SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 23, 1994
Security Capital Bancorp
(Exact name of registrant as specified in its charter)
North Carolina 0-12359 56-1354694
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
507 West Innes Street
Post Office Box 1387
Salisbury, North Carolina 28145-1387
(Address of principal executive offices)
Registrant's telephone number, including area code: (704) 636-3775
N/A
(Former name or former address, if changed since last report)
FINANCIAL STATEMENT INDEX ON PAGE 7
PAGE 1 OF 104
<PAGE>
Item 1. Changes in Control of Registrant
Not Applicable
Item 2. Acquisition or Disposition of Assets
As previously disclosed on Form 8-K, Security Capital Bancorp
("SCBC") acquired all of the outstanding stock of First Federal Savings
and Loan Association of Charlotte ("FFC") on September 23, 1994, and on
that day, FFC was converted to an interim commercial bank and merged
into Security Bank and Trust Company (renamed "Security Capital Bank"), a
commercial bank subsidiary of SCBC. FFC was a wholly-owned subsidiary
of Fairfield Communities, Inc., Little Rock, Arkansas. See Item 7
below.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
Not Applicable.
Item 5. Other Events
See Item 2 above.
Item 6. Resignations of Registrant's Directors
Not Applicable.
Item 7. Financial Statements and Exhibits
(a) The following financial statements and pro forma financial
information are filed with this Report on Form 8-K:
(1) Audited consolidated financial statements of FFC and
Subsidiaries are included at pages 9 et seq. and
schedules adjusting the audited consolidated financial
statements of FFC for assets excluded from the
acquisition by SCBC are included therein.
(2) Unaudited interim consolidated financial statements of
FFC and Subsidiaries as of June 30, 1994 and for the
six-month periods ended June 30, 1994 and 1993 are
included at pages 73 et seq. and schedules adjusting
the unaudited interim financial statements for assets
excluded from the acquisition by SCBC are included
therein.
(3) Pro Forma Combined Condensed Statements of Income for
SCBC for the nine months ended September 30, 1994 and
the year ended December 31, 1994 are included at pages
95 et seq.
Item 8. Change in Fiscal Year
Not Applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SECURITY CAPITAL BANCORP
Date: December 5, 1994 By: s/ David B. Jordan
David B. Jordan, Vice Chairman and
Chief Executive Officer
<PAGE>
FINANCIAL STATEMENT INDEX
<TABLE>
<CAPTION>
Financial Statements Sequential Page No.
<S> <C> <S>
(a)(1) Audited Consolidated Financial Statements of
First Federal Savings and Loan Association of
Charlotte and Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
(a)(2) Unaudited Interim Consolidated Financial
Statements of First Federal Savings and Loan
Association of Charlotte and Subsidiaries
for the Six-Month Periods ended June 30, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
(b) Pro Forma Condensed Statements of Income
for Security Capital Bancorp for the Nine Months
Ended September 30, 1994 and the Year Ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
</TABLE>
<PAGE>
Financial Statements
(a)(1)
<PAGE>
Consolidated Financial Statements
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Year ended December 31, 1993, Six Month
Periods ended December 31, 1992 and June 30, 1992
and the year ended December 31, 1991
with Report of Independent Auditors
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Financial Statements
Year ended December 31, 1993, Six Month Periods
Ended December 31, 1992 and June 30, 1992 and the
Year ended December 31, 1991
Contents
Report of Independent Auditors 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
<PAGE>
Report of Independent Auditors
The Board of Directors
First Federal Savings and Loan Association
of Charlotte and Subsidiaries
We have audited the accompanying consolidated balance sheets of First
Federal Savings and Loan Association of Charlotte and subsidiaries, a wholly
owned subsidiary of Fairfield Communities, Inc., as of December 31, 1993 and
1992 (reorganized company), and the related consolidated statements of
operations, stockholder's equity, and cash flows for the year ended December
31, 1993 (reorganized company) and the six month periods ended December 31,
1992 (reorganized company) and June 30, 1992 (prior to parent company
reorganization) and for the year ended December 31, 1991 (prior to parent
company reorganization). These financial statements are the responsibility
of the Association's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of First Federal Savings and Loan Association of Charlotte and
subsidiaries at December 31, 1993, and 1992 (reorganized company), and the
consolidated results of their operations and their cash flows for the year
ended December 31, 1993 (reorganized company) and the six month periods
ended December 31, 1992 (reorganized company) and June 30, 1992 (prior to
parent company reorganization) and for the year ended December 31, 1991
(prior to parent company reorganization) in conformity with generally
accepted accounting principles.
(Signature of Ernst & Young)
(Signature of Ernst & Young LLP)
February 3, 1994
1
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except par value amounts)
<TABLE>
<CAPTION>
Reorganized Company
December 31 December 31
1993 1992
<S> <C> <C>
Assets
Cash and amounts due from depository institutions $ 3,673 $ 3,882
Interest bearing deposits 10,332 32,004
Federal funds sold 200 200
Cash and cash equivalents 14,205 36,086
Investment securities (market value:
1993--$51,246; 1992--$19,504) 51,284 19,446
Mortgage-backed securities (market value:
1993--$25,342; 1992--$31,961) 25,424 32,310
Loans, net 208,575 239,528
Real estate owned, net 15,322 20,846
Property and equipment 3,536 3,433
Accrued interest receivable, net 1,963 2,386
Other assets 10,846 9,852
Total assets $331,155 $363,887
Liabilities and stockholder's equity
Savings deposits $276,672 $298,640
Advances from Federal Home Loan Bank 20,907 35,127
Advances by borrowers for taxes and insurance 298 327
Accounts payable and accrued expenses 1,848 1,795
Income taxes payable 2,896 2,346
Total liabilities 302,621 338,235
Stockholder's equity:
Common stock, $.01 par value; authorized--
12,500,000 shares; issued and outstanding--
200,000 shares 2 2
Additional paid-in capital 23,962 23,962
Retained earnings 4,570 1,688
Total stockholder's equity 28,534 25,652
Total liabilities and stockholder's equity $331,155 $363,887
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands)
<TABLE>
<CAPTION>
Prior to Parent
Reorganized Company Company Reorganization
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Interest income
Loans, including fees $ 18,999 $ 11,628 $ 14,999 $ 34,265
Investment and mortgage-backed
securities 3,482 2,178 3,008 7,221
Other 345 168 193 401
Total interest income 22,826 13,974 18,200 41,887
Interest expense
Savings deposits 11,609 6,275 9,841 25,146
Borrowings 1,496 778 1,962 5,880
Total interest expense 13,105 7,053 11,803 31,026
Net interest income 9,721 6,921 6,397 10,861
Provision for loan losses 125 378 4 5,034
Net interest income after provision
for loan losses 9,596 6,543 6,393 5,827
Other income
Service charges on deposit accounts 694 333 359 684
Gain on sale of loans 518 340 56 718
Other 2,135 404 361 1,326
3,347 1,077 776 2,728
Other expense
Compensation and benefits 3,344 1,548 1,535 3,074
Occupancy 1,420 896 770 1,513
Other 4,079 2,183 2,074 5,020
8,843 4,627 4,379 9,607
Income (loss) before income taxes 4,100 2,993 2,790 (1,052)
Provision for income taxes 1,218 1,305 1,012 1,398
Net income (loss) $ 2,882 $ 1,688 $ 1,778 $ (2,450)
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-In Earnings
Stock Capital (Deficit) Total
<S> <C> <C> <C> <C>
Prior to Parent Company
Reorganization
Balance at January 1, 1991 $ 2 $ 33,623 $ (11,767) $ 21,858
Net loss -- -- (2,450) (2,450)
Balance at December 31, 1991 2 33,623 (14,217) 19,408
Net income -- -- 1,778 1,778
Fresh start valuation -- (9,661) 12,439 2,778
Balance at June 30, 1992 2 23,962 -- 23,964
Reorganized Company
Balance at June 30, 1992 2 23,962 -- 23,964
Net income -- -- 1,688 1,688
Balance at December 31, 1992 2 23,962 1,688 25,652
Net income -- -- 2,882 2,882
Balance at December 31, 1993 $ 2 $ 23,962 $ 4,570 $ 28,534
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Prior to Parent
Reorganized Company Company Reorganization
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Operating activities
Net income (loss) $ 2,882 $ 1,688 $ 1,778 $ (2,450)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Provision for loan losses 125 378 4 5,034
Provision for depreciation
and amortization 432 295 266 465
Provision for deferred income
taxes -- 698 256 354
Amortization of fresh start
premiums 586 (761) -- --
Amortization of purchased
mortgage servicing rights 101 70 70 182
Realized gain on sales of loans (518) (340) (56) (718)
Changes in operating assets and
liabilities, net 5,217 1,354 4,350 12,326
Net cash provided by operating activities 8,825 3,382 6,668 15,193
Investing activities
Increase in loans, net of sales (20,170) (10,051) (414) (4,930)
Proceeds from sales of loans 49,887 27,664 19,723 19,300
Purchases of property and equipment (661) (169) (146) (1,415)
Proceeds from sale of property and equipment 321 -- -- --
Purchase of investment securities (45,333) (3,507) (8,472) (8,016)
Maturities and payments of investment
securities 13,495 2,880 3,445 1,500
Purchases of mortgage-backed securities (14,061) (1,320) (1,025) (5,202)
Payments on mortgage-backed securities 19,826 9,630 8,140 7,098
Proceeds from sales of mortgage-backed
securities -- -- -- 10,130
Net cash provided by investing activities 3,304 25,127 21,251 18,465
</TABLE>
5
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION> Prior to Parent
Reorganized Company Company Reorganization
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Financing activities
Advances from Federal Home Loan Bank $ 8,500 $ 21,000 $ 330 $ 41,500
Repayment of Federal Home Loan Bank
advances (22,500) (30,000) (23,000) (57,022)
Net increase (decrease) in demand deposits,
NOW accounts, and savings deposits 5,072 2,015 5,989 (1,884)
Net decrease in certificates of deposit (25,082) (17,266) (17,552) (10,473)
Net cash used by financing activities (34,010) (24,251) (34,233) (27,879)
Increase (decrease) in cash and cash
equivalents (21,881) 4,258 (6,314) 5,779
Cash and cash equivalents at beginning
of period 36,086 31,828 38,142 32,363
Cash and cash equivalents at end of period $ 14,205 $ 36,086 $ 31,828 $ 38,142
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1993
1. Principles of Consolidation and Reorganization
The consolidated financial statements include the accounts of First Federal
Savings and Loan Association of Charlotte (the Association) and its wholly-
owned subsidiaries. The Association provides banking services to customers
who are primarily located in Richmond, Montgomery, Mecklenburg, and
contiguous counties in the state of North Carolina. The Company is a wholly-
owned subsidiary of Fairfield Communities, Inc. (Fairfield). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
In 1990, Fairfield and twelve wholly-owned subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code. Several other subsidiaries of Fairfield were not part of
the Chapter 11 filings, including the Association. On August 14, 1992, the
Bankruptcy Court confirmed the reorganization plans (the "Plans").
Fairfield has implemented, as of June 30, 1992, the recommended accounting
for entities emerging from reorganization set forth in Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7") issued by the American Institute of Certified
Public Accountants ("Fresh Start Reporting"). Accordingly, assets and
liabilities of Fairfield and the Association were adjusted to reflect their
estimated fair values and the accumulated retained deficit was eliminated.
The consolidated balance sheets as of December 31, 1993 and 1992, the
consolidated statement of operations for the year ended December 31, 1993
and the six months ended December 31, 1992 and the consolidated statements
of stockholder's equity and cash flows for the same periods have been
prepared as if the Association is a new reporting entity. Therefore, a
black line has been shown to separate these periods from the prior period
information since the information has not been prepared on a comparable
basis.
Unamortized premiums related to recording interest bearing assets and
liabilities at their fair market values as part of fresh start are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Amount
December 31 December 31
1993 1992
<S> <C> <C>
Premium applied to:
Mortgage-backed securities $ 511 $ 1,632
Loans 3,166 4,743
Deposits 1,820 3,712
Advances from the Federal
Home Loan Bank 77 297
</TABLE>
7
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Principles of Consolidation and Reorganization (continued)
The premiums are being amortized over the estimated remaining average
contractual lives of the related assets and liabilities utilizing the
interest method of amortization and giving consideration to the estimated
prepayment speeds and actual prepayment experience of the various loans and
securities.
The net effect on income, before income taxes, of the amortization of
premiums related to the fresh start adjustments was a decrease in income of
$586,000 for the year ended December 31, 1993 and an increase of income of
$761,000 for the six months ended December 31, 1992.
2. Summary of Significant Accounting Policies
Investment and Mortgage-Backed Securities
Investment and mortgage-backed securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts using the interest
method. Gains or losses on the sale of these securities are recognized using
the specific identification method at the time of sale. Management has the
intent and the Association has the ability to hold these securities to
maturity.
The fair values for investments and mortgage-backed securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values based on quoted market prices of comparable
instruments are used.
In May 1993 the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (FAS) No. 115," Accounting for Certain
Investments in Debt and Equity Securities". The new statement supersedes
FASB Statement No. 12, "Accounting for Certain Marketable Securities", and
generally replaces the long-standing historical cost accounting approach to
debt securities with one based on fair value. The Association will
implement FAS 115 during 1994. Management believes the effect of adopting
FAS 115 will not be significant.
Loans
For real estate construction loans, which have a weighted average maturity
of less than one year, fair value approximates the carrying value. The fair
values for real estate mortgage and consumer and other loans are estimated
using discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality
and prepayment rates published by the Federal Home Loan Bank. The estimated
fair values of
8
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Loans (continued)
timeshare and lots contract receivables purchased from Fairfield
approximated their carrying amounts based on prior year third-party
valuations and consideration of market rate fluctuations since that time.
The carrying amount of accrued interest approximates its fair value.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of
the portfolio, past loan loss experience, current economic conditions,
volume, growth and composition of the loan portfolio, and other relevant
factors. The allowance is increased by provisions for loan losses charged
against income.
Real Estate Owned
Real estate owned includes property acquired for development or sale,
acquired in settlement of loans or through in-substance foreclosures. Real
estate is generally considered foreclosed in-substance when: (1) the debtor
has little or no equity in the real estate as compared to the current fair
market value of the property, (2) proceeds for repayment of the loan can be
expected to come only from the operation or the sale of the real estate, and
(3) the debtor has either: (a) formally or effectively abandoned control of
the real estate to the Association or (b) retained control of the real
estate but, because of the current financial condition of the debtor or the
economic prospects for the debtor and/or the real estate in the foreseeable
future, it is doubtful that the debtor will be able to rebuild equity in the
real estate or otherwise repay the loan in the foreseeable future. Real
estate acquired for development or sale or in settlement of loans and
properties classified as in-substance foreclosures are recorded at the lower
of cost or estimated fair value at the date of acquisition. Loan losses
arising from the acquisition of such property are charged against the
allowance for loan losses.
Other investments in real estate are stated at the lower of cost or
estimated fair value. These investments are reviewed regularly and valuation
allowances are established when recorded values exceed estimated fair
values. Interest charges during the period of construction, development or
improvements, if applicable, are capitalized. After construction or
improvements are complete, interest charges are expensed as a period cost.
Loans aggregating approximately $1,767,000 in 1993 and $5,064,000 and
$1,592,000 during the six months ended December 31, 1992 and June 30, 1992,
respectively and $15,357,000 during 1991, were transferred to real estate
owned.
9
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed
principally by the straight-line method based on the estimated useful lives
of the assets. Leasehold improvements are amortized by the straight-line
method over the terms of the related leases.
Revenue Recognition
Interest on loans is accrued and credited to operations based upon the
principal amount outstanding. The Association provides an allowance for loss
for uncollected interest when a loan becomes 90 days past due as to
principal or interest or when, in management's opinion, there is doubt as to
the collectibility of the interest. Such interest ultimately collected is
credited to income in the period of recovery.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield. The Association is generally amortizing these
amounts over the contractual life of the related loans using the interest
method. Commitment fees based on a percentage of a customer's unused line of
credit and fees related to stand-by letters of credit are recognized over
the commitment period.
Loan Servicing Income
The Association retains a servicing fee for servicing loans sold to
investors. The servicing fee is accrued and credited to operations based
upon the principal amount outstanding. From time to time the Association may
sell portions of its servicing portfolio. Gains, if any, on such sales are
recognized at the time of sale.
Income Taxes
The Association and its subsidiaries file a consolidated federal income tax
return with Fairfield. The Association qualifies as a savings and loan for
tax purposes.
The Association adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," issued by the Financial Accounting
Standards Board as of June 30, 1992 as part of the reorganization;
therefore, no cumulative effect adjustment to operations has been recorded.
Under the accounting method specified by SFAS 109, a deferred tax asset or
liability is recognized based on the estimated future tax effects
attributable to temporary differences and carryforwards. The measurement of
deferred tax assets is reduced, if necessary, by a valuation allowance for
the amount of any tax benefits that, based on available evidence, are not
expected to be realized.
10
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Association considers federal funds sold, interest bearing deposits with
other financial institutions, as well as all other highly liquid investment
securities with a maturity of three months or less when purchased to be cash
equivalents. Federal funds are generally purchased and sold for one-day
periods.
The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
Advances from Federal Home Loan Bank
The fair values of advances from the Federal Home Loan Bank are estimated
using discounted cash flow analyses based on rates currently available to
the Association for advances with similar terms and remaining maturities.
Savings Deposits
The fair values disclosed for demand deposits, passbook and statement
savings, and money market accounts are, by definition, equal to the amount
payable on demand at the reporting date (i.e., their carrying amounts).
Fair values for certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently being offered on
certificates in the Association's market area to a schedule of aggregated
expected monthly maturities of such deposits.
Off-Balance-Sheet Instruments
Fair values for the Association's off-balance-sheet instruments are based on
fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties credit
standing.
Reclassifications
Certain reclassifications have been made in the 1992 and 1991 financial
statements to conform with classifications used as of December 31, 1993.
11
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. Liquidity Requirements
In order to meet regulatory liquidity requirements, the Association
maintained cash balances of approximately $13.8 million and $16 million as
of December 31, 1993 and 1992, respectively, with the Federal Home Loan
Bank.
4. Investments in Debt Securities
The amortized cost and estimated fair values of investments in debt
securities at December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1993
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
United States Treasury
Securities $ 5,519 $ 51 $ _ $ 5,570
Securities of United States
Government agencies
and corporations 45,247 184 (274) 45,157
Other investment securities 518 1 _ 519
51,284 236 (274) 51,246
Mortgage-backed securities 25,424 _ (82) 25,342
$ 76,708 $ 236 $ (356) $ 76,588
1992
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
United States Treasury
Securities $ 3,002 $ 40 $ _ $ 3,042
Securities of United States
Government agencies
and corporations 15,845 27 (9) 15,863
Other investment securities 599 _ _ 599
19,446 67 (9) 19,504
Mortgage-backed securities 32,310 _ (349) 31,961
$ 51,756 $ 67 $ (358) $ 51,465
</TABLE>
12
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments in Debt Securities (continued)
The amortized cost and estimated fair value of debt securities at
December 31, 1993, by contractual maturity, are shown below (dollars in
thousands). Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 500 $ 503
Due after one year through five years 35,605 35,592
Due after five years through ten years 8,295 8,288
Due after ten years 6,884 6,863
51,284 51,246
Mortgage-backed securities 25,424 25,342
$ 76,708 $ 76,588
</TABLE>
The Association has pledged investment securities with book values of
approximately $3,117,000 and $2,275,000 to secure deposits of state and
municipal agencies at December 31, 1993 and 1992, respectively.
13
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Loans
Loans consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
Estimated
Fair Value
December 31 December 31 December 31
1993 1993 1992
<S> <C> <C> <C>
Real estate--construction $ 8,074 $ 8,074 $ 8,379
Real estate--mortgage 141,043 143,366 149,780
Contract receivables purchased
from Fairfield:
Timeshare 44,749 44,749 61,029
Lots 7,798 7,798 11,885
Consumer and other 9,780 9,780 10,236
211,444 213,767 241,309
Less:
Loans-in-process (2,510) (2,510) (2,140)
Fresh start valuation adjustment 3,166 _ 4,743
Deferred loan fees and discounts (127) _ (136)
211,973 211,257 243,776
Less allowance for loan losses
(see Notes 12, 14 and 17) (3,398) _ (4,248)
$ 208,575 $ 211,257 $ 239,528
</TABLE>
The Association services loans for investors, which are not included in the
accompanying financial statements. The total amount of these loans was
approximately $137,800,000 and $125,500,000 at December 31, 1993 and 1992,
respectively.
14
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Loans (continued)
The following table presents information concerning the aggregate amount of
nonperforming loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31 December 31
1993 1992
<S> <C> <C>
Nonaccrual loans $ 4,614 $ 7,411
Restructured loans 5,547 7,530
Interest income that would have been
recorded under original terms:
Nonaccrual loans 498 548
Restructured loans 604 755
Interest income recorded during the period:
Nonaccrual loans 54 288
Restructured loans 468 605
</TABLE>
The following is an analysis of the allowance for loan losses (dollars in
thousands):
<TABLE>
<CAPTION>
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Balance at beginning of period $ 4,248 $ 5,678 $ 7,978 $ 5,927
Provision for loan losses (see Note 11) 125 378 4 5,034
Loans charged-off, net (975) (1,808) (2,304) (2,983)
Balance at end of period $ 3,398 $ 4,248 $ 5,678 $ 7,978
</TABLE>
Loans and mortgage-backed securities aggregating approximately $36,235,000
and $72,800,000 at December 31, 1993 and 1992, respectively, were pledged as
collateral for advances from the Federal Home Loan Bank.
15
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. Real Estate Owned
Real estate owned consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31 December 31
1993 1992
<S> <C> <C>
Acquired for development and sale $ 238 $ 1,000
Acquired in settlement of loans 15,084 19,846
$ 15,322 $ 20,846
</TABLE>
Included in real estate owned is $1.6 million of timeshare and lot contracts
receivable greater than 90 days delinquent, since these contracts receivable
meet the in-substance foreclosure criteria. In addition, the Association
has acquired $2.8 million of timeshare and lot inventory located at various
Fairfield sites related to respective contracts receivable which have
canceled. The Association has reduced its carrying value in these amounts
by an allowance totaling $1.8 million which represents amounts applied in
accordance with the Tax Sharing Agreement (See Note 11). $620,000 and
$1,173,000 were applied to the defaulted contracts in accordance with the
Tax Sharing agreement for the years ended December 31, 1993 and 1992,
respectively.
The Association had net revenue relating to real estate owned of
approximately $582,400 for the year ended December 31, 1993 and $120,100 for
the six months ended June 30, 1992, and net expenses of approximately
$44,800 and $240,000 for the six months ended December 31, 1992 and for the
year ended December 31, 1991, respectively.
7. Accrued Interest Receivable
Accrued interest receivable consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
December 31 December 31
1993 1992
<S> <C> <C>
Loans $ 2,409 $ 2,723
Investment and mortgage-backed securities 691 633
Allowance for losses on uncollected interest (1,137) (970)
$ 1,963 $ 2,386
</TABLE>
16
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Savings Deposits
Savings deposits and related weighted average rates consist of the following at
December 31 (dollars in thousands):
<TABLE>
<CAPTION>
1993 1992
Weighted Estimated Weighted
Average Fair Average
Balance Rate Value Balance Rate
<S> <C> <C> <C> <C> <C>
NOW demand accounts $ 18,532 1.97% $ 18,532 $ 16,238 2.80%
Passbook and statement
accounts 13,853 2.54 13,853 13,975 3.05
Money market accounts 40,359 2.89 40,359 39,352 3.60
Certificate accounts:
90 days or less 4,144 4.76 5,329 5.13
6 months 34,232 3.42 44,519 3.97
1 year 66,411 4.48 72,277 5.33
2-3 years 20,353 5.44 16,447 5.98
4 years and longer 38,321 7.80 32,670 8.34
Jumbos 38,647 5.71 54,121 6.10
202,108 205,922 225,363
274,852 4.56% 278,666 294,928 5.15%
Fresh start valuation
premium 1,820 _ 3,712
Total savings deposits $ 276,672 $ 278,666 $ 298,640
</TABLE>
A summary of certificate accounts by maturity at December 31, 1993 is as
follows (dollars in thousands):
Year ending December 31:
1994 $ 143,644
1995 29,802
1996 7,961
Thereafter 20,701
$ 202,108
17
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Savings Deposits (continued)
Interest expense on savings deposits consists of the following components for
the periods ended (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Passbook and statement accounts $ 415 $ 259 $ 255 $ 566
NOW and money market accounts 1,689 852 1,054 2,364
Certificate accounts 9,505 5,164 8,532 22,216
$ 11,609 $ 6,275 $ 9,841 $ 25,146
</TABLE>
At December 31, 1993 and 1992, the Association held
approximately $1.7 and $2.3 million, respectively, of
brokered deposits, which generally mature within one year.
9. Advances from Federal Home Loan Bank
At December 31, 1993, advances from the FHLB consist of the
following, summarized by maturity (dollars in thousands):
<TABLE>
<CAPTION>
Weighted
Average
Balance Rate Fair Value
<S> <C> <C> <C>
Year ending December 31:
1994 $ 10,000 5.46 $ 10,166
1995 2,000 4.74 2,023
1996 5,500 5.03 5,573
1997 3,000 5.62 3,041
Thereafter 330 5.69 302
20,830 5.18 21,105
Fresh start valuation premium 77 _
$ 20,907 $ 21,105
</TABLE>
Management anticipates that the advances from the FHLB maturing during 1994
will be renewed to the extent they are not paid.
18
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Retirement Plan
The Association has a defined contribution retirement plan which covers all
eligible employees who attain the age of twenty-one and have more than one
thousand hours of service in each plan year. The Association's policy is to
fund costs accrued. Contributions to the plan by the Association are
determined based on a percentage of participants' compensation, as defined,
for the plan year. Retirement expense for the year ended December 31, 1993
and for the six months ended December 31, 1992 and June 30, 1992 was
$237,434, $172,317 and $90,599, respectively, and $319,739 for the year
ended December 31, 1991.
11. Income Taxes
Components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Current:
Federal $ 837 $ 574 $ 723 $ 1,037
State 4 33 33 7
Total 841 607 756 1,044
Deferred:
Federal 301 607 222 358
State 76 91 34 (4)
Total 377 698 256 354
Total $ 1,218 $ 1,305 $ 1,012 $ 1,398
</TABLE>
19
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Components of the variance between taxes computed at the expected federal
statutory income tax rate and the provision for income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Statutory tax provision
(benefit) $ 1,394 $ 1,018 $ 949 $ (358)
State income taxes, net
of federal benefit 53 82 44 _
Bad debt deduction _ _ (38) 1,343
Other (229) 205 57 413
Provision for income
taxes $ 1,218 $ 1,305 $ 1,012 $ 1,398
</TABLE>
The components of the provision for deferred income taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Year ended ended ended Year ended
December 31 December 31 June 30 December 31
1993 1992 1992 1991
<S> <C> <C> <C> <C>
Bad debt expense $ 912 $ 476 $ _ $ 354
Purchase accounting
amortization (468) (60) (59) _
Fresh start amortization (229) 86 _ _
Deferred fees (4) 37 74 (25)
Other 166 159 241 25
$ 377 $ 698 $ 256 $ 354
</TABLE>
20
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Year ended ended ended
December 31 December 31 June 30
1993 1992 1992
<S> <C> <C> <C>
Deferred tax liabilities:
Book asset adjustment for
fresh start $ 698 $ 927 $ 841
Purchase accounting - basis
adjustment 577 1,045 1,105
FHLB stock 432 298 227
Basis in partnerships 203 203 214
Other 64 1,402 1,303
Total deferred tax liabilities 1,974 3,875 3,690
Deferred tax assets:
Loan loss reserve 3,266 4,177 4,653
Deferred revenue 118 114 151
Total deferred tax assets 3,384 4,291 4,804
Valuation allowance for deferred
tax assets (1,885) (1,885) (1,885)
Net deferred tax assets 1,499 2,406 2,919
Net deferred tax liabilities $ 475 $ 1,469 $ 771
</TABLE>
For tax reporting purposes the Association is allowed a special bad debt
deduction computed under the percentage of taxable income (PTI) method or
the experience method (which may be computed using the six year moving
average or the "fill up method"), whichever is more beneficial. The PTI
method generally is limited to approximately 8 percent of taxable income,
subject to certain limitations based on aggregate loan and savings account
balances at the end of the year. If the PTI method is elected, actual losses
are not deductible. Under the experience method, the Association's bad debt
deduction is computed based on actual loan losses.
21
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Effective June 1, 1989, the Association entered into a tax sharing agreement
(the "tax sharing agreement") with Fairfield which provides that the
Association will remit to Fairfield, an amount equal to the estimated
federal income taxes for which the Association would have been liable if it
filed a separate consolidated income tax return. The tax sharing agreement
was subject to a potential amendment as detailed in a Bankruptcy Court order
dated October 22, 1991 approving a Settlement Agreement between the
Association, the OTS and Fairfield. The agreement was executed at the time
Fairfields Plan of Reorganization was confirmed by the Bankruptcy Court.
The Settlement Agreement contained an amendment to the tax sharing agreement
(the "Agreement") that was effective for all amounts due and payable under
the Agreement that were unpaid at the time Fairfields' Plan of
Reorganization was confirmed or thereafter and that first became due and
payable on or after October 3, 1990.
In addition, prior to the confirmation date of Fairfield's Plan of
Reorganization ("Confirmation Date") (as defined by the Agreement entered
into in connection with the settlement agreement) the Association retained
25% and after the Confirmation Date 50% of any amounts otherwise payable to
Fairfield under the tax sharing agreement and has applied such amounts
against the defaulted contract account (see Note 13). The 50% of amounts
otherwise payable to Fairfield shall continue to be applied to the defaulted
contract account until each of the following requirements has been met: (i)
the balance of the defaulted contract account is zero or a negative amount;
(ii) the Association's tangible capital equals or exceeds the aggregate
principal amount of the Association's contract receivable portfolio, (iii)
Fairfield is not in bankruptcy or in material payment default under any loan
agreement to which it is a party; (iv) the Association is in compliance with
its minimum regulatory capital requirements; and (v) the members of the
affiliated group of which Fairfield is the common parent have had net income
on a consolidated basis for any three of the preceding four most recent
quarters. Thereafter, so long as the Association has been made " whole,"
Fairfield will receive all tax sharing payments to which it is otherwise
entitled and will retain all cash and contract proceeds received from the
remarketing effort. At December 31, 1993, the Association has recorded
approximately $1.8 million as a reduction of real estate owned, because it
is subject to application against the defaulted contract account as
described above.
The Association paid approximately $571,000 and $2,750,000, (including
$545,000 and $2,700,000, paid to Fairfield) of income taxes during the years
ended December 31, 1993 and 1992, respectively, and $25,800 during the year
ended December 31, 1991. Income taxes applicable to gains on sale of
mortgage-backed securities totaled $28,560 in 1991.
22
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies
The Association leases its main office space and four branch facilities
under noncancelable operating leases with terms in excess of one year. The
following is a schedule of minimum rental payments (dollars in thousands):
Period Ending December 31:
1994 $ 334
1995 333
1996 187
1997 133
1998 80
Thereafter 224
$ 1,291
Rental expense aggregated approximately $318,000 for the year ended
December 31, 1993 and $228,000 and $189,000 for the six months ended
December 31, 1992 and June 30, 1992, respectively, and $469,000 for the year
ended December 31, 1991. Certain of the lease agreements contain options to
renew at various dates for periods up to five years.
On December 10, 1993, Charlotte T. Curry, who purchased a lot from Fairfield
under an installment sale contract subsequently sold to the Association,
filed suit against the Association, currently pending in Superior Court in
Mecklenburg County, North Carolina, alleging breach of contract, breach of
fiduciary duty and unfair trade practices. The litigation, which seeks
class action certification, contests the method by which Fairfield
calculated refunds for lot purchasers whose installment sale contracts were
canceled due to failure to complete payment of the deferred purchase price
for the lot. Most installment lot sale contracts require Fairfield to
refund to a defaulting purchaser the amount paid in principal, after
deducting the greater of (a) 15% of the purchase price of the lot or (b)
Fairfields' actual damages. The plaintiff disputes Fairfield's method of
calculating actual damages, which has historically included certain sales,
marketing and other expenses. In the case of Ms. Curry's lot, the amount of
refund claimed as having been improperly retained is approximately $3,600.
Fairfield estimates that the potential number of people who might be
included in the class definition in the CURRY litigation against the
Association (including certain people subject to statute of limitation and
other defenses and contracts where Fairfield, instead of First Federal, were
economically the party of interest) is less than 165 lot purchasers, with
refund claims amounting in the aggregate to several hundred thousand
dollars. The CURRY lawsuit seeks damages, punitive damages, treble damages
under North Carolina law for unfair trade practices, prejudgment interest
and attorney's fees and costs.
The Association intends to defend the CURRY litigation vigorously. No
provision for liability has been made in the accompanying consolidated
financial statements.
23
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies (continued)
The Association is also involved in various other pending litigation
relating to matters that are in the ordinary course of the Association's
business activities. The results of these litigation proceedings cannot be
predicted with certainty; however in the opinion of the Association's
management, the Association does not have a potential liability in
connection with these other proceedings which would have an adverse material
effect on the financial condition of the Association.
13. Transactions with Related Parties
The Association has had, and expects to have in the future, transactions in
the ordinary course of business with its officers and directors. Such
transactions have been on similar terms, including interest rates and
collateral on loans, as those prevailing at the time for comparable
transactions with others, and have involved no more than normal risk or
other potential unfavorable aspects. Loans made to officers and directors
(including companies in which they are principal owners) amounted to
approximately $1,813,000 and $1,514,000 at December 31, 1993 and 1992,
respectively. During the year ended December 31, 1993, $281,000 new loans
were originated, $271,000 were refinanced and repayments aggregated
$253,000. At December 31, 1993, the Association held $745,000 of property in
real estate owned which was acquired from a partnership for which a
subsidiary of Fairfield was the general partner. The loan pursuant to which
the Association took possession of the property was made prior to the
acquisition of the Association by Fairfield. Subsequent to December 31,
1993, the Association sold this property for approximately book value.
Fairfield services the lot and timeshare contracts sold to the Association
in prior years for a fee of .5% per annum (approximately $328,000 for the
year ended December 31, 1993 and $205,000 and $236,000 for the six months
ended December 31, 1992 and June 30, 1992, respectively, and $564,000 for
the year ended 1991), on the outstanding principal balance of such contracts.
In May 1991, Fairfield notified the Association that it could no longer
honor its repurchase commitment and subsequent repurchases of contract
receivables over 90 days delinquent or which have been canceled. The
Association classifies all contract receivables over 90 days delinquent or
which have canceled and which have not been repurchased by Fairfield
("defaulted contracts") as real estate owned, since the defaulted contracts
meet the in-substance foreclosure criteria. At December 31, 1993 and 1992,
the Association held $3,714,000 and $4,765,000, respectively, of defaulted
contracts in real estate owned.
24
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Transactions with Related Parties (continued)
In connection with the confirmation of the Plans, the Association entered
into a Servicing Agreement with Fairfield, under which Fairfield would
continue to service the Association's contracts receivable portfolio on
essentially the same terms and conditions, including the .5% servicing fee,
as set forth in the interim Servicing Agreement. Additionally, Fairfield
and the Association entered into a Remarketing Agreement whereby Fairfield
agreed to use its best efforts to remarket timeshare and lots underlying
canceled Association contracts receivable and replace those contracts with
new contracts generated by the remarketing efforts. Fairfield is entitled,
pursuant to the Remarketing Agreement, to retain cash downpayments up to 40%
of cash sales and all down payments, except for the amount of any down
payment that exceeds 50% of the gross sales price of the remarketed
inventory. In addition, under the amended Tax Sharing Agreement, the
Association retained 25% and after confirmation, 50% of any amounts
otherwise payable to Fairfield under the Tax Sharing Agreement and applied
such amounts against the balance of unremarketed canceled contracts
receivable plus accrued interest thereon, less any proceeds or tax sharing
amounts retained by the Association (Defaulted Contract Account) (see Note
11). Prior to the confirmation of the Plans, the Association and Fairfield
operated under interim remarketing and service agreements authorized by the
Bankruptcy Court with terms similar to those described above.
For the year ended December 31, 1993, Fairfield remarketed approximately
$1.2 million of canceled contracts receivable at amounts which approximated
book value. During the year ended December 31, 1993, the Association paid
$545,000 to Fairfield in accordance with the terms of the Tax Sharing
Agreement.
The Association maintained a general valuation allowance for contract
receivables purchased from Fairfield of $1,150,000 at December 31, 1993.
14. Supplemental Cash Flows Information
The Association paid $13,171,000 for the year ended December 31, 1993 and
$7,103,000 and $11,840,000 for the six months ended December 31, 1992 and
June 30, 1992, respectively, and $31,431,000 for the year ended 1991 in
interest on deposits and other borrowings.
15. Preferred Stock
The Association is authorized to issue 7,500,000 shares of $.01 par value
preferred stock. No preferred shares have been issued.
25
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Regulatory Matters
On September 29, 1992, the Office of Thrift Supervision (OTS) together with
other federal banking regulatory agencies, adopted rules to implement the
"prompt corrective action" provisions of the Federal Deposit Insurance
Corporation Improvement Act (FDICIA) of 1991 ("the Act"). Significant
requirements of the Act include minimum capital and asset ratios and a
"risk-based" capital to "risk-weighted" asset ratio. Under the new rules,
which were effective December 19, 1992, a thrift institution is "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier 1 risk-based capital ratio of 6% or greater, a leverage ratio of 5% or
greater and is not subject to any order to meet and maintain a specific
capital level. At December 31, 1993, the Association had a total risk-based
capital ratio of 14.00%, and a Tier 1 risk-based ratio and a leverage ratio
of 8.35%.
The OTS may require an adequately capitalized savings association to comply
with certain mandatory or discretionary supervisory actions as if the
savings association were in the next lower capital category if the OTS
determines, after notice and opportunity for hearing, that in its most
recent examination, the savings association received, and has not corrected,
a less-than-satisfactory rating for any of the equivalent MACRO rating
categories for asset quality, management, earnings, or liquidity.
Beginning in 1990, thrifts were required to deduct from assets and, thus,
from capital a percentage of the aggregate amount of investments in and
extensions of credit to subsidiaries that engage in activities not
permissible for national banks, subject to certain exceptions. These
percentage deductions increase on an accelerating basis over a period ending
June 30, 1994, after which time all such investments and extensions of
credit will be deducted from capital. At December 31, 1993, the Association
had approximately $3,872,000 or 1% of assets invested in and loaned to
subsidiaries which may be deemed to be engaged in activities not permissible
for national banks or otherwise not permitted under FIRREA. Management
believes that the Association will be able to reduce or dispose of these
investments within the periods provided in FIRREA without adversely
affecting its operations.
At December 31, 1993, the Association's total qualified thrift investments
as a percentage of total tangible assets was 69.5%, which exceeded the
minimum of 65% required by the Act.
26
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Regulatory Matters (continued)
On August 26, 1992, the Association and the OTS entered into a revised
Supervisory Agreement, pursuant to which the Association agreed, except for
certain enumerated transactions, that neither the Association nor any of its
subsidiaries would enter into any transaction with Fairfield or any of its
subsidiaries without the prior written approval of the Regional Director of
the OTS.
The Association is prohibited from making dividend payments to Fairfield
without prior approval from the OTS.
17. Financial Instruments with Off-Balance Sheet Risk
The Association is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit and loans sold to third parties subject to repurchase
agreements. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contract or notional amounts of those instruments reflect the extent of
involvement the Association has in particular classes of financial
instruments.
The Association's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Association uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Unless noted otherwise, the Association does not require collateral or other
security to support financial instruments with credit risk.
Financial instruments whose contract amounts represent credit risk are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Contract Estimated Contract
Amount Fair Value Amount
December 31 December 31 December 31
1993 1993 1992
<S> <C> <C> <C>
Commitments to extend credit $ 9,050 $ 9,054 $ 10,279
Standby letters of credit _ _ 210
Loans sold subject to repurchase
agreements 17,279 14,353 21,610
</TABLE>
27
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
17. Financial Instruments with Off-Balance Sheet Risk (continued)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Association
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Association upon
extension of credit is based on management' s credit evaluation of the
counterparty. Collateral held varies but generally includes commercial or
residential real estate.
Standby letters of credit are conditional commitments issued by the
Association to guarantee the performance of a customer to a third party. The
credit risk involved in issuing letters of credit is generally the same as
that involved in extending loan facilities to customers.
Repurchase agreements generally require the Association to repurchase loans
that do not meet the standards of the loan purchase agreements or that
become delinquent within a stated period of time after being sold to the
permanent investor. The Association has purchased special risk insurance
against the recourse obligation on $12.6 million of loan sales as of
December 31, 1993.
18. Concentrations of Credit Risk
The Association's business activity is primarily with customers located in
the state of North Carolina. At December 31, 1993, the Association had
approximately $7.8 million of real estate construction loans and loan
commitments. All real estate construction loans are reviewed by senior
management and approved by the Association's Loan Committee. The Association
requires collateral on all real estate construction loans and generally
maintains loan to value ratios of no greater than 80%. At December 31, 1993,
the Association has approximately $52.6 million of outstanding lot and
timeshare contract receivables, which were purchased from Fairfield. The lot
and timeshare contract receivables are regionally diversified. A minimum
downpayment of 10% was generally required for these lot and timeshare
contract receivables. See Note 13 for additional information concerning the
credit risk associated with the lot and timeshare contract receivables
purchased from Fairfield.
28
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Notes to Consolidated Financial Statements (continued)
19. Sale of Loans
During 1993, 1992 and 1991, the Association sold $48.4, $47 and $18.6
million, respectively, of first mortgage loans to the Federal Home Loan
Mortgage Corporation for $48.7, $47.4 and $19.3 million, respectively. The
Association realized a gain on the loan sales of $276,000 in 1993 and
$340,000 and $56,000 for the six months ended December 31, 1992 and June 30,
1992, respectively, and $718,000 for the year ended 1991.
20. Subsequent Event
Subsequent to December 31, 1993, it is anticipated that Fairfield will enter
into a definitive agreement to sell its stock in the Association. The
purchase price of approximately $40 million is to be paid partially in cash
and partially through the conveyance of certain real estate owned,
classified loans and other assets. The sale is subject to numerous
conditions, including completion of due diligence to the satisfaction of the
acquirer and obtaining approvals from Fairfield's lenders and various state
and federal regulatory authorities.
29
<PAGE>
Financial Statements
(a)(2)
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended June 30, 1994 and 1993
Unaudited
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Interest Income:
Loans $ 8,091 10,141
Investment securities 1,952 2,160
Other 179 186
Total Interest Income 10,222 12,487
Interest Expense:
Deposit Accounts 5,175 5,916
Borrowings 421 791
Total Interest Expense 5,596 6,707
Net Interest Income 4,626 5,780
Provision for Loan Losses 101 174
Net Interest Income After Provision for
Loan Losses 4,525 5,606
Other Income:
Loan servicing and other loan fees 137 90
Deposit and other service charge income 214 284
Gain on sales of investments 6 -
Gain on sales of loans, net 73 153
Other 514 621
Total Other Income 944 1,148
Other Expense:
Personnel 1,778 1,644
Net occupancy 667 681
Telephone, postage and supplies 185 220
Federal and other insurance premiums 473 564
Professional and other services 156 141
Other 1,447 1,190
Total Other Expense 4,706 4,440
Income Before Income Taxes 763 2,314
Income Taxes 259 840
Net Income $ 504 1,474
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended June 30, 1994
Unaudited
<TABLE>
<CAPTION>
Loss
After
Excluded Exclusion
1994 Income 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Income:
Loans $ 8,091 (2,800) 5,291
Investment securities 1,952 - 1,952
Other 179 - 179
Total Interest Income 10,222 (2,800) 7,422
Interest Expense:
Deposit Accounts 5,175 - 5,175
Borrowings 421 - 421
Total Interest Expense 5,596 - 5,596
Net Interest Income 4,626 (2,800) 1,826
Provision for Loan Losses 101 - 101
Net Interest Income After Provision for
Loan Losses 4,525 (2,800) 1,725
Other Income:
Loan servicing and other loan fees 137 - 137
Deposit and other service charge income 214 - 214
Gain on sales of investments 6 - 6
Gain on sales of loans, net 73 - 73
Other 514 - 514
Total Other Income 944 - 944
Other Expense:
Personnel 1,778 - 1,778
Net occupancy 667 - 667
Telephone, postage and supplies 185 - 185
Federal and other insurance premiums 473 - 473
Professional and other services 156 - 156
Other 1,447 - 1,447
Total Other Expense 4,706 - 4,706
Income (Loss) Before Income Taxes 763 (2,800) (2,037)
Income Taxes (Benefit) 259 (952) (693)
Net Income (Loss) $ 504 (1,848) (1,344)
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1994 and 1993
Unaudited
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 504 1,474
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 101 174
Depreciation 208 140
Amortization of premiums on securities available for sale 35 (150)
Gain on sales of investments (6) -
Gain on sales of loans, net (73) (153)
Amortization of revaulation of fixed assets 10 -
Amortization of revaluation of Federal Home Loan Bank advances (49) (142)
Change in loans held for sale, net 18,801 -
Decrease in other assets 4,293 1,261
Increase (decrease) in other liabilities (126) 3,110
Net cash provided by operating activities 23,698 5,714
Cash flows from investing activities:
Proceeds from maturities, sale, and issuer calls of
investment securities held to maturity 20,823 17,893
Purchases of investment securities held to maturity (19,423) (34,949)
Decrease in loans, net 1,719 18,647
Capital expenditures for premises and equipment (82) (54)
Net cash provided by investing activities 3,037 1,537
Cash flows from financing activities:
Decrease in deposits (22,851) (11,653)
Proceeds from Federal Home Loan Bank advances - 8,500
Repayment of Federal Home Loan Bank advances (8,000) (12,500)
Net cash used in financing activities (30,851) (15,653)
Net decrease in cash and cash equivalents (4,116) (8,402)
Cash and cash equivalents at beginning of period 14,205 36,086
Cash and cash equivalents at end of period $ 10,089 27,684
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,839 4,856
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 305 183
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except par value amounts)
Unaudited
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,942 3,673
Interest-bearing balances in other banks 6,947 10,332
Federal funds sold 200 200
Investment securities held to maturity 75,279 76,708
Loans, net 186,759 188,811
Loans held for sale 963 19,764
Premises and equipment, net 3,400 3,536
Other assets 24,143 28,131
Total assets $ 300,633 331,155
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposit accounts 253,821 276,672
Advances from the Federal Home Loan Bank 12,858 20,907
Other liabilities 4,916 5,042
Total liabilities 271,595 302,621
Stockholder's equity:
Common stock, $.01 par value; authorized -
12,500,000 shares; issued and outstanding -
200,000 2 2
Additional paid-in capital 23,962 23,962
Retained earnings 5,074 4,570
Total stockholder's equity 29,038 28,534
Total liabilities and stockholder's equity $ 300,633 331,155
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except par value amounts)
Unaudited
<TABLE>
<CAPTION> Assets &
Liabilities
Reorganized Company Acquired
December 31, Excluded December 31,
1993 Assets 1993
<S> <C> <C> <C>
ASSETS
Cash and amounts due from
depository institutions $ 3,673 $ 74,132 $ 77,805
Interest bearing deposits 10,332 - 10,332
Federal funds sold 200 - 200
Cash and cash equivalents 14,205 74,132 88,337
Investment securities (market
value 1993--$51,246) 51,284 - 51,284
Mortgage-backed securities
(market value 1993--$25,342) 25,424 - 25,424
Loans, net 208,575 (60,268) 148,307
Real estate owned, net 15,322 (12,569) 2,753
Property and equipment 3,536 - 3,536
Accrued interest receivable 1,963 (429) 1,534
Other assets 10,846 (866) 9,980
Total Assets $ 331,155 - $ 331,155
LIABILITIES AND STOCKHOLDER'S EQUITY
Savings deposits $ 276,672 - $ 276,672
Advances from the Federal Home Loan Bank 20,907 - 20,907
Advances by borrowers for taxes
and insurance 298 - 298
Accounts payable and accrued expenses 1,848 - 1,848
Income taxes payable 2,896 - 2,896
Total liabilities 302,621 - 302,621
Stockholder's Equity:
Common stock, $.01 par value;
authorized--12,500,000 shares;
issued and outstanding--200,000
shares 2 - 2
Additional paid-in capital 23,962 - 23,962
Retained earnings 4,570 - 4,570
Total stockholder's equity 28,534 - 28,534
Total Liabilities and Stockholder's Equity $ 331,155 - $ 331,155
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except par value amounts)
Unaudited
<TABLE>
<CAPTION>
Assets &
Liabilities
Reorganized Company Acquired
December 31, Excluded December 31,
1992 Assets 1992
<S> <C> <C> <C>
ASSETS
Cash and amounts due from
depository institutions $ 3,882 $ 97,433 $ 101,315
Interest-bearing deposits 32,004 - 32,004
Federal funds sold 200 - 200
Cash and cash equivalents 36,086 97,433 133,519
Investment securities (market
value 1992--$19,504) 19,446 - 19,446
Mortgage-backed securities
(market value 1992--$31,961) 32,310 - 32,310
Loans, net 239,528 (85,113) 154,415
Real estate owned, net 20,846 (10,377) 10,469
Property and equipment, net 3,433 - 3,433
Accrued interest receivable 2,386 (662) 1,724
Other assets 9,852 (1,281) 8,571
Total Assets $ 363,887 - $ 363,887
LIABILITIES AND STOCKHOLDER'S EQUITY
Savings deposits $ 298,640 - $ 298,640
Advances from the Federal Home Loan Bank 35,127 - 35,127
Advances by borrowers for taxes
and insurance 327 - 327
Accounts payable and accrued expenses 1,795 - 1,795
Income taxes payable 2,346 - 2,346
Total liabilities 338,235 - 338,235
Stockholder's equity:
Common stock, $.01 par value;
authorized--12,500,000 shares;
issued and outstanding--200,000
shares 2 - 2
Additional paid-in capital 23,962 - 23,962
Retained earnings 1,688 - 1,688
Total stockholder's equity 25,652 - 25,652
Total Liabilities and Stockholder's Equity $ 363,887 - $ 363,887
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, except par value amounts)
Unaudited
<TABLE>
<CAPTION>
Assets &
Liabilities
Acquired
June 30, Excluded June 30,
1994 Assets 1994
<S> <C> <C> <C>
ASSETS
Cash and due from banks $2,942 60,561 63,503
Interest-bearing balances in other banks 6,947 - 6,947
Federal funds sold 200 - 200
Investment securities held to maturity 75,279 - 75,279
Loans, net 186,759 (50,621) 136,138
Loans held for sale 963 - 963
Premises and equipment, net 3,400 - 3,400
Other assets 24,143 (9,940) 14,203
Total assets $ 300,633 - 300,633
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposit accounts 253,821 - 253,821
Advances from the Federal Home Loan Bank 12,858 - 12,858
Other liabilities 4,916 - 4,916
Total liabilities 271,595 - 271,595
Stockholder's equity:
Common stock, $.01 par value; authorized -
12,500,000 shares; issued and outstanding -
200,000 2 - 2
Additional paid-in capital 23,962 - 23,962
Retained earnings 5,074 - 5,074
Total stockholder's equity 29,038 - 29,038
Total liabilities and stockholder's
equity $ 300,633 - 300,633
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended June 30, 1993
Unaudited
<TABLE>
<CAPTION>
Loss
After
Excluded Exclusion
1993 Income 1993
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Income:
Loans $ 10,141 (3,980) 6,161
Investment securities 2,160 - 2,160
Other 186 - 186
Total Interest Income 12,487 (3,980) 8,507
Interest Expense:
Deposit Accounts 5,916 - 5,916
Borrowings 791 - 791
Total Interest Expense 6,707 - 6,707
Net Interest Income 5,780 (3,980) 1,800
Provision for Loan Losses 174 - 174
Net Interest Income After Provision for
Loan Losses 5,606 (3,980) 1,626
Other Income:
Loan servicing and other loan fees 90 - 90
Deposit and other service charge income 284 - 284
Gain on sales of loans, net 153 - 153
Other 621 - 621
Total Other Income 1,148 - 1,148
Other Expense:
Personnel 1,644 - 1,644
Net occupancy 681 - 681
Telephone, postage and supplies 220 - 220
Federal and other insurance premiums 564 - 564
Professional and other services 141 - 141
Other 1,190 - 1,190
Total Other Expense 4,440 - 4,440
Income (Loss) Before Income Taxes 2,314 (3,980) (1,666)
Income taxes (benefit) 840 (1,448) (608)
Net Income (Loss) $ 1,474 (2,532) (1,058)
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
For the Year Ended December 31, 1993
Unaudited
<TABLE>
<CAPTION>
Loss
Reorganized After
Company Excluded Exclusion
1993 Income 1993
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 18,999 (7,348) 11,651
Investments and mortgage-backed
securities 3,482 - 3,482
Other 345 - 345
Total Interest Income 22,826 (7,348) 15,478
Interest Expense
Savings deposits 11,609 - 11,609
Borrowings 1,496 - 1,496
Total Interest Expense 13,105 - 13,105
Net interest income 9,721 (7,348) 2,373
Provision for loan losses 125 - 125
Net Interest Income After Provision
for Loan Losses 9,596 (7,348) 2,248
Other Income
Service charges on deposit accounts 694 - 694
Gain on sale of loans 518 - 518
Other 2,135 - 2,135
3,347 - 3,347
Other Expense
Compensation and benefits 3,344 - 3,344
Occupancy 1,420 - 1,420
Other 4,079 - 4,079
8,843 - 8,843
Income (loss) before taxes 4,100 (7,348) (3,248)
Income taxes (benefit) 1,218 (2,182) (964)
Net Income (Loss) $ 2,882 (5,166) (2,284)
</TABLE>
<PAGE>
First Federal Savings and Loan
Association of Charlotte and Subsidiaries
Consolidated Statements of Operations
For the Six Months Ended December 31, 1992
Unaudited
<TABLE>
<CAPTION>
Loss
Reorganized After
Company Excluded Exclusion
1992 Income 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Interest Income
Loans, including fees $ 11,628 (4,718) 6,910
Investments and mortgage-backed
securities 2,178 - 2,178
Other 168 - 168
Total Interest Income 13,974 (4,718) 9,256
Interest Expense
Savings deposits 6,275 - 6,275
Borrowings 778 - 778
Total Interest Expense 7,053 - 7,053
Net interest income 6,921 (4,718) 2,203
Provision for loan losses 378 - 378
Net Interest Income After Provision
for Loan Losses 6,543 (4,718) 1,825
Other Income
Service charges on deposit accounts 333 - 333
Gain on sale of loans 340 - 340
Other 404 - 404
1,077 - 1,077
Other Expense
Compensation and benefits 1,548 - 1,548
Occupancy 896 - 896
Other 2,183 - 2,183
4,627 - 4,627
Income (loss) before taxes 2,993 (4,718) (1,725)
Income taxes (benefit) 1,305 (2,057) (752)
Net Income (Loss) $ 1,688 (2,661) (973)
</TABLE>
<PAGE>
Financial Statements
(b)
<PAGE>
Security Capital Bancorp
Pro Forma Combined Condensed Statements of Income (note a)
For the Nine Months Ended September 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Purchase
Accounting Security Capital
Security Capital First and Other Bancorp Fully
Bancorp Federal Adjustments Combined
(Dollars in Thousands, Except Share Data)
<S> <C> <C> <C> <C>
Interest Income (note b) $ 46,489 $ 14,691 $ (3,230) $ 57,950
Interest Expense (note c) 19,525 8,099 (200) 27,424
Net Interest Income 26,964 6,592 (3,030) 30,526
Provision for Loan Losses 269 710 - 979
Net Interest Income after
Provision for Loan Losses 26,695 5,882 (3,030) 29,547
Other Income 6,155 980 - 7,135
Other Expense (note d) 20,123 5,962 1,048 27,133
Income Before Income
Taxes 12,727 900 (4,078) 9,549
Income Taxes (note e) 9,842 45 (1,358) 8,529
Net Income $ 2,885 $ 855 $ (2,720) $ 1,020
Average Shares
Outstanding 11,726,524 11,726,524
Net Income Per Share $ 0.25 $ 0.09
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
Security Capital Bancorp
Notes to Pro Forma Combined Condensed Statements Of Income
For the Nine Months Ended September 30, 1994
(Unaudited)
a. The unaudited pro forma financial information
presented herein gives effect to the acquisition
of First Federal Savings and Loan Association
of Charlotte ("First Federal"), by Security
Capital Bancorp ("SCBC"), as if the transaction
had occurred at the beginning of the periods
presented. The acquisition is being accounted
for using the purchase method of accounting, which
requires that all assets and liabilities be
adjusted to their fair market values as of the
date of the acquisition.
The pro forma financial information is
presented for informational purposes only and
is not necessarily indicative of actual
results that would have been achieved had the
transaction been consummated at the beginning
of the periods presented. For example,
management is of the opinion that SCBC will
gain certain efficiencies as a result of the
acquisition; however, the benefits from such
efficiencies are not reflected herein.
b. The adjustment to interest income includes the
estimated loss of interest income on the cash
purchase price of approximately $41 million,
computed at an estimated average federal funds
sold rate (3.88%) for the period then ended.
Also included, is the loss of interest income on
the First Federal assets, which amounted to
approximately $3,907,000, which were excluded from
the purchase ("excluded assets"). The
amortization of the fair value adjustment to
loans ($1,491,000) amortized over ten years using
the sum-of-the-years digits method ($203,000)
increased interest income. An additional increase
to interest income resulted from the cash received
by SCBC from Fairfield Communities, Inc., the
former parent of First Federal, for the sale of
the excluded assets ($57,234,000) reinvested at an
estimated average federal funds sold rate (3.88%).
c. The adjustment to interest expense is due
to the amortization of the fair value adjustments
to deposit accounts ($1,219,000) over five years
using the sum-of-the-years digits method
($305,000) and Federal Home Loan Bank Advances
($419,000) using the straight line method over
three years ($105,000).
d. The adjustment to other expense is due to the
amortization of the excess of costs over the fair
value of net assets acquired, or goodwill
($12,459,000), over an estimated life of twenty
years ($467,000), the amortization of the core
deposit intangible ($3,222,000) over an estimated
life of ten years, using the sum-of-the-years
digits method ($439,000), and the amortization of
a fair value adjustment to mortgage servicing
rights ($1,042,000) over ten years using the
sum-of-the-years digits method ($142,000).
e. Tax benefit using SCBC's estimated federal
effective tax rate excluding the effects of
one-time charges (33.3%).
<PAGE>
Security Capital Bancorp
Pro Forma Combined Condensed Statements of Income (note a)
For the Year Ended December 31, 1993
(Unaudited)
<TABLE>
<CAPTION>
Purchase
Accounting Security Capital
Security Capital First and Other Bancorp Fully
Bancorp Federal Adjustments Combined
(Dollars in Thousands, Except Share Data)
<S> <C> <C> <C> <C>
Interest Income (note b) $ 64,223 $ 22,826 $ (6,628) $ 80,421
Interest Expense (note c) 28,135 13,105 (266) 40,974
Net Interest Income 36,088 9,721 (6,362) 39,447
Provision for Loan Losses 653 125 - 778
Net Interest Income after
Provision for Loan Losses 35,435 9,596 (6,362) 38,669
Other Income 10,519 3,347 - 13,866
Other Expense (note d) 23,842 8,843 2,498 35,183
Income Before Income
Taxes 22,112 4,100 (8,860) 17,352
Income Taxes (note e) 7,273 1,218 (2,915) 5,576
Net Income $ 14,839 $ 2,882 $ (5,945) $ 11,776
Average Shares
Outstanding 11,771,739 11,771,739
Net Income Per Share $ 1.26 $ 1.00
</TABLE>
See accompanying notes to pro forma financial information.
<PAGE>
Security Capital Bancorp
Notes to Pro Forma Combined Condensed Statements Of Income
For the Year Ended December 31, 1993
(Unaudited)
a. The unaudited pro forma financial information
presented herein gives effect to the acquisition
of First Federal Savings and Loan Association
of Charlotte ("First Federal"), by Security
Capital Bancorp ("SCBC"), as if the transaction
had occurred at the beginning of the periods
presented. The acquisition is being accounted
for using the purchase method of accounting, which
requires that all assets and liabilities be
adjusted to their fair market values as of the
date of the acquisition.
The pro forma financial information is
presented for informational purposes only and
is not necessarily indicative of actual
results that would have been achieved had the
transaction been consummated at the beginning
of the periods presented. For example,
management is of the opinion that SCBC will
gain certain efficiencies as a result of the
acquisition; however, the benefits from such
efficiencies are not reflected herein.
b. The adjustment to interest income includes the
estimated loss of interest income on the cash
purchase price of approximately $41 million and
non-recurring expenses related to the acquisition
($1,100,000) computed at an estimated average
federal funds sold rate (2.96%) for the period
then ended. Also included, is the loss of
interest income on the First Federal assets, which
amounted to approximately $ 7,348,000, which were
excluded from the purchase ("excluded assets").
The amortization of the fair value adjustment to
loans ($1,491,000) amortized over ten years
using the sum-of-the-years digits method
($271,000) increased interest income. An
additional increase to interest income resulted
from the cash received by SCBC from Fairfield
Communities, Inc., the former parent of First
Federal, for the sale of the excluded assets
($57,234,000) reinvested at an estimated average
federal funds sold rate (2.96%).
c. The adjustment to interest expense is due
to the amortization of the fair value adjustments
to deposit accounts ($1,219,000) over five years
using the sum-of-the-years digits method
($406,000) and Federal Home Loan Bank Advances
($419,000) using the straight line method over
three years ($140,000).
d. The adjustment to other expense is due to the
amortization of the excess of costs over the fair
value of net assets acquired, or goodwill
($12,459,000), over an estimated life of twenty
years ($623,000), the amortization of the core
deposit intangible ($3,222,000) over an estimated
life of ten years, using the sum-of-the-years
digits method ($586,000), and the amortization of
a fair value adjustment to mortgage servicing
rights ($1,042,000) over ten years using the
sum-of-the-years digits method ($189,000).
Other expenses are also increased by $1,100,000
for non-recurring expenses related to the
acquisition.
e. Tax benefit using SCBC's federal effective tax
rate (32.9%).
