UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission File Number 0-12359
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)
Registrant's telephone number, including area code:
(704) 636-3775
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of class
Common Stock, no par value
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 __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 7, 1994. Common Stock, no par value ---
$142,621,034.
Indicate the number of shares outstanding of each of the registrant's
class of common stock, as of the latest practicable date.
Class Outstanding at March 7, 1994
Common Stock, no par value 11,710,391
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended
December 31, 1993, are incorporated by reference into Part II.
Portions of the Proxy Statement for the Annual Meeting of Shareholders on
April 28, 1994, are incorporated by reference into Part III.
<PAGE>
PART I
ITEM 1 - BUSINESS
The Corporation is a bank holding company organized in 1983 and
registered with the Board of Governors of the Federal Reserve System (the
"FRB") under the Bank Holding Company Act of 1956, as amended (the "BHCA"),
and the bank holding company laws of North Carolina. The Corporation's
executive offices are located at 507 West Innes Street, Salisbury, North
Carolina, and substantially all of the operations of the Corporation are
carried on through its subsidiaries: (a) Security Bank and Trust Company, a
North Carolina commercial bank headquartered in Salisbury, North Carolina
("Security Bank"); (b) OMNIBANK, Inc., A State Savings Bank, a North Carolina
savings bank headquartered in Salisbury, North Carolina ("OMNIBANK"); (c)
Citizens Savings, Inc., SSB, a North Carolina savings bank headquartered in
Concord, North Carolina ("Citizens"); (d) Home Savings Bank, Inc., SSB, a
North Carolina savings bank headquartered in Kings Mountain, North Carolina
("Home Savings"); (e) First Cabarrus Corporation, a North Carolina corporation
that provides management information, electronic data processing and other
management services to the financial institution subsidiaries of the
Corporation ("FCC"); and, (f) Estates Development Corporation, a North
Carolina corporation which formerly engaged in real estate activities and is
now in the process of winding down and terminating those operations ("EDC").
Security Bank has one subsidiary, First Security Credit Corporation ("FSCC"),
a North Carolina corporation which operates as a consumer finance company.
Security Bank, OMNIBANK, Citizens, Home Savings, FCC, EDC and FSCC are
hereinafter collectively referred to as the "Subsidiaries." Security Bank,
OMNIBANK, Citizens and Home Savings are hereinafter collectively referred to
as the "Banking Subsidiaries," and OMNIBANK, Citizens and Home Savings are
hereinafter collectively referred to as the "Savings Banks." The Corporation
owns 100% of the outstanding common stock of the Subsidiaries other than FSCC,
and Security Bank owns 100% of the outstanding common stock of FSCC. The
Corporation's principal sources of income are cash dividends from the Banking
Subsidiaries. The major sources of operating income of the Subsidiaries are
set forth in the Consolidated Financial Statements of the Corporation
incorporated elsewhere herein.
The Merger
On June 30 1992, Omni Capital Group, Inc. ("Omni") was merged with and
into the Corporation (the "Merger"). In connection with the Merger, the
Corporation's Restated Articles of Incorporation were amended and restated to
change the Corporation's name from "First Security Financial Corporation" to
"Security Capital Bancorp," to increase the Corporation's authorized shares of
common stock (the "Common Stock") from 10,000,000 to 25,000,000, to establish
that its shares of Common Stock would have no par value, to authorize
5,000,000 shares of preferred stock with no par value per share, to establish
the minimum number of directors as 9 and the maximum number as 30, to stagger
the terms of the Board of Directors, and to make certain revisions to the
Corporation's Restated Articles of Incorporation to reflect the
characteristics of the combined company resulting from the Merger.
Prior to the Merger, Omni was a multiple savings and loan holding
company registered under the Home Owners' Loan Act, as amended, and it and its
subsidiaries (OMNIBANK, Citizens, Home Savings, FCC and EDC) were subject to
regulation by the Office of Thrift Supervision (the "OTS"). As a consequence
of the Merger, the Corporation continued as a bank holding company regulated
by the FRB and became a multiple savings and loan company regulated by the
OTS. In December of 1992, the
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Savings Banks were converted from federally
chartered savings banks to North Carolina chartered savings banks.
Accordingly, the Corporation is no longer subject to regulation by the OTS.
The Merger was effected as a nontaxable reorganization under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. It was
accounted for as a pooling-of-interests, with the result that, on the
Corporation's consolidated balance sheet: (a) the historical basis of the
assets and liabilities of the Corporation and Omni were combined as of the
Merger and carried forward at their previously recorded amounts; (b) the
shareholders' equity accounts of the Corporation and Omni were combined as of
the Merger and carried forward at their previously recorded amounts; and (c)
the income and other financial statements of the Corporation issued after the
Merger have been restated retroactively to reflect the
consolidated operations of the Corporation and Omni as if the Merger had taken
place prior to the periods covered by such financial statements.
The Subsidiaries
Security Bank was originally chartered in 1915 as the "Morris Plan
Company." In 1945, it became a North Carolina commercial bank and changed its
name to "Security Bank and Trust Company." At December 31, 1993, it operated
33 branches in 21 communities located in 10 counties in the south central
Piedmont region of North Carolina, and had total assets of approximately $385
million, insured deposit liabilities of approximately $332 million, leverage
capital of approximately $50 million, and total risk-based capital of
approximately $52 million (or 35.23% of risk-weighted assets).
OMNIBANK was originally chartered in 1919 as a North Carolina mutual
savings and loan association under the name "Home Savings and Loan
Association." In 1980 it became a federal mutual savings and loan, and in
March of 1988, it converted to a federal capital stock savings bank. In
December of 1988, it effected a corporate reorganization and became a
subsidiary of Omni (subsequently changing its name to "OMNIBANK, A Federal
Savings Bank"). On December 1, 1992, it converted from a federally-chartered
to a North Carolina chartered savings bank. At December 31, 1993, OMNIBANK
operated 3 branches in Salisbury, North Carolina, and had total assets of
approximately $230 million, insured deposit liabilities of approximately $184
million, leverage capital of approximately $30 million, and total risk-based
capital of approximately $31 million (or 24.33% of risk-weighted assets).
Citizens was originally chartered in 1906 as a North Carolina mutual
savings and loan association. In December of 1988, it converted to a federal
capital stock savings bank through a merger conversion transaction with Omni.
On December 1, 1992, it converted from a federally-chartered to a North
Carolina chartered savings bank. At December 31, 1993, Citizens operated 5
branches in Concord, North Carolina and surrounding areas, and had total
assets of approximately $212 million, insured deposit liabilities of
approximately $189 million, leverage capital of approximately $21 million, and
total risk-based capital of approximately $22 million (or 19.47% of risk-
weighted assets).
Home Savings was originally chartered in 1923 as a North Carolina mutual
savings and loan association, and, in 1981, it became a federal mutual savings
and loan association. In 1989, it converted into a federal capital stock
savings bank through a merger conversion transaction with Omni. On December
1, 1992, it converted from a federally-chartered to a North Carolina chartered
savings bank. At December 31, 1993, Home Savings operated 3 branches in Kings
Mountain, North Carolina and surrounding areas, and had total assets of
approximately $104 million, insured deposit liabilities of approximately $94
million, leverage capital of approximately $8 million, and total risk-based
capital of approximately $9 million (or 17.76% of risk-weighted assets).
3
<PAGE>
In May 1993, the Corporation consolidated eight branch locations into
four banking offices. These "superbranches" are a new concept in North
Carolina since the 4 remaining facilities actually provide retail operations
for two separately chartered financial institution subsidiaries in each
location.
FCC is a North Carolina corporation. It provides management, electronic
data processing, and other services to the Corporation and the other
Subsidiaries.
FSCC is a North Carolina corporation. As a consumer finance company, it
provides small consumer loans through its two offices in Kannapolis and
Concord, North Carolina.
EDC is a North Carolina corporation and was formerly in the business of
providing real estate appraisal services and engaging in real estate
development, building and sales. It is in the process of winding down and
terminating these activities in compliance with FRB regulations.
Business Activities
Through one or more of the Banking Subsidiaries and the 40 banking
offices they operate in 28 communities located in eleven counties in the south
central and western Piedmont regions of North Carolina, the Corporation offers
numerous banking services, including accepting time and demand deposits,
making secured and unsecured business and personal loans, making mortgage
loans (secured primarily by one-to-four family residential properties),
renting safe deposit boxes, sending and receiving wire transfers, and
performing trust functions for corporations, pension and other employee
benefit plans, and individuals. Additionally, consumer finance, insurance and
securities brokerage services, and other services relating to financial
management, are offered through one or more of the Subsidiaries. Ranked by
total assets, the Corporation is the 10th largest bank holding company
headquartered in North Carolina.
The economy in the geographic areas served by the Corporation has been
influenced positively by the growth of Charlotte, North Carolina, one of the
fastest growing cities in the Southeast and North Carolina's largest city.
Charlotte is located in Mecklenburg County. A substantial portion of the
Banking Subsidiaries' banking offices are located in Mecklenburg County, in
other counties included in the Charlotte Standard Metropolitan Statistical
Area (the "Charlotte SMSA"), or in counties adjacent to, or within a radius of
30 miles of, the Charlotte SMSA. At December 31, 1993, the economic
conditions in this primary market area were considered to be moderate to good,
with more favorable unemployment rates and other key economic indicators than
national averages.
Vigorous competition exists in all major market areas served by the
Banking Subsidiaries. The Banking Subsidiaries face direct competition for
deposits not only from commercial banks, thrift institutions and credit
unions, but from other businesses such as securities brokerage firms and
mutual funds. Particularly in times of high interest rates, the Banking
Subsidiaries encounter additional significant competition for depositors'
funds from short-term money market securities and other corporate and
government securities. The Banking Subsidiaries' competition for loans and
similar services come from commercial banks, thrift institutions, credit
unions, leasing companies, finance companies, insurance companies, other
institutional lenders, and a variety of financial services and advisory
companies. The Banking Subsidiaries seek to meet the competition of these
other companies, many of which are larger and have greater resources than the
Corporation, through offering competitive interest rates, focusing upon the
efficiency and quality of their services in meeting the banking needs of their
customers, and, where appropriate, expanding their presence in attractive
markets through branching or acquisitions.
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<PAGE>
Lending Activities
General. The principal lending activities of Security Bank have been
the making of installment and other consumer loans, real estate mortgage
loans, and commercial, financial and agricultural loans. The Savings Banks'
principal activity has been the origination of conventional mortgage loans for
the purpose of constructing, financing or refinancing one-to-four family
residential properties. To a lesser extent, the Savings Banks also make
commercial real estate loans (which include loans secured by multi-family and
other commercial real properties), other commercial loans and consumer loans.
As of December 31, 1993, approximately $320 million, or 67.59%, of the Banking
Subsidiaries' total loans consisted of loans secured principally by first
mortgages on one-to-four family residential properties. As of that same date,
approximately $17.5 million, or 3.69%, of the Banking Subsidiaries' total
loans were secured by multi-family properties and approximately $47.3 million,
or 10.00%, were secured by other commercial real property. Approximately $62
million, or 13.17%, of the Banking Subsidiaries' loans were installment and
other consumer loans, and approximately $65 million, or 13.68%, were
commercial, financial and agricultural loans, as of December 31, 1993.
Federal regulations limit the aggregate amount of loans a financial
institution may make to a single borrower. At December 31, 1993, none of the
Banking Subsidiaries had loans to a single borrower that exceeded these
limits. See "Regulation."
Loan Portfolio Analysis. Set forth below is selected data relating to
the composition of the Banking Subsidiaries' loan portfolio, excluding loans
held for sale, by type of loan on the dates indicated:
5
<PAGE>
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991 1990 1989
Amount % Amount % Amount % Amount % Amount %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage $338,562 71.55 $361,935 70.91 $379,574 68.85 $385,753 66.15 $350,531 64.11
Real estate construction 10,085 2.13 11,215 2.20 15,653 2.84 16,996 2.91 13,205 2.41
Commercial, financial and
agricultural 64,739 13.68 68,598 13.44 73,794 13.38 86,134 14.77 89,432 16.35
Installment (consumer) 62,341 13.17 70,909 13.89 84,318 15.29 96,431 16.54 95,012 17.38
Total loans 475,727 512,657 553,339 585,314 548,180
Less: unearned income (2,698) ( .57) (2,545) (.50) (2,419) (.44) (2,697) (.46) (1,976) (.36)
Plus: Premiums 173 .04 317 .06 418 .08 530 .09 584 .11
Loans, net: $473,202 100.00 $510,429 100.00 $551,338 100.00 $583,147 100.00 $546,788 100.00
</TABLE>
6
Residential Mortgage Loans. The primary lending activity of the Savings
Banks has been the granting of conventional loans to enable borrowers to
purchase existing homes or refinance existing mortgages. To a lesser extent,
Security Bank also makes residential mortgage loans. Mortgage loans made by
the Banking Subsidiaries are generally long-term loans, amortized on a monthly
basis, with principal and interest due each month. The Banking Subsidiaries'
lending policies limit the maximum loan-to-value ratio on residential mortgage
loans to 95% of the lesser of the appraised value or purchase price, with the
condition that private mortgage insurance generally be required on any home
loans with loan-to-value ratios in excess of 80%. The Banking Subsidiaries
require mortgage title insurance on most mortgage loans and hazard insurance
generally in the amount of the loan. The contractual loan payment period for
residential loans typically ranges from 15 to 30 years. Borrowers may
refinance or prepay loans at their option, typically without penalty. The
Banking Subsidiaries' experience indicates that real estate loans remain
outstanding for significantly shorter periods than their contractual terms.
The thrift and mortgage banking industries have generally used a 7 to 10 year
average loan life as an approximation in calculations calling for prepayment
assumptions. Management believes that the Banking Subsidiaries' loan
prepayment experience has been somewhat shorter than the industry approximated
12-year average loan life assumption, due to the high rate of refinancing and
turnover in the housing markets they serve.
The Banking Subsidiaries currently offer adjustable rate mortgage loans
generally tied to the one year U.S. Treasury security yield or a published
prime lending rate. The interest rates on most of these mortgages are
adjustable once a year with limitations on adjustments of one or two percent
per adjustment period and five to six percent over the life of the loan.
Although adjustable rate mortgage loans allow the Banking Subsidiaries to
increase the sensitivity of their asset bases to changes in interest rates,
the extent of this interest sensitivity is limited by the annual and lifetime
interest rate ceilings contained in adjustable rate mortgage loans. The terms
of such loans may also increase the likelihood of delinquencies during periods
of high interest rates. Adjustable rate residential mortgage loans amounted
to 51.79% of the total loan portfolio of the Banking Subsidiaries at December
31, 1993.
Commercial Real Estate Loans. The Savings Banks provide commercial real
estate loans, including loans secured by multi-family dwellings with more than
four units and other commercial real property. From time to time, Security
Bank also makes these types of loans. These loans constituted approximately
$64.8 million, or 13.69%, of the Banking Subsidiaries' loan portfolio at
December 31, 1993. These loans typically are secured by improved real estate
located in North Carolina. Commercial real estate loans customarily are made
in amounts up to 80% of the appraised value of the property and generally have
terms of up to 15 years. Interest rates are tied generally to the one, two,
three and five-year U.S. Treasury security yield or a published prime lending
rate.
Because of their generally shorter terms and higher interest rates,
commercial real estate loans, such as those made by the Banking Subsidiaries,
are helpful in maintaining a profitable spread between the Banking
Subsidiaries' average loan yields and their cost of funds. Traditionally,
such loans have been regarded as posing significantly greater risk of default
than residential mortgage loans. Such loans generally are substantially
larger than single-family residential mortgage loans, and repayment of the
loan generally depends on cash flow generated by the property. Because the
payment experience on loans secured by such property is often dependent upon
successful operation or management of the property, repayment of the loan may
be subject to a greater extent to adverse conditions in the real estate market
or the economy than generally is the case with one-to-four family residential
mortgage loans. The commercial real estate business is cyclical and subject
to downturns, overbuilding and local economic conditions. The Banking
Subsidiaries seek to limit these risks in a variety of ways, including, among
others, limiting the size of their commercial and multi-family real estate
loans, generally limiting such
7
loans to a maximum loan-to-value ratio of 80%
based on the lesser of the purchase price or the appraised value of the
property and generally lending on property located within their market areas.
Commercial, Financial, and Agricultural Loans. Security Bank and, to a
lesser extent, the Savings Banks also make commercial, financial and
agricultural loans primarily to small and medium-sized companies for expansion
and renovation, working capital needs, equipment purchases and farming
operations. Generally, loans are made at adjustable interest rates with terms
of one to five years. These loans constituted approximately $18.7 million, or
3.95%, of the Banking Subsidiaries' loan portfolio at December 31, 1993.
Interest rates are tied generally to the one, two, three or five-year U.S.
Treasury securities yield or a published prime lending rate. Generally, these
commercial, financial and agricultural loans are made to borrowers located in
North Carolina.
As with commercial real estate loans, commercial, financial and
agricultural loans are helpful in maintaining a profitable spread between the
Banking Subsidiaries' average loan yields and their cost of funds because of
their shorter term and higher interest rates. These loans have a higher
degree of risk than residential mortgage loans because they are typically made
on the basis of the borrower's ability to make repayment from the cash flow of
its business and are either unsecured or secured by business assets, such as
accounts receivable, equipment and inventory. As a result, the availability
of funds for the repayment of commercial, financial and agricultural loans may
be substantially dependent on the success of the business itself. The Banking
Subsidiaries seek to limit these risks by maintaining close contact with the
borrower, obtaining financial statements on a regular basis and determining
that the borrower is in compliance with the terms of the loan agreement.
Installment and Other Consumer Loans. At December 31, 1993, the
Corporation's installment and other consumer loans portfolio aggregated
approximately $62.3 million, or 13.17%, of the Corporation's total loan
portfolio. The consumer loans made by the Banking Subsidiaries include line
of credit loans to individuals, loans on automobiles, boats, recreational
vehicles and other consumer goods and unsecured loans. Generally, consumer
loans have up to five-year terms and may have either adjustable or fixed
interest rates or may be in the form of credit lines with adjustable interest
rates. The Banking Subsidiaries normally limit the loan-to-value ratios on
secured consumer loans to 85%, depending on the type of collateral securing
the loan. Consumer loans typically are either secured by collateral that is
rapidly depreciating or has greater recovery risks, such as automobiles, or
are unsecured. Therefore, these loans generally carry a greater degree of
credit risk than residential mortgage loans. Approximately $13 million, or
20.93%, of the Banking Subsidiaries' consumer loans as of December 31, 1993
were unsecured.
Loan Maturity Schedule. The following table sets forth certain
information at December 31, 1993 regarding the dollar amount of real estate
construction loans and commercial, financial and agricultural loans maturing
in the Banking Subsidiaries' loan portfolio. Demand and line of credit loans
having no stated schedule of repayments and no stated maturity, and
overdrafts, are reported as due in one year or less.
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<TABLE>
<CAPTION>
Due In 1 Due After 1
Year or Less Through 5 Due After 5
After Years After Years After
December 31, 1993 December 31, 1993 December 31, 1993 Total
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Real estate
construction loans $ 8,804 $ 1,281 $ --- $10,085
Commercial, financial
and agricultural
loans 27,847 10,544 26,348 64,739
Total $36,651 $11,825 $26,348 $74,824
</TABLE>
Predetermined and Adjustable Interest Rates Schedule. The following
table sets forth the dollar amount of all real estate construction loans and
commercial, financial and agricultural loans of the Banking Subsidiaries due
after one year from December 31, 1993 that have predetermined interest rates
or have floating or adjustable interest rates:
Predetermined Floating
Rates Adjustable Rates
(Dollars in Thousands)
Real estate construction $ --- $ 1,281
Commercial, financial and agricultural 5,915 30,977
Total $5,915 $32,258
Loan Solicitation and Processing. The Banking Subsidiaries derive their
loan originations from a number of sources. Residential loan originations can
be attributed to real estate broker referrals, mortgage banking relationships,
direct solicitation by the loan officers of the Banking Subsidiaries, current
depositors and borrowers, builders, attorneys, walk-in customers,
correspondent loan originators and, in some instances, other lenders.
Commercial real estate loans, consumer loans, and commercial, financial and
agricultural originations result from many of the same sources. Upon receipt
of a loan application from a prospective borrower, a credit report and
verifications are ordered to verify specific information relating to the loan
applicant's employment, income and credit standing. An appraisal of any real
estate intended to secure a proposed loan is undertaken by in-house or
independent appraisers approved by the applicable Banking Subsidiary.
The Corporation and the Banking Subsidiaries have established certain
general policies for loan authorization procedures. Loans up to limits
established by each Banking Subsidiary's Board of Directors may be made by the
applicable loan officers. Such loans are reviewed by the Banking
Subsidiary's management and/or Loan Committee. Loans in excess of these limits
must be approved by Loan Administration and reviewed by the Loan Committee
of the relevant Banking Subsidiary. Loans in excess of a pre-established
level are reviewed or approved by the Loan Committee of the relevant
Banking Subsidiary and/or the General Loan Committee of the Corporation.
9
Loan applicants promptly are notified of the decision by a letter or, in
some instances, orally. If a loan, other than consumer loans or certain loans
of lesser amounts, is approved, a commitment letter will specify the terms and
conditions of the proposed loan, including the amount of the loan, interest
rate, amortization term, a brief description of the required collateral (if a
secured loan is to be made) and required insurance coverage. The borrower
must provide proof of fire and casualty insurance on any real property serving
as collateral, which insurance must be maintained during the full term of the
loan. In addition, the Banking Subsidiaries generally require title insurance
on all loans secured by real property. Loan rates are normally locked in for
a 60-day period.
Loan Commitments. In the normal course of business, the Banking
Subsidiaries have various commitments to extend credit which are not reflected
in the Corporation's consolidated financial statements. At December 31, 1993,
outstanding loan commitments approximated $9 million (of which approximately
$6 million were fixed rate and $3 million were variable rate), preapproved but
unused lines of credit for loans totaled $91 million and standby letters of
credit aggregated $268,000. These amounts represent the Corporation's
exposure to credit risk for these off-balance sheet financial instruments,
and, in the opinion of management, represent no more than the normal lending
risk that the Banking Subsidiaries commit to their borrowers. If these
commitments are drawn, the Banking Subsidiaries will obtain collateral if it
is deemed necessary based on management's credit evaluation of the borrower.
Collateral obtained varies but may include accounts receivable, inventory, and
commercial or residential real estate. Management expects that these
commitments can be funded through normal operations.
Loan Activity. Loan originations of the Banking Subsidiaries are
primarily generated by their own lending functions, as opposed to purchasing
loans from other financial institutions. In this manner, the Banking
Subsidiaries collect for themselves the loan origination fees paid by the
borrowers. The Savings Banks from time to time have purchased adjustable rate
mortgage loans and fixed rate mortgage-backed securities in the secondary
market.
The Banking Subsidiaries typically underwrite fixed rate mortgage loans
according to Federal Home Loan Mortgage Corporation ("FHLMC") or Federal
National Mortgage Association ("FNMA") guidelines, so that the loans qualify
for sale in the secondary mortgage market or exchange for participation
certificates. Such loans may be considered by management to be held for sale
at origination based on their interest rates and terms to maturity, and thus
such loans are carried at the lower of cost or market as determined by
outstanding commitments from investors or current investor yield requirements
calculated on the aggregate loan basis. Gains and losses on loan sales are
recognized if at the time of sale the average interest rate on the loans sold,
adjusted for servicing costs, differs from the agreed yield to the buyer. Any
excess servicing fee is deferred and is amortized using a level yield
method over the contractual life of such loans. Sales of loans in 1993
and 1992 resulted in no such excess servicing fees. During 1993 and 1992,
the Banking Subsidiaries sold, through OMNIBANK, approximately $86 million
and $85 million, respectively, of fixed rate residential mortgage loans
to generate liquidity and to meet loan demand. In connection with such
sales, OMNIBANK generally retains the servicing of the loans (i.e.,
collection of principal and interest payments), for which it generally
receives an average fee payable monthly of .25% to .375% per annum of the
unpaid balance of each loan. As of December 31, 1993, the Banking
Subsidiaries were servicing loans for others aggregating approximately $203
million. The sale and subsequent servicing of residential mortgage
loans have been, and will continue to be, a significant source of
other income for the Corporation. The Corporation's gains on sales of loans,
however, are largely dependent upon prevailing interest rates, which influence
residential loan borrowers to refinance their loans at more favorable interest
rates. As a result, this source of other income could be significantly
affected by such interest rates in future periods. Gains on sales of loans
totaled $1,384,000, $738,000
10
and $927,000 for 1993, 1992, and 1991,
respectively, and loan servicing fees totaled $604,000, $563,000 and $548,000
for 1993, 1992, and 1991, respectively.
Loan Origination and Other Fees. In addition to interest earned on
loans and fees for making loan commitments, the Banking Subsidiaries receive
loan origination fees for originating mortgage loans. These origination fees
generally are calculated as a percentage of the principal amount of the
mortgage loan and are charged to the borrower for creation of the loan. Non-
refundable fees and certain related costs associated with originating or
acquiring loans generally are recognized over the life of the related loans as
an adjustment to interest income. Deferred net fees and discounts associated
with the mortgage loans held by the Banking Subsidiaries are included as
components of the carrying value of the loan and are being amortized into
interest income over the lives of the related loans by a method that
approximates level yield.
The Banking Subsidiaries also receive other fees and charges relating to
existing loans, including late charges, fees collected in connection with a
change in borrower, and insurance commissions. These fees and charges for the
years ended December 31, 1993, 1992, and 1991 totaled approximately $792,000,
$788,000 and $739,000, respectively.
Non-Performing Assets. The Banking Subsidiaries' collection procedures
provide that when a loan is 30 days delinquent, the borrower will be contacted
by mail and payment requested. If the delinquency continues, subsequent
efforts will be made to contact the delinquent borrower. In certain limited
instances, the Banking Subsidiary may modify the loan or grant a limited
moratorium on loan payments to enable the borrower to reorganize his financial
affairs. If the loan continues in a delinquent status for at least 90 days,
the Banking Subsidiary generally will initiate foreclosure or other collection
proceedings. If the loan is unsecured, it is generally charged-off after it
is 120 days delinquent. If a loan is secured, upon a foreclosure or other
action seizing the collateral, or the determination by management that the
collateral has been in substance foreclosed, the collateral property is
appraised, and is then classified as real estate owned and is recorded at the
lower of cost or fair value, less the estimated costs to sell the property.
Generally, such properties are appraised annually to update the fair value
estimates made by management.
The following table presents information on nonperforming assets,
including non-accrual loans, accruing loans that are 90 or more days past due,
real estate owned and restructured loans.
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991 1990 1989
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $1,573 $2,515 $1,750 $2,438 $ 974
Accruing loans 90 days or more
past due 420 1,380 2,139 2,942 1,784
Real estate owned 951 983 998 1,894 681
Restructured loans 186 479 1,700 - -
Total $3,130 $5,357 $6,587 $7,274 $3,439
Non-performing assets as
a percentage of
total assets .34% .59% .72% .80% .40%
</TABLE>
Management of the Banking Subsidiaries periodically evaluates the
collectibility of the principal and interest on these loans. When a loan
becomes delinquent by at least 90 days, management determines whether interest
should continue to accrue by considering various factors, including the
current financial
11
position of the borrower, the value of the underlying
collateral, the existence and amount of coverage of any private mortgage
insurance, and the date that the last payment or partial payment was received.
If collectibility of the outstanding principal balance and the accrued
interest appears certain based on a review of the aforementioned factors, and
the loan is considered by management to be in the process of collection,
management will continue to accrue interest on these loans. Loans are placed
on nonaccrual status when management determines uncertainty of interest
collection exists but payment of principal is not impaired. When uncertainty
of collection of principal exists, the asset is written down to its net
realizable value. Interest income foregone on nonaccrual loans and
restructured loans for each of the years in the three-year period ended
December 31, 1993, was not significant.
Asset Classification. Regulations governing insured financial
institutions require those institutions to classify their assets on a regular
basis. In addition, in connection with examinations of insured institutions,
federal and state examiners have authority to identify problem assets and, if
appropriate, classify them. If an institution does not agree with an
examiner's classification of an asset, it may appeal this determination to the
appropriate regulator. Problem assets may be classified as "substandard,"
"doubtful" or "loss." An asset will be classified as "substandard" if it is
determined to involve a distinct possibility that the insured institution may
sustain some loss if deficiencies associated with the loan, such as inadequate
documentation or credit weakness, are not corrected. An asset will be
classified as "doubtful" if full collection is highly questionable or
improbable. An asset will be classified as "loss" if it is considered as
uncollectible, even if a partial recovery may be expected in the future.
There is also a "special mention" category which includes assets that
currently do not expose an insured institution to a sufficient degree of
risk to warrant classification but that do possess credit deficiencies or
potential weaknesses deserving management's close attention. An institution
must establish general allowances for loan losses for assets classified
as substandard or doubtful. If an asset or portion thereof is
classified as loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100% of the portion of the
asset classified loss, or charge off such amount.
The aggregate amounts of classified assets (which included non-
performing assets) of the Banking Subsidiaries at December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
Security Bank OMNIBANK Citizens Home Savings EDC
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Substandard assets $1,904 $1,023 $5,175 $ 2,678 -
Doubtful assets - - - - -
Loss assets - - - - -
Restructured loans - 186 - - -
Real estate owned - 186 - 623 $142
</TABLE>
Loans classified for regulatory purposes as loss, doubtful, substandard
or special mention that have not been disclosed in the nonperforming asset
table under the section "Nonperforming Assets" do not represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity, or capital resources, or 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 loan repayment terms.
Allowances for Loan Losses. The Corporation recognizes that the Banking
Subsidiaries will experience credit losses in making loans and that the risk
of loss will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of
a secured loan, the quality of the security for the loan.
12
Management's policy to maintain adequate reserves is based on, among
other things, estimates of historical loan loss experience, loan growth, the
composition and quality of each Banking Subsidiary's overall loan portfolio
and off-balance sheet commitments, evaluations of current and anticipated
economic conditions, and collateral values. Management evaluates the carrying
value of loans periodically and specific allowances are made for individual
loans when the ultimate collection is considered questionable by management
after reviewing the current status of loans that are contractually past due
and taking into account the fair value of the collateral of the loan. In
addition, management of the Banking Subsidiaries utilizes the aforementioned
regulatory classification system to evaluate the adequacy of the allowance for
loan losses for the remaining portfolio. A percentage allocation is made to
the allowance for loan losses based on the various loan classifications, so
that loans with higher risk are assigned a larger allocation of allowance for
loan losses. Also taken into consideration are the nature and extent of off-
balance sheet financial instruments, including loan commitments and
preapproved but unused lines of credit. During each of the years in the
three-year period ended December 31, 1993 the Corporation had no realized
credit losses from such off-balance sheet financial instruments.
The Banking Subsidiaries grant primarily commercial, real estate, and
installment loans throughout their market areas, which consists primarily of
the south central and western Piedmont regions of North Carolina. The Banking
Subsidiaries real estate loan portfolios can be affected by the condition of
the local real estate markets and their commercial and installment loan
portfolios can be affected by local economic conditions.
While management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if
conditions differ substantially from assumptions used in making such
evaluations. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Banking Subsidiaries'
allowances for loan losses and losses on real estate owned. Such agencies may
require the Banking Subsidiaries to adjust the allowance based on their
judgments about information available to them at the time of their
examinations.
13
The following is a reconciliation of the allowance for loan losses for
the years shown:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991 1990 1989
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, at the beginning
of the year $6,909 $5,429 $4,732 $4,620 $4,230
Charge-offs:
Real estate
mortgage loans (283) (118) (167) (398) (397)
Commercial, financial
and agricultural loans ( 33) (492) (821) (749) (374)
Installment (consumer)
loans (416) (414) (700) (1,169) (249)
Recoveries:
Real estate
mortgage loans 165 69 119 56 267
Commercial, financial
and agricultural loans 46 267 154 338 90
Installment (consumer)
loans 186 320 188 414 90
Net charge-offs $(335) (368) (1,227) (1,508) (573)
Provision for loan
losses $ 653 1,848 1,924 1,620 963
Balance, at the end of
the year $7,227 $6,909 $5,429 $4,732 $4,620
Ratio of net
charge-offs
during the year to
average loans
outstanding during
the year .07% .07% .22% .27% .11%
</TABLE>
The following table presents an allocation of the allowance for loan
losses by the categories indicated and the percentage that loans in each
category bear to the Banking Subsidiaries' total loans. This allocation is
used by management to assist in its evaluation of the Banking Subsidiaries'
loan portfolio. These allocations are merely estimates and are subject to
revisions as conditions change. Based upon historical loss experience and the
Banking Subsidiaries' assessment of their loan portfolios, the Banking
Subsidiaries' allowances for loan losses have been allocated to the categories
of loans indicated. Specific allocations for these loans are based primarily
on the creditworthiness of each borrower. In addition, general allocations
are also made to each category based upon, among other things, the impact of
current and future economic conditions on the loan portfolio taken as a whole.
Losses on loans made to consumers are reasonably predictable based on prior
loss experience and a review of current economic conditions.
<TABLE>
<CAPTION>
At December 31,
1993 % 1992 % 1991 % 1990 % 1989 %
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate
mortgage loans $4,579 71.17 $4,118 70.60 $2,856 68.59 $3,380 65.90 $3,181 63.95
Real estate
construction loans - 2.12 - 2.19 - 2.83 - 2.90 - 2.41
Commercial, financial
and agricultural loans 1,242 13.61 961 13.38 1,090 13.34 631 14.72 679 16.31
Installment
(consumer) loans
1,406 13.10 1,830 13.83 1,483 15.24 721 16.48 760 17.33
$ 7,227 100.00% $6,909 100.00% $5,429 100.00% $4,732 100.00% $4,620 100.00%
</TABLE>
14
Non-Banking Subsidiaries
The Corporation has two direct Subsidiaries, and one indirect
Subsidiary, which are not financial institutions. FCC provides management,
electronic data processing and other services to the Corporation and the other
Subsidiaries. At December 31, 1993, FCC had assets of approximately $4.3
million and liabilities of approximately $3.8 million. Prior to the Merger,
EDC engaged in real estate acquisition, development and construction and
provided real estate appraisal services to Omni and its subsidiaries. At
December 31, 1993, EDC had assets of approximately $929,000 and liabilities of
approximately $21,000. FSCC is a subsidiary of Security Bank and operates as
a consumer finance company. At December 31, 1993, FSCC had assets of
approximately $2.2 million, including a consumer loan portfolio of
approximately $2 million, and total liabilities of approximately $2 million.
See "Regulation" below.
Investment Activities
Interest and dividends on investments historically have provided the
Corporation and its Subsidiaries an additional substantial source of income.
At December 31, 1993, the Corporation's investment securities portfolio
aggregated approximately $368.4 million and consisted primarily of United
States Government obligations, with lesser amounts of mortgage-backed
securities, state and municipal obligations and federal agency obligations.
Purchases of securities are funded either through the sale or maturity of
other securities or from the cash flow arising in the ordinary course of
business.
The Banking Subsidiaries have authority to invest in various types of
liquid assets, which include certain time deposits, bank acceptances,
specified U.S. Government securities, government agency securities, and state
and municipal obligations. Subject to various regulatory restrictions, the
Banking Subsidiaries may also invest a portion of their assets in commercial
paper, corporate debt securities and in mutual funds whose assets conform to
the investments that they are otherwise authorized to make directly. The
Banking Subsidiaries are required to maintain liquid assets at minimum levels,
which are adjusted by financial institution regulators from time to time. See
"Regulation." The Banking Subsidiaries traditionally have maintained levels
of liquidity above that required by federal regulations. In addition to
providing for regulatory liquidity, the Banking Subsidiaries maintain
investments to employ funds not currently required for their various lending
activities.
Subject to the investment policy of the Corporation's Board of
Directors, members of senior management normally make investment decisions.
Management determines the maturities and mix of investments in the Banking
Subsidiaries' investment portfolios based on liquidity needs and legal
liquidity restrictions. Maturities are also determined based on general and
anticipated market trends. The Corporation's investment strategy has been,
and remains, to invest principally in U.S. Government securities, government
agency obligations, and certain types of state and municipal obligations with
maturities of seven years or less. These high grade investments generally
pose little or no credit risks and are easily liquidated if necessary.
Investments in these types of securities and obligations amounted to 97% of
the Corporation's investment portfolio at December 31, 1993. Management
generally considers government and agency obligations that carry lower yields
to be preferable to higher yielding corporate and other securities that
carry greater credit risks. Furthermore, management recognizes the
Corporation's limitations in being able to evaluate and monitor many
corporate and other securities on a timely basis. Management believes that
this investment strategy will provide stable earnings and maintain asset
quality, although rates of return will be more moderate than those that
could be obtained with riskier securities. The Corporation does not
engage in hedging or other high risk investment strategies.
15
At December 31, 1993, the Corporation's investment securities portfolio
had gross unrealized gains of $7.2 million and gross unrealized losses of
$528,000, compared to gross unrealized gains of $9.3 million and gross
unrealized losses of $549,000 at December 31, 1992. The net unrealized gain
of $6.7 million at December 31, 1993 reflects the fact that the weighted
average yield of the Corporation's investment securities portfolio exceeds the
current yields being offered in the bond market for securities with similar
features. Such amounts generally do not reflect possible future realized
gains for the investment securities portfolio. At December 31, 1993, the
Corporation had the intent to hold all investment securities in the investment
portfolio as long-term investments and had the ability to hold them to
maturity. The level of unrealized gains will change in future periods as
yields being offered in the bond market for securities with similar features
fluctuate.
During the year ended December 31, 1993, sales or issuer calls
of investment securities totalled $5.86 million. During the year ended
December 31, 1992, sales of investment securities were insignificant.
During the year ended December 31, 1991, sales of investment securities
totaled $56.15 million. These sales occurred in response to an unforeseen
decline in interest rates during 1991.
The following table presents the book value and the estimated fair value
of the various components of the investment securities portfolio, excluding
investment securities available for sale, at December 31, 1993, 1992, and
1991:
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991
(Dollars in Thousands)
Estimated Estimated Estimated
Book Fair Book Fair Book Fair
Value Value Value Value Value Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $305,180 $310,759 $292,848 $300,115 $247,062 $256,583
U.S. Government
agency
obligations 40,409 40,368 9,966 9,996 1,998 2,083
Mortgage-backed
securities 12,676 13,135 19,298 19,769 20,162 20,650
State and
municipal
obligations 10,022 10,698 15,592 16,570 15,601 16,788
Other 66 86 900 900 917 917
Total: $368,353 $375,046 $338,604 $347,350 $285,740 $297,021
</TABLE>
16
The following table sets forth the maturities of the components of the
aggregate investment securities portfolio of the Corporation at
December 31, 1993, and the weighted average yields of such securities:
<TABLE>
<CAPTION>
After 1 but After 5 but
1 Year or Less Before 5 Years Before 10 Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
obligations $94,356 7.36% $210,824 6.59% - - - -
U.S. Government
agency
obligations 500 9.60 34,947 5.00 $4,962 6.25% - -
Mortgage-backed
securities - - - - 3,335 8.12 $9,341 7.66%
State and
municipal
obligations 1,002 8.10 9,020 8.02 - - - -
Other
investments - - - - - - 66 -
Total investment $95,858 7.38% $254,791 6.42% $8,297 7.00% $9,407 7.66%
securities
</TABLE>
17
Sources of Funds
General Sources of Funds. Core deposits are the largest and most
important source of the Banking Subsidiaries' funds for lending and other
investment purposes. In addition to deposits, the Banking Subsidiaries
receive funds from interest payments, loan principal repayments, advances
(loans) from the FHLB ("FHLB Advances"), other borrowings and operations.
Loan repayments and interest payments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. The Savings Banks generally use
borrowings on a short-term basis to compensate for reductions in the
availability of funds from other sources. Borrowings may also be used on a
longer-term basis for general business purposes. Historically, the Banking
Subsidiaries have not relied upon significant amounts of borrowings to fund
loan and asset growth.
Deposits. The Banking Subsidiaries attract consumer and commercial
deposits principally from within their respective primary market areas through
the offering of a broad selection of deposit instruments, including (depending
upon the Banking Subsidiary), demand deposits, NOW accounts, money market
accounts, regular and bonus savings accounts, money market certificates, other
time deposits (including negotiated "jumbo" and "mini jumbo" certificates in
denominations of at least $100,000 and $50,000, respectively), and individual
retirement plans. Deposit account terms vary, with the principal differences
being the minimum balance required, the time period that the funds must remain
on deposit and the interest rate. The Banking Subsidiaries generally do not
obtain funds through brokers, and they do not solicit funds outside of North
Carolina. The Banking Subsidiaries' aggregate deposits increased
approximately $10.82 million in 1993, decreased approximately $1.51 million in
1992, and increased approximately $7.21 million in 1991.
The following table contains information pertaining to the average
amount of and the average rate paid on each of the following deposit
categories for the periods indicated:
<TABLE>
<CAPTION>
Year Ending Year Ending Year Ending
December 31, 1993 December 31, 1992 December 31, 1991
Average Average Average
Average Rate Average Rate Average Rate
Deposit Category Balance Paid Balance Paid Balance Paid
<S> <C> <C> <C> <C> <C> <C>
Demand deposits - (Dollars in Thousands)
non-interest bearing $ 68,689 - $ 63,989 - $57,481 -
Demand deposits -
interest bearing 149,668 2.33% 149,244 3.09% 142,770 4.52%
Savings deposits 152,378 3.00 139,356 3.77 117,747 5.48
Time deposits 407,851 4.71 423,029 5.63 461,023 7.16
Total $778,586 3.84% $775,618 4.73% $779,021 6.36%
</TABLE>
The following table sets forth the amount and maturities of jumbo
certificates of deposit (certificates of deposit of $100,000 or more) in the
Banking Subsidiaries at December 31, 1993:
(Dollars in Thousands)
Maturing in 3 months or less $17,616
Maturing after 3 but less than 6 months 12,734
Maturing after 6 but less than 12 months 13,222
Maturing after 12 months 19,440
Total $63,012
Borrowings. In addition to the deposits described above, the Savings
Banks rely upon FHLB Advances as their principal borrowing source, to
supplement their supply of lendable funds and to secure
18
funds for other
operational purposes, such as meeting deposit withdrawals and other short-term
liquidity requirements. The FHLB of Atlanta functions in a central reserve
capacity providing credit for thrift and other financial institutions. FHLB
Advances may be on a secured or unsecured basis depending upon a number of
factors, including the purpose for which the funds are being borrowed and
existing advances outstanding. At December 31, 1993, OMNIBANK had FHLB
Advances totaling $8 million, at rates varying from 8.15% to 9.65%, secured by
certain of its real estate loans and all of its FHLB of Atlanta stock. The
Savings Banks have also entered into blanket collateral agreements with the
FHLB of Atlanta whereby they maintain, free of other encumbrances, "qualifying
mortgages" with unpaid principal balances at least equal to, when discounted
at 65% of the unpaid principal balance, 100% of the total FHLB Advances. The
Savings Banks also have unused lines of credit with the FHLB of Atlanta
totaling approximately $60 million at December 31, 1993. If drawn, the
advanced funds would be at market rates of interest and would be
collateralized by the aforementioned blanket collateral agreements, all stock
of the borrowing subsidiary in the FHLB, and any other collateral deemed
necessary by the FHLB. See Note 7 of Notes To Consolidated Financial
Statements for information as to interest rates and maturities for these FHLB
Advances. The other Banking Subsidiaries had no FHLB Advances at December 31,
1993. The Savings Banks also enter into retail repurchase agreements on a
short-term basis, primarily as a service to their customers. These
borrowings are generally secured by investment securities of the
Corporation, and are classified as other borrowings in the table below.
The following tables set forth the borrowings of the Banking
Subsidiaries at the dates and for the periods indicated:
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB Advances $8,000 $12,500 $19,500
Other borrowings 1,764 706 638
Total borrowings $9,764 $13,206 $20,138
Year Ended December 31,
1993 1992 1991
(Dollars in Thousands)
Maximum amount of other short-term
borrowings outstanding at any
month end during the year $1,764 $ 773 $ 687
Approximate average amount of
other borrowings outstanding
at any month end during
the year $1,103 $ 403 $ 596
Weighted average interest rate paid
on other borrowings during
the year 3.16% 3.81% 6.61%
Approximate weighted average interest
rate paid on total borrowings
during the year 7.69% 8.38% 6.35%
</TABLE>
Net Interest Income Analysis. The following tables set forth for the
periods and at the dates indicated the average interest-earning assets, the
average interest-bearing liabilities, interest income from interest-earning
assets and interest expense related to interest-bearing liabilities, average
yields on interest-earning assets and average rates on interest-bearing
liabilities, the spread between the combined average rates earned on interest-
earning assets and average rates paid on interest-bearing liabilities, and the
net yield on interest-earning assets (net interest margin). Average balances
are determined on a daily basis. For the purposes of this table, the loan
averages include nonaccrual loans and are stated net of unearned income. The
amount of loan fees included in interest income for each of the periods
presented is not material.
19
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31, 1993 Year Ended December 31, 1992 Year Ended December 31, 1991
Weighted
Average
Yield/Rate Income/ Average Average Income/ Average Average Income/ Average Average
As Of Expense Balance Yield/Rate Expense Balance Yield/Rate Expense Balance Yield/Rate
December
31, 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income 7.78% $41,195 $494,943 8.32% $48,277 $528,869 9.13% $59,572 $571,284 10.43%
Investments-taxable 5.85 21,299 338,773 6.29 21,165 293,808 7.20 20,874 249,926 8.35
Investments-nontaxable 7.68 955 13,012 7.34 1,137 15,596 7.29 1,130 15,611 7.24
Federal funds sold 3.00 197 6,847 2.88 443 12,404 3.57 773 13,561 5.70
Other interest-earning assets 3.98 577 15,409 3.74 831 20,683 4.02 712 22,994 3.10
Total interest-earning assets 6.93 $64,223 $868,984 7.39 $71,853 $871,360 8.24% $83,061 $873,376 9.51%
Other non-interest earning assets 49,376 44,540 48,449
Total assets $918,360 $915,900 $921,825
Interest-bearing liabilities:
FHLB advances & other
borrowings1 7.81% $ 880 $ 11,401 7.72% $ 1,434 $ 17,120 8.38% $ 2,071 $ 32,589 6.35%
Deposits 3.63 27,255 709,897 3.84 33,695 711,629 4.73 45,879 721,540 6.36
Total interest-bearing liabilities 3.69% $ 28,135 $721,298 3.90% $35,129 $728,749 4.82% $47,950 $754,129 6.36%
Non-interest bearing liabilities 76,055 74,729 62,963
Total liabilities $797,353 $803,478 $817,092
Stockholders' equity 121,007 112,422 104,733
Total liabilities & stockholders'
equity $918,360 $915,900 $921,825
Net interest rate spread 3.24% $ 36,088 3.49% $36,724 3.42% $35,111 3.15%
Net yield on interest earning
assets 4.15% 4.21% 4.02%
</TABLE>
1 Refer to the table on page 19 for information concerning other borrowings.
20
Asset/Liability Management
The Banking Subsidiaries' exposure to interest-rate risk results from
the differences in maturities and pricing of their interest-earning assets
(loans and other investments) and interest-bearing liabilities (deposits and
other borrowings). Historically, financial institutions with substantial
mortgage loan portfolios have operated in a mismatched position, with
interest-sensitive liabilities greatly exceeding interest-sensitive assets.
Because interest rates paid on deposits can adjust more quickly to interest
rate movements than do yields earned on loans, sharp increases in interest
rates can adversely affect the earnings of such financial institutions. The
rapid escalation of interest rates in the early 1980's is directly responsible
for many of the problems of banks and thrift institutions as their cost of
funds exceeded their yield on assets. Such interest-rate risk can be reduced
if the maturities of deposits and loans are reasonably well matched.
The senior management personnel of the Corporation and each Banking
Subsidiary currently maintain responsibility for and discuss and monitor on a
continuing basis the asset/liability management for the Banking Subsidiaries.
In addition, the Board of Directors of the Corporation has adopted an
interest-rate risk management policy providing for a formal asset/liability
committee that meets no less frequently than quarterly to monitor exposure to
interest-rate risk and report findings and accomplishments to the Boards of
Directors of the Corporation and the Banking Subsidiaries.
The Corporation currently measures its exposure to interest rate risks
through the utilization of a computer model that outlines a gap position
for various maturities and market value of portfolio equity, by
Banking Subsidiary. Various interest rate scenarios are used to determine
whether the goals established by the Boards of Directors of the
Corporation and each Banking Subsidiary are being met. All such data
is reviewed with the respective Boards of Directors of the Corporation and
the Banking Subsidiaries on a quarterly basis.
Realizing that various hedging activities are inherently volatile and
that such activities require specific expertise, neither the Corporation nor
any Subsidiary engages in the following investment activities: financial
options transactions, interest rate futures transactions, mortgage or interest
rate swap transactions, transferring securities, trading in mortgage
derivative instruments or products such as collateralized mortgage
obligations, investing in junk bonds, or otherwise engaging in synthetic or
artificial hedging of risk-controlled arbitrage.
In an effort to make the yields on their loan and investment portfolios
more interest-rate sensitive, the Savings Banks have implemented a number of
measures, including: (i) increasing their emphasis on originating adjustable
rate mortgage loans on residential and commercial properties, subject to
market conditions; (ii) originating higher levels of construction, small
commercial real estate and consumer loans, which typically bear higher
interest rates than residential loans and offer greater interest rate
flexibility through shorter maturities; and (iii) using FHLB Advances and
longer- term savings certificates to lengthen maturities of liabilities.
Security Bank historically has had, and continues to have, a large percentage
of commercial, financial and agricultural loans and installment and other
consumer loans in its portfolio and an even higher percentage of its total
assets in its investment portfolio. Consequently, its loan and investment
portfolios tend to be more interest-rate sensitive than those of the Savings
Banks. The risks involved in commercial real estate, consumer and commercial,
financial and agricultural loans are evaluated by management carefully as part
of the underwriting of such loans.
21
Management is continuing to attempt to direct the Savings Banks' loan
portfolios into types of loans other than residential mortgage loans. The
effort, together with the emphasis in Security Bank's portfolio upon
commercial, financial and agricultural loans and installment and other
consumer loans, has resulted in the diversification of the Corporation's
aggregate loan portfolio.
The Banking Subsidiaries also emphasize longer-term deposits when
prudent to do so. It is difficult, however, to attract longer term deposits
in periods of rising interest rates or during extended periods of low interest
rates. Conversely, in a declining rate environment, longer-term deposits are
easier to attract, but could leave the Banking Subsidiaries holding more
costly deposits if interest rates declined significantly or for any extended
period of time.
The following table sets forth the dollar amount of maturing assets and
liabilities of the Banking Subsidiaries
as of December 31, 1993 and the difference between them for the repricing
periods indicated:
22
<TABLE>
<CAPTION>
(Dollars in Thousands)
0 to 90 91 to 180 181 to More More Than More Than Total
Days1 Days1 365 Than 3 years to 5 years1
Days1 1 year to 5 years1
3 years1
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans2 $191,410 $58,211 $112,720 $42,840 $25,221 $61,209 $491,611
Investments-taxable 27,514 24,035 43,307 147,353 98,418 17,704 358,331
Investments-non-taxable --- 1,002 --- 9,020 --- --- 10,022
Interest-bearing balances in other banks 5,145 --- --- --- --- --- 5,145
Federal funds sold 3,450 --- --- --- --- --- 3,450
Total interest-earning assets $227,519 $83,248 $156,027 $199,213 $123,639 $78,913 $868,559
Interest-bearing liabilities:
Deposits $286,371 $98,876 $89,825 $170,646 $70,880 $28 $716,626
FHLB advances and other borrowings 2,764 --- --- 6,000 1,000 --- 9,764
Total interest-bearing liabilities $289,135 $98,876 $89,825 $176,646 $71,880 $28 $726,390
Interest sensitivity gap $(61,616) $(15,628) $66,202 $22,567 $51,759 $ 78,885 $142,169
Cumulative interest sensitivity gap $(61,616) $(77,244) $(11,042) $11,525 $63,284 $142,169
Cumulative ratio of interest-earning assets
to interest-bearing liabilities 78.69% 80.09% 97.69% 101.76% 108.71% 119.57%
Ratio of cumulative gap to total assets (6.63%) (8.32%) (1.19%) 1.24% 6.81% 15.30%
</TABLE>
1. Gap analysis includes fixed rate loan repayments (contractual and
prepayment) and decay rates of deposit accounts based upon historical
industry experience.
2. Includes loans held for sale.
23
In evaluating the Corporation's exposure to interest-rate risk,
shortcomings inherent in the method of analysis presented in the foregoing
table must be considered. For example, although certain assets and
liabilities may have similar maturities or repricing periods, they may react
in different degrees to changes in market interest rates. The interest rates
in certain types of assets and liabilities may fluctuate in advance of changes
of market interest rates, while interest rates on other types may lag behind
changes in market rates. Certain assets, such as adjustable rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. In the event of a change in interest
rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. The ability of
borrowers to service a debt may decrease in the event of an interest rate
increase. The Banking Subsidiaries consider the anticipated effects of these
various factors in implementing their interest rate risk management
objectives. Management believes that it must continue its efforts to manage
the rates, liquidity and interest-rate sensitivity of the assets and
liabilities of the Banking Subsidiaries to generate an acceptable return.
Rate/Volume Analysis
The following table shows, for the periods indicated, the change in
interest income and interest expense for each major component of interest-
earning assets and interest-bearing liabilities attributable to (1) changes in
volume (changes in volume multiplied by old rate) and (2) changes in rates
(changes in rate multiplied by old volume). The change in interest income or
expense attributable to the combination of rate variance and volume variance
is included in the table, but such amount has been allocated equally between,
and included in the amounts shown as, changes due to rate and changes due to
volume.
24
<TABLE>
<CAPTION>
Year Ended December 31,
1993 vs. 1992 1992 vs. 1991
Increase (Decrease) Increase (Decrease)
Due To Due To
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans $(2,960) $(4,122) $ 273 $(7,082) $(4,147) $ (7,148) $551 $(11,295)
Investments-taxable 3,033 (2,899) (412) 134 3,413 (3,122) (504) 291
Investments-non-taxable ( 189) 7 ( 1) ( 182) ( 1) 8 - 7
Federal funds sold ( 179) ( 67) 39 ( 246) ( 54) (276) 25 ( 330)
Other interest-
earning assets ( 205) ( 49) 14 ( 254) ( 82) 201 ( 21) 119
Total interest-
earning assets $( 500) $(7,130) $( 87) $(7,630) $( 871) $(10,337) $ 51 $(11,208)
Interest expense:
Deposits $( 74) $(6,366) $ 16 $(6,440) $( 550) $(11,634) $ 161 $(12,184)
FHLB Advances and
other borrowings ( 460) ( 94) 37 ( 554) (1,139) 502 (313) (637)
Total interest-
bearing liabilities $( 534) $(6,460) $ 53 $(6,994) $(1,689) $(11,132) $(152) $(12,821)
Net interest income $ 34 $( 670) $(140) $( 636) $ 818 $ 795 $ 203 $ 1,613
</TABLE>
25
Liquidity
The following discussion supplements the discussion in the Annual Report
under the section "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
As discussed in the section "Sources of Funds" and in other sections
included or incorporated by reference herein, the Banking Subsidiaries'
principal sources of funds, other than cash provided from the net income of
the Banking Subsidiaries, are deposit accounts, FHLB Advances, principal and
interest payments on loans, interest received on investment securities, and
fees. As noted in the consolidated statements of cash flows included in the
Annual Report and incorporated by reference herein, the largest source of cash
during 1993, 1992 and 1991 was the approximately $3 million, $20 million and
$13 million, respectively, in net cash provided by operations. These funds
resulted from net income adjusted primarily for the following noncash items:
the provision for loan losses, depreciation and amortization, net securities
gains, and changes in other assets and liabilities. The most significant
investing activity during 1993 and 1992 was purchases of investment securities
of approximately $122 million and $126 million, respectively, which was
partially funded in 1993 and 1992 by maturities of investment securities
totaling approximately $90 million and $72 million, respectively.
As discussed elsewhere herein, the net decrease in loans in 1993, 1992
and 1991 of approximately $35 million, $40 million and $26 million,
respectively, was largely due to management's policy of selling current
production of fixed rate mortgage loans during these years. In total,
net cash provided by investing activities in 1993 totalled approximately
$433,000, while net cash of approximately $16 million and $16 million was
used in investing activities during 1992 and 1991, respectively. Net cash
used in financing activities amounted to approximately $168,000, $12 million
and $577,000 during 1993, 1992 and 1991, respectively. For additional
information regarding liquidity and capital resources, see "Regulation."
Key Operating Ratios
The table below sets forth certain performance ratios of the Corporation
for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
<S> <C> <C> <C>
Return on average assets (net income divided
by average total assets) 1.62% 1.09% 1.22%
Return on average equity (net income divided
by average stockholders' equity) 12.26 8.81 10.77
Dividend payout ratio (1) .31 .37 .24
Equity to assets ratio (average stockholders'
equity divided by average total assets) 13.18 12.37 11.36
Interest rate spread (difference between
weighted average interest rate earned on
all interest-earning assets and weighted
average interest rate paid on all interest-
bearing liabilities) 3.49 3.42 3.15
(1) Due to the restatement of financial information for all periods presented, as discussed in Note 2 of
Notes to Consolidated Financial Statements, dividends per share for all
periods presented except for the year ended December 31, 1993, have been
computed by dividing cash dividends paid by the weighted average
number of shares outstanding as adjusted retroactively for
stock splits and stock dividends.
</TABLE>
26
Personnel
As of December 31, 1993, the Corporation and the Subsidiaries employed
392 employees on a full-time basis and approximately 28 employees on a part-
time basis. The Corporation and/or the Subsidiaries currently maintain such
employee benefits as pension and retirement plans, hospitalization and major
medical insurance coverage, long-term disability and group life insurance, and
an employee stock ownership plan. Employee benefits are considered by
management to be competitive with those provided by other major employers in
the Corporation's primary market areas. The employees are not represented by
a collective bargaining unit, and the Corporation believes its relationship
with its employees to be good.
Regulation
Federal and state legislation and regulation have significantly affected
the operations of financial institutions in the past several years and have
increased competition among commercial banks, savings institutions and other
providers of financial services. In addition, federal legislation has imposed
new limitations on the investment authority of, and higher insurance and
examination assessments on, financial institutions and has made other changes
that may adversely affect the future operations and competitiveness of
regulated financial institutions with other financial intermediaries. The
operations of regulated depository institutions and their holding companies,
including the Corporation and its Banking Subsidiaries, will continue to be
subject to changes in applicable statutes and regulations from time to time.
The Corporation. As a bank holding company registered under the BHCA,
the Corporation is subject to the regulations of the FRB. Under the BHCA, the
Corporation's activities and those of the Subsidiaries are limited to banking,
managing or controlling banks, furnishing services to or performing services
for its Subsidiaries or engaging in any other activity which the FRB
determines to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto.
The BHCA prohibits the Corporation from acquiring direct or indirect
control of more than 5% of the outstanding voting stock or substantially all
of the assets of any bank or savings bank or merging or consolidating with
another bank holding company or savings bank holding company without prior
approval of the FRB. The BHCA also prohibits the Corporation from acquiring
control of any bank or savings bank operating outside the State of North
Carolina unless such action is specifically authorized by the statutes of the
state where the bank or savings bank to be acquired is located.
Additionally, the BHCA prohibits the Corporation from engaging in, or
acquiring ownership or control of more than 5% of the outstanding voting stock
of any company engaged in a non-banking business, including thrifts, unless
such business is determined by the FRB to be so closely related to banking as
to be properly incident thereto. The BHCA generally does not place
territorial restrictions on the activities of such non-banking related
activities.
Similarly, FRB approval (or, in certain cases, non-disapproval) must be
obtained prior to any person acquiring control of the Corporation or a Banking
Subsidiary. Control is conclusively presumed to exist if, among other things,
a person acquires more than 25% of any class of voting stock of the
institution or holding company or controls in any manner the election of a
majority of the directors of the institution or the holding company. Control
is presumed to exist if a person acquires more than 10% of any class of voting
stock and the institution or the holding company has registered securities
under Section 12 of the Securities Exchange Act of 1934, as amended, or the
acquiror will be the largest shareholder after the acquisition.
27
<PAGE>
There are a number of obligations and restrictions imposed on bank
holding companies and their insured depository institution subsidiaries by law
and regulatory policies that are designed to minimize potential loss to
depositors of such depository institutions and the Federal Deposit Insurance
Corporation ("FDIC") insurance funds in the event the depository institution
becomes in danger of default or in default. For example, under the recently
enacted Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"1991 Banking Law"), to reduce the likelihood of receivership of an insured
depository institution subsidiary, a bank holding company is required to
guarantee the compliance of any insured depository institution subsidiary that
may become "undercapitalized" with the terms of any capital restoration plan
filed by such subsidiary with its appropriate federal banking agency up to the
lesser of (i) an amount equal to 5% of the institution's total assets at the
time the institution became undercapitalized or (ii) the amount which is
necessary (or would have been necessary) to bring the institution into
compliance with all acceptable capital standards as of the time the
institution fails to comply with such capital restoration plan. Under a
policy of the FRB with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to its
subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy.
Under the BHCA, the FRB also has the authority to require a bank holding
company to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the FRB's
determination that such activity or control constitutes a serious risk to the
financial soundness and stability of any bank subsidiary of the bank holding
company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act ("FDIA") require insured depository institutions under common
control to reimburse the FDIC for any loss suffered by either the Savings
Association Insurance Fund (the "SAIF") or the Bank Insurance Fund ("BIF") of
the FDIC as a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the FDIC to a
commonly controlled insured depository institution in danger of default. The
FDIC may decline to enforce the cross-guarantee provisions if it determines
that a waiver is in the best interest of the SAIF or the BIF or both. The
FDIC's claim is superior to claims of shareholders of the insured depository
institution or its holding company but subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institutions.
The Corporation is subject to the obligations and restrictions described
above, and the Banking Subsidiaries are subject to the cross-guarantee
provisions of the FDIA. However, management of the Corporation currently does
not expect that any of these provisions will have an impact on the operations
of the Corporation or its Subsidiaries.
Bank holding companies are required to comply with the FRB's risk-based
capital guidelines. At the end of 1992, the minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) increased to 8%. Until such time, the required
ratio was 7.25%. At least half of the total capital is required to be "Tier I
capital," principally consisting of common shareholders' equity, noncumulative
perpetual preferred stock, and a limited amount of cumulative perpetual
preferred stock, less certain goodwill items. The remainder ("Tier II
capital") may consist of a limited amount of subordinated debt, certain hybrid
capital instruments and other debt securities, perpetual preferred stock, and
a limited amount of the general loan loss allowance. Until December 31, 1992,
a limited portion of Tier II capital could be counted as Tier I capital. In
addition to the risk-based capital guidelines, the FRB has adopted a minimum
Tier I (leverage) capital ratio, under which a bank holding company must
maintain a minimum level of Tier I capital (as determined under the risk-based
capital rules in effect at year-end 1992) to average total consolidated assets
of at least 3% in the case of a bank holding company which has the highest
regulatory examination rating and is not contemplating significant growth or
28
<PAGE>
expansion. All other bank holding companies are expected to maintain a Tier I
(leverage) capital ratio of at least 1% to 2% above the stated minimum.
The following table sets forth the Corporation's regulatory capital
position at December 31, 1993 (for the regulatory capital positions of the
Banking Subsidiaries as of December 31, 1993, see the discussions below).
<TABLE>
<CAPTION>
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Actual $124,220 13.31% $129,821 29.08%
Minimum capital standard 27,992 3.00 35,719 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $ 96,228 10.31% $ 94,102 21.08%
</TABLE>
The 1991 Banking Law requires each federal banking agency, including the
FRB, to revise its risk-based capital standards within 18 months of enactment
of the statute to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of non-
traditional activities, as well as reflect the actual performance and expected
risk of loss on multi-family mortgages. In August 1992, the FRB, the FDIC and
the Office of the Comptroller of the Currency issued a joint advance notice of
proposed rulemaking, soliciting comments on a proposed framework for
implementing these revisions. Under the proposal, an institution's assets,
liabilities, and off-balance sheet positions would be weighed by risk factors
that approximate the instruments' price sensitivity to a 100 basis point
change in interest rates. Institutions with interest rate risk exposure in
excess of a threshold level would be required to hold additional capital
proportional to that risk. The notice also asked for comments on how the
risk-based capital guidelines of each agency may be revised to take account of
concentration and credit risk and the risk of nontraditional activities. The
Corporation is studying the notice. It cannot assess at this point the
impact, if any, the proposal would have on the capital requirements of the
Corporation or its Banking Subsidiaries.
Under current federal law, transactions between depository institutions
and any affiliate are governed by Section 23A and 23B of the Federal Reserve
Act. An affiliate of a depository institution is any company or entity that
controls, is controlled by or is under common control with the institution.
In a holding company context, the parent holding company of a depository
institution and any companies which are controlled by such parent holding
company are affiliates of the depository institution. Generally, Sections 23A
and 23B (i) limit the extent to which the depository institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and
contain an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus and (ii) require that
all such transactions be on terms substantially the same, or at least as
favorable, to the savings institution or the subsidiary as those provided to a
nonaffiliate. The term "covered transaction" includes the making of loans or
other extensions of credit to an affiliate, the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an
affiliate, the acceptance of securities of an affiliate as collateral for a
loan or extension of credit to any person, or issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate. In addition to the
restrictions imposed by Sections 23A and 23B, no depository institution may
(i) loan or otherwise
29
<PAGE>
extend credit to an affiliate, except for any affiliate
which engages only in activities that are permissible for bank holding
companies, or (ii) purchase or invest in any stocks, bonds, debentures, notes
or similar obligations of any affiliate, except for affiliates that are
subsidiaries of the institution.
Additionally, the FDIC has provided advance notice of a proposed rule-
making which would affect contracts between a bank holding company, such as
the Corporation, or its non-depository subsidiaries or related interests under
common control, and its insured depository institution affiliates, such as the
Banking Subsidiaries. The FDIC proposed establishing a rebuttable regulatory
presumption that certain types of contracts between an insured depository
institution and any company which directly or indirectly controls it (or which
is under common control with it) are unsafe and unsound. The types of
contracts to be covered by such a presumption would include those relating to:
(1) making or purchasing loans, (2) servicing loans, (3) performing trust
functions, (4) providing bookkeeping or data processing services, (5)
furnishing management services, (6) selling or transferring any department or
subsidiary, (7) payments for intangible assets, (8) transferring any asset
for less than fair market value as evidenced by an independent written
appraisal, or (9) prepaying any liability more than 30 days prior to its due
date. The FDIC also has proposed regulations which would prohibit any insured
depository institution from entering into any contract with any person to
provide goods, products or services if such contract is determined to
adversely affect the safety or soundness of the insured institution. The
Corporation cannot determine at this point the impact these proposed rules
would have upon it and the Banking Subsidiaries if they are adopted in their
currently proposed form.
Section 4(i) of the BHCA authorizes the FRB to approve the application
of a bank holding company to acquire any savings institution under Section
4(c)(8) of the BHCA. In approving such an application, the FRB is precluded
from imposing any restrictions on transactions between the bank holding
company and the acquired savings institution, except as required by Section
23A or 23B of the Federal Reserve Act or any other applicable law. Further,
the FDIA, as amended by the 1991 Banking Law, authorizes the merger or
consolidation of any BIF member with any SAIF member, the assumption of any
liability by any BIF member to pay any deposits of any SAIF member or vice
versa, or the transfer of any assets of any BIF member to any SAIF member in
consideration for the assumption of liabilities of such BIF member or vice
versa, provided that certain conditions are met and, in the case of any
acquiring, assuming or resulting depository institution which is a BIF member,
such institution continues to make payment of SAIF assessments on the portion
of liabilities attributable to any acquired, assumed or merged SAIF-insured
institution.
As a result of the Corporation's ownership of Security Bank, in 1983 the
Corporation was registered under the bank holding company laws of North
Carolina. Accordingly, the Corporation and the Subsidiaries are also subject
to regulation by the North Carolina Commissioner of Banks (the "N.C.
Commissioner"). The N.C. Commissioner has asserted authority to examine North
Carolina bank holding companies and their affiliates and is in the process of
formulating regulations in this area. Further, as a result of its ownership
of the Savings Banks, the Corporation is also registered under the savings
bank holding company laws of North Carolina. Thus, it is also subject to
regulation and supervision by the North Carolina Administrator of Savings
Institutions (the "N.C. Administrator").
Security Bank. Security Bank is organized as a North Carolina chartered
commercial bank and is subject to various statutory requirements and to rules
and regulations promulgated and enforced by the N.C. Commissioner and the
FDIC. Its deposits are insured by the BIF.
30
<PAGE>
North Carolina commercial banks, such as Security Bank, are subject to
legal limitations on the amounts of dividends they are permitted to pay.
Prior approval of the N.C. Commissioner is required if the total of all
dividends declared by Security Bank in any calendar year exceeds its net
profits (as defined by statute) for that year combined with its retained net
profits (as defined by statute) for the preceding two calendar years, less any
required transfers to surplus. Also, under the 1991 Banking Law an insured
depository institution, such as Security Bank, is prohibited from making
capital distributions, including the payment of dividends, if, after making
such distribution, the institution would become "undercapitalized" (as such
term is defined in the statute). Based on its current financial condition,
the Corporation does not expect that this provision will have any impact on
Security Bank's ability to pay dividends.
As a North Carolina chartered, FDIC-insured commercial bank which is not
a member of the Federal Reserve System, Security Bank is subject to capital
requirements imposed by the FDIC. Under the FDIC's regulations, state
nonmember banks that (a) receive the highest rating during the examination
process and (b) are not anticipating or experiencing any significant growth,
are required to maintain a minimum leverage ratio of 3% of Tier I capital to
average total consolidated assets; all other banks are required to maintain
a minimum ratio of 1% or 2% above the stated minimum, with a minimum
leverage ratio of not less than 4%. As of December 31, 1993, the leverage
ratio of Security Bank was 13.17%.
The following table sets forth Security Bank's regulatory capital
position at December 31, 1993:
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
Actual $ 49,901 13.17% $ 51,749 35.23%
Minimum capital standard 11,366 3.00 11,752 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $ 38,535 10.17% $ 39,997 27.23%
As a BIF-insured institution, Security Bank is also subject to insurance
assessments imposed by the FDIC. Under current law, as amended by the 1991
Banking Law, the insurance assessment to be paid by BIF-insured institutions
shall be as specified in a schedule required to be issued by the FDIC that
would specify, at semiannual intervals, target reserve ratios designed to
increase the reserve ratio to 1.25% of estimated insured deposits (or such
higher ratio as the FDIC may determine in accordance with the statute) in 15
years. Further, the FDIC is authorized, under the 1991 Banking Law, to impose
one or more special assessments in any amount deemed necessary to enable
repayment of amounts borrowed by the FDIC from the Treasury Department.
Effective January 1, 1993, the FDIC replaced the uniform assessment rate with
a transitional risk-based assessment schedule which became fully effective in
January 1994, having assessments ranging from 0.23% to 0.31% of an
institution's average assessment base. The actual assessment to be paid by
each BIF member is based on an institution's assessment risk classification,
which is determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or "under capitalized," as such terms
have been defined in applicable federal regulations adopted to implement the
prompt corrective action provisions of the 1991 Banking Law, and whether such
institution is considered by its supervisory agency to be financially sound or
to have supervisory concerns. See "Impact of the 1991 Banking Law." As a
result of the provisions of the 1991 Banking Law, the assessment rate on
deposits could increase significantly over the next 15 years. Based on the
current financial condition
31
<PAGE>
and capital levels of Security Bank, the
Corporation does not expect that the transitional risk-based assessment
schedule will have a material impact on Security Bank's future earnings.
Further, under current federal law, depository institutions are subject
to the restrictions contained in Section 22(h) of the Federal Reserve Act with
respect to loans to directors, executive officers and principal stockholders.
Under Section 22(h), loans to directors, executive officers and stockholders
who own more than 10% of a depository institution (18% in the case of
institutions located in an area with less than 30,000 in population), and
certain affiliated entities of any of the foregoing, may not exceed, together
with all other outstanding loans to such person and affiliated entities, the
institution's loan-to-one-borrower limit as established by federal law (as
discussed below). Section 22(h) also prohibits loans above amounts prescribed
by the appropriate federal banking agency to directors, executive officers and
shareholders who own more than 10% of an institution, and their respective
affiliates, unless such loans are approved in advance by a majority of the
board of directors of the institution. Any "interested" director may not
participate in the voting. The FRB has prescribed the loan amount (which
includes all other outstanding loans to such person), as to which such prior
board of director approval is required, as being the greater of $25,000 or 5%
of capital and surplus (up to $500,000). Further, pursuant to Section 22(h),
the FRB requires that loans to directors, executive officers, and principal
shareholders be made on terms substantially the same as offered in comparable
transactions to other persons.
Security Bank is subject to FDIC-imposed loan-to-one-borrower limits
which are substantially the same as those applicable to national banks. Under
these limits, no loans and extensions of credit to any borrower outstanding at
one time and not fully secured by readily marketable collateral shall exceed
15% of the unimpaired capital and unimpaired surplus of the bank. Loans and
extensions of credit fully secured by readily marketable collateral may
comprise an additional 10% of unimpaired capital and unimpaired surplus.
These limits also authorize banks to make loans to one borrower, for any
purpose, in an amount not to exceed $500,000. As of December 31, 1993, the
largest aggregate amount of loans which Security Bank had to one borrower was
$1.9 million. Management does not believe that any of Security Bank's
outstanding loans violate the applicable loans-to-one-borrower limits or that
these limits will have a significant impact on Security Bank's business,
operations or earnings.
Regulations promulgated by the FDIC pursuant to the 1991 Banking Law
place limitations on the ability of insured depository institutions to accept,
renew or roll over deposits by offering rates of interest which are
significantly higher than the prevailing rates of interest on deposits offered
by other insured depository institutions having the same type of charter in
such depository institution's normal market area. Under these regulations,
"well capitalized" depository institutions may accept, renew or roll such
deposits over without restriction, "adequately capitalized" depository
institutions may accept, renew or roll such deposits over with a waiver from
the FDIC (subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew or roll such
deposits over. The regulations contemplate that the definitions of "well
capitalized," "adequately capitalized" and "undercapitalized" will be the same
as the definition adopted by the agencies to implement the corrective action
provisions of the 1991 Banking Law. See "Impact of the 1991 Banking Law."
Management does not believe that these regulations will have a materially
adverse effect on the current operations of Security Bank.
Security Bank is subject to examination by the FDIC and the N.C.
Commissioner. FSCC, the consumer finance company subsidiary of Security Bank,
is also subject to such examination. In addition, Security Bank is subject to
various other state and federal laws and regulations, including state usury
laws, laws relating to fiduciaries, consumer credit and equal credit, fair
credit reporting laws and laws relating to branch banking. Security Bank, as
an insured North Carolina commercial bank, is prohibited from
32
<PAGE>
engaging as a
principal in activities that are not permitted for national banks, unless (i)
the FDIC determines that the activity would pose no significant risk to the
appropriate deposit insurance fund and (ii) Security Bank is, and continues to
be, in compliance with all applicable capital standards.
Under Chapter 53 of the North Carolina General Statutes, if the capital
stock of a North Carolina commercial bank is impaired by losses or otherwise,
the N.C. Commissioner is authorized to require payment of the deficiency by
assessment upon the bank's shareholders, pro rata, and to the extent
necessary, if any such assessment is not paid by any shareholder, upon 30 days
notice, to sell as much as is necessary of the stock of such shareholder to
make good the deficiency. The Corporation is the sole shareholder of Security
Bank.
The Savings Banks. The Savings Banks are North Carolina-chartered
savings banks and members of the FHLB system (the "FHLB System"). Their
deposits are insured by the FDIC through the SAIF. They are subject to
examination and regulation by the FDIC and the N.C. Administrator and to
regulations governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities, and
general investment authority.
North Carolina enacted the Savings Bank Act, Ch. 54C of the North
Carolina General Statutes ("Chapter 54C"), effective October 1, 1991. Chapter
54C created a state savings bank ("SSB") charter. An SSB is a North Carolina
chartered financial institution regulated by the FDIC and the N.C.
Administrator, but not by the OTS, with its deposit accounts insured by either
the SAIF or the BIF of the FDIC. Each of the Savings Banks converted to an
SSB charter on December 1, 1992 (the "Conversions") in order to reduce the
regulatory cost and burden imposed by the overlapping regulatory jurisdiction
of the three agencies under whose regulation they operated as federal savings
banks. The Conversions are expected to reduce substantially the amounts that
the Savings Banks would otherwise pay to OTS in assessments, application and
securities filing fees.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") effected a major restructuring of the federal regulatory scheme
applicable to financial institutions. Among other things, FIRREA abolished
the Federal Home Loan Bank Board and Federal Savings and Loan Insurance
Corporation, many of the previous regulatory functions of which are now under
the control of the OTS and the FDIC. Regulatory functions relating to deposit
insurance and to conservatorships and receiverships of federally insured
financial institutions, including savings banks, are now exercised by the
FDIC. FIRREA contains provisions affecting numerous aspects of the operations
and regulation of federally insured savings banks and empowers the FDIC to
promulgate regulations implementing the provisions of FIRREA, including
regulations defining certain terms used in the statute as well as regulations
exercising or defining the limits of regulatory discretion conferred by the
statute.
Prior to their Conversions, the Savings Banks were regulated by the OTS
in addition to the FDIC and the N.C. Administrator. Consequently, they were
subject to various operating requirements and restrictions imposed by the OTS.
Additionally, they were regulated by the N.C. Administrator under North
Carolina law as savings and loan associations rather than as savings banks.
The following discussion sets forth the regulatory requirements and
restrictions to which the Savings Banks became subject upon their Conversions.
As SAIF-insured institutions, the Savings Banks are also subject to
insurance assessments imposed by the FDIC. Under current law, as amended by
the 1991 Banking Law, the insurance assessment paid by SAIF-insured
institutions must be the greater of 0.15% of the institution's average
assessment base (as
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defined) or such rate as the FDIC, in its sole discretion,
determines to be appropriate to be able to increase (or maintain) the reserve
ratio to 1.25% of estimated insured deposits (or such higher ratio as the FDIC
may determine in accordance with the statute) within a reasonable period of
time. Through December 31, 1993, the assessment rate could not be less than
0.23% of the institution's average assessment base, and from January 1, 1994
through December 31, 1997, the assessment rate must not be less than 0.18% of
the institution's average assessment base. In each case the assessment rate
may be higher if the FDIC, in its sole discretion, determines such higher rate
to be appropriate. Effective January 1, 1993, the annual assessment rate is
determined pursuant to the transitional risk-based assessment schedule issued
by the FDIC pursuant to the 1991 Banking Law, which imposes assessments
ranging from 0.23% to 0.31% of an institution's average assessment base. The
actual assessment to be paid by each SAIF member will be based on the
institution's assessment risk classification, which will be determined based
on whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized" (as such terms have been defined in federal
regulations adopted to implement the prompt corrective action provisions of
the 1991 Banking Law), and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns.
See "Impact of the 1991 Banking Law." The Savings Banks do not anticipate any
material increase in their insurance assessments.
Upon their Conversions, the Savings Banks ceased to be subject to the
capital requirements of the OTS and became subject to the capital requirements
of the FDIC and the N.C. Administrator. The FDIC requires each of the Savings
Banks to have a minimum leverage ratio of Tier I capital to average total
assets of at least 3%; provided, however, that all institutions, other
than those (i) receiving the highest rating during the examination process
and (ii) not anticipating or experiencing any significant growth, are required
to maintain a ratio of 1% or 2% above the stated minimum, with a minimum
leverage ratio of not less than 4%. The FDIC also requires each of the
Savings Banks to have a ratio of total capital to risk-weighted assets
of at least 8%. The FDIC leverage and risk-based capital ratio calculations
and components are very similar to the OTS core capital and risk-based capital
requirements, respectively. The FDIC, however, does not impose a tangible
capital requirement. The N.C. Administrator requires a net worth equal to at
least 5% of total assets. At December 31, 1993, each of the Savings Banks
complied with the net worth requirements of the N.C. Administrator:
OMNIBANK, 12.97%; Citizens, 9.92%; and, Home Savings, 8.05%.
The following table sets forth the consolidated FDIC regulatory capital
positions of OMNIBANK, Citizens and Home Savings as of December 31, 1993:
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
(Dollars in Thousands)
Actual $ 59,140 10.93% $ 62,837 21.30%
Minimum capital standard 16,239 3.00 23,599 8.00
Excess of actual regulatory
capital over minimum
regulatory capital standard $ 42,901 7.93% $ 39,238 13.30%
The FHLB System provides a central credit facility for member
institutions. As members of the FHLB of Atlanta, each of the Savings Banks
are required to own capital stock in the FHLB of Atlanta in an amount at least
equal to the greater of 1% of the aggregate principal amount of its unpaid
residential
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mortgage loans, home purchase contracts and similar obligations at
the end of each calendar year, or 5% of its outstanding advances (borrowings)
from the FHLB of Atlanta. As of December 31, 1993, each of the Savings Banks
was in compliance with this requirement.
FIRREA has had the effect of significantly reducing the dividends that
Savings Banks receive on their stock in the FHLB of Atlanta. FIRREA requires
each FHLB to transfer a certain amount of its reserves and undivided profits
to the Resolution Funding Corporation ("RECORP"), the government entity
established to raise funds to resolve troubled savings association cases, in
order to fund the principal and a portion of the interest on RECORP bonds and
certain other obligations. In addition, FIRREA requires each FHLB to transfer
a percentage of its annual net earnings to the Affordable Housing Program.
That amount will increase from 5% of the annual net income of the FHLB in 1990
to at least 10% of its annual net income in 1995 and subsequent years. As a
result of these FIRREA requirements, it is anticipated that the FHLB of
Atlanta's earnings will be reduced and that each of the Savings Banks will
continue to receive reduced dividends on its FHLB of Atlanta stock in future
periods.
FRB regulations adopted pursuant to the Depository Institutions
Deregulation and Monetary Control Act of 1980 require savings associations and
savings banks to maintain reserves against their transaction accounts
(primarily negotiable order of withdrawal accounts) and certain nonpersonal
time deposits. The reserve requirements are subject to adjustment by the FRB.
As of December 31, 1993, each of the Savings Banks was in compliance with the
applicable reserve requirements of the FRB.
Upon their Conversions, the
Savings Banks ceased to be subject to OTS liquidity requirements and became
subject to the N.C. Administrator's requirement that the ratio of liquid
assets to total assets equal at least 10%. The computation of liquidity under
North Carolina regulation allows the inclusion of mortgage-backed securities
and investments which, in the judgment of the N.C. Administrator, have a
readily marketable value, including investments with maturities in excess of
five years. On December 31, 1993, the liquidity ratios of the Savings Banks
exceeded the requirements of the N.C. Administrator and were as follows:
OMNIBANK, 20.39%; Citizens, 34.94%; and, Home Savings, 31.75%.
The Savings Banks also are subject to loan-to-one-borrower limits which
are substantially the same as those applicable to Security Bank.
Additionally, under these limits, a savings bank is authorized to make loans
to one borrower to develop domestic residential housing units, not to exceed
the lesser of $30 million or 30% of the savings bank's unimpaired capital and
unimpaired surplus, provided that (i) the purchase price of each single-family
dwelling in the development does not exceed $500,000; (ii) the savings bank is
in compliance with its fully phased-in capital requirements; (iii) the loans
comply with the applicable loan-to-value requirements; (iv) the aggregate
amount of loans made under this authority does not exceed 150% of unimpaired
capital and surplus and (v) either the savings bank's regulator issues an
order permitting the savings bank to use the higher limit or the savings bank
meets the requirements for "expedited treatment." A savings bank meets the
requirements of "expedited treatment" if, among other
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things, it has a
composite MACRO rating of 1 or 2, a Community Reinvestment Act rating of
satisfactory or better, and has not been notified by supervisory personnel
that it is a problem institution or an institution in troubled condition.
These limits also authorize a savings institution to make loans to one
borrower to finance the sale of real property acquired in satisfaction of
debts in an amount up to 50% of unimpaired capital and surplus. As North
Carolina chartered savings banks, the Savings Banks are subject under North
Carolina law to the same loans-to-one-borrower restrictions as are described
above. However, if North Carolina loans-to-one-borrower limitations were to
be made less stringent than the restrictions set forth above, the Savings
Banks would still be subject to the above described restrictions pursuant to
FDIC regulations.
As of December 31, 1993, the largest aggregate amount of loans which the
Savings Banks had to any one borrower was as follows: OMNIBANK, $3.13
million; Citizens, $2.21 million; and, Home Savings, $1.05 million. None of
the Savings Banks had loans outstanding which management believes violate the
applicable loans-to-one-borrower limits. The Corporation does not believe
that the loans-to-one-borrower limits will have a significant impact on the
Savings Banks' business, operations or earnings.
The Savings Banks are subject to the same FDIC regulations as Security
Bank regarding the ability of insured depository institutions to accept,
renew, or roll over deposits offering rates of interest significantly higher
than generally prevailing market rates. Management does not believe these
regulations will have a materially adverse effect on the current operations of
the Savings Banks.
As North Carolina-chartered savings banks,
the Savings Banks are subject to North Carolina law which requires that at
least 60% of their respective assets be investments that qualify under certain
Internal Revenue Service guidelines. As of December 31, 1993, each Savings
Bank was in compliance with the North Carolina law.
Recent FDIC law and regulations generally provide that state-chartered
savings banks may not engage as principal in any type of activity, or in any
activity in an amount, not permitted for national banks, or directly acquire
or retain any equity investment of a type or in an amount not permitted for
national banks. The FDIC has authority to grant exceptions from these
prohibitions (other than with respect to non-service corporation equity
investments) if it determines no significant risk to the SAIF is posed by the
amount of the investment or the activity to be engaged in and if the savings
bank is and continues to be in compliance with fully phased-in capital
standards. National banks are generally not permitted to hold equity
investments other than shares of service corporations and certain federal
agency securities. Moreover, the activities in which service corporations are
permitted to engage are limited to those of service corporations for national
banks.
FIRREA generally prohibits any savings institution (state or federal)
from directly or indirectly acquiring or retaining any corporate debt security
that is not of investment grade (generally referred to as "junk bonds'). Any
savings institution that held corporate debt securities not of investment
grade prior to August 9, 1989 is required to divest those securities as
quickly as can be prudently done, but in no event later than July 1, 1994, and
must file an application setting forth its plans for divestiture with the
FDIC. At December 31, 1993, none of the Savings Banks owned any corporate
debt securities not of investment
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grade for which such divestiture would be
required. Additionally, FDIC regulations impose restrictions on the lending
limits of state-chartered savings banks, including percentage limitations on
the total investment in various types of loans, including limitations which
(i) limit total non-residential real estate loans to 400% of capital, (ii)
limit total commercial, corporate, business or agricultural loans to 10% of
assets, and (iii) limit total consumer loans, commercial paper and corporate
debt securities to 35% of assets. Each Savings Bank was in compliance with
such requirements as of December 31, 1993.
FIRREA also generally requires any savings institution that proposes to
establish or acquire a new subsidiary, or to conduct new activities through an
existing subsidiary, to notify the FDIC at least 30 days prior to the
establishment or acquisition of any subsidiary, or at least 30 days prior to
conducting any such new activity. Any such activities must be conducted in
accordance with the regulations and orders of the FDIC and the N.C.
Administrator.
As North Carolina chartered savings banks, the Savings Banks derive
their authority from, and are regulated by, the N.C. Administrator. The N.C.
Administrator has the right to promulgate rules and regulations necessary for
the supervision and regulation of state savings banks under his jurisdiction
and for the protection of the public investing in such institutions. The
regulatory authority of the N.C. Administrator includes, but is not limited
to, the establishment of reserve requirements; the regulation of the payment
of dividends; the regulation of incorporators, shareholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loan and investments;
and, the regulation of the conduct and management of savings banks, chartering
and branching of institutions, mergers, conversions and conflicts of interest.
North Carolina law requires that the Savings Bank maintain federal deposit
insurance as a condition of doing business.
The N.C. Administrator conducts regular annual examinations of the
Savings Banks as well as other state-chartered savings institutions in North
Carolina. The purpose of such examinations is to assure that institutions are
being operated in compliance with applicable North Carolina law and
regulations and in a safe and sound manner. These examinations are usually
conducted on a joint basis with the FDIC. In addition, the N.C. Administrator
is required to conduct an examination of any institution when he has good
reason to believe the standing and responsibility of the institution is of
doubtful character or when he otherwise deems it prudent. The N.C.
Administrator is empowered to order the revocation of the license of an
institution if he finds that it has violated or is in violation of any North
Carolina law or regulation and that revocation is necessary in order to
preserve the assets of the institution and protect the interest of its
depositors. The N.C. Administrator has the power to issue cease and desist
orders if any person or institution is engaging in, or has engaged in , any
unsafe or unsound practice or unfair and discriminatory practice in the
conduct of its business or in violation of any other law, rule or regulation.
A North Carolina chartered savings bank must maintain net worth of 5% of
total assets and liquidity of 10% of total assets, as discussed above.
Additionally, a North Carolina chartered savings bank is required to maintain
general valuation allowances and specific loss reserves in the same amounts as
required by the federal regulators.
A North Carolina chartered stock savings bank may not declare or pay a
cash dividend on, or repurchase any of, its capital stock if the effect of
such transaction would be to reduce the net worth of the institution to an
amount which is less than the minimum amount required by applicable federal
and state regulations. Accordingly, each of the Savings Banks is prohibited
from making capital distributions, including the payment of dividends, if,
after making such distribution, it would become "undercapitalized" (as such
term is defined in the 1991 Banking Law).
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In addition, each of the Savings Banks is also subject to the
restriction that it is not permitted to declare or pay a cash dividend on or
repurchase any of its capital stock if the effect thereof would be to cause
its net worth to be reduced below the amount for the liquidation account
established in connection with its conversion from mutual to stock form.
Subject to limitations established by the N.C. Administrator, North
Carolina-chartered savings banks may make any loan or investment or engage in
any activity which is permitted to federally chartered savings institutions.
In addition to such lending authority, North Carolina-chartered savings banks
are authorized to invest funds, in excess of loan demand, in certain
statutorily permitted investments, including but not limited to (i)
obligations of the United States, or those guaranteed by it; (ii) obligations
of the State of North Carolina; (iii) bank demand or time deposits; (iv) stock
or obligations of the federal deposit insurance fund or FHLB; (v) savings
accounts of any savings and loan association as approved by the board of
directors; and (vi) stock or obligations of any agency of the State of North
Carolina or of the United States or of any corporation doing business in North
Carolina whose principal business is to make education loans.
North Carolina law provides a procedure by which savings institutions
may consolidate or merge, subject to the approval of the N.C. Administrator.
The approval is conditioned upon findings by the N.C. Administrator that,
among other things, such merger or consolidation will promote the best
interests of the members or shareholders of the merging institutions. North
Carolina law also provides for simultaneous mergers and conversions and for
supervisory mergers conducted by the N.C. Administrator.
Impact of the 1991 Banking Law. The 1991 Banking Law was signed into
law on December 19, 1991. Among other things, the 1991 Banking Law provides
increased funding for the BIF and the SAIF, and provides for expanded
regulation of depository institutions and their affiliates, including parent
holding companies.
The 1991 Banking Law provides authority for special assessments against
insured deposits and for the development of a general risk-based deposit
insurance assessment system which the FDIC implemented on a transitional basis
effective January 1, 1993. The BIF and SAIF funding provisions could result
in a significant increase in the assessment rate on deposits of BIF and SAIF
institutions over the next 15 years. No assurance can be given at this time
as to what level of assessments against insured deposits will be during this
15-year period.
Effective one year after its enactment, the 1991 Banking Law provides
the federal banking agencies with broad powers to take corrective action to
resolve the problems of insured depository institutions. The extent of these
powers will depend upon whether the institutions in question are "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." In September 1992, each
of the federal banking agencies issued final uniform regulations to be
effective December 19, 1992, which define such capital levels. Under the
final regulations, an institution is considered "well capitalized" if it has
(i) a total risk-based capital ratio of 10% or greater, (ii) a Tier I risk-
based capital ratio of 6% or greater, (iii) a leverage ratio of 5% or greater
and (iv) is not subject to any order or written directive to meet and maintain
a specific capital level for any capital measure. An "adequately capitalized"
institution is defined as one that has (i) a total risk-based capital ratio of
8% or greater, (ii) a Tier I risk-based capital ratio of 4% or greater and
(iii) a leverage ratio of 4% or greater (or 3% or greater in the case of an
institution with the highest examination rating). An institution is
considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less than 4%
or (iii) a leverage ratio of less than 4% (or 3% in the case of an institution
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with the highest examination rating; (B) "significantly undercapitalized" if
the institution has (i) a total risk-based capital ratio of less than 6%, or
(ii) a Tier I risk-based capital ratio of less than 3% or (iii) a leverage
ratio of less than 3% and (C) "critically undercapitalized" if the institution
has a ratio of tangible equity to total assets equal to or less than 2%.
The 1991 Banking Law also amended the prior law with respect to the
acceptance of brokered deposits by insured depository institutions to permit
only a "well capitalized" (as defined in the statute as significantly
exceeding each relevant minimum capital level) depository institution to
accept brokered deposits without prior regulatory approval. In June 1992, the
FDIC issued final regulations implementing these provisions regulating
brokered deposits. Under the regulations, "well-capitalized" banks may accept
brokered deposits without restrictions, "adequately capitalized" banks may
accept brokered deposits with a waiver from the FDIC (subject to certain
restrictions on payment of rates), while "under-capitalized" banks may not
accept brokered deposits. The regulations contemplate that the definitions of
"well capitalized," "adequately capitalized" and "under capitalized" are the
same as the definitions adopted by the agencies to implement the prompt
corrective action provisions of the 1991 Banking Law (as described in the
previous paragraph). The Corporation does not believe that these regulations
have had or will have a material adverse effect on the current operations of
its Banking Subsidiaries.
To facilitate the early identification of problems, the 1991 Banking Law
requires the federal banking agencies to review and, under certain
circumstances, prescribe more stringent accounting and reporting requirements
than those required by generally accepted accounting principles. In September
1992, the FDIC issued a notice of proposed rulemaking implementing those
provisions. The proposed rule, among other things, would require that
management report on the institution's responsibility for preparing financial
statements and establishing and maintaining an internal control structure and
procedures for financial reporting and compliance with laws and regulations
concerning safety and soundness, and that independent auditors attest to and
report separately on assertions in management's reports concerning compliance
with such laws and regulations, using FDIC-approved audit procedures.
The 1991 Banking Law further requires the federal banking agencies to
develop regulations requiring disclosure of contingent assets and liabilities
and, to the extent feasible and practicable, supplemental disclosure of the
estimated fair market value of assets and liabilities. The 1991 Banking Law
also requires annual examinations of all insured depository institutions by
the appropriate federal banking agency, with some exceptions for small, well-
capitalized institutions and state chartered institutions examined by state
regulators. Moreover, the federal banking agencies are required to set
operational and managerial, asset quality, earnings and stock valuation
standards for insured depository institutions and depository institution
holding companies, as well as compensation standards for insured depository
institutions that prohibit excessive compensation, fees or benefits to
officers, directors, employees, and principal shareholders. In July 1992, the
federal banking agencies issued a joint advance notice of proposed rulemaking
soliciting comments on all aspects of the implementation of these standards in
accordance with the 1991 Banking Law, including whether the compensation
standards should apply to depository institution holding companies.
The foregoing necessarily is a general description of certain provisions
of the 1991 Banking Law and does not purport to be complete. Several of the
provisions of the 1991 Banking Law will be implemented through regulations
issued by the various federal banking agencies, only a portion of which have
been adopted in final form. Several of the significant provisions of the
legislation will not become effective until one year or more after enactment.
The effect of the 1991 Banking Law on the Corporation
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and its Subsidiaries
will not be full ascertainable until after all of the provisions are effective
and after all of the regulations are adopted.
Taxation
Federal Income Taxation. The Corporation files a consolidated federal
income tax return with its Subsidiaries. The Banking Subsidiaries are subject
to the taxing provisions of the Internal Revenue Code of 1986, as amended
("Code"), for corporations, as modified by certain provisions of accounting.
Thrift institutions, which qualify under certain definitional tests and
other conditions of the Code, are permitted certain favorable provisions
regarding their deductions from taxable income for annual additions to their
bad debt reserve. A reserve may be established for bad debts on qualifying
real property loans (generally loans secured by interests in real property
improved or to be improved) under (i) a method based on a percentage of the
institution's taxable income, as adjusted (the "percentage of taxable income
method") or (ii) a method based on actual loss experience (the "experience
method"). Nonqualifying loans are computed on the experience method. The
Savings Banks generally compute their additions to their reserves using the
percentage of taxable income method.
The percentage of taxable income method is limited to 8% of taxable
income. This method may not raise the reserve to exceed 6% of qualifying real
property loans at the end of the year. Moreover, the additions for qualifying
real property loans, when added to nonqualifying loans, cannot exceed 12% of
the amount by which total deposits or withdrawable accounts exceed the sum of
surplus, undivided profits and reserves at the beginning of the year. The
experience method is the amount necessary to increase the balance of the
reserve at the close of the year to the greater of (i) the amount which bears
the same ratio to loans outstanding at the close of the year as the total net
bad debts sustained during the current and five preceding years bear to the
sum of the loans outstanding at the close of such six years or (ii) the
balance in the reserve account at the close of the last taxable year beginning
before 1988 (assuming that the loans outstanding have not declined since such
date).
In order to qualify for the percentage of income method, an institution
must have at least 60% of its assets as "qualifying assets" which generally
include cash, obligations of the U.S. government or an agency or
instrumentality thereof or a state or political subdivision, residential real
estate-related loans, or loans secured by savings accounts and property used
in the conduct of its business. In addition, it must meet certain other
supervisory tests and operate principally for the purpose of acquiring savings
and investing in loans.
Institutions which become ineligible to use the percentage of income
method must change to either the reserve method or the specific charge-off
method that apply to banks. Proposed regulations require ratable inclusion in
income of excess reserves over a six-year period in the event of
ineligibility. Large banks, those generally exceeding $500 million in assets,
must convert to the specific charge-off method.
Bad debt reserve balances in excess of the balance computed under the
experience method or amounts maintained in a supplemental reserve built up
prior to 1962 ("excess bad debt reserve") require inclusion in taxable income
upon certain distributions to its shareholders. Distributions in redemption
or liquidation or stock or distributions with respect to its stock in excess
of earnings and profits accumulated in years beginning after December 31,
1951, are treated as a distribution from the excess bad debt reserve. When
such a distribution takes place and it is treated as from the excess bad debt
reserve, the thrift is
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required to reduce its reserve by such amount and
simultaneously recognize the amount as an item of taxable income increased by
the amount of income tax imposed on the inclusion. Dividends not in excess of
earnings and profits accumulated since December 31, 1951 will not require
inclusion of part or all of the bad debt reserve in taxable income. Each of
the Savings Banks has accumulated earnings and profits since December 31, 1951
and has an excess in its bad debt reserve. Distributions in excess of current
and accumulated earnings and profits will increase taxable income.
Security Bank traditionally has maintained its reserve using the
experience method described above. As a commercial bank, Security Bank's use
of the experience method is subject to the limitation based upon $500 million
in total assets.
The Corporation's and Omni's income tax returns for tax years subsequent
to 1989 are subject to examination. The Corporation's federal income tax
return for the year ended December 31, 1991 was examined during 1993 and its
federal income tax return for the year ended December 31, 1992 is currently
under examination.
State and Local Taxation. Under North Carolina law, the corporate
income tax is 7.75% of federal taxable income as computed under the Code,
subject to certain prescribed adjustments. In addition, for tax years
beginning in 1992, 1993 and 1994, a corporate taxpayer must pay a surtax equal
to 3%, 2% and 1%, respectively, of the state income tax otherwise payable by
it. An annual state franchise tax is imposed at a rate of 0.15% applied to
the greatest of the institutions' (i) capital stock, surplus and undivided
profits, (ii) investment in tangible property in North Carolina, or (iii)
appraised valuation of property in North Carolina.
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" ("Statement 112"), which is effective for fiscal
years beginning after December 15, 1993. Statement 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. The Corporation has not determined the effect, if any, of
Statement 112 on its consolidated financial statements.
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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 Corporation
has not determined the impact, if any, of this Standard on its consolidated
financial statements.
Accounting for Certain Investments in Debt and Equity Securities.
The FASB has issued Standard No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," that requires debt and equity securities held:
(i) to maturity be classified as such and reported at amortized cost; (ii)
for current resale be classified as trading securities and reported at fair
value, with unrealized gains and losses included in current earnings; and
(iii) for any other purpose be classified as securities available for sale
and reported at fair value, with unrealized gains and losses excluded from
current earnings and reported as a separate component of stockholders' equity.
It is required for fiscal years beginning after December 15, 1993. The
Corporation will adopt Standard No. 115 as of January 1, 1994. In connection
with this adoption, the Corporation anticipates that approximately $324,500
of investment securities will be classified as securities available for sale.
As of December 31, 1993, these securities had unrealized securities gains
of approximately $6,100, which would result in an unrealized securities
gain, net of income tax effects, of approximately $4,100 being recorded
as an increase to stockholders' equity on the date of adoption.
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 would
be effective for fiscal years beginning after December 31, 1993 with
recognition provisions being effective for awards granted after
December 31, 1996.
ITEM 2 - PROPERTIES
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The Corporation's principal office is located at 507 West Innes Street,
Salisbury, North Carolina 28144. The main administrative and executive office
of OMNIBANK are also located at the same address. The executive office of
Security Bank is located at 215 South Main Street, Salisbury, North Carolina
28144; the executive office of Citizens is located at 31 Union Street (North),
Concord, North Carolina 28082; and, the executive office of Home Savings is
located at 700 West Kings Street, Kings Mountain, North Carolina 28086.
Of the Corporation's 47 banking, insurance, and consumer finance
locations, 42 are located on real property owned by the related Subsidiary, 5
of the facilities are located on leased land and 5 of the facilities occupy
leased quarters. FCC also owns and maintains a facility for operations, data
processing and related activities. During 1993, the Corporation paid
aggregate rents of approximately $39,000 for utilization of leased premises.
ITEM 3 - LEGAL PROCEEDINGS
In the opinion of management, neither the Corporation nor any Subsidiary
is involved in any pending legal proceedings other than routine, non-material
proceedings occurring in the ordinary course of business.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Corporation's shareholders
during the quarter ended December 31, 1993.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Corporation's outstanding common stock is qualified for quotation on
the National Market System of the National Association of Securities Dealers
Automated Quotation system under the symbol "SCBC." As of March 7, 1994, the
approximate number of shareholders of record of the Corporation was 3,200.
Common stock market prices and cash dividends are set forth on page 4 of the
Annual Report to Shareholders for the year ended December 31, 1993 (the
"Annual Report") and are incorporated herein by reference. See Item 1 above
for potential regulatory restrictions upon the Banking Subsidiaries' payments
of dividends to the Corporation.
ITEM 6 - SELECTED FINANCIAL DATA
The information contained under the heading "Selected Financial Data" on
page 1 of the Annual Report is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained on pages 5 through 27 and pages 41 and 42 of
Item 1 above and the information contained under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 5 through 7 of the Annual Report are incorporated herein by reference.
43
<PAGE>
ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Corporation
included in the Annual Report are incorporated herein by reference:
Annual Report
Page Number
Independent Auditors' Report 27
Consolidated Balance Sheets - 8
December 31, 1993 and 1992
Consolidated Statements of Income - Years ended 9
December 31, 1993, 1992 and 1991
Consolidated Statements of Stockholders' Equity - 10
Years ended December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows - Years ended 11
December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements 12-26
ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth on pages 2 through 6 of the Proxy Statement
regarding the Corporation's Annual Meeting of Shareholders on April 28, 1994
(the "Proxy Statement") is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information set forth on pages 9 through 15 of the Proxy Statement
is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth on pages 7-8 and 10 of the Proxy Statement is
incorporated herein by reference.
44
<PAGE>
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth on page 16 of the Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Corporation
are included in the Annual Report and are incorporated herein by
reference:
Independent Auditors' Report Exhibit 13, page 27
Consolidated Balance Sheets -
December 31, 1993 and 1992 Exhibit 13, page 8
Consolidated Statements of Income -
Years ended December 31, 1993, 1992 and 1991 Exhibit 13, page 9
Consolidated Statements of
Stockholders' Equity - Years ended
December 31, 1993, 1992 and 1991 Exhibit 13, page 10
Consolidated Statements of Cash Flows -
Years ended December 31, 1993, 1992 and 1991 Exhibit 13, page 11
Notes to Consolidated Financial
Statements - Exhibit 13, pages 12-26
(2) Financial Statement Schedules
All financial statement schedules are omitted because the required
information is either not applicable, is immaterial, or is
included in the consolidated financial statements of the
Corporation and notes thereto.
(b) Reports on Form 8-K
The Corporation filed reports on Form 8-K on December 17, 1993 and
February 1, 1994 regarding the status of its negotiations with
Fairfield Communities, Inc. to purchase all of the outstanding
stock of First Federal Savings and Loan Association of Charlotte,
North Carolina, a Fairfield subsidiary.
(c) Exhibits
A listing of the exhibits to this Report on Form 10-K is set forth
on the Exhibit Index which immediately precedes such exhibits and
is incorporated herein by reference.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SECURITY CAPITAL BANCORP
By:
David B. Jordan
Vice-Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Vice-Chairman and Chief Executive March 28, 1994
David B. Jordan Officer and Director
Senior Vice President, Treasurer March 28, 1994
Pressley A. Ridgill and Chief Financial Officer
(Principal Financial Officer)
Director March 28, 1994
John M. Barnhardt
Director and Vice-Chairman March 28, 1994
Ralph A. Barnhardt
Director March 28, 1994
Edward A. Brown
Director March 28, 1994
Henry B. Gaye
Director March 28, 1994
Dan L. Gray
Director March 28, 1994
Lloyd G. Gurley
Director March 28, 1994
William C. Kluttz, Jr.
<PAGE>
Director March 28, 1994
Ervin E. Lampert, Jr.
Director March 28, 1994
William G. Loeblein
Director March 28, 1994
F. Taft McCoy, Jr.
Director March 28, 1994
Harold Mowery
Director March 28, 1994
J.G. Rutledge, III
Director March 28, 1994
Carl M. Short, Jr.
Director and Chairman March 28, 1994
Miles J. Smith, Jr. of the Board
Director March 28, 1994
W. Erwin Spainhour
Director March 28, 1994
Fred J. Stanback, Jr.
Director March 28, 1994
Jimmy K. Stegall
Director March 28, 1994
Thomas A. Tate, Sr.
Director March 28, 1994
E. William Wagoner
Director March 28, 1994
James L. Williamson
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit Table No. Description Location
<S> <C> <C>
13 1993 Annual Report to Filed herewith on sequential page
Shareholders no. ___.
22 Information regarding Filed herewith on sequential page
Subsidiaries no. ___.
23 Proxy Statement for 1994 Filed herewith on sequential page
Annual Meeting of Shareholders no. ___.
24 Consent of KPMG Peat Marwick Filed herewith on sequential page
no. ___.
</TABLE>
****************************************************************************
APPENDIX
On the Front Cover of Exhibit 13 the Security Capital Bancorp logo appears
where noted.
On Page 3 of Exhibit 13 a photo of Lloyd G. Gurley, David B. Jordan,
Ralph A. Barnhardt and Miles J. Smith, Jr. appears in the upper left
hand corner of the page where indicated.
Also on Page 3 the signatures of David B. Jordan and Lloyd G. Gurley
appear where indicated.
On the Back Cover of Exhibit 13 the Security Capital Bancorp logo appears
where noted.
On the Notice of 1994 Annual Meeting of Shareholders page on Exhibit 23
the Security Capital Bancorp logo appears where noted. Also the signature
of Miles J. Smith, Jr. appears where indicated.
On Page 1 of Exhibit 23 the Security Capital Bancorp logo appears where
noted.
On Page 14 of Exhibit 23 the Comparison of Five Year-Cumulative Total
Returns graph appears where noted. The plot points are as listed below:
<TABLE>
12/30/88 12/29/89 12/31/90 12/31/91 12/31/92 12/31/93
<S> <C> <C> <C> <C> <C> <C>
SECURITY CAPITAL BANCORP 100.00 130.3 114.0 95.1 113.3 137.3
CRSP Index for Nasdaq
Stock Market (US Companies) 100.00 121.2 103.0 165.2 192.1 219.2
CRSP Index for Nasdaq
Bank Stocks 100.00 111.2 81.4 133.6 194.2 221.3
</TABLE>
On Page 22 of Exhibit 23 the signature of Miles J. Smith, Jr. appears where
noted.
(Security Capital Bancorp logo)
1 9 9 3 A N U A L R E P O R T
<PAGE>
TABLE OF CONTENTS
Selected Financial Data 1
Letter to Stockholders 2
Management's Discussion and Analysis 5
Consolidated Financial Statements 8
Independent Auditors' Report 27
Directors and Officers 28
CORPORATE DESCRIPTION
Security Capital Bancorp (Security Capital), a bank holding company, is
incorporated under the laws of the State of North Carolina and headquartered in
Salisbury, North Carolina.
Security Capital currently operates 40 offices in 28 communities located in
11 counties and serves an area in the south central and western Piedmont regions
of North Carolina through four banking subsidiaries.
Security Capital's banking subsidiaries are Security Bank and Trust Company
and OMNIBANK, Inc., A State Savings Bank, of Salisbury, North Carolina, Citizens
Savings, Inc., SSB, Concord, North Carolina and Home Savings Bank, Inc., SSB,
Kings Mountain, North Carolina.
Through its banking subsidiaries, Security Capital engages in the
commercial and retail banking business and provides a full range of mortgage
products, personal and corporate trust services, insurance products and
investment services. All Security Capital banking subsidiaries are members of
the Federal Deposit Insurance Corporation.
CORPORATE INFORMATION
SECURITY CAPITAL BANCORP HEADQUARTERS
507 West Innes Street
P.O. Box 1387
Salisbury, North Carolina 28145-1387
(704) 636-3775
TRANSFER AGENT AND REGISTRAR
Wachovia Bank of North Carolina, N.A.
301 North Church Street
Winston-Salem, North Carolina 27102
GENERAL COUNSEL
Brooks Pierce McLendon Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
230 North Elm Street
Greensboro, North Carolina 27401
Smith Helms Mulliss & Moore
227 North Tryon Street
Charlotte, North Carolina 28202
INDEPENDENT AUDITORS
KPMG Peat Marwick
Suite 2800
Two First Union Center
Charlotte, North Carolina 28282-8290
COMMON STOCK
Security Capital's common stock is qualified for quotation on the NASDAQ
National Market System under the symbol SCBC. At March 7, 1994, there were
11,710,391 shares of common stock outstanding and approximately 3,200
stockholders of record.
ANNUAL MEETING
The Annual Meeting of Stockholders of Security Capital Bancorp will be held
on April 28, 1994, at 2:00 p.m. local time, at Security Capital's corporate
headquarters, 507 West Innes Street, Salisbury, North Carolina.
DIVIDEND REINVESTMENT
Stockholders may purchase additional shares of Security Capital common
stock through Security Capital's Dividend Reinvestment and Stock Purchase Plan.
For a Prospectus and other information on the Plan, contact David B. Jordan,
Vice-Chairman and Chief Executive Officer, at (704) 636-3775.
FORM 10-K
A COPY OF SECURITY CAPITAL'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1993, IS AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN
REQUEST. THESE REQUESTS SHOULD BE DIRECTED TO THE SECRETARY, SECURITY CAPITAL
BANCORP, P.O. BOX 1387, SALISBURY, NORTH CAROLINA 28145-1387.
INFORMATION
Analysts, stockholders and other investors seeking financial information
about Security Capital should contact Pressley A. Ridgill, Senior Vice President
and Chief Financial Officer, at (704) 855-6127.
News media, and others seeking general information should contact David B.
Jordan, Vice-Chairman and Chief Executive Officer, at (704) 636-3775.
<PAGE>
SELECTED FINANCIAL DATA
DECEMBER 31,
<TABLE>
<CAPTION>
BALANCE SHEET DATA 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Cash, non-interest bearing $ 28,102 19,242 21,305 16,748 25,431
Investment securities (1) 368,353 338,604 287,731 246,212 240,051
Loans, net (2) 484,384 505,784 549,651 580,834 542,168
All other assets 48,096 50,081 56,085 63,466 55,595
Total assets $928,935 913,711 914,772 907,260 863,245
Deposit accounts 784,456 773,635 775,140 767,929 739,128
FHLB advances 8,000 12,500 19,500 24,800 18,100
All other liabilities 12,259 10,648 9,987 13,195 12,970
Stockholders' equity 124,220 116,928 110,145 101,336 93,047
Total liabilities and stockholders' equity $928,935 913,711 914,772 907,260 863,245
</TABLE>
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
OPERATIONS DATA 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Interest income $64,223 71,853 83,061 85,457 81,323
Interest expense 28,135 35,129 47,950 51,320 50,970
Net interest income 36,088 36,724 35,111 34,137 30,353
Provision for loan losses 653 1,848 1,924 1,620 963
Net interest income after provision for loan losses 35,435 34,876 33,187 32,517 29,390
Other income 10,519 8,948 9,213 7,469 5,516
Other expense 23,842 27,540 25,481 22,755 21,405
Income taxes 7,273 6,323 5,642 5,938 4,491
Net income $14,839 9,961 11,277 11,293 9,010
</TABLE>
AT OR FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
OTHER DATA 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Return on average assets 1.62 % 1.09 1.22 1.28 1.02
Return on average equity 12.26 8.81 10.77 11.67 10.12
Average equity to average assets
ratio 13.18 12.37 11.36 10.94 10.08
Interest rate spread (3) 3.49 3.42 3.15 3.08 2.88
Net yield on average interest-
earning assets 4.15 4.21 4.02 4.08 3.86
Average interest-earning assets
to
average interest-bearing
liabilities 120.48 % 119.56 115.81 116.20 115.19
Total shares outstanding 11,682,837 11,811,122 11,822,226 11,811,279 10,617,634
Net income per share $ 1.26 .84 .95 .95 .85
Book value per share 10.63 9.90 9.32 8.58 8.76
Dividends per share (4) $ .39 .31 .23 .19 .15
</TABLE>
(1) INCLUDES INVESTMENT SECURITIES AVAILABLE FOR SALE.
(2) INCLUDES LOANS HELD FOR SALE.
(3) DIFFERENCE BETWEEN WEIGHTED AVERAGE RATE ON ALL INTEREST-EARNING ASSETS
AND ALL INTEREST-BEARING LIABILITIES.
(4) DUE TO THE RESTATEMENT OF FINANCIAL INFORMATION, AS DISCUSSED IN NOTE 2
OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, DIVIDENDS PER SHARE FOR
ALL PERIODS PRESENTED EXCEPT FOR THE YEAR ENDED DECEMBER 31, 1993, HAVE
BEEN COMPUTED BY DIVIDING CASH DIVIDENDS PAID BY WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING, AS ADJUSTED RETROACTIVELY FOR STOCK
SPLITS AND DIVIDENDS.
<PAGE>
LETTER TO STOCKHOLDERS
Dear Security Capital Stockholder:
We are pleased to report that by every measure, 1993 was an extremely
successful year for Security Capital Bancorp. Security Capital achieved record
earnings in 1993, with total assets, deposits and capital also reaching all-time
highs. Asset quality improved from an already enviable level. Cash dividends,
along with our stock price, also established new record levels. All of this was
accomplished during a year in which management continued to focus on
consolidating the activities of our existing companies while pursuing potential
acquisition opportunities.
These outstanding results did not go unnoticed as Security Capital received
favorable ratings and rankings throughout the year. To highlight a few, the
December 7, 1993, issue of FINANCIAL WORLD carried an article ranking 213
publicly traded commercial banks with assets of $750 million or more. Based on
adjusted equity, nonperforming assets to asset ratios, overhead ratio and
economic value, Security Capital ranked third. On January 24, 1994, the
CHARLOTTE OBSERVER, in a feature article in its Business Monday section,
compared the return on assets and 1993 stock price performance of the ten
largest North Carolina bank holding companies. Security Capital ranked number
one in both categories.
While Security Capital faced many challenges during 1993, our success in
meeting these challenges has been accomplished with the unyielding dedication of
our employees and the wise counsel of our Board of Directors. However, none of
this would have been possible without the continual support of our loyal
customers and stockholders. Thank you for the trust you have placed in Security
Capital.
1993 RESULTS
EARNINGS Net earnings for 1993 were $14,839,000, or $1.26 per share, an
increase of 48.97% over 1992 earnings of $9,961,000, or $.84 per share. While
1992 earnings were significantly impacted by one time Merger-related expenses
and non-recurring restructuring charges, the 1993 results reflect an increase of
approximately 13.0% over the prior year earnings, exclusive of the 1992
Merger-related special charges and provisions.
PERFORMANCE RATIOS Using one of the most widely accepted measurements of
earning power, return on average assets, Security Capital ranks among the
leaders of the industry with a 1.62% return. Our return on average equity was
12.26%, a very respectable return, especially in light of the high level of
capitalization at Security Capital. Stockholders' equity was $124,220,000 at
year end, an impressive 13.37% of assets. This allows Security Capital extreme
flexibility when evaluating potential opportunities to expand the overall
franchise. Each of our banking subsidiaries far exceeds all regulatory capital
requirements.
BALANCE SHEET Total assets at year-end 1993 were $928,935,000, an increase
of $15,224,000 over year-end 1992. Total loans declined $21,400,000 to
$484,384,000 at December 31, 1993. This decline relates primarily to our sale of
fixed rate mortgage loan originations in the secondary market and continued weak
loan demand. Total deposits increased $10,821,000 to $784,456,000 at year-end.
This increase was hampered by customers continuing to seek higher yields in the
low rate environment of 1993 through alternative investments.
ASSET QUALITY AND RESERVES Total nonperforming assets at December 31,
1993, were $3.1 million, or 0.34% of total assets. This remains extremely low
when compared to industry figures. Our loan loss reserve at December 31, 1993,
was $7.2 million, or 230.86% of nonperforming assets. Net loan charge-offs for
the year amounted to $335,000, or 0.07%, of average loans, lower by $33,000 from
the previous year. Management is proud of the high quality of assets at Security
Capital and believes our low level of nonperforming assets coupled with our loan
loss reserve continues to provide our banks with excellent safety.
STOCK PERFORMANCE AND CASH DIVIDENDS Security Capital's stock performed
well during 1993 and reached a new high of $14.75. We continued to receive
favorable coverage and recommendations by many investment professionals.
Reflecting our belief that stockholders should be able to participate directly
in Security Capital's success, the Board of Directors increased the cash
dividends to $.39 per share during 1993 from $.31 per share in 1992. Also, on
January 27, 1994, the Board of Directors continued this trend by increasing the
quarterly cash dividend to $.11 per share.
ACHIEVEMENTS
CONSOLIDATION AND DATA PROCESSING CONVERSION
Consolidation plans remained on track in 1993. In May 1993, Security Capital
consolidated eight branch locations into four facilities. These superbranches
are a new concept in North Carolina since the four remaining branches actually
provide retail operations for two companies in each location. This reduction in
facilities resulted in lower expenses for the second half of 1993 and these
savings should continue in future periods. Also, we met our goal of converting
Security Bank and Trust Company to a new in-house data processing system in
January 1994. This new system will provide state-of-the-art capabilities and
offer many enhancements not available on the previous system. The other banking
companies are scheduled to
<PAGE>
(Photo appears here)
SECURITY CAPITAL EXECUTIVE COMMITTEE: SEATED LEFT TO
RIGHT, LLOYD G. GURLEY AND DAVID B. JORDAN; STANDING LEFT
TO RIGHT, RALPH A. BARNHARDT AND MILES J. SMITH, JR.
convert to this new system during 1994, with all companies operating on the same
system before year-end. The conversion to the new system should result in higher
efficiencies and productivity gains in 1994 and future years.
PENDING ACQUISITION AND BRANCH SWAP On December 15, 1993, Security Capital
announced that it and Fairfield Communities, Inc. (FCI), had executed a letter
of intent concerning Security Capital's acquisition of First Federal Savings and
Loan Association (First Federal) of Charlotte, North Carolina, a wholly-owned
subsidiary of FCI. First Federal operates ten banking offices and had total
assets of approximately $333 million at December 31, 1993. Under the letter of
intent, the consummation of the proposed acquisition is subject to numerous
conditions, including completion by Security Capital to its satisfaction of a
due diligence investigation of First Federal. Assuming a definitive agreement is
reached and all conditions are satisfied, the parties expect the acquisition
will be consummated during the second quarter of 1994.
Also, on January 25, 1994, Security Capital announced that it and First
Citizens Bank and Trust Co. had entered into an agreement involving the sale of
First Citizens' Bessemer City office to Home Savings Bank and the sale of Home
Savings' Gastonia office to First Citizens. With the transaction, Home Savings
will assume approximately $4.6 million in deposits in Bessemer City from First
Citizens and First Citizens will assume approximately $11.4 million in deposits
in Gastonia from Home Savings. Subject to regulatory approvals, the purchases
are expected to be completed in the second quarter of 1994.
We are excited about these transactions and will continue examining all
opportunities for expansion with our objective being the enhancement of our
franchise value by building market share while maintaining strict controls over
operations and credit quality.
SUMMARY
Our earnings for 1993 continued our trend of consistent profitability and
was our best earnings performance ever. We look forward to the possible
completion of the acquisition of First Federal and its potentially positive
impact in 1994 and beyond.
While the economy is giving signs of improvement, there are still many
uncertainties in the economic and regulatory environment in which we operate. Be
assured that we have planned well and are capable and ready to meet the
challenges of the future. The experience, competence, dedication, and loyalty of
our officers and staff will enable us to capitalize on opportunities and
continue to be one of the best companies in our industry in the years ahead. We
are proud of the accomplishments over the past year and look forward to sharing
in even greater success with you in the future.
Sincerely,
(Signature of David B. Jordan)
David B. Jordan
VICE-CHAIRMAN
CHIEF EXECUTIVE OFFICER
(Signature of Lloyd G. Gurley)
Lloyd G. Gurley
PRESIDENT
CHIEF ADMINISTRATIVE OFFICER
<PAGE>
GENERAL BUSINESS DISCUSSION
BUSINESS OF SECURITY CAPITAL BANCORP
Security Capital Bancorp (Security Capital) is a North Carolina corporation
organized as a multi-bank holding company. On June 30, 1992, Omni Capital Group,
Inc. (Omni), a multi-thrift holding company incorporated under the laws of the
State of North Carolina, merged with and into First Security Financial
Corporation (FSFC), a bank holding company incorporated under the laws of the
State of North Carolina (the Merger). Upon completion of the Merger, FSFC's name
was changed to Security Capital Bancorp.
Security Capital, which operates primarily through its four banking
subsidiaries which have 40 offices in 11 counties, serves an area in the south
central and western Piedmont regions of North Carolina. Its general and
administrative offices are located in Salisbury, North Carolina.
The principal business of its banking subsidiaries, Security Bank and Trust
Company, OMNIBANK, SSB, Citizens Savings, SSB, and Home Savings Bank, SSB, is
accepting deposits from the general public and using those deposits, together
with borrowings and other funds, to originate various types of loans, including
residential loans, installment loans, commercial loans, commercial real estate
loans and credit card loans. Security Capital also has two other wholly owned
subsidiaries, First Cabarrus Corporation and Estates Development Corporation.
First Cabarrus Corporation is a service corporation providing management,
electronic data processing, and other services to Security Capital and its
subsidiaries. Prior to the Merger, Estates Development Corporation engaged
primarily in real estate development, building and sales activities.
CAPITAL STOCK
The no par value common stock of Security Capital is traded on the NASDAQ
National Market System under the symbol SCBC. As of March 7, 1994, Security
Capital had 11,710,391 shares of common stock outstanding and approximately
3,200 stockholders of record.
The following table presents for the periods indicated the high and low
sales prices, as reported by NASDAQ, of the common stock of Security Capital.
<TABLE>
<CAPTION>
1993 1992
HIGH LOW High Low
<S> <C> <C> <C> <C>
First Quarter $14.75 $11.00 $11.00 $ 8.75
Second Quarter 13.75 12.50 11.00 9.50
Third Quarter 14.75 13.00 12.50 10.00
Fourth Quarter 14.75 13.25 12.25 10.75
</TABLE>
The Board of Directors of Security Capital declared and paid a quarterly
cash dividend on each share of common stock amounting to $.39 and $.31 per share
for the years ending December 31, 1993 and 1992, respectively. Due to the
restatement of financial information, as discussed in note 2 of Notes to
Consolidated Financial Statements, the dividend per share for the year ended
December 31, 1992, has been computed by dividing dividends paid by the weighted
average number of shares outstanding as adjusted retroactively for stock splits
and stock dividends. The ability of Security Capital to pay dividends is subject
to certain regulatory restrictions.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND 1992
NET INCOME
Security Capital and its subsidiaries (collectively herein, Security
Capital) earned $14,839,000, or $1.26 per share, for the year ended December 31,
1993, an increase of 49.0% from 1992 net income of $9,961,000, or $.84 per
share. This increase is primarily attributable to the one-time Merger-related
expenses and restructuring charges recognized by First Security Financial
Corporation and Omni Capital Group, Inc., in connection with the Merger. These
charges amounted to $4.1 million consisting of approximately $600,000 of
Merger-related expenses and $3.5 million of nonrecurring restructuring charges.
The nonrecurring restructuring charges included $1.5 million provided to
increase the thrift component of Security Capital's overall allowance for loan
losses in keeping with the policies and practices of conservatively managed
community bank holding companies. The remaining $2.0 million was composed of
accrued outplacement, benefit, professional, printing, and other Merger-related
costs. Also, in accordance with current accounting requirements, Security
Capital adopted Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes (Statement 109) effective January 1, 1993. Adoption of
Statement 109 resulted in a net benefit to Security Capital of approximately
$388,000 in 1993. Security Capital's return on average assets increased to 1.62%
in 1993 from 1.09% in 1992. Return on average equity increased to 12.26% in 1993
from 8.81% in 1992.
NET INTEREST INCOME
Net interest income decreased $636,000 (1.7%) to $36,088,000. Total
interest income decreased $7,630,000, or 10.6%, in 1993. The average yield on
interest-earning assets fell 85 basis points to 7.39%, while the average volume
was lower by $2.4 million. Total interest expense decreased $6,994,000, or
19.9%, in 1993. The average rate on interest-bearing liabilities fell 92 basis
points to 3.90%, while the average volume was lower by $7.5 million.
Also impacting the decrease in interest income was a decrease in Security
Capital's most significant interest-earning asset, loans receivable. Total loans
decreased $37,227,000 (7.3%) to $473.2 million at December 31, 1993. This
decrease was primarily the result of the continuation of the selling of current
production of fixed rate mortgage loans through Security Capital's secondary
marketing program. While investment securities increased $29,749,000 (8.8%) to
$368.4 million at December 31, 1993, the yields on new investments were
significantly less than the yields on maturing investments and existing
portfolio mortgage loans refinanced at lower fixed rates in 1993, thus
negatively impacting interest income. The net yield on interest-earning assets
decreased 6 basis points to 4.15%. In future periods, Security Capital could
experience a reduction in interest income should prepayments continue and
mortgage loans continue to price downward.
LOAN ORIGINATION AND SALE ACTIVITY
Proceeds from the sales of loans were approximately $85.7 million in 1993
compared to approximately $85.1 million in 1992, resulting in gains of
$1,384,000 and $738,000, respectively. As noted above, Security Capital has
continued to sell its current production of fixed rate mortgage loans during
1993. Security Capital retained the servicing rights on all fixed rate mortgage
loans sold during 1993. These servicing rights represent a continuing source of
future fee income. Fixed rate mortgage loans held for sale at December 31, 1993,
amounted to $18,409,000. Proceeds from the sales of loans, along with loan
repayments, were used to fund loan originations, which increased $14.2 million
(5.8%) to approximately $259.2 million in 1993, and to increase the investment
portfolio, which increased $29.7 million (8.8%) in 1993.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $653,000 for 1993 compared to $1,848,000
for 1992. As noted above, the 1992 provision includes $1.5 million recognized in
connection with the Merger. Charge-offs decreased 28.5% in 1993 to $732,000
while recoveries decreased 39.5% to $397,000. This resulted in the allowance for
loan losses increasing $318,000 (4.6%) to $7,227,000 at December 31, 1993, from
$6,909,000 at December 31, 1992. The allowance for loan losses at December 31,
1993, represents 1.53% of period-end loans and 2.31 times non-performing assets.
Management believes that the allowance for loan losses is adequate. In addition,
in the opinion of management, asset quality remains high, with total
non-performing assets totaling $3.1 million, one-third of one percent (0.34%) of
total assets at December 31, 1993. This was an improvement over the December 31,
1992, total non-performing assets of $5.4 million, or six tenths of one percent
(0.59%) of total assets. Security Capital does not have any material loans
outstanding classified for regulatory purposes as doubtful or loss.
Additionally, its loan portfolio does not contain any highly leveraged
transactions or foreign loans.
<PAGE>
OTHER INCOME
Other income increased $1,571,000 (17.6%) to $10,519,000 in 1993. As noted
above, net gain on sales of loans increased $646,000 (87.5%) to $1,384,000 in
1993 from $738,000 in 1992. Brokerage commissions increased $411,000 to
$1,404,000 in 1993. This increase is due to an increase in volume, which can be
attributed to an expansion of the operation during 1993, along with depositors
seeking higher yields through alternative investments. Net securities gains
increased to $310,000 in 1993 from $8,000 in 1992. These gains were the result
of the sale of Security Capital's investment in Atlantic States Bankcard
Association, Inc., and the exercise of call provisions by the issuers of several
municipal securities. Other increased $446,000 (74.0%) due to several smaller
increases within this category.
OTHER EXPENSE
Other expense decreased $3,698,000 (13.4%) to $23,842,000 in 1993. For the
year ended December 31, 1992, Security Capital had approximately $2.6 million of
Merger-related expenses. These Merger-related expenses were reflected in the
personnel, net occupancy, professional and other services, and other categories
for 1992. Federal and other insurance premiums decreased $194,000 during 1993
due to a decline in the average deposit accounts and the consolidation of other
insurance coverage. During 1993, Security Capital experienced additional
increases in efficiencies of operations due to the Merger which are reflected in
various categories. Additional efficiencies are anticipated; however, the amount
of decreased expense from these efficiencies cannot be determined at this time.
INCOME TAXES
Income taxes increased $950,000 (15.0%) to $7,273,000 for the year ended
December 31, 1993, while income before income taxes increased $5,828,000 (35.8%)
to $22,112,000 in 1993 from $16,284,000 in 1992. Excluding the impact of
adoption of Statement 109, income taxes would have been $7,661,000, or 34.6% of
income before income taxes, compared to 38.8% in 1992. This decrease is largely
due to a portion of the 1992 provision for thrift loan losses for which a tax
benefit could not be recognized. In 1993, as allowed by Statement 109, an income
tax benefit was recognized for the provision for loan losses. Income taxes for
the year ended December 31, 1993, includes the effect of the Omnibus Budget
Reconciliation Act of 1993 (the Act) signed into law on August 10, 1993. The
overall effect of the Act was an increase in income taxes of approximately
$200,000, primarily due to the increased corporate tax rate.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1992 AND 1991
NET INCOME
Security Capital earned $9,961,000, or $.84 per share, for the year ended
December 31, 1992, a decrease of 11.7% from the 1991 net income of $11,277,000,
or $.95 per share. This decrease was primarily a result of the Merger-related
expenses and nonrecurring restructuring charges recognized in connection with
the Merger. Partially offsetting the impact of the Merger-related expenses and
nonrecurring restructuring charges was the increase in net interest income
discussed below. Security Capital's return on average assets decreased to 1.09%
in 1992 from 1.22% in 1991. Return on average equity decreased to 8.81% in 1992
from 10.77% in 1991.
NET INTEREST INCOME
Net interest income increased $1,613,000 (4.6%) to $36,724,000 in 1992.
Total interest income decreased $11.2 million, or 13.5%, and total interest
expense decreased $12.8 million, or 26.7% in 1992. Also impacting the decrease
in interest income was a decrease in loans receivable. Total loans decreased
$40,909,000 (7.4%) to $510.4 million at December 31, 1992. This decrease was
primarily a result of reduced new loan demand and the continuation of the
selling of current production of fixed rate mortgage loans through the secondary
marketing program. Interest expense was also reduced as a result of a net
decrease in interest-bearing liabilities, and an increase in noninterest-bearing
demand accounts throughout 1992.
LOAN ORIGINATION AND SALE ACTIVITY
Proceeds from the sales of loans were approximately $85.1 million in 1992
compared to approximately $46.2 million in 1991, resulting in gains of $738,000
and $927,000, respectively. As noted above, Security Capital continued to sell
its current production of fixed rate mortgage loans during 1992. Security
Capital retained the servicing rights on all fixed rate mortgage loans sold
during 1992. Proceeds from the sales of loans, along with other funds, were used
to fund loan originations and to increase the investment portfolio.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,848,000 for 1992 compared to
$1,924,000 for 1991. Charge-offs decreased 39.3% in 1992 to $1,024,000 while
recoveries increased 42.3% to $656,000. This resulted in the allowance for loan
losses increasing $1,480,000 (27.3%) to $6,909,000 at December 31, 1992, from
$5,429,000 at December 31, 1991.
<PAGE>
OTHER INCOME
Other income decreased 2.9% to $8,948,000 in 1992. Net securities gains
decreased to $8,000 in 1992 from $549,000 in 1991. As noted above, net gains on
sales of loans decreased to $738,000 in 1992 from $927,000 in 1991. Deposit and
other service charge income increased $628,000 (13.6%) to $5,255,000 in 1992.
This increase represents a continual monitoring of the pricing structure along
with improved fee collection. In addition, Security Capital experienced an
increase in volume due to an increase in transaction accounts. Other decreased
$279,000 (31.6%) due to several smaller decreases within this category.
OTHER EXPENSE
Total other expense increased $2.1 million (8.1%) in 1992. This increase
was primarily due to the Merger-related expenses and non-recurring restructuring
charges recognized in connection with the Merger. Approximately $2.6 million of
Merger-related expenses and non-recurring restructuring charges are included
throughout the Other Expense categories, specifically increasing personnel, net
occupancy, professional and other services and other.
INCOME TAXES
Income taxes increased $681,000 to $6.3 million in 1992 while income before
taxes decreased to $16.3 million in 1992 from $16.9 million in 1991. This
increase in the effective income tax rate from 33.3% in 1991 to 38.8% in 1992
results primarily from a larger 1992 provision for thrift loan losses for which
a tax benefit could not be recognized.
FINANCIAL CONDITION
Total assets of Security Capital at December 31, 1993, were $928,935,000,
an increase from December 31, 1992, of $15,224,000 (1.7%). Investment securities
increased $29,749,000 (8.8%) to $368,353,000 primarily due to weak loan demand
and management's policy to sell current production of fixed rate mortgage loans.
Net loans receivable decreased $37,227,000 (7.3%) to $473,202,000 due to the
reasons noted above. Loans held for sale increased $16,145,000 to $18,409,000
primarily due to the timing of the sales which is influenced by fluctuations in
the market. Total deposits increased $10,821,000 (1.4%) to $784,456,000.
Advances from the Federal Home Loan Bank decreased $4,500,000 to $8,000,000 due
to the payment of maturing advances throughout the year. Total stockholders'
equity was $124,220,000 or 13.37% of total assets, at December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for Security Capital's banking
subsidiaries are deposit accounts, Federal Home Loan Bank (FHLB) 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
December 31, 1993, the Security Capital banking subsidiaries were in compliance
with all regulatory liquidity requirements. Management believes that Security
Capital has adequate sources of liquidity at December 31, 1993.
At December 31, 1993, Security Capital and its banking subsidiaries were in
compliance with all applicable regulatory capital requirements. The following
table compares Security Capital's regulatory capital as of December 31, 1993,
with the minimum capital standards established by the Board of Governors of the
Federal Reserve System (the FRB).
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
Leverage Capital Risk-Based Capital
Amount % of Assets Amount % of Assets
<S> <C> <C> <C> <C>
<CAPTION>
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Actual $124,220 13.31% $129,821 29.08%
Minimum Capital Standard 27,992 3.00(1) 35,719 8.00
Excess of Actual Regulatory
Capital Over Minimum Regulatory
Capital Standards $ 96,228 10.31% $ 94,102 21.08%
</TABLE>
(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 SECURITY CAPITAL 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 liquidity,
capital resources or operations.
During the year ended December 31, 1993, Security Capital repurchased
approximately 265,000 shares of its outstanding common stock in the open market
or in privately-negotiated transactions. The net cost of these transactions was
approximately $3.6 million.
On December 15, 1993, Security Capital announced that it and Fairfield
Communities, Inc. (FCI), had executed a letter of intent concerning Security
Capital's acquisition of First Federal Savings and Loan Association of
Charlotte, North Carolina, a wholly owned subsidiary of FCI. For further
discussion of this pending acquisition, see note (2) of Notes To Consolidated
Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
[CAPTION]
<TABLE>
<CAPTION>
ASSETS 1993 1992
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and due from banks $ 28,102 19,242
Interest-bearing balances in other banks 5,145 9,589
Federal funds sold 3,450 4,500
Investment securities (market value of $375,046 and $347,350
at December 31, 1993 and 1992, respectively) (note 3) 368,353 338,604
Loans, net of unearned income ($2,698 in 1993 and $2,545 in 1992) (note 4) 473,202 510,429
Less allowance for loan losses (note 5) 7,227 6,909
Loans, net 465,975 503,520
Loans held for sale 18,409 2,264
Premises and equipment, net (note 6) 18,360 17,103
Other assets (note 4) 21,141 18,889
Total assets $928,935 913,711
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposit accounts:
Demand, noninterest-bearing 67,830 60,639
Interest-bearing 673,854 675,231
Time deposits over $100 42,772 37,765
Total deposit accounts 784,456 773,635
Advances from the Federal Home Loan Bank (note 7) 8,000 12,500
Other borrowed money 1,764 706
Other liabilities 10,495 9,942
Total liabilities 804,715 796,783
Stockholders' equity (notes 9, 11, and 12):
Preferred stock, no par value, 5,000,000 shares authorized;
none issued and outstanding -- --
Common stock, no par value, 25,000,000 shares authorized; 11,682,837 and
11,811,122 shares issued and outstanding at December 31, 1993 and 1992,
respectively 51,167 54,120
Retained earnings, substantially restricted 73,053 62,808
Total stockholders' equity 124,220 116,928
Commitments and contingencies (notes 10 and 13)
Total liabilities and stockholders' equity $928,935 913,711
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
[CAPTION]
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans $41,195 48,277 59,572
Investment securities
Taxable 21,299 21,165 20,874
Nontaxable 955 1,137 1,130
Other 774 1,274 1,485
Total interest income 64,223 71,853 83,061
Interest expense:
Deposit accounts 27,255 33,695 45,879
Borrowings 880 1,434 2,071
Total interest expense 28,135 35,129 47,950
Net interest income 36,088 36,724 35,111
Provision for loan losses (note 5) 653 1,848 1,924
Net interest income after provision for loan losses 35,435 34,876 33,187
Other income:
Loan servicing and other loan fees 1,396 1,351 1,287
Deposit and other service charge income 4,976 5,255 4,627
Brokerage commissions 1,404 993 941
Gain on sales of loans 1,384 738 927
Securities gains, net (note 3) 310 8 549
Other 1,049 603 882
Total other income 10,519 8,948 9,213
Other expense:
Personnel (notes 10 and 12) 13,314 14,536 13,821
Net occupancy 3,390 3,488 2,570
Telephone, postage, and supplies 1,564 1,579 1,523
Federal and other insurance premiums 1,832 2,026 2,427
Professional and other services 793 1,683 1,283
Other 2,949 4,228 3,857
Total other expense 23,842 27,540 25,481
Income before income taxes 22,112 16,284 16,919
Income taxes (note 8) 7,273 6,323 5,642
Net income $14,839 9,961 11,277
Net income per share $ 1.26 .84 .95
Weighted average shares outstanding 11,771,739 11,832,570 11,821,315
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
Total
Common Retained Obligations Stockholders'
Stock Earnings of ESOP Equity
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1990 $54,495 48,013 (1,172) 101,336
Proceeds from stock options exercised (note 11) 78 -- -- 78
Repayment of ESOP debt (note 12) -- -- 287 287
Retirement of common stock (102 ) -- -- (102)
Dividends paid to stockholders
($.23 per share) -- (2,731) -- (2,731)
Net income -- 11,277 -- 11,277
Balance at December 31, 1991 54,471 56,559 (885) 110,145
Proceeds from stock options exercised (note 11) 158 -- -- 158
Repayment of ESOP debt (note 12) -- -- 376 376
Retirement of unallocated ESOP shares (note 12) (509 ) -- 509 --
Dividends paid to stockholders
($.31 per share) -- (3,712) -- (3,712)
Net income -- 9,961 -- 9,961
Balance at December 31, 1992 54,120 62,808 -- 116,928
PROCEEDS FROM STOCK OPTIONS EXERCISED (NOTE 11) 606 -- -- 606
RETIREMENT OF COMMON STOCK (3,559 ) -- -- (3,559)
DIVIDENDS PAID TO STOCKHOLDERS
($.39 PER SHARE) -- (4,594) -- (4,594)
NET INCOME -- 14,839 -- 14,839
BALANCE AT DECEMBER 31, 1993 $51,167 73,053 -- 124,220
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
[CAPTION]
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 14,839 9,961 11,277
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 653 1,848 1,924
Depreciation 1,456 1,422 1,308
Securities gains, net (310) (8) (549)
Amortization of securities discounts 2,325 1,151 219
Change in investment securities available for sale, net -- 1,991 (1,991)
Change in loans held for sale, net (16,145) 1,478 (1,323)
(Increase) decrease in other assets (270) 1,718 1,804
Increase in other liabilities 553 593 195
Net cash provided by operating activities 3,101 20,154 12,864
Cash flows from investing activities:
Proceeds from maturities and issuer calls of investment securities 90,299 71,874 29,945
Proceeds from sales of investment securities -- 11 56,148
Purchases of investment securities (122,063) (125,892) (125,290)
Decrease in loans 34,910 39,532 25,837
Capital expenditures for premises and equipment (2,713) (1,313) (2,963)
Net cash provided by (used in) investing activities 433 (15,788) (16,323)
Cash flows from financing activities:
Increase (decrease) in deposits 10,821 (1,505) 7,212
Proceeds from FHLB advances 14,740 8,000 --
Repayment of FHLB advances (19,240) (15,000) (5,300)
Increase (decrease) in other borrowed money, net 1,058 68 (21)
Purchase and retirement of common stock, net (3,559) (509) (102)
Dividends paid to stockholders (4,594) (3,712) (2,731)
Proceeds from stock options exercised 606 158 78
Purchase of ESOP stock -- 885 287
Net cash used in financing activities (168) (11,615) (577)
Net increase (decrease) in cash and cash equivalents 3,366 (7,249) (4,036)
Cash and cash equivalents at beginning of year 33,331 40,580 44,616
Cash and cash equivalents at end of year $ 36,697 33,331 40,580
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 27,962 35,812 48,263
Income taxes 7,286 7,064 5,942
Supplemental schedule of noncash investing activities:
Loans receivable transferred to real estate owned $ 1,982 1,009 1,363
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting and
reporting policies which Security Capital Bancorp and subsidiaries
(Security Capital) follow in preparing and presenting their consolidated
financial statements:
PRINCIPLES OF CONSOLIDATION AND REPORTING (a)
The accompanying consolidated financial statements include the accounts of
Security Capital Bancorp, a North Carolina corporation organized as a
multi-bank holding company and its wholly owned subsidiaries, Security Bank
and Trust Company, Salisbury, North Carolina (Security Bank), OMNIBANK,
Inc., A State Savings Bank, Salisbury, North Carolina (OMNIBANK), Citizens
Savings, Inc., SSB, Concord, North Carolina (Citizens), Home Savings Bank,
Inc., SSB, Kings Mountain, North Carolina (Home Savings), First Cabarrus
Corporation, Salisbury, North Carolina (FCC), and Estates Development
Corporation, Salisbury, North Carolina (EDC). All significant intercompany
balances have been eliminated.
Certain amounts have been reclassified to conform with the statement
presentation for 1993. The reclassifications have no effect on
stockholders' equity or net income as previously reported.
All dollar amounts except share and per share amounts in the notes to the
consolidated financial statements are in thousands.
INVESTMENT SECURITIES (b)
When securities are purchased, they are classified as investment securities
if, in management's opinion, Security Capital has the intent to hold them
as long-term investments and the ability to hold them to maturity. These
securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts.
Gains and losses on sales of securities are recognized when realized, with
cost being determined by the specific identification method. Premiums and
discounts are amortized into interest income using a level yield method.
Regulations require the savings bank subsidiaries (i.e. OMNIBANK, Citizens,
and Home Savings) to maintain cash and approved securities in an amount
equal to a prescribed percentage (10% at December 31, 1993) of total
assets.
LOANS HELD FOR SALE (c)
Loans held for sale are carried at the lower of aggregate cost or market as
determined by the outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis. Gains
and losses are realized if at the time of sale the average interest rate on
the loans sold, adjusted for servicing costs, differs from the agreed yield
to the buyer. Any excess servicing fee is deferred and amortized using a
level yield method over the contractual life of such loans. Gains or losses
resulting from sales of loans are recognized when the proceeds are received
from the investors.
LOAN INTEREST INCOME (d)
Loan interest income is recognized on the accrual basis.
The accrual of interest is generally discontinued on all loans that become
90 days past due as to principal or interest unless collection of both
principal and interest is assured by way of both collateralization,
guarantees, or other security, and the loan is in the process of
collection. Security Capital provides an allowance for uncollected accrued
interest income if, in the opinion of management, collectibility of that
accrued interest income is doubtful. This allowance is netted against
accrued interest income, which is included in other assets in the
accompanying consolidated financial statements. Interest income foregone on
nonaccrual and restructured loans for each of the years in the three-year
period ended December 31, 1993 was not significant.
<PAGE>
ALLOWANCE FOR LOAN LOSSES (e)
Security Capital provides for loan losses on the allowance method.
Accordingly, all loan losses are charged to the related allowance and all
recoveries are credited to it. Additions to the allowance for loan losses
are provided by charges to operations based on various factors that, in
management's judgment, deserve current recognition in estimating losses
inherent in the portfolio. Such factors considered by management include
the market value of the underlying collateral, growth and composition of
the loan portfolio, the relationship of the allowance for loan losses to
outstanding loans, delinquency trends and economic conditions. Management
evaluates the carrying value of loans periodically and the allowance is
adjusted accordingly. While management uses the best information available
to make evaluations, future adjustments may be necessary if economic and
other conditions differ substantially from the assumptions used.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses.
Such regulatory agencies may require the financial institution subsidiaries
to recognize additions to the allowance for loan losses based on their
judgments about information available to them at the time of their
examination.
REAL ESTATE OWNED (f)
Real estate owned is included in other assets and represent other real
estate that has been acquired through loan foreclosures or deed received in
lieu of foreclosure. Such properties are generally appraised annually and
are recorded at the lower of cost or fair value, less applicable selling
costs. Costs relating to the development and improvement of property are
capitalized, whereas those relating to holding the property are charged to
expense.
PREMISES AND EQUIPMENT (g)
Premises and equipment are recorded at cost, and depreciation is provided
over the estimated useful lives of the related assets principally on a
straight-line basis. Estimated lives are ten to fifty years for buildings,
building components and improvements; five to ten years for furniture,
fixtures, and equipment; and three years for automobiles. Leasehold
improvements are amortized on a straight-line basis over the lesser of
their estimated life or the remaining lease term.
Maintenance and repairs are charged to expense as incurred and improvements
are capitalized. The costs and accumulated depreciation relating to
premises and equipment retired or otherwise disposed of are eliminated from
the accounts and any resulting gains or losses are credited or charged to
income.
LOAN ORIGINATION FEES AND COSTS (h)
Loan origination fees and certain direct loan origination costs are
deferred and amortized over the contractual life of the related loan as an
adjustment of the loan yield using a level yield method. Direct costs of
unsuccessful loans and indirect costs are expensed as incurred.
INCOME TAXES (i)
Security Capital adopted the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (Standard No.
109) during 1993 and has applied the provisions of the statement without
restating prior years' financial statements. Prior to the adoption of
Standard No. 109, Security Capital accounted for income taxes using the
deferred method required by APB Opinion 11.
Standard No. 109 has changed Security Capital's method of accounting for
income taxes from the deferred method to the asset and liability method.
The objective of the asset and liability method is to establish deferred
tax assets and liabilities for the temporary differences between the
financial reporting basis and the tax basis of Security Capital's assets
and liabilities at enacted rates expected to be in effect when such amounts
are realized or settled. Deferred tax assets are reduced, if necessary, by
the amount of such benefits that are not expected to be realized based upon
available evidence.
The cumulative effect of adopting Standard No. 109 as of January 1, 1993
was not material, and therefore no cumulative effect was presented in the
consolidated statement of income for the year ended December 31, 1993.
Pursuant to the deferred method under APB Opinion 11, which applied in 1992
and prior years, deferred income taxes are recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year
of the calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
<PAGE>
NET INCOME AND DIVIDENDS PER SHARE (j)
Net income per share has been computed by dividing net income by the
weighted average number of shares outstanding, as adjusted retroactively
for stock splits and stock dividends. Due to the pooling-of-interests
merger in 1992, as discussed in note 2, dividends per share for 1992 and
1991 was computed by dividing dividends paid by the weighted average number
of shares outstanding, as adjusted retroactively for stock splits and stock
dividends.
CASH AND CASH EQUIVALENTS (k)
Cash and cash equivalents include cash and due from banks, interest-bearing
balances in other banks, and federal funds sold. Generally, cash and cash
equivalents are considered to have maturities of three months or less.
FAIR VALUE OF FINANCIAL INSTRUMENTS (l)
In December 1991 the FASB issued Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of Financial Instruments
(Statement No. 107). Statement No. 107 requires disclosures about the fair
value of all financial instruments. Fair value estimates, methods, and
assumptions are set forth in note 16.
POSTRETIREMENT BENEFITS (m)
The FASB issued Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions
(Statement No. 106), which requires during an employee's active years of
service, accrual of expected costs of providing postretirement benefits,
principally health care and life insurance, to employees and their
beneficiaries and dependents. Statement No. 106 was effective for 1993, but
there was no material impact on Security Capital's 1993 consolidated
financial statements since Security Capital generally does not provide such
benefits.
(2) PENDING ACQUISITIONS AND MERGER
On December 15, 1993, Security Capital announced that it and Fairfield
Communities, Inc. (FCI), had executed a letter of intent concerning
Security Capital's acquisition of First Federal Savings and Loan
Association (First Federal) of Charlotte, North Carolina, a wholly owned
subsidiary of FCI. First Federal operates ten banking offices and had total
assets of approximately $333,000 at December 31, 1993. Under the letter of
intent, the consummation of the proposed acquisition is subject to numerous
conditions, including completion by Security Capital to its satisfaction of
a due diligence investigation of First Federal. Assuming a definitive
agreement is reached and all conditions are satisfied, the parties expect
the acquisition will be consummated during the second quarter of 1994.
On January 25, 1994, Security Capital announced that Home Savings and First
Citizens Bank and Trust Co. (First Citizens) had entered into an agreement
involving the sale of First Citizens' Bessemer City office to Home Savings
and the sale of Home Savings' Gastonia office to First Citizens. With the
transaction, Home Savings will assume approximately $4,600 in deposits in
Bessemer City and First Citizens will assume approximately $11,400 in
deposits in Gastonia. Subject to regulatory approval, the purchases are
expected to be completed in the second quarter of 1994.
On June 30, 1992, Omni Capital Group, Inc. (Omni), a multiple thrift
holding company incorporated under the laws of the State of North Carolina
and the former parent of OMNIBANK, Citizens, Home Savings, FCC and EDC,
merged with and into First Security Financial Corporation (FSFC), a bank
holding company incorporated under the laws of the State of North Carolina
and the parent of Security Bank (the Merger). Upon the completion of the
Merger, FSFC's name was changed to Security Capital Bancorp. Pursuant to
the Agreement of Combination and the related Plan of Merger, which were
approved by the stockholders of both FSFC and Omni, 5,681,216 shares of
Security Capital common stock, no par value per share, were issued in
exchange for the surrender of the issued and outstanding shares of common
stock of Omni, par value of $1.00 per share, at an exchange ratio of 2.25
shares of Security Capital common stock for each such share of Omni common
stock. The Merger was accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements for periods prior to the
Merger were restated to combine the accounts of FSFC and Omni.
<PAGE>
(3) INVESTMENT SECURITIES
A comparative summary of investment securities follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations $305,180 5,762 183 310,759
US Government agency obligations 40,409 304 345 40,368
Mortgage-backed securities 12,676 459 -- 13,135
State and municipal obligations 10,022 676 -- 10,698
Other 66 20 -- 86
$368,353 7,221 528 375,046
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
Gross Gross Estimated
Book Unrealized Unrealized Fair
Value Gains Losses Value
<S> <C> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Government obligations $292,848 7,718 451 300,115
US Government agency obligations 9,966 85 55 9,996
Mortgage-backed securities 19,298 514 43 19,769
State and municipal obligations 15,592 978 -- 16,570
Other 900 -- -- 900
$338,604 9,295 549 347,350
</TABLE>
Total proceeds from sales or issuer calls of investment securities during 1993,
1992 and 1991 were $5,860, $11 and $56,148, respectively. There were gross
realized gains of $310 and $8, respectively, and no gross realized losses in
1993 and 1992, respectively. Gross gains of $591 and gross losses of $42 were
realized on sales of investment securities in 1991. Investment securities with
an aggregate par value of $23,764 were pledged to secure public deposits and
for other purposes as required by various agencies.
The Financial Accounting Standards Board (FASB) has issued Standard No. 115,
Accounting for Certain Investments in Debt and Equity Securities, that requires
debt and equity securities held: (i) to maturity be classified as such and
reported at amortized cost; (ii) for current resale be classified as trading
securities and reported at fair value, with unrealized gains and losses
included in current earnings; and (iii) for any other purpose be classified as
securities available for sale and reported at fair value, with unrealized gains
and losses excluded from current earnings and reported as a separate component
of stockholders' equity. It is required for fiscal years beginning after
December 15, 1993. Security Capital will adopt Standard No. 115 as of January
1, 1994. In connection with this adoption, Security Capital anticipates that
approximately $324,500 of investment securities will be classified as
securities available for sale. As of December 31, 1993, these securities had
unrealized securities gains of approximately $6,100, which would result in an
unrealized securities gain, net of income tax effects, of approximately $4,100
being recorded as an increase to stockholders' equity on the date of adoption.
(4) LOANS RECEIVABLE
A comparative summary of loans receivable follows:
[CAPTION]
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
1993 1992
<S> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Real estate mortgage (principally single family dwellings, 1-4 units) $338,562 361,935
Real estate construction 10,085 11,215
Commercial, financial, and agricultural 64,739 68,598
Installment 62,341 70,909
Unearned income (2,698) (2,545)
Premium on loans sold 173 317
$473,202 510,429
Nonaccrual and restructured loans included above $ 1,759 2,994
</TABLE>
<PAGE>
Accruing loans past due 90 days were $420 and $1,380 at December 31, 1993 and
1992, respectively.
Accrued interest receivable at December 31, 1993 and 1992, consisted of the
following:
[CAPTION]
<TABLE>
<CAPTION>
December 31,
1993 1992
<S> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans $3,430 4,034
Investment securities 6,041 6,163
Other 70 72
$9,541 10,269
</TABLE>
Certain real estate loans are pledged as collateral for advances from the
Federal Home Loan Bank (FHLB) as set forth in note 7.
Loans serviced for others approximated $203,403, $174,884 and $147,563 at
December 31, 1993, 1992, and 1991, respectively.
Included in other assets are foreclosed properties (real estate owned) of $951
and $983 at December 31, 1993 and 1992, respectively.
Security Capital's banking subsidiaries offer mortgage and consumer loans to
their officers, directors, and employees for the financing of their personal
residences and for other personal purposes. These loans are made in the
ordinary course of business and are made on substantially the same terms,
including interest rates and collateral, prevailing at the time for comparable
transactions with unaffiliated persons. Management does not believe these loans
involve more than the normal risk of collectibility or present other
unfavorable features.
The following is a reconciliation of loans outstanding in excess of $60 to
Security Capital's executive officers, directors, and their immediate families
for the year ended December 31, 1993:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
Balance at December 31, 1992 $2,177
<S> <C>
New loans 470
Repayments (771)
Balance at December 31, 1993 $1,876
</TABLE>
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. Security Capital
has not determined the impact, if any, of this Standard on its consolidated
financial statements.
(5) ALLOWANCE FOR LOAN LOSSES
The following is a reconciliation of the allowance for loan losses for the
years ended December 31, 1993, 1992 and 1991:
[CAPTION]
<TABLE>
<CAPTION>
Years Ended December 31,
<S> <C> <C> <C>
1993 1992 1991
<S> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year $6,909 5,429 4,732
Charge-offs (732) (1,024) (1,688)
Recoveries 397 656 461
Net charge-offs (335) (368) (1,227)
Provision for loan losses 653 1,848 1,924
Balance at end of year $7,227 6,909 5,429
</TABLE>
<PAGE>
(6) PREMISES AND EQUIPMENT
A comparative summary of premises and equipment follows:
[CAPTION]
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
1993 1992
<S> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land and land improvements $ 3,917 3,891
Office buildings and improvements 16,175 15,174
Furniture, fixtures, and equipment 11,910 11,282
Construction in progress 1,120 638
33,122 30,985
Accumulated depreciation (14,762) (13,882)
Premises and equipment, net $ 18,360 17,103
</TABLE>
(7) ADVANCES FROM THE FEDERAL HOME LOAN BANK
A comparative summary of advances from the FHLB follows:
[CAPTION]
<TABLE>
<CAPTION>
December 31,
Date Due Interest Rate 1993 1992
<S> <C> <C> <C>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
March 15, 1993 7.60% $ -- 2,500
June 1, 1993 9.40 -- 2,000
March 10, 1994 9.55 1,000 1,000
March 10, 1996 9.65 1,000 1,000
April 23, 1996 8.50 2,000 2,000
May 21, 1996 8.20 1,000 1,000
July 1, 1996 9.25 1,000 1,000
July 2, 1996 9.05 1,000 1,000
March 10, 1997 8.15 1,000 1,000
$8,000 12,500
</TABLE>
At December 31, 1993, stock owned by OMNIBANK in the FHLB ($2,220) was pledged
to secure these advances. Security Capital's savings bank subsidiaries have
also entered into blanket collateral agreements with the FHLB whereby they
maintain, free of other encumbrances, qualifying mortgages (as defined) with
unpaid principal balances at least equal to, when discounted at 65% of the
unpaid principal balance, 100% of the total FHLB advances.
Security Capital's savings bank subsidiaries have unused lines of credit with
the FHLB totaling approximately $60,000 at December 31, 1993. If drawn, the
advanced funds would be at market rates of interest and would be collateralized
by the aforementioned blanket collateral agreements, all stock of the borrowing
subsidiary in the FHLB, and any other collateral as deemed necessary by the
FHLB.
<PAGE>
(8) INCOME TAXES
As discussed in the Summary of Significant Accounting Policies, Security
Capital adopted Standard No. 109 as of January 1, 1993. The cumulative
effect of this change in accounting for income taxes of $388 as of January
1, 1993 is reflected in the 1993 financial statements as a reduction of
income tax expense. Financial statements for the periods prior to 1993 have
not been restated to apply the provisions of Standard No. 109. The effect
of adoption of Standard No. 109 for the year ended December 31, 1993 was a
reduction in tax liability of approximately $94.
Income tax expense (benefit) for the years ended December 31, 1993, 1992,
and 1991, was as follows:
<TABLE>
<CAPTION>
Current Deferred Total
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1993:
FEDERAL $7,019 (132) 6,887
STATE 403 (17) 386
$7,422 (149) 7,273
1992:
Federal 6,745 (839) 5,906
State 417 -- 417
$7,162 (839) 6,323
1991:
Federal 5,452 (131) 5,321
State 313 8 321
$5,765 (123) 5,642
</TABLE>
The income tax expense of Security Capital for the years ended December 31,
1993, 1992, and 1991, was different from the amount computed by applying the
federal income tax rate to income before income taxes because of the following:
[CAPTION]
<TABLE>
<CAPTION>
1993 1992 1991
Amount Percent Amount Percent Amount Percent
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Income tax expense at federal rate $7,739 35.0% $5,537 34.0% $5,752 34.0%
Increase (decrease) in income taxes
resulting from:
Adjustment to deferred tax assets and
liabilities for enacted changes in tax
laws and rates (48 ) (.2) -- -- -- --
Change in beginning-of-the-year deferred
tax assets valuation allowance (46 ) (.2) -- -- -- --
Tax-exempt interest (301 ) (1.3) (361 ) (2.2) (346 ) (2.0)
Thrift bad debt provision for financial
reporting purposes in excess of current
year loan losses -- -- 504 3.1 242 1.4
State income tax expense, net of federal
income tax benefit 251 1.1 275 1.7 212 1.2
Other, net (322 ) (1.5) 368 2.2 (218 ) (1.3)
$7,273 32.9% $6,323 38.8% $5,642 33.3%
</TABLE>
For the years ended December 31, 1992 and 1991, deferred income tax expense
(benefits) result from timing differences in the period in which revenues and
expenses are recognized for income tax and financial statement purposes. The
sources of these differences and the tax effects of each are presented below:
[CAPTION]
<TABLE>
<CAPTION>
1992 1991
<S> <C> <C>
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred compensation $(327) (198)
Accrued expenses, not deductible until paid (258) --
Other, net (254) 75
$(839) (123)
</TABLE>
<PAGE>
The sources and tax effects of temporary differences that give rise to
significant portions of the deferred tax liabilities (assets) at December 31,
1993, are presented below:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax liabilities:
Depreciation $ 987
FHLB Stock -- book basis greater than tax basis 869
Prepaid pension expense 232
Bank bad debt recapture 204
FHLMC discount accretion 207
Other 98
Total gross deferred tax liabilities 2,597
Deferred tax assets:
Provision for loan losses, net (1,687)
Net deferred loan fees (603)
Accrued expenses, deductible when paid (1,711)
Other (298)
Total gross deferred tax assets (4,299)
Deferred tax assets valuation allowance 201
Net deferred tax asset $(1,501)
</TABLE>
The realization of net deferred tax assets may be based on utilization of
carrybacks to prior taxable periods, anticipation of future taxable income in
certain periods, and the utilization of tax planning strategies. Management has
determined that it is more likely than not that the net deferred tax asset can
be supported by carrybacks to federal taxable income in excess of $52,000 in
the three-year federal carryback period and by expected future taxable income
which will far exceed amounts necessary to fully realize remaining deferred tax
assets resulting from the scheduling of temporary differences. The valuation
allowance primarily relates to certain state temporary differences. At January
1, 1993, the valuation allowance was $247. The change in the valuation
allowance during 1993 was a net decrease of $46.
Under the Internal Revenue Code of 1986, Security Capital's savings bank
subsidiaries are allowed a special bad debt deduction related to additions to
tax bad debt reserves established for the purpose of absorbing losses. A
reduction of such reserves for purposes other than bad debt losses will create
income for tax purposes only, which will be subject to the then current
corporate income tax rates. Under the provisions of APB Opinion 23, a deferred
tax liability is not currently recognized for temporary differences resulting
from a savings bank's base year tax bad debt reserve. At December 31, 1993, the
potential deferred tax liability related to the recapture of this portion of
the tax bad debt reserve is approximately $5,600.
Income tax returns subsequent to 1989 are subject to examination by the taxing
authorities.
(9) STOCKHOLDERS' EQUITY
Retained earnings at December 31, 1993, includes approximately $14,016 for
which no provision for federal income tax has been made. This amount
represents allocations of income to bad debt deductions for tax purposes
only. Reduction of such amount for purposes other than tax bad debt losses
will create income for tax purposes only, which will be subject to the then
current corporate income tax rate.
At the time of their conversions to stock ownership, liquidation accounts
were established for each of Security Capital's savings bank subsidiaries
in amounts equal to their respective regulatory capital. Each eligible
deposit account holder, as described in the respective plans of conversion,
is entitled to a proportionate share of this account in the event of a
complete liquidation of any of these subsidiaries, and only in such event.
This share will be reduced if the account holder's balance in the related
deposit account falls below the amount in such account on the date(s) of
record, and will cease to exist if the account is closed. The liquidation
accounts will never be increased despite any increase after the conversions
in the related balance of an account holder.
Security Capital and its banking subsidiaries must comply with certain
regulatory capital requirements established by the FRB and the FDIC. At
December 31, 1993, these standards required Security Capital and its
banking subsidiaries to maintain minimum ratios of Tier 1 capital (as
defined) to total risk-weighted assets and total capital (as defined) to
risk-weighted assets of 4.00% and 8.00%, respectively, and a minimum ratio
of Tier 1 capital to total assets (as defined) of 3.00% to 5.00%, depending
upon the specific institution's composite ratings as determined by its
regulators. At December 31, 1993, Security Capital and its banking
subsidiaries were in compliance with all of the aforementioned capital
requirements.
<PAGE>
Security Capital also has authorized 5,000,000 shares of no par value
preferred stock, none of which is issued and outstanding at December 31,
1993.
(10) PENSION, PROFIT SHARING, AND INCENTIVE COMPENSATION PLANS
Security Capital had a profit sharing plan (the Profit Sharing Plan)
covering certain of Security Bank's employees. In 1993 Security Capital
merged the Profit Sharing Plan into an Employees' Incentive Profit Sharing
and Savings (401k) Plan (the Incentive Plan) for the benefit of the
eligible employees of Security Capital and its subsidiaries. As a result,
Security Capital made contributions to the Incentive Plan in 1993 rather
than to the Profit Sharing Plan. Contributions to the Incentive Plan are
based on a percentage of Security Capital's profits, as computed by a
formula set by the Board of Directors. The maximum allowable contribution
is 15% of the participating employee's compensation. Profit sharing costs
charged to expense approximated $694 in 1993, $329 in 1992, and $305 in
1991.
Security Bank sponsored a noncontributory defined benefit plan which covered
substantially all the employees of Security Bank and Security Capital sponsored
a noncontributory defined benefit plan for the benefit of the employees of the
savings bank subsidiaries (the Plans). The Plans were merged into one defined
benefit pension plan covering all eligible employees of Security Capital and
its subsidiaries as of January 1, 1993. Benefits for the Plan are based on
years of service and the employee's annual compensation during his or her term
of employment. Security Capital's funding policy is to contribute annually to
the Plan the maximum amount that can be deducted for federal income tax
purposes. Contributions are intended to provide for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the Plans' funded status and amounts recognized
in the consolidated balance sheets at December 31, 1993 and 1992.
[CAPTION]
<TABLE>
<CAPTION>
1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Plans' assets at fair value, primarily short-term investments and U.S.
Treasury securities $ 7,028 6,550
Actuarial present value of projected benefit obligation for service rendered
to date 9,503 6,121
Plans' assets (less than) in excess of projected benefit obligation (2,475) 429
Unrecognized net transition asset being recognized over 18 years (487) (532)
Unrecognized net (gain) loss 1,693 (477)
Unrecognized prior service cost 1,628 822
Prepaid pension cost included in other assets $ 359 242
</TABLE>
The actuarial present value of the accumulated benefit obligation amounted to
$6,341 in 1993 and $5,025 in 1992, including vested benefits of $6,135 in 1993
and $4,901 in 1992.
Net periodic pension cost for the Plans for the three years ended December 31,
1993 included the following components:
[CAPTION]
<TABLE>
<CAPTION>
1993 1992 1991
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the period $ 374 403 361
Interest cost on projected benefit obligation 586 367 383
Return on Plans' assets (467) (390) (593)
Net amortization and deferral 14 -- 206
Net periodic pension cost $ 507 380 357
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.0% in 1993, 7.75% in 1992 and
7.75% to 8% in 1991. The expected rate of increase in future compensation
levels was 6.0% in 1993 and 6.5% to 8% for the two years ended December 31,
1992. The expected long-term rate of return on assets was 8.0% in 1993 and 7.0%
to 8.0% in 1992 and 1991.
<PAGE>
(11) STOCK OPTION PLANS
Security Capital has continued in effect the Omni Capital Group, Inc. 1988
Incentive Stock Option Plan pursuant to which options to purchase Security
Capital common stock may be granted to certain full-time officers and
employees at an exercise price equal to the fair market value of the stock
on the date of grant. Such options are exercisable for a ten year period.
An aggregate of 675,000 shares of common stock is reserved for issuance
under this plan. In the case of an employee who owns more than 10% of
Security Capital's outstanding common stock at the time the option is
granted, the option price may not be less than 110% of the fair market
value of the shares on the date of grant, and shall be exercisable after
the expiration of six months and before the expiration of five years from
the date of grant.
Security Capital has also continued in effect the Omni Capital Group, Inc.
1988 Directors' Non-Qualified Stock Option Plan, pursuant to which certain
non-employee members of the boards of directors of Security Capital and its
subsidiaries have been granted options to purchase Security Capital common
stock at an exercise price equal to the fair market value of the common
stock on the date of grant. Options granted under this plan must be
exercised within five years from the date of grant.
On March 15, 1988, OMNIBANK adopted two stock option plans, the Home
Federal Savings Bank 1988 Amended and Restated Directors' Non-Qualified
Stock Option Plan and the Home Federal Savings Bank 1988 Incentive Stock
Option Plan (the Home Option Plans), which plans became effective upon the
completion of its conversion from a mutual savings and loan association to
a capital stock savings bank. Home Federal Savings Bank was subsequently
renamed OMNIBANK. Security Capital has continued the Home Option Plans. An
aggregate number of shares amounting to 337,500 has been reserved by
Security Capital to be issued upon the exercise of stock options which have
been granted to certain directors, officers, and employees of Security
Capital under the Home Option Plans. No more options may be granted under
the Home Option Plans.
All stock options outstanding at the time of the Merger were converted into
options to acquire common stock of Security Capital.
The following table reflects the combined status of all of the above stock
option plans at December 31, 1993:
<TABLE>
<CAPTION>
Available Shares
for Subject to Price
Future Outstanding per
Grants Options Share
<S> <C> <C> <C>
Directors' Non-Qualified Stock Option Plans: (1)
Balance outstanding at December 31, 1991 72,947 110,471 $ 3.56-7.67
Granted -- -- --
Exercised -- (2,455) 4.08
Balance outstanding at December 31, 1992 72,947 108,016 3.56-7.67
GRANTED -- -- --
EXERCISED -- (65,834) 3.56-5.78
BALANCE OUTSTANDING AT DECEMBER 31, 1993 72,947 42,182 $ 3.56-7.67
Incentive Stock Option Plans: (2)
Balance outstanding at December 31, 1991 247,500 471,375 $ 3.56-7.11
Granted -- -- --
Exercised -- (35,439) 4.08-5.78
Balance outstanding at December 31, 1992 247,500 435,936 3.56-7.11
GRANTED -- -- --
EXERCISED -- (71,031) 3.56-7.11
BALANCE OUTSTANDING AT DECEMBER 31, 1993 247,500 364,905 $ 3.56-7.11
</TABLE>
(1) INCLUDES THE HOME FEDERAL SAVINGS BANK AMENDED AND RESTATED 1988
DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN AND THE OMNI CAPITAL GROUP,
INC. 1988 DIRECTORS' NON-QUALIFIED STOCK OPTION PLAN.
(2) INCLUDES THE HOME FEDERAL SAVINGS BANK 1988 INCENTIVE STOCK OPTION PLAN
AND THE OMNI CAPITAL GROUP, INC, 1988 INCENTIVE STOCK OPTION PLAN.
<PAGE>
(12) EMPLOYEE STOCK OWNERSHIP PLAN
Security Capital has continued Omni's Employee Stock Ownership Plan (the
ESOP) for the benefit of the former employees of Omni and its subsidiaries.
Contributions to the ESOP are made on a discretionary basis and are
allocated to each eligible employee based on his/her salary in relation to
total employee compensation expense. At retirement or termination of
employment, each employee will receive an amount equal to his/her vested
interest in the ESOP in the form of cash or common stock.
In connection with the mutual to stock conversions of the savings bank
subsidiaries, the ESOP borrowed funds to purchase Omni common stock for the
ESOP. Upon the Merger, the shares of Omni common stock held in the ESOP
were exchanged for shares of Security Capital common stock. During 1992,
Security Capital repurchased sufficient remaining unallocated shares of
Security Capital common stock held by the ESOP to eliminate the remaining
balance of the related debt. In 1993, Security Capital made contributions
to the Incentive Plan discussed in Note 10 rather than to the ESOP.
Security Capital plans to terminate the ESOP in 1994.
ESOP costs charged to expense amounted to $10, $334 and $293 in 1993, 1992
and 1991, respectively.
(13) COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK
Security Capital is a defendent in various litigation arising in the normal
course of business. In the opinion of management, resolution of these
matters will not result in a material adverse effect on Security Capital's
financial position.
In the normal course of business, there are outstanding various commitments
to extend credit which are not reflected in the consolidated financial
statements. At December 31, 1993, outstanding loan commitments approximated
$8,507 (Fixed Rate -- $5,737, Variable Rate -- $2,770), preapproved but
unused lines of credit for loans totalled $90,934 and standby letters of
credit aggregated $268. These amounts represent Security Capital's exposure
to credit risk, and in the opinion of management have no more than the
normal lending risk that Security Capital's banking subsidiaries commit to
their borrowers. If these commitments are drawn, Security Capital's banking
subsidiaries will obtain collateral if it is deemed necessary based on
management's credit evaluation of the borrower. Collateral held varies but
may include accounts receivable, inventory, and commercial or residential
real estate. Management expects that these commitments can be funded
through normal operations. In addition, Security Capital has no off-balance
sheet derivative commitments.
Security Capital's banking subsidiaries make primarily commercial, real
estate and installment loans to customers throughout their market areas,
which consists primarily of the south central and western Piedmont regions
of North Carolina. These subsidiaries' real estate loan portfolios can be
affected by the condition of the local real estate markets and their
commercial and installment loan portfolios can be affected by local
economic conditions.
Average daily Federal Reserve balance requirements for the savings bank
subsidiaries for the year ended December 31, 1993 amounted to $525.
Security Bank is required to maintain noninterest bearing cash reserve
balances with the Federal Reserve. The average amount of cash reserve
balances required for the two-week period ended January 5, 1994
approximated $2,165.
<PAGE>
(14) SUMMARY OF QUARTERLY INCOME STATEMENT INFORMATION (UNAUDITED)
A summary of quarterly income information for the years ended December 31,
1993 and 1992, follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME $ 16,498 16,279 15,933 15,513
INTEREST EXPENSE 7,248 7,104 6,986 6,797
NET INTEREST INCOME 9,250 9,175 8,947 8,716
PROVISION FOR LOAN LOSSES 184 153 170 146
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES 9,066 9,022 8,777 8,570
OTHER INCOME 2,611 2,600 2,785 2,523
OTHER EXPENSE 6,163 6,200 6,037 5,442
INCOME BEFORE INCOME TAXES 5,514 5,422 5,525 5,651
INCOME TAXES 1,545 1,770 2,017 1,941
NET INCOME $ 3,969 3,652 3,508 3,710
NET INCOME PER SHARE $ .33 .31 .30 .32
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1992
Three Months Ended
March 31 June 30 September 30 December 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $ 18,718 18,501 17,754 16,880
Interest expense 9,813 9,031 8,448 7,837
Net interest income 8,905 9,470 9,306 9,043
Provision for loan losses 246 1,296 159 147
Net interest income after provision for loan
losses 8,659 8,174 9,147 8,896
Other income 2,221 2,258 1,945 2,524
Other expense 6,618 8,685 6,050 6,187
Income before income taxes 4,262 1,747 5,042 5,233
Income taxes 1,445 1,528 1,616 1,734
Net income $ 2,817 219 3,426 3,499
Net income per share $ .24 .02 .29 .29
</TABLE>
(15) PARENT COMPANY FINANCIAL DATA
The primary assets of Security Capital (the Parent Company) are its
investments in subsidiaries and its principal source of income is dividends
from these subsidiaries. Certain regulatory and other requirements restrict
the lending of funds by the subsidiaries to the Parent Company and the
amount of dividends which can be paid to the Parent Company. At December
31, 1993, the subsidiaries had available undivided profits of approximately
$25,038 for payments of dividends without obtaining prior regulatory
approval. At December 31, 1993, approximately $85,724 of the Parent
Company's investment in its subsidiaries is restricted as to transfer to
the Parent Company without obtaining prior regulatory approval.
<PAGE>
The following is a summary of selected financial information for the Parent
Company:
<TABLE>
<CAPTION>
Balance Sheets December 31,
1993 1992
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Cash on deposit with subsidiaries $ 13,488 3,610
Investments in and advances to subsidiaries 110,762 113,210
Investment securities (market value of $86 at December 31, 1993) 66 --
Other assets -- 158
Total assets $124,316 116,978
Liabilities and stockholders' equity:
Other liabilities 96 50
Total liabilities 96 50
Stockholders' equity:
Common stock 51,167 54,120
Retained earnings, substantially restricted 73,053 62,808
Total stockholders' equity 124,220 116,928
Total liabilities and stockholders' equity $124,316 116,978
</TABLE>
<TABLE>
<CAPTION>
Statements of Income Years Ended December 31,
1993 1992 1991
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Dividends from subsidiaries $15,184 5,434 5,756
Management income from subsidiaries 639 1,552 436
Equity in undistributed net (loss) income of subsidiaries (233) 4,393 5,694
Other income 165 145 103
Total income 15,755 11,524 11,989
Expenses 916 1,563 712
Net income $14,839 9,961 11,277
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows Years Ended December 31,
1993 1992 1991
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $14,839 9,961 11,277
Adjustments to reconcile net income to net cash provided by operating
activities:
Loan to ESOP -- -- 20
Decrease (increase) in other assets 158 1,654 (1,400)
Equity in undistributed net loss (income) of subsidiaries 233 (4,393) (5,694)
Increase in other liabilities 46 50 --
Net cash provided by operating activities 15,276 7,272 4,203
Cash flows from investing activities:
Decrease (increase) in advances to subsidiaries 2,215 (2,532) (1,453)
Purchases of investment securities (66) -- --
Net cash provided (used) by investing activities 2,149 (2,532) (1,453)
Cash flows from financing activities:
Purchase and retirement of common stock (3,559) (509) (102)
Proceeds from stock options exercised 606 158 78
Dividends paid to stockholders (4,594) (3,712) (2,731)
Net cash used by financing activities (7,547) (4,063) (2,755)
Net increase (decrease) in cash and cash equivalents 9,878 677 (5)
Cash and cash equivalents at beginning of year 3,610 2,933 2,938
Cash and cash equivalents at end of year $13,488 3,610 2,933
</TABLE>
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (Statement No. 107) was issued by the FASB
in December 1991. Statement No. 107 requires disclosures about the fair
value of all financial instruments. Fair value estimates, methods, and
assumptions are set forth below for each type of financial instrument.
<PAGE>
CASH, FEDERAL FUNDS SOLD AND SHORT-TERM BORROWINGS
The carrying amount of cash, federal funds sold, short-term borrowings, and
accrued interest receivable or payable on all financial instruments approximate
fair value because of the short terms to maturity of these financial
instruments.
INVESTMENT SECURITIES
The following table presents the carrying value and estimated fair value of
investment securities at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
At December 31,
1993 1992
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
US Government obligations:
Due in one year or less $ 94,356 95,719 72,729 78,021
Due after one year through five years 210,824 215,040 217,954 219,938
Due after five years through ten years -- -- 2,165 2,156
US Government agency obligations:
Due in one year or less 500 505 500 502
Due after one year through five years 34,947 34,724 6,484 6,533
Due after five years through ten years 4,962 5,139 2,982 2,961
Mortgage-backed securities 12,676 13,135 19,298 19,769
State and municipal obligations:
Due in one year or less 1,002 1,018 -- --
Due after one year through five years 9,020 9,680 15,592 16,570
Other:
Due after one year through five years -- -- 900 900
Due after ten years 66 86 -- --
$368,353 375,046 338,604 347,350
</TABLE>
The fair value of debt securities, except certain state and municipal
obligations, is estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
state and municipal obligations is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted
market prices of instruments similar to those being valued, adjusted for
differences between the quoted instruments and the instruments being valued.
LOANS
For purposes of estimating fair value of loans, the portfolio is segregated by
type based on similar characteristics such as real estate mortgage, real estate
construction and installment and equity lines of credit.
The fair value of loans is calculated by discounting estimated cash flows using
current rates at which similar loans would be made to borrowers with similar
credit risk. Cash flows for fixed rate loans are based on the weighted average
maturity of the specific loan category. Adjustable rate loans are either prime
based and are repriced immediately or monthly as prime changes, or are based on
published indices and have relatively short terms to their repricing dates.
The following table presents fair value information for loans:
<TABLE>
<CAPTION>
1993 1992
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Loans, net $465,975 472,092 503,520 509,181
Loans held for sale $ 18,409 18,411 2,264 2,273
</TABLE>
<PAGE>
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts and money market deposits
is the amount payable on demand. The fair value of certificates of deposit is
based on the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar remaining
maturities.
The following table presents fair value information for deposits:
<TABLE>
<CAPTION>
At December 31,
1993 1992
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposit-noninterest-bearing $ 67,830 67,830 60,639 60,639
Demand deposit-interest bearing 76,130 76,130 67,202 67,202
Insured money market accounts 79,711 79,711 85,943 85,943
Savings deposits 151,360 151,360 143,000 143,000
Certificates of deposit 409,425 411,365 416,851 420,468
$784,456 786,396 773,635 777,252
</TABLE>
ADVANCES FROM THE FEDERAL HOME LOAN BANK AND OTHER BORROWED MONEY
The fair value of advances from the FHLB is based on quoted market prices for
the same or similar issues or on the current rates offered to Security Capital
for debt of the same remaining maturities. At December 31, 1993 and 1992, the
carrying value of advances from the FHLB was $8,000 and $12,500, respectively,
and the fair value was $8,539 and $13,317, respectively.
The fair value of other borrowed money, consisting of securities sold under
agreements to repurchase, bearing a short term to maturity, is considered to
approximate carrying value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The large majority of commitments to extend credit and standby letters of
credit are at variable rates and/or have relatively short terms to maturity.
Therefore, the fair value for these financial instruments is considered to
approximate the carrying value.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time Security Capital's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of Security Capital's financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, a significant asset not considered a
financial asset is premises and equipment. In addition, tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in any
of the estimates.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Security Capital Bancorp
Salisbury, North Carolina
We have audited the accompanying consolidated balance sheets of Security Capital
Bancorp and subsidiaries (Security Capital) as of December 31, 1993 and 1992,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1993, included on pages 8 through 26 herein. These consolidated financial
statements are the responsibility of Security Capital's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Security Capital
Bancorp and subsidiaries at December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick
Charlotte, North Carolina
January 28, 1994
<PAGE>
SECURITY BANK & TRUST COMPANY
SALISBURY, NORTH CAROLINA
DIRECTORS
Ralph A. Barnhardt
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
Edward A. Brown
PRESIDENT
W. A. BROWN & SON, INC
Henry B. Gaye
PRESIDENT
GAYE CHEVROLET, INC.
Lloyd G. Gurley
PRESIDENT/CHIEF EXECUTIVE OFFICER
SECURITY BANK AND TRUST COMPANY
David B. Jordan
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
William C. Kluttz, Jr.
ATTORNEY-AT-LAW
KLUTTZ, REAMER, BLANKENSHIP & HAYES
F. Taft McCoy, Jr.
OWNER
MCCOYS REALTY
J. G. Rutledge, III
RETIRED CHAIRMAN
FIRST SECURITY FINANCIAL CORPORATION
Miles J. Smith, Jr.*
CHAIRMAN
SECURITY CAPITAL BANCORP
Fred J. Stanback, Jr.
PRIVATE INVESTOR
Jimmy K. Stegall
PRESIDENT
STEGALL BUILDERS MART, INC.
E. William Wagoner
CHAIRMAN
WAGONER CONSTRUCTION COMPANY
*Chairman of the Board
OFFICERS
Lloyd G. Gurley
PRESIDENT/CHIEF EXECUTIVE OFFICER
A. Lewis Bass, III
SENIOR VICE PRESIDENT
Bobby W. Chandler
SENIOR VICE PRESIDENT
J. Parks Helms
SENIOR VICE PRESIDENT
O. M. Hough, Jr.
SENIOR VICE PRESIDENT
R. Alex Miller, Jr.
SENIOR VICE PRESIDENT
Benjamin F. Wright
SENIOR VICE PRESIDENT
Kenneth W. Banner
VICE PRESIDENT
Peggy H. Bollinger
SECRETARY
Dennis H. Burnette
VICE PRESIDENT
Larry V. Clark
VICE PRESIDENT
Benjamin W. McKenzie, III
VICE PRESIDENT
Pressley A. Ridgill
VICE PRESIDENT/CHIEF FINANCIAL OFFICER
Fred L. Rodenbeck, Jr.
SENIOR TRUST OFFICER
Patrick M. Vallandingham
VICE PRESIDENT
Lynn H. Weisler
TREASURER/CONTROLLER
<PAGE>
SECURITY BANK & TRUST COMPANY
LOCAL BOARDS OF MANAGERS AND EXECUTIVE OFFICERS
ALBEMARLE
CLIFFORD E. BURRIS
JAMES W. CARPENTER
C. WAYNE SASSER
CRIS D. TURNER -- VICE PRESIDENT
BELMONT
CHARLES E. CATO
ROBERT R. HILKER
HARRY MELTON
DR. JOSEPH M. MOSES
DR. SAMUEL L. SHAVER
VICKIE L. WHITLEY
BRIAN D. HERRE -- VICE PRESIDENT
CHARLES R. HUDSON -- VICE PRESIDENT
CHARLOTTE
LLOYD F. BAUCOM
DR. BRUCE BERRYHILL
J. RONALD MARTIN
JOHN A. POLITES
B. D. RODGERS
LARRY W. STROUD
BOBBY W. CHANDLER -- SENIOR
VICE PRESIDENT
CONCORD
JOHNNY F. CLINE
T. LARRY TORRENCE
LOYE T. WHIDDEN, JR.
J. CLARENCE WILLIFORD --
VICE PRESIDENT
KANNAPOLIS
JAMES D. BASSINGER
ROBERT D. MISENHEIMER
WALTER M. SAFRIT, II
LESTER W. STOCKS
D. W. HODGE, JR. -- SENIOR
VICE PRESIDENT
JOE B. WILLIAMS -- VICE PRESIDENT
LANDIS
CHARLES D. BROWN
BENNETT D. HESTER, SR.
CRYSTAL B. JULIAN
GEORGE L. PLESS
FRANK T. TADLOCK
FRANK HAAS -- VICE PRESIDENT
LEXINGTON
DAVID HEDRICK
STEVE REGAN
CLARK EUGENE SMITH
JAMES SNYDER, JR.
JOSEPH D. STAMEY
LINDA S. BRYAN -- VICE PRESIDENT
MARSHVILLE
OLIN LEE BROOME
J. GREG GRIFFIN, DDS
TED HARGETT
GARY HENRY, MD
BARRY W. MILLS
J. PARKS MORGAN
TOM E. STEGALL
MATTHEWS
R. GENE ESTRIDGE
TERRY M. HILL
CAROL I. NOE
DR. RUSSELL J. ROGERS, JR.
DAVID L. MARLOWE --
VICE PRESIDENT
MOCKSVILLE
DOUGLAS S. HUNTLEY --
VICE PRESIDENT
MONROE
ANGELA T. BOWER
BILL G. BRASWELL, JR.
QUILLIAN JUNIOR CAUTHEN
DR. J. R. GIBSON
HARRY MYERS
HENRY J. NEWGARD
JOHNNY O. PIGG
BILLY IVAN SECREST
KARL G. CAHOON -- VICE PRESIDENT
CAROLYN F. DUNCAN --
VICE PRESIDENT
EDD M. LITTLE -- VICE PRESIDENT
JOHN H. WALTERS -- VICE PRESIDENT
MOORESVILLE
B. K. BARRINGER, JR.
DR. BRIAN B. BLACKBURN
ROGER L. EDWARDS
JOHN C. NEILL
WAYNE WESTMORELAND
DANIEL F. BEAVER --
VICE PRESIDENT
NORWOOD
MITCHELL D. EDWARDS
DAVID A. LEE
BERT MCCOLLUM
JOHN PARKER MCNEILL
JACKIE R. PHILLIPS
JAMES E. CAMERON --
VICE PRESIDENT
FIRST SECURITY CREDIT
CORPORATION
HOWARD W. HOLT --
SENIOR VICE PRESIDENT
JERRY SIDES -- VICE PRESIDENT
CAROLINA INSURANCE AGENCY
C. C. FREEMAN -- MANAGER
OAKBORO
DAN C. BROOKS
J. B. EDWARDS, JR.
ROSCOE N. HATLEY
ROBERT L. HILL, JR.
C. F. HINSON
ROY HINSON
J. PARKS HELMS -- SENIOR
VICE PRESIDENT
POLKTON
KENNETH CARPENTER
LARRY CAUDLE
AARON EFIRD
FELECIA C. RICHARDSON -- BANKING OFFICER
SALISBURY
JERRY H. BARGER
JAMES F. FOWLER
CHARLES R. ISENHOUR
WILLIAM R. KENNEDY
NORMAN C. LENTZ
REID G. LEONARD
R. PAUL PROPST
DR. JOHN O. REYNOLDS, JR.
R. A. MILLER, JR. -- SENIOR
VICE PRESIDENT
W. STURGES BRYAN --
VICE PRESIDENT
JAMES J. ROHRER -- VICE PRESIDENT
SPENCER
T. E. AGNER
DR. JAMES C. EAGLE, JR.
EDGAR W. GETTYS
ROBERT M. MAULDIN
SUSAN L. MORRIS
DR. DAVID N. SMITH
TOM W. AYERS -- SENIOR
VICE PRESIDENT
STANLEY
JOHN H. WILLIAMSON, JR. --
VICE PRESIDENT
WADESBORO
GEORGE C. BOWER, JR.
WILLIAM E. HUNTLEY
HARRY LEAVITT, III
WILLIAM G. MARTIN
RONALD B. TURNER --
VICE PRESIDENT
WEST DAVIDSON
PATTIE R. BRINKLE -- BANKING OFFICER
WINGATE
MARJORIE P. PENNIGAR --
ASSISTANT VICE PRESIDENT
<PAGE>
OMNIBANK, SSB
SALISBURY, NORTH CAROLINA
DIRECTORS
Ralph A. Barnhardt
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
Lloyd G. Gurley
PRESIDENT/CHIEF ADMINISTRATIVE OFFICER
SECURITY CAPITAL BANCORP
David B. Jordan
PRESIDENT/CHIEF EXECUTIVE OFFICER
OMNIBANK, SSB
Ervin E. Lampert, Jr.
RETIRED PRESIDENT
R. W. NORMAN COMPANY
William G. Loeblein*
RETIRED PRESIDENT
LOEBLEIN BROTHERS, INC.
Clyde B. Mickle, Jr.
PRESIDENT
MICKLE TIRE COMPANY, INC.
Harold Mowery
VICE PRESIDENT
WAGONER CONSTRUCTION COMPANY
Robert L. Pierce, III
PRESIDENT
HOME CONCRETE & SUPPLY COMPANY
Carl M. Short, Jr.
WOODSON, FORD, SAYERS, LAWTHER, SHORT, PARROTT & HUDSON
Miles J. Smith, Jr.
CHAIRMAN
SECURITY CAPITAL BANCORP
James H. West, Jr.
REAL ESTATE INVESTOR
*Chairman of the Board
OFFICERS
David B. Jordan
PRESIDENT/CHIEF EXECUTIVE OFFICER
Gunnar N. R. Fromen
SENIOR VICE PRESIDENT
Julian M. Sides
SENIOR VICE PRESIDENT
Kenneth W. Banner
VICE PRESIDENT -- SECONDARY MARKETING/INVESTMENTS
A. Lewis Bass, III
VICE PRESIDENT -- LOAN ADMINISTRATION
Dennis H. Burnette
VICE PRESIDENT -- AUDIT
Larry V. Clark
VICE PRESIDENT -- BANK SERVICES
Norwood C. Edgeworth
VICE PRESIDENT -- CORRESPONDENT LENDING
Benjamin W. McKenzie, III
VICE PRESIDENT -- PERSONNEL
J. Eric Norris
VICE PRESIDENT -- APPRAISALS
Pressley A. Ridgill
VICE PRESIDENT/CHIEF FINANCIAL OFFICER
Patrick M. Vallandingham
VICE PRESIDENT -- COMPLIANCE/SECURITY
Lynn H. Weisler
TREASURER/CONTROLLER
BRANCH LOCATIONS
507 West Innes Street (Main Office)
Salisbury, North Carolina
105 Avalon Drive
Salisbury, North Carolina
2070 Statesville Boulevard
Salisbury, North Carolina
<PAGE>
CITIZENS SAVINGS, SSB
CONCORD, NORTH CAROLINA
DIRECTORS
John M. Barnhardt
PRESIDENT
BARNHARDT, WALKER & STRICKLAND, INC.
Ralph A. Barnhardt*
PRESIDENT/CHIEF EXECUTIVE OFFICER
CITIZENS SAVINGS, SSB
Dan L. Gray
EXECUTIVE DIRECTOR
THE CANNON FOUNDATION, INC.
Lloyd G. Gurley
PRESIDENT
SECURITY CAPITAL BANCORP
Daniel B. Harrell, Jr.
DENTIST
HARRELL & MASHBURN, P.A.
David B. Jordan
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
Miles J. Smith, Jr.
CHAIRMAN
SECURITY CAPITAL BANCORP
W. Erwin Spainhour
PRESIDENT
HARTSELL, HARTSELL & MILLS, P.A.
James H. Wilkinson, Jr.
PRESIDENT
WILKINSON'S FUNERAL HOME, INC.
*Chairman of the Board
OFFICERS
Ralph A. Barnhardt
PRESIDENT/CHIEF EXECUTIVE OFFICER
E. K. Prewitt, Jr.
VICE PRESIDENT/SECRETARY
Kenneth W. Banner
VICE PRESIDENT -- SECONDARY MARKETING/INVESTMENTS
A. Lewis Bass, III
VICE PRESIDENT -- LOAN ADMINISTRATION
Dennis L. Barger
VICE PRESIDENT
Dennis H. Burnette
VICE PRESIDENT -- AUDIT
Larry V. Clark
VICE PRESIDENT -- BANK SERVICES
Benjamin W. McKenzie, III
VICE PRESIDENT -- PERSONNEL
Pressley A. Ridgill
VICE PRESIDENT/CHIEF FINANCIAL OFFICER
J. Phillip Smith
VICE PRESIDENT -- LENDING
Patrick M. Vallandingham
VICE PRESIDENT -- COMPLIANCE/SECURITY
Lynn H. Weisler
TREASURER/CONTROLLER
BRANCH LOCATIONS
31 Union Street, North (Main Office)
Concord, North Carolina
818 Church Street, North
Concord, North Carolina
4720 Highway 49, South
Harrisburg, North Carolina
276 U.S. Highway 29, North
Concord, North Carolina
970 South Cannon Boulevard
Kannapolis, North Carolina
<PAGE>
HOME SAVINGS BANK, SSB
KINGS MOUNTAIN, NORTH CAROLINA
DIRECTORS
Ralph A. Barnhardt
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
Charles D. Blanton
PHARMACIST
ECKERD DRUGS
Lloyd G. Gurley
PRESIDENT
SECURITY CAPITAL BANCORP
David B. Jordan
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
B. S. Peeler, Jr.
RETIRED
KINGS MOUNTAIN DISTRICT
SCHOOL SYSTEM
Nancy S. Scism
EXECUTIVE VICE PRESIDENT/CEO
HOME SAVINGS BANK, SSB
Miles J. Smith, Jr.
CHAIRMAN
SECURITY CAPITAL BANCORP
Thomas A. Tate, Sr.*
PRESIDENT
HOME SAVINGS BANK, SSB
Wade H. Tyner, Jr.
OWNER
WADE FORD, INC.
James L. Williamson
RETIRED PARTNER
KPMG PEAT MARWICK
*Chairman of the Board
OFFICERS
Thomas A. Tate, Sr.
PRESIDENT
Nancy S. Scism
EXECUTIVE VICE PRESIDENT/
SECRETARY/CEO
Kenneth W. Banner
VICE PRESIDENT -- SECONDARY MARKETING/INVESTMENTS
A. Lewis Bass, III
VICE PRESIDENT -- LOAN ADMINISTRATION
Dennis H. Burnette
VICE PRESIDENT -- AUDIT
Larry V. Clark
VICE PRESIDENT -- BANK SERVICES
Benjamin W. McKenzie, III
VICE PRESIDENT -- PERSONNEL
Pressley A. Ridgill
VICE PRESIDENT/CHIEF FINANCIAL OFFICER
Sandra F. Sellers
VICE PRESIDENT -- LENDING
Patrick M. Vallandingham
VICE PRESIDENT -- COMPLIANCE/SECURITY
Lynn H. Weisler
TREASURER/CONTROLLER
BRANCH LOCATIONS
700 West Kings Street (Main Office)
Kings Mountain, North Carolina
215 East Virginia Avenue
Bessemer City, North Carolina
257 West Main Avenue
Gastonia, North Carolina
<PAGE>
SECURITY CAPITAL BANCORP
SALISBURY, NORTH CAROLINA
DIRECTORS
John M. Barnhardt
PRESIDENT
BARNHARDT, WALKER & STRICKLAND, INC.
Ralph A. Barnhardt
VICE CHAIRMAN
SECURITY CAPITAL BANCORP
Edward A. Brown
PRESIDENT
W. A. BROWN & SON, INC.
Henry B. Gaye
PRESIDENT
GAYE CHEVROLET, INC.
Dan L. Gray
EXECUTIVE DIRECTOR
THE CANNON FOUNDATION, INC.
Lloyd G. Gurley
PRESIDENT/CHIEF ADMINISTRATIVE OFFICER
SECURITY CAPITAL BANCORP
David B. Jordan
VICE-CHAIRMAN/CHIEF EXECUTIVE OFFICER
SECURITY CAPITAL BANCORP
William C. Kluttz, Jr.
ATTORNEY-AT-LAW
KLUTTZ, REAMER, BLANKENSHIP & HAYES
Ervin E. Lampert, Jr.
RETIRED PRESIDENT
R. W. NORMAN COMPANY
William G. Loeblein
RETIRED PRESIDENT
LOEBLEIN BROTHERS, INC.
F. Taft McCoy, Jr.
OWNER
MCCOYS REALTY
Harold Mowery
VICE PRESIDENT
WAGONER CONSTRUCTION COMPANY
J. G. Rutledge, III
RETIRED CHAIRMAN
FIRST SECURITY FINANCIAL CORPORATION
Carl M. Short, Jr.
ATTORNEY-AT-LAW
WOODSON, FORD, SAYERS, LAWTHER, SHORT, PARROTT & HUDSON
Miles J. Smith, Jr.*
CHAIRMAN
PREMTEC, INC.
W. Erwin Spainhour
PRESIDENT
HARTSELL, HARTSELL & MILLS, P.A.
Fred J. Stanback, Jr.
PRIVATE INVESTOR
Jimmy K. Stegall
PRESIDENT
STEGALL BUILDERS MART, INC.
Thomas A. Tate, Sr.
CHAIRMAN
HOME SAVINGS BANK, SSB
E. William Wagoner
CHAIRMAN
WAGONER CONSTRUCTION COMPANY
James L. Williamson
RETIRED PARTNER
KPMG PEAT MARWICK
*Chairman of the Board
OFFICERS
Miles J. Smith, Jr.
CHAIRMAN OF THE BOARD
Ralph A. Barnhardt
VICE CHAIRMAN
David B. Jordan
VICE CHAIRMAN/CHIEF EXECUTIVE OFFICER
Lloyd G. Gurley
PRESIDENT/CHIEF ADMINISTRATIVE OFFICER
Kenneth W. Banner
SENIOR VICE PRESIDENT
A. Lewis Bass, III
SENIOR VICE PRESIDENT
Larry V. Clark
SENIOR VICE PRESIDENT
Benjamin W. McKenzie, III
SENIOR VICE PRESIDENT
E. K. Prewitt, Jr.
SENIOR VICE PRESIDENT/SECRETARY
Pressley A. Ridgill
SENIOR VICE PRESIDENT/CFO/TREASURER
Dennis H. Burnette
VICE PRESIDENT
I. Scott Johnson, III
VICE PRESIDENT
R. Alex Miller, Jr.
VICE PRESIDENT
Norman H. Riddle
VICE PRESIDENT
Ralph K. Sedberry
VICE PRESIDENT
Patrick M. Vallandingham
VICE PRESIDENT
Lynn H. Weisler
VICE PRESIDENT/CONTROLLER
Benjamin F. Wright
VICE PRESIDENT
<PAGE>
(Security Capital Bancorp logo)
507 WEST INNES STREET, POST OFFICE BOX 1387, SALISBURY, NC 28145-1387
EXHIBIT 22
Security Capital Bancorp has six wholly-owned subsidiaries: Security
Bank and Trust Company, a North Carolina commercial bank; OMNIBANK, Inc., A
State Savings Bank, a North Carolina savings bank; Citizens Savings, Inc.,
SSB, a North Carolina savings bank; Home Savings Bank, Inc., SSB, a North
Carolina savings bank; First Cabarrus Corporation, a North Carolina
corporation; and, Estates Development Corporation, a North Carolina
corporation. Security Bank and Trust Company has one wholly-owned subsidiary,
First Security Credit Corporation, a North Carolina corporation operating as a
consumer finance company.
<PAGE>
(Security Capital Bancorp logo)
507 West Innes Street
Salisbury, North Carolina 28144
NOTICE OF 1994 ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1994
Notice is hereby given that the Annual Meeting of Shareholders (the Annual
Meeting) of Security Capital Bancorp (the Corporation) will be held at the
principal office of the Corporation, 507 West Innes Street, Salisbury, North
Carolina 28144, on Thursday, April 28, 1994 at 2:00 o'clock p.m., Eastern
Daylight Savings Time, for the following purposes:
1. To elect seven directors to serve for three-year terms or until their
successors are duly elected and qualified (Proposal I);
2. To approve the Corporation's Omnibus Stock Ownership and Long Term
Incentive Compensation Plan (Proposal II);
3. To ratify the selection of KPMG Peat Marwick as the independent auditor
of the Corporation for the 1994 year (Proposal III); and
4. To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only shareholders of record at the close of business on March 7, 1994, are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof. It is important that your shares of the Corporation's common stock be
represented at the Annual Meeting to ensure the presence of a quorum.
YOU ARE REQUESTED TO MARK, DATE, AND SIGN THE ACCOMPANYING PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE. THE GIVING OF YOUR PROXY
WILL NOT AFFECT YOUR RIGHT TO LATER REVOKE IT OR TO VOTE IN PERSON AT THE ANNUAL
MEETING.
By Order of the Board of Directors,
(Signature of Miles J. Smith, Jr.)
MILES J. SMITH, JR.
CHAIRMAN OF THE BOARD
March 28, 1994
<PAGE>
(Security Capital Bancorp logo)
PROXY STATEMENT
FOR THE 1994 ANNUAL MEETING OF SHAREHOLDERS
OF SECURITY CAPITAL BANCORP
The solicitation of the enclosed proxy is made by and on behalf of the
Board of Directors of Security Capital Bancorp (the Corporation) to be used at
the 1994 Annual Meeting of Shareholders (the Annual Meeting) to be held at the
principal office of the Corporation at 507 West Innes Street, Salisbury, North
Carolina 28144 on Thursday, April 28, 1994, at 2:00 o'clock p.m., Eastern
Daylight Savings Time, and any adjournments thereof. This Proxy Statement and
the accompanying form of proxy were first mailed to shareholders on or about
March 28, 1994.
The cost of the solicitation of proxies will be borne by the Corporation.
Solicitations of proxies will be made by mail, except that, if necessary,
proxies may be solicited personally or by telephone by directors, officers and
employees of the Corporation or its subsidiaries, none of whom will receive
special compensation for their efforts. Brokerage houses and nominees have been
requested to forward these proxy materials to the beneficial owners of shares
held of record by such persons, and upon request, the Corporation will reimburse
such persons for the reasonable out-of-pocket expenses thereby incurred.
VOTING SECURITIES
As of March 7, 1994, the Corporation had outstanding 11,710,391 shares of
its common stock, no par value per share (the Common Stock), each of which is
entitled to one vote on each matter calling for a vote of shareholders at the
Annual Meeting. Only shareholders of record at the close of business on March 7,
1994, will be entitled to vote at the Annual Meeting or any adjournments
thereof. At the close of business on that date, there were approximately 3,153
shareholders of record.
The holders of a majority of the outstanding shares of Common Stock present
in person or represented by proxy at the Annual Meeting will constitute a
quorum. Since many of the shareholders cannot attend the Annual Meeting, it is
necessary that a large number be represented by proxy. Accordingly, the Board of
Directors has designated proxies to represent those shareholders who cannot be
present in person and who desire to be so represented.
Any shareholder may withhold on the form of proxy the authority for the
proxyholders to vote for any nominee for election to the Board of Directors and
may vote for, against, or abstain from voting on any other matter to come before
the Annual Meeting. If the enclosed proxy is properly marked, signed, dated and
returned, and not revoked, it will be voted in accordance with the instructions
thereon. If no instructions are given, the proxy will be voted for the nominees
for election to the Board of Directors named herein and for the other matters
noted herein calling for a vote of the shareholders. If instructions are given
with respect to some but not all proposals, such instructions as are given will
be followed, but the proxy will be voted for the proposals on which no
instructions are given. Should other matters properly come before the Annual
Meeting, the proxyholders will vote the proxies thereon in accordance with their
best judgment.
Proxies may be revoked at any time before they are exercised by (i) filing
a written notice of revocation with the Secretary of the Corporation, (ii)
filing a duly executed proxy bearing a later date, or (iii) personally appearing
at the Annual Meeting and electing to vote in person.
1
<PAGE>
PROPOSAL I
ELECTION OF DIRECTORS
The Restated Articles of Incorporation of the Corporation (the Restated
Articles) provide that the number of directors of the Corporation shall be not
less than nine nor more than thirty, with the exact number to be fixed from time
to time as set forth in the By-Laws of the Corporation. The By-Laws provide that
the number of directors from time to time shall be determined by the Board of
Directors within the minimum and maximum numbers established in the Restated
Articles. At its meeting on January 27, 1994, the Board of Directors fixed the
number of directors constituting the entire Board at twenty-one, effective as of
the Annual Meeting. The Restated Articles and By-Laws also provide that the
directors shall be divided into three classes having staggered three-year terms
so that the terms of approximately one-third of the directors will expire each
year. The By-Laws provide that no person age 70 years or older will be eligible
to hold office as a director past the Annual Meeting of Shareholders following
such director's 70th birthday.
The terms of seven of the members of the Board of Directors expire at the
Annual Meeting. The Board of Directors has nominated these persons for
re-election as directors for three-year terms ending in 1997.
The persons named in the accompanying form of proxy intend to vote any
shares of Common Stock represented by valid proxies that they receive to elect
the seven nominees listed below as directors, unless authority to vote is
withheld or such proxies are revoked. If elected, each nominee will serve until
the Annual Meeting of Shareholders in 1997, or until his successor shall be
elected and qualify to serve. In the event that any of the nominees should
become unavailable to accept nomination or election, it is intended that the
proxyholders will vote for the election in his stead of such other person as the
present Board of Directors may recommend. The present Board of Directors has no
reason to believe that any of the nominees named herein will be unable to serve
if elected to office. Under the North Carolina Business Corporation Act (the
NCBCA), to be elected as a director a nominee need only receive a plurality of
the votes cast. Accordingly, shares not voted for any reason respecting one or
more nominees will not be counted as votes against such nominees. Because the
Corporation is a public corporation, as defined under the NCBCA, no shareholder
has the right to cumulatively vote his or her shares in the election of
directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL OF THE NOMINEES FOR
ELECTION AS DIRECTORS.
2
<PAGE>
The following table sets forth certain information concerning each person
nominated for election as a director and each person whose term of office as a
director will continue after the Annual Meeting.
<TABLE>
<CAPTION>
DIRECTOR OF THE
NAME AGE CORPORATION SINCE
<S> <C> <C>
NOMINEES FOR ELECTION AS DIRECTORS FOR TERMS EXPIRING
IN 1997:
John M. Barnhardt 57 1988*
Edward A. Brown 65 1984
Henry B. Gaye 65 1988
Dan L. Gray 60 1991*
Ervin E. Lampert, Jr. 58 1988*
Harold Mowery 58 1988*
Fred J. Stanback, Jr. 64 1983
DIRECTORS CONTINUING IN OFFICE
UNTIL 1995:
William C. Kluttz, Jr. 47 1988
F. Taft McCoy, Jr. 62 1985
W. Erwin Spainhour 50 1988*
Jimmy K. Stegall 63 1990
Thomas A. Tate, Sr. 66 1989*
E. William Wagoner 46 1988
James L. Williamson 61 1991*
DIRECTORS CONTINUING IN OFFICE
UNTIL 1996:
Ralph A. Barnhardt 58 1988*
Lloyd G. Gurley 54 1991
David B. Jordan 57 1988*
William G. Loeblein 68 1988*
J. G. Rutledge, III 68 1983
Carl M. Short, Jr. 44 1992
Miles J. Smith, Jr. 65 1983
</TABLE>
* Includes years of service as a director of Omni Capital Group, Inc. (Omni)
which was merged with and into the Corporation on June 30, 1992 (the Merger).
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS; COMMITTEES
During the year ended December 31, 1993, the Board of Directors held six
meetings. All incumbent directors and nominees attended 75% or more of the
aggregate number of meetings of the Board of Directors and committees of the
Board on which they served occurring during the period of their service in 1993.
The Corporation's Board of Directors has several standing committees,
including an Audit Committee, an Executive Committee, a Nominating Committee,
and a Compensation and Personnel Committee.
The Audit Committee currently consists of Messrs. Barnhardt (John M.),
Gaye, McCoy, Mowery and Williamson (Chairman). The Audit Committee is
responsible for reviewing the records and affairs of the Corporation to
determine its financial condition and reviewing with management and the
independent auditors the Corporation's systems of internal control. The Audit
Committee met four times during 1993.
The Executive Committee currently consists of Messrs. Barnhardt (Ralph A.)
(Chairman), Gurley, Jordan and Smith. The function of the Executive Committee is
to carry on any necessary business of the Corporation between regularly
scheduled meetings of the Board of Directors. The Executive Committee met nine
times during 1993.
The Nominating Committee, which currently consists of Messrs. Kluttz
(Chairman), Short and Smith (and EX OFFICIO members Messrs. Gurley and Jordan),
recommends to the Board of Directors nominees for election as directors and
considers the performance of incumbent directors in determining whether or not
to nominate them for re-election. The Nominating Committee met one time during
1993. The Nominating Committee will consider written nominations of candidates
for election to the Board of Directors submitted by shareholders to the
Secretary of the Corporation that are accompanied by the nominee's biographical
material and such other information as is required to be disclosed in the proxy
3
<PAGE>
materials concerning all nominees for director and the shareholder's name,
address and number of shares owned. Nominations and such information must be
received no more than 75 days and no less than 50 days prior to the date of the
relevant Annual Meeting of Shareholders in order to be considered for the slate
of nominees for election as directors at such meeting.
The Compensation and Personnel Committee, currently consists of Messrs.
Brown, Lampert (Chairman), Loeblein and Wagoner (and EX OFFICIO members Messrs.
Barnhardt, Gurley, Jordan and Smith). This Committee is responsible for
reviewing the Corporation's policies regarding general employment matters,
personnel administration, employee benefit programs, and similar areas. It also
reviews and makes recommendations to the full Board regarding the levels and
types of compensation paid and proposed for payment to the senior executive
officers of the Corporation and its subsidiaries. The Compensation and Personnel
Committee met twelve times in 1993.
DIRECTOR COMPENSATION
Each member of the Corporation's Board of Directors, except those who are
employees of the Corporation, receive an annual retainer of $2,500, a fee of
$625 for each Board meeting attended, a fee of $325 for each meeting of a
committee of the Board attended, and are entitled to receive reimbursement for
travel expenses incurred in connection with all Board and committee meetings.
Miles J. Smith, Jr., Chairman of the Board, receives an additional retainer of
$600 per month. Directors of the Corporation, except those who are employees of
the Corporation, who also serve as directors of a banking subsidiary of the
Corporation are paid a retainer of $2,500, a fee of $625 for each Board
meeting attended, and a fee of $250 for each meeting of a committee of the
Board attended. Directors of the Corporation, except those who are employees
of the Corporation, who also serve as directors of non-banking subsidiaries are
compensated for such services at a rate of $100 per meeting.
Effective January 1, 1993, the Corporation adopted a Directors' Deferred
Compensation Plan into which pre-existing director deferred compensation plans
of OMNIBANK, SSB (OMNIBANK) and Security Bank were merged. Under this Plan, each
director of the Corporation and Security Bank may elect to defer some or all of
the compensation received by him as a director. All amounts deferred are
credited to his Plan account, are conveyed to trusts created under the Plan and
are deemed to earn income each quarter at the average yield for the second month
of such quarter of three-year U.S. Treasury obligations (constant maturity) as
reported by the Federal Reserve (the Average Yield). In the event that the
actual earnings of a trust for such quarter are less than the Average Yield, the
creator of the trust (e.g., Security Bank as the creator of the trust for
Security Bank directors) contributes to the trust the difference between the
actual earnings and the Average Yield. Amounts credited to a director's Plan
account and held in the applicable trust are distributed to him or his estate in
monthly installments, beginning on the first day on the month following his
retirement as a director, death or disability, over a period of ten or fifteen
years (depending on whether the director has retired, is deceased or has become
disabled). In the event of a change in control (as defined in the Plan) of the
Corporation, in certain circumstances the directors would receive payment of all
amounts credited to their Plan accounts in a lump sum.
INFORMATION CONCERNING DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The principal occupation of each nominee for election to the Board of
Directors, each director whose term will not expire at the Annual Meeting and
each executive officer of the Corporation, as well as certain other information
with respect to each such individual, is set forth below. Unless otherwise
noted, all such persons have maintained their respective principal occupations
for at least five years.
DIRECTORS AND NOMINEES
JOHN M. BARNHARDT is the President and Chief Executive Officer of
Barnhardt, Walker & Strickland, Inc., Concord, North Carolina, a company engaged
in advertising and public relations. Mr. Barnhardt is also a director of
Citizens Savings, SSB, a subsidiary of the Corporation (Citizens). Mr. Barnhardt
is not related to Ralph A. Barnhardt.
RALPH A. BARNHARDT is a Vice-Chairman of the Board of Directors, a position
he has held since the Merger, and is also the Chairman of the Board of
Directors, President and Chief Executive Officer of Citizens. Mr. Barnhardt was
Chairman of the Board of Directors of Omni prior to the Merger. Mr. Barnhardt is
also a director of OMNIBANK, Security Bank and Home Savings Bank, SSB (Home
Savings), a subsidiary of the Corporation. He is a past Chairman of the North
Carolina Alliance of Community Financial Institutions. Mr. Barnhardt is not
related to John M. Barnhardt.
EDWARD A. BROWN is the President and Treasurer of W.A. Brown & Son, Inc.,
Salisbury, North Carolina, a manufacturer of refrigeration units. Mr. Brown is
also a director of Security Bank.
4
<PAGE>
HENRY B. GAYE is the President of Gaye Chevrolet, Inc., Marshville, North
Carolina, an automobile dealership. Mr. Gaye is also a director of Security
Bank.
DAN L. GRAY is the Executive Director of The Cannon Foundation, Inc.,
Concord, North Carolina, a charitable foundation. Mr. Gray is also a director of
Citizens.
LLOYD G. GURLEY has been the President of the Corporation and Security Bank
since August 20, 1990, and has been the Chief Executive Officer of Security Bank
since April 17, 1991. He was Chief Executive Officer of the Corporation from
April 17, 1991 until the Merger (as of the Merger he became Chief Administrative
Officer of the Corporation, as well as its President). Prior to August 20, 1990,
Mr. Gurley was a Senior Vice President of Wachovia Bank of North Carolina, N.A.
in Durham, North Carolina. Mr. Gurley is also a director of OMNIBANK, Citizens,
Home Savings and Security Bank.
DAVID B. JORDAN is a Vice-Chairman of the Board of Directors and the Chief
Executive Officer of the Corporation, and is also the President, Chief Executive
Officer and a director of OMNIBANK. He is also a director of Citizens, Home
Savings and Security Bank, and is a past Chairman of the North Carolina Alliance
of Community Financial Institutions. Prior to the Merger, Mr. Jordan was
President and Chief Executive Officer of Omni. Mr. Jordan is a director of the
Charlotte branch of the Federal Reserve Bank of Richmond.
WILLIAM C. KLUTTZ, JR. is a partner in the law firm of Kluttz, Reamer,
Blankenship & Hayes, Salisbury, North Carolina. Mr. Kluttz's law firm received
fees during the Corporation's fiscal year ended December 31, 1993, and has also
received fees from that date to the present for certain legal work performed for
Security Bank. Mr. Kluttz is also a director of Security Bank.
ERVIN E. LAMPERT, JR. is the retired President of R.W. Norman Company,
Salisbury, North Carolina, a company engaged in the manufacture of home
furnishings. Mr. Lampert is also a director of OMNIBANK.
WILLIAM G. LOEBLEIN is the retired President of Loeblein Brothers, Inc.,
Salisbury, North Carolina, a manufacturer of upholstered furniture. Mr. Loeblein
is also Chairman of the Board of Directors of OMNIBANK.
F. TAFT McCOY, JR. is the owner of McCoys Realty, Albemarle, North
Carolina, and is an independent contractor/securities broker for B.F. Holdridge
& Co., a securities brokerage firm in Southern Pines, North Carolina. Formerly,
Mr. McCoy was an independent contractor/securities broker for J. Lee Peeler &
Co., Durham, North Carolina, and was Branch Manager, Social Security
Administration, Albemarle, North Carolina. He is also a director of Security
Bank.
HAROLD MOWERY is Vice President of Wagoner Construction Company, Salisbury,
North Carolina, a company engaged in the commercial and industrial construction
business. Mr. Mowery is also a director of OMNIBANK.
J. G. RUTLEDGE, III was the Chairman of the Board of Directors and Chief
Executive Officer of the Corporation and Security Bank until April 17, 1991, and
also was the President of the Corporation and Security Bank until August 20,
1990. Mr. Rutledge served as a consultant to Security Bank from April 17, 1991
until April 30, 1992. He is also a director of Security Bank.
CARL M. SHORT, JR. is a partner in the law firm of Woodson, Ford, Sayers,
Lawther, Short, Parrott & Hudson, Salisbury, North Carolina. Mr. Short's law
firm received fees during the Corporation's fiscal year ended December 31, 1993,
and has received fees from that date to the present for certain legal work
performed for OMNIBANK. Mr. Short is also a director of OMNIBANK.
MILES J. SMITH, JR. is the Chairman of the Boards of Directors of the
Corporation and Security Bank. He is also a director of Citizens, OMNIBANK and
Home Savings. He is the Chairman of the Board of Directors of Premtec, Inc.,
China Grove, North Carolina, a manufacturer of industrial rubber products, and a
private investor.
W. ERWIN SPAINHOUR is the President of the law firm of Hartsell, Hartsell &
Mills, P.A., Concord, North Carolina. Mr. Spainhour's law firm received fees
during the Corporation's fiscal year ended December 31, 1993, and has received
fees from that date to the present for certain legal work performed for
Citizens. Mr. Spainhour is also a director of Citizens.
FRED J. STANBACK, JR. is a private investor in Salisbury, North Carolina.
He is also a director of Security Bank.
JIMMY K. STEGALL is the President of Stegall Builders Mart, Inc.,
Marshville and Monroe, North Carolina, a retail building supply company. Mr.
Stegall is also a director of Security Bank.
5
<PAGE>
THOMAS A. TATE, SR. was Chief Executive Officer of Home Savings until
December 31, 1992 and continues to hold the office of President. Mr. Tate is
also Chairman of the Board of Directors of Home Savings.
E. WILLIAM WAGONER is the Chairman of the Board of Directors and the
President of Wagoner Construction Company, Salisbury, North Carolina, a company
engaged in the commercial and industrial construction business. Mr. Wagoner is
also a director of Security Bank.
JAMES L. WILLIAMSON is a retired audit partner of KPMG Peat Marwick,
certified public accountants, a position held from 1970 until June 1990. Mr.
Williamson is also a director of Home Savings.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
YEAR
FIRST
NAME AGE POSITION APPOINTED
<S> <C> <C> <C>
Ralph A. Barnhardt 58 Vice-Chairman 1992
Lloyd G. Gurley 54 President and Chief Administrative
Officer 1990
David B. Jordan 57 Vice-Chairman and Chief Executive
Officer 1992
Pressley A. Ridgill 41 Senior Vice-President, Treasurer and
Chief Financial Officer 1992(1)
Edward K. Prewitt, Jr. 47 Senior Vice-President and Secretary 1992(2)
</TABLE>
(1) Mr. Ridgill is a certified public accountant. He was the Vice-President and
Chief Financial Officer of Omni from February 1989 until the Merger.
Previously, he was a senior manager with KPMG Peat Marwick, an independent
public accounting firm. Mr. Ridgill is also the Vice-President and Chief
Financial Officer of Citizens, Home Savings, OMNIBANK and Security Bank.
(2) Mr. Prewitt is a certified public accountant. He is also a Vice-President
and Chief Operating Officer of Citizens. He was a director of Omni until
January 1990 when he resigned to become an executive officer of Omni and
Citizens. Previously, he was the treasurer and chief financial officer of
Morrison Brothers, Inc., a company engaged in the building supply business.
6
<PAGE>
OWNERSHIP OF SECURITIES OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth as of February 1, 1994 the number of shares of
the Corporation's Common Stock beneficially owned by each director, each nominee
for election to the Board of Directors, and each executive officer of the
Corporation named in the Summary Compensation Table set forth below. Also shown
in each instance is information as to the beneficial ownership of all of the
current directors, the nominees for election and the Corporation's executive
officers (named in the Summary Compensation Table) as a group. All such
information is based on reports made to the Corporation by the persons listed.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF OF COMMON STOCK PERCENT OF
DIRECTOR OR OFFICER BENEFICIALLY OWNED COMMON STOCK
<S> <C> <C>
DIRECTORS:
John M. Barnhardt 18,597(2) *
Ralph A. Barnhardt 131,939(3)(4) 1.12
Edward A. Brown 2,979 *
Henry B. Gaye 82,387(5) *
Dan L. Gray 16,872 *
Lloyd G. Gurley 22,908(6) *
David B. Jordan 136,920(3)(7) 1.16
William C. Kluttz, Jr. 9,698(8) *
Erwin E. Lampert, Jr. 13,894(9) *
William G. Loeblein 21,262(10) *
F. Taft McCoy, Jr. 74,756(11) *
Harold Mowery 12,757(12) *
J. G. Rutledge, III 48,781(13) *
Carl M. Short, Jr. 32,804(14) *
Miles J. Smith, Jr. 134,474(15) 1.15
W. Erwin Spainhour 8,345 *
Fred J. Stanback, Jr. 225,120(16) 1.92
Jimmy K. Stegall 46,228(17) *
Thomas A. Tate, Sr. 34,403 *
E. William Wagoner 16,925(18) *
James L. Williamson 8,088(1) *
EXECUTIVE OFFICERS:
Pressley A. Ridgill 45,733(3)(19) *
All directors, nominees and
executive officers as a
group (22 persons) 1,145,870 9.61
</TABLE>
* Less than 1%
(1) Includes 7,088 shares of Common Stock that such individual has the right to
purchase pursuant to currently exercisable stock options granted under one
or more of the stock option plans of Omni continued by the Corporation
pursuant to the Merger (the Option Plans). See Executive
Compensation -- Stock Option Plans below.
(2) Includes 3,866 shares held by Mr. Barnhardt's spouse.
(3) Other than shares allocated to such person's individual accounts, does not
include shares held by the ESOP or the Incentive Plan. See Executive
Compensation -- Employee Stock Ownership and Profit Sharing Plans below.
Such person serves as a member of the Trustee and of the Administrative
Committee of the ESOP, each of which share dispositive power over the
shares held by the ESOP. At February 1, 1994, the ESOP held 467,348 shares,
or 3.99%, of the Common Stock, and the Incentive Plan held 12,866 shares,
or .11%.
(4) Includes 84,375 shares that Mr. Barnhardt has the right to purchase
pursuant to currently exercisable stock options granted under one of the
Option Plans, 3,688 shares jointly owned by Mr. Barnhardt and his spouse,
2,594 owned by Mr. Barnhardt's spouse, 486 shares owned by his children,
37,540 shares allocated to his ESOP accounts, and 224 shares allocated to
his Incentive Plan accounts.
(5) Includes 22,862 shares held by Mr. Gaye's spouse and 2,126 shares held by a
corporation which he controls.
7
<PAGE>
(6) Includes 2,000 shares held by Mr. Gurley's spouse and 218 shares allocated
to his Incentive Plan accounts.
(7) Includes 75,500 shares that Mr. Jordan has the right to purchase pursuant
to currently exercisable stock options granted under one or more of the
Option Plans, 5,000 shares held by his spouse, 40,081 shares allocated to
his ESOP accounts, and 210 shares allocated to his Incentive Plan accounts.
(8) Includes 1,816 shares held by Mr. Kluttz as custodian for a minor child.
(9) Includes 1,293 shares owned by Mr. Lampert's spouse and 2,700 shares held
in a trust of which he is co-trustee.
(10) Includes 7,087 shares over which Mr. Loeblein has shared voting and
investment power.
(11) Includes 23,500 shares held by Mr. McCoy's spouse. Mr. McCoy disclaims any
beneficial interest in such shares.
(12) Includes 2,396 shares owned by Mr. Mowery's spouse.
(13) Includes 24,218 shares held by Mr. Rutledge's spouse.
(14) Includes 517 shares held in a trust of which Mr. Short is a co-trustee.
(15) Includes 5,257 shares held by Mr. Smith's spouse, and 3,937 shares held in
a trust over which he has shared voting and investment power.
(16) Includes 23,497 shares held by trusts of which Mr. Stanback is the
co-trustee, and 99,115 shares with respect to which he has a
power-of-attorney. Mr. Stanback shares voting power, but disclaims
beneficial ownership of, these 122,652 shares. Also includes 3,375 shares
held by Mr. Stanback's spouse, but in which he disclaims any beneficial
interest.
(17) Includes 2,777 shares held by Mr. Stegall's spouse.
(18) Includes 3,931 shares held by a corporation of which Mr. Wagoner is the
sole shareholder, 10,219 shares held in a pension plan over which he has
shared voting and investment power, and 625 shares held by him as a
custodian for minor children.
(19) Includes 30,937 shares that Mr. Ridgill has the right to purchase pursuant
to currently exercisable options granted under one or more of the Option
Plans, 9,540 shares allocated to his ESOP accounts, and 175 shares
allocated to his Incentive Plan accounts.
As of March 7, 1994, no shareholder was known to the Corporation to the
beneficial owner of more than five percent (5%) of the Common Stock of the
Corporation.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation received by
David B. Jordan, the Corporation's Chief Executive Officer, Ralph A. Barnhardt,
Lloyd G. Gurley and Pressley A. Ridgill from the Corporation and its
subsidiaries during the years ended December 31, 1993 and 1992, and by Mr.
Gurley during the year ended December 31, 1991. Messrs. Jordan, Barnhardt and
Ridgill first became officers of the Corporation on June 30, 1992 as a result of
the Merger.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
AWARDS
PAYOUTS
(E) (F) (G)
(B) ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES (H)
(A) YEAR ANNUAL STOCK UNDERLYING LTIP
NAME AND ENDED (C) (D) COMPENSATION AWARDS OPTIONS/ PAYOUTS
PRINCIPAL POSITION DECEMBER 31, SALARY BONUS($) ($) ($) SARS ($)
<S> <C> <C> <C> <C> <C> <C> <C>
David B. Jordan, 1993 $174,257(5) $141,995(12) $-0- $-0- -0- $ -0-
Vice Chairman and 1992 80,000(6) 32,000(13) -0- -0- -0- -0-
Chief Executive
Officer(1)
Ralph A. Barnhardt, 1993 $154,940(7) $ 67,968(14) $-0- $-0- -0- $ -0-
Vice-Chairman(2) 1992 59,724(8) 24,000(15) -0- -0- -0- -0-
Lloyd G. Gurley, 1993 $160,516(9) $ 84,509(16) $-0- $-0- -0- $ -0-
President and Chief 1992 162,678(9) 50,000(17) -0- -0- -0- -0-
Administrative 1991 150,159(9) 12,048 -0- -0- -0- -0-
Officer(3)
Pressley A. Ridgill, 1993 $108,101(10) $ 38,020(18) $-0- $-0- -0- $ -0-
Senior Vice-President 1992 62,786(11) 9,200(19) -0- -0- -0- -0-
and Treasurer and
Chief Financial
Officer(4)
<CAPTION>
(I)
(A) ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION ($)
<S> <C><C>
David B. Jordan, $ 23,749(20)
Vice Chairman and 20,242(20)
Chief Executive
Officer(1)
Ralph A. Barnhardt, $ 17,739(21)
Vice-Chairman(2) 12,071(21)
Lloyd G. Gurley, $ 12,656(22)
President and Chief 39,029(23)
Administrative -0-
Officer(3)
Pressley A. Ridgill, $ 8,539(24)
Senior Vice-President 7,061(24)
and Treasurer and
Chief Financial
Officer(4)
</TABLE>
(1) Mr. Jordan is also the President and Chief Executive Officer of OMNIBANK.
(2) Mr. Barnhardt is also the Chairman, President and Chief Executive Officer
of Citizens.
(3) Mr. Gurley is also the President and Chief Executive Officer of Security
Bank.
(4) Mr. Ridgill is also a Vice-President and Chief Financial Officer of
Security Bank, OMNIBANK, Citizens and Home Savings.
(5) Includes salary received by Mr. Jordan from OMNIBANK. Also includes
deferred compensation.
(6) Includes salary received by Mr. Jordan from the Corporation and OMNIBANK
during the period from July 1, 1992 through December 31, 1992. Also
includes deferred compensation.
(7) Includes salary received by Mr. Barnhardt from Citizens.
(8) Includes salary received by Mr. Barnhardt from the Corporation and Citizens
during the period from July 1, 1992 through December 31, 1992.
(9) Includes salary received by Mr. Gurley from Security Bank. Also includes
deferred compensation.
(10) Includes salary received by Mr. Ridgill from First Cabarrus Corporation, a
wholly-owned subsidiary of the Company (FCC).
(11) Includes salary received by Mr. Ridgill from FCC during the period from
July 1, 1992 through December 31, 1992.
(12) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for 1993.
(13) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for the period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under the Plan prior to the Merger.
(14) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for 1993.
(15) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for the period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under the Plan prior to the Merger.
(16) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for 1993.
(17) Includes bonuses accrued under the Executive Management Compensation Plan
for 1992.
9
<PAGE>
(18) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for 1993.
(19) Includes bonuses accrued under the Executive Management Incentive
Compensation Plan for the period from July 1, 1992 through December 31,
1992. Does not include bonuses accrued under the Plan prior to the Merger.
(20) Includes premiums paid by the Corporation or one of its subsidiaries with
respect to term life insurance for the benefit of Mr. Jordan and
contributions allocated to Mr. Jordan's accounts under the ESOP and the
Incentive Plan (or, in 1992, the Profit Sharing Plan).
(21) Includes premiums paid by the Corporation or one of its subsidiaries with
respect to term life insurance for the benefit of Mr. Barnhardt and
contributions allocated to Mr. Barnhardt's accounts under the ESOP and the
Incentive Plan (or, in 1992, the Profit Sharing Plan).
(22) Includes premiums paid by the Corporation or one of its subsidiaries with
respect to term life insurance for the benefit of Mr. Gurley and
contributions made to Mr. Gurley's accounts under the Incentive Plan.
(23) Includes premiums paid by the Corporation or one of its subsidiaries with
respect to term life insurance for the benefit of Mr. Gurley, contributions
allocated to Mr. Gurley's accounts under the Security Bank Profit Sharing
Plan (described below), and a moving allowance granted to Mr. Gurley.
(24) Includes contributions allocated to Mr. Ridgill's accounts under the ESOP
and the Incentive Plan (or, in 1992, the Profit Sharing Plan).
The following table sets forth certain information concerning options to
purchase Common Stock held by Messrs. Jordan, Barnhardt and Ridgill during the
year ended December 31, 1993 and the value of unexercised options as of December
31, 1993. Messrs. Jordan, Barnhardt and Ridgill held options to acquire shares
of Omni's common stock which, pursuant to the Merger, were converted into
options to acquire shares of the Corporation's Common Stock. Mr. Gurley does not
presently hold options to acquire Common Stock.
AGGREGATED OPTIONS/SAR EXERCISED IN 1993 AND DECEMBER 31, 1993 OPTIONS/SAR VALUE
<TABLE>
<CAPTION>
(E)
(D) VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
(B) OPTIONS/SARS AT OPTIONS/SARS AT
NUMBER OF DECEMBER 31, 1993(1) DECEMBER 31, 1993(2)
(A) SHARES ACQUIRED (C) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
David B. Jordan 8,875 $ 97,093(3) 75,500 $ 651,188
Ralph A. Barnhardt -0- -0- 84,375 $ 643,359
Lloyd G. Gurley -0- -0- -0- $ -0-
Pressley A. Ridgill -0- -0- 30,937 $ 248,269
</TABLE>
(1) All options listed are currently exercisable.
(2) Calculated using the average of the bid and ask quotations for the
Corporation's Common Stock as reported by the National Market System of
National Association of Securities Dealers Automated Quotation System
(NASDAQ-NMS) for December 31, 1993 and the average exercise price of the
options.
(3) Value realized calculated using the average of the bid and asked quotations
for the Corporation's Common Stock as reported by the NASDAQ-NMS for the
date of exercise.
PENSION AND RETIREMENT PLANS
Prior to the Merger, Omni maintained an Employees' Pension Plan and
Security Bank maintained a Retirement Plan. These Plans were continued by the
Corporation as separate plans from July 1, 1992 through December 31, 1992, with
the former employees of Omni and the employees of its former subsidiaries,
including OMNIBANK, Citizens and Home Savings, continuing participation in the
Omni Pension Plan, and the employees of Security Bank and its subsidiary prior
to the Merger continuing participation in the Security Bank Retirement Plan.
Effective January 1, 1993, these Plans were merged into a single Employees'
Pension Plan (the Pension Plan).
The Pension Plan covers all employees of the Corporation and its
subsidiaries who were participants in the Omni and Security Bank Plans on
December 31, 1992, and all employees of the Corporation and its subsidiaries who
thereafter complete one year of service and attain the age of 21. Messrs.
Jordan, Barnhardt, Gurley and Ridgill are participants in the
10
<PAGE>
Pension Plan. Upon the later of age 65 and the fifth anniversary of an
employee's participation in the Pension Plan, and subject to certain
limitations, the employee is entitled to receive monthly 1/12 of the sum of (a)
his accrued benefits as of December 31, 1992 under the Omni or Security Bank
Plans, if any, (b) 2% of his final average compensation (as defined under the
Pension Plan) for the first five years of credited service beginning on or after
January 1, 1993, (c) 1% of his final average compensation for his next 30 years
of credited service, if any, and (d) .65% of the excess of his final average
compensation over the applicable Social Security Covered Compensation in effect
at the beginning of the plan year in which the employee reaches age 65
multiplied by the employee's years of service (up to a maximum of 35 years).
Social Security Covered Compensation consists of the average (without indexing)
of the taxable wage bases in effect during the 35 year period ending with the
last day of the calendar year in which the employee attains or will attain
Social Security retirement age. Generally, early retirement, with reduced
monthly benefits, is available at age 55 after five years of services. Accrued
benefits under the Pension Plan, other than those accrued benefits under the
Omni and Security Bank Plans which became vested upon the adoption of the
Pension Plan, are 100% vested upon the completion of five years of service.
However, the accrued benefits of an employee who becomes disabled prior to
qualifying to receive monthly benefits upon normal or early retirement are
vested, and the disabled employee is entitled to receive monthly benefits at a
reduced rate or, in certain circumstances, a lump sum payment of the present
value of his benefits.
The following table sets forth the estimated annual benefits payable under
the Pension Plan, based upon payment of a term certain and life annuity to
participants at normal retirement age, in the final average compensation and
years of service classifications specified. Because the applicable Social
Security Covered Compensation for purposes of the benefit formula depends upon
the age of the participant, the estimated annual benefits payable are computed
assuming the participant is age 65. The estimated benefits listed below are not
subject to any deduction for Social Security or other offset amounts. As of
December 31, 1993, final average compensation for purposes of computing benefits
under the Pension Plan of the Corporation's executive officers named in the
Summary Compensation Table were as follows: Mr. Jordan, $167,713; Mr. Barnhardt,
$155,605; Mr. Gurley, $136,327; and Mr. Ridgill, $95,696. At age 65, Messrs.
Jordan, Barnhardt, Gurley and Ridgill are expected to have completed nine,
eight, twelve and 24 years, respectively, of service.
<TABLE>
<CAPTION>
YEARS OF SERVICE
FINAL AVERAGE ANNUAL COMPENSATION 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$100,000.................................................... $19,901 $27,352 $34,802 $42,253 $49,703 $57,154
125,000.................................................... 25,276 34,789 44,302 53,815 63,328 72,841
150,000.................................................... 30,651 42,227 53,802 65,378 76,953 88,529
175,000.................................................... 30,651 42,227 53,802 65,378 76,953 88,529
200,000.................................................... 30,651 42,227 53,802 65,378 76,953 88,529
225,000.................................................... 30,651 42,227 53,802 65,378 76,953 88,529
</TABLE>
EMPLOYEE STOCK OWNERSHIP AND PROFIT SHARING PLANS
Prior to the Merger, Omni maintained an Employee Stock Ownership Plan (the
ESOP) for the benefit of employees of Omni and its subsidiaries, and Security
Bank maintained a profit sharing plan for its employees (the Profit Sharing
Plan). The ESOP was adopted and continued by the Corporation upon the Merger.
The Corporation continues to make nominal contributions to the ESOP. The Profit
Sharing Plan was continued through December 31, 1992, and a contribution was
made to that Plan by Security Bank for the year then ended. The Corporation
established an Employees' Incentive Profit Sharing and Savings (401(k) Plan,
effective January 1, 1993 (the Incentive Plan), for the benefit of its and its
subsidiaries' employees. As of January 1, 1993, the Corporation and its
subsidiaries began making contributions to the Incentive Plan.
Employees may participate in the Incentive Plan upon the later of the
attainment of age 21 and one year of service. Subject to certain limitations, a
participant may elect to defer from 2% to 10% of his total annual compensation
(whether taken in cash or otherwise deferred by the employee). Also, subject to
certain limitations, the employer of the participant contributes to the
participant's Incentive Plan account an amount equal to one-half of the first 6%
of total annual compensation deferred by the participant. The employer may also
contribute annually to the trust maintained under the Incentive Plan for the
benefit of the Incentive Plan accounts of all participants such profit sharing
amount, within certain limitations, as the Board of Directors may deem
advisable. Messrs. Jordan, Barnhardt, Gurley and Ridgill are participants under
the Incentive Plan.
A participant is at all times fully vested in the accrued benefits
attributable to compensation deferred by him under the Incentive Plan. He is
vested in increments of 20% on each of the first through fifth anniversaries of
his participation in
11
<PAGE>
the Incentive Plan, and remains fully vested after the fifth anniversary, in the
accrued benefits attributable to employer matching contributions and profit
sharing contributions made for the benefit of his accounts. Generally, upon a
participant's retirement at age 65, he is entitled to receive his accrued
benefits (all compensation deferred by the participant and employer
contributions and profit sharing contributions attributable to his Incentive
Plan accounts, plus or minus all income, losses, appreciation, depreciation and
forfeitures, if applicable, attributed to such accounts) under the Incentive
Plan in a lump sum or, at the request of the participant, in substantially equal
quarterly or annual installments over a fixed period of time or by the purchase
of a term certain, nontransferable annuity. Early retirement at age 55 and after
five years of service is permitted under the Incentive Plan, with payment of
accrued benefits under the methods described in the preceding sentence. Upon
death or disability, a participant is fully vested in his accrued benefits, with
payment of such benefits being made to the spouse, or other beneficiary, of the
deceased participant or to the disabled participant under the above-described
methods.
EXECUTIVE MANAGEMENT INCENTIVE COMPENSATION PLAN
In connection with the Merger, the Executive Management Incentive
Compensation Plan (the Management Incentive Plan) maintained by Omni was adopted
and continued by the Corporation for eligible senior management officers of the
Corporation and its operating subsidiaries. Pursuant to the Management Incentive
Plan, participants are eligible to be paid annual incentive awards based on (i)
the realization of certain financial goals by the Corporation and its financial
institution subsidiaries, as established annually by the Chief Executive Officer
and Compensation and Personnel Committee of the Board of Directors, and (ii) an
evaluation of the participant's individual performance and management skills. In
addition, in the discretion of the Compensation and Personnel Committee, other
employees of the Corporation and its subsidiaries are eligible to participate in
this Plan. Such participants are selected based on outstanding contribution to
operational and strategic objectives of the Corporation. Incentive awards for a
fiscal year are accrued as of that year and paid to the participants the
following fiscal year.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE-OF-CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. David B. Jordan and Ralph A. Barnhardt each entered
into an employment agreement with Omni effective December 19, 1988. These
agreements were adopted and continued by the Corporation pursuant to the Merger.
In addition, Mr. Jordan has an employment agreement with OMNIBANK, effective
December 19, 1988, with a current base salary of $193,826 per annum, and Mr.
Barnhardt has an employment contract with Citizens, effective December 19, 1988,
with a current base salary of $128,685 per annum. Each of these agreements
extend through the end of 1997.
Each of these employment agreements contains a covenant not to compete with
the Corporation or its subsidiaries within any county in which the Corporation
or its subsidiaries does business for the term of the agreement and for two
years after termination of such agreement, except in the case of termination
without cause, as defined therein, by the employer thereunder. All salaries
under the employment agreements are subject to review and increase annually by
the Boards of Directors of the respective employers.
The employment agreements of Messrs. Jordan and Barnhardt may be terminated
for cause (as defined therein) by the employer thereunder or upon 60 days'
notice by the employee. Each employment agreement provides that if the employee
is terminated or the nature of his duties is diminished after a change in
control (as defined therein) of the Corporation that has not been approved in
advance by a two-thirds vote of all directors of the Corporation, or if the
employee voluntarily terminates his employment upon certain changes in the
employee's rights or duties after a change in control, whether or not approved
by the directors of the Corporation (including a relocation requiring the
employee to change his permanent residence), he will be entitled to receive his
base salary for each year remaining under the agreement (which base salary shall
automatically be increased 5% per annum) and annual bonuses for the remainder of
the term of the agreement at least equal to 30% of his base salary. The employee
also will continue to be eligible to participate in other benefit plans of the
employer for the remainder of the term of the agreement. Finally, upon such a
change in control that has not been so approved, the then remaining term of the
agreement is automatically extended for a five-year period.
Mr. Gurley entered into five year employment agreements with the
Corporation and Security Bank, effective July 1, 1992, at a current base salary
of $167,568 per annum. Each of Mr. Gurley's agreements contains covenant not to
compete,
12
<PAGE>
salary review and increase, and termination provisions which are the same as
those contained in the employment agreements of Messrs. Jordan and Barnhardt;
provided, however, that each of Mr. Gurley's agreements state that upon
termination of the agreements by the employer, Mr. Gurley shall be entitled to
receive the greater of (i) the compensation and benefits payable under the
agreement for the remainder of its term, and (ii) the severance payment offered
by the employer in its notice of termination.
In 1988, Mr. Ridgill entered into an employment agreement with OMNIBANK
which provides that Mr. Ridgill's employment shall continue for a period of one
year from the date that he receives notice of the termination of the agreement.
The current base salary under this agreement is $105,000. The employment
agreement contains a covenant not to compete with the Corporation (as the
successor of Omni) or any of its subsidiaries within any county in which the
Corporation or its subsidiaries does business for the term of the agreement and
for one year thereafter, except in the case of termination without cause, as
defined therein, by OMNIBANK. Mr. Ridgill's salary under the agreement is
subject to annual review by OMNIBANK's Board of Directors. Under the agreement,
Mr. Ridgill is entitled to participate in the Management Incentive Plan at a
specified rate, and also is entitled to participate in other management and
employee benefit plans that the Corporation or OMNIBANK may from time to time
adopt.
DEFERRED COMPENSATION AGREEMENTS. Messrs. Jordan, Barnhardt and Gurley are
each participants in the Corporation's Senior Management's Deferred Compensation
Plan. Under this Plan, an eligible employee may elect to defer up to 40% of his
annual compensation (as defined in the Plan). The amount deferred, together with
an additional amount equal to the amount that would have been contributed to the
employee's Incentive Plan account but for the employee's election to defer a
portion of his compensation, are credited to his Plan accounts, are conveyed to
a trust created under the Plan by his employer and are deemed to earn income
each quarter at the Average Yield (see -- ELECTION OF DIRECTORS -- Director
Compensation). Generally, in the event that the actual earnings of the trust for
a quarter are less than the Average Yield for that quarter, the creator of the
trust contributes to the trust the difference between the actual earnings and
the Average Yield. With regard to Messrs. Jordan and Gurley, the Plan provides
that the amounts credited to their Plan accounts are deemed to earn income each
quarter at a rate equal to the average percentage yield for the second month of
such quarter reported by Moody's Industrial News Reports for AAA-rated corporate
bonds rather than at the Average Yield.
Upon an employee's retirement, total and permanent disability, death or
other termination of employment, he is entitled to receive all amounts credited
to his Plan accounts in monthly installments over a period of 10 or 15 years
(depending upon the cause of the termination of employment). During this period,
the unpaid balances remaining in the accounts continue to earn income as
described above. In the event of a change in control (as defined in the Plan) of
the Corporation, in certain circumstances participating employees would receive
payment of all amounts credited to their Plan accounts in a lump sum.
STOCK OPTION PLANS.
Prior to the Merger, Omni maintained the Option Plans. The Option Plans
were adopted by the Corporation pursuant to the Merger, although no options
currently are being granted under these Plans, and all options outstanding under
the Option Plans to acquire Omni common stock were converted into options to
acquire the Corporation's Common Stock.
INCENTIVE STOCK OPTION PLAN. The Corporation has continued in effect Omni's
1988 Incentive Stock Option Plan (the Incentive Stock Option Plan), pursuant to
which the Board of Directors may grant options to acquire Common Stock of the
Corporation to a maximum of 35 key employees of the Corporation or its
subsidiaries. Criteria to determine which key employees will be granted options
under this Plan include the duties of the respective employees, their current
and potential contributions to the success of the Corporation and its
subsidiaries and the anticipated number of years of effective service remaining.
Under the Plan, which is intended to qualify under the provisions of Section 422
of the Internal Revenue Code, the price at which shares subject to options may
be purchased must be at least 100% (110% for 10% shareholders) of the fair
market value of the Common Stock on the date of grant of the option. The
options, which may be for terms of up to ten years (five years for 10%
shareholders) are not transferable and, with certain exceptions relating to
death, disability and retirement, are exercisable only while the optionee is
employed by the Corporation or a subsidiary of the Corporation. No options have
been granted under this Plan subsequent to the Merger.
NON-QUALIFIED OPTION PLAN. The Corporation also has continued in effect
Omni's Directors' Non-Qualified Stock Option Plan (the Non-Qualified Option
Plan), pursuant to which persons who were directors of Omni and certain of its
subsidiaries and who were not employees of Omni or its subsidiaries could be
granted options to purchase shares of Omni
13
<PAGE>
common stock. No director who received options under the Incentive Stock Option
Plan or under the stock option plans of OMNIBANK (discussed below) was eligible
to receive options under the Plan. Under this Plan, the price at which shares
subject to option could be purchased was equal to the fair market value of such
shares on the date of the grant of the option. The options, which are for terms
of five years, are not transferable and, with certain exceptions relating to
death or retirement, are exercisable only while the optionee is a director of
the Corporation or one of its subsidiaries. No options have been granted under
this Plan subsequent to the Merger.
OMNIBANK OPTION PLANS. In addition, the Corporation has assumed the
obligations of Omni to issue shares pursuant to the exercise of options
previously granted by OMNIBANK under its 1988 Incentive Stock Option Plan (the
OMNIBANK Incentive Option Plan) and its Amended and Restated 1988 Directors'
Non-Qualified Stock Option Plan (the OMNIBANK Non-Qualified Option Plan), both
of which plans were maintained by OMNIBANK prior to OMNIBANK becoming a
wholly-owned subsidiary of Omni in December 1988. The OMNIBANK Incentive Option
Plan and the OMNIBANK Non-Qualified Option Plan are identical in all material
respects to the Incentive Option Plan and the Non-Qualified Option Plan,
respectively. No more options may be granted under the OMNIBANK Incentive and
Non-Qualified Option Plans.
COMPARISONS OF CUMULATIVE TOTAL
SHAREHOLDER RETURN
The graph set forth below compares the Corporation's cumulative total
shareholder return for the five year period beginning January 1, 1989 and ending
December 31, 1993 to the cumulative total shareholder return during such period
of the CRSP Total Return Index For The NASDAQ Stock Market (U.S. Companies) and
of the CRSP Total Return Index for NASDAQ Bank Stocks, in each case assuming
reinvestment of all dividends paid by the Corporation and the companies in the
applicable Index.
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
(Comparison Graph appears here--see appendix)
14
<PAGE>
REPORT OF COMPENSATION AND PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Personnel Committee of the Corporation's Board of
Directors reviews and makes recommendations to the full Board regarding approval
of the Corporation's compensation programs, including its salary administration
plan, the types and amounts of compensation paid and proposed to be paid to the
Corporation's executive officers, and related matters. The goals of the
Compensation and Personnel Committee are to create compensation packages for
executives and other officers which will attract and retain in the Corporation's
employment persons of outstanding ability, and to provide executives and other
key employees of the Corporation and its subsidiaries greater incentive to make
material contributions to the success of the Corporation, to its shareholders
and to the services it provides to its customers.
The Committee has developed guidelines for its reviews of executive
compensation. Among the factors identified in these guidelines are various
measures of the Corporation's financial and stock market performance, the
executive compensation levels of comparable companies (peer companies), analyses
of the job performances of the Corporation's executive officers and similar
matters. The compensation of the Corporation's executive officers identified in
the Summary Compensation Table has been reviewed and found to be reasonable in
view of the Corporation's performance, as compared with the compensation of
executives in similarly situated positions at peer companies, and under the
guidelines developed by the Committee.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Mr. Jordan is the Vice-Chairman and Chief Executive Officer of the
Corporation and the President and Chief Executive Officer of OMNIBANK. Mr.
Jordan's compensation for 1993 was established by the Corporation's Board of
Directors, taking into consideration the Committee's guidelines and
recommendation, based primarily upon the terms of his employment agreements with
the Corporation and OMNIBANK, the compensation levels of chief executive
officers of peer companies, the compensation levels of other senior executive
officers of the Corporation, the Corporation's general financial performance in
the year ended December 31, 1992, the Corporation's general financial
performance in 1992 compared to peer companies, his banking experience and
expertise, his performance of his responsibilities during 1992, and the
increased responsibilities undertaken by him as a result of the Merger. Mr.
Jordan's compensation for 1994 will be established under these same procedures,
guidelines and analyses.
In connection with the Merger, the Corporation and Omni agreed that the
employment agreements and other compensation contracts of the Corporation and
Omni, and their respective subsidiaries, with their employees prior to the
Merger would be honored by the Corporation after the Merger in accordance with
their terms, subject to such post-Merger modifications to stock option plans,
pension and profit sharing plans, and similar plans as the Corporation's Board
deemed appropriate.
THE DIRECTORS COMPOSING THE COMPENSATION AND PERSONNEL COMMITTEE AND MAKING
THIS REPORT ARE MESSRS. BROWN, LAMPERT, LOEBLEIN AND WAGONER. MESSRS. BARNHARDT
(RALPH A.), GURLEY, JORDAN AND SMITH ARE EX OFFICIO MEMBERS OF THE COMMITTEE.
COMPENSATION AND PERSONNEL COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Barnhardt, Gurley and Jordan are EX OFFICIO members of the
Compensation and Personnel Committee, and are the Presidents and Chief Executive
Officers of Citizens, Security Bank and OMNIBANK, respectively. Messrs. Gurley
and Jordan are senior executive officers, and Mr. Barnhardt is the
Vice-Chairman, of the Corporation. As EX OFFICIO members of the Committee, these
directors participate in Committee discussions but do not vote on any Committee
actions. Moreover, they do not participate in and are not present during
Committee deliberations upon senior executive compensation matters and,
accordingly, did not attend a total of eight Committee meetings in 1993.
15
<PAGE>
TRANSACTIONS WITH MANAGEMENT
The Corporation's directors, officers and principal shareholders, and
persons associated with them, have been customers of, and have had banking
transactions with, subsidiaries of the Corporation and are expected to continue
such relationships in the future. All such transactions were in the ordinary
course of business, and were on substantially the same terms, including interest
rates and collateral requirements, as those prevailing at the time for
comparable transactions with other persons and, in the opinion of management, do
not involve more than the normal risk of collectibility or present other
unfavorable features; provided, however, that prior to May 1, 1989, Citizens had
a policy of extending favorable interest rates on mortgages and consumer loans
to non-employee directors and officers of Citizens. Relevant loans by Citizens
are set forth below:
<TABLE>
<CAPTION>
LARGEST
INDEBTEDNESS OUTSTANDING
SINCE INDEBTEDNESS AT INTEREST
NAME AND POSITION JANUARY 1, 1993 DECEMBER 31, 1993 RATE PAID(1)
<S> <C> <C> <C>
Ralph A. Barnhardt
Director and Vice-Chairman of the
Corporation; Chairman, President and
Chief Executive Officer of Citizens $30,252 $16,541 7.75%
E. K. Prewitt, Jr.
Senior Vice-President and Secretary
of the Corporation 87,946 75,073(2) 7.50%
</TABLE>
(1) Weighted average as of December 31, 1993
(2) Mortgage loan secured by residential property.
The aggregate amount of all extensions of credit to all directors and
executive officers of the Corporation as a group (including their affiliates) as
of December 31, 1993 was approximately $1.88 million, which amount constituted
less than approximately 1.5% of the shareholders' equity in the Corporation as
of that date.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 (the 1934 Act)
requires the Corporation's executive officers and directors, and persons who own
more than ten percent of the Corporation's Common Stock, to file reports of
ownership and changes in ownership with the SEC. Executive officers, directors
and greater than ten percent beneficial owners are required by SEC regulations
to furnish the Corporation with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Corporation and written representations from the Corporation's executive
officers and directors, the Corporation believes that during the year ended
December 31, 1993, its executive officers and directors complied with all
applicable Section 16(a) filing requirements.
PROPOSAL II
APPROVAL OF OMNIBUS STOCK OWNERSHIP AND LONG TERM INCENTIVE PLAN
The Board of Directors has adopted the Corporation's Omnibus Stock
Ownership and Long Term Incentive Plan (the Omnibus Plan) and directed that it
be submitted to the shareholders for approval. The purpose of the Omnibus Plan
is to promote the interests of the Corporation by attracting and retaining in
its employment persons of outstanding ability and to provide executive and other
key employees of the Corporation and its subsidiaries greater incentive to make
material contributions to the success of the Corporation by providing them with
stock and/or stock-based compensation which will increase in value based upon
the market performance of the Corporation's Common Stock and/or the corporate
achievement of financial and other performance objectives. The Omnibus Plan is
intended to replace the currently existing Option Plans.
Employees of the Corporation and its subsidiaries who are within designated
job grade classifications under the Corporation's salary administration plan and
who are designated as eligible participants by the Committee administering the
Plan may receive awards of Rights (as defined below) under the Omnibus Plan.
Upon the approval of the Omnibus Plan, it is currently anticipated that
approximately 25 employees, including Messrs. Jordan, Barnhardt, Gurley and
Ridgill,
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will be so designated, and that Options (as defined below) to acquire 60,000
shares of Common Stock (with 30,000 Options being granted to Mr. Gurley) will be
granted to designated employees. The benefits which may be received by
participants in the Omnibus Plan are not determinable. On March 25, 1994, the
bid and ask quotations for the Company's Common Stock on the NASDAQ-NMS were
$13.50 and $14.00.
The Omnibus Plan is administered by the Compensation and Personnel
Committee of the Board of Directors (the Committee), the regular members of
which are ineligible to participate in the Omnibus Plan. Subject to the terms of
the Omnibus Plan, the Committee has authority to construe and interpret the
Omnibus Plan, to determine the terms and provisions of Rights (as defined below)
to be granted under the Omnibus Plan, to define the terms used in the Omnibus
Plan and in the Rights granted thereunder, to prescribe, amend and rescind rules
and regulations relating to the Omnibus Plan, to determine the individuals to
whom and the times at which Rights shall be granted and the number of shares to
be subject to, or to underlie, each Right awarded, and to make all other
determinations necessary or advisable for the administration of the Omnibus
Plan. Each grant of a Right will be evidenced by a written agreement containing
such terms and conditions consistent with the Omnibus Plan as the Committee may
determine. If this Proposal II is approved by the shareholders, the number of
shares available under the Omnibus Plan for grants of Rights will be 300,000,
subject to appropriate adjustment for stock splits, stock combinations,
reclassifications and similar changes.
RIGHTS WHICH MAY BE GRANTED
Under the Omnibus Plan, the Committee may grant eligible participants
options to acquire shares of the Corporation's Common Stock, awards of rights to
receive restricted shares of Common Stock, awards of long term incentive units
(each equivalent in value to one share of Common Stock), and/or awards of stock
appreciation rights (each equivalent to the cash value of one share of Common
Stock). These options and awards are referred to herein as the Rights. All
Rights must be granted or awarded within ten years of the date of the Board's
adoption of the Omnibus Plan.
OPTIONS. Options to acquire Common Stock granted under the Omnibus Plan
(Options) may be either incentive stock options (ISOs) or non-qualified options
(NSOs). The exercise price of an Option may not be less than 100% of the
last-transaction price for the Corporation's Common Stock quoted by the
NASDAQ-NMS on the date of grant.
The Omnibus Plan provides that, in its discretion, the Committee may
establish that the exercise price of an Option will be adjusted, upward or
downward, on a quarterly basis, based on the market value performance of the
Common Stock in comparison with the aggregate market value performance of one or
more indices of publicly-traded financial institutions and financial institution
holding companies deemed by the Committee to be similar to the Corporation in
asset size, capitalization, trading volumes, etc. (Index or Indices); provided,
however, that certain provisions of the Internal Revenue Code of 1986, as
amended (the Code), may limit the Committee's ability to make the exercise price
of ISOs adjustable. The Committee may utilize Indices published by third parties
and/or may construct one or more Indices meeting the above-described
characteristics. All such Indices must include no fewer than 15 companies.
The Committee shall determine the expiration date of each Option granted,
up to a maximum of ten years from the date of grant. In the Committee's
discretion, it may specify the period or periods of time within which each
Option will first become exercisable, which period or periods may be accelerated
or shortened by the Committee; provided, however, that the vesting period, if
any, for each Option must be at least two years.
Each Option granted will terminate upon the expiration date established by
the Committee or upon the earlier of (i) 90 days after the holder of the Option
ceases to be an employee of the Corporation or a subsidiary for any reason other
than the holder's Death, Disability, Retirement or Just Cause Termination (as
described in the Omnibus Plan), (ii) twelve months after the holder ceases to be
an employee by reason of Death, Disability or Retirement, and (iii) immediately
as of the date the holder is no longer an employee by reason of a Just Cause
Termination; provided, however, the Committee may require ISOs to be exercised
with 90 days of Death, Disability or Retirement in order to comply with certain
Code provisions.
RESTRICTED STOCK. The Committee may award Rights to acquire shares of
Common Stock subject to certain transfer restrictions (Restricted Stock) to
eligible participants under the Omnibus Plan for such purchase price per share
of Restricted Stock as the Committee, in its discretion, may determine
appropriate. All shares of Restricted Stock awarded will be deemed unvested
(i.e., not available for purchase by the recipient of the award) and will become
vested (i.e., available for purchase) as follows: (i) on the first anniversary
of the date of the award, if the award recipient remains an employee of the
Corporation or a subsidiary, 25% of the Restricted Stock shares will be vested;
and (ii) the remaining
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Restricted Stock will become vested at the rate of 6.25% of the total Restricted
Stock shares awarded every three months that elapses after the first anniversary
of the date of award.
The expiration date of each award of Restricted Stock shall be established
by the Committee, up to a maximum of ten years from the date of award. However,
awards of Restricted Stock shall earlier terminate upon the Death, Disability,
Retirement or Just Cause Termination of the holder of the award as described
above in connection with the termination of Options.
UNITS. Under the Omnibus Plan, the Committee may grant awards of long term
incentive units, each equivalent in value to one share of the Corporation's
Common Stock, in each of the years 1994 through 2002 to eligible participants
(Units). Except as otherwise provided, Units so awarded may be distributed to
the award recipient are distributed only after the end of a performance period
of two or more years, as determined by the Committee, beginning with the year in
which the awards are granted.
The percentage of the Units awarded that are to be distributed will depend
on the levels of financial and other performance achieved by the Corporation
during the performance period. The Committee may adopt one or more performance
categories in addition to, or in substitution for, a performance category or may
eliminate all performance categories other than financial performance. All
performance categories other than financial performance may not be applied in
the aggregate as a factor of more than one against financial performance.
As soon as practicable after each performance period, the percentage of
Units awarded that are to be distributed, based on the levels of performance
achieved, will be determined and distributed to the recipients of such awards in
the form of a combination of shares of Common Stock and cash consisting of a
number of shares equal to 60% of the Units to be distributed and cash equal in
value to the remaining 40% of those Units. Units awarded, but which the
recipients are not entitled to receive, will be cancelled.
An amount equal to the dividend payable on one share of the Corporation's
Common Stock (a dividend equivalent credit) will be determined and credited on
the payment date to each Unit recipient's account under the Omnibus Plan. Such
amount will be converted within the account to an additional number of Units
equal to the number of shares of Common Stock which could be purchased at the
last-transaction price of the Common Stock on the NASDAQ-NMS on the dividend
payment date with the amount credited to the recipient's account.
No dividend equivalent credits or distribution of Units may be credited or
made if, at the time of crediting or distribution, (i) the Corporation has not
declared and paid a cash dividend on the Corporation's Common Stock during the
then current quarter, (ii) there exists any default in payment of dividends on
any outstanding shares of capital stock, (iii) the rate of dividends on the
Common Stock is lower than at the time the Units to which the dividend
equivalent credits pertain were awarded, (iv) the estimated consolidated net
income for the Corporation for the twelve months preceding the month of
crediting or distribution is less than the sum of dividend equivalent credits to
be credited and the Units to be distributed, plus all dividends applicable to
such period on an accrual basis, either paid, declared or accrued at the most
recently paid rate, on all outstanding Common Stock, or (v) such crediting of
dividend equivalent credits or distribution of Units would result in default
under any agreement by which the Corporation is bound.
If an extraordinary event occurs during a performance period which
significantly alters the basis upon which the performance levels were
established, the Committee may make adjustments which it deems appropriate in
the performance levels. Such events may include changes in accounting practices,
tax, financial institution laws or regulations or other laws or regulations,
economic changes not in the ordinary course of business cycles, or compliance
with judicial decrees or other legal requirements.
STOCK APPRECIATION RIGHTS. The Omnibus Plan provides that the Committee may
award Rights to receive cash based upon increases in the market price of Common
Stock over the last transaction price of the Common Stock on the NASDAQ-NMS
(base price) on the date of the award (a Stock Appreciation Right or SAR). The
expiration date of a SAR may be no more than ten years from the date of award.
The Committee, in its discretion, may establish that the base price of a
SAR will be adjusted, upward or downward, on a quarterly basis, based on the
market performance of the Corporation's Common Stock in comparison with one or
more Indices (as defined in the discussion concerning Options above). Each SAR
awarded by the Committee may be exercisable immediately or may become vested or
such period or periods as the Committee may establish, which periods may be
accelerated or shortened in the Committee's discretion.
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Each SAR awarded will terminate upon the expiration date established by the
Committee or the earlier termination of the employment of the SAR recipient by
reason of Death, Disability, Retirement or Just Cause Termination as described
above in connection with the termination of Options.
ADJUSTMENTS
In the event the outstanding shares of the Corporation's Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of securities as a result of a stock split, reverse stock split, stock dividend,
recapitalization, merger, share exchange acquisition, or reclassification,
appropriate proportionate adjustments will be made in (i) the aggregate number
or kind of shares which may be issued pursuant to exercise of, or which
underlie, Rights; (ii) the exercise or other purchase price, or base value, and
the number and/or kind of shares acquirable under, or underlying, Rights; (iii)
and rights and matters determined on a per share basis under the Omnibus Plan.
Any such adjustment will be made by the Committee, subject to ratification by
the Board of Directors. No such adjustment will be required by reason of the
issuance of Common Stock, or securities convertible into Common Stock, by the
Corporation for cash or the issuance of shares of Common Stock by the
Corporation in exchange for shares of the capital stock of any corporation,
financial institution or other organization acquired by the Corporation or a
subsidiary thereof in connection therewith.
Any shares of Common Stock allocated to Rights granted under the Omnibus
Plan, which Rights are subsequently cancelled or forfeited, will be available
for further allocation upon such cancellation or forfeiture.
FEDERAL INCOME TAX CONSEQUENCES
Based on the present provisions of the Code, and regulations promulgated
thereunder (the Treasury Regulations), the federal income tax consequences of
Rights awarded under the Omnibus Plan and the subsequent disposition of Common
Stock acquired thereby will be as summarized below. The Omnibus Plan is not
subject to the qualification requirements of Section 401(a) of the Code.
NSOS AND RESTRICTED STOCK. Under present Treasury Regulations holding that
an option does not have a readily ascertainable fair market value for purposes
of Section 83 of the Code unless it is freely transferable, immediately
exercisable in full, and meets certain other conditions, the holder of an NSO
will not realize taxable income at the time the NSO is granted.
In general, an employee exercising an NSO will recognize compensation
income under Code Section 83 equal to the amount by which the fair market value
of the Common Stock received on the date of exercise exceeds the sum of the
exercise price and any amount paid for the NSO. If the employee elects to pay
the NSO exercise price in whole or in part with Common Stock, the employee
generally will not recognize any gain or loss on the Common Stock surrendered in
payment of the exercise price.
The Corporation generally will not recognize any income or be entitled to
claim any deduction upon the grant of an NSO. At the time the employee is
required to recognize compensation income upon the exercise of the NSO, the
Corporation generally will be entitled to claim a deduction in an amount equal
to such compensation income.
The Corporation expects that awards of Restricted Stock generally will be
treated for federal income tax purposes in a manner similar to NSOs, since the
employee is in effect being given an option to acquire Common Stock in exchange
for payment of a purchase price.
ISOS. The holder of an ISO generally is not taxed on either the grant or
exercise of an ISO for regular federal income tax purposes. However, the
employee generally must include in his federal alternative minimum tax income
any excess (the Bargain Element) of the acquired Common Stock's fair market
value at time of exercise over the exercise price paid by the employee.
Furthermore, if the employee sells, exchanges, gifts or otherwise disposes of
(other than in certain types of transactions) such stock either within two years
after the ISO was granted or within one year after the ISO was exercised (an
Early Disposition), the employee generally must recognize the Bargain Element as
compensation income for regular federal income tax purposes. Any gain realized
on the disposition in excess of the Bargain Element is subject to recognition
under the usual rules applying in dispositions of property. If a taxable sale or
exchange is made after such holding periods are satisfied, the difference
between the exercise price and the amount realized upon disposition of the
Common Stock typically will constitute taxable long-term capital gain or loss.
If an employee exercises an ISO and delivers shares of Common Stock as payment
for part or all of the exercise price of the stock purchased (Payment Stock), no
gain or loss generally will be recognized with respect to the Payment Stock;
provided, however, if the Payment Stock was acquired pursuant to the exercise of
an ISO, the employee will be subject to recognizing as compensation income the
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Bargain Element on the Payment Stock as an Early Disposition if the exchange for
the new shares occurs during either of the holding periods for the Payment
Stock.
The Corporation generally will not recognize gain or loss or be entitled to
a deduction, upon either the grant or the employee's exercise of an ISO.
However, if there is an Early Disposition, the Corporation generally will be
entitled to deduct the Bargain Element as compensation paid the employee.
UNITS. The Corporation expects that employees generally will not be taxed
on the award of Units. Instead, any cash and the then fair market value of any
Common Stock received by the employee upon the distribution of a Unit generally
will be taxable to the employee as compensation income upon such distribution.
At that time, the Corporation generally will be entitled to claim a deduction in
an amount equal to the compensation income.
SARS. The Corporation expects that employees generally will not be taxed on
the award (or if the SAR is not immediately exercisable, the vesting) of a SAR,
but instead will be taxed on the cash received on exercise of the SAR as
compensation income. At that time, the Corporation generally will be entitled to
claim a deduction in an amount equal to the compensation income.
POSTPONEMENT OF TAXATION IN CERTAIN CASES. As discussed above, upon receipt
of Common Stock pursuant to the exercise of an NSO, the purchase of Restricted
Stock, or the distribution of a Unit, an employee generally must recognize as
compensation income the amount, if any, by which the then fair market value of
the Common Stock thereby received exceeds any amount paid by the employee for
the Common Stock (plus, in the case of an NSO, any amount paid for the grant of
an NSO).
If the Common Stock received, however, is subject to a substantial risk of
forfeiture to which any transferee of the Common Stock from the employee would
be subject, taxation on the Common Stock (including the valuation of the Common
Stock used to measure the taxation) generally will be deferred until the risk
lapses or a transferee may take free of the risk, unless the employee elects
under Section 83(b) of the Code not to defer taxation.
In general, a substantial risk of forfeiture will exist if the employee's
rights in the Common Stock are conditioned upon his future performance of
substantial services. In addition, if a sale of the Common Stock received would
subject the employee to potential liability under Section 16(b) of the 1934 Act,
then the employee is deemed subject to a substantial risk of forfeiture to which
any transferee would take subject. Section 16(b) generally provides that a
director, officer, or more than 10% owner of a corporation's stock, may be
required to disgorge any profit deemed made whenever he or she engages in both a
purchase transaction and a sale transaction in any six-month period. As applied
for federal income tax purposes, this generally will mean that taxation of
Common Stock received by an employee who is also a director, executive officer,
or 10% shareholder of the Corporation would be deferred for six months after
receipt of the Common Stock, unless the employee elects under Code Section 83(b)
not to defer taxation.
If an employee's taxation is deferred by the presence of a substantial risk
of forfeiture, the Corporation's deduction generally will also be deferred.
LIMITATIONS ON CORPORATION DEDUCTION. The ability of the Corporation to
deduct stock-based compensation payable under the Omnibus Plan and/or other
compensation generally will be potentially subject to various limitations,
including (i) in the case of property other than cash, the Corporation's timely
withholding of federal income taxes on the compensation, (ii) the limitations
under Code Section 162 that the compensation be reasonable in amount, (iii) the
new $1,000,000 annual limit in Code Section 162(m) on the amount of compensation
that may be deducted by publicly-held corporations in the case of certain
employees, and (iv) the Code Section 280G limitations on deducting compensation
that is contingent upon a change in control or the sale of a substantial portion
of corporate assets.
To the extent the compensation received by the employee is attributable to
services provided to one of the Corporation's subsidiaries as distinguished from
the Corporation itself, the subsidiary, not the Corporation, will be entitled to
claim any deduction. If the property received by the employee is Common Stock,
the Corporation believes that it is likely that the subsidiary will not be
required to recognize any income on such Common Stock.
The foregoing is only a brief summary of certain United States federal
income tax consequences of the Omnibus Plan.
TERMINATION; AMENDMENT
If approved by the shareholders, the Omnibus Plan will terminate on the
tenth anniversary of the date it was adopted by the Board. Under its provisions,
the Omnibus Plan may be amended by the Board of Directors at any time and from
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time to time; provided, however, that no such action may, without the approval
of the shareholders of the Corporation, materially increase the maximum number
of shares of Common Stock available for grants and awards under the Plan,
materially increase the benefits accruing to participating employees, or
materially modify eligibility requirements for participation in the Omnibus
Plan.
VOTE REQUIRED FOR APPROVAL
Under the NCBCA, a majority of the shares of Common Stock present in person
or by proxy at the Annual Meeting is required to approve the Omnibus Plan.
Accordingly, abstentions and broker non-votes will not be counted in the
tabulation of votes on this Proposal II.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL
OF THE OMNIBUS PLAN.
PROPOSAL III
RATIFICATION OF SELECTION OF INDEPENDENT AUDITOR
KPMG Peat Marwick was the Corporation's independent auditor for the year
ended December 31, 1993 and has been selected as the Corporation's independent
auditor for the year ending December 31, 1994. Such selection is being submitted
to the Corporation's shareholders for ratification. Representatives of KPMG Peat
Marwick are expected to attend the Annual Meeting and will be afforded an
opportunity to make a statement, if they so desire, and to respond to
appropriate questions from shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS
PROPOSAL.
DATE FOR RECEIPT OF SHAREHOLDERS' PROPOSALS
It is presently anticipated that the 1995 Annual Meeting of Shareholders
will be held in April of 1995. In order for shareholder proposals to be included
in the proxy materials for that meeting, such proposals must be received by the
Secretary of the Corporation at the Corporation's principal executive office not
later than November 28, 1994, and meet all other applicable requirements for
inclusion therein.
OTHER MATTERS
Management knows of no other matters to be presented for consideration at
the Annual Meeting or any adjournments thereof. If any other matters shall
properly come before the Annual Meeting, it is intended that the proxyholders
named in the enclosed form of proxy will vote the shares represented thereby in
accordance with their judgment, pursuant to the discretionary authority granted
therein.
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MISCELLANEOUS
The Annual Report of the Corporation for the year ended December 31, 1993,
which includes financial statements audited and reported upon by the
Corporation's independent auditor, is being mailed along with this Proxy
Statement; however, it is not intended that the Annual Report be a part of this
Proxy Statement or a solicitation of proxies.
THE FORM 10-K FILED BY THE CORPORATION WITH THE SECURITIES AND EXCHANGE
COMMISSION, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, WILL BE
PROVIDED FREE OF CHARGE UPON WRITTEN REQUEST DIRECTED TO: SECURITY CAPITAL
BANCORP, POST OFFICE BOX 1387, SALISBURY, NORTH CAROLINA 28145-1387, ATTENTION:
DAVID B. JORDAN
By Order of the Board of Directors
(Signature of Miles J. Smith, Jr.)
MILES J. SMITH, JR.
CHAIRMAN OF THE BOARD
March 28, 1994
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CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Security Capital Bancorp:
We consent to the incorporation by reference in the Registration Statements
of Security Capital Bancorp on Form S-8 (No. 33-53856) and on Form S-3
(No. 33-44392) of our report dated January 28, 1994, relating to the
consolidated balance sheets of Security Capital Bancorp and subsidiaries
as of December 31, 1993 and 1992, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1993, which report appears in the
December 31, 1993 Annual Report to Stockholders and is incorporated by
reference in the Form 10-K of Security Capital Bancorp.
KPMG Peat Marwick
Charlotte, North Carolina
March 28, 1994
