<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
Commission File Number 0-11046
SC BANCORP
(Exact name of registrant as specified in its charter)
California 95-3585586
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3800 E. La Palma Ave., Anaheim, California 92807-1798
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 238-3110
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES. [ X ] NO. [ ]
There were 7,498,365 shares of common stock for the registrant issued and
outstanding as of August 1, 1997.
<PAGE>
Part I.
Item 1. Financial Statements
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 37,639 $ 29,968
Federal funds sold 27,804 3,800
- -----------------------------------------------------------------------------------------
Cash and cash equivalents 65,443 33,768
- -----------------------------------------------------------------------------------------
Securities available-for-sale, at fair value (Notes 1 and 2) 73,465 74,533
Investment in Federal Home Loan Bank stock, at cost 1,495 1,450
Investment in Federal Reserve Bank stock, at cost 621 607
Loans (Notes 1 and 3) 350,584 347,864
Less: Deferred fee income (638) (689)
Allowance for possible loan losses (5,062) (4,947)
- -----------------------------------------------------------------------------------------
Loans, net 344,884 342,228
- -----------------------------------------------------------------------------------------
Premises and equipment, net 7,017 7,740
Other real estate owned, net 654 536
Accrued interest receivable 3,748 3,931
Other assets 10,567 11,220
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $ 507,894 $ 476,013
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 137,616 $ 125,903
Interest-bearing 308,629 289,423
- -----------------------------------------------------------------------------------------
Total deposits 446,245 415,326
- -----------------------------------------------------------------------------------------
Borrowed funds and other interest-bearing liabilities 7,342 8,096
Accrued interest payable and other liabilities 2,522 2,672
- -----------------------------------------------------------------------------------------
Total liabilities 456,109 426,094
- -----------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, no par or stated value:
10,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, no par or stated value:
20,000,000 shares authorized;
7,498,365 and 7,486,375 shares issued
and outstanding at June 30, 1997 and
December 31, 1996, respectively. 37,807 37,738
Retained earnings 15,502 13,055
Dividends paid (749) -
Unrealized loss on available-for-sale securities,
net of taxes (Note 1) (775) (874)
- -----------------------------------------------------------------------------------------
Total Shareholders' Equity 51,785 49,919
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES and SHAREHOLDERS' EQUITY $ 507,894 $ 476,013
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) June 30, June 30,
- --------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,997 $ 7,390 $ 15,759 $ 14,768
Interest on investment securities 1,008 1,061 1,959 2,204
Interest on Federal funds sold 516 91 717 172
- --------------------------------------------------------------------------------------------------------
Total interest income 9,521 8,542 18,435 17,144
- --------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 764 571 1,489 966
Savings 396 233 638 481
Time certificates of deposit 2,004 1,897 3,904 3,914
- --------------------------------------------------------------------------------------------------------
Total interest on deposits 3,164 2,701 6,031 5,361
Other interest expense 101 183 215 489
- --------------------------------------------------------------------------------------------------------
Total interest expense 3,265 2,884 6,246 5,850
- --------------------------------------------------------------------------------------------------------
Net interest income 6,256 5,658 12,189 11,294
Provision for (recovery of) possible
loan losses (Note 3) 300 (750) 650 (470)
- --------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 5,956 6,408 11,539 11,764
- --------------------------------------------------------------------------------------------------------
NONINTEREST INCOME 1,186 1,246 2,443 2,533
NONINTEREST EXPENSE:
Salaries and benefits 2,424 2,559 4,951 5,178
Net occupancy, furniture and equipment 873 1,078 1,720 2,188
Other operating expense 1,614 2,436 3,119 4,031
- --------------------------------------------------------------------------------------------------------
Total noninterest expense 4,911 6,073 9,790 11,397
- --------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,231 1,581 4,192 2,900
Provision for income taxes 929 661 1,745 1,217
- --------------------------------------------------------------------------------------------------------
NET INCOME $ 1,302 $ 920 $ 2,447 $ 1,683
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 7,495 7,475 7,491 7,474
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Earnings per share $ 0.17 $ 0.12 $ 0.33 $ 0.23
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
(DOLLARS IN THOUSANDS) June 30,
- ----------------------------------------------------------------------------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,447 $ 1,683
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for (recovery of) possible loan losses 650 (470)
Provision for loss on OREO - 369
Gain on sale of available-for-sale investment securities - (14)
Net amortization of premiums on investment securities 372 467
Loss on sale of OREO - 16
Gain on sale of loans (78) -
Net (decrease) increase in deferred fees and
unearned income on loans (51) 31
Depreciation and amortization 800 951
(Gain) loss on sale of fixed assets (4) 24
Decrease in accrued interest receivable and
other assets 763 697
(Decrease) increase in accrued interest payable
and other liabilities (150) 1,323
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,749 5,077
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale
investment securities - 8,549
Proceeds from maturities of available-for-sale
investment securities 8,867 4,005
Purchase of available-for-sale investment securities (8,000) -
Purchase of FHLB and FRB stock (58) (202)
Proceeds from sale of loans 1,299 -
Loans funded, net of payments received (4,507) (6,749)
Proceeds from sale of OREO - 567
Proceeds from sale of fixed assets and other assets 4 197
Purchase of fixed assets (77) (138)
- ----------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (2,472) 6,229
- ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 69 23
Dividends paid (749) -
Increase (decrease) in noninterest-bearing deposits 11,713 (8,871)
Increase in interest-bearing deposits 19,206 3,662
(Decrease) increase in other borrowings (841) 3,307
- ----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 29,398 (1,879)
- ----------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 31,675 9,427
Cash and cash equivalents, beginning of period 33,768 29,088
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 65,443 $ 38,515
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Unrealized loss on investment securities
available-for-sale, net of tax $ 99 $ 797
Transfers of loans to other real estate owned 31 699
Assumption of senior liens on other real estate owned 87 28
Asset sales offset to restructuring reserve - 91
Close out of capital lease accounts - 118
- ----------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, except for information as of and for the year ended December 31,
1996)
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
SC Bancorp, a California bank holding company (the "Company"), and its
subsidiary, Southern California Bank, a California state-chartered bank (the
"Bank"), operate 14 branches in Southern California. The Company's primary
source of revenue is providing loans to customers who are predominantly small
and mid-sized businesses. The accounting and reporting policies of the
Company conform to generally accepted accounting principles and general
practices within the banking industry. See the notes to SC Bancorp's
consolidated financial statements contained in the Company's Annual Report on
Form 10-K.
The interim period financial statements are unaudited. It is the opinion of
Company management that all adjustments consisting of normal, recurring
accruals necessary for a fair presentation of the results of operations have
been reflected therein. Results for the period ending June 30, 1997, are not
necessarily indicative of results that may be expected for any other interim
periods or for the year as a whole.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
the Bank. All material intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amount of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
SECURITIES:
At June 30, 1997, the Company's available-for-sale portfolio had a net
unrealized loss of $1.3 million. The tax-effected reduction to shareholders'
equity at June 30, 1997, was $775,000. In January 1995, the FDIC issued a
final rule excluding unrealized holding gains and losses on
available-for-sale debt securities from the calculation of Tier 1 capital.
STOCK OF FEDERAL HOME LOAN BANK OF SAN FRANCISCO:
As a member of the Federal Home Loan Bank of San Francisco ("FHLB"), the Bank
is required to own common stock in the FHLB based upon a percentage of one of
the following balances: residential mortgage loans, total assets, or the
outstanding balance of FHLB advances, whichever is greater.
STOCK OF FEDERAL RESERVE BANK OF SAN FRANCISCO:
As a member of the Federal Reserve System, the Bank is required to own common
stock in the Federal Reserve Bank of San Francisco ("FRB") based upon a
percentage of capital and surplus at the time of initial membership.
LOANS:
All loans on nonaccrual are considered to be impaired; however, not all
impaired loans are on nonaccrual status. Impaired loans on accrual status
must meet the following criteria: all payments must be current and the loan
underwriting must support the debt service requirements. Factors that
contribute to a performing loan being classified as impaired include: a below
market interest rate, delinquent taxes and debts to other lenders that cannot
be serviced out of existing cash flow.
4
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION:
The Company maintains a stock option plan for the benefit of its executives. In
1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based Compensation,"
which encourages, but does not require, companies to record compensation expense
for stock-based employee compensation at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. Accordingly,
compensation expense for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. There were no stock option
grants during the period ended June 30, 1997.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES:
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
Statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities, and is applied
prospectively to financial statements for fiscal years beginning after December
31, 1996. In 1996, the FASB also issued SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125," which defers
for one year the effective date of certain provisions within SFAS No. 125. The
adoption of SFAS No. 125 and SFAS No. 127 effective January 1, 1997 did not have
a material impact on the Company's operations or financial condition.
EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
(EPS) for entities with publicly held common stock or potential common stock.
The Statement replaces the presentation of primary EPS with basic EPS, and
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Statement is
effective for financial statements issued for periods ending after December 15,
1997, and requires restatement of all prior-period EPS data presented. Basic
EPS as calculated under SFAS No. 128 for prior periods would not change from
that previously reported.
5
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2-INVESTMENT SECURITIES
The amortized cost and estimated fair value of investment securities as of June
30, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) June 30, 1997
- --------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities and obligations
of U.S. government agencies $ 35,664 $ 29 $ (182) $ 35,511
Mortgage-backed securities 39,123 - (1,169) 37,954
- --------------------------------------------------------------------------------------
Total $ 74,787 $ 29 $ (1,351) $ 73,465
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS) December 31, 1996
- --------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities and obligations
of U.S. government agencies $ 32,967 $ - $ (285) $ 32,682
Mortgage-backed securities 43,060 - (1,209) 41,851
- --------------------------------------------------------------------------------------
Total $ 76,027 $ - $ (1,494) $ 74,533
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
Investment securities with a carrying value of $14.0 million and $15.5 million
were pledged to secure public deposits and as collateral for other borrowings at
June 30, 1997 and December 31, 1996, respectively.
The amortized cost and estimated fair value of debt securities at June 30, 1997
by contractual maturities are shown in the following table. Expected maturities
will differ from contractual maturities, particularly with respect to mortgage-
backed securities, because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) Maturing in
- -----------------------------------------------------------------------------------------------------------
Over one Over five
One year year through years through Over
JUNE 30, 1997 or less five years ten years ten years Total
--------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Available-for-sale, amortized cost $ 14,664 $ 54,584 $ 5,539 $ - $74,787
Available-for-sale, estimated fair value $ 14,653 $ 53,424 $ 5,388 $ - $73,465
</TABLE>
There were no sales of investment securities during the first six months of
1997. Proceeds from the sales of available-for-sale investment securities
during the same period in 1996 were $8.5 million. A gross gain of $14,000 was
realized on sales of investment securities in 1996.
6
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-LOANS
Loans by category are summarized below:
<TABLE>
<CAPTION>
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 Percent 1996 Percent
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 168,670 48.11% $ 160,633 46.17%
Real estate, construction 6,899 1.97% 8,544 2.46%
Real estate, mortgage 108,250 30.88% 105,123 30.22%
Consumer 66,765 19.04% 73,564 21.15%
- -----------------------------------------------------------------------------------------------
Gross loans 350,584 100.00% 347,864 100.00%
- -----------------------------------------------------------------------------------------------
Deferred fee income (638) (689)
Allowance for possible loan losses (5,062) (4,947)
- -----------------------------------------------------------------------------------------------
Loans, net $ 344,884 $ 342,228
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
No industry constitutes a concentration in the Company's loan portfolio.
The following table summarizes the balances and changes in the allowance for
possible loan losses for the periods indicated:
<TABLE>
<CAPTION>
Six months Year Six months
ended ended ended
June 30, December 31, June 30,
(DOLLARS IN THOUSANDS) 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average balance of gross loans outstanding $ 344,440 $ 321,843 $ 315,024
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Gross loan balance at end of period $ 350,584 $ 347,864 $ 322,953
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Allowance at beginning of period $ 4,947 $ 5,734 $ 5,734
Charge-offs:
Commercial 617 422 79
Real estate - 279 138
Consumer 29 168 122
- -----------------------------------------------------------------------------------------------------------
Total charge-offs 646 869 339
Recoveries:
Commercial 99 477 362
Real estate - 21 5
Consumer 12 54 35
- -----------------------------------------------------------------------------------------------------------
Total recoveries 111 552 402
Net charge-offs (recoveries) 535 317 (63)
Provision (recovery) charged (credited) to operations 650 (470) (470)
Allowance on purchased loans - - -
- -----------------------------------------------------------------------------------------------------------
Allowance at end of period $ 5,062 $ 4,947 $ 5,327
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-LOANS (CONTINUED)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ratio of allowance for loan losses to loans
outstanding at end of period 1.44% 1.42% 1.65%
Ratio of allowance for loan losses to
nonaccrual loans at end of period 69.43% 173.84% 778.60%
Ratio of annualized net charge-offs to
average loans 0.31% 0.10% (0.04%)
</TABLE>
Loans on nonaccrual status were $7.3 million and $684,000, respectively at
June 30, 1997 and 1996. Interest income that would have been collected on
these loans had they performed in accordance with their original terms was
approximately $365,000 and $96,000, for the six months ended June 30, 1997
and 1996, respectively. The Company's average recorded investment in impaired
loans for the six months ended June 30, 1997 was $8.9 million. The
Company's allowance for possible loan losses at June 30, 1997 includes $1.8
million related to impaired loans. Interest income recognized on impaired
loans during the first six months of 1997 and 1996 was $167,000 and $180,000,
of which $167,000 and $164,000, respectively, was collected in cash.
NOTE 4-COMMITMENTS AND CONTINGENCIES
CREDIT EXTENSION:
In the normal course of business, there are various outstanding commitments
to extend credit which are not reflected in the accompanying consolidated
financial statements. The Company does not anticipate losses as a result of
these transactions. However, the commitments are a component of the estimate
of the allowance for possible loan losses. Commercial and standby letters of
credit totaled approximately $5.8 million and $4.1 million at June 30, 1997
and December 31, 1996, respectively. In addition, the Company had unfunded
loan commitments of $126.5 million and $110.5 million at June 30, 1997 and
December 31, 1996, respectively. All of the commitments outstanding at June
30, 1997 and December 31, 1996 represent unfunded loans which bear a floating
interest rate.
The Company uses the same credit policies in making commitments and
conditional obligations as it does in extending loan facilities to customers.
The Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the Company
upon extension of credit, is based on management's credit evaluation of the
counterparty. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, and income-producing commercial
properties.
INTEREST RATE SWAPS:
The Company entered into two interest rate swap agreements to reduce the impact
of changes in interest rates on its floating-rate loan portfolio. At June 30,
1997, the Company had outstanding one interest rate swap agreement with a
commercial bank having a total notional principal amount of $50 million (Swap
#1). The second interest rate swap agreement was with a securities broker
having a notional principal amount of $25 million (Swap #2). Swap #2 matured in
January 1997. The agreements were intended to reduce the Company's exposure to
declines in prime lending rates by artificially converting $75 million of the
Company's prime-based loans to fixed rates for the duration of the agreements.
Swap #1 was entered into in September 1993. The terms of the agreement require
the Company to pay interest quarterly based on three-month LIBOR and to receive
interest semi-annually at a fixed rate of 4.865%. The agreement matures in
September 1998.
The Company accrues monthly interest income and expense on the swaps, the net
of which is included in income on loans. Net interest expense of $187,000
and $271,000 related to the swap agreements is included in interest income
for the six months ended June 30, 1997 and 1996, respectively. The Company
is required to pledge collateral on the swaps. A U.S. Agency note having a
fair value of approximately $3.6 million was pledged as collateral for the
outstanding agreement as of June 30, 1997. The Company is exposed to credit
loss in the event of nonperformance by the counterparty to the remaining
agreement. However, the Company does not anticipate nonperformance by the
counterparty.
8
<PAGE>
Part I.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
The following discussion presents information about the results of
operations, financial condition, liquidity and capital resources of SC
Bancorp and its subsidiary, Southern California Bank (together, the
"Company"). This information should be read in conjunction with the audited
1996 consolidated financial statements of the Company and the notes thereto,
and the accompanying quarterly unaudited consolidated financial statements
and notes thereto.
RESULTS OF OPERATIONS
The Company reported net income of $1.3 million for the second quarter of
1997 compared to net income of $920,000 for the second quarter of 1996.
The following table summarizes key performance indicators pertaining to the
Company's operating results:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Return on average assets (1) 1.03% 0.82% 1.01% 0.74%
Return on average shareholders' equity (1) 10.15% 8.08% 9.64% 7.39%
Net income $ 1,302 $ 920 $ 2,447 $ 1,683
Earnings per share $ 0.17 $ 0.12 $ 0.33 $ 0.23
Total average assets $ 504,979 $ 452,972 $ 490,970 $ 454,303
- ----------------------------------------------------
(1) Annualized
</TABLE>
9
<PAGE>
Part I. Item 2. (continued)
NET INTEREST INCOME
Net interest income is the difference between interest earned on assets and
interest paid on liabilities. Net interest margin is net interest income
expressed as a percentage of average interest-earning assets.
The following table provides information concerning average interest-earning
assets and interest-bearing liabilities yields and rates thereon for the
three months ended June 30, 1997 and 1996, respectively. Average balances
are average daily balances. Nonaccrual loans are included in total average
loans outstanding.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
6/30/97 6/30/96
--------------------------------------------------------------------------
Average Yield/ Average Yield/
(DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of deferred fees $ 345,687 $ 7,997 9.28% $ 316,709 $ 7,389 9.38%
Investment securities 76,390 1,008 5.30% 83,943 1,061 5.08%
Federal funds sold and other 37,591 516 5.51% 6,910 92 5.35%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/interest income 459,668 9,521 8.31% 407,562 8,542 8.43%
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 45,311 45,553
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 504,979 $ 453,115
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits $ 311,097 $ 3,164 4.08% $ 277,297 $ 2,701 3.92%
Other interest-bearing liabilities 5,416 101 7.48% 10,386 183 7.09%
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 316,513 3,265 4.14% 287,683 2,884 4.03%
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 137,040 119,636
Shareholders' equity 51,426 45,796
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 504,979 $ 453,115
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME/NET INTEREST MARGIN $ 6,256 5.46% $ 5,658 5.58%
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
Net interest income was $6.3 million for the three months ended June 30,
1997, compared to $5.7 million for the three months ended June 30, 1996. The
increase in net interest income over the prior year is primarily due to a
$29.0 million increase in average loan balances for the second quarter of
1997 compared to the second quarter of 1996. The increase in loan balances
occurred largely in the commercial and consumer high-net worth and automobile
loan categories. The increase in Fed funds sold for the second quarter of
1997 compared to the same period for 1996 resulted from the growth in average
deposit balances. The growth in deposit balances can be attributed to
deposit promotion programs run during the second quarter of 1997 that
featured money market and savings deposit products.
10
<PAGE>
Part I. Item 2. (continued)
The following table provides information concerning the changes in interest
income and interest expense resulting from changes in average interest rates
(rate) and changes in average balances (volume) for the three months ended
June 30, 1997 and 1996, respectively. The changes in interest income and
interest expense attributable to the rate/volume variances are allocated to
the rate and volume variances based upon the absolute value of each of those
variances as a percentage of the sum of the absolute values of the individual
rate and volume variances.
Comparison of three-month period
ended June 30, 1997 and 1996
increase (decrease) in interest income
or expense due to changes in
-----------------------------------------
(DOLLARS IN THOUSANDS) Rate Volume Total
- -------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans, net of deferred fees $ (78) $ 686 $ 608
Investment securities 45 (98) (53)
Federal funds sold and other 3 421 424
- -------------------------------------------------------------------------------
Total interest income (30) 1,009 979
- -------------------------------------------------------------------------------
LIABILITIES
Interest-bearing deposits $ 117 $ 346 $ 463
Other interest-bearing liabilities 10 (92) (82)
- -------------------------------------------------------------------------------
Total interest expense 127 254 381
- -------------------------------------------------------------------------------
NET INTEREST INCOME $ (157) $ 755 $ 598
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
11
<PAGE>
Part I. Item 2. (continued)
The following table provides information concerning average interest-earning
assets and interest-bearing liabilities yields and rates thereon for the six
months ended June 30, 1997 and 1996, respectively.
<TABLE>
SIX MONTHS ENDED
-----------------------------------------------------------------------
6/30/97 6/30/96
-----------------------------------------------------------------------
Average Yield/ Average Yield/
(DOLLARS IN THOUSANDS) Balance Interest Rate(1) Balance Interest Rate(1)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of deferred fees $ 343,792 $ 15,759 9.24% $ 314,508 $ 14,768 9.44%
Investment securities 75,119 1,959 5.26% 86,709 2,204 5.11%
Federal funds sold and other 26,444 717 5.47% 6,444 172 5.37%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/interest income 445,355 18,435 8.35% 407,661 17,144 8.46%
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 45,615 46,770
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $ 490,970 $ 454,431
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits $ 301,669 $ 6,031 4.03% $ 275,578 $ 5,361 3.91%
Other interest-bearing liabilities 5,778 215 7.50% 14,328 489 6.86%
- ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 307,447 6,246 4.10% 289,906 5,850 4.06%
- ------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 132,327 118,753
Shareholders' equity 51,196 45,772
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 490,970 $ 454,431
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME/NET INTEREST MARGIN $ 12,189 5.52% $ 11,294 5.57%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
Net interest income was $12.2 for the six months ended June 30, 1997,
compared to $11.3 for the six months ended June 30, 1996. The increase in
net interest income compared to the prior year is primarily due to a $29.3
million increase in average loan balances for the first six months of 1997
compared to the same period in 1996. The year-to-date average balance of
commercial loans increased by $15.5 million, primarily in the unsecured and
asset-based lending categories. In addition, the year-to-date average balance
of consumer loans, excluding home equity loans, increased by $14.4 million
over June 30,1996.
The average yield on earning assets decreased to 8.35% for the six months
ended June 30, 1997 from 8.46% for the six months ended June 30, 1996. The
overall decrease in yield can be attributed to the decrease in the average
yield on loans, including the effect of the interest rate swap, to 9.24% from
9.44%. The decrease in loan yield occurred despite a modest increase in the
prime rate in March 1997 due to competitive pricing pressures experienced in
the Company's market area for commercial and real estate loans, and to the
increase in nonaccrual loans. The majority of the Company's variable-rate
loans are indexed to the national prime rate. The national prime rate
increased to 8.50% from 8.25% on March 26, 1997. Previously, the prime rate
declined to 8.25% from 8.50% on January 31, 1996.
The net interest margin decreased to 5.52% for the first half of 1997 from
5.57% for the comparable period of 1996. The decrease in the net interest
margin can be attributed to the decrease in yield on earning assets discussed
above, and to a modestly higher cost of funds related to the deposit
promotions run during 1997. The Company's overall cost of interest-bearing
funds increased on a year-to-date basis to 4.10% from 4.06% for the first six
months of 1996.
12
<PAGE>
PART I. ITEM 2. (CONTINUED)
The following table provides information concerning the changes in interest
income and interest expense resulting from changes in average interest rates
(rate) and changes in average balances (volume) for the six months ended June
30, 1997 and 1996, respectively.
<TABLE>
Comparison of six-month period
ended June 30, 1997 and 1996
increase (decrease) in interest income
or expense due to changes in
----------------------------------------
(DOLLARS IN THOUSANDS) Rate Volume Total
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of deferred fees $ (325) $ 1,316 $ 991
Investment securities 61 (306) (245)
Federal funds sold and other 3 542 545
- ----------------------------------------------------------------------------------
Total interest income (261) 1,552 1,291
- ----------------------------------------------------------------------------------
LIABILITIES
Interest-bearing deposits $ 164 $ 506 $ 670
Other interest-bearing liabilities 41 (315) (274)
- ----------------------------------------------------------------------------------
Total interest expense 205 191 396
- ----------------------------------------------------------------------------------
NET INTEREST INCOME $ (466) $ 1,361 $ 895
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
PROVISION FOR POSSIBLE LOAN LOSSES
The Company recorded a $300,000 provision for possible loan losses for the
second quarter of 1997. Gross loan charge-offs and recoveries for the
quarter were $635,000 and $52,000, respectively. Nonaccrual loans increased
to $7.3 million at June 30, 1997 from $2.8 million at December 31, 1996. The
loan loss provision was increased in 1997 to support growth in the loan
portfolio and to maintain appropriate reserves for a small number of
commercial real estate loans placed on nonaccrual status during the first
quarter of 1997. The ratio of the allowance for possible loan losses to
total loans was 1.44% at June 30, 1997 and 1.65% at June 30, 1996. See "NOTE
3-LOANS" of the Company's consolidated financial statements which are
included in Part I, Item 1. of this Form 10-Q and "-Asset Quality" below.
The Company recorded a $750,000 reduction in the provision for possible loan
losses for the second quarter of 1996. The reduction in the provision was
made following the completion of an analysis of the Company's historical
allocation of loan loan loss reserves and loan loss migration experience.
Loan charge-offs and recoveries for the second quarter of 1996 were $292,000
and $218,000, respectively. Nonaccrual loans decreased to $684,000 at June
30, 1996 from $1.4 million at December 31, 1995.
The Company recorded a $650,000 provision for possible loan losses for the
first six months of 1997. Year-to-date loan charge-offs and recoveries were
$646,000 and $111,000, respectively, representing year-to-date net loan
charge-offs of $535,000. Year-to-date loan charge-offs and recoveries for the
first six months of 1996 were $339,000 and $402,000, respectively,
representing year-to-date net recoveries of $63,000.
13
<PAGE>
PART I ITEM 2. (CONTINUED)
NONINTEREST INCOME
The following table sets forth the major components of noninterest income for
the periods indicated:
<TABLE>
Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS) June 30, June 30,
- -----------------------------------------------------------------------------------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 264 $ 377 $ 525 $ 764
Other fees and charges 633 655 1,287 1,265
Merchant bankcard income 145 126 264 243
Net gain on sales of securities - - - 14
Net gain on sale of SBA loans - - 78 -
Net gain (loss) on sales of fixed assets - (23) 4 (24)
Life insurance income 31 26 63 53
Other income 113 85 222 218
- -----------------------------------------------------------------------------------------
Total noninterest income $1,186 $1,246 $2,443 $2,533
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
Noninterest income was $1.2 million for the three months ended June 30, 1997
and 1996, respectively. Service charge income on deposit accounts decreased
for the three months ended June 30, 1997 over the comparable period of the
prior year due to competitive pricing on commercial accounts. In addition, a
recent deposit promotion featured a no service charge account for depositors
using direct deposit.
Noninterest income for the first six months of 1997 was $2.4 million compared
to $2.5 million for the first six months of 1996. Noninterest income for the
first six months of 1997 includes a $78,000 gain on sale of SBA loans.
14
<PAGE>
PART I ITEM 2. (continued)
NONINTEREST EXPENSE
The following table provides detail of the Company's noninterest expense by
category for the periods indicated:
<TABLE>
Three Months Ended Six Months Ended
(DOLLARS IN THOUSANDS) June 30, June 30,
- ---------------------------------------------------------------------------------------
1997 1996 1997 1996
------ ------ ------ -------
<S> <C> <C> <C> <C>
Salaries and employee benefits $ 2,424 $ 2,559 $ 4,951 $ 5,178
Net occupancy, furniture and equipment 873 1,078 1,720 2,188
Professional and legal fees 417 680 757 1,001
Postage and delivery 158 155 307 315
Goodwill amortization 135 121 270 235
Software 115 61 236 122
Merchant bankcard expense 113 106 208 203
Office supplies 79 84 166 163
Advertising and promotion 92 132 173 228
Telecommunications 82 85 162 197
Insurance and assessment 70 48 138 149
Data processing 63 78 125 147
Operating losses 16 85 73 140
Professional and community 58 99 108 149
Other real estate owned, net (3) 426 (5) 482
Other noninterest expense 219 276 401 500
- ---------------------------------------------------------------------------------------
Total noninterest expense $ 4,911 $ 6,073 $ 9,790 $11,397
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Annualized noninterest expense as a %
of average earning assets 4.29% 5.91% 4.43% 5.62%
</TABLE>
Noninterest expense for the second quarter of 1997 decreased to $4.9 million
from $6.1 million for the second quarter of 1996. In addition, noninterest
expense decreased to $9.8 million for the first half of 1997 from $11.4
million for the prior year. The reductions in noninterest expense for the
current quarter and year-to-date compared to the prior year occurred
primarily in the occupancy, professional and legal, and other real estate
owned categories. The reduction in occupancy expense is directly related to
the sale of two branches and the consolidation of a third branch completed
during the first quarter of 1996. The reduction in professional and legal
fees is attributed to the resolution of certain legal matters in 1997 that
had been ongoing in 1996. Expenses associated with other real estate owned
also declined on both a quarterly and year-to-date basis due to valuation
reserves taken in 1996 to facilitate the disposition of one property. No
additional valuations have been recorded in 1997.
FINANCIAL CONDITION
Total assets at June 30, 1997 were $507.9 million, an increase of $31.9
million from $476.0 million at December 31, 1996. Gross loan balances
increased slightly to $350.6 million at June 30, 1997 from $347.9 million at
December 31, 1996. Total deposits increased to $446.2 million at June 30,
1997 from $415.3 million at December 31, 1996. The increase in deposit
balances is primarily due to the Bank's core deposit generation programs
which contributed to increases in retail savings and business money market
deposits.
15
<PAGE>
Part I. Item 2. (continued)
The following table provides a summary comparison of assets and liabilities in
the Company's consolidated balance sheets and the percentage change in these
balances for the dates indicated:
<TABLE>
<CAPTION>
June 30, December 31, Amount Percent
(DOLLARS IN THOUSANDS) 1997 1996 Change Change
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 65,443 $ 33,768 $ 31,675 93.80%
Securities available-for-sale, at fair value 73,465 74,533 (1,068) (1.43%)
Investment in Federal Home Loan Bank stock, at cost 1,495 1,450 45 3.10%
Investment in Federal Reserve Bank stock, at cost 621 607 14 2.31%
Loans, net 344,884 342,228 2,656 0.78%
Premises and equipment, net 7,017 7,740 (723) (9.34%)
Other real estate owned, net 654 536 118 22.01%
Accrued interest receivable 3,748 3,931 (183) (4.66%)
Other assets 10,567 11,220 (653) (5.82%)
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 507,894 $ 476,013 $ 31,881 6.70%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing deposits $ 137,616 $ 125,903 $ 11,713 9.30%
Interest-bearing demand deposits 103,880 104,435 (555) (0.53%)
Savings deposits 56,500 39,755 16,745 42.12%
Time certificates of deposit 148,249 145,233 3,016 2.08%
- ----------------------------------------------------------------------------------------------------------
Total deposits 446,245 415,326 30,919 7.44%
- ----------------------------------------------------------------------------------------------------------
Borrowed funds and other interest-bearing liabilities 7,342 8,096 (754) (9.31%)
Accrued interest payable and other liabilities 2,522 2,672 (150) (5.61%)
Total shareholders' equity 51,785 49,919 1,866 3.74%
- ----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,894 $ 476,013 $ 31,881 6.70%
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand, deposits at correspondent
banks and overnight investment of excess cash balances in Federal funds sold.
The Company maintains balances at correspondent banks adequate to cover daily
inclearings and other charges. The Company's net reserve requirement with
the Federal Reserve Bank was $1.6 million at June 30, 1997.
Cash and cash equivalents increased to $65.4 million at June 30, 1997 from
$33.8 million at December 31, 1996. The increase is primarily due to a $24.0
million increase in investments in overnight Federal funds sold.
INVESTMENT SECURITIES
The Company's available-for-sale securities portfolio at June 30, 1997
includes U.S. government agency securities and mortgage-backed securities.
16
<PAGE>
Part I. Item 2. (continued)
The following table sets forth the maturity distribution of the Company's
investment securities at their estimated fair values at June 30, 1997:
<TABLE>
<CAPTION>
Maturing in
- -------------------------------------------------------------------------------------------------------------
Over one Over five
One year year through years through Over
(DOLLARS IN THOUSANDS) or less five years ten years ten years Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Obligations of U.S. government agencies $ 14,653 $ 20,858 $ - $ - $ 35,511
Mortgage-backed securities - 32,566 5,388 - 37,954
- -------------------------------------------------------------------------------------------------------------
Total $ 14,653 $ 53,424 $ 5,388 $ - $ 73,465
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
LOANS
The Company provides a full range of credit products designed to meet the
credit needs of borrowers in its market area. The Company engages in
medium-term commercial real estate loans secured by commercial properties,
commercial loans, term financing, SBA loans, loan participations, and
consumer loans principally in the form of home equity lines of credit,
vehicle loans, and loans to high net worth individuals. Additionally, the
Company offers construction loan products principally for entry level housing
and owner-user commercial industrial properties.
Refer to NOTE 3-LOANS of the Company's consolidated financial statements
which are included in Part 1, Item 1. of this Form 10-Q for a comparison of
loans by category at June 30, 1997 and December 31, 1996.
COMMERCIAL LOANS. Commercial loans totaled $168.7 million, or 48.1%, of
total loans and $160.6 million, or 46.2%, of total loans at June 30, 1997 and
December 31, 1996, respectively. Most of the Bank's commercial borrowers and
customers are small-to medium-sized businesses and professionals. Most of
the commercial loans are short term and bear a floating rate of interest.
Approximately 62% of the commercial loan portfolio is secured. Collateral
for these loans consists of accounts receivable, inventories, equipment and
other business assets, including real estate. At June 30, 1997, $43.8
million, or 12.5%, of total loans were secured by accounts receivable as
compared to $40.6 million, or 11.7%, of loans at December 31, 1996.
Commercial loans secured by real estate comprised $18.5 million, or 5.3%, of
total loans at June 30, 1997, compared to $14.4 million, or 4.2%, of loans at
December 31, 1996. In 1995, the Company began participating in
government-insured lending programs, including SBA loans. At June 30, 1997,
the Company had $18.6 million of SBA loans.
REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans totaled $6.9
million, or 2.0%, of total loans at June 30, 1997 compared to $8.5 million,
or 2.5%, of total loans at December 31, 1996. The Company's construction
loan products are primarily targeted to developers of quality entry-level
housing projects, to existing borrowers who are owner/users of commercial
industrial property, and to CRA community projects.
REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprise $108.3
million, or 30.9%, of the total loan portfolio at June 30, 1997 compared to
$105.1 million, or 30.2%, of the total loans outstanding at December 31,
1996. Commercial real estate loans comprise the majority of the Company's
mortgage loan portfolio. New real estate loans are generally made only to
existing borrowers who are owner/users or to new borrowers who provide a new
major banking relationship and demonstrate adequate cash flows. All new real
estate borrowers must provide financial reporting that meets FDICIA standards
and the loans must meet the Company's underwriting standards. The majority
of the Company's real estate loans are secured by first trust deeds, and
approximately 50% are to owner/users.
CONSUMER LOANS. Consumer loans decreased to $66.8 million, or 19.1%, of the
loan portfolio at June 30, 1997 from $73.6 million, or 21.2%, of total loans
at December 31, 1996. The decrease in consumer loan balances at June 30,
1997 occurred in homeowner equity loans, stock secured loans, and automobile
or recreational vehicle loans. The consumer loan portfolio at June 30, 1997
includes $25.5 million of home equity loans and home equity lines of credit
representing 7.3% of total loans. Auto and recreational vehicle loans
comprise approximately $17.8 million, or 5.1%, of total loans, and lines of
credit to high net worth individuals comprise $18.4 million, or 5.3% of total
loans. The balance of consumer loans at period ends may fluctuate and may
not necessarily be representative of average balances outstanding during the
respective periods due to the timing of advances and payments made on
17
<PAGE>
Part I. Item 2. (continued)
such loans by borrowers.
MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES. The
following table sets forth the maturity distribution of the Company's loan
portfolio (excluding consumer and nonaccrual loans) at June 30, 1997, based on
remaining scheduled principal repayments:
Maturing in
----------------------------------------------------------------------------
Over one
One year year through Over
(DOLLARS IN THOUSANDS) or less five years five years Total
----------------------------------------------------------------------------
Commercial $ 97,070 $ 51,778 $ 19,338 $ 168,186
Real estate, construction 2,876 3,534 489 6,899
Real estate, mortgage 16,866 56,436 28,564 101,866
----------------------------------------------------------------------------
Total $ 116,812 $ 111,748 $ 48,391 $ 276,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The following table sets forth information on sensitivity to changes in interest
rates for the Company's loan portfolio (excluding consumer and nonaccrual loans)
at June 30, 1997:
Maturing or Repricing in
----------------------------------------------------------------------------
Over one
One year year through Over
(DOLLARS IN THOUSANDS) or less five years five years Total
----------------------------------------------------------------------------
Fixed interest rates $ 21,488 $ 49,530 $ 18,797 $ 89,815
Variable interest rates 186,482 155 499 187,136
----------------------------------------------------------------------------
Total $ 207,970 $ 49,685 $ 19,296 $ 276,951
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The amounts reported in the categories in the tables do not reflect loan
prepayments or other factors which may cause the loans to react in different
degrees and at different times to changes in market interest rates.
ASSET QUALITY
NONACCRUAL, PAST DUE AND MODIFIED LOANS
The Company recognizes income principally on the accrual basis of accounting.
In determining income from loans, the Company generally adheres to a policy
of not accruing interest on loans on which a default of principal or interest
has existed for a period of 90 days or more. The Company's policy is to
assign nonaccrual status to a loan if either (i) principal or interest
payments are past due in excess of 90 days, unless the loan is both well
secured and in the process of collection; or (ii) the full collection of
interest or principal becomes doubtful, regardless of the length of past due
status. When a loan reaches nonaccrual status, any interest accrued on such
a loan is reversed and charged against current income.
Nonaccrual loans increased to $7.3 million, or 2.08% of total loans, at June
30, 1997 from $2.8 million, or 0.82% of total loans, at December 31, 1996.
The increase in nonaccrual loans is primarily due to one matured real estate
loan that was placed on nonaccrual status during the first quarter of 1997.
The borrower continues to make payments on the loan and negotiations
continue. A $1.1 million nonaccrual loan paid off subsequent to June 30,
1997.
18
<PAGE>
Part I. Item 2. (continued)
Nonaccrual loans by category are summarized below:
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
----------------------------------------------------------------------
Commercial $ 501 $1,316
Real estate, construction - -
Real estate, mortgage 6,367 1,446
Consumer 422 84
----------------------------------------------------------------------
Total nonaccrual loans $7,290 $2,846
----------------------------------------------------------------------
----------------------------------------------------------------------
Delinquent loans (past due 30 to 89 days and still accruing interest) by
category are summarized below:
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
----------------------------------------------------------------------
Commercial $ 888 $1,329
Real estate, construction - -
Real estate, mortgage - 414
Consumer 1,235 1,070
----------------------------------------------------------------------
Total delinquent loans $2,123 $2,813
----------------------------------------------------------------------
----------------------------------------------------------------------
Percentage of total gross loans:
Nonaccrual loans 2.08% 0.82%
Delinquent loans, still accruing interest 0.61% 0.81%
Nonaccrual and delinquent loans 2.68% 1.63%
ALLOWANCE FOR POSSIBLE LOAN LOSSES
A certain degree of risk is inherent in the extension of credit. Management
has adopted a policy to maintain the allowance for possible loan and lease
losses at a level considered by management to be adequate to absorb estimated
known and inherent risks in the existing portfolio.
Management performs a comprehensive analysis of the loan portfolio and its
current allowance for loan losses on a regular basis to determine if loans
are currently protected according to financial and collateral standards
deemed acceptable. The allowance for possible loan losses represents
management's recognition of the assumed risks of extending credit and the
quality of the loan portfolio. The allowance is management's estimate, which
is inherently uncertain and depends on the outcome of future events. The
evaluation of the quality of the loan portfolio considers the borrower's
management, financial condition, cash flow and repayment program, as well as
the existence of collateral and guarantees. External business and economic
factors beyond the borrower's control, combined with the Company's previous
loan loss experience, are considered in management's evaluation of the
allowance for possible loan losses. In addition, bank regulatory authorities,
as an integral part of their examination process, periodically review the
Company's allowance for possible loan losses and may recommend additions to
the allowance based on their assessment of information available to them at
the time of their examination.
When it is determined that additions are required, additions to the allowance
are made through charges to operations and are reflected in the statements of
operations as a provision for loan losses. Loans which are deemed to be
uncollectible are charged to the allowance. Subsequent recoveries, if any,
are credited back to the allowance.
Management's analysis of the loan portfolio as of June 30, 1997 considered
the factors discussed above and incorporated the
19
<PAGE>
Part I. Item 2. (continued)
Company's actual four year average charge-off experience for purposes of
determining the adequacy of the allowance for possible loan losses. The
valuation analysis supports a 1.22% ratio of allowance to total loans. The
Company's 1.44% ratio of the allowance for possible loan losses to total
loans at June 30, 1997 remains above this level.
Refer to NOTE 3-LOANS of the Company's consolidated financial statements
which are included in Part I. Item 1. of this Form 10-Q for additional
information concerning activity in the allowance for possible loan losses,
including charge-offs and recoveries. The provision for possible loan
losses is discussed above. See "-Provision for Loan Losses."
OTHER REAL ESTATE OWNED
OREO primarily includes properties acquired through foreclosure or through
full or partial satisfaction of loans. The difference between the fair value
of the real estate collateral, less the estimated costs of disposal, and the
loan balance at the time of transfer to OREO is reflected in the allowance
for possible loan losses as a charge-off. Any subsequent declines in the
fair value of the OREO property after the date of transfer are recorded
through a provision for writedowns on OREO. Routine holding costs, net of
any income and net gains or losses on disposal, are reported in noninterest
expense. Activity in OREO for the periods indicated is as follows:
Six months
Ended Year Ended
June 30, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
----------------------------------------------------------------------
Balance, beginning of period $ 536 $ 2,073
Additions 118 699
Sales - (4,317)
Valuation - 2,081
----------------------------------------------------------------------
Balance, end of period $ 654 $ 536
----------------------------------------------------------------------
----------------------------------------------------------------------
At June 30, 1997, the OREO portfolio consisted of three properties. Escrow
closed in July 1997 on the sale of one OREO property with a net book value of
$329,000. A gain of $13,000 was recognized on the sale. The Company is
actively marketing the remaining properties.
DEPOSITS
Total deposits at June 30, 1997 were $446.2 million, a $30.9 million increase
from $415.3 million at December 31, 1996.
The following table sets forth the distribution of average deposits and the
rates paid thereon for the periods indicated:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
- ------------------------------------------------------------------------------------------
Average Average
(DOLLARS IN THOUSANDS) Balance Rate (1) % of total Balance Rate % of total
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 129,606 30.04% $ 119,570 29.70%
NOW/MMDA 105,965 2.83% 24.57% 95,098 2.58% 23.63%
Savings 47,528 2.71% 11.02% 44,272 2.11% 11.00%
TCDs 148,176 5.31% 34.37% 143,582 5.36% 35.67%
-----------------------------------------------------------------------------------------
Deposits $ 431,275 100.00% $ 402,522 100.00%
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
(1) Annualized.
</TABLE>
Average deposit balances increased to $431.3 million at June 30, 1997 from
$402.5 million at December 31, 1996. See "-Financial Condition" for a
discussion of the factors contributing to the increase in deposit balances.
20
<PAGE>
Part I. Item 2. (continued)
The reduction in the average rate paid on time certificates of deposit
("TCD") to 5.31% for the six months ended June 30, 1997 from 5.36% for the
year ended December 31, 1996, is largely due to the managed reduction in
higher rate TCD accounts raised through TCD promotion programs during 1995
and 1996. These accounts have largely been replaced with lower cost
deposits.
The following table sets forth the maturities of the Company's time
certificate of deposit accounts at the dates indicated:
<TABLE>
<CAPTION>
June 30,1997
Maturing in
- --------------------------------------------------------------------------------------------------
Over three Over six
Three months months through months through Over
(DOLLARS IN THOUSANDS) or less six months twelve months twelve months Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $100,000 $ 29,810 $ 13,745 $ 41,183 $ 6,852 $ 91,590
$100,000 and over 36,092 6,572 12,117 1,878 56,659
- --------------------------------------------------------------------------------------------------
Total $ 65,902 $ 20,317 $ 53,300 $ 8,730 $ 148,249
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
Maturing in
- --------------------------------------------------------------------------------------------------
Over three Over six
Three months months through months through Over
(DOLLARS IN THOUSANDS) or less six months twelve months twelve months Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Under $100,000 $ 31,750 $ 20,563 $ 19,700 $ 9,564 $ 81,577
$100,000 and over 41,016 9,170 11,097 2,373 63,656
- --------------------------------------------------------------------------------------------------
Total $ 72,766 $ 29,733 $ 30,797 $ 11,937 $ 145,233
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
BORROWED FUNDS AND OTHER INTEREST-BEARING LIABILITIES
Borrowed funds and other interest-bearing liabilities consist of overnight
Federal funds purchased, Treasury, tax and loan notes ("TT&L"), obligations
to senior lienholders for certain OREO properties and deferred compensation
liabilities. The balance of borrowed funds and other interest-bearing
liabilities decreased to $7.3 million at June 30, 1997 from $8.1 million at
December 31, 1996. $1.9 million of overnight Federal funds purchased were
outstanding at December 31, 1996. There were no Federal funds purchased as
of June 30, 1997.
ASSET/LIABILITY MANAGEMENT
The objective of asset/liability management is to manage and control the
Company's exposure to interest rate fluctuations while maintaining adequate
levels of liquidity and capital. The Company seeks to achieve this objective
by matching its interest rate- sensitive assets and liabilities, and
maintaining the maturity and repricing of these assets and liabilities at
appropriate levels given the interest rate environment. Generally, if
rate-sensitive assets exceed rate-sensitive liabilities, the net interest
income will be positively impacted during a rising rate environment and
negatively impacted during a declining rate environment. When rate-
sensitive liabilities exceed rate-sensitive assets, the net interest income
will generally be positively impacted during a declining rate environment and
negatively impacted during a rising rate environment. However, because
interest rates for different asset and liability products offered by
depository institutions respond differently to changes in the interest rate
environment, the gap between rate-sensitive assets and rate-sensitive
liabilities can only be used as a general indicator of interest rate
sensitivity.
21
<PAGE>
Part I. Item 2. (continued)
The following gap repricing table sets forth information concerning the
Company's rate-sensitive assets and rate-sensitive liabilities, including the
off-balance sheet notional balance of the interest rate swap as of June 30,
1997. Such assets and liabilities are classified by the earlier of maturity or
repricing date in accordance with their contractual terms. Certain shortcomings
are inherent in the method of analysis presented in the following gap table.
For example, although certain assets and liabilities may have similar maturities
or periods to reprice, they may react in different degrees and at different
times to changes in market interest rates. Also, loan prepayments and changes
in the mix or level of deposits could cause the interest sensitivities to vary
from those which appear in the table.
<TABLE>
Over three Over one
Three months months through year through Over
(DOLLARS IN THOUSANDS) or less twelve months five years five years Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Federal funds sold $ 27,804 $ - $ - $ - $ 27,804
Investment securities, at cost 10,140 4,524 54,584 5,539 74,787
Gross Loans (1) 215,941 34,382 64,467 28,504 343,294
Interest rate swap - - 50,000 - 50,000
- --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 253,885 $ 38,906 $ 169,051 $ 34,043 $ 495,885
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand and
savings deposits $ - $ 33,672 $ 108,243 $ 18,465 $ 160,380
Time certificates of deposit 65,902 73,617 8,713 17 148,249
Other borrowings and interest-
bearing liabilities 6,113 1,229 - - 7,342
Interest rate swap 50,000 - - - 50,000
- --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 122,015 $ 108,518 $ 116,956 $ 18,482 $ 365,971
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 131,870 $ (69,612) $ 52,095 $ 15,561
Cumulative interest rate sensitivity gap 131,870 62,258 114,353 129,914
Cumulative interest rate sensitivity gap
as a percentage of total interest-
earning assets 26.59% 12.55% 23.06% 26.20%
</TABLE>
- -----------------------------------------------------------
(1) Excludes nonaccrual loans of $7.3 million.
At June 30, 1997, the Company's rate-sensitive balance sheet was shown to be in
a positive gap position over a one-year horizon. The gap between assets and
liabilities that reprice within 12 months was $62.3 million or 12.55% of assets.
The table above implies that the Company is moderately asset-sensitive and that
its earnings would increase in the short-term if interest rates rise. Repricing
of the Company's interest-bearing demand and savings deposits generally lags
repricing on the Company's variable rate loan portfolio. These core deposits
tend to be fairly stable over time and exhibit a low sensitivity to changes in
interest rates. In preparing the gap table, management distributes core deposit
balances across the maturity ranges in accordance with regulatory guidelines in
order to incorporate these characteristics of its core deposits.
In addition to utilizing the repricing gap table above in managing its interest
rate risk, the Company performs a quarterly income simulation analysis. This
simulation analysis provides a dynamic evaluation of the Company's balance sheet
and income statement under varying scenarios, providing an estimate of both the
dollar amount and percentage change in net interest income under various changes
in interest rates. Based on the income simulation analysis conducted as of June
30, 1997, the Company remains moderately asset-sensitive. Thus, a rising rate
environment would tend to lead to a moderate increase in net interest income.
22
<PAGE>
Part I. Item 2. (continued)
LIQUIDITY
Liquidity management involves the Company's ability to meet the cash flow
requirements of its customers who may be depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to
meet their credit needs. The Company's liquid assets consist of cash and
cash equivalents and investment securities, excluding those pledged as
collateral. The Company has established policy guidelines to support the
sound management of its liquidity position based on regulatory guidance and
industry practice. It is the Company's policy to maintain a liquidity ratio
(liquid assets to liabilities) of between 20% and 40%, and to limit gross
loans to no more than 85% of deposits. At June 30, 1997, the Company's
ratios were within these guidelines: the liquidity ratio was 27.0% and the
loan to deposit ratio was 78.6%. At December 31, 1996, the Company's
liquidity ratio was 21.64% and the loan to deposit ratio was 83.59%.
The Company maintains short-term sources of funds to meet periodic planned
and unplanned increases in loan demand and deposit withdrawals and
maturities. The initial source of liquidity is the excess funds sold daily
to other banks in the form of Federal funds. Besides cash and cash
equivalents, the Company maintains a portion of its investment securities
portfolio as available-for-sale. Available-for-sale securities can be sold
in response to liquidity needs or used as collateral under reverse repurchase
agreements.
While the Company currently has no plans to liquidate securities in the
portfolio, it has sold securities in previous years. The likelihood that
securities would be sold in the future and the potential for losses to be
realized remains uncertain. In the event that securities held as
available-for-sale were sold at a loss, any loss would be reflected in the
results of operations on an after-tax basis. However, there would be no
expected impact on the Company's financial condition, given that the
securities are carried at their estimated fair value, net of any unrealized
loss. The unrealized loss on available-for-sale securities decreased to $1.3
million at June 30, 1997 from $1.5 million at December 31, 1996.
The Company's liquid assets were $119.7 million at June 30, 1997, an increase
of $30.4 million from December 31, 1996. The increase can be attributed to
the increase in deposit balances as previously discussed.
Secondary sources of liquidity include reverse repurchase arrangements to
borrow cash for short to intermediate periods of time using the Company's
available-for-sale securities as collateral, Federal funds lines of credit
that allow the Company to temporarily borrow an aggregate of up to $35.0
million from three commercial banks and a $5.3 million line of credit with
the Federal Home Loan Bank ("FHLB") collateralized by mortgage loans. At
June 30, 1997, the Company had approximately $59.4 million in unpledged
securities that could be used to secure borrowings such as reverse repurchase
agreements. During the six months ended June 30, 1997, the largest amount of
funds so borrowed was $9.8 million. Federal funds arrangements with
correspondent banks are subject to the terms of the individual arrangements
and may be terminated at the discretion of the correspondent bank. Federal
funds purchases of up to $10.0 million were borrowed during the six months
ended June 30, 1997.
CAPITAL RESOURCES
The Company and its bank subsidiary are subject to risk-based capital
regulations adopted by the federal banking regulators in January 1990. These
guidelines are used to evaluate capital adequacy, and are based on an
institution's asset risk profile and off-balance sheet exposures, such as
unused loan commitments and letters of credit. The regulations require that
a portion of total capital be core, or Tier 1, capital consisting of common
shareholders' equity and perpetual preferred stock, less goodwill and certain
other deductions, with the remaining, or Tier 2, capital consisting of other
elements, primarily subordinated debt, mandatory convertible debt, and
grandfathered senior debt, plus the allowance for possible loan losses,
subject to certain limitations. As of December 1992, the risk-based capital
rules were further supplemented by a leverage ratio defined as Tier 1 capital
divided by quarterly average assets after certain adjustments. The minimum
leverage ratio is 3 percent for banking organizations that do not anticipate
significant growth and have well-diversified risk (including no undue
interest rate exposure), excellent asset quality, high liquidity and good
earnings. Other banking organizations not meeting these standards are
expected to have ratios of at least 4 to 5 percent, depending on their
particular condition and growth plans. Higher capital ratios can be mandated
by the regulators if warranted by the particular circumstances or risk
profile of a banking organization. In the current regulatory environment,
banking companies must stay well-capitalized, as defined in the banking
regulations, in order to receive favorable regulatory treatment on
acquisitions and favorable risk-based deposit insurance assessments.
Management seeks to maintain capital ratios in excess of the regulatory
minimums. As of June 30, 1997, the capital ratios of the Company and the
Bank exceeded the well-capitalized thresholds prescribed in the rules.
23
<PAGE>
Part I. Item 2. (continued)
The following table sets forth the Company's and the Bank's leverage and
risk-based capital ratios at June 30, 1997:
<TABLE>
Company Bank
- -----------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) Amount % Amount %
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leverage ratio $ 49,155 9.80% $ 47,907 9.56%
Regulatory minimum 20,064 4.00% (c) 20,055 4.00% (c)
Excess 29,091 5.80% 27,852 5.56%
Risk-based ratios
Tier 1 capital $ 49,155 (a) 11.65% (b) $ 47,907 (a) 11.37% (b)
Tier 1 minimum 16,870 4.00% (c) 16,857 4.00% (c)
Excess 32,285 7.65% 31,050 7.37%
Total capital $ 54,217 (d) 12.86% (b) $ 52,969 (d) 12.57% (b)
Total capital minimum 33,740 8.00% 33,714 8.00% (c)
Excess 20,477 4.86% 19,255 4.57%
</TABLE>
- ---------------------------------------------------------------------------
(a) Includes common shareholders' equity (excluding unrealized losses on
available-for-sale securities) less goodwill and other intangibles. The
Tier 1 capital ratio is adjusted for the disallowed portion of deferred
tax assets, if applicable.
(b) Risk-weighted assets of $421.8 million and $421.4 million were used to
compute these percentages for the Company and the Bank, respectively.
(c) Insured institutions, such as the Bank, must maintain a leverage capital
ratio of at least 4% or 5%, a Tier 1 captial ratio of at least 4% or 6%,
and a Total captial ratio of at least 8% or 10% in order to be categorized
adequately capitalized or well-capitalized, respectively.
(d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of
total risk-weighted assets.
24
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
SC Bancorp held its annual meeting of shareholders on May 22, 1997.
Harold A. Beisswenger, Larry D. Hartwig, and Peer A. Swan were
elected to serve as Class I Directors until the annual meeting in
the year 2000. The following persons also continued as directors
after the meeting: N. Keith Abbott, Robert C. Ball, James E.
Cunningham, William C. Greenbeck, Irving J. Pinsky, and Donald E.
Wood.
5,345,883 votes were cast for, no votes cast against and 95,991
withheld for Mr. Beisswenger. 5,314,854 votes were cast for, no
votes cast against and 127,020 withheld for Mr. Hartwig. 5,347,460
votes were cast for, no votes cast against and 94,414 withheld for
Mr. Swan.
Shareholders also voted to ratify the appointment of Deloitte & Touche
LLP as SC Bancorp's auditors for 1997. 5,415,557 votes were cast for
and 9,801 cast against the appointment of Deloitte & Touche LLP.
There were 16,516 abstentions.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
- -------------------------------------------------------------------------------
Exhibit Description
No.
- -------------------------------------------------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of April 29, 1997, by
and between Monarch Bancorp and SC Bancorp(d)
3(i).1 SC Bancorp Articles of Incorporation(a)
3(i).2 Certificate of Amendment to SC Bancorp Articles of Incorporation dated
May 9, 1995(b)
3(ii).1 Amended and Restated Bylaws of SC Bancorp(c)
10.1 Stock Option Agreement, dated as of April 29, 1997, between Monarch
Bancorp and SC Bancorp(d)
10.2 Shareholder Agreement, dated as of April 29, 1997, by and between N.
Keith Abbott and Monarch Bancorp(d)
10.3 Shareholder Agreement, dated as of April 29, 1997, by and between
Robert C. Ball and Monarch Bancorp(d)
10.4 Shareholder Agreement, dated as of April 29, 1997, by and between
Harold A. Beisswenger and Monarch Bancorp(d)
10.5 Shareholder Agreement, dated as of April 29, 1997, by and between
James E. Cunningham and Monarch Bancorp(d)
10.6 Shareholder Agreement, dated as of April 29, 1997, by and between
William C. Greenbeck and Monarch Bancorp(d)
10.7 Shareholder Agreement, dated as of April 29, 1997, by and between
Larry D. Hartwig and Monarch Bancorp(d)
10.8 Shareholder Agreement, dated as of April 29, 1997, by and between
Irving J. Pinsky and Monarch Bancorp(d)
10.9 Shareholder Agreement, dated as of April 29, 1997, by and between Peer
A. Swan and Monarch Bancorp(d)
10.10 Shareholder Agreement, dated as of April 29, 1997, by and between
Donald E. Wood and Monarch Bancorp(d)
27.1 Financial Data Schedule
99.1 Joint Press Release of Monarch Bancorp and SC Bancorp, dated April 29,
1997(d)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(a) This exhibit is contained in SC Bancorp's Quarterly Report on Form 10-
Q for the period ended March 31, 1995, filed with the Commission on
May 15, 1995, (Commission File No. 0-11046) and incorporated herein by
reference.
(b) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K
for the year ended December 31, 1995, filed with the Commission on
March 29, 1996, (Commission File No. 0-011046) and incorporated herein
by reference.
(c) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K/A
for the year ended December 31, 1996, filed with the Commission on May
9, 1997, (Commission File No. 0-01146) and incorporated herein by
reference.
(d) This exhibit is contained in SC Bancorp's Form 8-K, filed with the
Commission on May 5, 1997, (Commission File No. 0-11046) and
incorporated herein by reference.
25
<PAGE>
- -----------------
(b) Reports filed on Form 8-K
Date of Report on Form 8-K: April 29, 1997. Items Reported: Items 5
and 7, Agreement and Plan of Reorganization by and between Monarch
Bancorp and SC Bancorp.
SIGNATURE
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.
DATE: 8 AUGUST, 1997 SC BANCORP
(Registrant)
By: /S/ Bruce Roat
--------------------------
Bruce Roat
E.V.P./C.F.O.
(Principal Financial and
Accounting Officer)
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 37,639
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 27,804
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,465
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 350,584
<ALLOWANCE> 5,062
<TOTAL-ASSETS> 507,894
<DEPOSITS> 446,245
<SHORT-TERM> 7,342
<LIABILITIES-OTHER> 2,522
<LONG-TERM> 0
0
0
<COMMON> 37,807
<OTHER-SE> 13,978
<TOTAL-LIABILITIES-AND-EQUITY> 507,894
<INTEREST-LOAN> 15,759
<INTEREST-INVEST> 1,959
<INTEREST-OTHER> 717
<INTEREST-TOTAL> 18,435
<INTEREST-DEPOSIT> 6,031
<INTEREST-EXPENSE> 6,246
<INTEREST-INCOME-NET> 12,189
<LOAN-LOSSES> 650
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,790
<INCOME-PRETAX> 4,192
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,447
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.52
<LOANS-NON> 7,290
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,947
<CHARGE-OFFS> 646
<RECOVERIES> 111
<ALLOWANCE-CLOSE> 5,062
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
