FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-12359
SECURITY CAPITAL BANCORP
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1354694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 WEST INNES STREET, SALISBURY, NORTH CAROLINA 28144
(Address of principal executive offices) (Zip Code)
(704) 636-3775
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
As of April 28, 1995, there were issued and outstanding 11,780,086
shares of the Registrant's common stock, no par value per share.
Page 1 of 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial
statements within Item 1 include, in the opinion of
management of Security Capital Bancorp ("SCBC"), all
adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such
financial statements for the periods indicated.
2
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
Assets 1995 1994
(Dollars in Thousands)
Cash and due from banks $ 18,773 24,374
Interest-bearing balances in other banks 18,767 17,321
Federal funds sold 19,448 6,948
Investment securities held to maturity (market value
of $152,828 at March 31, 1995 and $149,790
at December 31, 1994) 154,197 155,597
Investment securities available for sale 259,332 256,657
Loans, net of unearned income ($2,554, at March
31, 1995 and $2,691, at December 31, 1994) (note 2) 657,372 648,231
Less allowance for loan losses (note 2) 9,409 9,317
Loans, net 647,963 638,914
Loans held for sale 1,086 2,697
Premises and equipment, net 21,300 21,713
Intangible assets 16,245 16,634
Other assets 23,704 24,759
Total assets $1,180,815 1,165,614
Liabilities and Stockholders' Equity
Deposit accounts:
Demand, noninterest-bearing 67,144 67,203
Interest-bearing 857,979 856,530
Time deposits of $100 or more 90,171 88,412
Total deposit accounts 1,015,294 1,012,145
Advances from the Federal Home Loan Bank 18,681 18,576
Other borrowed money 3,718 3,276
Other liabilities 17,354 11,857
Total liabilities 1,055,047 1,045,854
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, no par value, 25,000,000 shares
authorized; 11,780,086 and 11,775,867 shares
issued and outstanding at March 31, 1995
and December 31, 1994, respectively 51,625 51,610
Retained earnings, substantially restricted 77,096 74,522
Unrealized loss on investment securities available
for sale (2,953) (6,372)
Total stockholders' equity 125,768 119,760
Total liabilities and stockholders' equity $1,180,815 1,165,614
See accompanying notes to consolidated financial statements.
3
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
(Dollars in Thousands, Except Share Data)
Interest income:
Loans $14,197 9,621
Investment securities
Taxable 6,204 5,029
Nontaxable 267 192
Other 571 226
Total interest income 21,239 15,068
Interest expense:
Deposit accounts 10,099 6,262
Borrowings 357 181
Total interest expense 10,456 6,443
Net interest income 10,783 8,625
Provision for loan losses 120 87
Net interest income after provision
for loan losses 10,663 8,538
Other income:
Loan servicing and other loan fees 410 409
Deposit and other service charge income 1,235 1,240
Gain on sales of loans, net 97 108
Brokerage commissions 395 508
Other 333 174
Total other income 2,470 2,439
Other expense:
Personnel 3,562 3,165
Net occupancy 1,224 893
Telephone, postage, and supplies 578 420
Federal and other insurance premiums 652 512
Data processing fees 110 182
Professional and other services 174 138
Other 944 443
Total other expense 7,244 5,753
Income before income taxes 5,889 5,224
Income taxes 2,020 1,762
Net income $ 3,869 3,462
Net income per share (note 3) $ .33 .30
Dividends per share $ .11 .11
Weighted average shares outstanding 11,778,680 11,705,567
See accompanying notes to consolidated financial statements.
4
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
(Dollars in Thousands)
Cash flows from operating activities:
Net income $ 3,869 3,462
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 120 87
Depreciation 574 442
Amortization of premiums on securities held to maturity 17 46
Amortization of premiums on securities available for sale 426 695
Change in loans held for sale, net 1,611 13,459
Amortization of intangible assets 389 -
Decrease in other assets 1,055 1,612
Increase (decrease) in other liabilities 3,774 (880)
Net cash provided by operating activities 11,835 18,923
Cash flows from investing activities:
Proceeds from maturities of investment securities
held to maturity 1,383 1,675
Proceeds from maturities of investment securities
available for sale 22,026 27,526
Purchases of investment securities held to maturity - (13,908)
Purchases of investment securities available for sale (19,985) (10,936)
Increase in loans, net (9,169) (12,590)
Capital expenditures for premises and equipment (161) (613)
Net cash used in investing activities (5,906) (8,846)
Cash flows from financing activities:
Increase (decrease) in deposits 3,149 (546)
Proceeds from Federal Home Loan Bank advances 3,235 -
Repayment of Federal Home Loan Bank advances (3,130) (1,000)
Increase in other borrowed money, net 442 217
Dividends paid to stockholders (1,295) (1,289)
Proceeds from stock options exercised 15 158
Net cash provided by (used in) financing activities 2,416 (2,460)
Net increase in cash and cash equivalents 8,345 7,617
Cash and cash equivalents at beginning of period 48,643 36,697
Cash and cash equivalents at end of period $ 56,988 44,314
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,536 5,927
Income taxes 298 220
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ - 502
Investments transferred to available for sale - 329,799
Change in unrealized loss on available for sale
securities, net of tax effect of $1,723 and
$392, respectively 3,419 (739)
See accompanying notes to consolidated financial statements.
5
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(Unaudited)
(1) Principles of Consolidation and Reporting
The accompanying unaudited consolidated financial statements
include the accounts of Security Capital Bancorp ("SCBC"), a
North Carolina corporation organized as a multi-bank holding
company, and its wholly- owned subsidiaries, Security Capital
Bank, formerly Security Bank and Trust Company ("Security
Bank"), OMNIBANK, Inc., A State Savings Bank ("OMNIBANK"),
Citizens Savings, Inc., SSB ("Citizens"), Home Savings Bank,
Inc., SSB ("Home Savings"), and Estates Development Corporation
("EDC"). All significant intercompany balances have been
eliminated.
Certain amounts have been reclassified to conform with the
statement presentation for 1995. The reclassifications have
no effect on stockholders' equity or net income as previously
reported.
(2) Loans
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards ("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 creditors 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. The FASB 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.
Effective January 1, 1995, the provisions of SFAS No. 114 and
No. 118 were adopted by SCBC. The adoption of these
Standards required no increase to the allowance for loan losses
and had no impact on net income in the first quarter of 1995. At
March 31, 1995, impaired loans amounted to $214,000. The related
allowance for loan losses on these loans was $50,000.
(3) Net Income Per Share
Net income per share has been computed by dividing net income
by the weighted average number of shares outstanding.
(4) Acquisition and Pending Merger
Effective September 23, 1994, Security Bank purchased the
outstanding stock of First Federal Savings and Loan Association of
Charlotte ("First Federal") from Fairfield Communities, Inc. for
approximately $41,000,000 in cash. The acquisition is being
accounted for by the purchase method. Concurrent with the
purchase, First Federal was merged into Security Bank.
On November 4, 1994, SCBC and CCB Financial Corporation, Durham,
North Carolina ("CCB"), entered into a definitive Agreement of
Combination pursuant to which SCBC will merge with and into CCB,
with CCB as the surviving corporation and continuing to operate
under its present name (the "Combination"). The Agreement 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, in exchange for each outstanding share of
SCBC's common stock, no par value. In connection with the
Combination, SCBC's banking subsidiaries will merge into Central
Carolina Bank and Trust Company, a subsidiary of CCB. The Combination
is expected to be completed during the second quarter of 1995.
6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Comparison of Financial Condition and Operating Results as of and
for the Three Months ended March 31, 1995 and 1994
For the three months ended March 31, 1995, net income increased
$407,000, or 11.8%, to $3,869,000, or $.33 per share, compared
with net income of $3,462,000, or $.30 per share, for the
comparable period in 1994. This increase was primarily attributable
to the inclusion in 1995 of the results of operations of First
Federal which was acquired on September 23, 1994, and accounted for
by the purchase method.
Net interest income increased $2,158,000, or 25.0%, to $10,783,000.
Total interest income increased $6,171,000, or 41.0%, to
$21,239,000. The average yield on interest-earning assets
increased 90 basis points to 7.79%. Total interest expense
increased $4,013,000, or 62.3%, to $10,456,000. The average rate
on interest-bearing liabilities increased 78 basis points to 4.34%.
The increase in interest income and interest expense is primarily
due to the acquisition of First Federal described above. Also,
during 1994, the Board of Governors of the Federal Reserve System
(the "FRB") changed its monetary policy and began raising interest
rates in an effort to control inflation and slow the national
economy. This overall rise in interest rates impacted interest
income and interest expense at SCBC. The rise in interest rates had
a positive impact by increasing interest income for the repricing of
adjustable rate interest-earning assets along with increased yields
on new loans and investments. Likewise, the rise in interest rates
had a negative impact due to increased yields being offered on
deposit products to remain competitive. Accordingly, the net
interest rate spread was 3.07% at March 31, 1995, down 25 basis
points from 3.32% at December 31, 1994.
The provision for loan losses for the three months ended March 31,
1995, was $120,000, representing an increase of $33,000, or
37.9%, from the $87,000 provision reported in the comparable period
in 1994. This increase is primarily due to the overall increase in
loans outstanding.
The following table presents information on non-performing
assets, including non-accrual loans, accruing loans 90 days or
more past due, restructured loans and real estate owned as of each
of the dates shown:
At At
March 31, December 31,
1995 1994
(Dollars in Thousands)
Non-accrual loans $ 701 1,774
Accruing loans 90 days or more past due 2,917 2,402
Restructured loans 379 129
Real estate owned 1,306 1,704
$5,303 6,009
Non-performing loans and real estate owned as
a percentage of total assets .45% .52%
Loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that have not been included in the
table above do not (1) represent or result from trends or
uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources, or
(2) represent material credits about which management is aware of any
information which causes management to have serious doubts as to the
ability of such borrowers to comply with the repayment terms. SCBC
does not have any material loans classified as "doubtful" or
"loss." Additionally, its loan portfolio does not contain any highly
leveraged transactions or foreign loans.
7
Other income of $2,470,000 for the three months ended March 31,
1995, represents an increase of $31,000, or 1.3%, from other income
of $2,439,000 reported in the comparable period in 1994. Brokerage
commissions decreased $113,000, or 22.2%, to $395,000 for the
three months ended March 31, 1995. This decrease was primarily
due to the overall rise in interest rates and investors placing
funds in interest-earning, rather than equity, investments. Other
increased $159,000, or 91.4%, to $333,000 for the three months
ended March 31, 1995, due to the increase of several items in this
total.
Other expense increased $1,491,000, or 25.9%, to $7,244,000 for the
three months ended March 31, 1995. This increase was primarily
attributable to operating the branch network acquired as part of
the First Federal purchase described above. All areas within other
expense were directly affected by increased expenses as a result of
this acquisition.
Total assets of SCBC at March 31, 1995, were $1,180,815,000, an
increase of $15,201,000, or 1.3%, from the December 31, 1994,
total of $1,165,614,000. Investment securities available for
sale increased $2,675,000, or 1.0%, to $259,332,000 primarily due
to the improvement in the unrealized loss at March 31, 1995. Net
loans receivable, including loans held for sale, were $649,049,000 at
March 31, 1995, an increase of $7,438,000, or 1.2%, over the
December 31, 1994 amount. This increase is the result of
increases in various types of loans. Deposit accounts increased
$3,149,000, or 0.3%, to $1,015,294,000 at March 31, 1995. Other
liabilities increased $5,497,000, or 46.4%, to $17,354,000 at March
31, 1995. This increase is due to several smaller increases
within this category. Total stockholders' equity was
$125,768,000, or 10.65% of total assets, at March 31, 1995.
Total stockholders' equity included an unrealized loss on
investment securities available for sale of $(2,953,000) at March
31, 1995, a decrease in this category of $3,419,000, or 53.7%, from
the December 31, 1994, amount.
The following table sets forth the average yield on
interest-earning assets and the average rate paid on
interest-bearing liabilities of SCBC as of and for the periods
indicated.
Three months Ended At At
March 31, March 31, December 31,
1995 1994 1995 1994
(annualized)
Average yield on loans 8.82% 7.95% 8.76% 8.45%
Average yield on interest-
earning assets 7.79 6.89 7.75 7.53
Average rate on deposits 4.28 3.51 4.64 4.16
Average rate on interest-
bearing liabilities 4.34 3.56 4.68 4.21
Loans/deposits spread 4.54 4.44 4.12 4.29
Asset/liability spread 3.45 3.33 3.07 3.32
Net yield on average
interest-earning assets 3.96 3.95 - -
8
Liquidity and Capital Resources
The principal sources of liquidity for SCBC's banking subsidiaries
are deposit accounts, Federal Home Loan Bank advances, principal
and interest payments on loans, interest received on investment
securities, and fees. Deposit accounts are considered a primary
source of funds supporting the banking subsidiaries' lending and
investment activities. At March 31, 1995, the SCBC banking
subsidiaries were in compliance with all regulatory liquidity
requirements.
At March 31, 1995, SCBC and its banking subsidiaries were in
compliance with all applicable regulatory capital requirements.
The following table compares SCBC's regulatory capital as of
March 31, 1995, with the two minimum capital standards established
by the FRB.
Leverage Capital Risk-based Capital
Amount % of Assets Amount % of Base
(Dollars in Thousands)
SCBC- actual $112,476 9.64% $120,491 18.83%
Minimum capital standards 34,991 3.00(1) 51,189 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standards $ 77,485 6.64% $ 69,302 10.83%
(1) The FRB minimum leverage ratio requirement is 3% to 5%, depending
on the institution's composite rating as determined by its
regulators. The FRB has not advised SCBC of any specific
requirement applicable to it.
Management is not aware of any current recommendations by
regulatory authorities which, if implemented, would have a
material effect on liquidity, capital resources or operations of
SCBC or its banking subsidiaries.
At March 31, 1995, outstanding loan commitments approximated
$3.1 million (consisting of $500,000 in fixed rate loans and
$2.6 million in variable rate loans), preapproved but unused
lines of credit totalling $101.4 million and standby letters of
credit aggregating $1.0 million.
At March 31, 1995, SCBC had commitments to sell approximately
$800,000 of fixed rate mortgage loans at prices approximating
carrying value.
9
INTEREST SENSITIVITY ANALYSIS
The following table sets forth the dollar amount of maturing
assets and liabilities as of March 31, 1995, and the difference
between them for the repricing periods indicated:
March 31, 1995
(Dollars in Thousands)
0-90 91-180 181-365 1-3 3-5 Over 5
Days Days Days Years Years Years Total
INTEREST-EARNING ASSETS
Fed funds sold $19,448 - - - - - 19,448
Interest-bearing balances in
other banks 18,767 - - - - - 18,767
Investment securities
held to maturity 5,482 4,998 7,968 55,704 57,654 22,391 154,197
Investment securities
available for sale 36,098 9,964 43,394 131,022 26,551 12,303 259,332
Loans (1) 156,388 65,200 117,335 116,637 73,343 129,555 658,458
Total $236,183 80,162 168,697 303,363 157,548 164,249 1,110,202
INTEREST-BEARING LIABILITIES
Deposits 282,443 116,010 144,971 292,029 110,112 2,585 948,150
FHLB advances 2,200 - 1,963 14,200 - 318 18,681
Other borrowed money 3,465 - - - - 253 3,718
Total $288,108 116,010 146,934 306,229 110,112 3,156 970,549
Interest sensitivity gap $(51,925) (35,848) 21,763 (2,866) 47,436 161,093 139,653
Cumulative interest
sensitivity gap $(51,925) (87,773) (66,010) (68,876) (21,440) 139,653
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 81.98% 78.28% 88.02% 91.97% 97.78% 114.39%
(1) Includes loans held for sale.
ACCOUNTING MATTERS
Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. In March 1995, the
FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". This Standard establishes accounting for the
impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets. It would
require the carrying amount of impaired assets be reduced to
fair value. This Standard is effective for financial statements
for fiscal years beginning after December 15, 1995. SCBC does
not anticipate a material impact to its consolidated financial
statements upon adoption of this Standard.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security
Holders.
At a Special Meeting of Shareholders held
on March 16, 1995, the matter voted upon,
the number of affirmative votes, the number
of negative votes, and the number of votes
withheld with respect to such matter were
as follows:
Proposal to approve Merger.
Proposal to approve the Amended and Restated
Agreement of Combination, dated as of
December 1, 1994, and the related plan of
merger, among SCBC, CCB Financial
Corporation ("CCBF") and New Security
Capital, Inc. ("NSC"), and to approve
the transactions described therein,
including without limitation the merger of
NSC into SCBC with the result that SCBC
will become a wholly-owned subsidiary of
CCBF and all outstanding shares of SCBC's
no par common stock will be converted into
shares of CCBF's $5.00 par value common stock.
Affirmative Negative Withheld
8,023,468 124,132 170,806
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K. None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report on
Form 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURITY CAPITAL BANCORP
(Registrant)
Date: May 10, 1995 By:/s/ PRESSLEY A. RIDGILL
Pressley A. Ridgill
Senior Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Representative)
12