FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 000-12359
SECURITY CAPITAL BANCORP
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1354694
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
507 WEST INNES STREET, SALISBURY, NORTH CAROLINA 28144
(Address of principal executive offices) (Zip Code)
(704) 636-3775
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of October 31, 1994, there were issued and outstanding 11,771,649 shares of
the Registrant's common stock, no par value per share.
Page 1 of 17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
The following unaudited consolidated financial statements within
Item 1 include, in the opinion of management of Security Capital
Bancorp ("SCBC"), all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of such
financial statements for the periods indicated.
2
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1994 1993
(Dollars in Thousands)
<S> <C> <C>
Cash and due from banks $ 23,852 28,102
Interest-bearing balances in other banks 64,701 5,145
Federal funds sold 19,622 3,450
Investment securities held to maturity (market
value of $122,999 at September 30, 1994 and
$ 375,046 at December 31, 1993) (note 2) 125,335 368,353
Investment securities available for sale (note 2) 249,615 -
Loans, net of unearned income ($ 2,783 at September
30, 1994 and $ 2,698 at December 31, 1993) 636,208 473,202
Less allowance for loan losses 9,242 7,227
Loans, net 626,966 465,975
Loans held for sale 2,900 18,409
Premises and equipment, net 21,161 18,360
Intangible assets 16,861 -
Other assets 22,409 21,141
Total assets $ 1,173,422 928,935
Liabilities and Stockholders' Equity
Deposit accounts:
Demand, noninterest-bearing 49,312 67,830
Interest-bearing 909,882 673,854
Time deposits over $100 55,835 42,772
Total deposit accounts 1,015,029 784,456
Advances from the Federal Home Loan Bank 22,112 8,000
Other borrowed money 2,680 1,764
Other liabilities 14,468 10,495
Total liabilities 1,054,289 804,715
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, no par value, 25,000,000 shares
authorized; 11,769,399 and 11,682,837 shares
issued and outstanding at September 30, 1994
and December 31, 1993, respectively 51,595 51,167
Retained earnings, substantially restricted 72,069 73,053
Unrealized loss on investment securities available
for sale (note 2) (4,531) -
Total stockholders' equity 119,133 124,220
Total liabilities and stockholders' equity $ 1,173,422 928,935
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income
For the Nine Months Ended September 30, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands, Except Share Data)
<S> <C> <C>
Interest income:
Loans $ 30,042 31,372
Investment securities
Taxable 15,183 15,993
Nontaxable 605 763
Other 659 582
Total interest income 46,489 48,710
Interest expense:
Deposit accounts 18,945 20,649
Borrowings 580 689
Total interest expense 19,525 21,338
Net interest income 26,964 27,372
Provision for loan losses 269 507
Net interest income after provision
for loan losses 26,695 26,865
Other income:
Loan servicing and other loan fees 1,149 979
Deposit and other service charge income 3,259 3,773
Gain (loss) on sales of investments (70) 310
Gain on sales of loans, net 182 1,046
Gain (loss) on real estate (385) 87
Gain (loss) on sales of premises and equipment 108 (6)
Brokerage commissions 1,251 1,080
Other 661 727
Total other income 6,155 7,996
Other expense:
Personnel 10,856 10,136
Net occupancy 2,784 2,559
Telephone, postage, and supplies 1,301 1,236
Federal and other insurance premiums 1,534 1,338
Professional and other services 878 589
Other 2,770 2,543
Total other expense 20,123 18,401
Income before income taxes 12,727 16,460
Income taxes (note 3) 9,842 5,332
Net income $ 2,885 11,128
Net income per share (note 4) $ .25 .94
Dividends per share $ .33 .29
Weighted average shares outstanding 11,726,524 11,795,033
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Income (Loss)
For the Three Months Ended September 30, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands, Except Share Data)
<S> <C> <C>
Interest income:
Loans $ 10,503 10,180
Investment securities
Taxable 5,039 5,366
Nontaxable 225 194
Other 221 193
Total interest income 15,988 15,933
Interest expense:
Deposit accounts 6,513 6,790
Borrowings 226 196
Total interest expense 6,739 6,986
Net interest income 9,249 8,947
Provision for loan losses 97 170
Net interest income after provision
for loan losses 9,152 8,777
Other income:
Loan servicing and other loan fees 348 372
Deposit and other service charge income 1,047 1,182
Gain (loss) on sales of investments (76) 83
Loss on sales of premises and equipment (73) (16)
Gain on sales of loans, net 45 592
Gain (loss) on real estate (251) 24
Brokerage commissions 340 348
Other 197 200
Total other income 1,577 2,785
Other expense:
Personnel 4,428 3,293
Net occupancy 981 850
Telephone, postage, and supplies 497 409
Federal and other insurance premiums 510 491
Professional and other services 473 141
Other 1,380 853
Total other expense 8,269 6,037
Income before income taxes 2,460 5,525
Income taxes (note 3) 6,500 2,017
Net income (loss) $ (4,040) 3,508
Net income (loss) per share (note 4) $ (.34) .30
Dividends per share $ .11 .10
Weighted average shares outstanding 11,750,079 11,706,821
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1994 and 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,885 11,128
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 269 507
Depreciation 1,591 1,075
Amortization of premiums on securities held to maturity 73 1,591
Amortization of premiums on securities available for sale 1,821 -
(Gain) loss on sales of investments 70 (310)
Gain on sales of premises and equipment, net (108) 6
(Gain) loss on real estate 385 (87)
Change in loans held for sale, net 15,509 (4,216)
Decrease in other assets 9,703 170
Increase in other liabilities 1,955 1,482
Net cash provided by operating activities 34,153 11,346
Cash flows from investing activities:
Proceeds from maturities, sale, and issuer calls of
investment securities held to maturity 3,228 70,986
Proceeds from maturities of investment securities
available for sale 143,185 -
Proceeds from sale of Federal Home Loan Bank stock 5,735 -
Purchases of investment securities held to maturity (80,709) (86,067)
Purchases of investment securities available for sale (10,772) -
Decrease (increase) in loans, net (32,129) 23,179
Proceeds from sales of premises and equipment 340 -
Capital expenditures for premises and equipment (1,412) (2,346)
Purchase of First Federal Charlotte, net of cash acquired 31,182 -
Net cash used in investing activities 58,648 5,752
Cash flows from financing activities:
Increase (decrease) in deposits (20,499) 5,757
Proceeds from Federal Home Loan Bank advances 7,081 14,740
Repayment of Federal Home Loan Bank advances (5,380) (19,240)
Increase in other borrowed money, net 916 774
Dividends paid to stockholders (3,869) (3,423)
Proceeds from stock options exercised 428 403
Purchase and retirement of common stock, net - (2,534)
Net cash used in financing activities (21,323) (3,523)
Net increase in cash and cash equivalents 71,478 13,575
Cash and cash equivalents at beginning of period 36,697 33,331
Cash and cash equivalents at end of period $ 108,175 46,906
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 17,130 19,644
Income taxes 5,064 6,258
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 1,092 956
Investments transferred to available for sale 329,799 -
Unrealized loss on available for sale securities
net of tax benefit of $ 1,849 4,531 -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1994
(Unaudited)
(1) Principles of Consolidation and Reporting
The accompanying unaudited consolidated financial statements
include the accounts of Security Capital Bancorp ("SCBC"), a
North Carolina corporation organized as a multi-bank holding
company, and its wholly- owned subsidiaries, Security Capital
Bank ("Security Bank"), formerly Security Bank and Trust
Company, OMNIBANK, Inc., A State Savings Bank ("OMNIBANK"),
Citizens Savings, Inc., SSB ("Citizens"), Home Savings Bank,
Inc., SSB ("Home Savings"), and Estates Development
Corporation("EDC"). All significant intercompany balances have been
eliminated.
(2) Investment Securities
The Financial Accounting Standards Board ("FASB") has issued
Standard No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," that requires debt and equity securities
held: (i) to maturity to be classified as such and reported at
amortized cost; (ii) for current resale to be classified as
trading securities and reported at fair value, with unrealized
gains and losses included in current earnings; and (iii) for
any other purpose to be classified as securities available
for sale and reported at fair value, with unrealized gains
and losses excluded from current earnings and reported as a
separate component of stockholders' equity. SCBC adopted Standard
No. 115 as of January 1, 1994. In connection with this adoption,
as of January 1, 1994, SCBC classified $324,500,000 of investment
securities as securities available for sale. Investment
securities available for sale had net unrealized losses of
approximately $6,380,000, which resulted in an unrealized
securities loss, net of income tax effects, of $4,531,000 being
recorded as a decrease to stockholders' equity as of September
30, 1994. SCBC has no securities classified as trading
securities.
(3) Income Taxes
Effective January 1, 1993, SCBC changed its method of accounting
for income taxes from the deferred method to the asset and
liability method required by FASB Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes"
("Statement 109"). The cumulative effect of adopting Statement
109 as of January 1, 1993, was to increase net income for the
first quarter of 1993 by approximately $388,000. Due to
immateriality, the cumulative effect of this accounting change has
not been separately disclosed in the consolidated statement of
income.
SCBC recognized a one-time charge of approximately $5,600,000 to
record deferred tax liabilities in connection with the merger of
SCBC's three savings bank subsidiaries into its commercial bank
subsidiary during early 1995.
(4) Net Income Per Share
Net income per share has been computed by dividing net income by
the weighted average number of shares outstanding.
(5) Acquisition
Effective September 23, 1994, SCBC purchased the outstanding
stock of First Federal Savings & Loan Association of Charlotte
("First Federal") from Fairfield Communities, Inc. for approximately
$41,000,000 in cash. The acquisition is being accounted for
by the purchase method. Concurrent with the purchase, First
Federal was merged into Security Bank. Immediately prior to the
acquisition, First Federal had assets of $293,767,000, net loans
of $135,595,000, deposits of $248,777,000, stockholders' equity
of $29,434,000, and net income for the period from January 1,
1994, through September 23, 1994, of $855,000. As a result of the
acquisition, goodwill and deposit base premium were increased by
$12,459,000 and $3,222,000, respectively. These amounts are
being amortized on a straight-line basis over 20 years and over 10
years using the sum-of-the-years digits method, respectively.
7
<PAGE>
SECURITY CAPITAL BANCORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The information below indicates, on a pro forma basis, amounts
as if First Federal had been purchased as of the beginning of each period
presented:
Nine Months
Ended Year Ended
September 30, December 31,
1994 1993
(Dollars in thousands, except share data)
Net interest income $ 30,526 $ 39,447
Net income $ 1,020 $ 11,776
Net income per share $ .09 $ 1.00
(6) Subsequent Event
On November 4, 1994, SCBC and CCB Financial Corporation,
Durham, North Carolina ("CCB"), entered into a definite Agreement of
Combination pursuant to which SCBC will merge with and into CCB, with
CCB as the surviving corporation and continuing to operate under
its present name (the "Combination"). To effect the Combination,
CCB will issue .50 of a share of its common stock, par value $5.00
per share, in exchange for each outstanding share of SCBC's common
stock, no par value. In connection with the Combination,
SCBC's banking subsidiaries will merge into Central Carolina Bank
and Trust Company, a subsidiary of CCB. The Combination, which is
subject to, among other things, approval by regulatory authorities
and the stockholders of both companies, is expected to be completed
during the second quarter of 1995.
8
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Comparison of Financial Condition and Operating Results as of
and for the Nine Months ended September 30, 1994 and 1993
Net income for the nine months ended September 30, 1994,
was $2,885,000, or $.25 per share, compared with net income of
$11,128,000, or $.94 per share, for the same period in 1993.
This 74.1% decrease was primarily attributable to the
recognition of a one-time charge of approximately $5,600,000
to record deferred tax liabilities in connection with
the merger of SCBC's three savings bank subsidiaries into
its commercial bank subsidiary during early 1995. Also,
on September 23, 1994, SCBC completed the acquisition of
First Federal Savings and Loan Association of Charlotte
("First Federal"). In connection with the acquisition,
SCBC recognized significant non- recurring charges during
the nine months ended September 30, 1994.
Net interest income amounted to $26,964,000 for the nine
months ended September 30, 1994, compared to $27,372,000
for the same period in 1993, representing a 1.5%
decrease. This decrease was primarily attributable
to the reduction of interest income from $48,710,000
in 1993 to $46,489,000 in 1994. This decrease was a
result of the yields on new investments being less
than the yields on maturing investments and the impact
of the recent refinancing of existing portfolio mortgage loans
at lower fixed rates. This is reflected in the average yield
on interest-earning assets decreasing 41 basis points from
7.50 % in 1993 to 7.09% in 1994. This decrease in interest
income has been partially offset by the reduction in interest
expense from $21,338,000 in 1993 to $19,525,000 in 1994. The
average rate on interest-bearing liabilities has decreased 39
basis points from 3.95% in 1993 to 3.56% in 1994. The net
yield on average interest-earning assets decreased 10 basis
points from 4.22% in 1993 to 4.12% in 1994. In future
periods, SCBC could experience a reduction in interest income
should prepayments occur and mortgage loans price downward.
The provision for loan losses for the nine months ended
September 30, 1994 was $269,000 representing a decrease of
$238,000, or 46.9%, from the $507,000 provision reported in
the comparable period in 1993. This decrease is due to the
continued low levels of non-performing assets and
management's assessment of the allowance for loan
losses in relation to the overall loan portfolio. Total
non-performing assets increased slightly at September 30,
1994, primarily due to the acquistion of approximately
$1,600,000 of real estate owned of First Federal.
The following table presents information on non-performing
assets, including non-accrual loans, accruing loans 90 days
or more past due, restructured loans and real estate owned as
of each of the dates shown:
<TABLE>
<CAPTION>
At At
September 30, December 31,
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Non-accrual loans $1,038 1,573
Accruing loans 90 days or more past due 857 420
Restructured loans 69 186
Real estate owned 2,278 951
$ 4,242 3,130
Non-performing loans and real estate owned as
a percentage of total assets .36% .34
</TABLE>
Loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not
been included in the table above do not (1) represent
or result from trends or uncertainties which management
reasonably expects will materially impact future operating
results, liquidity, or capital resources, or (2) represent
material credits about which management is aware of any
information which causes management to have serious doubts
as to the ability of such borrowers to comply with the
repayment terms.
Other income of $6,155,000 for the nine months ended
September 30, 1994, represents a decrease of $1,841,000,
or 23.0%, from other income of $7,996,000 reported
in the comparable period in 1993. This decrease
was primarily attributable to a decrease in net
gain on sales of loans of $864,000, or 82.6 %, which
resulted from the increase in interest rates during the
first nine months of 1994. Deposit and other service charge
income decreased $514,000, or 13.6%, to $3,259,000.
This decrease was partially due to a decline in deposit accounts,
9
<PAGE>
excluding the effects of the First Federal
acquisition. In 1994, there was a loss on sales of
investments compared to a gain recorded in 1993. The loss in
1994 was primarily due to the restructuring of several low
coupon available for sale investments into higher yielding
securities. The gain in 1993 was due to the sale and
merger of Atlantic States Bankcard Association, Inc., and the
exercise of call provisions by the issuers of several
municipal securities. SCBC had a net gain on sales of
premises and equipment of $108,000 for the nine months
ended September 30, 1994, primarily due to the sale of a
parcel of real estate. Loss on real estate in 1994
amounted to ($385,000) primarily due to the sales of several
real estate owned properties at amounts less than
anticipated and the write-down of other properties to
net realizable value. Other decreased $66,000, or 9.1%, to
$661,000 due to the decrease of several items in this total.
Loan servicing and other loan fees increased $170,000, or
17.4%, due to an increase in loan fees, charge card fees,
and late charges. Brokerage commissions increased
$171,000, or 15.8%, due to an increase in volume, which can
be attributed to the expansion of the operation along with
depositors continuing to seek higher yields through
alternative investments.
Other expense increased $1,722,000, or 9.4%, to
$20,123,000 for the nine months ended
September 30, 1994. This increase was primarily
attributable to non-recurring charges of approximately
$1,100,000 recognized during the nine months ended
September 30, 1994, in connection with the First Federal
acquisition and related to severance,professional fees,
marketing, and discontinued contracts.
Income taxes increased $4,510,000, or 84.6%, to $9,842,000 for
the nine months ended September 30, 1994, while income
before income taxes decreased $3,733,000, or 22.7%, to
$12,727,000 in 1994 from $16,460,000 in the comparable period
in 1993. This increase was primarily due to the recognition
of a one-time charge of approximately $5,600,000 to record
deferred tax liabilities discussed above. Excluding the
impact of adoption of Statement 109, income taxes for the
nine months ended September 30, 1993, would have been
$5,720,000, or 34.8% of income before income taxes,
compared to $4,242,000, or 33.3% in 1994, excluding the
one-time charge of $5,600,000.
Total assets of SCBC at September 30, 1994 were
$1,173,422,000, an increase of $244,487,000, or 26.3%, from
the December 31, 1993, total of $928,935,000. On September
23, 1994, assets of $293,767,000, net loans of $135,595,000,
and deposits of $248,777,000, were purchased as a result of
the First Federal acquisition. Excluding the effects of the
First Federal acquisition, net loans receivable, including
loans held for sale, were $494,271,000, an increase of
$9,887,000, or 2.0% over the December 31, 1993 amount. This
slight increase is a result of modest increases in various
types of loans. Deposit accounts decreased $18,204,000, or
2.3%, from the comparable December 31, 1993 amount,
excluding the effects of the First Federal acquisition. This
decrease is primarily attributable to depositors
continuing to seek higher yields through alternative
investments. Stockholders' equity was $119,133,000, or
10.2% of total assets, at September 30, 1994.
The following table sets forth the average yield on
interest-earning assets and the average rate paid on
interest-bearing liabilities of SCBC as of and for the periods
indicated.
<TABLE>
<CAPTION>
Nine months Ended At At
September 30, September 30, December 31,
1994 1993 1994 1993
(annualized)
<S> <C> <C> <C> <C>
Average yield on loans 8.14% 8.40% 8.26% 7.78%
Average yield on interest-
earning assets 7.09 7.50 7.36 6.93
Average rate on deposits 3.51 3.89 3.90 3.63
Average rate on interest-
bearing liabilities 3.56 3.95 3.97 3.69
Loans/deposits spread 4.63 4.51 4.36 4.15
Asset/liability spread 3.53 3.55 3.39 3.24
Net yield on average
interest-earning assets 4.12 4.22 - -
</TABLE>
10
<PAGE>
Comparison of Operating Results as of and for the Three Months ended
September 30, 1994 and 1993
Results of operations were a loss of $(4,040,000) or $(.34) per
share, for the three months ended September 30, 1994, compared
with net income of $3,508,000, or $.30 per share, for the same period
in 1993. This loss was primarily due to the recognition of a
one-time charge to record deferred tax liabilities and the
recognition of significant non-recurring charges discussed
previously. Net interest income amounted to $9,249,000 for the
three months ended September 30, 1994, compared to $8,947,000 for
the same period in 1993, representing an increase of 3.4%. This
increase was primarily the result of the reduction in interest
expense on deposit accounts due to lower deposit balances,
excluding the effects of the First Federal acquisition, discussed
previously.
The provision for loan losses for the three months ended September
30, 1994, was $97,000 representing a decrease of $73,000, or
42.9%, from the $170,000 provision reported in the comparable
period in 1993. As previously discussed, this decrease was
primarily due to continued low levels of non-performing assets,
and management's assessment of the allowance for loan losses in
relation to the overall loan portfolio.
Other income of $1,577,000 for the three months ended September
30, 1994, represents a decrease of $1,208,000, or 43.4%, from other
income reported in the comparable period in 1993. This decrease was
primarily due to losses recorded on sales of investments,
premises, and equipment, and real estate in 1994, reduced net
gains on sales of loans and reduced deposit and other service charge
income previously discussed.
Other expense increased $2,232,000, or 37.0%, to $8,269,000 for the
three months ended September 30, 1994. As previously discussed this
increase was primarily due to the recognition of non-recurring
charges in connection with the First Federal acquisition.
Additionally, for the three months ended September 30, 1994, SCBC
recognized approximately $300,000 in expense for various profit
sharing and incentive benefit programs.
Income taxes amounted to 36.6% of income before income taxes for
the three months ended September 30, 1994, excluding the effect of
the one-time charge to record deferred tax liabilities in the
third quarter of 1994, compared with 36.5% for the comparable
period in 1993.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for SCBC's banking subsidiaries
are deposit accounts, Federal Home Loan Bank advances, principal and
interest payments on loans, interest received on investment
securities, and fees. Deposit accounts are considered a primary
source of funds supporting the banking subsidiaries' lending and
investment activities. At September 30, 1994, the SCBC banking
subsidiaries were in compliance with all regulatory liquidity
requirements.
At September 30, 1994, SCBC and its banking subsidiaries were in
compliance with all applicable regulatory capital requirements.
The following table compares SCBC's regulatory capital as of
September 30, 1994, with the two minimum capital standards
established by the Board of Governors of the Federal Reserve System
(the "FRB").
Leverage Capital Risk-based Capital
Amount % of Assets Amount % of Base
(Dollars in Thousands)
SCBC- actual $106,803 11.48% $114,549 18.53%
Minimum capital standards 27,920 3.00 (1) 49,464 8.00
Excess of actual
regulatory capital over
minimum regulatory
capital standards $ 78,883 8.48% $ 65,085 10.53%
(1) The FRB minimum leverage ratio requirement is 3% to 5%, depending on
the institution's composite rating as determined by its regulators.
The FRB has not advised SCBC of any specific requirement applicable
to it.
Management is not aware of any current recommendations by
regulatory authorities which, if implemented, would have a
material effect on the liquidity, capital resources or
operations of SCBC or its banking subsidiaries.
At September 30, 1994, outstanding loan commitments approximated $
2,712,000 (consisting of $791,000 in fixed rate loans and $
1,921,000 in variable rate loans), preapproved but unused lines of
credit totalling $ 93,289,000 and standby letters of credit
aggregating $ 1,498,000.
At September 30, 1994, SCBC had no commitments to sell fixed rate
mortgage loans.
12
<PAGE>
INTEREST SENSITIVITY ANALYSIS
The following table sets forth the dollar amount of maturing
assets and liabilities as of September 30, 1994, and the
difference between them for the repricing periods indicated:
September 30, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
0-90 91-180 181-365 1-3 3-5 Over 5
Days Days Days Years Years Years Total
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Fed funds sold $ 19,622 - - - - - 19,622
Interest-bearing balances in
other banks 64,701 - - - - - 64,701
Investment securities
held to maturity 498 1,000 6,515 27,337 65,930 24,055 125,335
Investment securities
available for sale 19,067 22,137 28,366 131,447 47,587 1,011 249,615
Loans (1) 189,236 76,854 151,678 75,295 58,967 87,078 639,108
Total $293,124 99,991 186,559 234,079 172,484 112,144 1,098,381
INTEREST-BEARING LIABILITIES
Deposits 341,592 129,082 117,554 257,222 115,448 4,819 965,717
FHLB advances 5,712 - - 16,197 - 203 22,112
Other borrowed money 2,680 - - - - - 2,680
Total $349,984 129,082 117,554 273,419 115,448 5,022 990,509
Interest sensitivity gap $ (56,860) (29,091) 69,005 (39,340) 57,036 107,122 107,872
Cumulative interest
sensitivity gap $ (56,860) (85,951) (16,946) (56,286) 750 107,872
Cumulative ratio of interest-
earning assets to interest-
bearing liabilities 83.75% 82.06% 97.16% 93.53% 100.08% 110.89%
</TABLE>
(1) Includes loans held for sale.
13
<PAGE>
ACCOUNTING MATTERS
Postemployment Benefits
In November 1992, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits"
("Standard 112"), which is effective for fiscal years beginning
after December 15, 1993. Standard 112 establishes accounting
standards for employers who provide benefits to former or
inactive employees after employment but before retirement
(referred to in this statement as postemployment benefits).
Those benefits include, but are not limited to, salary
continuation, supplemental unemployment benefits, severance
benefits, continuation of benefits such as health care benefits
and life insurance coverage, etc. There was no material impact
on SCBC's consolidated financial statements since SCBC
generally does not provide such benefits.
Accounting by Creditors for Impairment of a Loan
The FASB has issued standard No. 114, "Accounting by Creditors for
Impairment of a Loan," which requires that all creditors value
all specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to
the terms of the loan agreement at either the present value of
expected cash flows discounted at the loan's effective interest
rate, or if more practical, the market price or value of
collateral. This Standard is required for fiscal years
beginning after December 15, 1994. The FASB also issued
Standard No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures," that amends FASB
Standard No. 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan and by requiring
additional disclosures about how a creditor recognizes interest
income related to impaired loans. This Standard is to be
implemented concurrently with Standard No. 114. SCBC has not
determined the impact, if any, of these Standards on its
consolidated financial statements.
Derivative Financial Instruments and Fair Value of Financial
Instruments
The FASB has issued Standard No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial
Instruments." This Standard requires disclosures about
derivative financial instruments - futures, forward, swap, and
option contracts, and other financial instruments with similar
characteristics. It also amends existing requirements of FASB
Statements No. 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk," and FASB
Statement No. 107, "Disclosures about Fair Value of Financial
Instruments." This Standard is required for financial statements
issued for fiscal years ending after December 15, 1994. SCBC
currently does not engage in derivative transactions.
Stock-based Compensation
The FASB has issued an Exposure Draft for a proposed SFAS entitled
"Accounting for Stock- based Compensation" which addresses the
recognition and measurement of stock-based compensation paid to
employees, including employee stock options, restricted stock,
and stock appreciation rights. Employers would be required to
recognize a charge to earnings for such awards, whereas
generally no charge is recognized under current accounting
practices. Compensation expense would be measured as the fair
value of the award at the grant date with subsequent adjustments
made to reflect the outcome of certain service or performance
assumptions made at the date of grant but not for effects of
subsequent changes in the price of the entity's stock.
Disclosure provisions of the proposed statement may be
effective for fiscal years beginning after December 31, 1994
with recognition provisions being effective for awards granted
after December 31, 1996.
Impairment of Long-Lived Assets
The FASB has also issued an Exposure Draft, "Accounting for the
Impairment of Long-Lived Assets," that proposes accounting for
the impairment of long-lived assets, identifiable intangibles and
goodwill related to those assets. It would require the carrying
amount of impaired assets be reduced to fair value. This
proposed statement would be effective for financial statements
issued for fiscal years beginning after December 15, 1994. SCBC
does not anticipate a material impact to its net income should
implementation of this exposure draft be required.
14
<PAGE>
Mortgage Servicing Rights, Excess Servicing Receivables, and
Securitization of Mortgage Loans
The FASB issued an Exposure Draft, "Accounting for Mortgage
Servicing Rights and Excess Servicing Receivables and for
Securitization of Mortgage Loans." This proposed statement would
require that an entity recognize as separate assets rights to
service mortgage loans for others, regardless of how such
servicing rights are acquired. An entity that acquires mortgage
servicing rights through either the purchase or origination of
mortgage loans and sells those loans with servicing rights
retained would allocate some of the cost of the loans to the
mortgage servicing rights. Additionally, the proposed statement
would require that securitization of mortgage loans be accounted
for as sales of mortgage loans and acquisition of mortgage
backed securities and that capitalized mortgage servicing
rights and capitalized excess servicing receivables be assessed
for impairment. Impairment would be measured based on fair
value. The proposed statement would be applied prospectively
in fiscal years beginning after December 15, 1995, to transactions
in which an entity acquires mortgage servicing rights and to
impairment evaluations of all capitalized mortgage servicing
rights and capitalized excess servicing receivables whenever
acquired. Retroactive application would be prohibited. The
impact of this exposure draft on SCBC's consolidated net income
has not been assessed.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
a) Report on Form 8-K, filed on September 28, 1994, concerning
the consummation of the Registrant's acquisition of
First Federal Savings and Loan Association of Charlotte, North
Carolina. Additionally, the Registrant announced the recognition
of certain tax expenses by certain of its banking subsidiaries for
financial reporting purposes.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report on Form
10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized.
SECURITY CAPITAL BANCORP
(Registrant)
Date: November 14, 1994 By:/s/ PRESSLEY A. RIDGILL
Pressley A. Ridgill
Senior Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Representative)
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 23,852
<INT-BEARING-DEPOSITS> 64,701
<FED-FUNDS-SOLD> 19,622
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 249,615
<INVESTMENTS-CARRYING> 125,335
<INVESTMENTS-MARKET> 122,999
<LOANS> 636,208
<ALLOWANCE> 9,242
<TOTAL-ASSETS> 1,173,422
<DEPOSITS> 1,015,029
<SHORT-TERM> 8,392
<LIABILITIES-OTHER> 14,468
<LONG-TERM> 16,400
<COMMON> 51,595
0
0
<OTHER-SE> 67,538
<TOTAL-LIABILITIES-AND-EQUITY> 1,173,422
<INTEREST-LOAN> 30,042
<INTEREST-INVEST> 15,788
<INTEREST-OTHER> 659
<INTEREST-TOTAL> 46,489
<INTEREST-DEPOSIT> 18,945
<INTEREST-EXPENSE> 19,525
<INTEREST-INCOME-NET> 26,964
<LOAN-LOSSES> 269
<SECURITIES-GAINS> (70)
<EXPENSE-OTHER> 6,155
<INCOME-PRETAX> 12,727
<INCOME-PRE-EXTRAORDINARY> 2,885
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,885
<EPS-PRIMARY> .25
<EPS-DILUTED> .24
<YIELD-ACTUAL> 4.12
<LOANS-NON> 1,038
<LOANS-PAST> 857
<LOANS-TROUBLED> 69
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,227
<CHARGE-OFFS> 499
<RECOVERIES> 191
<ALLOWANCE-CLOSE> 9,242
<ALLOWANCE-DOMESTIC> 150
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,092
</TABLE>
