (increase) in loans, net (12,590) 9,499
Capital expenditures for premises and equipment (613) (477)
Net cash provided by (used in) investing
activities (8,846) 9,251
Cash flows from financing activities:
Decrease in deposits (546) (4,263)
Proceeds from FHLB advances - 100
Repayment of FHLB advances (1,000) (2,600)
Increase in other borrowed money, net 217 231
Dividends paid to stockholders (1,289) (1,123)
Proceeds from stock options exercised 158 371
Net cash used in financing activities (2,460) (7,284)
Net increase in cash and cash equivalents 7,617 5,321
Cash and cash equivalents at beginning of period 36,697 33,331
Cash and cash equivalents at end of period $ 44,314 38,652
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,927 6,088
Income taxes 220 795
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 502 321
Investments transferred to available for sale 329,799 -
Unrealized loss on available for sale securities
net of tax benefit of $392 (739) -
See accompanying notes to consolidated financial statements.
5
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1994
(Unaudited)
(1) Principles of Consolidation and Reporting
The accompanying unaudited consolidated financial statements include the
accounts of Security Capital Bancorp ("SCBC"), a North Carolina
corporation organized as a multi-bank holding company, and its
wholly-owned subsidiaries, Security Bank and Trust Company ("Security
Bank"), OMNIBANK, Inc., A State Savings Bank ("OMNIBANK"), Citizens
Savings, Inc., SSB ("Citizens"), Home Savings Bank, Inc., SSB ("Home
Savings"), First Cabarrus Corporation ("FCC"), and Estates Development
Corporation ("EDC"). All significant intercompany balances have been
eliminated.
(2) Investment Securities
The Financial Accounting Standards Board ("FASB") has issued Standard
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," that requires debt and equity securities held: (i) to
maturity to be classified as such and reported at amortized cost; (ii) for
current resale to be classified as trading securities and reported at fair
value, with unrealized gains and losses included in current earnings; and
(iii) for any other purpose to be classified as securities available for
sale and reported at fair value, with unrealized gains and losses excluded
from current earnings and reported as a separate component of
stockholders' equity. SCBC adopted Standard No. 115 as of January 1, 1994.
In connection with this adoption, as of March 31, 1994, SCBC classified
$311,383,000 of investment securities as securities available
for sale. These securities had net unrealized losses of approximately
$1,131,000, which resulted in an unrealized securities loss, net of
income tax effects, of $739,000 being recorded as a decrease to
stockholders' equity as of March 31, 1994. SCBC has no securities
classified as trading securities.
(3) Income Taxes
Effective January 1, 1993, SCBC changed its method of accounting for
income taxes from the deferred method to the asset and liability method
required by FASB Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109"). The cumulative effect
of adopting Statement 109 as of January 1, 1993, was to increase net
income for the first quarter of 1993 by approximately $388,000. Due to
immateriality, the cumulative effect of this accounting change has not
been separately disclosed in the consolidated statement of income.
(4) Net Income Per Share
Net income per share has been computed by dividing net income by the
weighted average number of shares outstanding.
(5) Pending Acquisitions
On April 6, 1994, SCBC announced that it and Fairfield Communities, Inc.
("FCI") had executed a Stock Purchase Agreement concerning SCBC's
acquisition of First Federal Savings and Loan Association of Charlotte,
North Carolina, a subsidiary of FCI ("First Federal"). First
Federal operates ten banking offices and had total assets of approximately
$319.5 million at March 31, 1994. Under the terms of the Agreement, SCBC
will acquire all of the capital stock of First Federal for a cash payment
of approximately $40 million plus an interim earnings adjustment, with an
offsetting payment by FCI from the conveyance by First Federal to FCI
of certain real estate owned, classified loans and other assets, which,
at March 28, 1994, aggregated approximately $19.8 million, net of certain
reserves. FCI will also purchase First Federal's lot and timeshare
contract receivables, including the underlying real estate assets
(in the case of cancellations or foreclosures under such contracts),
which, at December 31, 1993, totalled approximately $53.5 million.
Approximately $1.4 million of SCBC's cash payment will
6
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
be deferred pending the resolution of certain litigation involving FCI
and First Federal. The purchase price will be increased by the adjusted
earnings of First Federal from October 1, 1993 through August 1, 1994 or
the date of closing, whichever is earlier, subject to a cap of $1.825
million. Applications for approval of the acquisition have been filed
with applicable federal and state regulatory authorities. Assuming all
conditions are satisfied, the parties currently expect the acquisition
to occur by August 1, 1994. If the acquisition is not closed by August 1,
1994, the purchase price may be further increased for First Federal's
adjusted earnings after that date.
On January 25, 1994, SCBC announced that Home Savings and First Citizens
Bank and Trust Co. ("First Citizens") had entered into an agreement
involving the sale of First Citizens' Bessemer City office to Home
Savings and the sale of Home Savings' Gastonia office to First
Citizens. With the transaction, Home Savings will assume approximately
$4.6 million in deposits in Bessemer City and First Citizens will assume
approximately $11.4 million in deposits in Gastonia. Subject to
regulatory approval, the purchases are expected to be completed in the
second quarter of 1994.
7
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Financial Condition and Operating Results as of and for the
Three Months ended March 31, 1994 and 1993
Net income was $3,462,000 or $.30 per share, for the three months ended
March 31, 1994, compared with net income of $3,969,000, or $.33 per share, for
the same period in 1993. This 12.8% decrease is primarily attributable to the
required adoption in 1993 of Statement 109 which resulted in a net benefit to
SCBC of approximately $388,000 for the three months ended March 31, 1993.
Earnings per share, excluding the effect of Statement 109, would have been
$.30 for the first quarter of 1993.
Net interest income amounted to $8,625,000 for the three months ended March 31,
1994, compared to $9,250,000 for the same period in 1993, representing a 6.8%
decrease. This decrease in net interest income was impacted by a decrease in
SCBC's most significant interest-earning assets, loans receivable. Total loans
decreased $15,304,000 (3.1%) to $485,217,000 at March 31, 1994. This
decrease was primarily a result of the continuation of the selling of current
production of fixed rate mortgage loans through SCBC's secondary marketing
program. While total investment securities increased $24,184,000 (7.2%) to
$362,124,000 at March 31, 1994, the yields on new investments were
significantly less than the yields on maturing investments and existing
portfolio mortgage loans refinanced at lower fixed rates, thus negatively
impacting interest income. The net yield on average interest-earning assets
decreased 36 basis points to 3.95%. In future periods, SCBC could experience
a reduction in interest income should prepayments continue and mortgage loans
continue to price downward.
The provision for loan losses for the three months ended March 31, 1994 was
$87,000, representing a decrease of $97,000, or 52.7%, from the $184,000
provision reported in the comparable period in 1993. This decrease is due to
the continual decline of non-performing assets, the decline in total loans
noted above, and management's assessment of the allowance for loan losses in
relation to the overall loan portfolio.
The following table presents information on non-performing assets, including
non-accrual loans, accruing loans 90 days or more past due, restructured loans
and real estate owned as of each of the dates shown:
At At
March 31, December 31,
1994 1993
(Dollars in Thousands)
Non-accrual loans $ 846 1,573
Accruing loans 90 days or more past due 55 420
Restructured loans 487 186
Real estate owned 967 951
$2,355 3,130
Non-performing loans and real estate owned as
a percentage of total assets .25% .34
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not (1)
represent or result from trends or uncertainties which management reasonably
expects will materially impact future operating results, liquidity, or
capital resources, or (2) represent material credits about which management
is aware of any information which causes management to have serious
doubts as to the ability of such borrowers to comply with the repayment terms.
8
Other income of $2,439,000 for the three months ended March 31, 1994, represents
a decrease of $172,000, or 6.6%, from other income reported in the comparable
period in 1993. This decrease was primarily due to a decrease in net gain on
sales of loans of $137,000, which resulted from the increase in interest rates
during the first quarter of 1994. Deposit and other service charge income
decreased $115,000, or 8.5%, to $1,240,000. Other decreased $186,000, or
51.7%, due to the decrease of several items included in this total. Brokerage
commissions increased $139,000, or 37.7%, due to an increase in volume, which
can be attributed to the expansion of the operation along with depositors
seeking higher yields through alternative investments.
Other expense decreased $410,000, or 6.7%, to $5,753,000 for the three months
ended March 31, 1994. Personnel expense decreased $345,000, or 9.8%, for the
three months ended March 31, 1994, primarily due to increases in efficiencies
which have led to a reduction in the number of employees. Other decreased
$161,000, or 20.5%, due to the decrease of several items included in this
total.
Income taxes increased $217,000 to $1,762,000 for the three months ended
March 31, 1994, while income before income taxes decreased $290,000 to
$5,224,000 in 1994 from $5,514,000 in the comparable period in 1993. Excluding
the impact of adoption of Statement 109, income taxes for the three months
ended March 31, 1993 would have been $1,933,000 or 35.1% of income before
income taxes, compared to 33.7% in 1994.
Total assets of SCBC at March 31, 1994 were $928,318,000, a slight decrease
from December 31, 1993 of $617,000. At March 31, 1994, net loans receivable,
including loans held for sale, were $482,926,000, a decrease of $1,458,000, or
0.3%, over the December 31, 1993 amount. This decrease was primarily
a result of reduced loan demand and SCBC continuing to sell its current
production of fixed rate mortgage loans through its ongoing secondary marketing
program. Deposit accounts decreased slightly to $783,910,000 at March 31, 1994.
This decrease was primarily attributable to depositors seeking higher yields
through alternative investments. Stockholders' equity was $125,812,000, or 13.6%
of assets, at March 31, 1994.
The following table sets forth the average yield on interest-earning assets and
the average rate paid on interest-bearing liabilities of SCBC as of and for the
periods indicated.
Three months Ended At At
March 31, March 31, December 31,
1994 1993 1994 1993
(annualized)
Average yield on loans 7.95% 8.50% 7.72% 7.78%
Average yield on interest-
earning assets 6.89 7.68 6.74 6.93
Average rate on deposits 3.51 3.97 3.53 3.63
Average rate on interest-
bearing liabilities 3.56 4.05 3.58 3.69
Loans/deposits spread 4.44 4.53 4.19 4.15
Asset/liability spread 3.33 3.63 3.16 3.24
Net yield on average
interest-earning assets 3.95 4.31 - -
9
Liquidity and Capital Resources
The principal sources of liquidity for SCBC's banking subsidiaries are deposit
accounts, Federal Home Loan Bank advances, principal and interest payments on
loans, interest received on investment securities, and fees. Deposit accounts
are considered a primary source of funds supporting the banking subsidiaries'
lending and investment activities. At March 31, 1994, the SCBC banking
subsidiaries were in compliance with all regulatory liquidity requirements.
At March 31, 1994, SCBC and its banking subsidiaries were in compliance with
all applicable regulatory capital requirements. The following table compares
SCBC's regulatory capital as of March 31, 1994, with the two minimum capital
standards established by the Board of Governors of the Federal Reserve System
(the "FRB").
Leverage Capital Risk-based Capital
Amount % of Assets Amount % of Base
(Dollars in Thousands)
SCBC- actual $125,812 13.48 % $131,590 28.68%
Minimum capital standards 27,995 3.00 1 36,703 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standards $ 97,817 10.48% $ 94,887 20.68%
1 The FRB minimum leverage ratio requirement is 3% to 5%, depending on the
institution's composite rating as determined by its regulators. The FRB has
not advised SCBC of any specific requirement applicable to it.
Management is not aware of any current recommendations by regulatory authorities
which, if implemented, would have a material effect on liquidity, capital
resources or operations of SCBC or its banking subsidiaries.
At March 31, 1994, outstanding loan commitments approximated $4,620,000
(consisting of $2,801,000 in fixed rate loans and $1,819,000 in variable rate
loans), preapproved but unused lines of credit totalling $83,987,000 and
standby letters of credit aggregating $241,000.
At March 31, 1994, SCBC had commitments to sell approximately $1,000,000 of
fixed rate mortgage loans at prices approximating carrying value.
10
Interest Sensitivity Analysis
The following table sets forth the dollar amount of maturing assets and
liabilities as of March 31, 1994, and the difference between them for the
repricing periods indicated:
March 31, 1994
(Dollars in Thousands)
0-90 91-180 181-365 1-3 3-5 Over 5
Days Days Days Years Years Years Total
INTEREST-EARNING ASSETS
Federal funds sold $ 8,325 - - - - - 8,325
Interest-bearing balances in
other banks 10,853 - - - - - 10,853
Investment securities 25,113 21,324 46,864 159,097 91,763 17,963 362,124
Loans 1 185,384 59,833 101,623 44,953 35,229 63,145 490,167
Total $229,675 81,157 148,487 204,050 126,992 81,108 871,469
INTEREST-BEARING LIABILITIES
Deposits 263,501 98,457 94,100 178,752 81,749 51 716,610
FHLB advances - - - 7,000 - - 7,000
Other borrowed money 1,981 - - - - - 1,981
Total $265,482 98,457 94,100 185,752 81,749 51 725,591
Interest sensitivity gap $ (35,807) (17,300) 54,387 18,298 45,243 81,057 145,878
Cumulative interest
sensitivity gap $ (35,807) (53,107) 1,280 19,578 64,821 145,878
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 86.51% 85.41% 100.28% 103.04% 108.93% 120.10%
1 Includes loans held for sale.
Accounting Matters
Postemployment Benefits
In November 1992, the FASB issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits" ("Statement 112"),
which is effective for fiscal years beginning after December 15, 1993.
Statement 112 establishes accounting standards for employers who provide
benefits to former or inactive employees after employment but before
retirement (referred to in this statement as postemployment benefits). Those
benefits include, but are not limited to, salary continuation, supplemental
unemployment benefits, severance benefits, continuation of benefits such as
health care benefits and life insurance coverage, etc. There was no material
impact on SCBC's consolidated financial statements since SCBC generally does
not provide such benefits.
11
Accounting by Creditors for Impairment of a Loan
The FASB has issued Standard No. 114, "Accounting by Creditors for Impairment
of a Loan," which requires that all creditors value all specifically reviewed
loans for which it is probable that the creditor will be unable to collect
all amounts due according to the terms of the loan agreement at either the
present value of expected cash flows discounted at the loan's effective
interest rate, or if more practical, the market price or value of collateral.
This Standard is required for fiscal years beginning after December 15, 1994.
The Corporation has not determined the impact, if any, of this Standard on its
consolidated financial statements.
Stock-based Compensation
The FASB has issued an Exposure Draft for a proposed Statement of Financial
Accounting Standards entitled "Accounting for Stock-based Compensation" which
addresses the recognition and measurement of stock-based compensation paid to
employees, including employee stock options, restricted stock, and stock
appreciation rights. Employers would be required to recognize a charge to
earnings for such awards, whereas generally no charge is recognized under
current accounting practices. Compensation expense would be measured as the
fair value of the award at the grant date with subsequent adjustments made to
reflect the outcome of certain service or performance assumptions made at the
date of grant but not for effects of subsequent changes in the price of the
entity's stock. Disclosure provisions of the proposed statement would be
effective for fiscal years beginning after December 31, 1993 with recognition
provisions being effective for awards granted after December 31, 1996.
12
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.
a. Current Report on Form 8-K, filed on February 1, 1994,
reporting an amendment to the letter of intent between
the Registrant and Fairfield Communities, Inc. ("FCI")
concerning the Registrant's acquisition of FCI's subsidiary,
First Federal Savings and Loan Association of Charlotte
("First Federal").
b. Current Report on Form 8-K, filed April 13, 1994, reporting
execution of a Stock Purchase Agreement by the Registrant
and FCI concerning the Registrant's acquisition of First
Federal.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report on Form 10-Q to be signed on its behalf
by the undersigned, thereunto duly authorized.
SECURITY CAPITAL BANCORP
(Registrant)
Date: May 12, 1994 By:/s/ PRESSLEY A. RIDGILL
Pressley A. Ridgill
Senior Vice President,
Treasurer and Chief
Financial Officer
(Duly Authorized
Representative)
14