SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 19, 1995
CCB FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 0-12358 56-1347849
(State or other (Commission File No.) (IRS Employer
jurisdiction of Identification No.)
incorporation)
111 Corcoran Street, Post Office Box 931, Durham, NC 27702
(Address of principal executive offices)
Registrant's telephone number, including area code (919) 683-7777
N/A
(Former name or former address, if
changed since last report)
Item 2. Acquisition or Disposition of Assets
On May 22, 1995 the Registrant issued a joint press release with
Security Capital Bancorp ("Security Capital"), a $1.2 billion bank
holding company, announcing the completion of their merger. The
transaction, which has an indicated value of approximately $244 million,
was consummated through a tax-free exchange of stock accounted for as a
pooling of interests. The former offices of Security Capital's
financial institution subsidiaries will operate as offices of Central
Carolina Bank and Trust Company, the Registrant's primary banking
subsidiary.
Item 5. Other Events
As of May 18, 1995, the Registrant completed the repurchase and
retirement of shares of its common stock under its previously announced
stock repurchase program which commenced in the fourth quarter of 1994.
A total of 518,069 shares were repurchased and retired.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired
The following financial statements are filed with this Report on
Form 8-K:
(i) Audited consolidated financial
statements of Security Capital Bancorp and
subsidiaries for the three years ended
December 31, 1994.
(ii) Unaudited interim consolidated balance sheets
of Security Capital Bancorp and subsidiaries as
of March 31, 1995 and December 31, 1994 and the
related unaudited interim consolidated statements
of income and cash flows for the three-month periods
ended March 31, 1995 and 1994.
(b) Pro forma financial information
The following pro forma unaudited financial statements are filed with this
Report on Form 8-K:
(i) Pro forma combined condensed balance sheet of
CCB Financial Corporation and subsidiaries as of
March 31, 1995.
(ii) Pro forma combined condensed statement of income of
CCB Financial Corporation and subsidiaries for the
three-month period ended March 31, 1995.
(iii) Pro forma combined condensed statement of income of
CCB Financial Corporation and subsidiaries for the
years ended December 31, 1994, 1993 and 1992.
(b)(iv) Pro forma combined condensed statement of income of CCB
Financial Corporation and subsidiaries for the year ended
December 31, 1993.
(v) Pro forma combined condensed statement of income of CCB
Financial Corporation and subsidiaries for the year ended
December 31, 1992.
(c) Exhibits
2 Amended and Restated Agreement of Combination among CCB
Financial Corporation, Security Capital Bancorp and New
Security Capital, Inc.
3 Amended and restated articles of incorporation
10.1 Employment agreement with David B. Jordan
10.2 Employment agreement with Ralph A. Barnhardt
10.3 Employment agreement with Lloyd G. Gurley
99 Press release by CCB Financial Corporation dated
May 22, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CCB FINANCIAL CORPORATION
Registrant
Date: June 2, 1995 By: W. HAROLD PARKER, JR.
W. Harold Parker, Jr.
Senior Vice President
and Controller
FINANCIAL STATEMENT INDEX
(a)(1) CONSOLIDATED FINANCIAL STATEMENTS OF SECURITY CAPITAL BANCORP:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 31, 1994 and
1993 F-3
Consolidated Statements of Income for the Years ended
December 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Stockholders' Equity for
the Years ended December 31, 1994, 1993 and 1992 F-5
Consolidated Statements of Cash Flows for the Years
ended December 31, 1994, 1993 and 1992 F-6
Notes to Consolidated Financial Statements F-7
(a)(2) INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF SECURITY CAPITAL BANCORP
(unaudited):
Consolidated Balance Sheets as of March 31, 1995
and 1994 F-24
Consolidated Statements of Income for the Three-Months
ended March 31, 1995 and 1994 F-25
Consolidated Statements of Cash Flows for the
Three-Months ended March 31, 1995 and 1994 F-26
Notes to Consolidated Financial Statements F-27
(b) PRO FORMA FINANCIAL INFORMATION OF CCB FINANCIAL CORPORATION (unaudited):
Pro Forma Combined Condensed Balance Sheet as of
March 31, 1995 F-29
Pro Forma Combined Condensed Statements of Income
for the Three-Months ended March 31, 1995 F-31
Pro Forma Combined Condensed Statements of Income
for the year ended December 31, 1994 F-32
Pro Forma Combined Condensed Statements of Income
for the year ended December 31, 1993 F-33
Pro Forma Combined Condensed Statements of Income
for the year ended December 31, 1992 F-34
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Capital Bancorp
Salisbury, North Carolina
We have audited the accompanying consolidated balance sheets of Security Capital
Bancorp and subsidiaries (Security Capital) as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of
Security Capital's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Security Capital
Bancorp and subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in note 3 to the consolidated financial statements, Security
Capital adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," on January 1, 1994.
KPMG Peat Marwick LLP
Charlotte, North Carolina
January 20, 1995
F-2
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
[CAPTION]
ASSETS 1994 1993
(DOLLARS IN
THOUSANDS)
Cash and due from banks $ 24,374 28,102
Interest-bearing balances in other banks 17,321 5,145
Federal funds sold 6,948 3,450
Investment securities available for sale (amortized cost of $266,299 at December
31, 1994) (note 3) 256,657 --
Investment securities held to maturity (market value of $149,790 and $375,046
at December 31, 1994 and 1993, respectively) (note 4) 155,597 368,353
Loans, net of unearned income ($2,691 in 1994 and $2,698 in 1993) (note 5) 648,231 473,202
Less allowance for loan losses (note 6) 9,317 7,227
Loans, net 638,914 465,975
Loans held for sale 2,697 18,409
Premises and equipment, net (note 7) 21,713 18,360
Intangible assets 16,634 --
Other assets (note 5) 24,759 21,141
Total assets $1,165,614 928,935
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit accounts:
Demand, noninterest-bearing 67,203 67,830
Interest-bearing 856,530 653,614
Time deposits of $100 or more 88,412 63,012
Total deposit accounts 1,012,145 784,456
Advances from the Federal Home Loan Bank (note 8) 18,576 8,000
Other borrowed money 3,276 1,764
Other liabilities 11,857 10,495
Total liabilities 1,045,854 804,715
Stockholders' equity (notes 10, 12, and 13):
Preferred stock, no par value, 5,000,000 shares authorized;
none issued and outstanding -- --
Common stock, no par value, 25,000,000 shares authorized; 11,775,867 and
11,682,837 shares issued and outstanding at December 31, 1994 and 1993,
respectively 51,610 51,167
Retained earnings, substantially restricted 74,522 73,053
Unrealized loss on investment securities available for sale (note 3) (6,372) --
Total stockholders' equity 119,760 124,220
Commitments and contingencies (notes 11 and 14)
Total liabilities and stockholders' equity $1,165,614 928,935
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
[CAPTION]
1994 1993 1992
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income:
Loans $43,951 41,195 48,277
Investment securities
Taxable 21,280 21,299 21,165
Nontaxable 858 955 1,137
Other 1,447 774 1,274
Total interest income 67,536 64,223 71,853
Interest expense:
Deposit accounts 28,363 27,255 33,695
Borrowings 960 880 1,434
Total interest expense 29,323 28,135 35,129
Net interest income 38,213 36,088 36,724
Provision for loan losses (note 6) 359 653 1,848
Net interest income after provision for loan losses 37,854 35,435 34,876
Other income:
Loan servicing and other loan fees 1,485 1,396 1,351
Deposit and other service charge income 4,431 4,976 5,255
Brokerage commissions 1,653 1,404 993
Gain on sales of loans 190 1,384 738
Investment securities available for sale losses, net (note 3) (70) -- --
Investment securities held to maturity gains, net (note 4) -- 310 8
Other 667 1,049 603
Total other income 8,356 10,519 8,948
Other expense:
Personnel (notes 11 and 13) 14,768 13,314 14,536
Net occupancy 3,942 3,390 3,488
Telephone, postage, and supplies 1,820 1,564 1,579
Federal and other insurance premiums 2,230 1,832 2,026
Data processing fees 913 746 801
Professional and other services 1,029 793 1,683
Other 2,998 2,203 3,427
Total other expense 27,700 23,842 27,540
Income before income taxes 18,510 22,112 16,284
Income taxes (note 9) 11,876 7,273 6,323
Net income $ 6,634 14,839 9,961
Net income per share $ .57 1.26 .84
Weighted average shares outstanding 11,738,083 11,771,739 11,832,570
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
Unrealized
Gain
(Loss) on
Investment
Securities Total
Common Retained Obligations Available Stockholders'
Stock Earnings of ESOP for Sale Equity
(DOLLARS IN THOUSANDS)
Balance at December 31, 1991 $54,471 56,559 (885) -- 110,145
Proceeds from stock options exercised
(note 12) 158 -- -- -- 158
Repayment of ESOP debt (note 13) -- -- 376 -- 376
Retirement of unallocated ESOP shares
(note 13) (509) -- 509 -- --
Dividends paid to stockholders
($.31 per share) -- (3,712) -- -- (3,712)
Net income -- 9,961 -- -- 9,961
Balance at December 31, 1992 54,120 62,808 -- -- 116,928
Proceeds from stock options exercised
(note 12) 606 -- -- -- 606
Retirement of common stock (3,559) -- -- -- (3,559)
Dividends paid to stockholders
($.39 per share) -- (4,594) -- -- (4,594)
Net income -- 14,839 -- -- 14,839
Balance at December 31, 1993 51,167 73,053 -- -- 124,220
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- -- -- 4,036 4,036
PROCEEDS FROM OPTIONS EXERCISED (NOTE 12) 443 -- -- -- 443
DIVIDENDS PAID TO STOCKHOLDERS
($.44 PER SHARE) -- (5,165) -- -- (5,165)
CHANGE IN UNREALIZED GAIN (LOSS) ON
INVESTMENT SECURITIES AVAILABLE FOR
SALE -- -- -- (10,408) (10,408)
NET INCOME -- 6,634 -- -- 6,634
BALANCE AT DECEMBER 31, 1994 $51,610 74,522 -- (6,372) 119,760
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
[CAPTION]
1994 1993 1992
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income $ 6,634 14,839 9,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 359 653 1,848
Depreciation 1,991 1,456 1,422
Securities (gains) losses, net 70 (310) (8)
Amortization of securities, premiums and discounts, net 2,367 2,325 1,151
Amortization of intangible assets 227 -- --
Change in loans held for sale, net 15,712 (16,145) 1,478
Decrease (increase) in other assets 10,661 (270) 1,718
(Decrease) increase in other liabilities (3,964) 553 593
Net cash provided by operating activities 34,057 3,101 18,163
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale 91,623 -- --
Proceeds from sale of investment securities available for sale 71,430 -- 1,991
Purchases of investment securities available for sale (41,410) -- --
Proceeds from maturities and issuer calls of investment securities
held to maturity 4,061 90,299 71,874
Proceeds from sales of investment securities held to maturity -- -- 11
Purchases of investment securities held to maturity (111,811) (122,063) (125,892)
(Increase) decrease in loans (42,349) 34,910 39,532
Capital expenditures for premises and equipment (2,131) (2,713) (1,313)
Proceeds from sale of Federal Home Loan Bank Stock 5,735 -- --
Purchase of First Federal, net of cash acquired 31,182 -- --
Net cash provided by (used in) investing activities 6,330 433 (13,797)
Cash flows from financing activities:
(Decrease) increase in deposits (23,383) 10,821 (1,505)
Proceeds from FHLB advances 12,451 14,740 8,000
Repayment of FHLB advances (14,299) (19,240) (15,000)
Increase in other borrowed money, net 1,512 1,058 68
Purchase and retirement of common stock, net -- (3,559) (509)
Dividends paid to stockholders (5,165) (4,594) (3,712)
Proceeds from stock options exercised 443 606 158
Purchase of ESOP stock -- -- 885
Net cash used in financing activities (28,441) (168) (11,615)
Net increase (decrease) in cash and cash equivalents 11,946 3,366 (7,249)
Cash and cash equivalents at beginning of year 36,697 33,331 40,580
Cash and cash equivalents at end of year $ 48,643 36,697 33,331
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 28,941 27,962 35,812
Income taxes 6,959 7,286 7,064
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 1,123 1,982 1,009
Investment securities held to maturity transferred to investment
securities available for sale 329,799 -- --
Effect of change in accounting principle (net of tax effect of
$2,039) 4,036 -- --
Decrease in unrealized gain on investment securities available for
sale (net of tax effect of $5,309) (10,408) -- --
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting and
reporting policies which Security Capital Bancorp and subsidiaries
("Security Capital") follow in preparing and presenting their consolidated
financial statements:
(a) PRINCIPLES OF CONSOLIDATION AND REPORTING
The accompanying consolidated financial statements include the accounts of
Security Capital Bancorp, 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, Salisbury, North
Carolina ("Security Bank"), OMNIBANK, Inc., A State Savings Bank,
Salisbury, North Carolina ("OMNIBANK"), Citizens Savings, Inc., SSB,
Concord, North Carolina ("Citizens"), Home Savings Bank, Inc., SSB, Kings
Mountain, North Carolina ("Home Savings"), and Estates Development
Corporation, Salisbury, North Carolina ("EDC"). All significant
intercompany balances have been eliminated.
Certain amounts have been reclassified to conform with the statement
presentation for 1994. The reclassifications have no effect on
stockholders' equity or net income as previously reported.
All dollar amounts except share and per share amounts in the notes to the
consolidated financial statements are in thousands.
(b) SECURITIES
As more fully described in note 3 to the consolidated financial statements,
Security Capital adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," on January 1, 1994.
The classification of securities is determined at the date of purchase.
Investment securities available for sale are recorded at market value with
a corresponding adjustment net of tax recorded as a component of
stockholders' equity. Security Capital intends to hold these securities for
an indefinite period of time but may sell them prior to maturity.
Investment securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Security Capital
intends and has the ability to hold such securities until maturity.
Gains and losses on sales of securities are recognized when realized, with
cost being determined by the specific identification method. Premiums and
discounts are amortized into interest income using a level yield method.
Regulations require the savings bank subsidiaries (i.e. OMNIBANK, Citizens,
and Home Savings) to maintain cash and approved securities in an amount
equal to a prescribed percentage (10% at December 31, 1994) of total
assets.
(c) LOANS HELD FOR SALE
Loans held for sale are carried at the lower of aggregate cost or market as
determined by the outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis. Gains
or losses resulting from sales of loans are recognized when the proceeds
are received from the investors.
(d) LOAN INTEREST INCOME
Loan interest income is recognized on the accrual basis.
The accrual of interest is generally discontinued on all loans that become
90 days past due as to principal or interest unless collection of both
principal and interest is assured by way of both collateralization,
guarantees, or other security, and the loan is in the process of
collection. Security Capital provides an allowance for uncollected accrued
interest income if, in the opinion of management, collectibility of that
accrued interest income is doubtful. This allowance is netted against
accrued interest income, which is included in other assets in the
accompanying consolidated financial statements. Interest income foregone on
nonaccrual and restructured loans for each of the years in the three-year
period ended December 31, 1994 was not significant.
F-7
(e) ALLOWANCE FOR LOAN LOSSES
Security Capital provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to it. Additions to the allowance for loan losses
are provided by charges to operations based on various factors that, in
management's judgment, deserve current recognition in estimating losses
inherent in the portfolio. Such factors considered by management include
the market value of the underlying collateral, growth and composition of
the loan portfolio, the relationship of the allowance for loan losses to
outstanding loans, delinquency trends and economic conditions. Management
evaluates the carrying value of loans periodically and the allowance is
adjusted accordingly. While management uses the best information available
to make evaluations, future adjustments may be necessary if economic and
other conditions differ substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses.
Such regulatory agencies may require the financial institution subsidiaries
to recognize additions to the allowance for loan losses based on their
judgments about information available to them at the time of their
examination.
(f) REAL ESTATE OWNED
Real estate owned is included in other assets and represent other real
estate that has been acquired through loan foreclosures or deed received in
lieu of foreclosure. Such properties are generally appraised annually and
are recorded at the lower of cost or fair value, less applicable selling
costs. Costs relating to the development and improvement of property are
capitalized, whereas those relating to holding the property are charged to
expense.
(g) PREMISES AND EQUIPMENT
Premises and equipment are recorded at cost, and depreciation is provided
over the estimated useful lives of the related assets principally on a
straight-line basis. Estimated lives are ten to fifty years for buildings,
building components and improvements; five to ten years for furniture,
fixtures, and equipment; and three years for automobiles. Leasehold
improvements are amortized on a straight-line basis over the lesser of
their estimated life or the remaining lease term.
Maintenance and repairs are charged to expense as incurred and improvements
are capitalized. The costs and accumulated depreciation relating to
premises and equipment retired or otherwise disposed of are eliminated from
the accounts and any resulting gains or losses are credited or charged to
income.
(h) INTANGIBLE ASSETS
Goodwill is being amortized on a straight-line basis over a 20-year period.
Deposit base premiums and mortgage servicing rights are being amortized
over 10 years using the sum-of-the-years digits method.
(i) LOAN ORIGINATION FEES AND COSTS
Loan origination fees and certain direct loan origination costs are
deferred and amortized over the contractual life of the related loan as an
adjustment of the loan yield using a level yield method. Direct costs of
unsuccessful loans and indirect costs are expensed as incurred.
(j) INCOME TAXES
Security Capital adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("Standard No.
109") during 1993 and has applied the provisions of the statement without
restating prior years' financial statements. Prior to the adoption of
Standard No. 109, Security Capital accounted for income taxes using the
deferred method required by APB Opinion 11. Standard No. 109 has changed
Security Capital's method of accounting for income taxes from the
deferred method to the asset and liability method. The objective of the
asset and liability method is to establish deferred tax assets and
liabilities for the temporary differences between the financial reporting
basis and the tax basis of Security Capital's assets and liabilities at
enacted rates expected to be in effect when such amounts are realized or
settled. Deferred tax assets are reduced, if necessary, by the amount of
such benefits that are not expected to be realized based upon available
evidence.
The cumulative effect of adopting Standard No. 109 as of January 1, 1993
was not material, and therefore no cumulative effect was presented in the
consolidated statement of income for the year ended December 31, 1993.
F-8
Pursuant to the deferred method under APB Opinion 11, which applied in 1992
and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
(k) NET INCOME AND DIVIDENDS PER SHARE
Net income per share has been computed by dividing net income by the
weighted average number of shares outstanding, as adjusted retroactively
for stock splits and stock dividends. Due to the pooling-of-interests
merger in 1992, as discussed in note 2, dividends per share for 1992 was
computed by dividing dividends paid by the weighted average number of
shares outstanding, as adjusted retroactively for stock splits and stock
dividends.
(l) CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, interest-bearing
balances in other banks, and federal funds sold. Generally, cash and cash
equivalents are considered to have maturities of three months or less.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
In December 1991 the FASB issued Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments"
("Statement No. 107"). Statement No. 107 requires disclosures about the
fair value of all financial instruments. Fair value estimates, methods, and
assumptions are set forth in note 17.
(n) POSTRETIREMENT BENEFITS
The FASB issued Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(Statement No. 106), which requires during an employee's active years of
service, accrual of expected costs of providing postretirement benefits,
principally health care and life insurance, to employees and their
beneficiaries and dependents. Statement No. 106 was effective for 1993, but
there was no material impact on Security Capital's consolidated financial
statements since Security Capital generally does not provide such benefits.
(2) ACQUISITIONS AND PENDING MERGER
Effective September 23, 1994, Security Capital purchased the outstanding
stock of First Federal Savings & 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.
Immediately prior to the acquisition, First Federal had assets of
$302,163,000, net loans of $135,819,000, deposits of $250,929,000,
stockholders' equity of $29,434,000, and net income for the period from
January 1, 1994, through September 23, 1994, of $855,000. As a result of
the acquisition, goodwill, deposit base premium, and mortgage servicing
rights were increased by $12,597,000, $3,222,000, and $1,042,000,
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.
The information below indicates, on a pro forma basis, amounts as if First
Federal had been purchased as of the beginning of each period presented.
[CAPTION]
Years Ended December 31,
1994 1993
(DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE DATA)
Net interest income $42,067 $39,447
Net income $ 4,754 $11,776
Net income per share $ 0.40 $ 1.00
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 $2,700 in deposits
in Bessemer City and First Citizens assumed approximately $6,400 in
deposits in Gastonia.
F-9
On June 30, 1992, Omni Capital Group, Inc. ("Omni"), a multiple thrift
holding company incorporated under the laws of the State of North Carolina
and the former parent of OMNIBANK, Citizens, Home Savings, and EDC, merged
with and into First Security Financial Corporation ("FSFC"), a bank holding
company incorporated under the laws of the State of North Carolina and the
parent of Security Bank (the "Merger"). Upon the completion of the Merger,
FSFC's name was changed to "Security Capital Bancorp". Pursuant to the
Agreement of Combination and the related Plan of Merger, which were
approved by the stockholders of both FSFC and Omni, 5,681,216 shares of
Security Capital common stock, no par value per share, were issued in
exchange for the surrender of the issued and outstanding shares of common
stock of Omni, par value of $1.00 per share, at an exchange ratio of 2.25
shares of Security Capital common stock for each such share of Omni common
stock. The Merger was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements for periods prior to the
Merger were restated to combine the accounts of FSFC and Omni.
On November 4, 1994, Security Capital and CCB Financial Corporation,
Durham, North Carolina ("CCB"), entered into a definitive Agreement of
Combination pursuant to which Security Capital will merge with and into
CCB, with CCB as the surviving corporation and continuing to operate under
its present name (the "Combination"). 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 Security Capital's common stock, no
par value. In connection with the Combination, Security Capital'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.
(3) INVESTMENT SECURITIES AVAILABLE FOR SALE
A summary of investment securities available for sale follows:
DECEMBER 31, 1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(Dollars in Thousands)
U.S. Government obligations $ 194,612 134 (6,106) 188,640
U.S. Government agency obligations 70,661 18 (3,688) 66,991
Mortgage-backed Securities 960 10 (43) 927
Other 66 33 -- 99
$ 266,299 195 (9,837) 256,657
Total proceeds from sales or issuer calls of investment securities available
for sale during 1994 were $71,430. There were gross gains of $6 and gross
losses of $76 realized in 1994. Investment securities available for sale
with an aggregate par value of $1,075 were pledged to secure public deposits
and for other purposes as required by various agencies.
The Financial Accounting Standards Board (FASB) has issued Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," that
requires debt and equity securities held: (i) to maturity 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, Security Capital adopted the provisions of Standard No.
115 and classified approximately $329,799 of securities as investment
securities available for sale. Security Capital recorded a fair value
adjustment for this change in accounting principle amounting to $6,075 for
the unrealized gain on investment securities available for sale, an increase
to deferred income taxes of $2,039, and an increase to stockholders' equity
of $4,036.
At December 31, 1994, Security Capital recorded a fair value adjustment
amounting to ($15,717) for the change in unrealized gain (loss) on
investment securities available for sale during the year, a deferred tax
benefit of $5,309, and a decrease to stockholders' equity of $10,408.
F-10
(4) INVESTMENT SECURITIES HELD TO MATURITY
A comparative summary of investment securities held to maturity follows:
DECEMBER 31, 1994
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
(DOLLARS IN THOUSANDS)
U.S. Government obligations $ 54,328 -- (1,953) 52,375
U.S. Government agency obligations 76,931 -- (3,412) 73,519
Mortgage-backed securities 8,659 6 (301) 8,364
State and municipal obligations 15,679 180 (327) 15,532
$ 155,597 186 (5,993) 149,790
December 31, 1993
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(DOLLARS IN THOUSANDS)
U.S. Government obligations $ 305,180 5,762 183 310,759
US Government agency obligations 40,409 304 345 40,368
Mortgage-backed securities 12,676 459 -- 13,135
State and municipal obligations 10,022 676 -- 10,698
Other 66 20 -- 86
$ 368,353 7,221 528 375,046
There were no sales or issuer calls of investment securities held to
maturity during 1994. Total proceeds from sales or issuer calls of
investment securities held to maturity during 1993 and 1992 were $5,860, and
$11, respectively. There were gross realized gains of $310 and $8,
respectively, and no gross realized losses in 1993 and 1992, respectively.
Investment securities held to maturity with an aggregate par value of
$18,050 were pledged to secure public deposits and for other purposes as
required by various agencies.
(5) LOANS RECEIVABLE
A comparative summary of loans receivable follows:
[CAPTION]
December 31,
1994 1993
(DOLLARS IN THOUSANDS)
Real estate mortgage (principally single family dwellings, 1-4 units) $447,452 338,562
Real estate construction 14,396 10,085
Commercial, financial, and agricultural 126,291 64,739
Installment 62,681 62,341
Unearned income (2,691) (2,698)
Premium on loans sold 102 173
$648,231 473,202
Nonaccrual and restructured loans included above $ 1,903 1,759
Accruing loans past due 90 days were $2,402 and $420 at December 31, 1994
and 1993, respectively.
Accrued interest receivable at December 31, 1994 and 1993, consisted of the
following:
[CAPTION]
December 31,
1994 1993
(DOLLARS IN THOUSANDS)
Loans $ 5,512 3,430
Investment securities 6,879 6,041
Other 94 70
$12,485 9,541
Certain real estate loans are pledged as collateral for advances from the
Federal Home Loan Bank ("FHLB") as set forth in note 8.
F-11
Loans serviced for others approximated $314,692, $203,403 and $174,884 at
December 31, 1994, 1993, and 1992, respectively.
Included in other assets are foreclosed properties (real estate owned) of
$1,704 and $951 at December 31, 1994 and 1993, respectively.
Security Capital's banking subsidiaries offer mortgage and consumer loans to
their officers, directors, and employees for the financing of their personal
residences and for other personal purposes. These loans are made in the
ordinary course of business and management believes they are made on
substantially the same terms, including interest rates and collateral,
prevailing at the time for comparable transactions with unaffiliated
persons. Management does not believe these loans involve more than the
normal risk of collectibility or present other unfavorable features.
The following is a reconciliation of loans outstanding in excess of $60 to
Security Capital's executive officers, directors, and their immediate
families for the year ended December 31, 1994:
(DOLLARS IN THOUSANDS)
Balance at December 31, 1993 $3,172
New loans 120
Repayments (1,219)
Balance at December 31, 1994 $2,073
The FASB has issued Standard No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that all creditors value all
specifically reviewed loans for which it is probable that the creditor will
be unable to collect all amounts due according to the terms of the loan
agreement at either the present value of expected cash flows discounted at
the loan's effective interest rate, or if more practical, the market price
or value of collateral. This Standard is required to be implemented
prospectively for fiscal years beginning after December 15, 1994. The FASB
has also issued Standard No. 118 "Accounting by Creditors for Impairment of
a Loan-Income Recognition and Disclosures", that amends Standard 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 Standard No. 114. At this time,
management does not anticipate a material impact to the consolidated
financial statements of Security Capital upon the adoption of these
Standards.
(6) ALLOWANCE FOR LOAN LOSSES
The following is a reconciliation of the allowance for loan losses for the
years ended December 31, 1994, 1993 and 1992:
[CAPTION]
Years Ended December 31,
1994 1993 1992
(DOLLARS IN THOUSANDS)
Balance at beginning of year $7,227 6,909 5,429
Charge-offs (581) (732) (1,024)
Recoveries 258 397 656
Net charge-offs (323) (335) (368)
Allowance of acquired institution 2,054 -- --
Provision for loan losses 359 653 1,848
Balance at end of year $9,317 7,227 6,909
F-12
(7) PREMISES AND EQUIPMENT
A comparative summary of premises and equipment follows:
[CAPTION]
December 31,
1994 1993
(DOLLARS IN THOUSANDS)
Land and land improvements $ 4,863 3,917
Office buildings and improvements 16,986 16,175
Furniture, fixtures, and equipment 14,788 11,910
Construction in progress 193 1,120
36,830 33,122
Accumulated depreciation (15,117) (14,762)
Premises and equipment, net $ 21,713 18,360
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK
A comparative summary of advances from the FHLB follows:
[CAPTION]
December 31,
Date Due Interest Rate 1994 1993
(DOLLARS IN THOUSANDS)
March 10, 1994 9.55% $ -- 1,000
March 31, 1995, variable rate 6.88 2,130 --
December 24, 1995 (Face amount of $1,000) 5.52 989 --
March 10, 1996 9.65 1,000 1,000
April 2, 1996 (Face amount of $2,000) 4.80 1,949 --
April 16, 1996 (Face amount of $1,000) 4.61 971 --
April 23, 1996 8.50 2,000 2,000
May 21, 1996 8.20 1,000 1,000
June 1, 1996 (Face amount of $1,500) 4.93 1,459 --
July 1, 1996 9.25 1,000 1,000
July 2, 1996 9.05 1,000 1,000
December 24, 1996 (Face amount of $1,000) 6.07 981 --
March 10, 1997 8.15 1,000 1,000
April 2, 1997 (Face amount of $3,000) 5.26 2,880 --
June 9, 2012 (Face amount of $330) 5.69 217 --
$18,576 8,000
At December 31, 1994, stock owned by Security Bank and OMNIBANK in the FHLB,
totaling $2,890, certain securities and mortgage loans were pledged to
secure these advances.
F-13
(9) INCOME TAXES
As discussed in the Summary of Significant Accounting Policies, Security
Capital adopted Standard No. 109 as of January 1, 1993. The cumulative
effect of this change in accounting for income taxes of $388 as of January
1, 1993 is reflected in the 1993 financial statements as a reduction of
income tax expense. Financial statements for the periods prior to 1993 have
not been restated to apply the provisions of Standard No. 109.
Income tax expense (benefit) for the years ended December 31, 1994, 1993,
and 1992, was as follows:
Current Deferred Total
(DOLLARS IN THOUSANDS)
1994:
FEDERAL $6,824 4,010 10,834
STATE 506 536 1,042
$7,330 4,546 11,876
1993:
Federal 7,019 (132) 6,887
State 403 (17) 386
$7,422 (149) 7,273
1992:
Federal 6,745 (839) 5,906
State 417 -- 417
$7,162 (839) 6,323
The income tax expense of Security Capital for the years ended December 31,
1994, 1993, and 1992, was different from the amount computed by applying the
federal income tax rate to income before income taxes because of the
following:
[CAPTION]
1994 1993 1992
Amount Percent Amount Percent Amount Percent
(DOLLARS IN THOUSANDS)
Income tax expense at federal rate $6,479 35.0% $7,739 35.0% $5,537 34.0%
Increase (decrease) in income taxes
resulting from:
Adjustment to deferred tax assets and
liabilities for enacted changes in tax
laws and rates -- -- (48) (.2) -- --
Change in beginning-of-the-year deferred
tax assets valuation allowance (92) (.5) (46) (.2) -- --
Tax-exempt interest (247) (1.3) (301) (1.3) (361) (2.2)
Thrift bad debt provision for financial
reporting purposes in excess of current
year loan losses -- -- -- -- 504 3.1
Thrift bad debt reserve recapture 4,906 26.5 -- -- -- --
State income tax expense, net of federal
income tax benefit 677 3.7 251 1.1 275 1.7
Other, net 153 .8 (322) (1.5) 368 2.2
$11,876 64.2% $7,273 32.9% $6,323 38.8%
For the year ended December 31, 1992, deferred income tax benefits resulted
from timing differences in the period in which revenues and expenses were
recognized for income tax and financial statement purposes. The sources of
these differences and the tax effects of each are presented below:
[CAPTION]
1992
(DOLLARS
IN
THOUSANDS)
Deferred compensation $ (327)
Accrued expenses, not deductible until paid (258)
Other, net (254)
$ (839)
F-14
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities (assets) at December
31, 1994 and 1993, are presented below:
1994 1993
(Dollars in Thousands)
Deferred tax liabilities:
Depreciation $ 925 987
FHLB Stock -- book basis greater than tax basis 881 869
Prepaid FDIC premium 502 --
Prepaid pension expense 231 232
Bank bad debt recapture 116 204
FHLMC discount accretion 151 207
Thrift bad debt reserve recapture 5,627 --
Other 97 98
Total gross deferred tax liabilities 8,530 2,597
Deferred tax assets:
Unrealized loss on investment securities available for sale (3,886) --
Provision for loan losses, net (2,934) (1,687)
Net deferred loan fees (522) (603)
Accrued expenses, deductible when paid (1,902) (1,711)
Intangible assets tax basis greater than book basis (39) --
Other (197) (298)
Total gross deferred tax assets (9,480) (4,299)
Deferred tax assets valuation allowance 725 201
Net deferred tax asset $ (225) (1,501)
A portion of the change in the net deferred tax asset relates to unrealized
losses on investment securities available for sale. The related current
period deferred tax benefit of $3,270, net of a charge of $616 to the
valuation allowance, has been recorded directly to stockholders' equity. The
balance of the change in the net deferred tax asset results from the current
period deferred tax expense of $4,546.
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income
in certain periods, and the utilization of tax planning strategies.
Management has determined that it is more likely than not that the net
deferred tax asset can be supported by carrybacks to federal taxable income
and by expected future taxable income which will far exceed amounts
necessary to fully realize remaining deferred tax assets resulting from the
scheduling of temporary differences. The valuation allowance primarily
relates to certain state temporary differences. At January 1, 1993, the
valuation allowance was $247. The change in the valuation allowance during
1994 and 1993 was a net increase (decrease) of $524 and $(46), respectively.
Under the Internal Revenue Code of 1986, Security Capital's savings bank
subsidiaries are allowed a special bad debt deduction related to additions
to tax bad debt reserves established for the purpose of absorbing losses. A
reduction of such reserves for purposes other than bad debt losses will
create income for tax purposes only, which will be subject to the then
current corporate income tax rates. Under the provisions of APB Opinion 23,
a deferred tax liability is not currently recognized for temporary
differences resulting from a savings bank's base year tax bad debt reserve.
At December 31, 1993, the potential deferred tax liability related to the
recapture of this portion of the tax bad debt reserve was approximately
$5,600. As a result of the savings bank subsidiaries change in tax
accounting method to the specific charge-off method for bad debts during
1994, Security Capital has recorded an additional federal and state income
tax expense in 1994 of $5,600 to fully recapture prior amounts. At December
31, 1994, there are no remaining amounts included in retained earnings for
which a provision for federal or state income tax has not been made.
In 1994, the Internal Revenue Service examination of Security Capital's 1992
federal income tax return was settled with no material impact on Security
Capital's financial position or results of operations. Income tax returns
subsequent to 1992 are subject to examination by the taxing authorities.
F-15
(10) STOCKHOLDERS' EQUITY
At the time of their conversions to stock ownership, liquidation accounts
were established for each of Security Capital's savings bank subsidiaries
in amounts equal to their respective regulatory capital. Each eligible
deposit account holder, as described in the respective plans of
conversion, is entitled to a proportionate share of this account in the
event of a complete liquidation of any of these subsidiaries, and only in
such event. This share will be reduced if the account holder's balance in
the related deposit account falls below the amount in such account on the
date(s) of record, and will cease to exist if the account is closed. The
liquidation accounts will never be increased despite any increase after
the conversions in the related balance of an account holder.
Security Capital and its banking subsidiaries must comply with certain
regulatory capital requirements established by the FRB and the FDIC. At
December 31, 1994, these standards required Security Capital and its
banking subsidiaries to maintain minimum ratios of Tier 1 capital (as
defined) to total risk-weighted assets and total capital (as defined) to
risk-weighted assets of 4.00% and 8.00%, respectively, and a minimum ratio
of Tier 1 capital to total assets (as defined) of 3.00% to 5.00%,
depending upon the specific institution's composite ratings as determined
by its regulators. At December 31, 1994, Security Capital and its banking
subsidiaries were in compliance with all of the aforementioned capital
requirements.
Security Capital also has authorized 5,000,000 shares of no par value
preferred stock, none of which is issued and outstanding at December 31,
1994.
(11) PENSION, PROFIT SHARING, AND INCENTIVE COMPENSATION PLANS
Security Capital had a profit sharing plan (the "Profit Sharing Plan")
covering certain of Security Bank's employees. In 1993 Security Capital
merged the Profit Sharing Plan into an Employees' Incentive Profit Sharing
and Savings (401k) Plan (the "Incentive Plan") for the benefit of the
eligible employees of Security Capital and its subsidiaries. As a result,
Security Capital made contributions to the Incentive Plan in 1993 rather
than to the Profit Sharing Plan. Contributions to the Incentive Plan are
based on a percentage of Security Capital's profits, as computed by a
formula set by the Board of Directors. The maximum allowable contribution
is 15% of the participating employee's compensation. Profit sharing costs
charged to expense approximated $360 in 1994, $694 in 1993, and $329 in
1992.
Security Bank sponsored a noncontributory defined benefit plan which
covered substantially all the employees of Security Bank and Security
Capital sponsored a noncontributory defined benefit plan for the benefit
of the employees of the savings bank subsidiaries (the "Plans"). The
Plans were merged into one defined benefit pension plan covering all
eligible employees of Security Capital and its subsidiaries as of January
1, 1993. Benefits for the Plan are based on years of service and the
employee's annual compensation during his or her term of employment.
Security Capital's funding policy is to contribute annually to the Plan
the maximum amount that can be deducted for federal income tax purposes.
Contributions are intended to provide for benefits attributed to service
to date but also for those expected to be earned in the future.
The following table sets forth the Plans' funded status and amounts
recognized in the consolidated balance sheets at December 31, 1994 and
1993.
[CAPTION]
1994 1993
(DOLLARS IN THOUSANDS)
Plans' assets at fair value, primarily short-term investments and U.S.
Treasury securities $ 7,660 7,028
Actuarial present value of projected benefit obligation for service rendered
to date 7,921 9,503
Plans' assets less than projected benefit obligation (261) (2,475)
Unrecognized net transition asset being recognized over 18 years (443) (487)
Unrecognized net (gain) loss (349) 1,693
Unrecognized prior service cost 1,490 1,628
Prepaid pension cost included in other assets $ 437 359
F-16
The actuarial present value of the accumulated benefit obligation amounted
to $6,095 in 1994 and $6,341 in 1993, including vested benefits of $5,924 in
1994 and $6,135 in 1993.
Net periodic pension cost for the Plans for the three years ended December
31, 1994 included the following components:
[CAPTION]
1994 1993 1992
(DOLLARS IN THOUSANDS)
Service cost -- benefits earned during the period $ 410 374 403
Interest cost on projected benefit obligation 596 586 367
Return on Plans' assets (334) (467) (390)
Net amortization and deferral (160) 14 --
Net periodic pension cost $ 512 507 380
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 8.0% in 1994, 7.0%
in 1993 and 7.75% in 1992. The expected rate of increase in future
compensation levels was 5.0% in 1994, 6.0% in 1993 and 6.5% to 8.0% in
1992. The expected long-term rate of return on assets was 8.0% in 1994 and
1993 and 7.0% to 8.0% in 1992.
Prior to the acquisition, First Federal had a defined contribution plan
where eligible employees would receive a contribution on their behalf in an
amount equal to 15% of annual compensation. Security Capital made a
contribution to this plan for remaining eligible employees in the amount of
$66 in 1994. Management plans to terminate this plan in early 1995.
(12) STOCK OPTION PLANS
Security Capital has continued in effect the Omni Capital Group, Inc. 1988
Incentive Stock Option Plan pursuant to which options to purchase Security
Capital common stock may be granted to certain full-time officers and
employees at an exercise price equal to the fair market value of the stock
on the date of grant. Such options are exercisable for a ten year period.
An aggregate of 675,000 shares of common stock is reserved for issuance
under this plan. In the case of an employee who owns more than 10% of
Security Capital's outstanding common stock at the time the option is
granted, the option price may not be less than 110% of the fair market
value of the shares on the date of grant, and shall be exercisable after
the expiration of six months and before the expiration of five years from
the date of grant.
Security Capital has also continued in effect the Omni Capital Group, Inc.
1988 Directors' Non-Qualified Stock Option Plan, pursuant to which certain
non-employee members of the boards of directors of Security Capital and its
subsidiaries have been granted options to purchase Security Capital common
stock at an exercise price equal to the fair market value of the common
stock on the date of grant. Options granted under this plan must be
exercised within five years from the date of grant.
On March 15, 1988, OMNIBANK adopted two stock option plans, the Home
Federal Savings Bank 1988 Amended and Restated Directors' Non-Qualified
Stock Option Plan and the Home Federal Savings Bank 1988 Incentive Stock
Option Plan (the "Home Option Plans"), which plans became effective upon
the completion of its conversion from a mutual savings and loan association
to a capital stock savings bank. Home Federal Savings Bank was subsequently
renamed OMNIBANK. Security Capital has continued the Home Option Plans. An
aggregate number of shares amounting to 337,500 has been reserved by
Security Capital to be issued upon the exercise of stock options which have
been granted to certain directors, officers, and employees of Security
Capital under the Home Option Plans. No more options may be granted under
the Home Option Plans.
All stock options outstanding at the time of the Merger were converted into
options to acquire common stock of Security Capital.
The shareholders of Security Capital approved an Omnibus Stock Ownership
and Long Term Incentive Compensation Plan at the 1994 annual meeting. The
plan added 300,000 shares of common stock available to be granted to key
employees and officers of Security Capital or its subsidiaries. Options are
priced at 100% or more of the fair market value of the stock at the time
the option is granted. These options are first subject to vesting on the
second anniversary of the date of grant and vest over the next five years
in annual increments of 20%.
F-17
The following table reflects the combined status of all of the above stock
option plans at December 31, 1994:
Available Shares
for Subject to Price
Future Outstanding per
Grants Options Exercisable Share
Directors' Non-Qualified Stock Option Plans:
(1)
Balance outstanding at December 31, 1992 72,947 108,016 -- $ 3.56-7.67
Granted -- -- -- --
Exercised -- (65,834) -- $ 3.56-5.78
Balance outstanding at December 31, 1993 72,947 42,182 42,182 3.56-7.67
GRANTED -- -- -- --
EXERCISED -- (35,095) -- 4.08-5.78
BALANCE OUTSTANDING AT DECEMBER 31, 1994 72,947 7,087 7,087 $ 7.67
Incentive Stock Option Plans: (2)
Balance outstanding at December 31, 1992 247,500 435,936 -- $ 3.56-7.11
Granted -- -- -- --
Exercised -- (71,031) -- 3.56-7.11
Balance outstanding at December 31, 1993 247,500 364,905 364,905 3.56-7.11
GRANTED -- -- -- --
EXERCISED -- (57,935) -- 3.56-7.11
BALANCE OUTSTANDING AT DECEMBER 31, 1994 247,500 306,970 306,970 $ 3.56-7.11
1994 Omnibus Stock Ownership and Long Term
Incentive Plan:
Balance outstanding at December 31, 1993 -- -- -- --
Common stock available to be granted 300,000 -- -- --
GRANTED (71,000 ) 71,000 -- $ 13.625-15.375
EXERCISED -- -- -- --
BALANCE OUTSTANDING AT DECEMBER 31, 1994 229,000 71,000 -- $ 13.625-15.375
(1) INCLUDES THE HOME FEDERAL SAVINGS BANK AMENDED AND RESTATED 1988
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN AND THE OMNI CAPITAL GROUP,
INC. 1988 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN.
(2) INCLUDES THE HOME FEDERAL SAVINGS BANK 1988 INCENTIVE STOCK OPTION PLAN
AND THE OMNI CAPITAL GROUP, INC, 1988 INCENTIVE STOCK OPTION PLAN.
(13) EMPLOYEE STOCK OWNERSHIP PLAN
Security Capital continued Omni's Employee Stock Ownership Plan (the
"ESOP") for the benefit of the former employees of Omni and its
subsidiaries. Contributions to the ESOP were made on a discretionary basis
and were allocated to each eligible employee based on his/her salary in
relation to total employee compensation expense. At retirement or
termination of employment, each employee will receive an amount equal to
his/her vested interest in the ESOP in the form of cash or common stock.
In connection with the mutual to stock conversions of the savings bank
subsidiaries, the ESOP borrowed funds to purchase Omni common stock for the
ESOP. Upon the Merger, the shares of Omni common stock held in the ESOP
were exchanged for shares of Security Capital common stock. During 1992,
Security Capital repurchased sufficient remaining unallocated shares of
Security Capital common stock held by the ESOP to eliminate the remaining
balance of the related debt. In 1994 and 1993, Security Capital made
contributions to the Incentive Plan discussed in Note 11 rather than to the
ESOP. Security Capital plans to officially terminate the ESOP in 1995.
ESOP costs charged to expense amounted to $5, $10 and $334 in 1994, 1993
and 1992, respectively.
(14) COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK
Security Capital is a defendent in various litigation arising in the normal
course of business. In the opinion of management, resolution of these
matters will not result in a material adverse effect on Security Capital's
financial position.
In the normal course of business, there are outstanding various commitments
to extend credit which are not reflected in the consolidated financial
statements. At December 31, 1994, outstanding loan commitments approximated
$2,591 (Fixed Rate -- $349, Variable Rate -- $2,242), preapproved but
unused lines of credit for loans
F-18
totalled $95,198 and standby letters of credit aggregated $675. These
amounts represent Security Capital's exposure to credit risk, and in the
opinion of management have no more than the normal lending risk that
Security Capital's banking subsidiaries commit to their borrowers. If these
commitments are drawn, Security Capital's banking subsidiaries will obtain
collateral if it is deemed necessary based on management's credit
evaluation of the borrower. Collateral held varies but may include accounts
receivable, inventory, and commercial or residential real estate.
Management expects that these commitments can be funded through normal
operations. In addition, Security Capital has no off-balance sheet
derivative commitments.
Security Capital's banking subsidiaries make primarily commercial, real
estate and installment loans to customers throughout their market areas,
which consists primarily of the south central and western Piedmont regions
of North Carolina. These 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.
Average daily Federal Reserve balance requirements for Security Bank and
the savings bank subsidiaries for the two week period ended January 4, 1995
amounted to $6,765 and $525, respectively.
(15) SUMMARY OF QUARTERLY INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income information for the years ended December 31,
1994 and 1993, follows:
YEAR ENDED DECEMBER 31, 1994
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
INTEREST INCOME $ 15,068 15,430 15,988 21,050
INTEREST EXPENSE 6,443 6,342 6,739 9,799
NET INTEREST INCOME 8,625 9,088 9,249 11,251
PROVISION FOR LOAN LOSSES 87 84 97 91
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 8,538 9,004 9,152 11,160
OTHER INCOME 2,439 2,140 1,577 2,200
OTHER EXPENSE 5,753 6,100 8,269 7,578
INCOME BEFORE INCOME TAXES 5,224 5,044 2,460 5,782
INCOME TAXES 1,762 1,581 6,500 2,033
NET INCOME $ 3,462 3,463 (4,040) 3,749
NET INCOME PER SHARE $ .30 .30 (.34) .32
Year Ended December 31, 1993
Three Months Ended
March 31 June 30 September 30 December 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Interest income $ 16,498 16,279 15,933 15,513
Interest expense 7,248 7,104 6,986 6,797
Net interest income 9,250 9,175 8,947 8,716
Provision for loan losses 184 153 170 146
Net interest income after provision for loan
losses 9,066 9,022 8,777 8,570
Other income 2,611 2,600 2,785 2,523
Other expense 6,163 6,200 6,037 5,442
Income before income taxes 5,514 5,422 5,525 5,651
Income taxes 1,545 1,770 2,017 1,941
Net income $ 3,969 3,652 3,508 3,710
Net income per share $ .33 .31 .30 .32
F-19
(16) PARENT COMPANY FINANCIAL DATA
The primary assets of Security Capital (the "Parent Company") are its
investments in subsidiaries and its principal source of income is dividends
from these subsidiaries. Certain regulatory and other requirements restrict
the lending of funds by the subsidiaries to the Parent Company and the
amount of dividends which can be paid to the Parent Company. Subject to
restrictions imposed by state laws and federal regulations, the Boards of
Directors of the Parent Company's subsidiaries may declare dividends from
their retained earnings of up to approximately $36,900 at December 31,
1994. The subsidiaries are prohibited by law from paying dividends from
their capital stock and paid-in capital accounts totaling approximately
$38,100 at December 31, 1994.
The following is a summary of selected financial information for the Parent
Company:
[CAPTION]
Balance Sheets December 31,
1994 1993
(DOLLARS IN THOUSANDS)
Assets:
Cash on deposit with subsidiaries $ 5,767 13,488
Investments in and advances to subsidiaries 113,617 110,762
Investment securities available for sale (amortized cost of $66 at December
31, 1994) 99 --
Investment securities (market value of $86 at December 31, 1993) -- 66
Other assets 417 --
Total assets $119,900 124,316
Liabilities and stockholders' equity:
Other liabilities 140 96
Total liabilities 140 96
Stockholders' equity:
Common stock 51,610 51,167
Retained earnings, substantially restricted 74,522 73,053
Unrealized loss on investment securities available for sale (6,372) --
Total stockholders' equity 119,760 124,220
Total liabilities and stockholders' equity $119,900 124,316
[CAPTION]
Statements of Income Years Ended December 31,
1994 1993 1992
(DOLLARS IN THOUSANDS)
Dividends from subsidiaries $10,111 15,184 5,434
Management income from subsidiaries 1,105 639 1,552
Equity in undistributed net (loss) income of subsidiaries (3,478) (233) 4,393
Other income 19 165 145
Total income 7,757 15,755 11,524
Expenses 1,123 916 1,563
Net income $ 6,634 14,839 9,961
F-20
[CAPTION]
Statements of Cash Flows Years Ended December 31,
1994 1993 1992
(DOLLARS IN THOUSANDS)
Cash flows from operating activities:
Net income $ 6,634 14,839 9,961
Adjustments to reconcile net income to net cash provided by operating
activities:
Decrease (increase) in other assets (417) 158 1,654
Equity in undistributed net loss (income) of subsidiaries 3,478 233 (4,393)
Increase in other liabilities 44 46 50
Net cash provided by operating activities 9,739 15,276 7,272
Cash flows from investing activities:
Decrease (increase) in advances to subsidiaries (12,738) 2,215 (2,532)
Purchases of investment securities -- (66) --
Net cash provided (used) by investing activities (12,738) 2,149 (2,532)
Cash flows from financing activities:
Purchase and retirement of common stock -- (3,559) (509)
Proceeds from stock options exercised 443 606 158
Dividends paid to stockholders (5,165) (4,594) (3,712)
Net cash used by financing activities (4,722) (7,547) (4,063)
Net increase (decrease) in cash and cash equivalents (7,721) 9,878 677
Cash and cash equivalents at beginning of year 13,488 3,610 2,933
Cash and cash equivalents at end of year $ 5,767 13,488 3,610
Supplemental schedule of noncash investing activities:
Unrealized gain on parent company investment securities available for
sale $ 33 -- --
Unrealized loss on subsidiaries investment securities available for
sale (6,405) -- --
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" ("Statement No. 107") was issued by
the FASB in December 1991. Statement No. 107 requires disclosures about the
fair value of all financial instruments. Fair value estimates, methods, and
assumptions are set forth below for each type of financial instrument.
CASH, FEDERAL FUNDS SOLD AND SHORT-TERM BORROWINGS
The carrying amount of cash, federal funds sold, short-term borrowings, and
accrued interest receivable or payable on all financial instruments
approximate fair value because of the short terms to maturity of these
financial instruments.
INVESTMENT SECURITIES AVAILABLE FOR SALE
The following table presents the carrying value and estimated fair value of
investment securities available for sale at December 31, 1994:
1994
Estimated
Fair Value
Amortized and Carrying
Cost Value
(DOLLARS IN THOUSANDS)
US Government Obligations:
Due in one year or less $ 63,227 62,976
Due after one year through five years 129,315 123,602
Due after five years through ten years 2,070 2,062
US Government agency obligations:
Due in one year or less 1,006 1,004
Due after one year through five years 49,882 46,384
Due after five years through ten years 19,773 19,603
Mortgage-backed securities: 960 927
Other:
Due after ten years 66 99
$266,299 256,657
F-21
The fair value of debt securities is established based on bid prices
published in financial newspapers or bid quotations received from securities
dealers.
INVESTMENT SECURITIES HELD TO MATURITY
The following table presents the carrying value and estimated fair value of
investment securities held to maturity at December 31, 1994 and 1993:
At December 31,
1994 1993
Amortized Amortized
Cost and Cost and
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(DOLLARS IN THOUSANDS)
US Government obligations:
Due in one year or less $ 1,000 1,000 94,356 95,719
Due after one year through five years 53,328 51,375 210,824 215,040
US Government agency obligations:
Due in one year or less -- -- 500 505
Due after one year through five years 45,968 43,613 34,947 34,724
Due after five years through ten years 30,963 29,906 4,962 5,139
Mortgage-backed securities: 8,659 8,364 12,676 13,135
State and municipal obligations:
Due in one year or less 6,509 6,612 1,002 1,018
Due after one year through five years 2,484 2,561 9,020 9,680
Due after five years through ten years 1,276 1,243 -- --
Due after ten years 5,410 5,116 -- --
Other:
Due after ten years -- -- 66 86
$155,597 149,790 368,353 375,046
The fair value of debt securities, except certain state and municipal
obligations, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair
value of certain state and municipal obligations is not readily available
through market sources other than dealer quotations, so fair value estimates
are based on quoted market prices of instruments similar to those being
valued, adjusted for differences between the quoted instruments and the
instruments being valued.
LOANS
For purposes of estimating fair value of loans, the portfolio is segregated
by type based on similar characteristics such as real estate mortgage, real
estate construction and installment and equity lines of credit.
The fair value of loans is calculated by discounting estimated cash flows
using current rates at which similar loans would be made to borrowers with
similar credit risk. Cash flows for fixed rate loans are based on the
weighted average maturity of the specific loan category. Adjustable rate
loans are either prime based and are repriced immediately or monthly as
prime changes, or are based on published indices and have relatively short
terms to their repricing dates.
The following table presents fair value information for loans:
1994 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(DOLLARS IN THOUSANDS)
Loans, net $638,914 615,451 465,975 472,092
Loans held for sale $ 2,697 2,697 18,409 18,411
F-22
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and money market
deposits is the amount payable on demand. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
The following table presents fair value information for deposits:
At December 31,
1994 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(DOLLARS IN THOUSANDS)
Demand deposit- noninterest-bearing $ 67,203 67,203 67,830 67,830
Demand deposit- interest bearing 91,071 91,071 76,130 76,130
Insured money market accounts 94,981 94,981 79,711 79,711
Savings deposits 165,107 165,107 151,360 151,360
Certificates of deposit 593,783 581,144 409,425 411,365
$1,012,145 999,506 784,456 786,396
ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWED MONEY
The fair value of advances from the FHLB is based on quoted market prices
for the same or similar issues or on the current rates offered to Security
Capital for debt of the same remaining maturities. At December 31, 1994 and
1993, the carrying value of advances from the FHLB was $18,576 and $8,000,
respectively, and the fair value was $18,477 and $8,539, respectively.
The fair value of other borrowed money, consisting of securities sold under
agreements to repurchase, bearing a short term to maturity, is considered to
approximate carrying value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The large majority of commitments to extend credit and standby letters of
credit are at variable rates and/or have relatively short terms to maturity
and, therefore, are subject to minimal interest rate risk exposure.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time Security Capital's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of Security Capital's financial instruments, fair value estimates
are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
the estimates.
Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are
not considered financial instruments. For example, a significant asset not
considered a financial asset is premises and equipment. In addition, tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
F-23
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.
F-24
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.
F-25
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.
F-26
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.
F-27
CCB Financial Corporation
Pro forma Combined Condensed Balance Sheet
As of March 31, 1995
(Unaudited)
The following unaudited pro forma combined condensed balance sheet
reflects (i) the consolidated condensed historical balance sheets of CCB
Financial Corporation ("CCBF") and Security Capital Bancorp ("SCBC") as of
March 31, 1995 and (ii) the pro forma combined condensed balance sheet of
CCBF as of March 31, 1995, giving effect to the merger on a pooling of
interests accounting basis. Accordingly, under generally accepted accounting
principles, the consolidated assets and liabilities of SCBC will be reported
on the books of CCBF at their respective book values at the date of merger
and CCBF's consolidated financial statements for prior periods will be restated
to reflect the consolidated assets, liabilities and operations of SCBC for
such periods. No goodwill or other intangible assets will be created
in connection with the merger. The pro forma data are not necessarily
indicative of the results of the future operations of the combined entity or
the actual results that would have occurred had the merger been consummated
prior to the periods indicated.
In the opinion of the respective management of CCBF and SCBC, all adjustments
necessary for a fair presentation of results of interim periods of CCBF and
SCBC (none of which were other than normal accruals) have been included.
The unaudited pro forma combined condensed balance sheet should be read in
conjunction with the previously filed consolidated historical financial
statements of CCBF and the consolidated historical financial statements of
SCBC, including the respective notes thereto, which are set forth herein.
The unaudited pro forma condensed retained earnings does not reflect the
recognition of any restructuring expenses incurred, transaction expenses
incurred or cost savings from operating efficiencies which may be realized
in connection with the merger.
F-28
PRO FORMA COMBINED CONDENSED BALANCE SHEET
As of March 31, 1995
(Unaudited)
CCBF
Pro Forma Pro Forma
CCBF SCBC Adjustments Combined
(Dollars in Thousands)
Assets
Cash and due from banks $ 152,023 18,773 - 170,796
Time deposits in other banks 25,676 18,767 - 44,443
Federal funds sold and other short-term investments 140,000 19,448 - 159,448
Investment securities:
Available for sale 503,418 259,332 - 762,750
Held for investment 81,525 154,197 - 235,722
Loans and lease financing 2,576,006 657,372 - 3,233,378
Less reserve for loan and lease losses 32,503 9,409 - 41,912
Net loans and lease financing 2,543,503 647,963 - 3,191,466
Premises and equipment 44,298 21,300 - 65,598
Other assets 80,527 41,035 - 121,562
Total assets $3,570,970 1,180,815 - 4,751,785
Liabilities
Deposits:
Noninterest-bearing $ 415,269 67,144 - 482,413
Interest-bearing 2,663,889 948,150 - 3,612,039
Total deposits 3,079,158 1,015,294 - 4,094,452
Federal funds purchased, master notes and securities
sold under agreements to repurchase 38,410 - - 38,410
Other short-term borrowed funds 33,390 3,718 - 37,108
Long-term debt 70,449 18,681 - 89,130
Other liabilities 82,462 17,354 - 99,816
Total liabilities 3,303,869 1,055,047 - 4,358,916
Shareholders' equity
Common stock 45,504 51,625 (22,170)(1) 74,959
Additional paid-in capital 69,851 - 22,170 (1) 92,021
Retained earnings 158,910 77,096 - 236,006
Unrealized loss on investment securities available
for sale, net of applicable taxes (4,455) (2,953) - (7,408)
Less: Unearned common stock held
by management recognition plans (2,709) - - (2,709)
Total shareholders' equity 267,101 125,768 - 392,869
Total liabilities and shareholders' equity $3,570,970 1,180,815 - 4,751,785
(1) Based on the exchange ratio of .50 for conversion of Security Capital
Bancorp stock into CCB Financial Corporation stock. At March 31, 1995, CCB
Financial Corporation and Security Capital Bancorp had 9,100,895 and
11,780,086 shares outstanding, respectively.
F-29
CCB Financial Corporation
Pro forma Combined Condensed Statements of Income
As of March 31, 1995
(Unaudited)
The following unaudited pro forma combined condensed statements of income
reflect (i) the consolidated condensed historical statements of income of
CCB Financial Corporation ("CCBF") and Security Capital Bancorp ("SCBC") and
(ii) the pro forma combined condensed statements of income of CCBF, giving
effect to the merger on a pooling of interests accounting basis. The data are
not necessarily indicative of the results of the future operations of the
combined entity or the actual results that would have occurred had the merger
been consummated prior to the periods indicated.
In the opinion of the respective management of CCBF and SCBC, all adjustments
necessary for a fair presentation of results of interim periods of CCBF and
SCBC (none of which were other than normal accruals) have been included.
The unaudited pro forma combined condensed statements of income should be read
in conjunction with the previously filed consolidated historical financial
statements of CCBF and the consolidated historical financial statements of
SCBC, including the respective notes thereto, which are set forth herein.
The unaudited pro forma combined financial information does not reflect the
recognition of any restructuring expenses incurred, transaction expenses
incurred or cost savings from operating efficiencies which may be realized in
connection with the merger. Current estimates of restructuring expenses for
1995 are $_____ million and transaction expenses are estimated to total $3
million. The cost savings associated with these possible operating efficiencies
and synergies have not been quantified, nor are any such savings assured. It
is anticipated that any such savings will not be achieved until the fiscal
quarters following the quarter in which the expenses of the merger
are recognized.
F-30
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Three Months Ended March 31, 1995
(Unaudited)
CCBF
Pro Forma
CCBF SCBC Combined(1)
(Dollars in thousands, except per share data)
Interest income
Loan and leases $ 59,134 14,197 73,331
Investment securities 9,802 6,471 16,273
Other 2,552 571 3,123
Total interest income 71,488 21,239 92,727
Interest expense
Deposits 28,621 10,099 38,720
Long-term debt and other borrowings 2,593 357 2,950
Total interest expense 31,214 10,456 41,670
Net interest income 40,274 10,783 51,057
Provision for loan and lease losses 2,030 120 2,150
Net interest income after provision for loan and lease losse 38,244 10,663 48,907
Other income
Service charges on deposit accounts 5,081 410 5,491
Nondeposit fees and commissions 1,607 1,235 2,842
Other 4,557 825 5,382
Investment securities gains (losses), net (1,326) - (1,326)
Total other income 9,919 2,470 12,389
Other expenses
Personnel 16,407 3,562 19,969
Net occupancy and equipment 2,217 1,224 3,441
Federal deposit and other insurance 2,090 652 2,742
Other operating 10,988 1,806 12,794
Total other expenses 31,702 7,244 38,946
Income before income taxes 16,461 5,889 22,350
Income taxes 5,431 2,020 7,451
Net income $ 11,030 3,869 14,899
Net income per share $ 1.21 .33 .99
Weighted average shares outstanding 9,108,804 11,778,680 14,998,144(2)
(1) No pro forma adjustments are reflected in the Pro Forma
Condensed Statements of Income.
(2) Based on the Exchange Ratio of .50 for conversion of SCBC Stock
into CCBF Stock.
F-31
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Year Ended December 31, 1994
(Unaudited)
CCBF
Pro Forma
CCBF SCBC Combined(1)
(Dollars in thousands, except per share data)
Interest income
Loans and leases $ 199,014 43,951 242,965
Investment securities 35,817 22,138 57,955
Other 6,899 1,447 8,346
Total interest income 241,730 67,536 309,266
Interest expense
Deposits 89,045 28,363 117,408
Long-term debt and other borrowings 7,930 960 8,890
Total interest expense 96,975 29,323 126,298
Net interest income 144,755 38,213 182,968
Provision for loan and lease losses 8,920 359 9,279
Net interest income after provision for loan 135,835 37,854 173,689
Other income
Service charges on deposit accounts 19,307 4,431 23,738
Nondeposit fees and commissions 11,833 1,485 13,318
Other 8,967 2,510 11,477
Investment securities gains (losses), net 427 (70) 357
Total other income 40,534 8,356 48,890
Other expenses
Personnel 58,600 14,768(2) 73,368
Net occupancy and equipment 17,446 3,942 21,388
Federal deposit and other insurance 2,230 2,230
Other operating 42,879 6,760(2) 49,639
Total other expenses 118,925 27,700 146,625
Income before income taxes 57,444 18,510 75,954
Income taxes 18,967 11,876(3) 30,843
Net income $ 38,477 6,634 45,111
Net income per share $ 4.06 .57 2.94
Weighted average shares outstanding 9,485,259 11,738,083 15,354,301(4)
(1) No pro forma adjustments are reflected in the Pro Forma Condensed
Statements of Income.
(2) SCBC recognized non-recurring expenses of approximately $1,100,000
in connection with the acquisition of First Federal, which related
to severance, professional fees, marketing and discontinued contracts.
(3) Includes a one-time charge of approximately $5,600,000 as a result of
SCBC's savings bank subsidiaries change in tax accounting method to the
specific charge-off method for bad debts during 1994.
(4) Based on the Exchange Ratio of .50 for conversion of SCBC Stock into CCBF
Stock.
F-32
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
(UNAUDITED)
CCBF
PRO FORMA
CCBF SCBC COMBINED (1)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
INTEREST INCOME
Loans and leases................................................................... $155,394 41,195 196,589
Investment securities.............................................................. 30,757 22,254 53,011
Other.............................................................................. 4,538 774 5,312
Total interest income........................................................... 190,689 64,223 254,912
INTEREST EXPENSE
Deposits........................................................................... 69,939 27,255 97,194
Long-term debt and other borrowings................................................ 3,882 880 4,762
Total interest expense.......................................................... 73,821 28,135 101,956
Net interest income.................................................................. 116,868 36,088 152,956
Provision for loan and lease losses.................................................. 6,453 653 7,106
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES........................ 110,415 35,435 145,850
OTHER INCOME
Service charges on deposit accounts................................................ 18,208 4,976 23,184
Nondeposit fees and commissions.................................................... 13,343 2,800 16,143
Other.............................................................................. 4,857 2,433 7,290
Investment securities gains, net................................................... 2,652 310 2,962
Total other income.............................................................. 39,060 10,519 49,579
OTHER EXPENSES
Personnel.......................................................................... 53,404 13,314 66,718
Net occupancy and equipment........................................................ 16,644 3,390 20,034
Federal deposit and other insurance................................................ 5,468 1,832 7,300
Other operating.................................................................... 30,094 5,306 35,400
Total other expenses............................................................ 105,610 23,842 129,452
Income before income taxes........................................................... 43,865 22,112 65,977
Income taxes......................................................................... 14,640 7,273 21,913
NET INCOME (2) (3)................................................................... 29,225 14,839 44,064
NET INCOME PER SHARE (2) (3)
Primary............................................................................ $ 3.50 1.26 3.10
Fully diluted...................................................................... 3.41 1.26 3.05
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary............................................................................ 8,344,540 11,771,739 14,230,410(4)
Fully diluted...................................................................... 8,726,133 11,771,739 14,612,003(4)
(1) No pro forma adjustments are reflected in the Pro Forma Combined Condensed
Statement of Income.
(2) Net income and primary and fully diluted net income per share for the year
ended December 31, 1993 do not include the cumulative effect of changes in
accounting principles resulting from the adoption by CCBF on January 1, 1993
of SFAS 106 and SFAS No. 109. The impact of adoption of SFAS 106 and SFAS
109 on net income, primary net income per share and fully diluted net income
per share was a net charge of $1,371,000, $(.17) and $(.16), respectively,
for the year ended December 31, 1993.
(3) The cumulative effect of SCBC's adoption on January 1, 1993 of SFAS 106 and
SFAS 109 was not material for the year ended December 31, 1993.
(4) Based on the Exchange Ratio of .50 for conversion of SCBC Stock into CCBF
Stock.
F-33
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(UNAUDITED)
CCBF
PRO FORMA
CCBF SCBC COMBINED (1)
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
INTEREST INCOME
Loan and leases.................................................................... $138,420 48,277 186,697
Investment securities.............................................................. 26,549 22,302 48,851
Other.............................................................................. 4,767 1,274 6,041
Total interest income......................................................... 169,736 71,853 241,589
INTEREST EXPENSE
Deposits........................................................................... 67,232 33,695 100,927
Long-term debt and other borrowings................................................ 3,405 1,434 4,839
Total interest expense........................................................ 70,637 35,129 105,766
Net interest income.................................................................. 99,099 36,724 135,823
Provision for loan and lease losses.................................................. 5,983 1,848 7,831
NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES........................ 93,116 34,876 127,992
OTHER INCOME
Service charges on deposit accounts................................................ 16,624 5,255 21,879
Nondeposit fees and commissions.................................................... 11,861 2,344 14,205
Other.............................................................................. 2,144 1,341 3,485
Investment securities gains, net................................................... 2,066 8 2,074
Total other income............................................................ 32,695 8,948 41,643
OTHER EXPENSES
Personnel.......................................................................... 46,104 14,536 60,640
Net occupancy and equipment........................................................ 15,671 3,488 19,159
Federal deposit and other insurance................................................ 4,206 2,026 6,232
Other operating.................................................................... 22,593 7,490 30,083
Total other expenses.......................................................... 88,574 27,540 116,114
Income before income taxes........................................................... 37,237 16,284 53,521
Income taxes......................................................................... 11,915 6,323 18,238
NET INCOME........................................................................... $ 25,322 9,961 35,283
NET INCOME PER SHARE
Primary............................................................................ $ 3.30 .84 2.60
Fully diluted...................................................................... 3.10 .84 2.52
WEIGHTED AVERAGE SHARES OUTSTANDING
Primary............................................................................ 7,663,659 11,832,570 13,579,944(2)
Fully diluted...................................................................... 8,577,782 11,832,570 14,494,067(2)
(1) No pro forma adjustments are reflected in the Pro Forma Combined Condensed
Statement of Income.
(2) Based on the Exchange Ratio of .50 for conversion of SCBC Stock into CCBF
Stock.
F-34
EXHIBIT INDEX
Sequential
Exhibit No. Page No.
Amended and Restated Agreement of Combination
among CCB Financial Corporation, Security Capital
Bancorp and New Security Capital, Inc.(incorporated
by reference from Exhibit 2 to Registration
Statement No. 33-57005 on Form S-4) 2
Amended and restated articles of incorporation 3
Employment agreement with David B. Jordan 10.1
Employment agreement with Ralph A. Barnhardt 10.2
Employment agreement with Lloyd G. Gurley 10.3
Press release by CCB Financial Corporation
dated May 22, 1995 99