UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File Number 0-12359
____________________
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:
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]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 3, 1995. Common Stock, no
par value --- $191,704,422.
Indicate the number of shares outstanding of each of the
registrant's class of common stock, as of the latest practicable date.
Class Outstanding at March 3, 1995
Common Stock, no par value 11,780,086
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1994, are incorporated by reference into Part II.
PART I
ITEM 1 - BUSINESS
The Corporation is a bank holding company organized in 1983 and
registered with the Board of Governors of the Federal Reserve System
(the "FRB") under the Bank Holding Company Act of 1956, as amended
(the "BHCA"), and the bank holding company laws of North Carolina.
The Corporation's executive offices are located at 507 West Innes
Street, Salisbury, North Carolina, and substantially all of the
operations of the Corporation are carried on through its subsidiaries
(i) Security Capital Bank (formerly Security Bank and Trust Company),
a North Carolina commercial bank headquartered in Salisbury, North
Carolina ("Security Bank"); (ii) OMNIBANK, Inc., A State Savings Bank,
a North Carolina savings bank headquartered in Salisbury, North Carolina
("OMNIBANK"); (iii) Citizens Savings, Inc., SSB, a North Carolina
savings bank headquartered in Concord, North Carolina ("Citizens");
(iv) Home Savings Bank, Inc., SSB, a North Carolina savings bank
headquartered in Kings Mountain, North Carolina ("Home Savings"); and
(v) Estates Development Corporation, a North Carolina corporation
which formerly engaged in real estate activities and is now in the
process of winding down and terminating those operations ("EDC").
Security Bank has six subsidiaries (i) First Security Credit
Corporation ("FSCC"), a North Carolina corporation which operates as a
consumer finance company; (ii) Northbound, Ltd. ("Northbound");
(iii) North Carolina Financial Services Corporation ("North Carolina");
(iv) University Financial Services Corporation, Inc. ("University");
(v) NC Financial Services Corp. ("NC Financial"); and (vi) First
Residential Mortgage Group, Inc. ("First Residential"). Other than
FSCC, all other subsidiaries of Security Bank were inactive at
December 31, 1994. Security Bank, OMNIBANK, Citizens, Home Savings,
EDC, FSCC, Northbound, North Carolina, University, NC Financial, and
First Residential are hereinafter collectively referred to as the
"Subsidiaries." Security Bank, OMNIBANK, Citizens and Home Savings
are hereinafter collectively referred to as the "Banking
Subsidiaries", and OMNIBANK, Citizens and Home Savings are hereinafter
collectively referred to as the "Savings Banks." The Corporation owns
100% of the outstanding common stock of the Banking Subsidiaries
and EDC, and Security Bank owns 100% of the outstanding common
stock of FSCC, Northbound, North Carolina, University, NC
Financial, and First Residential. The Corporation's principal sources
of income are cash dividends from the Banking Subsidiaries. The major
sources of operating income of the Subsidiaries are set forth in
the Consolidated Financial Statements of the Corporation incorporated
elsewhere herein.
Pending Merger
On November 4, 1994, the Corporation and CCB Financial Corporation,
Durham, North Carolina ("CCB"), entered into a definitive
Combination pursuant to which the Corporation will merge with and
into CCB, with CCB as the surviving corporation and continuing
to operate under its present name (the "Combination"). The
Agreement of Combination was amended and restated as of
December 1, 1994. To effect the Combination, CCB will issue .50
of a share of its common stock, par value $5.00 per share, and
.50 of a right to acquire preferred stock of CCB, in exchange
for each outstanding share of the Corporation's common stock, no
par value. In connection with the Combination, the
Corporation's banking subsidiaries will merge into Central Carolina
Bank and Trust Company, a subsidiary of CCB. On March 16, 1995,
the Combination was approved by the shareholders of the
Corporation and the shareholders of CCB. The Combination is
expected to be completed during the second quarter of 1995.
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Acquisitions
Effective September 23, 1994, Security Bank purchased the
outstanding stock of First Federal Savings & Loan Association of
Charlotte ("First Federal") from Fairfield Communities, Inc.
("Fairfield ) for approximately $41 million in cash. The
acquisition is being accounted for by the purchase method and for
tax purposes, elections will be made by the Corporation and
Fairfield to treat the acquisition as an asset purchase.
Concurrent with the purchase, First Federal was merged into
Security Bank. Immediately prior to the acquisition, First
Federal had assets of $302.1 million, net loans of $135.8 million,
deposits of $250.9 million, stockholders' equity of $29.4
million, and net income for the period from January 1, 1994,
through September 23, 1994, of $855,000. As a result of
the acquisition, Security Bank experienced a large percentage
increase in most asset and liability categories, as well as
nonperforming assets, classified assets and borrowings. Also
as a result of the acquisition, goodwill, deposit base premium, and
mortgage servicing rights were increased by $12.6 million, $3.2
million, and $1 million, respectively. These amounts are being
amortized on a straight-line basis over 20 years for goodwill and
over 10 years using the sum-of- the-years-digits method for deposit
base premium and mortgage servicing rights.
During the second quarter of 1994, Security Capital
completed the purchase of First Citizens Bank and Trust Co.'s
("First Citizens") Bessemer City office and the sale of Home Savings'
Gastonia office to First Citizens. With the transaction, Home
Savings assumed approximately $2.7 million in deposits in Bessemer
City and First Citizens assumed approximately $6.4 million in
deposits in Gastonia.
The 1992 Merger
On June 30 1992, Omni Capital Group, Inc. ("Omni") was
merged with and into the Corporation (the "1992 Merger"). In
connection with the 1992 Merger, the Corporation's Restated
Articles of Incorporation were amended and restated to change
the Corporation's name from "First Security Financial
Corporation" to "Security Capital Bancorp," to increase the
Corporation's authorized shares of common stock (the "Common
Stock") from 10,000,000 to 25,000,000, to establish that its
shares of Common Stock would have no par value, to authorize
5,000,000 shares of preferred stock with no par value per share, to
establish the minimum number of directors as 9 and the maximum
number as 30, to stagger the terms of the Board of Directors, and
to make certain revisions to the Corporation's Restated Articles
of Incorporation to reflect the characteristics of the combined
company resulting from the 1992 Merger.
Prior to the 1992 Merger, Omni was a multiple savings
and loan holding company registered under the Home Owners' Loan
Act, as amended, and it and its subsidiaries (OMNIBANK,
Citizens, Home Savings, First Cabarrus Corporation and EDC) were
subject to regulation by the Office of Thrift Supervision (the
"OTS"). As a consequence of the 1992 Merger, the Corporation
continued as a bank holding company regulated by the FRB and
became a multiple savings and loan company regulated by the OTS.
In December of 1992, the Savings Banks were converted from
federally chartered savings banks to North Carolina
chartered savings banks. Accordingly, the Corporation was no
longer subject to regulation by the OTS.
The 1992 Merger was effected as a nontaxable reorganization
under Section 368(a)(i)(A) of the Internal Revenue Code of 1986,
as amended. It was accounted for as a pooling-of-interests, with
the result that, on the Corporation's consolidated balance
sheet: (i) the historical basis of the assets and liabilities of
the Corporation and Omni were combined as of the 1992 Merger
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and carried forward at their previously recorded amounts; (ii)
the shareholders' equity accounts of the Corporation and Omni
were combined as of the 1992 Merger and carried forward at
their previously recorded amounts; and (iii) the income and other
financial statements of the Corporation issued after the 1992
Merger have been, and will be, restated retroactively to reflect
the consolidated operations of the Corporation and Omni as if the
1992 Merger had taken place prior to the periods covered by such
financial statements.
The Subsidiaries
Security Bank was originally chartered in 1915 as the
commercial bank and changed its name to "Security Bank and Trust
Company." Effective September 23, 1994, First Federal was
merged into Security Bank as discussed above and concurrently
with the merger, Security Bank changed its name to "Security Capital
Bank." At December 31, 1994, it operated 43 branches in 24 communities
located in twelve counties in the south central Piedmont region
of North Carolina, and had total assets of approximately $658.1
million, insured deposit liabilities of approximately $580
million, leverage capital of approximately $53.6 million, and
total risk-based capital of approximately $57.7 million (or 17.56%
of risk-weighted assets).
OMNIBANK was originally chartered in 1919 as a North
Carolina mutual savings and loan association under the name "Home
Savings and Loan Association." In 1980 it became a federal mutual
savings and loan, and in March of 1988, it converted to a
federal capital stock savings bank. In December of 1988, it
effected a corporate reorganization and became a subsidiary
of Omni (subsequently changing its name to "OMNIBANK, A Federal
Savings Bank"). On December 1, 1992, it converted from a
federally-chartered to a North Carolina chartered savings bank.
At December 31, 1994, OMNIBANK operated three branches in
Salisbury, North Carolina, and had total assets of
approximately $226.5 million, insured deposit liabilities of
approximately $174.2 million, leverage capital of approximately
$28 million, and total risk-based capital of approximately $29.6
million (or 22.62% of risk-weighted assets).
Citizens was originally chartered in 1906 as a North
Carolina mutual savings and loan association. In December of
1988, it converted to a federal capital stock savings bank
through a merger conversion transaction with Omni. On
December 1, 1992, it converted from a federally-chartered to a
North Carolina chartered savings bank. At December 31, 1994,
Citizens operated five branches in Concord, North Carolina and
surrounding areas, and had total assets of approximately
$199.1 million, insured deposit liabilities of approximately
$178.9 million, leverage capital of approximately $14.3 million,
and total risk-based capital of approximately $15.7 million (or
13.91% of risk-weighted assets).
Home Savings was originally chartered in 1923 as a North
Carolina mutual savings and loan association, and, in 1981, it
became a federal mutual savings and loan association. In 1989, it
converted into a federal capital stock savings bank through a
merger conversion transaction with Omni. On December 1, 1992, it
converted from a federally-chartered to a North Carolina
chartered savings bank. At December 31, 1994, Home Savings
operated two branches in Kings Mountain and Bessemer City, North
Carolina, and had total assets of approximately $94.6 million,
insured deposit liabilities of approximately $85.4 million,
leverage capital of approximately $7.7 million, and total
risk-based capital of approximately $8.4 million (or 16.50% of
risk- weighted assets).
First Cabarrus Corporation ("FCC") was incorporated under
North Carolina law. It provided management, electronic data
processing, and other services to the Corporation and the other
Subsidiaries. On May 31, 1994, Security Bank purchased the
assets and assumed the liabilities of FCC, and FCC subsequently
was liquidated and dissolved.
4
FSCC is a North Carolina corporation. As a consumer
finance company, it provides small consumer loans through its three
offices in Kannapolis, Concord, and Salisbury, North Carolina.
EDC is a North Carolina corporation and was formerly in the
business of providing real estate appraisal services and engaging
in real estate development, building and sales. It is in the
process of winding down and terminating these activities in
compliance with an order of the FRB issued in connection with the
1992 Merger.
Business Activities
Through one or more of the Banking Subsidiaries and the 49
banking offices they operate, located in 13 counties in the south
central and western Piedmont regions of North Carolina, the
Corporation offers numerous banking services, including
accepting time and demand deposits, making secured and unsecured
business and personal loans, making mortgage loans (secured
primarily by one-to-four family residential properties), renting
safe deposit boxes, sending and receiving wire transfers, and performing
trust functions for corporations, pension and other employee
benefit plans, and individuals. Additionally, consumer finance,
insurance and securities brokerage services, and other services
relating to financial management, are offered through one or
more of the Subsidiaries. Ranked by total assets, the
Corporation is the 9th largest bank holding company headquartered
in North Carolina.
The economy in the geographic areas served by the
Corporation has been influenced positively by the growth of
Charlotte, North Carolina, one of the fastest growing cities in the
Southeast and North Carolina's largest city. Charlotte is
located in Mecklenburg County. A substantial portion of
the Banking Subsidiaries' banking offices are located in
Mecklenburg County, in other counties included in the Charlotte
Standard Metropolitan Statistical Area (the "Charlotte SMSA"), or
in counties adjacent to, or within a radius of 30 miles of, the
Charlotte SMSA. At December 31, 1994, the economic conditions in
this primary market area were considered to be moderate to
good, with more favorable unemployment rates and other key economic
indicators than national averages.
Vigorous competition exists in all major market areas
served by the Banking Subsidiaries. The Banking Subsidiaries face
direct competition for deposits not only from commercial banks,
thrift institutions and credit unions, but from other businesses
such as securities brokerage firms and mutual funds. Particularly
in times of high interest rates, the Banking Subsidiaries
encounter additional significant competition for depositors' funds
from short-term money market securities and other corporate and
government securities. The Banking Subsidiaries' competition
for loans and similar services come from commercial banks,
thrift institutions, credit unions, leasing companies, finance
companies, insurance companies, other institutional lenders, and
a variety of financial services, and advisory companies. The
Banking Subsidiaries seek to meet the competition of these
other companies, many of which are larger and have greater
resources than the Corporation, through offering competitive
interest rates, focusing upon the efficiency and quality of their
services in meeting the banking needs of their customers, and,
where appropriate, expanding their presence in attractive markets
through branching or acquisitions.
Lending Activities
General. The principal lending activities of Security
Bank have been the making of installment and other consumer
loans, real estate mortgage loans, and commercial, financial
and agricultural loans. The Savings Banks' principal activity
has been the origination of conventional mortgage loans for the
purpose of constructing, financing or refinancing one-to-four
5
family residential properties. To a lesser extent, the Savings
Banks also make commercial real estate loans (which include loans
secured by multi-family and other commercial real properties),
other commercial loans and consumer loans. As of December
31, 1994, approximately $437 million, or 67.16%, of the Banking
Subsidiaries' total loans consisted of loans secured principally
by first mortgages on one-to-four family residential
properties. As of that same date, approximately $10.4
million, or 1.59%, of the Banking Subsidiaries' total loans were
secured by multi-family properties, approximately $14.4 million,
or 2.21%, were construction loans secured primarily by one-to-four
family residential properties, and approximately $105.6 million,
or 16.22%, were secured by other commercial real property.
Approximately $62.7 million, or 9.63%, of the Banking
Subsidiaries' loans were installment and other consumer loans,
and approximately $20.7 million, or 3.19%, were commercial,
financial and agricultural loans, as of December 31, 1994.
Federal regulations limit the aggregate amount of loans a
financial institution may make to a single borrower. At
December 31, 1994, none of the Banking Subsidiaries had loans
to a single borrower that exceeded these limits. See "Regulation."
Loan Portfolio Analysis. Set forth below is selected data
relating to the composition of the Banking Subsidiaries' loan
portfolio, excluding loans held for sale, by type of loan on the
dates indicated:
6
At December 31,
1994 1993 1992 1991 1990
Amount % Amount % Amount % Amount % Amount %
(Dollars in Thousands)
Real estate mortgage $447,452 69.03 $338,562 71.55 $361,935 70.91 $379,574 68.85 $385,753 66.15
Real estate construction 14,396 2.22 10,085 2.13 11,215 2.20 15,653 2.84 16,996 2.91
Commercial, financial and
agricultural 126,291 19.48 64,739 13.68 68,598 13.44 73,794 13.38 86,134 14.77
Installment (consumer) 62,681 9.67 62,341 13.17 70,909 13.89 84,318 15.29 96,431 16.54
Total loans 650,820 475,727 512,657 553,339 585,314
Less: unearned income <2,691> <.42> <2,698> < .57> <2,545> <.50> <2,419> <.44> <2,697> <.46>
Plus: Premiums 102 .02 173 .04 317 .06 418 .08 530 .09
Loans, net: $648,231 100.00 $473,202 100.00 $510,429 100.00 $551,338 100.00 $583,147 100.00
7
Residential Mortgage Loans. The primary lending activity
of the Savings Banks has been the granting of conventional loans
to enable borrowers to purchase existing homes or refinance
existing mortgages. To a lesser extent, Security Bank also
makes residential mortgage loans. Mortgage loans made by the
Banking Subsidiaries are generally long-term loans, amortized
on a monthly basis, with principal and interest due each month.
The Banking Subsidiaries' lending policies limit the maximum
loan-to-value ratio on residential mortgage loans to 95% of the
lesser of the appraised value or purchase price, with the condition
that private mortgage insurance generally be required on any
home loans with loan-to-value ratios in excess of 80%. The Banking
Subsidiaries require mortgage title insurance on most mortgage
loans and hazard insurance generally in the amount of the loan.
The contractual loan payment period for residential loans typically
ranges from 15 to 30 years. Borrowers may refinance or prepay
loans at their option, typically without penalty. The Banking
Subsidiaries' experience indicates that real estate loans
remain outstanding for significantly shorter periods than their
contractual terms. The thrift and mortgage banking industries have
generally used a seven to twelve year average loan life as
an approximation in calculations calling for prepayment
assumptions. Management believes that the Banking
Subsidiaries' loan prepayment experience has generally mirrored
that of the industry as a whole.
The Banking Subsidiaries currently offer adjustable
rate mortgage loans generally tied to the one year U.S. Treasury
security yield or a published prime lending rate. The interest
rates on most of these mortgages are adjustable once a year
with limitations on adjustments of one or two percent per
adjustment period and five to six percent over the life of the
loan. Although adjustable rate mortgage loans allow the Banking
Subsidiaries to increase the sensitivity of their asset bases
to changes in interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate
ceilings contained in adjustable rate mortgage loans. The
terms of such loans may also increase the likelihood of
delinquencies during periods of high interest rates. Adjustable
rate residential mortgage loans amounted to 43.69% of the loan
portfolio of the Banking Subsidiaries at December 31, 1994.
Commercial Real Estate Loans. The Savings Banks
provide commercial real estate loans, including loans secured by
multi-family dwellings with more than four units and other
commercial real property. From time to time, Security Bank
also makes these types of loans. These loans constituted
approximately $116 million, or 17.81%, of the Banking
Subsidiaries' loan portfolio at December 31, 1994. These loans
typically are secured by improved real estate located in North
Carolina. Commercial real estate loans customarily are made in
amounts up to 80% of the appraised value of the property and
generally have terms of up to 15 years. Interest rates are tied
generally to the one, two, three and five-year U.S. Treasury
security yield or a published prime lending rate.
Because of their generally shorter terms and higher
interest rates, commercial real estate loans, such as those made
by the Banking Subsidiaries, are helpful in maintaining a
profitable spread between the Banking Subsidiaries' average loan
yields and their cost of funds. Traditionally, such loans have
been regarded as posing significantly greater risk of
default than residential mortgage loans. Such loans generally
are substantially larger than single-family residential mortgage
loans, and repayment of the loan generally depends on cash flow
generated by the property. Because the payment experience on loans
secured by such property is often dependent upon successful
operation or management of the property, repayment of the loan may
be subject to a greater extent to adverse conditions in the real
estate market or the economy than generally is the case with
one-to-four family residential mortgage loans. The commercial
real estate business is cyclical and subject to downturns,
overbuilding and local economic conditions. The Banking
Subsidiaries seek to limit these risks in a variety of ways,
including, among others, limiting the size of their commercial and
multi-family real estate loans, generally limiting such loans to a
maximum
8
loan-to-value ratio of 80% based on the lesser of the
purchase price or the appraised value of the property and generally
lending on property located within their market areas.
Commercial, Financial, and Agricultural Loans.
Security Bank and, to a lesser extent, the Savings Banks also
make commercial, financial and agricultural loans primarily to
small and medium-sized companies for expansion and renovation,
working capital needs, equipment purchases and farming operations.
Generally, loans are made with adjustable interest rates
with terms of one to five years. These loans constituted
approximately $20.7 million, or 3.19%, of the Banking
Subsidiaries' loan portfolio at December 31, 1994. Interest rates
are tied generally to the one, two, three or five-year U.S.
Treasury securities yield or a published prime lending rate.
Generally, these commercial, financial and agricultural loans are
made to borrowers located in North Carolina.
As with commercial real estate loans, commercial,
and agricultural loans are helpful in maintaining a
profitable spread between the Banking Subsidiaries' average loan
yields and their cost of funds because of their shorter term
and higher interest rates. These loans have a higher degree of
risk than residential mortgage loans because they are
typically made on the basis of the borrower's ability to make
repayment from the cash flow of its business and are either
unsecured or secured by business assets, such as accounts
receivable, equipment and inventory. As a result, the
availability of funds for the repayment of commercial, financial
and agricultural loans may be substantially dependent on the
success of the business itself. The Banking Subsidiaries seek
to limit these risks by maintaining close contact with the
borrower, obtaining financial statements on a regular basis and
determining that the borrower is in compliance with the terms of
the loan agreement.
Installment and Other Consumer Loans. At December 31,
1994, the Corporation's installment and other consumer loans
portfolio aggregated approximately $62.7 million, or 9.63%, of
the Corporation's total loan portfolio. The consumer loans made
by the Banking Subsidiaries include line of credit loans to
individuals, loans on automobiles, boats, recreational vehicles
and other consumer goods and unsecured loans. Generally, consumer
loans have up to five-year terms and may have either adjustable or
fixed interest rates or may be in the form of credit lines with
adjustable interest rates. The Banking Subsidiaries normally limit
the loan- to-value ratios on secured consumer loans to 85%,
depending on the type of collateral securing the loan. Consumer
loans typically are either secured by collateral that is
rapidly depreciating or has greater recovery risks, such as
automobiles, or are unsecured. Therefore, these loans generally
carry a greater degree of credit risk than residential mortgage
loans. Approximately $8.9 million, or 14.2%, of the Banking
Subsidiaries' consumer loans as of December 31, 1994 were
unsecured.
Loan Maturity Schedule. The following table sets
forth certain information at December 31, 1994 regarding the
dollar amount of real estate construction loans and commercial,
financial and agricultural loans maturing in the Banking
Subsidiaries' loan portfolio. Demand and line of credit loans
having no stated schedule of repayments and no stated maturity are
reported as due in one year or less.
9
Due In 1 Due After 1
Year or Less Through 5 Due After 5
After Years After Years After
December 31, 1994 December 31, 1994 December 31, 1994 Total
(Dollars in Thousands)
Real estate
construction loans
$13,758 $ 638 $ --- $ 14,396
Commercial, financial
and agricultural loans 75,290 37,290 13,711 126,291
Total $89,048 $37,928 $13,711 $140,687
Predetermined and Adjustable Interest Rates Schedule. The
following table sets forth the dollar amount of all real estate
construction loans and commercial, financial and agricultural loans of
the Banking Subsidiaries due after one year from December 31, 1994 that have
predetermined interest rates or have floating or adjustable interest rates:
Predetermined Floating
Rates Adjustable Rates
(Dollars in Thousands)
Real estate construction $ --- $ 638
Commercial, financial and agricultural 31,590 19,411
Total $31,590 $20,049
Loan Solicitation and Processing. The Banking Subsidiaries
derive their loan originations from a number of sources. Residential
loan originations can be attributed to real estate broker referrals,
mortgage banking relationships, direct solicitation by the loan officers
of the Banking Subsidiaries, current depositors and borrowers, builders,
attorneys, walk-in customers, correspondent loan originators and, in some
instances, other lenders. Commercial real estate loans, consumer
loans, and commercial, financial and agricultural originations result
from many of the same sources. Upon receipt of a loan application from a
prospective borrower, a credit report and verifications are ordered
to verify specific information relating to the loan applicant's
employment, income and credit standing. An appraisal of any real estate
intended to secure a proposed loan is undertaken by in-house or
independent appraisers approved by the applicable Banking Subsidiary.
The Corporation and the Banking Subsidiaries have
established certain general policies for loan authorization
procedures. Loans up to limits established by each Banking Subsidiary's
Board of Directors may be made by that Banking Subsidiary's applicable
loan officers. Such loans are reviewed by the Banking
Subsidiary's management and Board. Loans in excess of these
limits must be reviewed by the chief executive officer, and
approved by the loan committee, of the relevant Banking
Subsidiary. Loans in excess of a pre- established level are
reviewed by the General Loan Committee of the Corporation which
makes a recommendation to the Board of the applicable Banking
Subsidiary. Such Board then considers such loan for approval or
rejection.
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Loan applicants are promptly notified of the decision by
a letter or, in some instances, orally. If a loan, other than
consumer loans or certain loans of lesser amounts, is approved, a
commitment letter will specify the terms and conditions of
the proposed loan, including the amount of the loan, interest
rate, amortization term, a brief description of the required
collateral (if a secured loan is to be made) and required
insurance coverage. The borrower must provide proof of fire
and casualty insurance on any real property serving as
collateral, which insurance must be maintained during the full
term of the loan. In addition, the Banking Subsidiaries
generally require title insurance on all loans secured by real
property. Loan rates are normally locked in for a 60-day period.
Loan Commitments. In the normal course of
business, the Banking Subsidiaries have various commitments to
extend credit which are not reflected in the Corporation's
consolidated financial statements. At December 31, 1994,
outstanding loan commitments approximated $2,591,000 (of which
approximately $349,000 were fixed rate and $2,242,000 were
variable rate), pre-approved but unused lines of credit for loans
totaled $95.2 million and standby letters of credit aggregated
$675,000. These amounts represent the Corporation's exposure to
credit risk for off-balance sheet financial instruments, and,
in the opinion of management, represent no more than the
normal lending risk that the Banking Subsidiaries incur in their
extension of loans to their borrowers. If these commitments are
drawn, the Banking Subsidiaries will obtain collateral if it is
deemed necessary based on management's credit evaluation of the
borrower. Collateral obtained varies but may include accounts
receivable, inventory, and commercial or residential real
estate. Management expects that these commitments can be funded
through normal operations.
Loan Activity. Loan originations of the Banking
Subsidiaries are primarily generated by their own lending
functions, as opposed to purchasing loans from other financial
institutions. In this manner, the Banking Subsidiaries collect
for themselves the loan origination fees paid by the borrowers.
The Banking Subsidiaries from time to time have purchased
adjustable and fixed rate mortgage loans and mortgage-backed
securities in the secondary market.
The Banking Subsidiaries typically underwrite fixed
rate mortgage loans according to Federal Home Loan Mortgage
Corporation ("FHLMC") or Federal National Mortgage Association
("FNMA") guidelines, so that the loans qualify for sale in the
secondary mortgage market or exchange for participation
certificates. Such loans may be considered by management to be
held for sale at origination based on their interest rates and
terms to maturity, and thus such loans are carried at the
lower of cost or market as determined by outstanding commitments
from investors or current investor yield requirements calculated
on the aggregate loan basis. Gains and losses on loan sales are
recognized if at the time of sale the average interest rate on the
loans sold, adjusted for servicing costs, differs from the agreed
yield to the buyer. Any resulting discount or premium is
amortized using a level yield method over the contractual life of
such loans. Sales of loans in 1994 and 1993 resulted in no
such discounts or premiums. During 1994 and 1993, the Banking
Subsidiaries sold, through OMNIBANK, approximately $21.4
million and $85.7 million, respectively, of fixed rate residential
mortgage loans to generate liquidity and to meet loan demand.
In connection with such sales, OMNIBANK generally retains the
servicing of the loans (i.e., collection of principal and interest
payments), for which it generally receives an average fee
payable monthly of .25% to .375% per annum of the unpaid balance
of each loan. As of December 31, 1994, the Banking
Subsidiaries were servicing loans for others aggregating
approximately $314.7 million. The sale and subsequent servicing
of residential mortgage loans have been, and will continue to
be, a significant source of other income for the Corporation. The
Corporation's gains on sales of loans, however, are largely
dependent upon prevailing interest rates, which influence residential
loan borrowers to refinance their loans at more favorable interest rates.
As a result, this source of other income could be significantly
11
affected by changes in such interest rates in future periods.
Gains on sales of loans totaled $190,000, $1,384,000 and $738,000 for
1994, 1993, and 1992, respectively, and loan servicing fees totaled $584,000,
$604,000 and $563,000 for 1994, 1993, and 1992, respectively.
Loan Origination and Other Fees. In addition to
interest earned on loans and fees for making loan commitments, the
Banking Subsidiaries receive loan origination fees for
originating mortgage loans. These origination fees generally
are calculated as a percentage of the principal amount of the
mortgage loan and are charged to the borrower for creation
of the loan. Non-refundable fees and certain related costs
associated with originating or acquiring loans generally are
recognized over the life of the related loans as an adjustment to
interest income. Deferred net fees and discounts associated with
the mortgage loans held by the Banking Subsidiaries are included
as components of the carrying value of the loan and are being
amortized into interest income over the lives of the related loans
by a method that approximates level yield.
The Banking Subsidiaries also receive other fees and
charges relating to existing loans, including late charges, fees
collected in connection with a change in borrower, and insurance
commissions. These fees and charges for the years ended
December 31, 1994, 1993, and 1992 totaled approximately $901,000,
$792,000 and $788,000, respectively.
Non-Performing Assets. The Banking Subsidiaries'
collection procedures provide that when a loan is 30 days
delinquent, the borrower will be contacted by mail and
payment requested. If the delinquency continues, subsequent
efforts will be made to contact the delinquent borrower. In
certain limited instances, the Banking Subsidiary may modify
the loan or grant a limited moratorium on loan payments to enable
the borrower to reorganize his financial affairs. If the loan
continues in a delinquent status for at least 90 days, the
Banking Subsidiary generally will initiate foreclosure or other
collection proceedings. If the loan is unsecured, it is generally
charged-off after it is 120 days delinquent. If a loan is secured,
upon a foreclosure or other action seizing the collateral, or
the determination by management that the collateral has been in
substance foreclosed, the collateral property is appraised, and is
then classified as real estate owned and is recorded at the
lower of cost or fair value, less the estimated costs to sell the
property. Generally, such properties are appraised annually to
update the fair value estimates made by management.
The following table presents information on
nonperforming assets, including non-accrual loans, accruing loans
that are 90 or more days past due, real estate owned and
restructured loans:
At December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Non-accrual loans $1,774 $1,573 $2,515 $1,750 $2,438
Accruing loans 90 days or more
past due 2,402 420 1,380 2,139 2,942
Real estate owned 1,704 951 983 998 1,894
Restructured loans 129 186 479 1,700 -
Total $6,009 $3,130 $5,357 $6,587 $7,274
Non-performing assets as
a percentage of
total assets .52% .34% .59% .72% .80%
Management of the Banking Subsidiaries periodically
evaluates the collectibility of the principal of and interest on
these loans. When a loan becomes delinquent by at least 90
days, management determines whether interest should continue to
accrue by considering various factors, including the current
financial position of the borrower, the value of the underlying
collateral, the existence and amount of
12
coverage of any private mortgage insurance, and the date that the last
payment or partial payment was received. If collectibility of the
outstanding principal balance and the accrued interest appears
certain based on a review of the aforementioned factors, and
the loan is considered by management to be in the process of
collection, management will continue to accrue interest on
these loans. Loans are placed on nonaccrual status when
management determines uncertainty of interest collection exists
but payment of principal is not impaired. When uncertainty of
collection of principal exists, the asset is written down to
its net realizable value. Interest income foregone on nonaccrual
loans and restructured loans for each of the years in the
three-year period ended December 31, 1994, was not significant.
Asset Classification. Regulations governing
insured financial institutions require those institutions to
classify their assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal
and state examiners have authority to identify problem
assets and, if appropriate, classify them. If an institution
does not agree with an examiner's classification of an asset, it
may appeal this determination to the appropriate regulator.
Problem assets may be classified as "substandard," "doubtful" or
"loss." An asset will be classified as "substandard" if it is
determined to involve a distinct possibility that the insured
institution may sustain some loss if deficiencies associated with
the loan, such as inadequate documentation, are not
corrected. An asset will be classified as "doubtful" if full
collection is highly questionable or improbable. An asset will be
classified as "loss" if it is considered as uncollectible, even if
a partial recovery may be expected in the future. There is also a
"special mention" category which includes assets that
currently do not expose an insured institution to a sufficient
degree of risk to warrant classification but that do possess
credit deficiencies or potential weaknesses deserving management's
close attention. An institution must establish general allowances
for loan losses for assets classified as substandard or
doubtful. If an asset or portion thereof is classified as loss,
the insured institution must either establish specific allowances
for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge-off such amount.
The aggregate amounts of classified assets (which
included non-performing assets) of the Banking Subsidiaries at
December 31, 1994 were as follows:
Security Bank OMNIBANK Citizens Home Savings EDC
(Dollars in Thousands)
Substandard assets $ 1,899 $ 476 $ 962 $ 445 --
Doubtful assets -- -- -- -- --
Loss assets -- -- -- -- --
Restructured loans -- 109 -- 20 --
Real estate owned 1,500 83 34 86 $ 1
Loans classified for regulatory purposes as loss, doubtful,
substandard or special mention that have not been disclosed in the
nonperforming asset table under the section "Nonperforming Assets"
do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or 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 loan repayment
terms.
Allowances for Loan Losses. The Corporation recognizes
that the Banking Subsidiaries will experience credit losses in
making loans and that the risk of loss will vary with, among other
things, the type of loan being made, the credit-worthiness of the
borrower over the term of the loan and, in the case of a secured loan,
the quality of the security for the loan.
13
Management's policy to maintain adequate reserves is
based on, among other things, estimates of historical loan loss
experience, loan growth, the composition and quality of each
Banking Subsidiary's overall loan portfolio and off-balance
sheet commitments, evaluations of current and anticipated economic
conditions, and collateral values. Management evaluates the
carrying value of loans periodically and specific allowances are
made for individual loans when the ultimate collection is
considered questionable after reviewing the current status of
loans that are contractually past due and taking into account the
fair value of the collateral of the loan. In addition,
management of the Banking Subsidiaries utilizes a risk grading
system to evaluate the adequacy of the allowance for loan
losses for certain commercial loan relationships. Also, certain
loans are pooled based on delinquency status and a percentage
allocation is made to the allowance for loan losses based on the
severity of the delinquency. Further, for the remaining loans
which are neither assigned a risk grade nor pooled based on
delinquency status, a percentage allocation is made based on
the historical loan loss experience of each Banking Subsidiary.
Lastly, the nature and extent of off-balance sheet financial
instruments, including loan commitments, pre-approved but unused
lines of credit and letters of credit are taken into
consideration and assigned an allocation based on historical loan
loss experience. During each of the years in the
three-year period ended December 31, 1994, the Corporation had no
realized credit losses from such off-balance sheet financial
instruments.
The Banking Subsidiaries grant primarily commercial,
real estate, and installment loans throughout their market areas,
which consists primarily of the south central and western
Piedmont regions of North Carolina. The Banking Subsidiaries real
estate loan portfolios can be affected by the condition of the
local real estate markets and their commercial and installment
loan portfolios can be affected by local economic conditions.
While management uses the best information available to
make evaluations, future adjustments to the allowance may be
necessary if conditions differ substantially from assumptions
used in making such evaluations. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Banking Subsidiaries'
allowances for loan losses and losses on real estate owned. Such
agencies may require the Banking Subsidiaries to adjust the
allowance based on their judgments about information available to
them at the time of their examinations.
14
The following is a reconciliation of the allowance for loan losses for the
years shown:
Years Ended December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
Balance, at the beginning
of the year $7,227 $6,909 $5,429 $4,732 $4,620
Add: Allowance of acquired
institution 2,054 - - - -
Charge-offs:
Real estate mortgage loans <199> <283> <118> <167> <398>
Commercial, financial
and agricultural loans <36> <33> <492> <821> <749>
Installment (consumer)
loans <346> <416> <414> <700> <1,169>
Recoveries:
Real estate
mortgage loans 76 165 69 119 56
Commercial, financial
and agricultural loans 21 46 267 154 338
Installment (consumer)
loans 161 186 320 188 414
Net charge-offs <323> <335> <368> <1,227> <1,508>
Provision for loan
losses 359 653 1,848 1,924 1,620
Balance, at the end of
the year $9,317 $7,227 $6,909 $5,429 $4,732
Ratio of net
charge-offs
during the year to
average loans
outstanding during
the year .06% .07% .07% .22% .27%
The following table presents an allocation of the
allowance for loan losses by the categories indicated and the
percentage that loans in each category bear to the Banking
Subsidiaries' total loans. This allocation is used by
management to assist in its evaluation of the Banking
Subsidiaries' loan portfolio. These allocations are merely
estimates and are subject to revisions as conditions change.
Based upon historical loss experience and the Banking
Subsidiaries' assessment of their loan portfolios, the Banking
Subsidiaries' allowances for loan losses have been allocated to
the categories of loans indicated. Specific allocations for
these loans are based primarily on the credit-worthiness of
each borrower. In addition, general allocations are also made to
each category based upon, among other things, the impact of current
and future economic conditions on the loan portfolio taken as a
whole. Losses on loans made to consumers are reasonably
predictable based on prior loss experience and a review of current
economic conditions.
At December 31,
1994 % 1993 % 1992 % 1991 % 1990 %
(Dollars in Thousands)
Real estate
mortgage loans $6,372 68.76 $4,579 71.17 $4,118 70.60 $2,856 68.59 $3,380 65.90
Real estate
construction loans - 2.21 - 2.12 - 2.19 - 2.83 - 2.90
Commercial, financial
and agricultural loans 1,897 19.40 1,242 13.61 961 13.38 1,090 13.34 631 14.72
Installment
(consumer) loans 1,048 9.63 1,406 13.10 1,830 13.83 1,483 15.24 721 16.48
$9,317 100.00 $7,227 100.00 $6,909 100.00 $5,429 100.00 $4,732 100.00
15
Non-Banking Subsidiaries
The Corporation has one direct Subsidiary and six
indirect Subsidiaries, which are not financial institutions.
Prior to the 1992 Merger, EDC engaged in real estate acquisition,
development and construction and provided real estate appraisal
services to Omni and its subsidiaries. At December 31, 1994, EDC
had assets of approximately $817,000 and liabilities of
approximately $4,000. FSCC is a subsidiary of Security Bank and
operates as a consumer finance company. At December 31, 1994,
FSCC had assets of approximately $3 million, including a
consumer loan portfolio of approximately $2.8 million, and
total liabilities of approximately $3 million. As a result of
the September 23,1994 merger of First Federal and Security Bank,
five new non-banking subsidiaries were added to Security Bank.
Northbound, North Carolina, University, NC Financial, and First
Residential had an insignificant amount of assets and liabilities
and were inactive, at December 31, 1994. It is anticipated
that FSCC will be sold, and the five Subsidiaries acquired in the
merger of First Federal into Security Bank will be dissolved
and liquidated, in 1995. See "Regulation" below.
Investment Activities
Interest and dividends on investments historically have
provided the Corporation and its Subsidiaries an additional
substantial source of income. At December 31, 1994, the
Corporation's portfolio of investment securities available for
sale, reported at estimated fair value, aggregated approximately
$256.7 million. Investment securities held to maturity, reported
at amortized cost, aggregated approximately $155.6 million at that
date, and consisted primarily of United States Government
obligations, with lesser amounts of mortgage-backed securities,
state and municipal obligations and federal agency obligations.
Purchases of securities are funded either through the sale or
maturity of other securities or from the cash flow arising in the
ordinary course of business.
The Banking Subsidiaries have authority to invest in
various types of liquid assets, which include certain time
deposits, bank acceptances, specified U.S. Government securities,
government agency securities, and state and municipal
obligations. Subject to various regulatory restrictions, the
Banking Subsidiaries may also invest a portion of their assets in
commercial paper, corporate debt securities and in mutual funds
whose assets conform to the investments that they are
otherwise authorized to make directly. The Banking Subsidiaries
are required to maintain liquid assets at minimum levels,
which are adjusted by financial institution regulators from time
to time. See "Regulation." The Banking Subsidiaries
traditionally have maintained levels of liquidity above that
required by federal regulations. In addition to providing for
regulatory liquidity, the Banking Subsidiaries maintain
investments to employ funds not currently required for their
various lending activities.
Subject to the investment policy of the
Corporation's Board of Directors, members of senior management
normally make investment decisions. Management determines the
maturities and mix of investments in the Banking Subsidiaries'
investment portfolios based on liquidity needs and legal liquidity
restrictions. Maturities are also determined based on general and
anticipated market trends. The Corporation's investment strategy
has been, and remains, to invest principally in U.S.
Government securities, government agency obligations, and certain
types of state and municipal obligations with maturities of seven
years or less. Investments in these types of securities and
obligations amounted to 96% of the Corporation's investment
portfolio at December 31, 1994. These high grade investments
generally pose little or no credit risk and are easily liquidated
if necessary. Management generally considers government and agency
obligations that carry lower yields to be preferable to higher
yielding securities
16
that carry greater credit risks. Furthermore, management
recognizes the Corporation's limitations in being able to evaluate
and monitor many corporate and other securities on a
timely basis. Management believes that this investment strategy
will provide stable earnings and maintain asset quality, although
rates of return will be more moderate than those that could be
obtained with riskier securities. The Corporation does not
engage in hedging or other high risk investment strategies.
The Financial Accounting Standards Board ("FASB")
has issued Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", that requires debt and equity securities held (i)
to maturity be classified as such and reported at amortized cost;
(ii) for current resale 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 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. On January 1, 1994, the Corporation adopted the provisions
of SFAS No. 115 and classified approximately $329.8 million of
securities as investment securities available for sale.
At December 31, 1994, the Corporation's investment
securities portfolio available for sale had gross unrealized gains
of $195,000 and gross unrealized losses of $9.8 million. Also
at December 31, 1994, the Corporation's investment securities
portfolio held to maturity had gross unrealized gains of $186,000
and gross unrealized losses of $6 million, compared to
gross unrealized gains of $7.2 million and gross unrealized
losses of $528,000 in such portfolios at December 31, 1993.
The net unrealized loss of $9.8 million in the available for sale
portfolio and $6 million in the held to maturity portfolio at
December 31, 1994 reflect the fact that the weighted average yield
of the Corporation's investment securities portfolio is less than
the current yields being offered in the bond market for
securities with similar features. Such amounts do not
necessarily reflect possible future realized losses for the
investment securities portfolio. The level of unrealized losses
will change in future periods as yields being offered in the bond
market for securities with similar features fluctuate.
Total proceeds from sales or issuer calls of
investment securities available for sale during 1994 were $71.4
million. There were no sales or issuer calls of investment
securities held to maturity in 1994. During the year ended
December 31, 1993, sales or issuer calls of investment securities
totaled $5.9 million. During the year ended December 31, 1992,
sales or issuer calls of investment securities were insignificant.
17
The following table presents the amortized cost and
the estimated fair value of the various components of the
investment securities portfolio available for sale at December 31,
1994:
At December 31,
1994
(Dollars in Thousands)
Estimated
Amortized Fair
Cost Value
U.S. Government obligations $194,612 $188,640
U.S. Government agency obligations 70,661 66,991
Mortgage-backed securities 960 927
Other 66 99
Total $266,299 $256,657
18
The following table presents the amortized cost and
the estimated fair value of the various components of the
investment securities portfolio held to maturity at December 31,
1994, 1993, and 1992:
At December 31,
1994 1993 1992
(Dollars in Thousands)
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
U.S. Government
obligations $54,328 $52,375 $305,180 $310,759 $292,848 $300,115
U.S. Government
agency obligations 76,931 73,519 40,409 40,368 9,966 9,996
Mortgage-backed
securities 8,659 8,364 12,676 13,135 19,298 19,769
State and municipal
obligations 15,679 15,532 10,022 10,698 15,592 16,570
Other - - 66 86 900 900
Total $155,597 $149,790 $368,353 $375,046 $338,604 $347,350
The following table sets forth the maturities of the
components of the aggregate investment securities portfolio available
for sale, at carrying value, of the Corporation at December 31, 1994,
and the weighted average yields of such securities. Yields are based
on the amortized cost of the portfolio:
After 1 but After 5 but
1 Year or Less Before 5 Years Before 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
U.S. Government
obligations $62,976 6.25% $123,602 5.33% $2,062 7.76% - -
U.S. Government
agency obligations 1,004 4.89 46,384 5.72 19,603 8.30 - -
Mortgage-backed
securities - - 79 12.13 25 7.49 $823 6.97%
Other investments - - - - - - 99 -
Total investment
securities $63,980 6.23% $170,065 5.44% $21,690 8.25% $922 6.97%
The following table sets forth the maturities of the
components of the aggregate investment securities portfolio held to
maturity, at amortized cost, of the Corporation at December 31,
1994, and the weighted average yields of such securities:
After 1 but After 5 but
1 Year or Less Before 5 Years Before 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
U.S. Government
obligations $1,000 5.39% $53,328 6.33% - - - -
U.S. Government
agency obligations - - 45,968 6.61 $30,963 7.76% - -
Mortgage-backed
securities - - 543 7.07 1,588 8.19 $ 6,528 7.80%
State and municipal
obligations 6,509 7.60 2,484 7.71 1,276 5.28 5,410 5.69
Total investment
securities $7,509 7.31% $102,323 6.49% $33,827 7.69% $11,938 6.84%
19
Sources of Funds
General Sources of Funds. Core deposits are the
largest and most important source of the Banking Subsidiaries'
funds for lending and other investment purposes. In
addition to deposits, the Banking Subsidiaries receive funds from
interest payments, loan principal repayments, advances (loans) from
the Federal Home Loan Bank of Atlanta ("FHLB Advances"), other
borrowings and operations. Loan repayments and interest payments
are a relatively stable source of funds, while deposit
inflows and outflows are significantly influenced by general
interest rates and money market conditions. The Savings Banks
generally use borrowings on a short-term basis to compensate for
reductions in the availability of funds from other sources.
Borrowings may also be used on a longer-term basis for general
business purposes. Historically, the Banking Subsidiaries have not
relied upon significant amounts of borrowings to fund loan and asset
growth.
Deposits. The Banking Subsidiaries attract consumer and
commercial deposits principally from within their respective
primary market areas through the offering of a broad selection
of deposit instruments, including (depending upon the Banking
Subsidiary), demand deposits, NOW accounts, money market accounts,
regular savings accounts, money market certificates, other time
deposits (including negotiated "jumbo" and "mini jumbo"
certificates in denominations of at least $100,000 and $50,000,
respectively), and individual retirement plans. Deposit account
terms vary, with the principal differences being the minimum
balance required, the time period that the funds must remain
on deposit and the interest rate. The Banking Subsidiaries
generally do not obtain funds through brokers, and they do not
solicit funds outside of North Carolina. The Banking
Subsidiaries' aggregate deposits increased approximately $227.7
million in 1994, increased approximately $10.8 million in 1993, and
decreased approximately $1.5 million in 1992. The increase in 1994
was primarily due to the acquisition of First Federal in September
of 1994. Deposit accounts would have decreased $23.3 million in
1994, excluding the effect of the First Federal acquisition.
The following table contains information pertaining to
the average balance of and the average rate paid on each of the
following deposit categories for the periods indicated:
Year Ending Year Ending Year Ending
December 31, 1994 December 31, 1993 December 31, 1992
Average Average Average
Average Rate Average Rate Average Rate
Deposit Category Balance Paid Balance Paid Balance Paid
Demand deposits - (Dollars in Thousands)
non-interest bearing $65,656 -- $ 68,689 -- $ 63,989 --
Demand deposits -
interest bearing 170,140 2.11% 149,668 2.33% 149,244 3.09%
Savings deposits 163,821 2.86 152,378 3.00 139,356 3.77
Time deposits 443,946 4.53 407,851 4.71 423,029 5.63
Total $ 843,563 3.65% $ 778,586 3.84% $ 775,618 4.73%
The following table sets forth the amount and maturities of jumbo
certificates of deposit (certificates of deposit of $100,000 or
more) in the Banking Subsidiaries at December 31, 1994:
(Dollars in Thousands)
Maturing in 3 months or less $ 21,170
Maturing after 3 but less than 6 months 14,189
Maturing after 6 but less than 12 months 18,091
Maturing after 12 months 34,962
Total $88,412
Borrowings. In addition to the deposits described above, the
Savings Banks rely upon FHLB Advances as their principal borrowing
source, to supplement their supply of lendable funds and to secure
funds for other operational purposes, such as meeting deposit
withdrawals and other short-term liquidity requirements. The
20
FHLB functions in a central reserve capacity providing credit for
thrifts and other financial institutions. FHLB Advances may be on a
secured or unsecured basis depending upon a number of factors,
including the purpose for which the funds are being borrowed and
existing advances outstanding. At December 31, 1994, the Corporation
had FHLB Advances totaling $18.6 million, at rates varying from
4.61% to 9.65%, secured by certain of its real estate loans, certain
securities, and all of its FHLB stock. Security Bank has
entered into a specific collateral agreement with the FHLB whereby it
maintains "qualifying collateral" which has a "lendable collateral
value" that is at least equal to its outstanding FHLB advances.
This lendable collateral value equals the sum of the unpaid
principal balance of specifically identified mortgages assigned to
the FHLB, discounted at 85% of market value, and any U.S. Treasury
securities, discounted at 95% of market value. At December 31, 1994,
Security Bank had 390 mortgages and one U.S. Treasury note assigned
to the FHLB with a market value of $16.2 million, a lendable
collateral value of $13.8 million, and an excess of lendable
collateral over FHLB advances of $4 million. The Savings Banks
have entered into blanket collateral agreements with the FHLB
whereby they maintain, free of other encumbrances, "qualifying
mortgages" with unpaid principal balances at least equal to, when
discounted at 75% of the unpaid principal balance, 100% of the total
FHLB Advances. See Note 8 of Notes To Consolidated Financial
Statements for information as to interest rates and maturities for
these FHLB Advances. The Corporation also enters into retail
repurchase agreements on a short- term basis (generally one to three
days), primarily as a service to their customers. These borrowings
are generally secured by investment securities of the Corporation, and
are classified as other borrowings in the table below.
The following tables set forth the borrowings of the Banking
Subsidiaries at the dates and for the periods indicated:
At December 31,
1994 1993 1992
(Dollars in Thousands)
FHLB Advances $18,576 $8,000 $12,500
Other borrowings 3,276 1,764 706
Total borrowings $21,852 $9,764 $13,206
Year Ended December 31,
1994 1993 1992
(Dollars in Thousands)
Maximum amount of other short-term
borrowings outstanding at any
month end during the year
$3,325 $1,764 $ 773
Approximate average amount of
other borrowings outstanding
at any month end during
the year $2,406 $1,103 $ 403
Weighted average interest rate paid
on other borrowings during
the year 4.89% 3.16% 3.81%
Approximate weighted average interest
rate paid on total borrowings
during the year 7.16% 7.69% 8.38%
Net Interest Income Analysis. The following table sets forth for
the periods and at the dates indicated the average interest-earning
assets, the average interest-bearing liabilities, interest income
from interest-earning assets and interest expense related to
interest-bearing liabilities, average yields on interest-earning assets
and average rates on interest-bearing liabilities, the spread between the
combined average rates earned on interest- earning assets and
average rates paid on interest-bearing liabilities, and the net yield
on interest-earning assets (net interest margin). Average balances
are determined on a daily basis. For the purposes of this table, the
loan averages include nonaccrual loans and are stated net of
unearned income. The amount of loan fees included in interest income
for each of the periods presented is not material.
21
(Dollars in Thousands)
Year Ended December 31, 1994 Year Ended December 31, 1993 Year Ended December 31, 1992
Weighted
Average
Yield/Rate Income/ Average Average Income/ Average Average Income/ Average Average
As Of Expense Balance Yield/Rate Expense Balance Yield/Rate Expense Balance Yield/Rate
December
31, 1994
Interest-earning assets:
Loans, net of unearned
income 8.45% $43,951 $530,712 8.28% $41,195 $494,943 8.32% $48,277 $528,869 9.13%
Investments-taxable 6.00 21,280 361,053 5.89 21,299 338,773 6.29 21,165 293,808 7.20
Investments-nontaxable 7.26 858 11,887 7.22 955 13,012 7.34 1,137 15,596 7.29
Federal funds sold 5.82 687 13,061 5.26 197 6,847 2.88 443 12,404 3.57
Other interest-earning
assets 6.53 760 15,092 5.03 577 15,409 3.74 831 20,683 4.02
Total interest-earning
assets 7.53% $67,536 $931,805 7.25% $64,223 $868,984 7.39% $71,853 $871,360 8.24%
Other non-interest earning
assets 51,327 49,376 44,540
Total assets $983,132 $918,360 $915,900
Interest-bearing liabilities:
FHLB advances & other
borrowings 1 6.47% $960 $13,396 7.17% $880 $11,401 7.72% $1,434 $17,120 8.38%
Deposits 4.16 28,363 777,907 3.65 27,255 709,897 3.84 33,695 711,629 4.73
Total interest-bearing
liabilities 4.21% $29,323 $791,303 3.71% $28,135 $721,298 3.90% $35,129 $728,749 4.82%
Non-interest bearing
liabilities 67,145 76,055 74,729
Total liabilities $858,448 $797,353 $803,478
Stockholders' equity 124,684 121,007 112,422
Total liabilities &
stockholders' equity $983,132 $918,360 $915,900
Net interest rate spread 3.32% $38,213 3.54% $36,088 3.49% $36,724 3.42%
Net yield on interest
earning assets 4.10% 4.15% 4.21%
________________________________________
1
Refer to the table on page 21 for information concerning
other borrowings.
Asset/Liability Management
The Banking Subsidiaries' exposure to interest-rate risk results
from the differences in maturities and pricing of their
interest-earning assets (loans and other investments) and
interest-bearing liabilities (deposits and other borrowings).
Historically, financial institutions with substantial mortgage
loan portfolios have operated in a mismatched position, with
interest-sensitive liabilities greatly exceeding
interest-sensitive assets. Because interest rates paid on deposits
can adjust more quickly to interest rate movements than do yields
earned on loans, sharp increases in interest rates can adversely
affect the earnings of such financial institutions. Such interest-
rate risk can be reduced if the maturities of deposits and loans are
reasonably well matched.
The senior management personnel of the Corporation and each
Banking Subsidiary currently maintain responsibility for and discuss
and monitor on a continuing basis the asset/liability management for
the Banking Subsidiaries. In addition, the Board of Directors of
the Corporation has adopted an interest-rate risk management policy
providing for a formal asset/liability committee that meets no less
frequently than quarterly to monitor exposure to interest- rate risk
and report findings and accomplishments to the Boards of Directors
of the Corporation and the Banking Subsidiaries.
The Corporation currently measures its exposure to interest
rate risks through the utilization of a computer model that outlines
a gap position, by Banking Subsidiary, for various maturities.
Various interest rate scenarios are used to determine whether the
goals established by the Boards of Directors of the Corporation and
each Banking Subsidiary are being met. All such data is
reviewed with the Boards of Directors of the Corporation and the
applicable Banking Subsidiary on a quarterly basis.
Realizing that various hedging activities are inherently
volatile and that such activities require specific expertise, neither
the Corporation nor any Subsidiary engages in the following
investment activities: financial options transactions, interest
rate futures transactions, mortgage or interest rate swap
transactions, securities lending, trading in mortgage derivative
instruments or products such as collateralized mortgage
obligations, investing in junk bonds or other structured notes, or
otherwise engaging in synthetic or artificial hedging of risk-
controlled arbitrage.
In an effort to make the yields on their loan and
investment portfolios more interest-rate sensitive, the Savings Banks
have implemented a number of measures, including (i)
increasing their emphasis on originating adjustable rate mortgage
loans on residential and commercial properties, subject to
market conditions; (ii) originating higher levels of construction,
small commercial real estate and consumer loans, which typically bear
higher interest rates than residential loans and offer greater
interest rate flexibility through shorter maturities; and (iii)
using FHLB Advances and longer-term savings certificates to lengthen
maturities of liabilities. Security Bank historically has had, and
continues to have, a large percentage of commercial, financial and
agricultural loans and installment and other consumer loans in its
portfolio and an even higher percentage of its total assets in its
investment portfolio. Consequently, its loan and investment
portfolios tend to be more interest-rate sensitive than those of the
Savings Banks. The risks involved in commercial real estate,
consumer and commercial, financial and agricultural loans are
evaluated by management carefully as part of the underwriting of such
loans.
Management is continuing to attempt to direct the Savings Banks'
loan portfolios into types of loans other than residential mortgage
loans. The effort, together with the emphasis in Security Bank's
portfolio upon commercial, financial and agricultural loans and
installment and other consumer loans, has resulted in a
diversification of the Corporation's aggregate loan portfolio. At
December 31, 1994, commercial, financial and agricultural loans
composed 19.48% of the Corporation's total loans, as opposed to 13.68%
at December 31, 1993.
The Banking Subsidiaries also emphasize longer-term deposits
when prudent to do so. It is difficult, however, to attract longer
term deposits in periods of rising interest rates or during
extended periods of low interest rates.
23
Conversely, in a declining rate environment, longer-term deposits are
easier to attract, but could leave the Banking Subsidiaries holding
more costly deposits if interest rates declined significantly or for any
extended period of time.
24
The following table sets forth the dollar amount of maturing assets and
liabilities of the Banking Subsidiaries as of December 31, 1994 and the
difference between them for the repricing periods indicated:
(Dollars in Thousands)
0 to 90 91 to 180 181 to More than More than More than Total
Days1 Days1 365 Days 1 year to 3 years to 5 years1
3 years1 5 years1
Interest-earning assets:
Loans2 $157,363 $56,664 $218,996 $51,274 $52,948 $113,683 $650,928
Investments-Available for sale 22,029 20,082 21,867 122,215 47,851 22,613 256,657
Investments-Held to maturity-
taxable 1,002 - 1,002 26,953 71,882 39,079 139,918
Investments-Held to maturity-
non-taxable - 6,509 - 2,484 - 6,686 15,679
Interest-bearing balances
in other banks 17,321 - - - - - 17,321
Federal funds sold 6,948 - - - - - 6,948
Total interest-earning assets $204,663 $83,255 $241,865 $202,926 $172,681 $182,061 $1,087,451
Interest-bearing liabilities:
Deposits3 $325,913 $113,630 $137,813 $249,756 $114,184 $3,646 $944,942
FHLB advances and other borrowings 5,406 - 961 15,168 - 317 21,852
Total interest-bearing liabilities $331,319 $113,630 $138,774 $264,924 $114,184 $3,963 $966,794
Interest sensitivity gap $(126,656) $(30,375) $103,091 $(61,998) $ 58,497 $178,098 $120,657
Cumulative interest sensitivity
gap $(126,656) $(157,031) $(53,940) $(115,938) $(57,441) $120,657
Cumulative ratio of interest-earning
assets to interest-bearing
liabilities 61.77% 64.71% 90.76% 86.34% 94.03% 112.48%
Ratio of cumulative gap to
total assets -10.87% -13.47% -4.63% -9.95% -4.93% 10.35%
______________________________________
1 Gap analysis includes fixed rate loan repayments (contractual and
prepayment).
2 Includes loans held for sale.
3 Deposit accounts are spread as follows: (i) Certificates of deposit on
contractural maturities; (ii) all interest-bearing transaction
accounts in 0-90 days; and (iii) savings accounts on a 5-year decay
rate based on historical industry experience. This method is
consistent with that employed in 1993.
In evaluating the Corporation's exposure to interest-rate risk,
shortcomings inherent in the method of analysis presented in the
foregoing table must be considered. For example, although certain
assets and liabilities may have similar maturities or repricing
periods, they may react in different degrees to changes in market
interest rates. The interest rates in certain types of assets and
liabilities may fluctuate in advance of changes of market interest
rates, while interest rates on other types may lag behind
changes in market rates. Certain assets, such as adjustable rate
mortgage loans, have features which restrict changes in interest
rates on a short-term basis and over the life of the asset. In
the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those
assumed in calculating the table. The ability of borrowers to service
a debt may decrease in the event of an interest rate increase.
The Banking Subsidiaries consider the anticipated effects of these
various factors in implementing their interest rate risk
management objectives. Management believes that it must continue
its efforts to manage the rates, liquidity and interest-rate
sensitivity of the assets and liabilities of the Banking Subsidiaries
to generate an acceptable return.
Rate/Volume Analysis
The following table shows, for the periods indicated, the
change in interest income and interest expense for each major
component of interest-earning assets and interest-bearing
liabilities attributable to (i) changes in volume (changes in
volume multiplied by old rate); and (ii) changes in rates (changes
in rate multiplied by old volume). The change in interest
income or expense attributable to the combination of rate variance
and volume variance is included in the table, but such amount has
been allocated equally between, and included in the amounts shown as,
changes due to rate and changes due to volume.
26
Year Ended December 31,
1994 vs. 1993 1993 vs. 1992
Increase (Decrease) Increase (Decrease)
Due To Due To
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
(Dollars in Thousands)
Interest income:
Loans $2,970 $(214) $(14) $2,756 $(2,960) $(4,122) $ 273 $(7,082)
Investments-taxable 1,357 (1,376) (88) (19) 3,033 (2,899) (412) 134
Investments-non-taxable (82) (15) 1 (97) (189) 7 (1) (182)
Federal funds sold 253 237 148 490 (179) (67) 39 (246)
Other interest-
earning assets (14) 197 (4) 183 (205) (49) 14 (254)
Total interest-
earning assets $4,484 $(1,171) $43 $3,313 $ (500) $(7,130) $(87) $(7,630)
Interest expense:
Deposits $2,545 $(1,437) $(131) $1,108 $ (74) $(6,366) $16 $(6,440)
FHLB Advances and
other borrowings 148 (68) (11) 80 (460) (94) 37 (554)
Total interest-
bearing liabilities $2,693 $(1,505) $(142) $1,188 $ (534) $(6,460) $ 53 $ (6,994)
Net interest income $1,791 $ 334 $ 185 $2,125 $ 34 $ (670) $(140) $ (636)
27
Liquidity
The following discussion supplements the discussion in the
Annual Report under the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
As discussed in the section "Sources of Funds" and in other
sections included or incorporated by reference herein, the Banking
Subsidiaries' principal sources of funds, other that cash provided
from the net income of the Banking Subsidiaries, are deposit
accounts, FHLB Advances, principal and interest payments on loans,
interest received on investment securities, and fees. As noted
in the consolidated statements of cash flows included in the
Annual Report and incorporated by reference herein, the largest
source of cash during 1994, 1993, and 1992 was the
approximately $34 million, $3 million, and $18 million,
respectively, in net cash provided by operating activities.
These funds resulted from net income adjusted primarily for the
following noncash items: the provision for loan losses,
depreciation and amortization, net securities gains and losses, and
changes in other assets and liabilities. The most significant
investing activity during 1994, 1993, and 1992 was the purchase
of investment securities held to maturity of approximately $112
million, $122 million, and $126 million, respectively, which
was partially funded in 1994 by maturities and sales of investment
securities available for sale of approximately $163 million and
in 1993 and 1992 by maturities of investment securities held to
maturity of approximately $90 million and $72 million, respectively.
During 1994, rising interest rates resulted in fewer sales of loans
in the secondary market. This reduction in loan sales resulted in
a net increase in loans of approximately $42 million during 1994.
As discussed elsewhere herein, the net decrease in loans in 1993
and 1992 of approximately $35 million and $40 million, respectively,
was largely due to management's policy of selling current production
of fixed rate mortgage loans during these years. In 1994, net cash
acquired from the purchase of First Federal was approximately
$31 million. In total, net cash provided by investing activities
in 1994 and 1993 totaled approximately $6 million and $433,000,
respectively, while net cash used in investing activities was
approximately $14 million in 1992. Net cash used in financing
activities amounted to approximately $28 million, $168,000,
and $12 million during 1994, 1993, and 1992, respectively. In
1994, this was mainly due to a decrease in deposits of approximately
$23 million, excluding the effect of the First Federal
acquisition. For additional information regarding liquidity and
capital resources, see "Regulation".
Key Operating Ratios
The table below sets forth certain performance ratios of the
Corporation for the periods indicated:
Year Ended December 31
1994 1993 1992
Return on average assets (net income divided
by average total assets) .67% 1.62% 1.09%
Return on average equity (net income divided
by average stockholders' equity) 5.32 12.26 8.81
Dividend payout ratio (1) 77.19 30.95 36.90
Equity to assets ratio (average stockholders'
equity divided by average total assets) 12.68 13.18 12.37
Interest rate spread (difference between
weighted average interest rate earned on
all interest-earning assets and weighted
average interest rate paid on all interest-
bearing liabilities) 3.54 3.49 3.42
_____________________________
(1) Due to the restatement of financial information for the year
ended December 31, 1992, as discussed in Note 2 of Notes to
Consolidated Financial Statements, dividends per
share have been computed by dividing cash dividends paid by the
weighted average number of shares outstanding as adjusted
retroactively for stock splits and stock dividends.
28
Personnel
As of December 31, 1994, the Corporation and the Subsidiaries
employed 435 employees on a full-time basis and approximately 28
employees on a part-time basis. The Corporation and/or the
Subsidiaries currently maintain such employee benefits as a pension
and retirement plans, hospitalization and major medical insurance
coverage, long-term disability and group life insurance, and
an employee stock ownership plan. Employee benefits are
considered by management to be competitive with those provided by
other major employers in the Corporation's primary market areas.
The employees are not represented by a collective bargaining unit,
and the Corporation believes its relationship with its employees to
be good.
Regulation
Federal and state legislation and regulation have
significantly affected the operations of financial institutions
over the past decade and have increased competition among
commercial banks, savings institutions and other providers of
financial services. In addition, federal legislation has imposed
new limitations on the investment authority of, and higher
insurance and examination assessments on, financial institutions and
has made other changes that may adversely affect the future
operations and competitiveness of regulated financial institutions
with other financial intermediaries. The operations of
regulated depository institutions and their holding companies,
including the Corporation and its Banking Subsidiaries, will
continue to be subject to changes in applicable statutes and
regulations from time to time.
The Corporation. As a bank holding company registered under
the BHCA, the Corporation is subject to the regulations of the FRB.
Under the BHCA, the Corporation's activities and those of the
Subsidiaries are limited to banking, managing or controlling
banks, furnishing services to or performing services for its
Subsidiaries or engaging in any other activity which the FRB
determines to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
The BHCA prohibits the Corporation from acquiring direct
or indirect control of more than 5% of the outstanding voting
stock or substantially all of the assets of any bank or
savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of
the FRB.
Congress has approved legislation which, one year after
enactment, will permit adequately capitalized and managed bank
holding companies to acquire control of a bank in any state (the
"Interstate Banking Law"). The Interstate Banking Law was
enacted into law in September of 1994. Existing state laws setting
minimum age restrictions on target banks could be retained, so
long as the age requirement does not exceed five years. Acquisitions
will be subject of anti-trust provisions that cap at 10% the
portion of the United States' bank deposits a single bank holding
company may control, and cap at 30% the portion of a state's
deposits a single bank holding company may control. A state will
have the authority to waive the 30% cap.
Under the Interstate Banking Law, beginning on June 1, 1997,
banks will also be permitted to merge with one another across
state lines, subject to concentration, capital and Community
Reinvestment Act ("CRA") requirements and regulatory approval. A
state may authorized mergers earlier than June 1, 1997, or it may
opt out of coverage by the Interstate Banking Law by enacting
legislation before June 1, 1997.
Effective with the date of enactment, a state may also
choose to permit out-of-state banks to open new branches within its
borders. In addition, if a state chooses to allow interstate
acquisition of branches, then an out-of-state bank may also acquire
branches by merger.
29
Interstate branches that primarily siphon off deposits
without servicing a community's credit needs will be prohibited.
If loans are less than 50% of the average of all institutions in the
state, the branch will be reviewed to see if it is meeting
community credit needs. If it is not, the branch may be closed and
the bank may be restricted from opening a new branch in the state.
The Interstate Banking Law also modifies the safety and
soundness provisions contained in Section 39 of the 1991 Banking
Law described below which required the banking regulatory
agencies to write regulations governing such topics as internal
controls, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation and fees and whatever
else those agencies determined to be appropriate. The legislation
exempts bank holding companies from these provisions and requires
the agencies to write guidelines, as opposed to regulations,
dealing with these areas. It also gives more discretion to the
banking regulatory agencies with regard to prescribing standards for
banks' asset quality, earnings and stock valuation.
The Interstate Banking Law also expands current exemptions
from the requirement that banks be examined on a 12-month cycle.
Exempted banks will be inspected every 18 months. Other
provisions address paperwork reduction and regulatory improvements,
small business and commercial real estate loan securitization,
truth-in- lending amendments on high cost mortgages,
strengthening of the independence of certain financial regulatory
agencies, money laundering, flood insurance reform and extension
of certain statutes of limitations. At this time, the Corporation
is unable to predict how the Interstate Banking Law may affect its
operations.
Additionally, the BHCA prohibits the Corporation from
engaging in, or acquiring ownership or control of more than 5% of
the outstanding voting stock of any company engaged in a
non-banking business, including thrifts, unless such business is
determined by the FRB to be so closely related to banking as to be
properly incident thereto. The BHCA generally does not place
territorial restrictions on the activities of such non- banking
related activities.
Similarly, FRB approval (or, in certain cases,
non-disapproval) must be obtained prior to any person acquiring
control of the Corporation or a Banking Subsidiary. Control is
conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the
institution or holding company or controls in any manner the
election of a majority of the directors of the institution or the
holding company. Control is presumed to exist if a person acquires
more than 10% of any class of voting stock and the institution or
the holding company has registered securities under Section 12 of
the Securities Exchange Act of 1934, as amended, or the acquiror
will be the largest shareholder after the acquisition.
There are a number of obligations and restrictions imposed
on bank holding companies and their insured depository institution
subsidiaries by law and regulatory policies that are designed to
minimize potential loss to depositors of such depository
institutions and the Federal Deposit Insurance Corporation ("FDIC")
insurance funds in the event the depository institution becomes in
danger of default or in default. For example, under the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the "1991
Banking Law"), to reduce the likelihood of receivership of an
insured depository institution subsidiary, a bank holding company is
required to guarantee the compliance of any insured depository
institution subsidiary that may become "undercapitalized" with the
terms of any capital restoration plan filed by such subsidiary with
its appropriate federal banking agency up to the lesser of (i)
an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized; or (ii) the amount
which is necessary (or would have been necessary) to bring the
institution into compliance with all acceptable capital standards
as of the time the institution fails to comply with such capital
restoration plan. Under a policy of the FRB with respect to bank
holding company operations, a bank holding company is
required to serve as a source of
30
financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it
might not do so absent such policy. Under the BHCA, the FRB also has the
authority to require a bank holding company to terminate any
activity or to relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the FRB's determination
that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the bank
holding company.
In addition, the "cross-guarantee" provisions of the
Federal Deposit Insurance Act ("FDIA") require insured depository
institutions under common control to reimburse the FDIC for any loss
suffered by either the Savings Association Insurance Fund (the
"SAIF") or the Bank Insurance Fund ("BIF") of the FDIC as a result
of the default of a commonly controlled insured depository
institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of
default. The FDIC may decline to enforce the cross-guarantee
provisions if it determines that a waiver is in the best interest of
the SAIF or the BIF or both. The FDIC's claim is superior to
claims of shareholders of the insured depository institution or its
holding company but subordinate to claims of depositors, secured
creditors and holders of subordinated debt (other than affiliates)
of the commonly controlled insured depository institutions.
The Corporation is subject to the obligations and
restrictions described above, and the Banking Subsidiaries are
subject to the cross-guarantee provisions of the FDIA. However,
management of the Corporation currently does not expect that any of
these provisions will have an impact on the operations of the
Corporation or its Subsidiaries.
Bank holding companies are required to comply with the FRB's
risk-based capital guidelines which require a minimum ratio of
total risk-weighted assets (including certain off-balance sheet
activities, such as standby letters of credit) of 8%. At least
half of the total capital is required to be "Tier I capital",
principally consisting of common shareholders' equity,
noncumulative perpetual preferred stock, and a limited amount of
cumulative perpetual preferred stock, less certain goodwill and
other intangible assets. The remainder ("Tier II capital") may
consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss
allowance. In addition to the risk-based capital guidelines,
the FRB has adopted a minimum leverage capital ratio, under which a
bank holding company must maintain a minimum level of Tier I
capital to average total consolidated assets of at least 3% in the
case of a bank holding company which has the highest regulatory
examination rating and is not contemplating significant growth
or expansion. All other bank holding companies are expected to
maintain a leverage capital ratio of at least 1% to 2% above the
stated minimum.
The following table sets forth the Corporation's regulatory
capital position at December 31, 1994 (for the regulatory capital
positions of the Banking Subsidiaries as of December 31, 1994, see
the discussions below).
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
Actual $110,494 9.46% $118,136 19.37%
Minimum capital standard 35,041 3.00 48,783 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $75,453 6.46% $69,353 11.37%
31
The 1991 Banking Law required each federal banking agency,
including the FRB, to revise its risk-based capital standards
within 18 months of enactment of the statute to ensure that those
standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional
activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. In August 1992,
the FRB, the FDIC, and the Office of the Comptroller of the
Currency issued a joint advance notice of proposed rulemaking,
soliciting comments on a proposed framework for implementing these
revisions. Under the proposal, an institution's assets,
liabilities, and off-balance sheet positions would be weighed by
risk factors that approximate the instruments' price sensitivity
to a 100 basis point change in interest rates. Institutions with
interest rate risk exposure in excess of a threshold level would
be required to hold additional capital proportional to that risk.
The notice also asked for comments on how the risk-based capital
guidelines of each agency may be revised to take account of
concentration and credit risk and the risk of nontraditional
activities. The Corporation is studying the notice. It cannot
assess at this point the impact, if any, the proposal (if
promulgated as a final rule) would have on the capital
requirements of the Corporation or its Banking Subsidiaries.
Under current federal law, transactions between depository
institutions and any affiliate are governed by Section 23A and
23B of the Federal Reserve Act. An affiliate of a depository
institution is any company or entity that controls, is controlled
by or is under common control with the institution. In a holding
company context, the parent holding company of a depository
institution and any companies which are controlled by such parent
holding company are affiliates of the depository institution.
Generally, Sections 23A and 23B (i) limit the extent to
which the depository institution or its subsidiaries may
engage in "covered transactions" with any one
affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such
transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus; and (ii) require that all such
transactions be on terms substantially the same, or at least as
favorable, to the savings institution or the subsidiary as those
provided to a nonaffiliate. The term "covered transaction" includes
the making of loans or other extensions of credit to an affiliate,
the purchase of assets from an affiliate, the purchase of, or
an investment in, the securities of an affiliate, the acceptance of
securities of an affiliate as collateral for a loan or
extension of credit to any person, or issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate. In
addition to the restrictions imposed by Sections 23A and 23B, no
depository institution may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in
activities that are permissible for bank holding companies; or (ii)
purchase or invest in any stocks, bonds, debentures, notes or
similar obligations of any affiliate, except for affiliates that
are subsidiaries of the institution. Further, a bank holding
company and its subsidiaries are generally prohibited from
engaging in certain tie-in arrangements in connection with any
extension of credit, lease, or sale of property or furnishing of
services.
Section 4(i) of the BHCA authorizes the FRB to approve
the application of a bank holding company to acquire any savings
institution under Section 4(c)(8) of the BHCA. In approving such an
application, the FRB is precluded from imposing any restrictions
on transactions between the bank holding company and the acquired
savings institution, except as required by Section 23A or
23B of the Federal Reserve Act or any other applicable law.
Further, the FDIA, as amended by the 1991 Banking Law, authorizes
the merger or consolidation of any BIF member with any SAIF
member, the assumption of any liability by any BIF member to pay any
deposits of any SAIF member or vice versa, or the transfer
of any assets of any BIF member to any SAIF member in consideration
for the assumption of liabilities of such BIF member or vice
versa, provided that certain conditions are met and, in the case of
any acquiring, assuming, or resulting depository institution which
is a BIF member, such institution continues to make payment
of SAIF assessments on the portion of liabilities attributable to
any acquired, assumed, or merged SAIF-insured institution.
32
As a result of the Corporation's ownership of Security Bank,
in 1983 the Corporation was registered under the bank holding
company laws of North Carolina. Accordingly, the Corporation and
the Subsidiaries are also subject to regulation by the North
Carolina Commissioner of Banks (the "N.C. Commissioner"). The
N.C. Commissioner has asserted authority to examine North Carolina
bank holding companies and their affiliates and is in the process
of formulating regulations in this area. Further, as a result of
its ownership of the Savings Banks, the Corporation is also
registered under the savings bank holding company laws of North
Carolina. Thus, it is also subject to regulation and
supervision by the North Carolina Administrator of Savings
Institutions (the "N.C. Administrator").
Security Bank. Security Bank is organized as a North Carolina
chartered commercial bank and is subject to various statutory
requirements and to rules and regulations promulgated and enforced
by the N.C. Commissioner and the FDIC. Security Bank's deposits are
insured by the BIF, except that those deposits acquired through the
merger of First Federal into Security Bank are insured by the SAIF.
North Carolina commercial banks, such as Security Bank, are
subject to legal limitations on the amounts of dividends they are
permitted to pay. Under the 1991 Banking Law an insured depository
institution, such as Security Bank, is prohibited from making
capital distributions, including the payment of dividends, if, after
making such distribution, the institution would become
"undercapitalized" (as such term is defined in the statute).
Based on its current financial condition, the Corporation does not
expect that this provision will have any impact on Security Bank's
ability to pay dividends.
As a North Carolina chartered, FDIC-insured commercial bank
which is not a member of the Federal Reserve System, Security Bank
is subject to capital requirements imposed by the FDIC. Under the
FDIC's regulations, state nonmember banks that (i) receive the
highest rating during the examination process; and (ii) are not
anticipating or experiencing any significant growth, are required to
maintain a minimum leverage ratio of 3% of Tier I capital to total
assets; all other banks are required to maintain a minimum ratio of
1% or 2% above the stated minimum, with a minimum leverage ratio of not
less than 4%. As of December 31, 1994, the leverage ratio of Security Bank was
8.2%.
The following table sets forth Security Bank's regulatory
capital position at December 31, 1994:
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
Actual $53,565 8.20% $57,680 17.56%
Minimum capital standard 19,595 3.00 26,272 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $33,970 5.20% $31,408 9.56%
Security Bank is subject to insurance assessments imposed by
the FDIC. Under current law, as amended by the 1991 Banking Law,
the insurance assessment to be paid by BIF-insured institutions
shall be as specified in a schedule required to be issued by the
FDIC that would specify, at semiannual intervals, target reserve
ratios designed to increase the reserve ratio to 1.25% of estimated
insured deposits (or such higher ratio as the FDIC may determine
in accordance with the statute) in 15 years. Further, the FDIC is
authorized, under the 1991 Banking Law, to impose one or more
special assessments in any amount deemed necessary to enable
repayment of amounts borrowed by the FDIC from the Treasury
Department. Effective January 1, 1993, the FDIC replaced the
uniform assessment rate with a transitional risk-based
assessment
33
schedule which became fully effective in January 1994,
having assessments ranging from 0.23% to 0.31% of an institution's
average assessment base. The actual assessment to be paid by
each BIF member is based on an institution's assessment risk
classification, which is determined based on whether the institution
is considered "well capitalized," "adequately capitalized" or
"under capitalized," as such terms have been defined in applicable
federal regulations adopted to implement the prompt corrective
action provisions of the 1991 Banking Law, and whether such
institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns. See "Impact of
the 1991 Banking Law." Based on the current financial condition
and capital levels of Security Bank, the Corporation does not
expect that the transitional risk-based assessment schedule will
have a material impact on Security Bank's future earnings.
Further, under current federal law, depository institutions
are subject to the restrictions contained in Section 22(h) of the
Federal Reserve Act with respect to loans to directors, executive
officers and principal stockholders. Under Section 22(h), loans
to directors, executive officers and stockholders who own more than
10% of a depository institution (18% in the case of institutions
located in an area with less than 30,000 in population), and
certain affiliated entities of any of the foregoing, may not exceed,
together with all other outstanding loans to such person and
affiliated entities, the institution's loan-to-one-borrower limit as
established by federal law (as discussed below). Section 22(h)
also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers and
shareholders who own more than 10% of an institution, and their
respective affiliates, unless such loans are approved in advance by
a majority of the board of directors of the institution. Any
"interested" director may not participate in the voting. The FRB has
prescribed the loan amount (which includes all other outstanding
loans to such person), as to which such prior board of director
approval is required, as being the greater of $25,000 or 5% of
capital and surplus (up to $500,000). Further, pursuant to
Section 22(h), the FRB requires that loans to directors, executive
officers, and principal shareholders be made on terms
substantially the same as offered in comparable transactions to
other persons.
Security Bank is subject to FDIC-imposed loan-to-one-borrower
limits which are substantially the same as those applicable to
national banks. Under these limits, no loans and extensions of
credit to any borrower outstanding at one time and not fully
secured by readily marketable collateral shall exceed 15% of the
unimpaired capital and unimpaired surplus of the bank. Loans and
extensions of credit fully secured by readily marketable collateral
may comprise an additional 10% of unimpaired capital and
unimpaired surplus. These limits also authorize banks to make
loans-to-one-borrower, for any purpose, in an amount not to exceed
$500,000. As of December 31, 1994, the largest aggregate amount of
loans which Security Bank had to one borrower was $1.9 million. Management
does not believe that any of Security Bank's outstanding loans
violate the applicable loans-to-one-borrower limits or that
these limits will have a significant impact on Security Bank's
business, operations, or earnings.
Regulations promulgated by the FDIC pursuant to the 1991
Banking Law place limitations on the ability of insured depository
institutions to accept, renew, or roll over deposits by offering
rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured
depository institutions having the same type of charter in such
depository institution's normal market area. Under these
regulations, "well capitalized" depository institutions may
accept, renew, or roll such deposits over without restriction;
"adequately capitalized" depository institutions may accept,
renew, or roll such deposits over with a waiver from the FDIC
(subject to certain restrictions on payments of rates); and
"undercapitalized" depository institutions may not accept, renew,
or roll such deposits over. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized", and
"undercapitalized" will be the same as the definition adopted by
the agencies to implement the corrective action provisions of the
1991 Banking Law. See "Impact of the 1991 Banking Law."
Management does not believe that these regulations will have a
materially adverse effect on the current operations of Security
Bank.
34
Security Bank is subject to examination by the FDIC and the
N.C. Commissioner. FSCC, the consumer finance company subsidiary
of Security Bank, is also subject to such examination. In
addition, Security Bank is subject to various other state and
federal laws and regulations, including state usury laws, laws
relating to fiduciaries, consumer credit and equal credit, fair
credit reporting laws and laws relating to branch banking. Security
Bank, as an insured, North Carolina commercial bank, is
prohibited from engaging as a principal in activities that are
not permitted for national banks, unless (i) the FDIC determines
that the activity would pose no significant risk to the appropriate
deposit insurance fund; and (ii) Security Bank is, and continues to
be, in compliance with all applicable capital standards.
Under Chapter 53 of the North Carolina General
Statutes, if the capital stock of a North Carolina commercial bank
is impaired by losses or otherwise, the N.C. Commissioner is
authorized to require payment of the deficiency by assessment upon
the bank's shareholders, pro rata, and to the extent necessary, if
any such assessment is not paid by any shareholder, upon 30 days
notice, to sell as much as is necessary of the stock of such
shareholder to make good the deficiency. The Corporation is the
sole shareholder of Security Bank.
The Savings Banks. The Savings Banks are North
Carolina-chartered savings banks and members of the Federal Home
Loan Bank system (the "FHLB System"). Their deposits are insured
by the FDIC through the SAIF except that those deposits acquired
through the purchase of First Citizens Bessemer City office by
Home Savings are insured by the BIF. They are subject to
examination and regulation by the FDIC and the N.C. Administrator
and to regulations governing such matters as capital standards,
mergers, establishment of branch offices, subsidiary investments and
activities, and general investment authority.
North Carolina enacted the Savings Bank Act, Ch. 54C of
the North Carolina General Statutes ("Chapter 54C"), effective
October 1, 1991. Chapter 54C created a state savings bank ("SSB")
charter. An SSB is a North Carolina chartered financial
institution regulated by the FDIC and the N.C. Administrator, but
not by the OTS, with its deposit accounts insured by either
the SAIF or the BIF of the FDIC. Each of the Savings Banks
converted to an SSB charter on December 1, 1992 (the "Conversions")
in order to reduce the regulatory cost and burden imposed by the
overlapping regulatory jurisdiction of the three agencies under
whose regulation they operated as federal savings banks.
The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") effected a major restructuring
of the federal regulatory scheme applicable to financial
institutions. Among other things, FIRREA abolished the Federal
Home Loan Bank Board and Federal Savings and Loan Insurance
Corporation, many of the previous regulatory functions of which
are now under the control of the OTS and the FDIC. Regulatory
functions relating to deposit insurance and to
conservatorships and receiverships of federally insured financial
institutions, including savings banks, are now exercised by the
FDIC. FIRREA contains provisions affecting numerous aspects of the
operations and regulation of federally insured savings banks and empowers
the FDIC to promulgate regulations implementing the provisions of FIRREA,
including regulations defining certain terms used in the statute
as well as regulations exercising or defining the limits of
regulatory discretion conferred by the statute.
Prior to their Conversions, the Savings Banks were regulated
by the OTS in addition to the FDIC and the N.C. Administrator.
Consequently, they were subject to various operating requirements
and restrictions imposed by the OTS. Additionally, they were
regulated by the N.C. Administrator under North Carolina law as
savings and loan associations rather than as savings banks.
The following discussion sets forth the regulatory requirements and
restrictions to which the Savings Banks became subject upon their
Conversions.
The Savings Banks are subject to insurance assessments imposed
by the FDIC. Under current law, as amended by the 1991 Banking
Law, the insurance assessment paid by SAIF-insured institutions
must be the
35
greater of 0.15% of the institution's average
assessment base (as defined) or such rate as the FDIC, in its
sole discretion, determines to be appropriate to be able to
increase (or maintain) the reserve ratio to 1.25% of estimated
insured deposits (or such higher ratio as the FDIC may determine
in accordance with the statute) within a reasonable period of
time. Through December 31, 1993, the assessment rate could not be
less than 0.23% of the institution's average assessment base,
and from January 1, 1994 through December 31, 1997, the assessment
rate must not be less than 0.18% of the institution's average
assessment base. In each case the assessment rate may be higher
if the FDIC, in its sole discretion, determines such higher
rate to be appropriate. Effective January 1, 1993, the annual
assessment rate is determined pursuant to the transitional
risk-based assessment schedule issued by the FDIC pursuant to the
1991 Banking Law, which imposes assessments ranging from 0.23% to
0.31% of an institution's average assessment base. The actual
assessment to be paid by each SAIF member will be based on the
institution's assessment risk classification, which will be
determined based on whether the institution is considered
"well capitalized," "adequately capitalized", or
"undercapitalized" (as such terms have been defined in federal
regulations adopted to implement the prompt corrective action
provisions of the 1991 Banking Law), and whether such
institution is considered by its supervisory agency to be
financially sound or to have supervisory concerns. See "Impact of
the 1991 Banking Law."
Premiums are established separately for the BIF and the
SAIF. It is currently anticipated that the BIF will be fully funded
in late 1995. At that point, the FDIC has the authority to reduce
the premiums paid under the BIF. The FDIC may not reduce the
premiums for the SAIF until it is fully funded, which is not
anticipated to occur for a number of years. Therefore, if a
premium disparity between the BIF and SAIF develops as anticipated,
there may be a competitive advantage for BIF-insured institutions
over SAIF-insured institutions. The Savings Banks' deposits are
primarily SAIF-insured, as are a portion of the deposits of Security
Bank. Whether a premium disparity will develop, or the precise
effect of any such disparity on the Savings Banks, cannot be
determined at this time.
Upon their Conversions, the Savings Banks ceased to be subject
to the capital requirements of the OTS and became subject to the
capital requirements of the FDIC and the N.C. Administrator. The
FDIC requires each of the Savings Banks to have a minimum leverage
ratio of Tier I capital to total assets of at least 3%; provided,
however, that all institutions, other than those (i)
receiving the highest rating during the examination process; and
(ii) not anticipating or experiencing any significant growth, are
required to maintain a ratio of 1% or 2% above the stated minimum,
with a minimum leverage ratio of not less than 4%. The FDIC also
requires each of the Savings Banks to have a ratio of total
capital to risk-weighted assets of at least 8%. The FDIC leverage
and risk-based capital ratio calculations and components are very
similar to the OTS core capital and risk-based capital
requirements, respectively. The FDIC, however, does not
impose a tangible capital requirement. The N.C. Administrator
requires a net worth equal to at least 5% of total assets. At
December 31, 1994, each of the Savings Banks complied with
the net worth requirements of the N.C. Administrator: OMNIBANK,
12.35%; Citizens, 7.16%; and, Home Savings, 8.16%.
36
The following table sets forth the FDIC regulatory
capital positions of OMNIBANK, Citizens and Home Savings as of
December 31, 1994:
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
Actual $49,952 9.47% $53,639 18.23%
Minimum capital standard 15,830 3.00 23,534 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $34,122 6.47% $30,105 10.23%
The FHLB System provides a central credit facility for member
institutions. As members of the FHLB, each of the Savings Banks
are required to own capital stock in the FHLB of Atlanta in an
amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans, home
purchase contracts and similar obligations at the end of each
calendar year, or 5% of its outstanding FHLB Advances. As of
December 31, 1994, each of the Savings Banks was in compliance with
this requirement.
FIRREA has had the effect of significantly reducing the
dividends that Savings Banks receive on their stock in the FHLB.
FIRREA requires each FHLB to transfer a certain amount of its
reserves and undivided profits to the Resolution Funding
Corporation ("RECORP"), the government entity established to raise
funds to resolve troubled savings association cases, in order to
fund the principal and a portion of the interest on RECORP bonds and
certain other obligations. In addition, FIRREA requires each FHLB
to transfer a percentage of its annual net earnings to the
Affordable Housing Program. That amount will increase from 5% of
the annual net income of the FHLB in 1990 to at least 10% of its
annual net income in 1995 and subsequent years. As a result of
these FIRREA requirements, it is anticipated that the FHLB's
earnings will be reduced and that each of the Savings Banks will
continue to receive reduced dividends on its FHLB of Atlanta stock
in future periods.
FRB regulations adopted pursuant to the Depository
Institutions Deregulation and Monetary Control Act of 1980 require
savings associations and savings banks to maintain reserves
against their transaction accounts (primarily negotiable order of
withdrawal accounts) and certain nonpersonal time deposits. The
reserve requirements are subject to adjustment by the FRB. As of
December 31, 1994, each of the Savings Banks was in compliance with
the applicable reserve requirements of the FRB.
Upon their Conversions, the Savings Banks became subject to
the N.C. Administrator's requirement that the ratio of liquid
assets to total assets equal at least 10%. The computation of
liquidity under North Carolina regulation allows the inclusion
of mortgage-backed securities and investments which, in the judgment
of the N.C. Administrator, have a readily marketable value,
including investments with maturities in excess of five years. On
December 31, 1994, the liquidity ratios of the Savings Banks
exceeded the requirements of the N.C. Administrator and were as
follows: OMNIBANK, 13.28%; Citizens, 33.50%; and, Home Savings,
32.16%.
The Savings Banks also are subject to loan-to-one-borrower
limits which are substantially the same as those applicable to
Security Bank. Additionally, under these limits, a savings bank
is authorized to make loans-to-one-borrower to develop domestic
residential housing units, not to exceed the lesser of $30 million
or 30% of the savings bank's unimpaired capital and unimpaired
surplus, provided that (i) the purchase price of each single-family
dwelling in the development does not exceed $500,000; (ii) the
savings bank is in
37
compliance with its fully phased-in capital
requirements; (iii) the loans comply with the applicable
loan-to-value requirements; (iv) the aggregate amount of loans
made under this authority does not exceed 150% of unimpaired capital
and surplus; and (v) either the savings bank's regulator issues an
order permitting the savings bank to use the higher limit or
the savings bank meets the requirements for "expedited treatment."
A savings bank meets the requirements of "expedited treatment" if,
among other things, it has a composite MACRO rating of 1 or 2, a
CRA rating of satisfactory or better, and has not been notified
by supervisory personnel that it is a problem institution or an
institution in troubled condition. These limits also authorize a
savings institution to make loans-to-one-borrower to finance the sale of
real property acquired in satisfaction of debts in an amount up to 50%
of unimpaired capital and surplus. As North Carolina chartered
savings banks, the Savings Banks are subject under North
Carolina law to the same loans-to-one-borrower restrictions as are
described above. However, if North Carolina
loans-to-one-borrower limitations were to be made less stringent
than the restrictions set forth above, the Savings Banks would
still be subject to the above described restrictions pursuant to
FDIC regulations.
As of December 31, 1994, the largest aggregate amount of
loans which the Savings Banks had to any one borrower was as
follows: OMNIBANK, $3.05 million; Citizens, $1.89 million; and,
Home Savings, $.97 million. None of the Savings Banks had loans
outstanding which management believes violate the applicable
loans-to-one- borrower limits. The Corporation does not
believe that the loans-to-one-borrower limits will have a
significant impact on the Savings Banks' business, operations or
earnings.
The Savings Banks are subject to the same FDIC
regulations as Security Bank regarding the ability of insured
depository institutions to accept, renew, or roll over
deposits offering rates of interest significantly higher than
generally prevailing market rates. Management does not believe
these regulations will have a materially adverse effect on the
current operations of the Savings Banks.
As North Carolina-chartered savings banks, the Savings
Banks are subject to North Carolina law which requires that at
least 60% of their respective assets be investments that qualify
under certain Internal Revenue Service guidelines. As of
December 31, 1994, each Savings Bank was in compliance with the
North Carolina law.
FDIC law and regulations generally provide that
state-chartered savings banks may not engage as principal in any
type of activity, or in any activity in an amount, not permitted for
national banks, or directly acquire or retain any equity
investment of a type or in an amount not permitted for national
banks. The FDIC has authority to grant exceptions from these
prohibitions (other than with respect to non-service corporation
equity investments) if it determines no significant risk to the
SAIF is posed by the amount of the investment or the activity to
be engaged in and if the savings bank is and continues to be in
compliance with fully phased-in capital standards. National banks
are generally not permitted to hold equity investments other than
shares of service corporations and certain federal agency
securities. Moreover, the activities in which service corporations
are permitted to engage are limited to those of service corporations
for national banks.
FIRREA generally prohibits any savings institution (state
or federal) from directly or indirectly acquiring or retaining
any corporate debt security that is not of investment grade
(generally referred to as "junk bonds ). Any savings institution
that held corporate debt securities not of investment grade prior to
August 9, 1989 is required to divest those securities as
quickly as can be prudently done, but in no event later than July
1, 1994, and must file an application setting forth its plans for
divestiture with the FDIC. At December 31, 1994, none of the Savings
Banks owned any corporate debt securities not of investment grade
for which such divestiture would be required. Additionally, FDIC
regulations impose restrictions on the lending limits of
state-chartered savings banks, including percentage limitations on
the total investment in various types of loans, including
limitations which (i) limit total non-residential real estate
loans to 400%
38
of capital; (ii) limit total commercial, corporate,
business, or agricultural loans to 10% of assets; and (iii) limit
total consumer loans, commercial paper, and corporate debt
securities to 35% of assets. Each Savings Bank was in compliance
with such requirements as of December 31, 1994.
FIRREA also generally requires any savings institution
that proposes to establish or acquire a new subsidiary, or to
conduct new activities through an existing subsidiary, to notify the
FDIC at least 30 days prior to the establishment or acquisition of
any subsidiary, or at least 30 days prior to conducting any such new
activity. Any such activities must be conducted in accordance with
the regulations and orders of the FDIC and the N.C. Administrator.
As North Carolina chartered savings banks, the Savings
Banks derive their authority from, and are regulated by, the N.C.
Administrator. The N.C. Administrator has the right to promulgate
rules and regulations necessary for the supervision and
regulation of state savings banks under his jurisdiction and for
the protection of the public investing in such institutions. The
regulatory authority of the N.C. Administrator includes, but is
not limited to, the establishment of reserve requirements; the
regulation of the payment of dividends; the regulation of
incorporators, shareholders, directors, officers, and employees; the
establishment of permitted types of withdrawable accounts and
types of contracts for savings programs, loans, and
investments; and, the regulation of the conduct and management of
savings banks, chartering and branching of institutions, mergers,
conversions, and conflicts of interest. North Carolina law
requires that the Savings Bank maintain federal deposit insurance as
a condition of doing business.
The N.C. Administrator conducts regular annual examinations
of the Savings Banks as well as other state- chartered savings
institutions in North Carolina. The purpose of such
examinations is to assure that institutions are being operated in
compliance with applicable North Carolina law and regulations and in
a safe and sound manner. These examinations are usually conducted
on a joint basis with the FDIC. In addition, the N.C.
Administrator is required to conduct an examination of any
institution when he has good reason to believe the standing and
responsibility of the institution is of doubtful character or
when he otherwise deems it prudent. The N.C. Administrator is
empowered to order the revocation of the license of an institution
if he finds that it has violated or is in violation of any North
Carolina law or regulation and that revocation is necessary in
order to preserve the assets of the institution and protect the
interest of its depositors. The N.C. Administrator has the power
to issue cease and desist orders if any person or institution is
engaging in, or has engaged in , any unsafe or unsound practice or
unfair and discriminatory practice in the conduct of its business or
in violation of any other law, rule, or regulation.
A North Carolina chartered savings bank must maintain net worth
of 5% of total assets and liquidity of 10% of total assets, as
discussed above. Additionally, a North Carolina chartered savings
bank is required to maintain general valuation allowances and
specific loss reserves in the same amounts as required by the
federal regulators.
The Savings Banks are subject to North Carolina law which
requires that at least 60% of their respective assets be
investments that qualify under certain Internal Revenue Service
guidelines. As of December 31,1994, each Savings Bank was in
compliance with this North Carolina law.
A North Carolina chartered stock savings bank may not declare
or pay a cash dividend on, or repurchase any of, its capital stock
if the effect of such transaction would be to reduce the net worth
of the institution to an amount which is less than the
minimum amount required by applicable federal and state
regulations. Accordingly, each of the Savings Banks is prohibited
from making capital distributions, including the payment of
dividends, if, after making such distribution, it would become
"undercapitalized" (as such term is defined in the 1991 Banking
Law).
39
In addition, each of the Savings Banks is also subject to
the restriction that it is not permitted to declare or pay a
cash dividend on or repurchase any of its capital stock if the
effect thereof would be to cause its net worth to be reduced below
the amount for the liquidation account established in connection
with its conversion from mutual to stock form.
Subject to limitations established by the N.C. Administrator,
North Carolina-chartered savings banks may make any loan or
investment or engage in any activity which is permitted to
federally chartered savings institutions. In addition to such
lending authority, North Carolina-chartered savings banks are
authorized to invest funds, in excess of loan demand, in certain
statutorily permitted investments, including but not limited to (i)
obligations of the United States, or those guaranteed by it; (ii)
obligations of the State of North Carolina; (iii) bank demand or
time deposits; (iv) stock or obligations of the federal deposit
insurance fund or FHLB; (v) savings accounts of any savings and
loan association as approved by the board of directors; and (vi)
stock or obligations of any agency of the State of North
or of the United States or of any corporation doing
business in North Carolina whose principal business is to make
education loans.
North Carolina law provides a procedure by which savings
institutions may consolidate or merge, subject to the approval of
the N.C. Administrator. The approval is conditioned upon findings
by the N.C. Administrator that, among other things, such merger
or consolidation will promote the best interests of the members or
shareholders of the merging institutions. North Carolina law
also provides for simultaneous mergers and conversions and for
supervisory mergers conducted by the N.C. Administrator.
Community Reinvestment Act. The Banking Subsidiaries are
subject to the provisions of the CRA. Under the terms of the
CRA, the appropriate federal bank regulatory agency is
required, in connection with its examination of a bank, to assess
the bank's record in meeting the credit needs of the community
served by that bank, including low- and moderate-income
neighborhoods. The regulatory agency's assessment of the bank's
record is made available to the public. Further, such an assessment
is specifically required to be made of any bank which has applied
to (i) charter a national bank; (ii) obtain deposit insurance
coverage for a newly- chartered institution; (iii) establish a new
branch office that will accept deposits; (iv) relocate an office; or
(v) merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally regulated financial institution.
In the case of a bank holding company applying for approval to
acquire a bank or their bank holding company, the Federal Reserve
will assess the records of each subsidiary bank of the applicant
bank holding company, and such records may be the basis for denying
the application.
In December 1993, the federal banking agencies proposed
to revise their CRA regulations in order to provide clearer
guidance to depository institutions on the nature and extent of
their CRA obligations and the methods by which those obligations
will be assessed and enforced. The proposed regulations substitute
for the current process-based CRA assessment factors a new
evaluation system that would rate institutions based on their
actual performance in meeting community credit needs. Under the
proposal, all depository institutions would be subject to three
CRA-related tests: a lending test, an investment test, and a
service test. The lending test, which would be the primary test
for all institutions other than wholesale and limited-purpose banks,
would evaluate an institution's lending activities by comparing
the institution's share of housing, small business, and consumer
loans in low- and moderate-income areas in its service area with its
of such loans in the other parts of its service area. The
agencies would also evaluate the institution's performance
independent of other lenders by examining the ratio of such loans
made by the institution to low- and moderate- income areas to all
such loans made by the institution. At the election of an
institution, the agencies would also consider "indirect" loans
made by affiliates and subsidiaries of the institution as well as
lending consortia and other lenders in which the institution had
made lawful investments.
The focus of the investment test, under which wholesale and
limited-purpose institutions would normally be evaluated, would be
the amount of assets (compared to its risk-based capital) that an
institution has
40
devoted to "qualified investments" that benefit
low- and moderate-income individuals and areas in the institution's
service area. The service test would evaluate an institution
based on the percentage of its branch offices that are located in
or are readily accessible to low- and moderate-income areas.
Smaller institutions, those having total assets of less than $250
million, would be evaluated under more streamlined criteria.
The joint agency CRA proposal provides that an institution
evaluated under a given test would receive one of five ratings
for that test: outstanding, high satisfactory, low
satisfactory, needs to improve, or substantial non-compliance.
The ratings for each test would then be combined to produce an
overall composite rating of either outstanding, satisfactory
(including both high and low satisfactory), needs to improve, or
substantial non-compliance. In the case of a retail-oriented
institution, its lending test rating would form the basis for its
composite rating. That rating would then be increased by up to two
levels in the case of outstanding or high satisfactory
investment performance, increased by one level in the case of
outstanding service, and decreased by one level in the case of
substantial non-compliance in service. An institution found to have
engaged in illegal lending discrimination would be rebuttably
presumed to have a less-than-satisfactory composite CRA rating.
Under the proposal, an institutions's CRA rating will continue
to be taken into account by a regulator in considering various types
of applications. In addition, an institution receiving a rating of
"substantial non- compliance" would be subject of civil money
penalties or a cease and desist order under Section 8 of the FDIA.
Impact of the 1991 Banking Law. The 1991 Banking Law was
signed into law on December 19, 1991. Among other things, the
1991 Banking Law provided increased funding for the BIF and the
SAIF, and provides for expanded regulation of depository
institutions and their affiliates, including parent holding
companies.
The 1991 Banking Law provides authority for special
assessments against insured deposits and for the development of a
general risk-based deposit insurance assessment system which
the FDIC implemented on a transitional basis effective January 1,
1993. Although it is anticipated that the BIF will become fully
funded sometime in 1995 and the funding status of the SAIF has
improved substantially, no assurance can be given at this time as to
what level of assessments against insured deposits will be in the
future.
Effective one year after its enactment, the 1991 Banking Law
provided the federal banking agencies with broad powers to take
corrective action to resolve the problems of insured depository
institutions. The extent of these powers will depend upon
whether the institutions in question are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." In
September 1992, each of the federal banking agencies issued final
uniform regulations to be effective December 19, 1992, which
define such capital levels. Under the final regulations, an
institution is considered "well capitalized" if it has (i) a total
risk-based capital ratio of 10% or greater; (ii) a Tier I risk-based
capital ratio of 6% or greater; (iii) a leverage ratio of 5%
or greater; and (iv) is not subject to any order or written
directive to meet and maintain a specific capital level for
any capital measure. An "adequately capitalized" institution is
defined as one that has (i) a total risk-based capital ratio of 8%
or greater; (ii) a Tier I risk-based capital ratio of 4% or
greater; and (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of an institution with the highest examination
rating). An institution is considered (A) "undercapitalized" if
it has (i) a total risk-based capital ratio of less than 8%; (ii)
a Tier I risk-based capital ratio of less than 4%; or (iii) a
leverage ratio of less than 4% (or 3% in the case of an institution
with the highest examination rating; (B) "significantly
undercapitalized" if the institution has (i) a total risk-based
capital ratio of less than 6%; or (ii) a Tier I risk-based capital
ratio of less than 3%; or (iii) a leverage ratio of less than 3% and
(C) "critically undercapitalized" if the institution has a ratio of
tangible equity to total assets equal to or less than 2%.
41
The 1991 Banking Law also amended the prior law with
respect to the acceptance of brokered deposits by insured depository
institutions to permit only a "well capitalized" (as defined in the
statute as significantly exceeding each relevant minimum capital
level) depository institution to accept brokered deposits without
prior regulatory approval. In June 1992, the FDIC issued final
regulations implementing these provisions regulating brokered
deposits. Under the regulations, "well-capitalized" banks may
accept brokered deposits without restrictions, "adequately
capitalized" banks may accept brokered deposits with a waiver from
the FDIC (subject to certain restrictions on payment of rates),
while "under-capitalized" banks may not accept brokered deposits.
The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "under capitalized" are
the same as the definitions adopted by the agencies to implement the
prompt corrective action provisions of the 1991 Banking Law (as
described in the previous paragraph). The Corporation does not
believe that these regulations have had or will have a material
adverse effect on the current operations of its Banking
Subsidiaries.
The foregoing necessarily is a general description of certain
provisions of the 1991 Banking Law and does not purport to be
. Complete implementation of the 1991 Banking Law through
regulations issued by the various federal banking agencies has not
occurred. The effect of full implementation of the 1991 Banking
Law on the Corporation and its Subsidiaries is not yet ascertainable
in all material respects.
Taxation
Federal Income Taxation. The Corporation files a
consolidated federal income tax return with its Subsidiaries.
The Banking Subsidiaries are subject to the taxing provisions of
the Internal Revenue Code of 1986, as amended ("Code"), for
corporations, as modified by certain provisions of accounting.
Thrift institutions, which qualify under certain definitional
tests and other conditions of the Code, are permitted certain
favorable provisions regarding their deductions from taxable income
for annual additions to their bad debt reserve. A reserve
may be established for bad debts on qualifying real property
loans (generally loans secured by interests in real property
improved or to be improved) under (i) a method based on a
percentage of the institution's taxable income, as adjusted (the
"percentage of taxable income method"); or (ii) a method based on
actual loss experience (the "experience method"). Nonqualifying
loans are computed on the experience method. Prior to 1994, the Savings
Banks generally computed their additions to their reserves using the
percentage of taxable income method.
The percentage of taxable income method is limited to 8% of
taxable income. This method may not raise the reserve to exceed
6% of qualifying real property loans at the end of the year.
Moreover, the additions for qualifying real property loans, when
added to nonqualifying loans, cannot exceed 12% of the amount by
which total deposits or withdrawable accounts exceed the sum
of surplus, undivided profits and reserves at the beginning of the
year. The experience method is the amount necessary to increase the
balance of the reserve at the close of the year to the greater of
(i) the amount which bears the same ratio to loans outstanding at
the close of the year as the total net bad debts sustained during
the current and five preceding years bear to the sum of the loans
outstanding at the close of such six years; or (ii) the balance in
the reserve account at the close of the last taxable year
beginning before 1988 (assuming that the loans outstanding have not
declined since such date).
In order to qualify for the percentage of income method,
an institution must have at least 60% of its assets as "qualifying
assets" which generally include cash, obligations of the U.S.
government or an agency or instrumentality thereof or a state or
political subdivision, residential real estate-related loans, or
loans secured by savings accounts and property used in the
conduct of its business. In addition, it must meet certain other
supervisory tests and operate principally for the purpose of
acquiring savings and investing in loans.
42
Institutions which become ineligible to use the percentage
of income method must change to either the reserve method or the
specific charge-off method that apply to banks. In 1994, the
Savings Banks applied for, and were granted permission by the
Internal Revenue Service, to change their method of accounting to
the specific charge-off method that applies to large banks. In
connection with this change, the Savings Banks recorded a one-time
charge of approximately $5.6 million in 1994 and will be required to
ratably pay the taxes over a six-year period beginning in 1995.
Security Bank has accounted for bad debts using the specific
charge-off method since 1992 when it became a large bank. Large
banks, those generally exceeding $500 million in assets, must
convert to the specific charge-off method. For the tax year ending
December 31, 1992, Security Bank was required to change its method
of accounting from the reserve method to the specific
charge-off method upon the merger of Omni and First Security
Financial Corporation. After the 1992 Merger, the assets of the
consolidated group exceeded $500 million. Security Bank's excess
reserves at December 31, 1991 will be included in income ratably
over a four- year period beginning with the tax year ending December
31, 1992.
In 1994, the Internal Revenue Service examination of the
Corporation's 1992 federal income tax return was settled with no
material impact on the Corporation's financial position or results
of operations. Income tax returns subsequent to 1992 are subject to
examination by the taxing authorities.
State and Local Taxation. Under North Carolina law, the
corporate income tax is 7.75% of federal taxable income as
computed under the Code, subject to certain prescribed
adjustments. In addition, for tax years beginning in 1992, 1993
and 1994, a corporate taxpayer must pay a surtax equal to 3%, 2% and
1%, respectively, of the state income tax otherwise payable by it.
An annual state franchise tax is imposed at a rate of 0.15% applied
to the greatest of the institutions' (i) capital stock, surplus, and
undivided profits; (ii) investment in tangible property in North
Carolina; or (iii) appraised valuation of property in North
Carolina.
Accounting Matters
Accounting by Creditors for Impairment of a Loan. The
FASB has issued SFAS 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 to be implemented prospectively for
fiscal years beginning after December 15, 1994. FASB has also
issued SFAS No. 118 "Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures", that amends SFAS No. 114 to allow a
creditor to use existing methods for recognizing interest income on
an impaired loan and by requiring additional disclosures about
how a creditor recognizes interest income related to impaired loans.
This Standard is to be implemented concurrently with SFAS
No. 114. At this time, management does not anticipate a material
impact to the consolidated financial statements of the Corporation
upon the adoption of these Standards.
Derivative Financial Instruments and Fair Value of Financial
Instruments. The FASB has issued SFAS No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." This Standard requires disclosures about derivative
financial instruments - futures, forward, swap, and option
contracts, and other financial instruments with similar
characteristics. It also amends existing requirements of SFAS No.
105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments." This Standard is required for
financial statements issued for fiscal years ending after December
15, 1994. The Corporation currently does not engage in derivative
transactions.
43
Post-Employment Benefits. In November 1992, the FASB
issued SFAS No. 112, "Employers' Accounting for Post-Employment
Benefits," which requires accrual of the expected cost of providing
post-employment benefits to an employee and employee's
beneficiaries and covered dependents during the years that the
employee renders the necessary services. Such benefits include
salary continuation, supplemental unemployment benefits, severance
benefits, job training and counseling, and continuation of health
care benefits. SFAS No. 112 is effective for fiscal years
beginning after December 15, 1993 and adoption is required on a
prospective basis. The effect of adopting the new guidelines is not
material to the Corporation.
ITEM 2 - PROPERTIES
The Corporation's principal office is located at 507 West
Innes Street, Salisbury, North Carolina 28144. The main
administrative and executive offices of OMNIBANK are also located at
the same address. The executive office of Security Bank is
located at 215 South Main Street, Salisbury, North Carolina 28144;
the executive office of Citizens is located at 31 Union Street
(North), Concord, North Carolina 28082; and, the executive office of
Home Savings is located at 700 West Kings Street, Kings Mountain,
North Carolina 27086.
Of the Corporation's 53 banking, insurance, and consumer
finance locations at December 31, 1994, 48 are located on real
property owned by the related Subsidiary, five of the facilities are
located on leased land and five of the facilities occupy leased
quarters. Security Bank also owns and maintains a facility for
operations, data processing and related activities. During
1994, the Corporation paid aggregate rents of approximately $157,000
for utilization of leased premises.
ITEM 3 - LEGAL PROCEEDINGS
In the opinion of management, neither the Corporation nor any
Subsidiary is involved in any pending legal proceedings other than
routine, non-material proceedings occurring in the ordinary course
of business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Corporation's
shareholders during the quarter ended December 31, 1994.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Corporation's outstanding common stock is qualified for
quotation on the National Market System of the Nasdaq Stock Market,
Inc. under the symbol "SCBC." As of March 3, 1995, the approximate
number of shareholders of record of the Corporation was 3,100.
Common stock market prices and cash dividends are set forth on page
2 of the Annual Report to Shareholders for the year ended
December 31, 1994 (the "Annual Report") and are incorporated herein
by reference. See Item 1 above for potential regulatory
restrictions upon the Banking Subsidiaries' payments of dividends to
the Corporation.
ITEM 6 - SELECTED FINANCIAL DATA
The information contained under the heading "Selected
Financial Data" on page 1 of the Annual Report is incorporated
herein by reference.
44
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information contained on pages 5 through 29 and pages
44 and 45 of Item 1 above and the information contained under the
heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 3 through 6 of the
Annual Report are incorporated herein by reference.
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the
Corporation included in the Annual Report are incorporated herein by
reference:
Annual Report
Page Number
Independent Auditors' Report 28
Consolidated Balance Sheets - December 31, 1994 and 1993 7
Consolidated Statements of Income - Years ended December 31,
1994, 1993, and 1992 8
Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1994, 1993, and 1992 9
Consolidated Statements of Cash Flows - Years ended December
31, 1994, 1993, and 1992 10
Notes to Consolidated Financial Statements 11-27
ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
45
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning
each director of the Corporation:
Director of the
Name Age Corporation Since
Directors Continuing in Office Until 1995:
William C. Kluttz, Jr. 48 1988
F. Taft McCoy, Jr. 63 1985
W. Erwin Spainhour 51 1988*
Jimmy K. Stegall 64 1990
Thomas A. Tate, Sr. 67 1989*
E. William Wagoner 45 1988
James L. Williamson 62 1991*
Directors Continuing in Office Until 1996:
Ralph A. Barnhardt 59 1988*
Lloyd G. Gurley 55 1991
David B. Jordan 58 1988*
William G. Loeblein 69 1988*
J.G. Rutledge, III 69 1983
Carl M. Short, Jr. 45 1992
Miles J. Smith, Jr. 66 1983
Directors Continuing in Office Until 1997:
John A. Barnhardt 58 1988*
Edward A. Brown 66 1984
Henry B. Gaye 66 1988
Dan L. Gray 61 1991*
Ervin E. Lampert, Jr. 59 1988*
Harold Mowery 59 1988*
Fred J. Stanback, Jr. 65 1983
__________________
* Includes years of service as a director of Omni prior to
the 1992 Merger.
The principal occupation or office, as applicable, of
each director and each executive officer of the Corporation, as
well as certain other information with respect to each such
individual, is set forth below. Unless otherwise noted, all such
persons have maintained their respective principal occupations for
at least five years.
46
Directors
JOHN M. BARNHARDT is the President and Chief Executive
Officer of Barnhardt, Walker & Strickland, Inc., Concord, North
Carolina, a company engaged in advertising and public
relations. Mr. Barnhardt is also a director of Citizens. Mr.
Barnhardt is not related to Ralph A. Barnhardt.
RALPH A. BARNHARDT is a Vice-Chairman of the Board of
Directors, a position he has held since the 1992 Merger, and is
also the Chairman of the Board of Directors, President and Chief
Executive Officer of Citizens. Mr. Barnhardt was Chairman of the
Board of Directors of Omni prior to the 1992 Merger. Mr. Barnhardt
is also a director of OMNIBANK, Security Bank and Home Savings.
He is a past Chairman of the North Carolina Community Bankers
Association. Mr. Barnhardt is not related to John M. Barnhardt.
EDWARD A. BROWN is the President and Treasurer of W.A.
Brown & Son, Inc., Salisbury, North Carolina, a manufacturer of
refrigeration units. Mr. Brown is also a director of Security Bank.
HENRY B. GAYE is the President of Gaye Chevrolet,
Inc., Marshville, North Carolina, an automobile dealership. Mr.
Gaye is also a director of Security Bank.
DAN L. GRAY is the Executive Director of The Cannon
Foundation, Inc., Concord, North Carolina, a charitable foundation.
Mr. Gray is also a director of Citizens.
LLOYD G. GURLEY has been the President of the Corporation
and Security Bank since August 20, 1990, and has been the Chief
Executive Officer of Security Bank since April 17, 1991. He was
Chief Executive Officer of the Corporation from April 17, 1991 until
the 1992 Merger (as of the 1992 Merger he became Chief
Administrative Officer of the Corporation, as well as its
President). Prior to August 20, 1990, Mr. Gurley was a Senior Vice
President of Wachovia Bank of North Carolina, N.A. in Durham, North
Carolina. Mr. Gurley is also a director of OMNIBANK, Citizens, Home
Savings and Security Bank.
DAVID B. JORDAN is a Vice-Chairman of the Board of
Directors and the Chief Executive Officer of the Corporation, and
is also the President, Chief Executive Officer and a director of
OMNIBANK. He is also a director of Citizens, Home Savings and
Security Bank, and is a past Chairman of the North Carolina
Community Bankers Association. Prior to the 1992 Merger, Mr.
Jordan was President and Chief Executive Officer of Omni. Mr. Jordan
is a director of the Charlotte branch of the Federal Reserve Bank of
Richmond.
WILLIAM C. KLUTTZ, JR. is a partner in the law firm of
Kluttz, Reamer, Blankenship & Hayes, Salisbury, North Carolina.
Mr. Kluttz's law firm received fees during the Corporation's fiscal
year ended December 31, 1994, and has also received fees from
that date to the present for certain legal work performed for
Security Bank. Mr. Kluttz is also a director of Security Bank.
ERVIN E. LAMPERT, JR. is the retired President of R.W.
Norman Company, Salisbury, North Carolina, a company engaged in the
manufacture of home furnishings. Mr. Lampert is also a director of
OMNIBANK.
WILLIAM G. LOEBLEIN is the retired President of Loeblein
Brothers, Inc., Salisbury, North Carolina, a manufacturer of
upholstered furniture. Mr. Loeblein is also Chairman of the Board
of Directors of OMNIBANK.
F. TAFT McCOY, JR. is the owner of McCoys Realty,
Albemarle, North Carolina, and is an independent securities broker.
Formerly, Mr. McCoy was an independent contractor/securities broker
for
47
J. Lee Peeler & Co., Durham, North Carolina, and was Branch
Manager, Social Security Administration, Albemarle, North Carolina.
He is also a director of Security Bank.
HAROLD MOWERY is Vice President of Wagoner Construction
Company, Salisbury, North Carolina, a company engaged in the
commercial and industrial construction business. Mr. Mowery is also
a director of OMNIBANK.
J.G RUTLEDGE, III was the Chairman of the Board of
Directors and Chief Executive Officer of the Corporation and
Security Bank until April 17, 1991, and also was the President of
the Corporation and Security Bank until August 20, 1990. Mr.
Rutledge served as a consultant to Security Bank from April 17, 1991
until April 30, 1992. He is also a director of Security Bank.
CARL M. SHORT, JR. is a partner in the law firm of
Woodson, Ford, Sayers, Lawther, Short, Parrott & Hudson, Salisbury,
North Carolina. Mr. Short's law firm received fees during the
Corporation's fiscal year ended December 31, 1994, and has
received fees from that date to the present for certain legal work
performed for OMNIBANK. Mr. Short is also a director of OMNIBANK.
MILES J. SMITH, JR. is the Chairman of the Boards of
Directors of the Corporation and Security Bank. He is also a
director of Citizens, OMNIBANK and Home Savings. He is the
Chairman of the Board of Directors of Premtec, Inc., China Grove,
North Carolina, a manufacturer of industrial rubber products, and
of Hand Held Products, Inc., a manufacturer of portable data
analysis and storage systems, and is a private investor.
W. ERVIN SPAINHOUR is the President of the law firm of
Hartsell, Hartsell & Mills, P.A., Concord, North Carolina. Mr.
Spainhour's law firm received fees during the Corporation's fiscal
year ended December 31, 1994, and has received fees from that
date to the present for certain legal work performed for Citizens.
Mr. Spainhour is also a director of Citizens.
FRED J. STANBACK, JR. is a private investor in
Salisbury, North Carolina. He is also a director of Security Bank.
JIMMY K. STEGALL is the President of Stegall Builders Mart,
Inc., Marshville and Monroe, North Carolina, a retail building
supply company. Mr. Stegall is also a director of Security Bank.
THOMAS A. TATE, SR. was Chief Executive Officer of Home
Savings until December 31, 1992 and continues to hold the office of
President. Mr. Tate is also Chairman of the Board of Directors of
Home Savings.
E. WILLIAM WAGONER is the Chairman of the Board of
Directors and the President of Wagoner Construction Company,
Salisbury, North Carolina, a company engaged in the commercial and
industrial construction business. Mr. Wagoner is also a director of
Security Bank.
JAMES L. WILLIAMSON is a retired audit partner of KPMG
Peat Marwick, certified public accountants, a position held from
1970 until June 1990. Mr. Williamson is also a director of Home
Savings.
48
The following table sets forth certain information concerning
each executive officer of the Corporation:
Year
First
Name Age Position Appointed
Ralph A. Barnhardt 59 Vice-Chairman 1992
Lloyd G. Gurley 55 President and Chief Administrative Officer 1990
David B. Jordan 58 Vice-Chairman and Chief Executive Officer 1992
Pressley A. Ridgill 42 Senior Vice-President, Treasurer and
Chief Financial Officer 1992 1
Edward K. Prewitt, Jr. 48 Senior Vice-President and Secretary 1992 2
______________________
1
Mr. Ridgill is a certified public accountant.
He was the Vice-President and Chief Financial Officer of Omni
from February 1989 until the 1992 Merger. Previously,
he was a senior manager with KPMG Peat Marwick, an
independent public accounting firm. Mr. Ridgill is also a
Vice-President and Chief Financial Officer of Citizens, Home
Savings, OMNIBANK and Security Bank.
2
Mr. Prewitt is a certified public accountant. He
is also a Vice-President and Chief Operating Officer of
Citizens. He was a director of Omni until January 1990
when he resigned to become an executive officer of Omni and
Citizens. Previously, he was the treasurer and chief
financial officer of Morrison Brothers, Inc., a company
engaged in the building supply business.
Compliance With Section 16(a) Of The Securities Exchange
Act Of 1934. Section 16(a) of the Securities Exchange Act of 1934
(the "1934 Act") requires the Corporation's executive officers and
directors, and persons who own more than ten percent of the
Corporation's Common Stock , to file reports of ownership and
changes in ownership with the SEC. Executive officers,
directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Corporation with copies
of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms
furnished to the Corporation and written representations from
the Corporation's executive officers and directors, the Corporation
believes that during the year ended December 31, 1994, its
executive officers and directors complied with all applicable
Section 16(a) filing requirements.
ITEM 11 - EXECUTIVE COMPENSATION
Director Compensation. Each member of the
Corporation's Board of Directors, except those who are employees of
the Corporation, receive an annual retainer of $2,500, a fee of
$625 for each Board meeting attended, a fee of $325 for each
meeting of a committee of the Board attended, and are entitled to
receive reimbursement for travel expenses incurred in
connection with all Board and committee meetings. Miles J. Smith,
Jr., Chairman of the Board, receives an additional retainer
of $600 per month. Directors of the Corporation, except those
who are employees of the Corporation, who also serve as
directors of a Banking Subsidiary are paid a retainer of $2,500, a
fee of $625 for each Board meeting attended, and a fee of $250 for
each meeting of a committee of the Board attended. Directors of the
Corporation, except those who are employees of the Corporation,
who also serve as directors of non-banking subsidiaries are
compensated for such services at a rate of $100 per meeting.
The Corporation maintains a Directors' Deferred
Compensation Plan. Under this Plan, each director of the
Corporation and Security Bank may elect to defer some or all of
the compensation received by him as a director. All amounts
deferred are credited to his Plan account, are conveyed to trusts
created
49
under the Plan and are deemed to earn income each quarter at the
average yield for the second month of such quarter of three- year
U.S. Treasury obligations (constant maturity) as reported by the
Federal Reserve (the "Average Yield"). In the event that the actual
earnings of a trust for such quarter are less than the Average
Yield, the creator of the trust (e.g., Security Bank as the
creator of the trust for Security Bank directors) contributes to the
trust the difference between the actual earnings and the Average
Yield. Amounts credited to a director's Plan account and held in
the applicable trust are distributed to him or his estate in
monthly installments, beginning on the first day on the month
following his retirement as a director, death or disability, over a
period of ten or fifteen years (depending on whether the
director has retired, is deceased or has become disabled). In
the event of a "change in control" (as defined in the Plan) of
the Corporation, in certain circumstances the directors would
receive payment of all amounts credited to their Plan accounts in a
lump sum.
Executive Compensation. The following table sets
forth a summary of the compensation received by David B. Jordan, the
Corporation's Chief Executive Officer, Ralph A. Barnhardt, Lloyd G.
Gurley and Pressley A. Ridgill from the Corporation and its
subsidiaries during the years ended December 31, 1994, 1993 and
1992. Messrs. Jordan, Barnhardt and Ridgill first became officers on
June 10, 1992 as a result of the 1992 Merger.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other Restricted Securities
Name and Year Annual Stock Underlying LTIP All Other
Principal Ended Compensation Awards Options/ Payouts Compensation
Position December 31, Salary Bonus($) ($) ($) SARs ($) ($)
David B. Jordan, 1994 $193,836(5) $ 0(12) $-0- $-0- -0- $-0- $ 6,430(20)
Vice Chairman 1993 174,257(5) 141,995(12) -0- -0- -0- -0- 23,749(20)
and Chief 1992 80,000(6) 32,000(13) -0- -0- -0- -0- 20,242(20)
Executive
Officer (1)
Ralph A. 1994 $128,685(7) $ 0(14) $-0- $-0- -0- -0- $ 3,100(21)
Barnhardt, 1993 154,940(7) 67,968(14) -0- -0- -0- -0- 17,739(21)
Vice-Chairman(2) 1992 59,724(8) 24,000(15) -0- -0- -0- -0- 12,071(21)
Lloyd G. Gurley, 1994 $167,568(9) $ 0(16) $-0- $-0- -0- -0- $ 6,430(22)
President 1993 160,516(9) 84,509(16) -0- -0- -0- -0- 12,656(22)
and Chief 1992 162,678(9) 50,000(17) -0- -0- -0- -0- 9,029(23)
Administrative
Officer (3)
Pressley A. 1994 $105,000(10) $10,000(16) $-0- $-0- -0- -0- $ 326(24)
Ridgill, 1993 108,101(10) 38,020(18) -0- -0- -0- -0- 8,539(24)
Senior Vice- 1992 62,786(11) 9,200(19) -0- -0- -0- -0- 7,061(24)
President and
Treasurer and
Chief Financial
Officer (4)
_______________
(1) Mr. Jordan is also the President and Chief
Executive Officer of OMNIBANK.
(2) Mr. Barnhardt is also the Chairman, President
and Chief Executive Officer of Citizens.
(3) Mr. Gurley is also the President and Chief
Executive Officer of Security Bank.
50
(4) Mr. Ridgill is also a Vice-President and
Chief Financial Officer of Security Bank,
OMNIBANK, Citizens and Home Savings.
(5) Includes salary received by Mr. Jordan
from OMNIBANK. Also includes deferred
compensation.
(6) Includes salary received by Mr. Jordan from the
Corporation and OMNIBANK during the period from
July 1, 1992 through December 31, 1992. Also
includes deferred compensation.
(7) Includes salary received by Mr. Barnhardt from
Citizens.
(8) Includes salary received by Mr. Barnhardt
from the Corporation and Citizens during the
period from July 1, 1992 through December 31,
1992.
(9) Includes salary received by Mr. Gurley
from Security Bank. Also includes deferred
compensation.
(10) Includes salary received by Mr. Ridgill from
First Cabarrus Corporation, a wholly-owned
subsidiary of the Company ("FCC") that was
dissolved in 1994.
(11) Includes salary received by Mr. Ridgill
from FCC during the period from July 1, 1992
through December 31, 1992.
(12) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan.
(13) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan for the
period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under
the Plan prior to the 1992 Merger.
(14) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan.
(15) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan for the
period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under
the Plan prior to the 1992 Merger.
(16) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan.
(17) Includes bonuses accrued under an Executive
Management Compensation Plan.
(18) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan.
(19) Includes bonuses accrued under the Executive
Management Incentive Compensation Plan for the
period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under
the Plan prior to the 1992 Merger.
51
(20) Includes premiums paid by the Corporation or
one of its subsidiaries with respect to term
life insurance for the benefit of Mr. Jordan
and contributions allocated to Mr. Jordan's
accounts under the ESOP and the Incentive Plan
(or, in 1992, the Profit Sharing Plan).
(21) Includes premiums paid by the Corporation or
one of its subsidiaries with respect to term
life insurance for the benefit of Mr.
Barnhardt and contributions allocated to Mr.
Barnhardt's accounts under the ESOP and
the Incentive Plan (or, in 1992, the Profit
Sharing Plan).
(22) Includes premiums paid by the Corporation or
one of its subsidiaries with respect to term
life insurance for the benefit of Mr.
Gurley and contributions made to Mr. Gurley's
accounts under the Incentive Plan.
(23) Includes premiums paid by the Corporation or
one of its subsidiaries with respect to term
life insurance for the benefit of Mr.
Gurley, contributions allocated to Mr. Gurley's
accounts under the Security Bank Profit
Sharing Plan (described below), and a moving
allowance granted to Mr. Gurley.
(24) Includes contributions allocated to Mr.
Ridgill's accounts under the ESOP and the
Incentive Plan (or, in 1992, the Profit Sharing
Plan).
The following table sets forth certain information
concerning options to purchase Common Stock held by Messrs.
Jordan, Barnhardt, Gurley and Ridgill during the year ended
December 31, 1994 and the value of unexercised options as of
December 31, 1994. Messrs. Jordan, Barnhardt and Ridgill held
options to acquire shares of Omni's common stock which, pursuant
to the Merger, were converted into options to acquire shares of the
Corporation's Common Stock.
AGGREGATED OPTIONS/SAR EXERCISED IN 1994 AND
DECEMBER 31, 1994 OPTIONS/SAR VALUE
(a) (b) (c) (d) (e)
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Number of December 31, 1994(1) December 31, 1994 (2)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
David B. Jordan -0- -0- 75,500 $836,382
Ralph A. Barnhardt -0- -0- 84,375 949,106
Lloyd G. Gurley -0- -0- 30,000 108,750
Pressley A. Ridgill -0- -0- 30,937 360,286
_______________
(1) All options listed are currently exercisable except those
of Mr. Gurley.
(2) Calculated using the average of the bid and ask quotations
for the Corporation's Common Stock as reported by the National
Market System of The Nasdaq Stock Market, Inc. for December 31,
1994 and the average exercise price of the options.
Pension and Retirement Plans. Prior to the 1992 Merger,
Omni maintained an Employees' Pension Plan and Security Bank
maintained a Retirement Plan. These Plans were continued by the
Corporation as separate plans from July 1, 1992 through December
31, 1992, with the former employees of Omni and the employees of
its former subsidiaries, including OMNIBANK, Citizens and
Home Savings, continuing participation in the Omni Pension Plan,
and the employees of Security Bank and its subsidiary prior to
the
52
1992 Merger continuing participation in the Security Bank
Retirement Plan. Effective January 1, 1993, these Plans were
merged into a single Employees' Pension Plan (the "Pension Plan").
The Pension Plan covers all employees of the Corporation
and its subsidiaries who were participants in the Omni and
Security Bank Plans on December 31, 1992, and all employees of
the Corporation and its subsidiaries who thereafter complete
one year of service and attain the age of 21. Messrs.
Jordan, Barnhardt, Gurley and Ridgill are participants in the
Pension Plan. Upon the later of age 65 and the fifth anniversary
of an employee's participation in the Pension Plan, and
subject to certain limitations, the employee is entitled to
receive monthly 1/12 of the sum of (i) his accrued benefits as of
December 31, 1992 under the Omni or Security Bank Plans, if any;
(ii) 2% of his "final average compensation" (as defined under the
Pension Plan) for the first five years of credited service
beginning on or after January 1, 1993; (iii) 1% of his "final
average compensation" for his next 30 years of credited service, if
any; and (iv) .65% of the excess of his "final average
compensation" over the applicable Social Security Covered
Compensation in effect at the beginning of the plan year in
which the employee reaches age 65 multiplied by the employee's
years of service (up to a maximum of 35 years). Social Security
Covered Compensation consists of the average (without indexing)
of the taxable wage bases in effect during the 35 year period
ending with the last day of the calendar year in which the
employee attains or will attain Social Security retirement age.
Generally, early retirement, with reduced monthly benefits, is
available at age 55 after five years of service. Accrued benefits
under the Pension Plan, other than those accrued benefits under
the Omni and Security Bank Plans which became vested upon the
adoption of the Pension Plan, are 100% vested upon the completion
of five years of service. However, the accrued benefits of an
employee who becomes disabled prior to qualifying to receive
monthly benefits upon normal or early retirement are vested, and
the disabled employee is entitled to receive monthly benefits at
a reduced rate or, in certain circumstances, a lump sum payment of
the present value of his benefits.
The following table sets forth the estimated annual
benefits payable under the Pension Plan, based upon payment of a
term certain and life annuity to participants at normal
retirement age, in the final average compensation and years of
service classifications specified. Because the applicable Social
Security Covered Compensation for purposes of the benefit
formula depends upon the age of the participant, the estimated
annual benefits payable are computed assuming the participant is
age 65. The estimated benefits listed below are not subject to
any deduction for Social Security or other offset amounts. As of
December 31, 1994, final average compensation for purposes
of computing benefits under the Pension Plan of the Corporation's
executive officers named in the Summary Compensation Table
were as follows: Mr. Jordan, $149,663; Mr. Barnhardt, $149,050;
Mr. Gurley, $127,583; and Mr. Ridgill, $109,311. At age 65,
Messrs. Jordan, Barnhardt, Gurley and Ridgill are expected
to have completed nine, eight, twelve and 24 years, respectively,
of service.
Final Average Years of Service
Annual Compensation 10 15 20 25 30 35
$100,000 $19,823 $27,235 $34,646 $42,058 $49,469 $56,881
125,000 25,198 34,672 44,146 53,620 63,094 72,568
150,000 30,573 42,110 53,646 65,183 76,719 88,256
175,000 30,573 42,110 53,646 65,183 76,719 88,256
200,000 30,573 42,110 53,646 65,183 76,719 88,256
225,000 30,573 42,110 53,646 65,183 76,719 88,256
Employee Stock Ownership and Profit Sharing Plans. Prior
to the Merger, Omni maintained an Employee Stock Ownership Plan
(the "ESOP") for the benefit of employees of Omni and its
subsidiaries, and Security Bank maintained a profit sharing
plan for its employees (the "Profit Sharing Plan"). The ESOP was
adopted and continued by the Corporation upon the 1992
Merger. The Corporation continues to make nominal
contributions to the ESOP. The Profit Sharing Plan was
continued through December 31, 1992, and a contribution was
made to that Plan by Security Bank for the year then ended. The
53
Corporation established an Employees' Incentive Profit Sharing
and Savings 401(k) Plan, effective January 1, 1993 (the
"Incentive Plan"), for the benefit of its and its subsidiaries'
employees. As of January 1, 1993, the Corporation and its
subsidiaries began making contributions to the Incentive Plan.
Employees may participate in the Incentive Plan upon
the later of the attainment of age 21 and one year of service.
Subject to certain limitations, a participant may elect to defer
from 2% to 10% of his total annual compensation (whether taken
in cash or otherwise deferred by the employee). Also, subject to
certain limitations, the employer of the participant contributes
to the participant's Incentive Plan account an amount equal to
one-half of the first 6% of total annual compensation deferred by
the participant. The employer may also contribute annually to the
trust maintained under the Incentive Plan for the benefit of the
Incentive Plan accounts of all participants such "profit sharing"
amount, within certain limitations, as the Board of Directors may
deem advisable. Messrs. Jordan, Barnhardt, Gurley and Ridgill are
participants under the Incentive Plan.
A participant is at all times fully vested in the
accrued benefits attributable to compensation deferred by him
under the Incentive Plan. He is vested in increments of 20% on
each of the first through fifth anniversaries of his
participation in the Incentive Plan, and remains fully vested
after the fifth anniversary, in the accrued benefits
attributable to employer matching contributions and profit
sharing contributions made for the benefit of his accounts.
Generally, upon a participant's retirement at age 65, he is
entitled to receive his accrued benefits (all compensation
deferred by the participant and employer contributions and profit
sharing contributions attributable to his Incentive Plan accounts,
plus or minus all income, losses, appreciation, depreciation and
forfeitures, if applicable, attributed to such accounts) under the
Incentive Plan in a lump sum or, at the request of the
participant, in substantially equal quarterly or annual
installments over a fixed period of time or by the purchase
of a term certain, nontransferable annuity. Early retirement at
age 55 and after five years of service is permitted under the
Incentive Plan, with payment of accrued benefits under the
methods described in the preceding sentence. Upon death or
disability, a participant is fully vested in his accrued
benefits, with payment of such benefits being made to the spouse,
or other beneficiary, of the deceased participant or to the
disabled participant under the above-described methods.
Executive Management Incentive Compensation Plan. In
connection with the 1992 Merger, the Executive Management
Incentive Compensation Plan (the "Management Incentive Plan")
maintained by Omni was adopted and continued by the Corporation
for eligible senior management officers of the Corporation and its
operating subsidiaries. Pursuant to the Management Incentive
Plan, participants are eligible to be paid annual incentive
awards based on (i) the realization of certain financial goals by
the Corporation and its financial institution subsidiaries, as
established annually by the Chief Executive Officer and
Compensation and Personnel Committee of the Board of
Directors; and (ii) an evaluation of the participant's
individual performance and management skills. In addition,
in the discretion of the Compensation and Personnel Committee,
other employees of the Corporation and its subsidiaries are
eligible to participate in this Plan. Such participants are
selected based on outstanding contribution to operational and
strategic objectives of the Corporation. Participants are not
entitled to receive an incentive award for a fiscal year in excess
of 75% of their respective salaries. Incentive awards for a
fiscal year are accrued as of that year and paid to the
participants the following fiscal year.
Employment Agreements. David B. Jordan and Ralph
A. Barnhardt each entered into an employment agreement with Omni
effective December 19, 1988. These agreements were adopted
and continued by the Corporation pursuant to the 1992 Merger. In
addition, Mr. Jordan has an employment agreement with OMNIBANK,
effective December 19, 1988, with a current base salary of
$193,836 per annum, and Mr. Barnhardt has an employment contract
with Citizens, effective December 19, 1988, with a current base
salary of $128,685 per annum. Each of these agreements extend
through the end of 1997.
54
Each of these employment agreements contains a covenant
not to compete with the Corporation or its subsidiaries within any
county in which the Corporation or its subsidiaries does business
for the term of the agreement and for two years after
termination of such agreement, except in the case of termination
without cause, as defined therein, by the employer
thereunder. All salaries under the employment agreements are
subject to review and increase annually by the Boards of Directors
of the respective employers.
The employment agreements of Messrs. Jordan and
Barnhardt may be terminated for "cause" (as defined therein) by
the employer thereunder or upon 60 days' notice by the
employee. Each employment agreement provides that if the
employee is terminated or the nature of his duties is diminished
after a "change in control" (as defined therein) of the
Corporation that has not been approved in advance by a two-thirds
vote of all directors of the Corporation, or if the employee
voluntarily terminates his employment upon certain changes in the
employee's rights or duties after a change in control,
whether or not approved by the directors of the Corporation
(including a relocation requiring the employee to change his
permanent residence), he will be entitled to receive his base
salary for each year remaining under the agreement (which base
salary shall automatically be increased 5% per annum) and annual
bonuses for the remainder of the term of the agreement at least
equal to 30% of his base salary. The employee also will continue
to be eligible to participate in other benefit plans of the
employer for the remainder of the term of the agreement. Finally,
upon such a change in control that has not been so approved,
the then remaining term of the agreement is automatically extended
for a five-year period.
Mr. Gurley entered into five year employment
agreements with the Corporation and Security Bank, effective July
1, 1992, at a current base salary of $167,568 per annum. Each
of Mr. Gurley's agreements contains covenant not to compete,
salary review and increase, and termination provisions which are
the same as those contained in the employment agreements of
Messrs. Jordan and Barnhardt; provided, however, that each of Mr.
Gurley's agreements state that upon termination of the agreements
by the employer, Mr. Gurley shall be entitled to receive the
greater of (i) the compensation and benefits payable under the
agreement for the remainder of its term; and (ii) the severance
payment offered by the employer in its notice of termination.
In 1988, Mr. Ridgill entered into an employment
agreement with OMNIBANK which provides that Mr. Ridgill's
employment shall continue for a period of one year from the
date that he receives notice of the termination of the
agreement. The current base salary under this agreement is
$105,000. The employment agreement contains a covenant not to
compete with the Corporation (as the successor of Omni) or any of
its subsidiaries within any county in which the Corporation or its
subsidiaries does business for the term of the agreement and for
one year thereafter, except in the case of termination without
"cause," as defined therein, by OMNIBANK. Mr. Ridgill's
salary under the agreement is subject to annual review by
OMNIBANK's Board of Directors. Under the agreement, Mr. Ridgill
is entitled to participate in the Management Incentive Plan at a
specified rate, and also is entitled to participate in other
management and employee benefit plans that the Corporation or
OMNIBANK may from time to time adopt.
Deferred Compensation Agreements. Messrs. Jordan,
Barnhardt and Gurley are each participants in the Corporation's
Senior Management's Deferred Compensation Plan. Under this
Plan, an eligible employee may elect to defer up to 40% of
his annual "compensation" (as defined in the Plan). The amount
deferred, together with an additional amount equal to the
amount that would have been contributed to the employee's Incentive
Plan account but for the employee's election to defer a portion of
his "compensation," are credited to his Plan accounts, are
conveyed to a trust created under the Plan by his employer and are
deemed to earn income each quarter at the Average Yield.
Generally, in the event that the actual earnings of the trust for a
quarter are less than the Average Yield for that quarter, the
creator of the trust contributes to the trust the difference
between the actual earnings and the Average Yield. With regard to
Messrs.
55
Jordan and Gurley, the Plan provides that the amounts
credited to their Plan accounts are deemed to earn income each
quarter at a rate equal to the average percentage yield for
the second month of such quarter reported by Moody's Industrial
News Reports for AAA-rated corporate bonds rather than at the
Average Yield.
Upon an employee's retirement, total and permanent
disability, death or other termination of employment, he is
entitled to receive all amounts credited to his Plan accounts in
monthly installments over a period of 10 or 15 years (depending
upon the cause of the termination of employment). During this
period, the unpaid balances remaining in the accounts continue to
earn income as described above. In the event of a "change in
control" (as defined in the Plan) of the Corporation, in
certain circumstances participating employees would receive payment
of all amounts credited to their Plan accounts in a lump sum.
Stock Option Plans. Prior to the 1992 Merger, Omni
maintained the Option Plans. The Option Plans were adopted by
the Corporation pursuant to the 1992 Merger, although no options
currently are being granted under these Plans, and all options
outstanding under the Option Plans to acquire Omni common stock
were converted into options to acquire the Corporation's Common
Stock.
Incentive Stock Option Plan. The Corporation has
continued in effect Omni's 1988 Incentive Stock Option Plan (the
"Incentive Stock Option Plan"), pursuant to which the Board of
Directors may grant options to acquire Common Stock of the
Corporation to a maximum of 35 key employees of the Corporation
or its subsidiaries. Criteria to determine which key employees
will be granted options under this Plan include the duties of the
respective employees, their current and potential
contributions to the success of the Corporation and its
subsidiaries and the anticipated number of years of effective
service remaining. Under the Plan, which is intended to qualify
under the provisions of Section 422 of the Internal Revenue Code,
the price at which shares subject to options may be purchased
must be at least 100% (110% for 10% shareholders) of the fair
market value of the Common Stock on the date of grant of the
option. The options, which may be for terms of up to ten
years (five years for 10% shareholders) are not transferable
and, with certain exceptions relating to death, disability and
retirement, are exercisable only while the optionee is employed by
the Corporation or a subsidiary of the Corporation. No
options have been granted under this Plan subsequent to the 1992
Merger.
Non-Qualified Option Plan. The Corporation also has
continued in effect Omni's Directors' Non- Qualified Stock Option
Plan (the "Non-Qualified Option Plan"), pursuant to which persons
who were directors of Omni and certain of its subsidiaries
and who were not employees of Omni or its subsidiaries could be
granted options to purchase shares of Omni common stock.
No director who received options under the Incentive Stock Option
Plan or under the stock option plans of OMNIBANK (discussed
below) was eligible to receive options under the Plan. Under
this Plan, the price at which shares subject to option could be
purchased was equal to the fair market value of such shares
on the date of the grant of the option. The options, which are
for terms of five years, are not transferable and, with certain
exceptions relating to death or retirement, are exercisable only
while the optionee is a director of the Corporation or one of its
subsidiaries. No options have been granted under this Plan
subsequent to the 1992 Merger.
OMNIBANK Option Plans. In addition, the Corporation
has assumed the obligations of Omni to issue shares pursuant to
the exercise of options previously granted by OMNIBANK under its
1988 Incentive Stock Option Plan (the "OMNIBANK Incentive Option
Plan") and its Amended and Restated 1988 Directors' Non-Qualified
Stock Option Plan (the "OMNIBANK Non-Qualified Option Plan"), both
of which plans were maintained by OMNIBANK prior to OMNIBANK
becoming a wholly-owned subsidiary of Omni in December 1988. The
OMNIBANK Incentive Option Plan and the OMNIBANK Non-Qualified
Option Plan are identical in all material respects to the
Incentive Option Plan and the Non-
56
Qualified Option Plan, respectively. No more options may be
granted under the OMNIBANK Incentive and Non-Qualified Option
Plans.
1994 Omnibus Plan. Under the Omnibus Plan, the
Plan Committee may grant eligible participants options to acquire
shares of the Corporation s Common Stock, awards of rights to
receive restricted shares of Common Stock, awards of long
term incentive units (each equivalent in value to one shares of
Common Stock), and/or awards of stock appreciation rights (each
equivalent to the cash value of one share of Common Stock).
These options and awards are referred to herein as the Rights.
All Rights must be granted or awarded on or before April 28, 2004.
The Corporation initially has reserved 300,000 shares of
Common Stock for issuance pursuant to Rights (as defined below)
granted under the Omnibus Plan. In the event the outstanding
shares of the Corporation's Common Stock are increased, decreased,
changed into or exchanged for a different number or kind of
securities as a result of a stock split, reverse stock split,
stock dividend, recapitalization, merger, share exchange
acquisition, or reclassification, appropriate proportionate
adjustments will be made in (i) the aggregate number or kind of
shares which may be issued pursuant to exercise of, or which
underlie, Rights; (ii) the exercise or other purchase price, or
base value, and the number and/or kind of shares acquirable under,
or underlying, Rights; and (iii) rights and matters determined on
a per share basis under the Omnibus Plan. Any such adjustment
will be made by the Compensation and Personnel Committee of
the Corporation's Board of Directors (the "Plan Committee"),
subject to ratification by the full Board of Directors. No such
adjustment will be required by reason of the issuance of Common
Stock, or securities convertible into Common Stock, by the
Corporation for cash or the issuance of shares of Common Stock by
the Corporation in exchange for shares of the capital stock of
any corporation, financial institution, or other organization
acquired by the Corporation or a subsidiary thereof in
connection therewith. The total number of shares of Common Stock
as to which Rights may be granted may not exceed 300,000 shares,
as such number of shares may be adjusted from time to time as
set forth above. Any shares of Common Stock allocated to Rights
granted under the Omnibus Plan, which Rights are subsequently
canceled or forfeited, will be available for further allocation
upon such cancellation or forfeiture.
Full time employees of the Corporation and its
subsidiaries who are within designated job grade classifications
under the Corporation's salary administration plan ("Eligible
Employees") and who are designated as eligible participants by
the Plan Committee may receive awards of Rights under the Omnibus
Plan. Currently, all employees of the Corporation and its
subsidiaries who are full time employees having a job grade
classification of class 20 or higher, and otherwise meeting the
eligibility requirements of the Omnibus Plan, are Eligible
Employees.
At present, approximately twelve Eligible Employees,
including Lloyd G. Gurley, the President and Chief Administrative
Officer of the Corporation and a member of the Corporation's
Board of Directors, have been designated as participants under
the Omnibus Plan. Options to acquire a total of 71,000 shares of
Common Stock have been granted to these twelve participants, with
30,000 Options being granted to Mr. Gurley.
The Omnibus Plan will terminate on April 27, 2004.
Under its provisions, the Omnibus Plan may be amended, suspended
or discontinued by the Board of Directors at any time and from
time to time, subject to the following limitations (i) any
action by the Board that would materially increase the maximum
number of shares of Common Stock issuable pursuant to the Omnibus
Plan (other than proportionate adjustments to reflect any
increase, decrease or other change in the shares of Common
Stock outstanding as a result of a stock split, stock dividend,
recapitalization, merger, reclassification, or other similar
transaction), materially increase the benefits accruing to
participating employees or materially modify eligibility
requirements for participation in the Omnibus Plan will
require approval by the shareholders of
57
the Corporation; (ii) no action of the Board may cause Options
granted under the Omnibus Plan that are ISOs not to comply with
Section 422 of the Code unless the Board specifically declares
such action to be made for that purpose; and (iii) any action by
the Board that would alter or impair any Right previously
granted to a participant under the Omnibus Plan requires the
consent of the applicable participant.
Options for an aggregate of 71,000 shares of Common
Stock are outstanding under the Omnibus Plan as follows: 67,000
shares at an exercise price of $13.625 per share expiring on
January 27, 2004 and 4,000 shares at an exercise price of
$15.375 per share expiring on October 20, 2004. Subject to the
terms and conditions set forth in the Omnibus Plan and the
applicable Option Agreements, the Options expiring on April 28,
2004 may be exercised in four equal annual installments beginning
on April 28, 1996 and ending April 28, 1999, and all such
options must be exercised, if at all, on or before January 27,
2004; and the options expiring on October 20, 2004 may be
exercised in four equal annual installments beginning on October
21, 1995 and ending October 21, 1998, and all such options
must be exercised, if at all, on or before October 20, 2004.
Comparisons of Cumulative Total Shareholder Return.
The graph set forth below compares the Corporation's cumulative
total shareholder return for the five year period beginning
January 1, 1990 and ending December 31, 1994 to the
cumulative total shareholder return during such period of the CRSP
Total Return Index For The Nasdaq Stock Market (U.S. Companies)
and of the CRSP Total Return Index for Nasdaq Bank Stocks, in
each case assuming reinvestment of all dividends paid by the
Corporation and the companies in the applicable Index.
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
Security Capital Bancorp
Prepared by the Center for Research in Security Prices
Produced on 02/21/95 including data to 12/30/94
(Performance Graph appears here. The plot points are listed below.)
12/29/89 12/31/90 12/31/91 12/31/92 12/31/93 12/30/94
Security Capital Bancorp 100.0 87.5 73.0 86.9 105.4 143.3
Nasdaq Stock Market (US Companies) 100.0 84.9 136.3 180.9 180.9 176.9
Nasdaq Bank Stocks 100.0 73.2 120.2 174.9 199.3 198.7
SIC 6020-6029, 6710-6719 US & Foreign
58
Report on Compensation and Personnel Committee on
Executive Compensation. The Compensation and Personnel Committee
of the Corporation's Board of Directors reviews and makes
recommendations to the full Board regarding approval of the
Corporation's compensation programs, including its salary
administration plan, the types and amounts of compensation
paid and proposed to be paid to the Corporation's executive
officers, and related matters. The goals of the
Compensation and Personnel Committee are to create compensation
packages for executives and other officers which will attract
and retain in the Corporation's employment persons of
outstanding ability, and to provide executives and other
key employees of the Corporation and its subsidiaries greater
incentive to make material contributions to the success of the
Corporation, to its shareholders, and to the services it provides
to its customers.
The Committee has developed guidelines for its reviews of
executive compensation. Among the factors identified in these
guidelines are various measures of the Corporation's
financial and stock market performance, the executive
compensation levels of comparable companies ("peer companies"),
analyses of the job performances of the Corporation's
executive officers, and similar matters. The compensation of the
Corporation's executive officers identified in the Summary
Compensation Table has been reviewed and found to be reasonable
in view of the Corporation's performance, as compared with the
compensation of executives in similarly situated positions at peer
companies, and under the guidelines developed by the Committee.
Compensation of Chief Executive Officer. Mr. Jordan is
the Vice-Chairman and Chief Executive Officer of the Corporation
and the President and Chief Executive Officer of OMNIBANK. Mr.
Jordan's compensation for 1994 was established by the
Corporation's Board of Directors, taking into consideration the
Committee's guidelines and recommendation, based primarily
upon the terms of his employment agreements with the
Corporation and OMNIBANK, the compensation levels of chief
executive officers of peer companies, the compensation levels
of other senior executive officers of the Corporation, the
Corporation's general financial performance in the year ended
December 31, 1993, the Corporation's general financial performance
in 1993 compared to peer companies, his banking
experience and expertise, his performance of his
responsibilities during 1993, the increased responsibilities
undertaken by him as a result of the 1992 Merger, and the
analyses of the Compensation Committee's independent
compensation adviser. Mr. Jordan's compensation for 1995 will be
established under these same procedures, guidelines and analyses.
In connection with the 1992 Merger, the Corporation and
Omni agreed that the employment agreements and other compensation
contracts of the Corporation and Omni, and their respective
subsidiaries, with their employees prior to the 1992 Merger
would be honored by the Corporation after the 1992 Merger in
accordance with their terms, subject to such post-1992 Merger
modifications to stock option plans, pension and profit sharing
plans, and similar plans as the Corporation's Board deemed
appropriate.
The directors composing the Compensation and Personnel
Committee and making this report are Messrs. Brown, Lampert,
Loeblein and Wagoner. Messrs. Barnhardt (Ralph A.), Gurley, Jordan
and Smith are ex officio members of the Committee.
Compensation and Personnel Committee Interlocks and
Insider Participation. Messrs. Barnhardt, Gurley and Jordan are
ex officio members of the Compensation and Personnel Committee,
and are the Presidents and Chief Executive Officers of
Citizens, Security Bank and OMNIBANK, respectively. Messrs. Gurley
and Jordan are senior executive officers, and Mr. Barnhardt is
the Vice-Chairman, of the Corporation. As ex officio members of
the Committee, these directors participate in Committee
discussions
59
but do not vote on any Committee actions. Moreover,
they do not participate in and are not present during Committee
deliberations upon senior executive compensation matters.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The table below sets forth as of March 3, 1995 the number
of shares of the Corporation's Common Stock beneficially owned by
each director of the Corporation and each executive officer of the
Corporation named in the Summary Compensation Table set forth
above. Also shown in each instance is information as to the
beneficial ownership of all of the directors and the
Corporation's executive officers (named in the Summary Compensation
Table) as a group. All such information is based on reports
made to the Corporation by the persons listed.
Number of Shares
Name of of Common Stock Percent of
Director or Officer Beneficially Owned Common Stock
Directors:
John M. Barnhardt 14,909(1) *
Ralph A. Barnhardt 135,668(2,3) 1.12
Edward A. Brown 3,134 *
Henry B. Gaye 83,387(4) *
Dan L. Gray 16,872 *
Lloyd G. Gurley 24,353(5) *
David B. Jordan 137,717(2,6) 1.16
William C. Kluttz, Jr. 10,918(7) *
Erwin E. Lampert, Jr. 13,876(8) *
William G. Loeblein 21,161(9) *
F. Taft McCoy, Jr. 77,256(10) *
Harold Mowery 12,757(11) *
J.G. Rutledge, III 50,281(12) *
Carl M. Short, Jr. 32,258(13) *
Miles J. Smith, Jr. 134,946(14) 1.15
W. Erwin Spainhour 8,345 *
Fred J. Stanback, Jr. 208,373(15) 1.77
Jimmy K. Stegall 56,578(16) *
Thomas A. Tate, Sr. 26,403 *
E. William Wagoner 6,901(17) *
James L. Williamson 8,088(18) *
Executive Officers:
Pressley A. Ridgill 45,826(2,19) *
All directors and
executive officers as a
group (22 persons) 1,130,007 9.44
_______________
* Less than 1%
60
(1) Includes 800 shares held by a company Mr. Barnhardt
controls and 4,806 shares held by his spouse.
(2) Other than shares allocated to such person's individual
accounts, does not include shares held by the Corporations
Employee Stock Ownership Plan (the "ESOP") or the
Incentive Plan. Such person serves as a Trustee and as
a member of the Administrative Committee of the ESOP. All
shares held by the ESOP have been allocated to the
ESOP participants. Shares are voted in accordance
with the participants instructions. At March 1, 1994,
the ESOP held 467,348 shares and the Incentive Plan
held 12,866 shares.
(3) Includes 84,375 shares that Mr. Barnhardt has the right
to purchase pursuant to currently exercisable stock
options granted under one or more of the Corporation's
Stock Option Plans (the "Option Plans"), 3,688 shares
jointly owned by Mr. Barnhardt and his spouse, 2,653
owned by Mr. Barnhardt's spouse, 486 shares owned by
his children, 37,540 shares allocated to his ESOP
accounts, and 224 shares allocated to his Incentive Plan
accounts.
(4) Includes 22,862 shares held by Mr. Gaye's spouse and
2,126 shares held by a corporation which he controls.
(5) Includes 2,000 shares held by Mr. Gurley's spouse and
218 shares allocated to his Incentive Plan accounts. Does
not include 30,000 shares obtainable under options not
currently exercisable.
(6) Includes 75,500 shares that Mr. Jordan has the right to
purchase pursuant to currently exercisable stock options
granted under one or more of the Option Plans, 5,000 shares
held by his spouse, 40,081 shares allocated to his ESOP
accounts, and 210 shares allocated to his Incentive Plan
accounts.
(7) Includes 6,334 shares held by Mr. Kluttz as custodian for
a minor child.
(8) Includes 1,237 shares owned by Mr. Lampert's spouse and
2,700 shares held in a trust of which he is co-trustee.
(9) Includes 7,078 shares over which Mr. Loeblein has shared
voting and investment power.
(10) Includes 24,000 shares held by Mr. McCoy's spouse. Mr.
McCoy disclaims any beneficial interest in such shares.
(11) Includes 2,396 shares owned by Mr. Mowery's spouse.
(12) Includes 25,018 shares held by Mr. Rutledge's spouse.
(13) Includes 517 shares held in a trust of which Mr. Short is
a co-trustee.
(14) Includes 5,257 shares held by Mr. Smith's spouse.
(15) Includes 6,750 shares over which Mr. Stanback has
voting power and 99,115 shares with respect to which he
has a power-of-attorney. Mr. Stanback shares voting
power over, but disclaims beneficial ownership of,
122,652 shares. Also includes 3,375 shares held by Mr.
Stanback's spouse, but in which he disclaims any
beneficial interest.
(16) Includes 7,727 shares held by Mr. Stegall's spouse.
(17) Includes 3,999 shares held by a corporation of which
Mr. Wagoner is the sole shareholder and 675 shares held by
him as a custodian for minor children.
(18) Includes 7,088 shares that Mr. Williamson has the right
to purchase under an Options Plan.
(19) Includes 30,937 shares that Mr. Ridgill has the right to
purchase pursuant to currently exercisable options
granted under one or more of the Option Plans, 9,540
shares allocated to his ESOP accounts, and 175 shares
allocated to his Incentive Plan accounts.
As of March 3, 1995, no shareholder was known to the
Corporation to the beneficial owner of more than five percent (5%)
of the Common Stock of the Corporation.
61
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation's directors, officers and principal
shareholders, and persons associated with them, have been
customers of, and have had banking transactions with,
subsidiaries of the Corporation and are expected to continue such
relationships in the future. All such transactions were in the
ordinary course of business, and were on substantially the same
terms, including interest rates and collateral requirements, as
those prevailing at the time for comparable transactions
with other persons and, in the opinion of management, do not
involve more than the normal risk of collectibility or present
other unfavorable features; provided, however, that prior to May
1, 1989, Citizens had a policy of extending favorable interest
rates on mortgages and consumer loans to non-employee directors
and officers of Citizens. Relevant loans by Citizens are set forth
below:
Largest Outstanding
Indebtedness Indebtedness Interest
since At Rate
Name and Position January 1, 1994 December 31, 1994 Paid (1)
Ralph A. Barnhardt $25,134 $ -0- 8.57%
Director and Vice-Chairman
of the Corporation; Chairman,
President and Chief Executive
Officer of Citizens
E.K. Prewitt, Jr. 82,073 50,766(2) 7.77%
Senior Vice-President and
Secretary of the Corporation
____________________
(1) Weighted average as of December 31, 1994
(2) Mortgage loan secured by residential property.
The aggregate amount of all extensions of credit to
all directors and executive officers of the Corporation as a
group (including their affiliates) as of December 31, 1994 was
approximately $1.6 million, which amount constituted approximately
1.32% of the shareholders' equity in the Corporation as of that
date.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the
Corporation are included in the Annual Report and are
incorporated herein by reference:
Independent Auditors' Report Exhibit 13, page 28
Consolidated Balance Sheets -
December 31, 1994 and 1993 Exhibit 13, page 7
Consolidated Statements of Income -
Years ended December 31, 1994, 1993 and 1992 Exhibit 13, page 8
62
Consolidated Statements of
Stockholders' Equity - Years ended
December 31, 1994, 1993 and 1992 Exhibit 13, page 9
Consolidated Statements of Cash Flows -
Years ended December 31, 1994, 1993 and 1992 Exhibit 13, page 10
Notes to Consolidated Financial Statements Exhibit 13, pages 11-27
(2) Financial Statement Schedules
All financial statement schedules are omitted because the
required information is either not applicable, is
immaterial, or is included in the consolidated financial
statements of the Corporation and notes thereto.
(b) Reports on Form 8-K
The Corporation filed reports on Form 8-K during the
quarter ended December 31, 1994 as follows:
(i) a Form 8-K was filed on November 8,
1994 concerning the public announcement
of the execution of an Agreement of
Combination by the Corporation and CCB
Financial Corporation ("CCB") pursuant to
which the Corporation will merge with
CCB; and
(ii) a Form 8-K was filed on December 5, 1994
concerning the Corporation's acquisition of First
Federal Savings and Loan Association of Charlotte
("First Federal") and including therein:
(A) The audited consolidated
financial statements of First
Federal as of December 31,
1993 and 1992, for the year
ended December 31, 1993 and for
the six-month periods ended
December 31, 1992 and June 30,
1992;
(B) The unaudited interim consolidated
financial statements of First Federal as
of June 30, 1994 and for the six-month
periods ended June 30, 1994 and 1993; and
(C) The pro forma combined condensed
statements of income of the Corporation
for the nine-month period ended
September 30, 1994 and the year ended
December 31, 1994.
(c) Exhibits
A listing of the exhibits to this Report on Form 10-K
is set forth on the Exhibit Index which immediately
precedes such exhibits and is incorporated herein by
reference.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d)
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.
SECURITY CAPITAL BANCORP
By: /s/ David B. Jordan
David B. Jordan
Vice-Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities 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:
Signature Title Date
/s/ David B. Jordan Vice-Chairman and Chief Executive March 30, 1995
David B. Jordan Officer and Director
/s/ Pressley A. Ridgill Senior Vice President, Treasurer March 30, 1995
Pressley A. Ridgill and Chief Financial Officer
(Principal Financial Officer)
/s/ John M. Barnhardt Director March 30, 1995
John M. Barnhardt
/s/ Ralph A. Barnhardt Director and Vice-Chairman March 30, 1995
Ralph A. Barnhardt
/s/ Edward A. Brown Director March 30, 1995
Edward A. Brown
/s/ Henry B. Gaye Director March 30, 1995
Henry B. Gaye
/s/ Dan L. Gray Director March 30, 1995
Dan L. Gray
/s/ Lloyd G. Gurley Director March 30, 1995
Lloyd G. Gurley
/s/ William C. Kluttz, Jr. Director March 30, 1995
William C. Kluttz, Jr.
/s/ Ervin E. Lampert, Jr. Director March 30, 1995
Ervin E. Lampert, Jr.
64
/s/ William G. Loeblein Director March 30, 1995
William G. Loeblein
/s/ F. Taft McCoy, Jr. Director March 30, 1995
F. Taft McCoy, Jr.
/s/ Harold Mowery Director March 30, 1995
Harold Mowery
/s/ J.G. Rutledge, III Director March 30, 1995
J.G. Rutledge, III
/s/ Carl M. Short, Jr. Director March 30, 1995
Carl M. Short, Jr.
/s/ Miles J. Smith, Jr. Director and Chairman March 30, 1995
Miles J. Smith, Jr. of the Board
/s/ W. Erwin Spainhour Director March 30, 1995
W. Erwin Spainhour
/s/ Fred J. Stanback, Jr. Director March 30, 1995
Fred J. Stanback, Jr.
/s/ Jimmy K. Stegall Director March 30, 1995
Jimmy K. Stegall
/s/ Thomas A. Tate, Sr. Director March 30, 1995
Thomas A. Tate, Sr.
/s/ E. William Wagoner Director March 30, 1995
E. William Wagoner
/s/ James L. Williamson Director March 30, 1995
James L. Williamson
65
Exhibit Index
Exhibit Table No. Description
13 1994 Annual Report to
Shareholders
22 Information regarding
Subsidiaries
24 Consent of KPMG Peat Marwick
LLP
66