<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 quarter ended March 31, 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 7,492,715 shares of common stock for the registrant issued
and outstanding as of May 1, 1997.
<PAGE>
Part I.
Item 1. Financial Statements
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 28,923 $ 29,968
Federal funds sold 45,808 3,800
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents 74,731 33,768
- -----------------------------------------------------------------------------------------------------
Securities available-for-sale, at fair value (Notes 1 and 2) 66,981 74,533
Investment in Federal Home Loan Bank stock, at cost 1,473 1,450
Investment in Federal Reserve Bank stock, at cost 607 607
Loans (Notes 1 and 3) 348,109 347,864
Less: Deferred fee income (694) (689)
Allowance for possible loan losses (5,345) (4,947)
- -----------------------------------------------------------------------------------------------------
Loans, net 342,070 342,228
- -----------------------------------------------------------------------------------------------------
Premises and equipment, net 7,403 7,740
Other real estate owned, net 654 536
Accrued interest receivable 2,665 3,931
Other assets 10,542 11,220
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 507,126 $ 476,013
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 130,850 $ 125,903
Interest-bearing 317,768 289,423
- -----------------------------------------------------------------------------------------------------
Total deposits 448,618 415,326
- -----------------------------------------------------------------------------------------------------
Borrowed funds and other interest-bearing liabilities 5,830 8,096
Accrued interest payable and other liabilities 2,307 2,672
- -----------------------------------------------------------------------------------------------------
Total liabilities 456,755 426,094
- -----------------------------------------------------------------------------------------------------
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;
7,490,915 and 7,486,375 shares issued and outstanding at March 31,
1997 and December 31, 1996, respectively. 37,763 37,738
Retained earnings 14,200 13,055
Dividends paid (374) -
Unrealized loss on available-for-sale securities, net of taxes (Note 1) (1,218) (874)
- -----------------------------------------------------------------------------------------------------
Total Shareholders' Equity 50,371 49,919
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,126 $ 476,013
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
Part I. Item 1. (continued)
SC BANCORP AND ITS SUBSIDIARY, SOUTHERN CALIFORNIA BANK
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31,
- -----------------------------------------------------------------------------------------------
1997 1996
--------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 7,762 $ 7,378
Interest on investment securities 951 1,144
Interest on Federal funds sold 201 80
- -----------------------------------------------------------------------------------------------
Total interest income 8,914 8,602
- -----------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
Interest-bearing demand 725 394
Savings 242 248
Time certificates of deposit 1,900 2,018
- -----------------------------------------------------------------------------------------------
Total interest on deposits 2,867 2,660
- -----------------------------------------------------------------------------------------------
Other interest expense 114 306
- -----------------------------------------------------------------------------------------------
Total interest expense 2,981 2,966
- -----------------------------------------------------------------------------------------------
Net interest income 5,933 5,636
Provision for possible loan losses (Note 3) 350 280
- -----------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 5,583 5,356
- -----------------------------------------------------------------------------------------------
NONINTEREST INCOME 1,257 1,287
NONINTEREST EXPENSE:
Salaries and benefits 2,527 2,649
Net occupancy, furniture and equipment 847 1,110
Other operating expense 1,505 1,565
- -----------------------------------------------------------------------------------------------
Total noninterest expense 4,879 5,324
- -----------------------------------------------------------------------------------------------
Income before provision for income taxes 1,961 1,319
Provision for income taxes 816 556
- -----------------------------------------------------------------------------------------------
NET INCOME $ 1,145 $ 763
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 7,488 7,472
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Earnings per share $ 0.15 $ 0.10
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</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>
Three months ended
(DOLLARS IN THOUSANDS) March 31,
- ----------------------------------------------------------------------------------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,145 $ 763
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan losses 350 280
Provision for loss on other real estate owned - 20
Gain on sale of available-for-sale investment securities - (14)
Net amortization of premiums on investment securities 188 244
Gain on sale of loans (78) -
Net increase (decrease) in deferred fees and unearned
income on loans 5 (29)
Depreciation and amortization 405 493
(Gain) loss on sale of fixed assets (4) 1
Decrease in accrued interest receivable and other assets 2,211 1,979
(Decrease) increase in accrued interest payable and
other liabilities (390) 350
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,832 4,087
- ----------------------------------------------------------------------------------------------------
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 6,778 1,709
Purchase of FHLB and FRB stock (23) (184)
Proceeds from sale of loans 1,299 -
Loans funded, net of payments received (1,449) 471
Proceeds from sale of fixed assets and other assets 4 184
Purchase of fixed assets (68) (94)
- ---------------------------------------------------------------------------------------------------
Net cash provided by investing activities 6,541 10,635
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 25 6
Dividends paid (374) -
Increase (decrease) in noninterest-bearing deposits 4,947 (13,922)
Increase in interest-bearing deposits 28,345 5,670
(Decrease) increase in other borrowings (2,353) 3,264
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 30,590 (4,982)
- ---------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 40,963 9,740
Cash and cash equivalents, beginning of period 33,768 29,088
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 74,731 $ 38,828
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Unrealized loss on investment securities
available-for-sale, net of tax $ 344 $ 422
Transfers of loans to other real estate owned 31 -
Assumption of senior liens on other real estate owned 87 -
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 March 31, 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 March 31, 1997, the Company's available-for-sale portfolio had a net
unrealized loss of $2.1 million. The tax-effected reduction to shareholders'
equity at March 31, 1997, was $1.2 million. 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 first quarter of 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.
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 March
31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) March 31,1997
- ---------------------------------------------------------------------------------------------------------
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 $ 27,854 $ - $ (300) $ 27,554
Mortgage-backed securities 41,207 - (1,780) 39,427
- ---------------------------------------------------------------------------------------------------------
Total $ 69,061 $ - $ (2,080) $ 66,981
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
<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 $13.8 million and $15.5 million
were pledged to secure public deposits and as collateral for other borrowings at
March 31, 1997 and December 31, 1996, respectively.
The amortized cost and estimated fair value of debt securities at March 31, 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
MARCH 31, 1997 or less five years ten years ten years Total
--------- ------------ ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Available-for-sale, amortized cost $ 14,773 $ 48,310 $ 5,897 $ 81 $ 69,061
Available-for-sale, estimated fair value $ 14,728 $ 46,592 $ 5,580 $ 81 $ 66,981
</TABLE>
There were no sales of investment securities during the first quarter of 1997.
Proceeds from the sale of an investment security during the same period in 1996
were $8.5 million. A gross gain of $14,000 was realized on the sale.
6
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-LOANS
Loans by category are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 Percent 1996 Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 165,256 47.47% $ 160,633 46.17%
Real estate, construction 10,069 2.89% 8,544 2.46%
Real estate, mortgage 105,691 30.36% 105,123 30.22%
Consumer 67,093 19.28% 73,564 21.15%
- ---------------------------------------------------------------------------------------------------------
Gross loans 348,109 100.00% 347,864 100.00%
- ---------------------------------------------------------------------------------------------------------
Deferred fee income (694) (689)
Allowance for possible loan losses (5,345) (4,947)
- ---------------------------------------------------------------------------------------------------------
Loans, net $ 342,070 $ 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>
March 31, December 31, March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996 1996 1995
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Average balance of gross loans outstanding $ 341,896 $ 321,843 $ 312,304 $ 261,631
- ----------------------------------------------------------------------------- -------------------------
- ----------------------------------------------------------------------------- -------------------------
Gross loan balance at end of period $ 348,109 $ 347,864 $ 316,507 $ 316,841
- ----------------------------------------------------------------------------- -------------------------
- ----------------------------------------------------------------------------- -------------------------
Allowance at beginning of period $ 4,947 $ 5,734 $ 5,734 $ 5,318
Charge-offs:
Commercial - 422 7 834
Real estate - 279 7 1,227
Consumer 11 168 33 587
- ----------------------------------------------------------------------------- -------------------------
Total charge-offs 11 869 47 2,648
Recoveries:
Commercial 52 477 156 587
Real estate - 21 2 129
Consumer 7 54 26 192
- ----------------------------------------------------------------------------- -------------------------
Total recoveries 59 552 184 908
Net (recoveries) charge-offs (48) 317 (137) 1,740
Provision (recovery) charged (credited) to operations 350 (470) 280 1,539
Allowance on purchased loans - - - 617
- ----------------------------------------------------------------------------- -------------------------
Allowance at end of period $ 5,345 $ 4,947 $ 6,151 $ 5,734
- ----------------------------------------------------------------------------- -------------------------
- ----------------------------------------------------------------------------- -------------------------
</TABLE>
7
<PAGE>
Part I. Item 1. (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3-LOANS (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31, March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996 1996 1995
- ----------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C>
Ratio of allowance for loan losses to loans
outstanding at end of period 1.54% 1.42% 1.94% 1.81%
Ratio of allowance for loan losses to
nonaccrual loans at end of period 67.91% 173.84% 364.61% 414.01%
Ratio of annualized net charge-offs to
average loans -0.06% 0.10% -0.18% 0.67%
</TABLE>
Loans on nonaccrual status were $7.9 million and $1.7 million, respectively at
March 31, 1997 and 1996. Interest income that would have been collected on
these loans had they performed in accordance with their original terms was
approximately $161,000 and $62,000, for the three months ended March 31, 1997
and 1996, respectively. The Company's average recorded investment in impaired
loans at March 31, 1997 was $8.2 million. The Company's allowance for possible
loan losses at March 31, 1997 includes $1.9 million related to impaired loans.
Interest income recognized on impaired loans during the first quarter of 1997
and 1996 was $114,000 and $102,000, of which $114,000 and $86,000, 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 $5.4 million and $4.1 million at March 31, 1997, and
December 31, 1996, respectively. In addition, the Company had unfunded loan
commitments of $119.8 million and $110.5 million at March 31, 1997 and December
31, 1996, respectively. All of the commitments outstanding at March 31, 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 March 31,
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 first 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 $86,000 and
$146,000 related to the swap agreements is included in interest income for the
three months ended March 31, 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 $3.4 million was pledged as collateral for the
outstanding agreement as of March 31, 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 $1.1 million for the first quarter of 1997
compared to net income of $763,000 for the first quarter of 1996. Net income
for the first quarter of 1997 reflects continued cost savings associated with
the sale of two branches and the consolidation of a third branch during the
first quarter of 1996.
The following table summarizes key performance indicators pertaining to the
Company's operating results:
<TABLE>
<CAPTION>
Three months ended
March 31,
- -----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Return on average assets (1) 0.97% 0.66%
Return on average shareholders' equity (1) 9.11% 6.99%
Net income $ 1,145 $ 763
Earnings per share $ 0.15 $ 0.10
Total average assets $ 476,966 $ 456,149
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized
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 and the yields and rates thereon for the periods
indicated. The table also provides a summary of the changes in interest income
and interest expense resulting from changes in average interest rates (rate) and
changes in average balances (volume) for the periods indicated. The changes in
interest income and interest expense attributable to the rate/volume variance
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. Average balances are average daily
balances. Nonaccrual loans are included in total average loans outstanding.
9
<PAGE>
Part I. Item 2. (continued)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
March 31, 1997 March 31, 1996
-----------------------------------------------------------------------------
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 $ 341,896 $ 7,762 9.21% $ 312,304 $ 7,378 9.50%
Investment securities 73,858 951 5.22% 89,475 1,144 5.14%
Federal funds sold and other 15,298 201 5.33% 5,979 80 5.40%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/interest income 431,052 8,914 8.39% 407,758 8,602 8.48%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest earning assets 45,914 48,391
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 476,966 $ 456,149
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits $ 292,241 $ 2,867 3.98% $ 276,129 $ 2,660 3.87%
Other interest-bearing liabilities 7,074 114 6.54% 18,274 306 6.73%
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest
expense 299,315 2,981 4.04% 294,403 2,966 4.05%
- ----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing liabilities 126,684 117,862
Shareholders' equity 50,967 43,884
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 476,966 $ 456,149
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME/NET INTEREST MARGIN $ 5,933 5.58% $ 5,636 5.56%
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
10
<PAGE>
Part I. Item 2. (continued)
<TABLE>
<CAPTION>
March 31, 1997 and 1996
--------------------------------------
Increase (decrease)
due to change in
(DOLLARS IN THOUSANDS) Rate Volume Change
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans, net of deferred fees $ (244) $ 628 $ 384
Investment securities 17 (210) (193)
Federal funds sold and other (1) 122 121
- -----------------------------------------------------------------------------------------------
Total interest earning assets/interest income (228) 540 312
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing deposits $ 68 $ 139 $ 207
Other interest-bearing liabilities (66) (126) (192)
- -----------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense 2 13 15
- -----------------------------------------------------------------------------------------------
NET INTEREST INCOME/NET INTEREST MARGIN $ (230) $ 527 $ 297
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
Net interest income was $5.9 million for the three months ended March 31, 1997,
compared to $5.6 million for the first quarter of 1996. The increase is
primarily due to a $29.6 million increase in average loan balances for the first
quarter of 1997 compared to the comparable period for 1996. The reduction in
the average balance of investment securities for 1997 compared to the prior year
is due to the maturity of $6.8 million of securities during the first quarter of
1997, and sales and maturities of available-for-sale securities totaling $10.3
million during the first quarter of 1996. Proceeds from the sale and maturity
of securities were used to fund loan growth.
The average yield on earning assets decreased to 8.39% for the first quarter of
1997 from 8.48% for the first quarter of 1996. The overall decrease in yield in
the first quarter of 1997 can be attributed to the decrease in the average yield
on loans, including the effect of the interest rate swaps, to 9.21% from 9.50%
for the same period last year. Pricing spreads on variable-rate commercial and
real estate loans decreased modestly in 1997 compared to 1996 due to competitive
pricing practices in the Company's market area. In addition, the yield on real
estate loans for the first quarter of 1997 was impacted by the reversal of
approximately $80,000 of accrued interest on two real estate loans that were
placed on nonaccrual status. The average yield on loans is impacted by changes
in the national prime rate. The national prime rate increased to 8.50% from
8.25% on March 26, 1997. The last change in the prime rate was a reduction from
8.50% to 8.25% on January 31, 1996.
The net interest margin increased to 5.58% for the first quarter of 1997 from
5.56% for the comparable period of the prior year. The increase in the net
interest margin is attibutable in part to a change in the earning asset mix that
includes a higher proportion of loans to investment securities. On a
year-to-date basis, average loans increased to 79% of total average earning
assets for the current year from 77% of average earning assets a year ago. The
Company's overall cost of funds decreased slightly for the first quarter of 1997
to 4.04% from 4.05% for the first quarter of 1996.
11
<PAGE>
Part I. Item 2. (continued)
PROVISION FOR POSSIBLE LOAN LOSSES
The Company recorded a $350,000 provision for possible loan losses for the first
quarter of 1997. Gross loan charge-offs and recoveries for the quarter were
$11,000 and $59,000, respectively. Nonaccrual loans increased to $7.9 million
at March 31, 1997 from $2.8 million at December 31, 1996. The loan loss
provision was increased in the first quarter to support growth in the loan
portfolio and to increase reserves associated with one real estate loan that was
placed on nonaccrual status. The ratio of the allowance for possible loan
losses to total loans was 1.54% at March 31, 1997 and 1.94% at March 31, 1996.
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 and to "Asset Quality" below.
The Company recorded a $280,000 provision for possible loan losses for the first
three months of 1996. Year-to-date loan charge-offs and recoveries for the
first quarter of 1996 were $47,000 and $184,000, respectively, representing a
year-to-date net recovery of $137,000.
NONINTEREST INCOME
The following tables set forth the major components of noninterest income for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
(DOLLARS IN THOUSANDS) March 31,
- --------------------------------------------------------------------------------
1997 1996
--------- --------
<S> <C> <C>
Service charges on deposit accounts $ 261 $ 386
Other fees and charges 654 610
Merchant bankcard income 119 117
Net gain on sales of securities - 14
Net gain on sale of SBA loans 78 -
Net gain (loss) on sales of fixed assets 4 (1)
Life insurance income 32 27
Other income 109 134
- --------------------------------------------------------------------------------
Total noninterest income $ 1,257 $ 1,287
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Noninterest income was $1.3 million for each of the three months ended March
31, 1997 and 1996, respectively.
Noninterest income for the first quarter of 1997 includes a $78,000 gain on sale
of SBA loans.
12
<PAGE>
Part I Item 2. (continued)
NONINTEREST EXPENSE
The following tables provide detail of the Company's noninterest expense by
category for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
(DOLLARS IN THOUSANDS) March 31,
- --------------------------------------------------------------------------------
1997 1996
-------- --------
<S> <C> <C>
Salaries and employee benefits $ 2,527 $ 2,649
Net occupancy, furniture and equipment 847 1,110
Professional and legal fees 340 321
Postage and delivery 149 161
Goodwill amortization 135 114
Software 121 61
Merchant bankcard expense 95 97
Office supplies 87 80
Advertising and promotion 81 95
Telecommunications 80 112
Insurance and assessment 68 101
Data processing 62 70
Operating losses 57 61
Professional and community 50 49
Other real estate owned, net (2) 62
Miscellaneous 182 181
- --------------------------------------------------------------------------------
Total noninterest expense $ 4,879 $ 5,324
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annualized noninterest expense as a %
of average earning assets 4.59% 5.25%
</TABLE>
Noninterest expense for the first quarter of 1997 decreased to $4.9 million from
$5.3 million for the first quarter of 1996. The reduction in noninterest
expense occurred as a result of ongoing expense reduction efforts and the
realization of cost savings, particularly in the areas of salaries and occupancy
expenses, resulting from the sale of two branches and the consolidation of a
third branch completed during the first quarter of 1996.
FINANCIAL CONDITION
Total assets at March 31, 1997 were $507.1 million, an increase of $31.1 million
from $476.0 million at December 31, 1996. Gross loan balances increased
slightly to $348.1 million at March 31, 1997 from $347.9 million at December 31,
1996. Total deposits increased to $448.6 million at March 31, 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 and to increases in short-term
money market deposits.
13
<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>
March 31, December 31, Amount Percent
(DOLLARS IN THOUSANDS) 1997 1996 Change Change
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 74,731 $ 33,768 $ 40,963 121.31%
Securities available-for-sale, at fair value 66,981 74,533 (7,552) -10.13%
Investment in Federal Home Loan Bank stock, at cost 1,473 1,450 23 1.59%
Investment in Federal Reserve Bank stock, at cost 607 607 - 0.00%
Loans, net 342,070 342,228 (158) -0.05%
Premises and equipment, net 7,403 7,740 (337) -4.35%
Other real estate owned, net 654 536 118 22.01%
Accrued interest receivable 2,665 3,931 (1,266) -32.21%
Other assets 10,542 11,220 (678) -6.04%
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 507,126 $ 476,013 $ 31,113 6.54%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 130,850 $ 125,903 $ 4,947 3.93%
Interest-bearing demand deposits 116,603 104,435 12,168 11.65%
Savings deposits 48,904 39,755 9,149 23.01%
Time certificates of deposit 152,261 145,233 7,028 4.84%
- -------------------------------------------------------------------------------------------------------------
Total deposits 448,618 415,326 33,292 8.02%
- -------------------------------------------------------------------------------------------------------------
Borrowed funds and other interest-
bearing liabilities 5,830 8,096 (2,266) -27.99%
Accrued interest payable and other liabilities 2,307 2,672 (365) -13.66%
Total shareholders' equity 50,371 49,919 452 0.91%
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 507,126 $ 476,013 $ 31,113 6.54%
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</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 as 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 $2.1 million at March 31, 1997.
Cash and cash equivalents increased $40.9 million to $74.7 million at March 31,
1997 from $33.8 million at December 31, 1996. The increase is due to a $42.0
million increase in investments in overnight Federal funds sold.
INVESTMENT SECURITIES
The Company's available-for-sale securities portfolio includes U.S. Treasury
securities and U.S. government agency securities, most of which are
mortgage-backed securities.
14
<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
March 31, 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>
U.S. Treasury securities and obligations
of U.S. goverment agencies $ 14,728 $ 12,745 $ - $ 81 $ 27,554
Mortgage-backed securities - 33,847 5,580 - 39,427
- ------------------------------------------------------------------------------------------------------------------------
Total $ 14,728 $ 46,592 $ 5,580 $ 81 $ 66,981
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</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 March 31, 1997 and December 31, 1996.
COMMERCIAL LOANS. Commercial loans totaled $165.3 million, or 47.5%, of total
loans and $160.6 million, or 46.2%, of total loans at March 31, 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 63% 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 March 31, 1997, $42.2 million, or
12.1%, 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 $18.3 million, or 5.3%, of total loans at March 31, 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 March 31, 1997, the Company had $18.7 million of SBA loans.
REAL ESTATE CONSTRUCTION LOANS. Real estate construction loans increased to
$10.1 million, or 2.9%, of total loans at March 31, 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 CRA community projects.
REAL ESTATE MORTGAGE LOANS. Real estate mortgage loans comprise $105.7 million,
or 30.4%, of the total loan portfolio at March 31, 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 $67.1 million, or 19.3%, of the
loan portfolio at March 31, 1997 from $73.6 million, or 21.2%, of total loans at
December 31, 1996. The decrease in consumer loan balances at March 31, 1997
occured in homeowner equity loans, stock secured loans, and loans to high net
worth individuals. The consumer loan portfolio at March 31, 1997 includes $26.4
million of home equity loans and home equity lines of credit representing 7.6%
of total loans. Auto and recreational vehicle loans comprise approximately
$18.6 million, or 5.4%, of total loans, and lines of credit to high net worth
individuals comprise $17.1
15
<PAGE>
Part I. Item 2. (continued)
million, or 4.9% of total loans. The levels of consumer loans at period ends
may fluctuate and may not necessarily be representative of average levels
experienced during the respective periods due to the timing of advances and
payments made on 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 March 31, 1997, based on
remaining scheduled principal repayments:
<TABLE>
<CAPTION>
Maturing in
- ---------------------------------------------------------------------------------------------------------
Over one
One year year through Over five
(DOLLARS IN THOUSANDS) or less five years years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 91,357 $ 53,256 $ 19,503 $ 164,116
Real estate, construction 5,326 2,236 2,507 10,069
Real estate, mortgage 10,618 64,867 23,515 99,000
- ---------------------------------------------------------------------------------------------------------
Total $ 107,301 $ 120,359 $ 45,525 $ 273,185
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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 March 31, 1997:
<TABLE>
<CAPTION>
Maturing or Repricing in
- ---------------------------------------------------------------------------------------------------------
Over one
One year year through Over five
(DOLLARS IN THOUSANDS) or less five years years Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed interest rates $ 22,563 $ 45,561 $ 17,498 $ 85,622
Variable interest rates 187,030 29 504 187,563
- ---------------------------------------------------------------------------------------------------------
Total $ 209,593 $ 45,590 $ 18,002 $ 273,185
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
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 uncertain, 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 $7.9 million, or 2.26% of total loans, at March
31, 1997 from $2.8 million, or 0.82% of total loans, at December 31, 1996. The
increase was primarily due to one matured real estate loan that was placed on
nonaccrual status following the completion of an updated collateral valuation
analysis. Payments on the loan were current as of March 31, 1997.
16
<PAGE>
Part I. Item 2. (continued)
Nonaccrual loans by category are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 1,140 $ 1,316
Real estate, construction - -
Real estate, mortgage 6,691 1,446
Consumer 40 84
- --------------------------------------------------------------------------------
Total nonaccrual loans $ 7,871 $ 2,846
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Delinquent loans (past due 30 to 89 days and still accruing interest) by
category are summarized below:
<TABLE>
<CAPTION>
March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial $ 948 $ 1,273
Real estate, construction - -
Real estate, mortgage 979 415
Consumer 719 1,125
- --------------------------------------------------------------------------------
Total delinquent loans $ 2,646 $ 2,813
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percentage of total gross loans:
Nonaccrual loans 2.26% 0.82%
Delinquent loans, still accruing interest 0.76% 0.81%
Nonaccrual and delinquent loans 3.02% 1.63%
</TABLE>
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 loan portfolio for the first quarter of 1997 considered
the factors discussed above and incorporated the
17
<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 1.30% ratio of allowance to total loans. The
Company's 1.54% ratio of the allowance for possible loans losses to total loans
at March 31, 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:
<TABLE>
<CAPTION>
Three months
Ended Year Ended
March 31, December 31,
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of period $ 536 $ 2,073
Additions 118 699
Sales - (4,317)
Valuation - 2,081
- --------------------------------------------------------------------------------
Balance, end of period $ 654 $ 536
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
At March 31, 1997, the OREO portfolio consisted of three properties. The
Company is actively marketing these properties.
DEPOSITS
Total deposits at March 31, 1997 were $448.6 million, a $33.3 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>
Three Months Ended Year Ended
March 31, 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 $ 125,736 30.07% $ 119,570 29.70%
NOW/MMDA 104,119 2.82% 24.91% 95,098 2.58% 23.63%
Savings 42,295 2.32% 10.12% 44,272 2.11% 11.00%
TCDs 145,827 5.28% 34.90% 143,582 5.36% 35.67%
- -------------------------------------------------------------------------------------------------------------------------
Deposits $ 417,977 100.00% $ 402,522 100.00%
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
The increase in average deposit balances to $418.0 million at March 31, 1997
from $402.5 million at December 31, 1996 can be
18
<PAGE>
Part I. Item 2. (continued)
attributed to various core deposit promotions by the Bank, as well as to an
increase in short-term money market deposits at March 31, 1997.
The reduction in the average rate paid on time certificates of deposit ("TCD")
to 5.28% for the three months ending March 31, 1997 from 5.36% for the
comparable period in 1996, is largely due to the managed reduction in higher
rate TCD accounts raised through TCD promotion programs. 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>
March 31,1997
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 $ 26,885 $ 24,845 $ 13,683 $ 7,064 $ 72,477
$100,000 and over 32,719 36,110 9,185 1,770 79,784
- ------------------------------------------------------------------------------------------------------------------------
Total $ 59,604 $ 60,955 $ 22,868 $ 8,834 $ 152,261
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<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 $5.8 million at March 31, 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
March 31, 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.
19
<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 amount for the interest rate swap, as of March 31, 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>
<CAPTION>
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 $ 45,808 $ - $ - $ - $ 45,808
Investment securities, at cost - 14,773 48,310 5,978 69,061
Gross Loans (1) 205,981 45,782 60,474 28,001 340,238
Interest rate swap 50,000 - - - 50,000
- -------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 301,789 $ 60,555 $ 108,784 $ 33,979 $ 505,107
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand and
savings deposits $ - $ 39,293 $ 109,075 $ 17,139 $ 165,507
Time certificates of deposit 59,604 83,823 8,817 17 152,261
Other borrowings and interest-
bearing liabilities 4,623 1,207 - - 5,830
Interest rate swap 50,000 - - - 50,000
- -------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $ 114,227 $ 124,323 $ 117,892 $ 17,156 $ 373,598
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 187,562 $ (63,768) $ (9,108) $ 16,823
Cumulative interest rate sensitivity gap 187,562 123,794 114,686 131,509
Cumulative interest rate sensitivity gap
as a percentage of total interest-
earning assets 37.13% 24.51% 22.71% 26.04%
- -------------------------------------------------------
(1) Excludes nonaccrual loans of $7.9 million.
</TABLE>
At March 31, 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 $123.8 million or 24.51% 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
March 31, 1997, the Company remains moderately asset-sensitive. Thus, a rising
rate environment would tend to lead to a moderate increase in net interest
income.
20
<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 March 31, 1997, the Company's
ratios were within these guidelines: the liquidity ratio was 27.4% and the
loan to deposit ratio was 77.6%. 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 increased to $2.1 million at
March 31, 1997 from $1.5 million at December 31, 1996.
The Company's liquid assets were $121.6 million at March 31, 1997, an increase
of $32.3 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 $5.4 million line of credit with the Federal Home
Loan Bank ("FHLB") collateralized by mortgage loans. At March 31, 1997, the
Company had approximately $53.2 million in unpledged securities that could be
used to secure borrowings such as reverse repurchase agreements. During the
three months ended March 31, 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 quarter ended March 31, 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 March 31, 1997, the capital ratios of the Company
and the Bank exceeded the well-capitalized thresholds prescribed in the rules.
21
<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 March 31, 1997:
<TABLE>
<CAPTION>
Company Bank
- -----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) Amount % Amount %
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leverage ratio $48,041 10.12% $46,301 9.75%
Regulatory minimum 18,997 4.00% (c) 18,986 4.00% (c)
Excess 29,044 6.12% 27,315 5.75%
Risk-based ratios
Tier 1 capital $48,041 (a) 11.11% (b) $46,301 (a) 10.72% (b)
Tier 1 minimum 17,295 4.00% (c) 17,284 4.00% (c)
Excess 30,746 7.11% 29,017 6.72%
Total capital $53,386 (d) 12.35% (b) $51,646 (d) 11.95% (b)
Total capital minimum 34,591 8.00% 34,569 8.00% (c)
Excess 18,795 4.35% 17,077 3.95%
- -----------------------------------------------------------------------------------------------
</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 $432.4 million and $432.1 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.
22
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
On January 30, 1997, the Company amended Section 10 of its by-
laws relating to action taken by holders of the Company's common
stock by written consent without a meeting. Such amendment
institutes a more detailed procedure whereby a record date will be
set to determine shareholders entitled to consent to action in
writing without a meeting. The amendment also requires that: (1)
the Company appoint independent inspectors of election for the
purpose of performing a ministerial review of the validity of such
consents; (2) all such consents bear the date of signature of each
shareholder signing such consent; and (3) no written consent dated
more than sixty (60) days after the earliest dated consent
received by the Company pertaining to such action shall be
effective.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
- --------------------------------------------------------------------------------
Exhibit Description
No.
- --------------------------------------------------------------------------------
3(i).1 SC Bancorp Articles of Incorporation (d)
3(i).2 Certificate of Amendment to SC Bancorp Articles of Incorporation dated
May 9, 1995(e)
3(ii).1 Amended and Restated Bylaws of SC Bancorp(f)
4.1 Specimen Common Stock Certificate(a)
4.2 SC Bancorp 1989 Stock Option Plan(c)
4.3.1 Amended and restated Southern California Bank Employee Retirement
Plan(b)
4.3.2 First amendment to the amended and restated Southern California Bank
Employee Retirement Plan(e)
4.3.3 Second amendment to the amended and restated Southern California Bank
Employee Retirement Plan(e)
4.3.4 Third amendment to the amended and restated Southern California Bank
Employee Retirement Plan(e)
4.3.5 Fourth amendment to the amended and restated Southern California Bank
Employee Retirement Plan(e)
4.4.1 SC Bancorp Executive Deferral Plan (IV)(c)
4.4.2 Amendment No. 6 to SC Bancorp Executive Deferral Plan I
4.4.3 Amendment No. 3 to SC Bancorp Executive Deferral Plan II
4.4.4 Amendment No. 2 to SC Bancorp Executive Deferral Plan III
4.4.5 Amendment No. 2 to the amended and restated Southern California Bank
Executive Deferral Plan IV
4.4.6 Amendment No. 1 to the Master Trust Agreement for SC Bancorp Executive
Deferral Plans
4.5 Southern California Bank Executive Incentive Compensation Plans for
1994(a)
4.6 Southern California Bank Executive Incentive Compensation Plans for
1995(e)
4.7 Southern California Bank Executive Incentive Compensation Plans for
1996(f)
10.1 Employment Agreement between SC Bancorp and Southern California Bank
and Larry D. Hartwig, dated January 1, 1997(f)
10.2 Employment Agreement between SC Bancorp and Southern California Bank
and David A. McCoy, dated February 25, 1992(f)
10.3 Amended and Restated Employment Security Agreement between SC Bancorp
and Southern California Bank and David A. McCoy, dated January 1,
1997(f)
10.4 Amended and Restated Employment Security Agreement between SC Bancorp
and Southern California Bank and Bruce W. Roat, dated January 1,
1997(f)
23
<PAGE>
Exhibit Index (continued)
10.5 Amended and Restated Employment Security Agreement between SC Bancorp
and Southern California Bank and Ann E. McPartlin, dated January
1, 1997(f)
10.6 Amended and Restated Employment Security Agreement between SC Bancorp
and Southern California Bank and M. V. Cummings, dated January 1,
1997(f)
27.1 Financial Data Schedule
- --------------------------------------------------------------------------------
(a) This exhibit is contained in SC Bancorp's Registration Statement on
Form S-2, filed with the Commission on March 9, 1994, (Commission File
No. 33-76274), 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 31,1991, filed with the Commission on
March 30, 1992, (Commission File No. 0-11046) and incorporated herein
by reference.
(c) This exhibit is contained in SC Bancorp's Proxy Statement, filed with
the Commission on on March 23, 1990, (Commission File No. 0-11046) and
incorporated herein by reference.
(d) 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.
(e) 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. 0-11046) and incorporated herein
by reference.
(f) This exhibit is contained in SC Bancorp's Annual Report on Form 10-K
for the year ended December 31, 1996, filed with the Commission of
March 27, 1997, (Commission File No. 0-11046) and incorporated herein
by reference.
- -------------------
(b) Reports filed on Form 8-K
None filed during the first quarter of 1997.
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: 9 May, 1997 SC BANCORP
(Registrant)
` By: /S/ Bruce Roat
----------------------------
Bruce Roat
E.V.P./C.F.O.
(Principal Financial and
Accounting Officer)
24
<PAGE>
SC BANCORP
AMENDMENT NO. 6
EXECUTIVE DEFERRAL PLAN I
SC Bancorp, a California corporation, hereby amends the SC Bancorp Executive
Deferral Plan I, which was initially effective on June 1, 1986 (the "Plan"), as
follows:
1. New Section 1.0 of the Plan is added to read as follows:
"1.0 'Bank' shall mean Southern California Bank, a California corporation."
2. New Section 1.2A of the Plan is added to read as follows:
"1.2A 'Change in Control Event' shall be deemed to have occurred if and
when:
a. the Company shall consummate a merger or consolidation (a
'Transaction') with another corporation; PROVIDED, HOWEVER, that
a Change of Control shall not be deemed to have occurred with
respect to a Transaction if the beneficial owners of the
outstanding shares entitled to vote in the election of directors
immediately prior to such Transaction will beneficially own more
than sixty percent (60%) of the outstanding shares entitled to
vote in the election of directors of the corporation resulting
from the consummation of the Transaction; or
b. twenty-five percent (25%) of the Company's securities then
entitled to vote in the election of directors shall be acquired
by any 'person' (as such term is used in Sections 13(d) of the
Securities Exchange Act of 1934, as amended); or
c. during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period were members of
the Board of Directors of the Company (the 'Incumbent Board')
shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company, provided that any
-1-
<PAGE>
person becoming a director subsequent to the beginning of such
period whose election or nomination for election was approved by
a vote of at least eighty-five percent (85%) of the directors
comprising the Incumbent Board shall be, for purposes hereof,
considered as though such person were a member of the Incumbent
Board; or
d. the Bank or the Company shall sell all, or substantially all, of
its assets to another corporation."
3. New Section 7.6 shall be added to the Plan to read as follows:
"7.6 COMMITTEE DISCRETION. For purposes of determining the form of payment
of a Participant's termination benefit, the Committee may, in its sole
and absolute discretion, deem a Participant who has experienced a
Termination of Employment prior to the Participant's Retirement as
being eligible for Retirement under Article 5. Such Participant's
benefit shall be paid at the same time and in the same manner as
elected by the Participant prior to the beginning of the Benefit Unit.
The applicable interest rate on the EDP Account, including any unpaid
balances, will be based on a fixed rate which is an average of the
annual Moody's Seasoned Corporate Bond Rate over the five (5) years
prior to the Participant's deemed Retirement, with an additional five
(5%) interest."
4. Section 12.3 shall be added to the Plan to read as follows:
"12.3 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL
EVENT. Notwithstanding any other provision of this Plan,
subsequent to a Change in Control Event, the benefits of a
Participant who is receiving payments under this Plan shall not be
affected by a Plan termination, or any amendment or modification
which adversely affects such Participant's benefits, under Sections
12.1 or 12.2. The benefits of a Participant who has not yet begun
to receive payments prior to such Change in Control Event shall be
paid at the same time and in the same manner as elected by the
Participant prior to the beginning of the Benefit Unit."
* * * * *
-2-
<PAGE>
SC Bancorp has signed this Amendment on the date indicated below to be effective
January 1, 1997.
SC BANCORP
Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger
----------------------
Its: Chr.
---------------------
-3-
<PAGE>
SC BANCORP
AMENDMENT NO. 3 TO
SC BANCORP EXECUTIVE DEFERRAL PLAN II
SC Bancorp, a California corporation, hereby amends the SC Bancorp Executive
Deferral Plan II, which was initially effective on January 1, 1989 (the "Plan"),
as follows:
1. Article I, entitled DEFINITIONS, is amended by adding Section 1.1A as
follows:
"1.1A 'Bank' shall mean Southern California Bank, a California
corporation."
2. Article I, entitled DEFINITIONS, is amended by adding Section 1.3A as
follows:
"1.3A 'Change in Control Event' shall be deemed to have occurred if and
when:
a. the Company shall consummate a merger or consolidation (a
'Transaction') with another corporation; PROVIDED, HOWEVER, that
a Change of Control shall not be deemed to have occurred with
respect to a Transaction if the beneficial owners of the
outstanding shares entitled to vote in the election of directors
immediately prior to such Transaction will beneficially own more
than sixty percent (60%) of the outstanding shares entitled to
vote in the election of directors of the corporation resulting
from the consummation of the Transaction; or
b. twenty-five percent (25%) of the Company's securities then
entitled to vote in the election of directors shall be acquired
by any 'person' (as such term is used in Sections 13(d) of the
Securities Exchange Act of 1934, as amended); or
c. during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period were members of
the Board of Directors of the Company (the 'Incumbent Board')
shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company, provided that any
person becoming a director subsequent to the beginning of such
-1-
<PAGE>
period whose election or nomination for election was approved by
a vote of at least eighty-five percent (85%) of the directors
comprising the Incumbent Board shall be, for purposes hereof,
considered as though such person were a member of the Incumbent
Board; or
d. the Bank or the Company shall sell all, or substantially all, of
its assets to another corporation."
3. The last sentence of Section 4.1 is amended in its entirety to read as
follows:
"Notwithstanding any other provision of the Plan, excess values will
continue to accumulate at a rate equal to Moody's plus 5.0% until the
earliest of death or retirement."
4. Section 14.6 shall be added to the Plan to read as follows:
"14.6 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL
EVENT. Notwithstanding any other provision of this Plan, subsequent
to a Change in Control Event, the benefits of a Participant who is
receiving payments under this Plan shall not be affected by a Plan
termination, or any amendment or modification which adversely
affects such Participant's benefits, under Sections 14.1 or 14.2.
The benefits of a Participant who has not yet begun to receive
payments prior to such Change in Control Event shall be paid at the
same time and in the same manner as elected by the Participant prior
to the beginning of the Benefit Unit."
* * * * *
SC Bancorp has signed this Amendment on the date indicated below to
be effective as of January 1, 1997.
SC BANCORP,
Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger
--------------------
Its: Chr.
-----------------
-2-
<PAGE>
AMENDMENT NO. 2 TO
SC BANCORP EXECUTIVE DEFERRAL PLAN III
SC BANCORP, a California corporation, hereby amends the SC Bancorp
Executive Deferral Plan III, which was initially effective on June 1, 1990 (the
"Plan"), as follows:
1. New Section 1.1A of the Plan is added to read as follows:
"1.1A 'Bank' shall mean Southern California Bank, a California
corporation."
2. New Section 1.7A of the Plan is added to read as follows:
"1.7A' Change in Control Event' shall be deemed to have occurred if and
when:
a. the Company shall consummate a merger or consolidation (a
'Transaction') with another corporation; PROVIDED, HOWEVER, that
a Change of Control shall not be deemed to have occurred with
respect to a Transaction if the beneficial owners of the
outstanding shares entitled to vote in the election of directors
immediately prior to such Transaction will beneficially own more
than sixty percent (60%) of the outstanding shares entitled to
vote in the election of directors of the corporation resulting
from the consummation of the Transaction; or
b. twenty-five percent (25%) of the Company's securities then
entitled to vote in the election of directors shall be acquired
by any 'person' (as such term is used in Sections 13(d) of the
Securities Exchange Act of 1934, as amended); or
c. during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period were members of
the Board of Directors of the Company (the 'Incumbent Board')
shall cease to constitute a majority of the Board of Directors of
the Company or any successor to the Company, provided that any
-1-
<PAGE>
person becoming a director subsequent to the beginning of such
period whose election or nomination for election was approved by
a vote of at least eighty-five percent (85%) of the directors
comprising the Incumbent Board shall be, for purposes hereof,
considered as though such person were a member of the Incumbent
Board; or
d. the Bank or the Company shall sell all, or substantially all, of
its assets to another corporation."
3. The last sentence of Section 3.5 is amended in its entirety to
read as follows:
"For purposes of any Long-Term Payments described in Article 5, the
Moody's Rate for the current Plan Year plus five (5) percentage points
and the Moody's Rates plus five (5) percentage points for each of the
preceding five (5) Plan Years will be averaged and used to calculate
the interest for benefit payments."
4. New Section 7.5 shall be added to the Plan to read as follows:
"7.5 COMMITTEE DISCRETION. For purposes of determining the form of payment
of a Participant's termination benefit, the Committee may, in its sole
and absolute discretion, deem a Participant who has experienced a
Termination of Employment prior to the Participant's Benefit
Commencement Date as being eligible for the Long-Term Payment Option
under Article 5. Such Participant's benefit shall be paid at the same
time and in the same manner as elected by the Participant prior to the
beginning of the Benefit Unit. The applicable interest rate to be
used in determining such Participant's Account Balance shall be the
Moody's Rate plus five (5) percentage points and the interest rate to
be used in determining a Participant's installment payments shall be
the interest rate set forth in Section 3.5."
5. Section 14.6 shall be added to the Plan to read as follows:
"14.6 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL
EVENT Notwithstanding any other provision of this Plan,
subsequent to a Change
-2-
<PAGE>
in Control Event, the benefits of a Participant who is receiving
payments under this Plan shall not be affected by a Plan
termination, or any amendment or modification which adversely
affects such Participant's benefits, under Sections 14.1 or 14.2.
The benefits of a Participant who has not yet begun to receive
payments prior to such Change in Control Event shall be paid at
the same time and in the same manner as elected by the
Participant prior to the beginning of the Benefit Unit."
* * * * *
SC Bancorp has signed this Amendment on the date indicated below to be
effective as of January 1, 1997.
SC BANCORP
Date: Feb. 27, 1997 By: /s/ H.A. Beisswenger
-----------------------
Its: Chr.
-------------------
-3-
<PAGE>
AMENDMENT NO. 2 TO THE
SOUTHERN CALIFORNIA BANK
EXECUTIVE DEFERRAL PLAN IV
(AMENDED AND RESTATED)
SOUTHERN CALIFORNIA BANK, a California corporation (the "Company") hereby
amends the above-named plan (the "Plan"), effective as of January 1, 1997, as
follows:
1. Section 1.9 of the Plan is amended in its entirety to read as
follows:
"1.9 'Change in Control Event' shall be deemed to have occurred if and
when:
(a) the Holding Company shall consummate a merger or consolidation (a
'Transaction') with another corporation; PROVIDED, HOWEVER, that
a Change of Control shall not be deemed to have occurred with
respect to a Transaction if the beneficial owners of the
outstanding shares entitled to vote in the election of directors
immediately prior to such Transaction will beneficially own more
than sixty percent (60%) of the outstanding shares entitled to
vote in the election of directors of the corporation resulting
from the consummation of the Transaction; or
(b) twenty-five percent (25%) of the Holding Company's securities
then entitled to vote in the election of directors shall be
acquired by any 'person' (as such term is used in Sections 13(d)
of the Securities Exchange Act of 1934, as amended); or
(c) during any period of twenty-four (24) consecutive months,
individuals who at the beginning of such period were members of
the Board of Directors of the Holding Company (the 'Incumbent
Board') shall cease to constitute a majority of the Board of
Directors of the Holding Company or any successor to the Holding
Company, provided that any person becoming a director subsequent
to the beginning of such period whose election or nomination for
election was approved by a vote of at least eighty-five percent
(85%) of the
-1-
<PAGE>
directors comprising the Incumbent Board shall be, for purposes
hereof, considered as though such person were a member of the
Incumbent Board; or
(d) the Holding Company or the Company shall sell all, or
substantially all, of its assets to another corporation."
2. Section 3.6(a) of the Plan is amended in its entirety to read as
follows:
"3.6 (a) INTEREST RATE. The interest rate to be used to calculate
installment payment amounts shall be a fixed interest rate that
is determined by averaging the Preferred Rates for the Plan Year
in which installment payments commence and the four (4) preceding
Plan Years. If a Participant has completed fewer than five (5)
Plan Years, this average shall be determined using the Preferred
Rates for the Plan Years during which the Participant
participated in the Plan."
3. Section 7.3 shall be added to the Plan to read as follows:
"7.3 COMMITTEE DISCRETION. For purposes of determining the form of payment
of a Participant's Termination Benefit, the Committee may, in its sole
and absolute discretion, deem a Participant who has experienced a
Termination of Employment prior to the Participant's Retirement as
having terminated employment on account of Retirement. Payment of
such Participant's benefit shall be made in a lump sum, or installment
payments shall commence, no later than 60 days from the date of such
deemed Retirement. The Election Form submitted at least two (2) years
prior to the Participant's deemed Retirement shall govern the payout
of the Retirement Benefit. For example, a Participant who is deemed
Retired in 1998 shall be paid his or her Retirement Benefit in
accordance with the 1996 Election Form. A Participant who has been a
Participant for less than two (2) years shall have his or her
Retirement Benefit paid in accordance with the first Election Form
filed by the Participant. The applicable interest rate to be used in
determining such Participant's Retirement Benefit shall be the
Preferred Rate and the interest rate to be used in determining a
Participant's installment payments shall be the interest rate set
forth in Section 3.6(a)."
-2-
<PAGE>
4. Section 11.1 of the Plan is amended by deleting the fourth
sentence of said Section in its entirety.
5. Section 11.3 of the Plan is amended by deleting the second
sentence of said Section in its entirety.
6. Section 11.5 shall be added to the Plan to read as follows:
"11.5 TERMINATION, AMENDMENT OR MODIFICATION AFTER A CHANGE IN CONTROL
EVENT. Notwithstanding any other provision of this Plan, subsequent
to a Change in Control Event, the benefits of a Participant who is
receiving payments under this Plan shall not be affected by a Plan
termination, or any amendment or modification which adversely
affects such Participant's benefits, under Sections 11.1 or 11.2.
The benefits of a Participant who has not yet begun to receive
payments prior to such Change in Control Event shall be paid no
later than 60 days from the date of the Plan termination, or any
amendment or modification which adversely affects such Participant's
benefits either in a lump sum, or if the Participant is eligible to
Retire (or the Committee deems the Participant eligible to Retire)
in accordance with the Election Form filed at least two (2) years
prior to the Plan's termination, amendment or modification."
* * * * *
The Company has caused this Amendment No. 2 to be signed by its duly
authorized officer on Feb. 27, 1997.
"Company"
SOUTHERN CALIFORNIA BANK,
a California corporation
By: /s/ H.A. Beisswenger
----------------------
Its: Chr.
-----------------
-3-
<PAGE>
AMENDMENT NO. 1 TO THE
MASTER TRUST AGREEMENT
FOR
SC BANCORP
EXECUTIVE DEFERRAL PLANS
SC BANCORP, a California corporation (the "Company") hereby amends the
above-named trust (the "Trust"), effective as of January 1, 1997, as follows:
Section 1.5(d) of the Trust is amended in its entirety to read as
follows:
"1.5 (d) 'Change in Control' shall be deemed to have occurred if and when:
(i) the Company shall consummate a merger or consolidation (a
'Transaction') with another corporation; PROVIDED, HOWEVER,
that a Change of Control shall not be deemed to have
occurred with respect to a Transaction if the beneficial
owners of the outstanding shares entitled to vote in the
election of directors immediately prior to such Transaction
will beneficially own more than sixty percent (60%) of the
outstanding shares entitled to vote in the election of
directors of the corporation resulting from the consummation
of the Transaction; or
(ii) twenty-five percent (25%) of the Company's securities then
entitled to vote in the election of directors shall be
acquired by any 'person' (as such term is used in Sections
13(d) of the Securities Exchange Act of 1934, as amended);
or
(iii)during any period of twenty-four (24) consecutive
months, individuals who at the beginning of such period
were members of the Board of Directors of the Company
(the 'Incumbent Board') shall cease to constitute a
majority of the Board of Directors of the Company or
any successor to the Company, provided that any person
becoming a director
-1-
<PAGE>
subsequent to the beginning of such period whose
election or nomination for election was approved by a
vote of at least eighty-five percent (85%) of the
directors comprising the Incumbent Board shall be, for
purposes hereof, considered as though such person were
a member of the Incumbent Board; or
(iv) the Company or the Bank shall sell all, or
substantially all, of its assets to another
corporation."
* * * * *
IN WITNESS WHEREOF the Company and the Trustee have signed this
Amendment No. 1 to the Master Trust Agreement effective as of January 1, 1997.
TRUSTEE: THE COMPANY:
WELLS FARGO BANK, N.A. SC BANCORP,
a California corporation
By: /s/ Jonathan L. Andersen By: /s/ H.A. Beisswenger
------------------------------- ---------------------------
Title: Assistant Vice President Title: Chr.
------------------------ ----------
By: /s/ Dana Chrisikos By: /s/ Donald E. Wood
------------------------------- ---------------------------
Title: Assistant Vice President Title: Vice Chr.
------------------------ --------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 28,923
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 45,808
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 66,981
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 348,109
<ALLOWANCE> 5,345
<TOTAL-ASSETS> 507,126
<DEPOSITS> 448,618
<SHORT-TERM> 5,830
<LIABILITIES-OTHER> 2,307
<LONG-TERM> 0
0
0
<COMMON> 37,763
<OTHER-SE> 12,608
<TOTAL-LIABILITIES-AND-EQUITY> 507,126
<INTEREST-LOAN> 7,762
<INTEREST-INVEST> 951
<INTEREST-OTHER> 201
<INTEREST-TOTAL> 8,914
<INTEREST-DEPOSIT> 2,867
<INTEREST-EXPENSE> 2,981
<INTEREST-INCOME-NET> 5,933
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<EXPENSE-OTHER> 4,879
<INCOME-PRETAX> 1,961
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145
<EPS-PRIMARY> 0.15
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<YIELD-ACTUAL> 5.58
<LOANS-NON> 7,871
<LOANS-PAST> 5
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<RECOVERIES> 59
<ALLOWANCE-CLOSE> 5,345
<ALLOWANCE-DOMESTIC> 0
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<ALLOWANCE-UNALLOCATED> 0
</TABLE>
