<PAGE>
============================================================================
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from to
Commission file number 0-27590
SECURITY BANK HOLDING COMPANY
(Name of small business issuer in its charter)
Oregon 93-0800253
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
170 S. Second St., Coos Bay, Oregon 97420
(Address of Principal Executive Offices) (Zip Code)
(541) 267-5356
(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$5.00 par value
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 or Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements inforporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ X ]
Revenue for most recent fiscal year: $13,707,377
Aggregate market value of voting Common Stock held by non-affiliates of
Registrant as of March 1, 1997: $19,438,450
Number of shares of Common Stock, $5.00 par value, oustanding as of March
1, 1997: 3,169,621
Documents incorporated by reference and parts of Form 10-KSB into which
incorporated: None
Transitional Small Business Disclosure Format (check one):YES[ ] NO[X]
============================================================================
<PAGE>
Form 10-KSB Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Part I
Item 1. Description of Business ....................................1-4
Item 2. Description of Property .....................................5
Item 3. Legal Proceedings ...........................................5
Item 4. Submission of Matters to a Vote of Security Holders .........6
Part II
Item 5. Market for Common Equity and Related Stockholder Matters ....6
Item 6. Management's Discussion and Analysis or Plan of Operation ...7-19
Item 7. Financial Statements ........................................20-42
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure .........................43
Part III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act .43-45
Item 10. Executive Compensation .....................................46-47
Item 11. Security Ownership of Certain Beneficial Owners and
Management .................................................48-49
Item 12. Certain Relationships and Related Transactions .............50
Item 13. Exhibits and Reports on Form 8-K ...........................50-51
Signatures ..........................................................52
</TABLE>
<PAGE>
Part I
Item 1. Description of Business
Company
The Company, incorporated in 1981, is a multi-bank holding company
registered under the Bank Holding Company Act of 1956 with its
administrative located in Coos Bay, Oregon. The Company was organized
through a reorganization completed in April, 1983 as a holding company for
its principal banking subsidiary, Security Bank, a state chartered, FDIC
insured commercial bank, founded in 1919 in Myrtle Point, Oregon. The
Company conducts its business primarily through Security Bank, but has
recently embarked on a strategy to diversify through investment in banking
operations outside of Security Bank's primary market area through wholly-
and majority-owned subsidiaries. As part of that strategy, the Company
recently completed the acquisition of a controlling interest in Lincoln
Security Bank, a newly-organized state-chartered commercial bank located in
Newport, Oregon.
As a result of the successful operations of Security Bank, the Company's
return on average equity has exceeded 13% for the past five years and
return on average assets was 1.18% in 1996 and 1.26% in 1995. At December
31, 1996, total assets were $191.4 million, total loans were $92.2 million
and deposits were $148.6 million.
Security Bank
Security Bank, with its main office in Coos Bay, Oregon, conducts a general
commercial banking business at seven locations, principally throughout Coos
County, and to a lesser degree Curry County. Security Financial Insurance
Agency, a subsidiary of Security Bank organized in 1987, acts as an
insurance agent selling annuities, whole life insurance, and health care
insurance. The Insurance Agency operates from a single office in the head
office building of Security Bank. Its services are available to customers
at all of Security Bank's branches. Security Bank also operates a separate
mortgage loan business with offices in Coos Bay, Eugene, and an office in
Bend, Oregon, opened in 1996.
Lincoln Security Bank
Lincoln Security Bank is a newly-organized Oregon state-chartered bank, the
deposits of which are insured by the FDIC. Lincoln Security was organized
by a group of business and professional individuals in the Lincoln County
area as a locally-owned commercial bank serving the needs of the city of
Newport and Lincoln County, Oregon. Lincoln Security's principal office is
located at 1250 North Coast Highway in Newport, Oregon. The bank commenced
operations on May 30, 1996, and currently operates in a temporary office
facility pending construction of its permanent office at the same location.
Lincoln Security engages in a general commercial banking business in
Lincoln County and offers commercial banking services to small and medium
size businesses, professionals and retail customers in the bank's market
area.
Competition
The geographic areas of Oregon served by the Banks are highly competitive
with respect to both deposits and loans. The Banks compete principally
with commercial banks, savings and loan associations, credit unions,
mortgage companies, and other financial institutions. The major commercial
bank competitors are state-wide institutions which are among the largest
Oregon-headquartered commercial and savings banks. Each of these
competitors is owned by multi-state, multi-billion dollar holding
companies.
<PAGE>
Supervision and Regulation
General
The Company and the Banks are extensively regulated under federal and state
law. These laws and regulations are intended to protect depositors, not
shareholders. To the extent that the following information describes
statutory or regulatory provisions, it is qualified in its entirety by
reference to the particular statutory or regulatory provisions. Any change
in applicable laws or regulations may have a material effect on the
business and prospects of the Company and the Banks. The operations of the
Company and the Banks may be affected by legislative changes and by the
policies of various regulatory authorities. The Company is unable to
predict the nature or the extent of the effects on its business and
earnings that fiscal or monetary policies, economic control or new federal
or state legislation may have in the future.
Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the Bank
Holding Company Act ("BHCA"), and as such, it is subject to regulation,
supervision and examination by the Board of Governors of the Federal
Reserve System ("Federal Reserve"). The Company is required to file annual
reports with the Federal Reserve and to provide the Federal Reserve such
additional information as the Federal Reserve may require.
BHCA requires every bank holding company to obtain the prior approval of
the Federal Reserve before (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company it,
after such acquisition, would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank or bank
holding company; or (iii) merging or consolidating with another bank
holding company. The Federal Reserve will not approve any acquisition,
merger or consolidation that would have a substantial anti-competitive
result, unless the anti-competitive effects of the proposed transaction are
clearly outweighed by a greater public interest in meeting the convenience
and needs of the community to be served. The Federal Reserve also
considers capital adequacy and other financial and managerial factors in
reviewing acquisitions or mergers.
With certain exceptions, BHCA also prohibits a bank holding company from
acquiring or retaining direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank or bank holding
company, or from engaging directly or indirectly in activities other than
those of banking, managing or controlling banks, or providing services for
its subsidiaries. The principal exceptions to these prohibitions involve
certain non-bank activities which, by statute or by Federal Reserve
regulation or order, have been identified as activities closely related to
the business of banking or of managing or controlling banks. In making
this determination, the Federal Reserve considers whether the performance
of such activities by a bank holding company can be expected to produce
benefits to the public such as greater convenience, increased competition
or gains in efficiency in resources, which can be expected to outweigh the
risks of possible adverse effects such as decreased or unfair competition,
conflicts of interest or unsound banking practices. The Bank's insurance
subsidiary is a non-bank company engaged in activities deemed permissible
by the Federal Reserve.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
the bank holding company or its subsidiaries, on investments in their
securities and on the use of their securities as collateral for loans to
any borrower. These regulations and restrictions may limit the Company's
ability to obtain funds from the Banks for its cash needs, including funds
for payment of dividends, interest and operating expenses. Further, under
the Federal Reserve Act and certain regulations of the Federal Reserve, a
bank holding company and its subsidiaries are prohibited from engaging in
certain types of arrangements in connection with any extension of credit,
lease or sale of property or furnishing of services. For example, the Bank
may not generally require a customer to obtain other services from the Bank
or the Company, and may not require that the customer promise not to obtain
other services from a competitor, as a condition to an extension of credit
to the customer.
<PAGE>
Federal and State Bank Regulation
The Banks, as state-chartered banks with deposits insured by the Federal
Deposit Insurance Corporation ("FDIC") that are not members of the Federal
Reserve System, are subject to the supervision and regulation of the
Director of the Oregon Department of Consumer and Business Services,
administrated through the Division of Finance and Corporate Securities
("Oregon Director"), and to the supervision and regulation of the FDIC.
These agencies may prohibit the Banks from engaging in what they believe
constitute unsafe or unsound banking practices.
As of July 1, 1989, Oregon permits out-of-state banking institutions to
acquire banks or holding companies that have been in existence for a period
of no fewer than three years. Generally, such acquisitions are subject to
the approval of the Federal Reserve Board and the Oregon Director. As a
result of 1993 Oregon legislation and 1995 federal law changes, Oregon
banks may merge with out-of-state national or state banks, and out-of-state
national and state banks may acquire Oregon branches or may merger with or
acquire branches of Oregon or federal savings associations. Initial
acquisitions must involve institutions which have been engaged in banking
in Oregon for at least three years, but once such an acquisition is made,
the resulting bank may add additional branches.
The Community Reinvestment Act ("CRA") requires that, in connection with
examinations of financial institutions within their jurisdiction, the
Federal Reserve or the FDIC evaluates the record of the financial
institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe
and sound operation of those banks. These factors are also considered in
evaluating mergers, acquisitions and applications to open a branch or
facility. Security Bank's current CRA rating is "Outstanding," the highest
rating awarded. Lincoln Security has not yet been subjected to a CRA
examination.
The Banks are also subject to certain restrictions imposed by the Federal
Reserve Act on extensions of credit to executive officers, directors,
principal shareholders or any related interest of such persons. Extensions
of credit (i) must be made on substantially the same terms, including
interest rates and collateral as, and following credit underwriting
procedures that are not less stringent than, those prevailing at the time
for comparable transactions with persons not covered above and who are not
employees, and (ii) must not involve more than the normal risk of repayment
or present other unfavorable features. The Banks are also subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the affected bank or any officer, director,
employee, agent or other person participating in the conduct of the affairs
of that bank, the imposition of a cease and desist order, and other
regulatory sanctions.
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),
each Federal banking agency is required to prescribe, by regulation, non-
capital safety and soundness standards for institutions under its
authority. These standards are to cover internal controls, information
systems and internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, such other operational and managerial standards as the agency
determines to be appropriate, and standards for asset quality, earnings and
stock valuation. An institution which fails to meet these standards must
develop a plan acceptable to the agency, specifying the steps that the
institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
The Company believes that the Banks meet all the standards, and therefore
does not believe that these regulatory standards materially affect the
Company's business operations.
Deposit Insurance
As FDIC member institutions, the deposits of the Banks are currently
insured to a maximum of $100,000 per depositor through the Bank Insurance
Fund ("BIF"), administered by the FDIC. The Banks are required to pay
semiannual deposit insurance premium assessments to the FDIC.
<PAGE>
The FDICIA includes provisions to reform the Federal deposit insurance
system, including the implementation of risk-based deposit insurance
premiums. The FDICIA also permits the FDIC to make special assessments on
insured depository institutions in amounts determined by the FDIC to be
necessary to give it adequate assessment income to repay amounts borrowed
from the U.S. Treasury and other sources or for any other purpose the FDIC
deems necessary. Pursuant to the FDICIA, the FDIC implemented a
transitional risk based insurance premium system on January 1, 1993.
Generally, under this system, banks are assessed insurance premiums
according to how much risk they are deemed to present to BIF. Banks with
higher levels of capital and a low degree of supervisory concern are
assessed lower premiums than banks with lower levels of capital or
involving a higher degree of supervisory concern. The Banks each have a
current FDIC premium rate of $.01296 per $100 of domestic deposits. The
premium range is from $.01296 for the highest-rated institutions to $.28296
per $100 of domestic deposits.
Dividends
The principal source of the Company's cash revenues is dividends received
from Security Bank. Lincoln Security Bank does not currently pay dividends
and is not expected to in the near future, as earnings will be retained to
fund future growth. Under the Oregon Bank Act, the Banks are subject to
restrictions on its payment of cash dividends to the Company. A bank may
not pay cash dividends if that payment would reduce the amount of its
capital below that necessary to meet minimum applicable regulatory capital
requirements. In addition, the amount of the dividend may not be greater
than its net undivided profits then on hand, after first deducting (i) all
losses; (ii) all bad debts, unless the debts are well-secured, (a) on which
interest for a period of one year is past due and unpaid, and (b) upon
which final judgment has been obtained, but for more than one year the
judgment has been unsatisfied and interest has not been paid; (iii) all
assets or depreciation charged off as required by the Oregon Director; and
(iv) all accrued expenses, interest and taxes of the bank. Lincoln
Security is not able to pay dividends as a result of the lack of retained
earnings.
In addition, the appropriate regulatory authorities are authorized to
prohibit banks and bank holding companies from paying dividends which would
constitute an unsafe or unsound banking practice. The Banks and the
Company are not currently subject to any regulatory restrictions on their
dividends other than those noted above.
Employees
As of December 31, 1996, the Company and its subsidiaries had a total of
142 employees, 128 of whom are full-time equivalent employees. None of the
employees of the Company or the Banks are subject to a collective
bargaining agreement. The Company and Banks considers their relationships
with their employees to be good.
<PAGE>
Item 2. Description of Property
Coos Bay Mall Facility. Security Bank's Mall Facility is located at 170 S.
Second Street, Coos Bay, Oregon, and is registered on the national register
of historic places. The building and land are owned by the bank. The Mall
branch, consumer lending center, Security Financial Insurance Agency and
the Data Processing center occupy the first floor. The Company's
administrative offices occupy the second floor.
Myrtle Point Branch. Security Bank's original Main Office was located at
503 Spruce, Myrtle Point, Oregon. The building now serves as a branch of
the Bank, which owns the building and land.
Coquille Branch. The Coquille Branch of Security Bank is located at 479 N.
Central, Coquille, Oregon. The building and land are owned by the Bank.
Bandon Branch. The Bandon Branch of Security Bank is located at 1125 Hwy
101, Bandon, Oregon. The building and land are owned by the Bank.
Bunker Hill Branch. The Bunker Hill Branch of Security Bank is located at
900 Hwy 101 South, Coos Bay, Oregon. The building and land are owned by
the Bank. The Bank's mortgage lending operation also has an office in this
facility.
North Bend Branch. The North Bend Branch of Security Bank is located at
3451 Broadway in North Bend, Oregon. The building and land are leased.
The lease term expires in 1998 and has options for two additional periods
of five years each.
Brookings-Harbor Branch. The Brookings-Harbor Branch of Security Bank is
located at 16271 Hwy 101 South, Brookings, Oregon. The building and land
are leased at $3,397 per month. The lease expires in 2004.
Mortgage Lending Office. Security Bank has a mortgage lending office
located at 200 East 11th Avenue, Suite 14A, Eugene, Oregon. The office is
leased under a lease agreement which provides for monthly lease payments of
$1,206, and expires October 14, 1996, and has options for two additional
one-year terms.
Coos Bay Property. The Company owns the building and land located at 700
South Broadway Street, Coos Bay, Oregon. Demolition of the existing
building is scheduled to be completed May 1997. Construction of a branch
at this location is planned to replace the Bunker Hill Branch located at
900 Hwy 101 South, Coos Bay, Oregon.
North Bend Property. The Company owns the building and land located at
2330 Broadway, North Bend, Oregon. The building is currently leased back
to the sellers; the lease term is expected to end the fourth quarter of
1997. Upon termination of the lease, the Company plans to use this
location for loan functions and to replace the North Bend Branch located at
3451 Broadway, North Bend, Oregon.
Lincoln Security Bank. Lincoln Security's principal office is located at
1250 North Coast Highway in Newport, Oregon. The bank currently operates
in a temporary office facility pending construction of its permanent
office. Construction of the permanent facility is being financed
internally by Lincoln Security. The office is situated on land which is
leased from an unaffiliated third party through January, 2011. The lease
may be renewed by Lincoln Security for two additional 10-year periods.
Item 3. Legal Proceedings
The Banks are from time to time a party to various legal actions arising in
the normal course of business. Management believes that there is no
threatened or pending proceedings against the Company or the Banks, which,
if determined adversely, would have a material effect on the business or
financial position of the Company or the Banks.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matters were submitted to a vote of
the Company's security holders.
Part II
Item 5. Market for Common Equity and Related Stockholder Matters
The Common Stock is traded on the NASDAQ National Market System under the
symbol "SBHC". Prior to the Offering of the Common Stock in September
1996, the Common Stock had been traded over-the-counter through the OTC
Bulletin Board and the Pink Sheet Service of the National Quotation Bureau.
The following lists the bid prices at the end of each period, obtained from
Black & Company, Inc., the principal market maker in the Company's Common
Stock. Prices do not include retail mark-ups, mark-downs or commissions
and may not represent actual transactions:
<TABLE>
<CAPTION>
Cash
Closing Bid Price Dividend
At End of Period Per share
<S> <C> <C>
1994:
First Quarter $4.83 $0.065
Second Quarter $5.33 $0.00
Third Quarter $5.67 $0.065
Fourth Quarter $5.50 $0.00
1995:
First Quarter $5.33 $0.07
Second Quarter $6.00 $0.00
Third Quarter $6.83 $0.07
Fourth Quarter $7.67 $0.00
1996:
First Quarter $7.88 $0.10
Second Quarter $8.50 $0.00
Third Quarter $8.25 $0.10
Fourth Quarter $8.50 $0.00
</TABLE>
As of March 1, 1997 the Common Stock was held of record by approximately
498 shareholders, a number which does not include beneficial owners who
hold shares in "street name."
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the years ended December 31, 1996 and 1995
The following summary financial data and the discussion and analysis should
be read in conjunction with the Company's audited consolidated financial
statements and the notes thereto for the years ended December 31, 1996 and
1995. The consolidated entity includes Security Bank Holding Company (the
"Company"), a bank holding company, its wholly-owned subsidiary, Security
Bank, its majority owned subsidiary, Lincoln Security Bank, and Security
Bank's wholly-owned subsidiaries, Alland, Inc. and Security Financial
Insurance Agency. Collectively within this document, the consolidated
entity is referred to as the Company. The results of operations for the
Company in future periods may be affected by many factors, including the
results of operations of Lincoln Security Bank, which is not expected to
contribute significantly to the earnings of the Company during the next
twelve months, and economic and demographic changes in the Company's market
areas.
Results of Operations
The operating results of the Company depends primarily on its net interest
income. The Company's net interest income is determined by its interest
rate spread, the relative amounts of interest-earning assets and interest-
bearing liabilities, and the degree of mismatch in the maturity and
repricing characteristics of its interest-earning assets and interest-
bearing liabilities. Interest rate spread is the difference between the
yields earned on its interest-earning assets and the rates paid on its
interest-bearing liabilities. The Company's net income is also affected by
the establishment of provisions for loan losses and the level of its other
income, including service charges on deposit accounts and sold real estate
loan fees, as well as its other expenses and income tax provisions.
Summary Income Statements
(dollars in thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
1996 1995 In $ In %
<S> <C> <C> <C> <C>
Interest income $13,707 $11,957 $1,750 14.64%
Interest expense 5,602 4,421 1,181 26.71%
Net interest income before
provision for loan losses 8,105 7,536 569 7.55%
Provision for loan losses 208 160 48 30.00%
Net interest income after
provision for loan losses 7,897 7,376 521 7.06%
Non-interest income 3,278 2,187 1,091 49.89%
Non-interest expense 8,360 7,066 1,294 18.31%
Income before provision for
income taxes 2,815 2,497 318 12.74%
Provision for income taxes 760 633 127 20.06%
Net income $2,055 $1,864 $191 10.25%
</TABLE>
<PAGE>
General. Net income increased to $2.1 million for the year ended December
31, 1996 from $1.9 million for the same period in 1995, a 10.25% increase.
The combined increases in interest income and non-interest income exceeded
increases in interest expense and non-interest expense.
Net Interest Income. Net interest income before the provision for loan
losses increased $.6 million or 7.55% for the year ended December 31, 1996
over the same period in 1995. The increase resulted from a $1.8 million
increase in interest income offset by a $1.2 million increase in interest
expense. The increase in interest income is due primarily to an increase
in average earning assets of $24.9 million or 18.23% for the year ended
December 31, 1996, over the same period in 1995. Although loans and
investments continued to increase during the year of 1996, new deposits at
prevailing interest rates limited the increase in the net interest income.
Interest expense increased due to both volume and rate for the comparable
periods in 1996 over 1995. Average interest-bearing liabilities increased
$20.1 million or 17.29% for the year ended December 31, 1996, compared to
the same period in 1995. The weighted average yields earned were 8.48% and
8.75% for the years ended December 31, 1996 and 1995, respectively.
Average yields earned decreased 27 basis points or 3.09% for the year ended
December 31, 1996 compared to the same period in 1995. Average rates paid
were 4.09% and 3.79% for the years ended December 31, 1996 and 1995,
respectively. This represents an increase of 30 basis points or 7.92% for
the year ended December 31, 1996, compared to 1995.
Provision for Loan Losses. The loan loss provision increased during the
year ended December 31, 1996 to $208,000 as compared to $160,000 for the
same period in 1995. Net charge-offs during the years were $152,000 and
$114,000 for 1996 and 1995, respectively.
Management believes the loan loss provision maintains the reserve for loan
losses at an appropriate level. The reserve for loan losses was $1,119,000
at December 31, 1996, as compared to $1,063,000 at December 31, 1995. The
Company's ratio of reserve for loan losses to total loans was 1.21% at
December 31, 1996, compared to 1.32% at December 31, 1995.
Non-performing assets (defined as loans 90 days or more past due, and other
real estate owned) were $490,000 and $467,000 at December 31, 1996 and
1995, respectively. The increase in non-performing assets is attributable
to a small number of non-performing loans secured by single family
residential real estate. Management believes the loans are adequately
secured and that no significant losses will be incurred. Management does
not believe that the increase represents a deterioration of the credit
quality of the loan portfolio or an indication of future credit problems.
Non-Interest Income. Non-interest income increased 49.89% for the year
ended December 31, 1996 as compared to the same period in 1995. The
Company had a nonrecurring sale of $683,000 of mortgage servicing rights in
1996, recognizing a gain of $380,000. Service charges on deposit accounts
were $931,000 in 1996, compared to $853,000 in 1995, a 9.14% increase.
Mortgage loan originations were $62.6 million in the year ended December
31, 1996, up from $32.1 million for the same period in 1995. Loans sold
were $63.1 million and $30.9 million for the years ended December 31, 1996
and 1995, respectively, generating $1,033,000 and $611,000 of sold loan fee
income during each respective period, an increase of 69.1% from 1995 to
1996. A strong refinance market supported mortgage origination activity.
Non-Interest Expense. Non-interest expense increased 18.31% for the year
ended December 31, 1996, as compared to the year ended December 31, 1995,
resulting primarily from the addition of Lincoln Security Bank. The
primary non-interest expenses are salaries and employee benefits, and
expenses relating to occupancy and equipment.
Provision for Income Taxes. The provision for income taxes increased
20.06% for the year ended December 31, 1996 as compared to the same period
in 1995. This was primarily the result of an over-accrual of taxes in
1994, leading to a lower tax provision in 1995.
<PAGE>
Loan Losses and Recoveries
The provision for loan losses charged to operating expense is based on the
Company's loan loss experience and such factors which, in management's
judgment, deserve recognition in estimating possible loan losses.
Management monitors the loan portfolio to ensure that the reserve for loan
losses is adequate to cover outstanding loans on non-accrual status and any
current loans deemed to be in serious doubt of repayment according to each
loan's repayment plan. The following table summarizes the Company's
reserve for loan losses, and charge-off and recovery activity:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
<S> <C> <C>
Loans outstanding at
end of period $92,226,100 $80,743,626
Average loans
outstanding during the period $84,232,894 $77,922,578
Reserve balance,
beginning of period $1,062,993 $1,016,770
Recoveries:
Commercial 28,015 --
Real estate 2,250 --
Installment 30,473 64,715
Credit card 2,571 6,666
63,309 71,381
Loans Charged off:
Commercial (24,305) --
Real estate -- --
Installment (150,025) (156,017)
Credit card (41,108) (29,141)
(215,438) (185,158)
Net loans charged off (152,129) (113,777)
Provision charged to operations 208,000 160,000
Reserve balance, end of period $1,118,864 $1,062,993
Ratio of net loans charged off (0.18)% (0.15)%
to average loans outstanding
</TABLE>
Lending and Credit Management
Although a risk of nonpayment exists with respect to all loans, certain
specific types of risks are associated with different types of loans. Due
to the nature of the Company's customer base and the growth experienced in
Coos, Curry and Lincoln Counties, real estate is frequently a material
component of collateral for the Company's loans. The expected source of
repayment of these loans is generally the operations of the borrower's
business or personal income, but real estate provides an additional measure
of security. Risks associated with real estate loans include fluctuating
land values, local economic conditions, changes in tax policies, and a
concentration of loans within a limited geographic market area.
<PAGE>
The Company mitigates risk on construction loans by generally lending funds
to customers that have been pre-qualified for long term financing and who
are using contractors acceptable to the Company. The commercial real
estate risk is further mitigated by making the majority of commercial real
estate loans on owner-occupied properties.
The Company manages the general risks inherent in the loan portfolio by
following loan policies and underwriting practices designed to result in
prudent lending activities. For example, the Company limits commercial
loans to 70% of the value of the collateral, and residential mortgages,
which may be first or second liens, to 80% of the value of the collateral.
The following table presents information with respect to non-performing
assets:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Loans on non-accrual status $490,000 $432,000
Loans past due greater than 90 days
but not on non-accrual status -- --
Other real estate owned, net -- 35,000
Total non-performing assets $490,000 $467,000
Percentage of non-performing
assets to total assets 0.26% 0.29%
</TABLE>
Interest income which would have been realized on non-accrual or past-due
loans if they had remained current was insignificant.
Allocation of Reserve for Loan Losses
The Company does not normally allocate the reserve for loan losses to
specific loan categories with the exception of credit cards. An allocation
by credit quality is made below for presentation purposes. This allocation
process does not necessarily measure anticipated future credit losses;
rather, it seeks to measure the Company's assessment at a point in time of
perceived credit loss exposure and the impact of current and anticipated
economic conditions.
<TABLE>
<CAPTION>
December 31,
Percent of Percent of
1996 Total loans 1995 Total loans
<S> <C> <C> <C> <C>
Unclassified loans $664,543 94.40% $668,847 94.80%
Letters of credit 2,525 0.46% 2,542 0.53%
Credit cards 42,376 2.30% 38,511 2.39%
Watchlist 103,400 1.10% 85,900 0.81%
Substandard 292,300 1.71% 225,400 1.42%
Doubtful 13,720 0.03% 41,793 0.05%
Specific-reserve -- -- -- --
$1,118,864 100.00% $1,062,993 100.00%
</TABLE>
<PAGE>
Analysis of Net Interest Income
The following table presents information regarding yields on interest-
earning assets, expense on interest-bearing liabilities, and net yields on
interest-earning assets for the periods indicated (amounts in thousands,
except percentages):
<TABLE>
<CAPTION>
Analysis for the years ended Increase
December 31, 1996 and 1995 1996 1995 (Decrease) Change
<S> <C> <C> <C> <C>
Average interest-earning asssets $161,607 $136,688 $24,919 18.23%
Average interest-bearing liabilities $136,997 $116,803 $20,194 17.29%
Average yields earned 8.48% 8.75% (0.27)% (3.09)%
Average rates paid 4.09% 3.79% 0.30% 7.92%
Net interest spread 4.39% 4.96% (0.57)% (11.49)%
Net interest income to average
interest-earning assets 5.01% 5.51% (0.50)% (9.07)%
</TABLE>
Analysis of Changes in Interest Differential
The following table sets forth the dollar amount of the increase (decrease)
in the Company's consolidated interest income and expense and attributes
such dollar amounts to changes in volume as well as changes in rates.
Rate/volume variances which were immaterial have been allocated equally
between rate and volume changes.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 over 1995
Total Amount of Change
Increase Attributed to
(Decrease) Volume Rate Days
<S> <C> <C> <C> <C>
Interest income:
Federal funds sold $12,795 $30,363 ($17,865) $297
Time deposits-domestic financial institutions (39,187) (45,696) 6,343 166
Investment securities - taxable 1,136,257 1,092,115 37,745 6,396
Investment securities - exempt from
federal income taxes(1) (18,289) 7,788 (28,732) 2,655
Loans, net and mortgage loans held for sale 516,231 636,398 (142,373) 22,206
Net investment in direct financing leases 92,177 60,573 30,928 677
Dividend income on Federal Home Loan Bank stock 50,721 27,156 23,294 271
Total interest income $1,750,705 $1,808,697 ($90,660) $32,669
Interest expense:
Interest on deposits:
Interest-bearing demand 34,839 29,401 5,250 188
NOW accounts (32,145) (4,522) (28,356) 732
Money market accounts 149,593 104,676 43,620 1,297
Savings accounts (28,824) (30,442) 494 1,124
Time deposits 752,332 582,274 163,533 6,525
Securities sold under agreement to repurchase 38,024 37,524 85 415
ESOP debt (21,358) (19,430) (2,099) 171
Short term borrowings (1,553) 854 (2,471) 63
Federal Home Loan Bank borrowings 290,553 346,559 (57,591) 1,565
Total interest expense $1,181,441 $1,046,895 $122,466 $12,080
Net interest income $569,264 $761,801 ($213,126) $20,589
</TABLE>
(1) Interest income from investment securities exempt from federal income
tax is not reported on a tax equivalent basis.
<PAGE>
Financial Condition
Summary Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
Increase (Decrease)
12/31/96 12/31/95 In Dollars Percentage
<S> <C> <C> <C> <C>
Assets
Federal funds sold $-- $3,084 ($3,084) (100.00)%
Investments securities, net 77,416 58,228 19,188 32.95%
Loans and leases, net 93,940 83,069 10,871 13.09%
Other earning assets 2,439 2,044 395 19.32%
Total earning assets 173,795 146,425 27,370 18.69%
Other assets 17,629 12,163 5,466 44.94%
Total assets $191,424 $158,588 $32,836 20.71%
Liabilities, minority interest
and shareholders' equity
Non-interest bearing deposits $20,954 $19,492 $1,462 7.50%
Interest bearing deposits 127,640 107,798 19,842 18.41%
Federal Home Loan Bank borrowings 17,028 11,500 5,528 48.07%
Other liabilities 6,318 5,426 892 16.44%
Total liabilities 171,940 144,216 27,724 19.22%
Minority interest in subsidiary 938 -- 938 100.00%
Equity 18,546 14,372 4,174 29.04%
Total liabilities, minority
interest and shareholders' equity $191,424 $158,588 $32,836 20.71%
</TABLE>
As shown in the table above, total assets have continued to grow in 1996 as
compared to the prior year. Assets have grown 20.71% at December 31, 1996,
compared to December 31, 1995. The growth in 1996 is the result of
increased deposits which were invested in investment securities and loans.
The growth in both 1996 and 1995 was primarily the result of loan demand,
as the southern Oregon coast's growth and economic factors continue to be
favorable. The ratio of gross loans and leases to deposits decreased to
63.97% at December 31, 1996, compared to 66.09% at December 31, 1995.
The growth in interest-earning assets has been predominantly in loans and
investment securities. Net loans increased $10.9 million at December 31,
1996, over the same period in 1995. The lower, more stable interest rate
environment of the last two years and a stronger, more stable local economy
have been major contributors to the increased activity for the year ended
December 31, 1996. Investment securities increased $19.2 million as of
December 31, 1996, as compared to the same period in 1995, due to the
continued growth in deposit funds available for investment. Federal funds
sold, reflecting short term (over-night) investments, decreased to $0 at
December 31, 1996. The level of federal funds sold fluctuates daily
relative to loan demand, deposit fluctuations and investment activity, and
provides a source of liquidity for the Company.
Deposit growth continued for the years ended December 31, 1996 and 1995.
Total deposits increased $21.3 million at December 31, 1996, compared to
December 31, 1995. The growth in 1996 and 1995 has been predominantly in
interest-bearing deposits. The ratio of interest-bearing deposits to total
deposits increased slightly from 84.7% at December 31, 1995, to 85.9% at
December 31, 1996.
Security Bank is a member of the Federal Home Loan Bank of Seattle. This
membership allows Security Bank access to low cost, long-term funding
otherwise unavailable. Security Bank has utilized this funding, and in
1996 borrowed $5.5 million to support loan and investment growth, leaving
the balance at $17.0 million as of December 31, 1996.
<PAGE>
Liquidity
Liquidity enables the Company to meet the withdrawals of its depositors and
the borrowing needs of its loan customers. The Company maintains its
liquidity position through maintenance of cash resources and a stable core
deposit base. A further source of liquidity is the Company's ability to
borrow funds. The Company maintains three unsecured lines of credit
totaling $10.5 million for the purchase of funds on an overnight basis.
Security Bank is also a member of the Federal Home Loan Bank which provides
a secured line of credit in the amount of $25.2 million, and other funding
opportunities for liquidity and asset/liability matching. Over the past
three years these lines have been used periodically. As of December 31,
1996, there were no borrowings under the Company's unsecured lines of
credit and $17.0 million was borrowed from the Federal Home Loan Bank.
Interest rates charged on the lines are determined by market factors.
The Company's liquidity has been stable and adequate over the past three
years. Short-term deposits have continued to grow and excess investible
cash is loaned on a short term basis (federal funds sold). The Company's
primary source of funds is consumer deposits and commercial accounts.
These funds are not subject to significant movements as a result of
changing interest rates and other economic factors, and therefore enhance
the Company's long term liquidity.
Capital Resources
Beginning in 1990, federal regulators required the calculation of Risk-
based Capital. This is an analysis that weights balance sheet and off-
balance sheet items for their inherent risk. It requires minimum standards
for Risk-based Capital by Capital Tier. Full implementation of this
analysis was required in 1992, requiring a minimum total Risk-based Capital
ratio of 8.00% and a minimum Tier 1 Capital Ratio of 4.00%. At December
31, 1996, the Company had a Risk-based Capital Ratio of 17.02% and Tier 1
Capital Ratio of 16.07%. This was compared to 13.12% and 12.13% for total
Risk-Based Capital and Tier 1 Capital, respectively, at December 31, 1995.
If the Company were fully leveraged (i.e. if the Company were at the
minimum Risk-Based Capital and Tier 1 Capital ratios), further growth would
be restricted to the level attainable through generation and retention of
net income unless the Company were to seek additional capital from outside
sources.
Interest Sensitivity
Interest sensitivity relates to the effect of changing interest rates on
net interest income. Interest-earning assets which have interest rates
tied to an index, such as prime rate, or which mature in relatively short
periods of time are considered interest-rate sensitive. Interest-bearing
liabilities with interest rates that can be re-priced in a discretionary
manner, or which mature in short periods of time, are also considered
interest-rate sensitive. The differences between the amounts of interest-
sensitive assets and interest-sensitive liabilities, measured at various
time periods, are referred to as sensitivity gaps. As rates change, these
gaps will cause either a beneficial or adverse effect on net interest
income. A negative gap represents a beneficial effect on net interest
income if rates were to fall and an adverse effect if rates were to rise.
Conversely, a positive gap would have a beneficial effect on net interest
income in a rising rate environment and a negative effect if rates fell.
At December 31, 1996, rate sensitive liabilities maturing or available for
repricing within a one year period of time approximated rate sensitive
assets.
Due to the uncertainty of changing interest rates, the Company's strategy
is to manage a majority of its interest-earning assets and interest-bearing
deposits to mature or reprice within one year and strive for as close to a
balanced gap as is feasible. Management considers a fluctuation between a
10.0% positive gap and a 10.0% negative gap within one year to be a
controlled gap position. In the event interest rates rise, the Company's
strategy is to increase its asset sensitivity predominantly through
variable asset pricing.
<PAGE>
<TABLE>
<CAPTION>
Estimated Maturity or Repricing
December 31, 1996
Three months
Less than to less than One to Over
three months one year five years five years Total
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Securities and investments (1) $22,693,421 $11,069,644 $26,602,676 $19,310,630 $79,676,371
Federal funds sold -- -- -- -- --
Loans 28,226,321 35,994,604 22,084,917 5,750,762 92,056,604
Leases 143,218 429,054 1,954,915 475,293 3,002,480
Total interest earning assets 51,062,960 47,493,302 50,642,508 25,536,685 174,735,455
Unrealized gains on securities
available for sale 178,729
Reserve for loan losses (1,118,864)
Cash and due from banks 8,436,612
Other assets 9,191,905
Total assets 191,423,837
Interest bearing liabilities:
Interest bearing demand accounts $3,854,395 -- -- -- $3,854,395
Savings/time deposits (2) 45,513,761 31,919,024 22,494,085 23,858,668 123,785,538
Borrowed funds 16,167,685 500,000 5,500,000 -- 22,167,685
Total interest bearing liabilities $65,535,841 $32,419,024 $27,994,085 $23,858,668 149,807,618
Non-interest bearing demand accounts 20,954,471
Other liabilities 1,178,403
Minority interest in subsidiary 937,895
Shareholders' equity 18,545,450
Total liabilities, minority
interest & shareholders' equity $191,423,837
Interest sensitivity gap (14,472,881) 15,074,278 22,648,423 1,678,017 24,927,837
Cumulative interest sensitivity gap (14,472,881) 601,398 23,249,820 24,927,837
Cumulative interest sensitivity gap
as a percentage of total assets (7.56)% 0.31% 12.15% 13.02%
</TABLE>
____________________
(1) The portion of this section relating to mortgage-backed securities is
presented based upon estimated cash flows, maturities and/or repricings,
and includes Collateralized Mortgage Obligations.
(2) The portion of this section relating to savings and NOW accounts are
presented as repricings within the earliest period presented and
adjusted for decay rates as provided by the Federal Home Loan Bank of
Seattle and are based upon industry experience of institutions located
within the FHLB's 12th district.
<PAGE>
Inflation
The primary impact of inflation on the Company's operations is increased
asset yields, deposit costs and operating overhead. Unlike most industrial
companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance
than the effects of general levels of inflation. Although interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services, increases in inflation generally have
resulted in increased interest rates. The effects of inflation can magnify
the growth of assets, and if significant, would require that equity capital
increase at a faster rate than would otherwise be necessary.
Investment Portfolio
The following table shows the amortized costs, estimated market values,
unrealized gains and unrealized losses of the Company's portfolio of
investments as of December 31, 1996, and 1995:
<TABLE>
<CAPTION>
Estimated
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
<S> <C> <C> <C> <C>
1996 Available for sale
U.S. Government & federal agencies $24,248,728 $24,148,296 $29,458 $129,890
Mortgage-backed securities 34,339,376 34,224,187 116,347 231,536
United States Treasury 1,994,988 2,038,120 43,132 --
Corporate obligations 2,745,530 2,745,122 7,099 7,507
Obligations of state and political
subdivisions 13,908,989 14,260,615 377,635 26,009
Total available for sale $77,237,611 $77,416,340 $573,671 $394,942
1995 Available for sale
U.S. Government and federal agencies $4,050,026 $4,124,050 $74,024 $--
Mortgage-backed securities 19,832,982 20,120,370 305,801 18,413
United States Treasury 6,008,416 6,110,595 111,216 9,037
Corporate obligations 9,605,693 9,566,990 63,764 102,467
Obligations of state and political
subdivisions 16,461,146 17,368,220 914,907 7,833
U.S. federal securities mutual
bond funds 984,550 937,350 -- 47,200
Total available for sale $56,942,813 $58,227,575 $1,469,712 $184,950
</TABLE>
<PAGE>
The following is a summary of the contractual maturities and weighted
average yields of investment securities classified as available for sale at
December 31, 1996:
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
Estimated Weighted
Amortized Market Average
Cost Value Yield(1)
<S> <C> <C> <C>
U.S. Government federal agencies
One year or less $1,249,776 $1,250,830 5.75%
After one year through five years 21,448,952 21,352,781 6.51%
After five years through ten years 1,550,000 1,544,685 6.89%
Total 24,248,728 24,148,296 6.49%
Mortgage-backed securities
After one year through five years 2,816,088 2,840,088 6.62%
After five years through ten years 5,370,625 5,349,254 6.49%
After ten years 26,152,663 26,034,845 6.61%
Total 34,339,376 34,224,187 6.59%
United States Treasury
One year or less -- -- --
After one year through five years 1,994,988 2,038,120 6.93%
Total 1,994,988 2,038,120 6.93%
Corporate obligations
One year or less 886,624 885,776 6.62%
After one year through five years 1,858,906 1,859,346 6.23%
Total 2,745,530 2,745,122 6.36%
Obligations of state and political
subdivisions
One year or less 648,170 653,810 5.34%
After one year through five years 1,856,272 1,877,844 5.43%
After five years through ten years 6,102,444 6,331,385 5.88%
After ten years 5,302,103 5,397,576 5.41%
Total 13,908,989 14,260,615 5.62%
Total securities available for sale $77,237,611 $77,416,340 6.39%
</TABLE>
____________________
(1) Yields on tax-exempt securities have not been stated on a tax-
equivalent basis.
As of December 31, 1996, the Company had no securities classified as
"held to maturity".
<PAGE>
Loan Portfolio
Interest earned on the loan portfolio is the primary source of income for
the Company. Net loans represented 49% of total assets as of December 31,
1996. Although the Company strives to serve the credit needs of its
service area, its primary focus is on real estate and commercial loans.
The Company makes substantially all of its loans to customers located
within the Company's service area. The Company has no loans defined as
highly leveraged transactions by the Federal Reserve Bank. The Company has
no significant agricultural loans. Commercial real estate loans primarily
include owner-occupied commercial properties occupied by the proprietor of
the business conducted on the premises, and income-producing or farm
properties. The primary risks of such loans include loss of income of the
owner or occupier of the property and the inability of the market to
sustain rent levels. The Company's underwriting standards attempt to
mitigate these risks by requiring a minimum of three consecutive years of
sufficient income generation from the owner or occupier or rental incomes
of 1.2 times the combined debt service, insurance and taxes. In addition,
a 70% loan-to-value ratio limitation is expected to provide sufficient
protection against unforeseen circumstances. Other commercial loans
include renewable operating lines of credit, short-term notes, and
equipment financing. These types of loans are principally at risk due to
insufficient business income. Accordingly, the Company does not lend to
start-up businesses or others lacking operating history, and requires
personal guarantees and secondary sources of repayment. Residential real
estate loans include 1-4 family owner- or non-owner occupied residences,
multi-family units, construction and secondary market loans pending sale.
Generally, the risk associated with such loans is the loss of the
borrower's income. The Company attempts to mitigate the risk by thorough
review of the borrower's credit and employment history, and limits the loan-
to-value ratio to 80% to provide protection in the event of foreclosure.
Installment loans consist of personal, automobile or home equity loans.
Security Bank also offers credit cards to its customers. These unsecured
loans carry significantly higher interest rates than secured loans, which
allows Security Bank to maintain a higher loss reserve in conjunction with
maintaining strict credit guidelines when considering loan applications.
The following table presents the composition of the Company's loan
portfolio, at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Commercial - real estate $17,258,779 $16,627,336
Commercial - lines of credit 25,519,673 23,164,048
Residential - real estate 21,954,916 19,231,938
Installment 24,310,783 18,662,005
Credit cards & other 3,181,949 3,058,299
Total loans 92,226,100 80,743,626
Deferred loan fees, net (169,496) (153,203)
Reserve for loan losses (1,118,864) (1,062,993)
Net loans $90,937,740 $79,527,430
</TABLE>
At December 31, 1996, the maturities of all loans by category were as
follows:
<TABLE>
<CAPTION>
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial - real estate $8,268,126 $4,965,691 $4,024,962 $17,258,779
Commercial - lines of credit 18,750,841 5,969,949 798,883 25,519,673
Residential - real estate 10,083,115 1,836,594 10,035,207 21,954,916
Installment 1,636,356 12,880,071 9,794,356 24,310,783
Credit cards & other 3,111,944 70,005 -- 3,181,949
$41,850,382 $25,722,310 $24,653,408 $92,226,100
</TABLE>
Of loans with maturities of one year or more, $40,902,805 were fixed-rate
loans, and $9,472,913 were variable rate loans.
<PAGE>
Deposit Liabilities
The following table sets forth the average deposit liabilities of and rates
paid by the Company for the periods indicated:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995
Rate Rate
Deposit Liabilities Amount Paid Amount Paid
<S> <C> <C> <C> <C>
Demand $19,966,618 n/a $18,180,478 n/a
Interest-bearing demand 2,426,214 4.27% 1,711,356 4.01%
NOW accounts 22,297,007 1.04% 22,634,967 1.18%
Money market accounts 17,866,588 3.50% 14,712,696 3.23%
Savings accounts 15,181,616 2.52% 16,345,241 2.52%
Time deposits 59,101,601 5.31% 47,691,652 5.01%
Total deposits $136,839,644 3.28% $121,276,390 2.98%
</TABLE>
As of December 31, 1996, the Company's time deposit and IRA liability
maturities were as follows:
<TABLE>
<CAPTION>
Time Deposits of All Other
$100,000 Time
or more (1) Deposits(2)
<S> <C> <C> <C> <C>
Remaining Time to
Maturity:
3 months or less $14,118,743 62.96% $10,671,773 24.96%
6 months 3,344,332 14.91% 7,421,613 17.36%
12 months 3,993,069 17.81% 14,768,598 34.54%
Over 1 year 969,161 4.32% 9,900,743 23.14%
Total $22,425,305 100.00% $42,762,727 100.00
</TABLE>
__________________
(1) Time deposits of $100,000 or more represent 15.09% of total deposits
as of December 31, 1996.
(2) All other time deposits represent 28.78% of total deposits as
of December 31, 1996.
Average Balances and Average Rates Earned and Paid
The table on the following page presents, for the periods indicated,
information regarding average balances of assets and liabilities of the
Company, the total dollar amounts of interest income from average interest-
earning assets and interest expense on interest-bearing liabilities, the
average interest yields earned or rates paid, net interest income, net
interest spread (the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities), and the ratio of net interest income to average earning
assets. The table does not reflect any effect of income taxes. All
average balances are based on daily balances.
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1996 Year ended December 31, 1995
Average Average
Average Yield Average Yield
Balance Interest or Rates Balance Interest or Rates
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $2,242,277 $121,652 5.43% $1,720,511 $108,857 6.33%
Time deposits - domestic financial
institutions 378,233 21,598 5.71% 1,234,541 60,785 4.92%
Investment securities - taxable 54,164,369 3,477,221 6.42% 36,397,912 2,340,964 6.43%
Investment securities - exempt
from federal income taxes 16,384,141 953,583 5.82% 16,207,389 971,872 6.00%
Loans, net and mortgage loans
held for sale, at cost which
approximates market(1)(2) 83,114,030 8,643,643 10.40% 76,834,887 8,127,412 10.58%
Net investment in direct
financing leases 3,410,641 339,803 9.96% 2,763,330 247,626 8.96%
Federal Home Loan Bank stock,
at cost 1,912,859 149,877 7.84% 1,529,722 99,156 6.48%
Total interest-earning assets/
interest income 161,606,550 13,707,377 8.48% 136,688,292 11,956,672 8.75%
Cash and due from banks 5,172,156 4,648,940
Premises and equipment, net 3,259,340 3,311,064
Other assets 4,172,695 3,411,986
Total assets $174,210,741 $148,060,282
Liabilities, Minority Interest
and Shareholders' Equity
Interest-bearing demand $2,426,214 $103,503 4.27% $1,711,356 $68,664 4.01%
NOW accounts 22,297,007 235,938 1.06% 22,634,967 268,083 1.18%
Money market accounts 17,866,588 624,251 3.49% 14,712,696 474,658 3.23%
Savings accounts 15,181,616 382,547 2.52% 16,345,841 411,371 2.52%
Time deposits 59,101,601 3,140,382 5.31% 47,691,652 2,388,050 5.01%
Securities sold under
agreements to repurchase 4,271,650 189,796 4.44% 3,417,569 151,772 4.44%
ESOP debt 503,795 41,373 8.21% 728,367 62,731 8.61%
Short-term borrowings 434,979 21,644 4.98% 422,741 23,197 5.49%
Federal Home Loan Bank 14,913,613 863,202 5.79% 9,137,987 572,669 6.27%
borrowings
Total interest- bearing
liabilities/interest expense 136,997,063 5,602,636 4.09% 116,803,176 4,421,195 3.79%
Demand deposits 19,966,618 18,168,140
Other liabilities 1,371,586 977,111
Total liabilities 158,335,267 135,948,427
Minority Interest 557,799 --
Shareholders' equity 15,317,675 12,111,855
Total liabilities, minority
interest and shareholders' equity $174,210,741 $148,060,282
Net interest income $8,104,741 $7,535,477
Net interest spread 4.39% 4.96%
Net interest income to earning assets 5.01% 5.51%
</TABLE>
____________________
(1) Average non-accrual loans included in the computation of average loans
were $447,000 for 1996 and $243,000 for 1995.
(2) Loan related fees recognized during the period and included in the yield
calculation totaled approximately $483,000 in 1996 and
$393,000 in 1995.
<PAGE>
Item 7. Financial Statements
The financial statements required by regulation S-B are set forth in as
listed below.
Independent Auditors' Report
Consolidated Balance Sheets, as of December 31, 1996 and 1995
Consolidated Statements of Income, for the years ended
December 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity, for the years
ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows, for the years ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Security Bank Holding Company:
We have audited the accompanying consolidated balance sheets of Security
Bank Holding Company and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company'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 Bank Holding Company and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Portland, Oregon
January 24, 1997
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks (notes 2 and 15) $8,436,612 $5,012,995
Federal funds sold -- 3,083,714
Total cash and cash equivalents 8,436,612 8,096,709
Time deposits domestic financial institutions 270,060 549,741
Investment securitites available for sale (note 3) 77,416,340 58,227,575
Loans, net (notes 4, 5 and 15) 88,754,119 76,911,398
Mortgage loans held for sale,
at cost which approximates market (note 4) 2,183,621 2,616,032
Net investment in direct financing leases (note 6) 3,002,480 3,541,804
Premises and equipment, net (note 7) 5,122,273 3,241,153
Federal Home Loan Bank stock, at cost (note 15) 2,168,700 1,494,600
Other assets 4,069,632 3,909,321
Total assets $191,423,837 $158,588,333
</TABLE>
(Continued)
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 31, 1996 and 1995
<TABLE>
<CAPTION>
Liabilities, Minority Interest & Shareholders' Equity
1996 1995
<S> <C> <C>
Liabilities:
Deposits:
Demand $20,954,471 $19,492,203
Interestbearing demand 3,854,395 2,415,886
NOW accounts 23,985,974 21,485,781
Money market accounts 19,902,920 15,368,474
Savings accounts 14,708,612 15,363,678
Time deposit (note 9) 65,188,032 53,164,393
Total deposits 148,594,404 127,290,415
Securities sold under agreements
to repurchase (notes 3 and 8) 4,562,364 2,874,619
ESOP debt (note 10) -- 644,000
Short term borrowings 577,821 500,937
Federal Home Loan Bank borrowings (note 15) 17,027,500 11,500,000
Other liabilities 1,178,403 1,406,508
Total liabilities 171,940,492 144,216,479
Minority interest in subsidiary 937,895 --
Shareholders' equity:
Nonvoting preferred stock, $5 par value.
Authorized 5,000,000 shares; none issued -- --
Voting preferred stock, $5 par value.
Authorized 5,000,000 shares; none issued -- --
Common stock, $5 par value.
Authorized 10,000,000 shares - issued and
outstanding 3,164,920 shares in 1996
(2,762,195 shares in 1995) (note 1) 15,824,596 13,810,975
Surplus 1,040,537 965
Retained earnings (note 11) 3,295,461 1,688,954
Unearned ESOP shares at cost (note 1) (1,728,225) (1,980,914)
Unrealized gain on investment securities
available for sale (note 1) 113,081 851,874
Total shareholders' equity 18,545,450 14,371,854
Commitments and contingent liabilities (note 12)
Total liabilities, minority interest
and shareholders' equity $191,423,837 $158,588,333
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Interest income:
Interest on loans $8,643,643 $8,127,412
Interest and dividends on securities:
Taxable 3,477,221 2,340,964
Exempt from Federal income tax 953,583 971,872
Interest on time deposits-domestic financial
institutions 21,598 60,785
Dividend income on Federal Home Loan Bank stock 149,877 99,156
Interest on Federal funds sold 121,652 108,857
Income on direct financing leases 339,803 247,626
Total interest income 13,707,377 11,956,672
Interest expense:
Deposits
Interest bearing demand 103,503 68,664
NOW 235,938 268,083
Money market 624,251 474,658
Savings 382,547 411,371
Time (note 9) 3,140,382 2,388,050
Securities sold under agreements to repurchase
(note 8) 189,796 151,772
ESOP debt 41,373 62,731
Short term borrowings 21,644 23,197
Federal Home Loan Bank borrowings 863,202 572,669
Total interest expense 5,602,636 4,421,195
Net interest income 8,104,741 7,535,477
Provision for loan losses (note 5) 208,000 160,000
Net interest income after provision for
loan losses 7,896,741 7,375,477
Other income:
Service charges on deposit accounts 930,798 853,204
Gain on sale of investments available for
sale, net 1,305 12,517
Loan servicing fees 325,572 305,671
Sold real estate loan fees 1,032,989 610,757
Gain on sale of servicing rights 380,335 --
Other 607,035 405,293
Total other income 3,278,034 2,187,442
Other expense:
Salaries and employee benefits 4,875,282 3,933,862
Occupancy of bank premises 448,769 404,785
Furniture and equipment 682,778 604,558
Professional fees 466,450 408,231
FDIC assessment 3,000 136,728
Supplies 260,129 288,093
Other 1,623,635 1,289,553
Total other expense 8,360,043 7,065,810
Income before provision for income taxes 2,814,732 2,497,109
Provision for income taxes (note 13) 759,500 633,000
Net income $2,055,232 $1,864,109
Net income per share $.85 $.83
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Unearned Unrealized Total
Common Stock Retained ESOP Shares Gain (Loss) Shareholders'
Shares Amount Surplus Earnings At Cost On Securities Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Dec. 31, 1994 2,761,967 $13,809,835 $(145,042) $144,730 $(2,203,078) $(977,649) $10,628,796
Net income -- -- -- 1,864,109 -- -- 1,864,109
Dividends -- -- -- (319,885) -- -- (319,885)
Sale of common stock 273 1,365 291 -- -- -- 1,656
Redemption of common stock (45) (225) 62 -- -- -- (163)
Release of ESOP shares -- -- 145,654 -- 222,164 -- 367,818
Unrealized gain on securities
available for sale -- -- -- -- -- 1,829,523 1,829,523
Balance, Dec. 31, 1995 2,762,195 $13,810,975 $965 $1,688,954 $(1,980,914) $851,874 $14,371,854
Net income -- -- -- 2,055,232 -- -- 2,055,232
Dividends -- -- -- (448,725) -- -- (448,725)
Sale of common stock 402,725 2,013,621 739,562 -- -- -- 2,753,183
Release of ESOP shares -- -- 300,010 -- 252,689 -- 552,699
Unrealized loss on securities
available for sale -- -- -- -- -- (738,793) (738,793)
Balance, Dec. 31, 1996 3,164,920 $15,824,596 $1,040,537 $3,295,461 $(1,728,225) $113,081 $18,545,450
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows provided by operating activities:
Net income $2,055,232 $1,864,109
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 560,393 643,626
Provision for loan losses 208,000 160,000
Origination of mortgage loans held for sale (62,634,059) (32,076,359)
Proceeds from mortgage loans sold 63,066,470 30,924,361
Net (gain) loss on sale of fixed assets 9,823 (573)
Net gain on call of investment securities held
to maturity -- (2,783)
Net gain on sale of investment securities
available for sale (1,305) (12,517)
Federal Home Loan Bank stock dividend (149,600) (98,900)
ESOP related compensation expense 552,699 367,818
(Increase) decrease in other assets (160,311) 78,601
Increase (decrease) in other liabilities 139,136 (298,365)
Net cash provided by operating activities 3,646,478 1,549,018
Cash flows from investing activities:
Net decrease in time deposits-domestic financial
institutions $279,681 $1,099,940
Purchase of investment securities held to
maturity -- (4,595,144)
Purchase from investment securities available
for sale (48,699,964) (10,079,490)
Proceeds from sale of investment securities
available for sale 14,802,432 5,612,195
Proceeds from maturities of investment
securities held to maturity -- 1,916,467
Proceeds from maturities of investment
securities available for sale 13,538,000 5,144,345
Net loan originations (11,550,097) (4,561,868)
Purchase of participations (500,624) (51,561)
Additions to premises and equipment (2,407,179) (427,156)
Purchase of Federal Home Loan Bank stock (2,065,200) (1,997,700)
Redemption of Federal Home Loan Bank stock 1,540,700 2,165,700
Proceeds from sales of premises and equipment 21,881 6,134
Originations of direct financing leases (678,160) (1,734,943)
Gross payments on direct financing leases 1,217,484 244,291
Minority interest in subsidiary 937,895 --
Net cash used in investing activities (33,563,151) (7,258,790)
</TABLE>
(Continued)
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from financing activities:
Net increase in deposits 21,303,989 6,172,260
Increase in securities sold with agreements
to repurchase 1,687,745 61,819
Repayment of ESOP debt (644,000) (89,000)
Increase of Federal Home Loan Bank borrowings 5,527,500 2,714,300
Proceeds from issuance of common stock 2,753,183 1,656
Payment of dividends (448,725) (319,885)
Other 76,884 (9,426)
Net cash provided by financing activities 30,256,576 8,531,724
Net increase in cash and cash equivalants 339,903 2,821,952
Cash and cash equivalents at beginning of year 8,096,709 5,274,757
Cash and cash equivalents at end of year $8,436,612 $8,096,709
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $5,416,199 $4,329,506
Income taxes $635,000 $662,000
Supplemental disclosures of investing activities:
Unrealized gain (loss) on investment
securities available for sale, net of tax $(738,793) $1,829,523
Loans transferred to other real estate owned $-- $--
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Security Bank Holding Company (the Company), a bank holding company, its
wholly-owned subsidiary, Security Bank (Security Bank), its majority-owned
subsidiary, Lincoln Security Bank (Lincoln Security), and Security Banks
wholly-owned subsidiaries, Alland, Inc. and Security Financial Insurance
Agency. Security Bank and Lincoln Security are referred to collectively
herein as the Banks. Significant intercompany accounts and transactions
have been eliminated in consolidation.
(b) Description of Business
Security Bank conducts a general banking business. Its activities include
the usual deposit functions of a commercial bank: commercial, real estate
and installment loans; equipment leasing; checking and savings accounts;
collection and escrow services and safe deposit facilities. Security Bank's
primary market area consists of cities and communities along the Southern
Oregon Coast.
Security Financial Insurance Agency is in the business of selling
annuities, mutual funds, single premium whole life policies, and long-term
health care insurance.
Alland, Inc. holds title to certain assets of Security Bank.
Lincoln Security is a newly organized state chartered bank located in
Newport, Oregon in which the Company holds a majority interest. The Company
facilitated the organization of Lincoln Security by purchasing 68.44% of
all outstanding common shares of Lincoln Security common stock, with the
remainder of the outstanding common stock held by local investors. Lincoln
Security commenced operations in May of 1996, and engages in general
commercial banking business. Lincoln Security offers commercial banking
services to small and medium size businesses, professionals and retail
customers in the their market area.
The Banks are subject to the regulations of certain federal agencies and
undergo periodic examinations by these
regulatory authorities.
(c) Basis of Financial Statement Preparation
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Estimates that are particularly
susceptible to significant change in the near-term relate to the
determination of the reserve for loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the reserve for loan losses
and real estate owned, management obtains independent appraisals for
significant properties.
The Banks are located in Coos, Curry and Lincoln Counties of Oregon. A
large portion of the Banks assets are loans, which are collateralized by
real estate in this geographic area and, accordingly, the ultimate
collectibility of this portion of the Banks loan portfolio is susceptible
to changes in the local market conditions. However, the loan portfolio is
diversified and management believes there is no concentration of loans
exceeding 10% for any particular industry. It is management's opinion that
the reserve for losses on loans and real estate owned is adequate to absorb
known and inherent risks in the loan portfolio. While management uses
available information to recognize losses on loans and real estate owned,
future additions to the reserve may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination processes, periodically review the
Banks' reserve for losses on loans and real estate owned. Such agencies
may require the Banks to recognize additions to the reserve based on their
judgements about information available to them at the time of their
examinations.
<PAGE>
SECURITY BANK HODLING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(d) Investment Securities
Investment securities held to maturity are stated at cost, adjusted for
amortization of premiums and accretion of discounts. Securities available
for sale and trading account securities are stated at market value. Gains
and losses on sales of securities, recognized on a specific identification
basis, and valuation adjustments of trading account securities are included
in noninterest income. Net unrealized gain or loss on securities available
for sale are included, net of tax, as a component of shareholders' equity.
In November 1995 the Financial Accounting Standards Board issued Special
Report No.155-B, A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities. Special Report No.
155-B allowed for a one-time reclassification among investment categories.
In light of the Special Report, Security Bank reclassified all held to
maturity securities to available for sale. Total amortized cost of
securities transferred and the related unrealized gains at the date of
transfer totaled $32,016,917 and $276,531 respectively.
(e) Income Recognition
Interest is accrued on a simple interest basis. The accrual of interest on
loans is discontinued when, in management's judgement, the future
collectibility of interest or principal is in serious doubt. Loans are
generally placed on non accrual status when they are 90 days past due.
Loan origination and commitment fees, net of certain direct loan
origination costs, are generally recognized over the life of the related
loan as an adjustment of the yield.
(f) Reserve for Loan Losses
The reserve for loan losses represents management's recognition of the
assumed risks of extending credit and its evaluation of the quality of the
loan portfolio. The reserve is maintained at a level considered adequate
to provide for potential loan losses based on management's assessment of
various factors affecting the loan portfolio, including a review of
problem loans, business conditions, loss experience and an overall
evaluation of the quality of the portfolio. The reserve is increased by
provisions charged to operations and reduced by loans charged off, net of
recoveries. Regulatory examiners may require the Banks to recognize
additions to the allowances based upon their judgements about information
available to them at the time of their examination. Uncollectible interest
on loans is charged off or an allowance established by a charge to income
equal to all interest previously accrued and interest is subsequently
recognized only to the extent cash payments are received until delinquent
interest is paid in full and, in management's judgement, the borrowers
ability to make periodic interest and principal payments is back to normal,
in which case the loan is returned to accrual status.
The Banks adopted Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan as amended by SFAS No. 118
(collectively referred to as SFAS No. 114) on January 1, 1995. SFAS No. 114
requires entities to measure certain impaired loans based on the present
value of future cash flows discounted at the loans effective interest rate,
or at the loans market value or the fair value of collateral if the loan is
secured. A loan is considered impaired when, based on current information
and events, it is probable that the Banks will be unable to collect all
amounts due according to the contractual terms of the loan agreement,
including scheduled interest payments. If the measurement of the impaired
loans is less than the recorded investment in the loan, impairment is
recognized by creating or adjusting an existing allocation of the allowance
for loan losses. Prior periods have not been restated. All loans have been
evaluated for collectibility under the provisions of these statements.
(g) Direct Financing Leases
The aggregate lease payments to be received over the term of these leases
plus the estimated residual values are capitalized as Security Bank's net
investment in the leases. The excess of the investment in the leases over
the cost of the equipment (unearned income) is recognized as income over
the term of the lease.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(h) Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are charged to expense over the
estimated useful lives of the assets (building- thirty-one and one half to
forty years; furniture and equipment-five to seven years) and are computed
using accelerated methods for assets acquired in 1991 and after and the
straight-line method for assets acquired prior to 1991.
(i) Other Real Estate
Other real estate, acquired through foreclosure or deed in lieu of
foreclosure, is carried at the lower of cost or estimated fair value, not
to exceed estimated net realizable value. When the property is acquired,
any excess of the loan balance over the estimated net realizable value is
charged to the reserve for loan losses. Subsequent write-downs, if any, are
charged to the reserve for other real estate losses.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(k) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards No. 123, (SFAS No. 123)
Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-
based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No.
25. The pro forma disclosure provisions of SFAS No. 123 are not material to
the Companys Statement of Income.
(l) Capitalized Mortgage Loan Servicing Rights
The Banks adopted Statement of Financial Accounting Standards No. 122,
(SFAS No. 122) Accounting for Mortgage Servicing Rights, an amendment of
SFAS 65, on January 1, 1996. SFAS No. 122 requires that corporations that
acquire mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage
loans to the mortgage servicing rights and loans (without the mortgage
servicing rights) based on their relative fair values. The statement also
requires that corporations assess their capitalized mortgage servicing
rights for impairment based on the fair value of those rights. Adoption of
this SFAS had no material impact on the Banks' financial position or
results of operations.
(m) Net Income Per Share
Net income per share is based on the weighted average number of common
shares outstanding during each year. For the year ended December 31, 1996
and 1995, the weighted average number of common shares outstanding did not
include 455,824 and 522,471 shares, respectively, held by the Company's
ESOP, as these shares have not been allocated to participant accounts nor
have they been committed to be released. The weighted average number of
common shares outstanding were 2,408,278 and 2,239,670 at December 31, 1996
and 1995, respectively.
(n) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold. Generally,
Federal funds are sold for one-day periods.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(o) Reclassifications
Certain amounts previously recorded on the December 31, 1995 consolidated
financial statements have been reclassified to conform to classifications
on the December 31, 1996, consolidated financial statements.
(p) Stock Split
On September 20, 1995, the Company's Board of Directors approved a three-
for-two common stock split in the form of a 50% stock dividend paid during
January 1996. The par value of the new shares issued totaled $4,603,445,
the majority of which was transferred from retained earnings after
transferring substantially all of surplus. Accordingly, all share and per
share data have been restated to reflect the stock split.
2. CASH AND DUE FROM BANKS
The Banks are required to maintain an average reserve balance with the
Federal Reserve Bank, or maintain such reserve balance in the form of cash.
The amount of this required reserve balance on December 31, 1996 and 1995
was approximately $1,046,000 and $1,020,000, respectively, and was met by
holding cash and maintaining an average reserve balance with the Federal
Reserve Bank.
3. INVESTMENT SECURITIES
The amortized costs, estimated market values, unrealized gains and
unrealized losses of investment securities at December 31, 1996 and 1995
are summarized as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market Unrealized Unrealized
Cost Value Gains Losses
<S> <C> <C> <C> <C>
1996:
Available for sale:
U.S. Government and Federal Agencies $24,248,728 $24,148,296 $29,458 $129,890
Mortgage-backed securities 34,339,376 34,224,187 116,347 231,536
United States Treasury 1,994,988 2,038,120 43,132 --
Corporate obligations 2,745,530 2,745,122 7,099 7,507
Obligations of state and political
subdivisions 13,908,989 14,260,615 377,635 26,009
Total available for sale $77,237,611 $77,416,340 $573,671 $394,942
1995:
Available for sale:
U.S. Government and Federal Agencies $4,050,026 $4,124,050 $74,024 $--
Mortgage-backed securities 19,832,982 20,120,370 305,801 18,413
United States Treasury 6,008,416 6,110,595 111,216 9,037
Corporate obligations 9,605,693 9,566,990 63,764 102,467
U.S. Federal Securities mutual bond funds 984,550 937,350 -- 47,200
Obligations of state and political
subdivisions 16,461,146 17,368,220 914,907 7,833
Total available for sale $56,942,813 $58,227,575 $1,469,712 $184,950
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gross realized gains and gross realized losses on sales of securities
available for sale for the years ended December 31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
Realized Realized Realized Realized
Gains Losses Gains Losses
<S> <C> <C> <C> <C>
U.S. Government and Federal Agencies $25,573 $-- $21,829 $--
United States Treasury 1,557 9,573 5,086 --
Corporate obligations 13,298 24,281 24,966 12,888
U.S. Federal Securities mutual bond funds -- 219,549 -- 80,008
Obligations of state and political
subdivisions 214,280 -- 53,532 --
Total $254,708 $253,403 $105,413 $92,896
</TABLE>
Approximate investment portfolio maturities at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Securities Available for Sale
Estimated
Amortized Market
Cost Value
<S> <C> <C>
One year or less $2,784,569 $2,790,416
After one year through five years 29,975,207 29,968,179
After five years through ten years 13,023,069 13,225,323
After ten years 31,454,766 31,432,422
Total $77,237,611 $77,416,340
</TABLE>
The following table represents the carrying value of securities pledged to
secure public deposits as required or permitted by law and securities sold
under agreements to repurchase at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
U.S. Government and Federal Agencies $9,277,788 $5,215,999
United States Treasury 2,038,120 6,110,595
Obligations of state and political subdivisions 2,364,305 2,397,856
Total $13,680,213 $13,724,450
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LOANS
Major categories of loans at December 31, 1996 and 1995 included in the
portfolio are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Commercial real estate $17,258,779 $16,627,336
Commercial lines of credit 25,519,673 23,164,048
Residential real estate 21,954,916 19,231,938
Installment 24,310,783 18,662,005
Credit cards and other 3,181,949 3,058,299
Total loans 92,226,100 80,743,626
Deferred loan fees, net (169,496) (153,203)
Reserve for loan losses (1,118,864) (1,062,993)
Net loans $90,937,740 $79,527,430
</TABLE>
Approximate loan portfolio maturities on fixed rate loans and repricing on
variable rate loans at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Within One to After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial-real estate $8,268,126 $4,965,691 $4,024,962 $17,258,779
Commercial-lines of credit 18,750,841 5,969,949 798,883 25,519,673
Residential-real estate 10,083,115 1,836,594 10,035,207 21,954,916
Installment 1,636,356 12,880,071 9,794,356 24,310,783
Credit cards and other 3,111,944 70,005 -- 3,181,949
$41,850,382 $25,722,310 $24,653,408 $92,226,100
</TABLE>
Mortgage loans held for sale are included above as residential real estate
mortgage loans maturing within one year.
Loans on nonaccrual status were approximately $490,000 and $432,000 at
December 31, 1996 and 1995, respectively. Interest income which would have
been realized on non-accrual loans if they had remained current was
insignificant.
Renegotiated loans were approximately $556,556 and $463,000 at December 31,
1996 and 1995, respectively. At December 31, 1996, $447,000 of these loans,
under their renegotiated terms, are not considered impaired under SFAS No.
114.
The Banks have no commitments to extend additional credit on loans which
are renegotiated, non-accrual or impaired at December 31, 1996.
At December 31, 1996 and 1995, Security Bank serviced approximately
$179,074,000 and $141,649,000 respectively, of loans owned by others.
The Banks lending activities are concentrated along the central to southern
Oregon coast.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RESERVE FOR LOAN LOSSES
Transactions in the reserves for loan losses for the years ended December
31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, beginning of year $1,062,993 $1,016,770
Provision for loan losses 208,000 160,000
Loans charged off (215,438) (185,158)
Recoveries of loans previously charged off 63,309 71,381
Balance, end of year $1,118,864 $1,062,993
</TABLE>
The recorded investment in loans for which an impairment has been
recognized at December 31, 1996 and 1995 was $165,901 and $111,475,
respectively. The related reserve for loan losses at December 31, 1996 and
1995 was $39,030 and $36,400, respectively. The average recorded investment
in impaired loans during 1996 and 1995 was $174,630 and $159,482,
respectively. Interest income recognized on impaired loans receivable
during 1996 and 1995 was insignificant.
6. DIRECT FINANCING LEASES
Following are the components of the net investment in direct financing
leases at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Total minimum lease payments receivable $3,181,333 $2,998,730
Add:
Estimated unguaranteed residual values
of leased equipment 426,182 274,609
Equipment acquired for lease,
under interim rent 24,800 865,357
Less:
Unearned income 629,835 596,892
Net investment in direct financing leases $3,002,480 $3,541,804
</TABLE>
Future minimum lease payments to be received on direct financing leases are
as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<C> <C>
1997 $1,025,179
1998 885,654
1999 699,721
2000 397,687
2001 123,647
Thereafter 49,445
Total $ 3,181,333
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. PREMISES AND EQUIPMENT
The composition of premises and equipment at December 31, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $471,618 $100,000
Buildings 4,852,960 3,807,449
Furniture and equipment 3,694,897 2,826,730
9,019,475 6,734,179
Less accumulated depreciation and amortization 3,897,202 3,493,026
$5,122,273 $3,241,153
</TABLE>
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
Weighted Carrying Market
Average Value of Value of
Repurchase Interest Underlying Underlying
Amount Rate Assets Assets
<C> <C> <C> <C> <C>
December 31, 1996: Overnight $4,562,364 4.33% $3,388,229 $3,388,229
December 31, 1995: Overnight $2,874,619 4.10% $3,620,660 $3,620,660
</TABLE>
The securities underlying agreements to repurchase entered into by the
Banks are for the same securities originally sold. In all cases, the
creditor maintains control over the securities. Securities sold under
agreements to repurchase averaged approximately $3,708,000 for the year
ended December 31, 1996 and the maximum amount outstanding at any month end
for the year ended December 31, 1996 was approximately $4,562,000.
9. TIME DEPOSITS
Time certificates of deposit in excess of $100,000 aggregated approximately
$21,883,222 and $18,305,000 at December 31, 1996 and 1995, repectively.
Interest expense on these certificates amounted to approximately $1,360,720
and $855,000 for the years ended December 31, 1996 and 1995, respectively.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS
Employee Savings Plan - Security Bank has a qualified profit sharing (401k)
plan covering all half-time or greater personnel with at least twelve
months of service. Actual contributions to the plan are determined by the
Board of Directors and are not to exceed the amount deductible for Federal
income tax purposes. Actual contributions amounted to 0% of voluntary
employee contributions in both 1996 and 1995.
Employee Stock Ownership Plan (ESOP) - The Company sponsors a leveraged
employee stock ownership plan (ESOP) that covers all employees who meet the
eligibility requirements. To be eligible, an employee must be age twenty-
one or older and have completed one year of service during which the
employee has at least 1,000 hours of service. The ESOP is noncontributory.
Employees are 20% vested after two years of service and vesting increases
at the rate of 20% each year thereafter such that employees are 100% vested
after six years of service. The Company makes annual contributions to the
ESOP at a minimum, sufficient to pay interest due on outstanding loans,
required principal repayments, operating expenses and administrative fees.
In certain years, the Company has also deposited additional funds to enable
the ESOP to repurchase shares from participants. All dividends received by
the ESOP are used to pay debt service. The ESOP shares initially were
pledged as collateral for its debt. As the debt is repaid, shares are
released from the collateral based on the proportion of debt service paid
in the year and allocated to active employees.
The debt related to the ESOP is recorded as debt and the shares pledged as
collateral are reported as Unearned ESOP Shares on the consolidated balance
sheets. As shares are committed to be released from collateral, the Company
reports compensation expense equal to the current market price of the
shares, and the shares become outstanding for per share computations.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings. Dividends on unallocated ESOP shares are recorded as reduction of
debt and accrued interest.
The Company has ESOP related debt of $0 and $644,000 to Bank of America at
December 31, 1996 and 1995, respectively. In addition, during 1993, the
Company loaned the ESOP $1,583,205 to purchase 365,000 shares of its common
stock. The Company paid the note to Bank of America in 1996. However, the
ESOP still owes the Company for this debt. These loans are not reflected on
the Company's consolidated balance sheets at December 31, 1996 and 1995.
The ESOP shares as of December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Allocated 456,256 397,675
Shares released for allocation 66,647 58,581
Unreleased shares 455,824 522,471
Total ESOP shares 978,727 978,727
Fair value of unreleased shares $3,988,460 $4,134,487
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Option Plan - The Company maintains an Employee Stock Option Plan
(the Employee Plan), adopted in 1995, under which 276,000 shares of common
stock are reserved for issuance to key employees. The Employee Plan
provides for the grant of options to purchase shares to selected employees.
The purchase price of shares for which stock options are granted shall not
be less than 100% of the fair market value of such shares on the date of
the grant. Options granted under the Employee Plan are exercisable in
installments and expire on such date as the Compensation Committee of the
Board of Directors may determine, but not later than 10 years from the date
of grant.
The following table summarizes stock option activity for the years ended
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Average
Shares Exercise Price
<S> <C> <C>
Granted in 1995 96,600 $5.67
Outstanding options at December 31, 1995 96,600 $5.67
Exercisable at December 31, 1995 -- $ --
Shares available for future
grant at December 31, 1995 179,400
Granted in 1996 -- --
Outstanding options at December 31, 1996 96,600 $5.67
Exercisable at December 31, 1996 19,320 $5.67
Shares available for future
grant at December 31, 1996 179,400
</TABLE>
11. REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices.
The Company's capital amounts and classifications are also subject to
qualitative judgements by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in
the following table) of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined) and Tier 1 Capital to
average assets (as defined). Management believes, as of December 31, 1996,
that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Board categorized the Company as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well capitalized, the Company must maintain minimum total risk-based, Tier
1 risk-based, and Tier 1 leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's actual capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $20,069,025 17.02% >$9,432,334 >8% >$11,790,417 >10%
Tier 1 Capital
(to Risk Weighted Assets) $18,950,161 16.07% >$4,716,167 >4% >$7,074,250 >6%
Tier 1 Capital
(to Average Assets) $18,950,161 10.87% >$5,229,434 >3% >$8,715,724 >5%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $14,122,971 13.12% >$8,609,992 >8% >$10,762,490 >10%
Tier 1 Capital
(to Risk Weighted Assets) $13,059,978 12.13% >$4,304,996 >4% >$6,457,494 >6%
Tier 1 Capital
(to Average Assets) $13,059,978 8.85% >$4,428,781 >3% >$7,381,301 >5%
</TABLE>
The Banks, as state-chartered banks with deposits insured by the Federal
Deposit Insurance Corporation ("FDIC") that are not members of the Federal
Reserve System, are subject to the supervision and regulation of the
Director of the Oregon Department of Consumer and Business Services,
administrated through the Division of Finance and Corporate Securities
("Oregon Director"), and to the supervision and regulation of the FDIC. As
of December 31, 1996, the most recent notification from the FDIC
categorized the Banks as well capitalized under the regulatory framework
for prompt corrective action.
The Banks, as state-chartered banks, are prohibited from declaring or
paying any dividends in an amount greater than undivided profits. At
December 31, 1996 and 1995, undivided profits of approximately $3,512,175
and $3,708,787, respectively, were available for the payment of dividends
to the Company with prior regulatory approval.
12. COMMITMENTS AND CONTINGENCIES
The banks are leasing four of their branches under operating leases which
include various renewal and purchase options. The approximate future
minimum rental payments under these leases are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $134,000
1998 116,300
1999 82,800
2000 82,800
2001 82,800
Thereafter 315,700
Total $814,400
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Rental expense for all operating leases was approximately $117,000 and
$94,000 for the years ended December 31, 1996 and 1995, respectively.
At December 31, 1996, the Banks have $19,644,287 of unused lines of credit.
In the normal course of business, there are various commitments
outstanding, including commitments to extend credit and commercial letters
of credit to ensure performance of certain commercial customer obligations.
At December 31, 1996 and 1995, these commitments and obligations were as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Loans at fixed rates $6,413,000 $5,633,000
Loans at variable rates 2,297,000 1,065,000
$8,710,000 $6,698,000
</TABLE>
The Company is a defendant in legal proceedings arising in the normal
course of business. In the opinion of management the disposition of pending
litigation will not have a material effect on the Companys financial
position.
13. PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1996 and
1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current $803,000 $633,000
Deferred (43,500) --
$759,500 $633,000
</TABLE>
The provision for income taxes results in effective tax rates which are
different from the Federal income tax statutory rate. The nature of the
differences for the years ended December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Computed expected Federal tax
at statutory rate of 34% $945,183 $849,017
State taxes, net of Federal effect 118,990 57,878
Tax exempt interest (311,298) (315,202)
Change in valuation allowance (34,828) 7,273
ESOP fair value adjustment and dividends 70,136 29,545
Other, net (28,683) 4,489
$759,500 $633,000
</TABLE>
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences which give rise to significant
portions of deferred tax assets and deferred tax liabilities at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Loans receivable, due to allowance
for possible loan losses $289,558 $273,059
Other liabilities, due to deferred
compensation reserve 202,178 199,323
Deferred loan fees 50,846 58,984
Net operating loss carryforward 28,564 --
Other 230,025 112,423
Total gross deferred tax assets 801,171 643,789
Less valuation allowance (184,000) (237,000)
Net deferred tax assets $617,171 $406,789
Deferred tax liabilities:
Investment securities, due to reserve
for unrealized gains $65,810 $414,716
Investment securities,
due to accretion of discount 92,918 75,899
Premises and equipment,
due to difference in depreciation 488,709 278,351
Other 68,419 57,590
Total gross deferred tax liabilities 715,856 826,556
Net deferred tax liability $(98,685) $(419,767)
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1995 was
$356,000. The net change in the total valuation allowance for the years
ended December 31, 1996 and 1995 were a decrease of $53,000 and $119,000,
respectively. Of the net change in the valuation allowance for 1996,
$18,172 was credited to equity in 1996.
The Company has determined that the valuation allowance of $184,000 is
reasonable as it is more likely than not that the net deferred tax asset of
$617,171 will be principally realized through carryback to taxable income
in prior years, and future reversals of existing taxable temporary
differences, and to a minor extent, future taxable income. Management
believes that future taxable income will be sufficient to realize the
benefits of temporary differences that cannot be realized through carryback
to prior years or through the reversal of future temporary taxable
differences.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. TRANSACTIONS WITH RELATED PARTIES
Some of the directors, executive officers and principal shareholders of the
Company, and the companies with which they are associated, are customers of
and have had banking transactions with the Banks in the ordinary course of
business, and the Banks expect to have such transactions in the future. All
loans and commitments to loan included in such transactions were made on
substantially the same terms (including interest rates and collateral) as
those prevailing at the time for comparable transactions with other persons
and, in the opinion of the management of the Banks, do not involve more
than the normal risk of collectibility or present any other unfavorable
features.
An analysis of activity with respect to loans to directors, executive
officers and principal shareholders of the Company for the year ended
December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance, beginning of year $2,541,949 $1,427,207
Additions 1,024,438 2,499,964
Repayments (1,676,943) (1,385,222)
Balance, end of year $1,889,444 $2,541,949
</TABLE>
15. FEDERAL HOME LOAN BANK BORROWINGS
At December 31, 1996, Security Bank had outstanding advances from the
Federal Home Loan Bank (FHLB) of $17,027,500 with a weighted average rate
of 5.70% and a weighted average maturity of 240 days. These advances were
collaterized by certain investment securities, certain residential first
mortgage loans, deposits with the FHLB, and FHLB stock totaling
approximately $17,027,500 at December 31, 1996. The FHLB requires Security
Bank to maintain a level of investment of FHLB stock.
<PAGE>
SECURITY BANK HOLDING COMPANY & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, the following information is presented.
Financial instruments have been construed to generally mean cash or a
contract that implies an obligation to deliver cash or another financial
instrument to another entity. The estimated fair values of the Companys
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1996
Carrying Amount Fair Value
<S> <C> <C>
Financial assets:
Cash equivalents and time deposits $8,706,672 $8,706,672
Investment securities 77,416,340 77,416,340
Loans, net 88,754,119 88,234,279
Mortgage loans held for sale 2,183,621 2,183,621
Federal Home Loan Bank stock 2,168,700 2,168,700
Financial liabilities:
Deposits 148,594,404 144,585,587
Securities sold under agreements to repurchase 4,562,364 4,562,364
Short term borrowings 577,821 577,821
Federal Home Loan Bank borrowings 17,027,500 17,045,970
Off balance sheet financial instruments:
Loan commitments 8,320,000 8,320,000
Letters of credit 390,000 390,000
</TABLE>
Financial assets and financial liabilities other than securities are not
traded in active markets. The above estimates of fair value require
subjective judgements and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates.
These estimates may also vary significantly from the amounts that could be
realized in actual transactions.
Financial Assets - The estimated fair value approximates the
book value of cash equivalents and time deposits. For investment
securities, the fair value is based on quoted market prices. The
fair value of loans is estimated by discounting future cash flows
using current rates at which similar loans would be made. The
fair value of mortgage loans held for sale and Federal Home Loan
Bank stock approximates their carrying amounts.
Financial Liabilities - The estimated fair value of deposits is
estimated by discounting the future cash flows using current
rates at which similar deposits would be made. The estimated
fair value approximates the carrying amounts of short term
borrowings and securities sold under agreements to repurchase.
The estimated fair value of Federal Home Loan Bank borrowings is
estimated by discounting the future cash flows using current
rates at which similar borrowings would be made.
Off-Balance Sheet Financial Instruments - Fair value considers
the difference between current levels of interest rates and
committed rates. See note 12 to the consolidated financial
statements.
The Company did not hold any derivative financial instruments in its
investment portfolio at or during the year ended December 31, 1996, with
the exception of collaterized mortgage obligations.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Information Regarding Directors and Nominees
The following table shows as to each nominee for Director and for those
Directors whose terms have not yet expired, the identified information as
of February 1, 1997.
<TABLE>
<CAPTION>
Year
Elected or
Name Age Position Appointed Year Term
as Director Expires
<S> <C> <C> <C> <C>
Charles D. Brummel 57 Director/President/
Chief Executive Officer 1974 1999
E. Samuel Dement 76 Director/Chairman 1969 1998
Ralph W. Gazeley 68 Director/Secretary 1989 1998
Donald L. Goddard 73 Director 1974 1997
Thomas R. Graham 65 Director 1983 1999
Kathleen M. Kerins 55 Director 1996 1997
William A. Lansing 50 Director 1991 1998
Kenneth P. Messerle 56 Director 1992 1999
Harry A. Slack Jr. 67 Director 1972 1997
Glenn A. Thomas 55 Director 1995 1998
</TABLE>
Experience of Directors
The business experience of each of the directors and executive officers for
at least the past five years has been as follows:
Charles D. Brummel has served as a Director, President and Chief Executive
Officer of the Company and of Security Bank since 1974. He was a director
of the Board of the Oregon Bankers Association from 1977 to 1989 and served
as its president in 1986/1987. He is Chairman of the Board of Directors of
the OBA Insurance Agency. He also served as a director of the American
Bankers Association from 1986 to 1989 and currently serves as a member of
the Board of Directors of Lincoln Security Bank. He serves as ex-officio
member of all bank committees.
E. Samuel Dement is a Myrtle Point, Oregon, cattle rancher, and former
Oregon State Senator. Dement's family were Coos County pioneers and
founders of Security Bank, in Myrtle Point, in 1919. As Chairman of the
Board of Directors, he serves as ex-officio member of all committees of the
Board of Directors and is chairman of the Growth Committee.
<PAGE>
Ralph W. Gazeley is a retired high school teacher, formerly employed by
North Bend School District. He serves on the Community Reinvestment Act
Committee of Security Bank and the Audit/Exam Committees of both the
Company and Security Bank.
Donald L. Goddard is a retired oil distributor and former owner of Goddard
Energy Company, in Bandon, Oregon. He serves on Security Bank's Audit/Exam
and Community Reinvestment Act Committees.
Thomas R. Graham is General Manager and Director of Coos Head Builders
Supply, Inc., in North Bend, Oregon, where he has been employed since 1968.
He serves on the Loan Committee of Security Bank, the Audit/Exam
Committees of both the Company and Security Bank, and is Chairman of the
Nominating Committee.
Kathleen M. Kerins is local manager of Pacific Power & Light. She serves on
the Compensation & Benefits and Nominating Committees.
William A. Lansing is President of Menasha Corporation Forest Products
Group, in North Bend, Oregon, where he has been employed since 1970.
Lansing serves on the Growth and Nominating Committees and is Chairman of
the Compensation & Benefits Committee.
Kenneth C. Messerle recently sold his share in the family business of
Messerle & Sons, Inc., a cattle and timber corporation, in Coos County, and
formed a cattle brokerage business. In 1996, he was elected to the State
Liegislature for District 48. He serves on Security Bank's Loan Committee
and the Company's Growth Committee and is Chairman of the Audit/Exam
Committees of both the Company and Security Bank. Mr. Messerle also serves
on the Board of Directors of Lincoln Security Bank.
Harry A. Slack, Jr. is a retired Attorney, who practiced law for 37 years.
Currently he is President of Slack Fisheries. He serves on Security Bank's
Loan Committee and is Chairman of the Community Reinvestment Act Committee.
Glenn A. Thomas is the owner of Thomas & Son Beverage, Inc., and its
subsidiaries, Thomas & Son Trucking and Thomas & Son Transportation
Systems, in Coos Bay, Oregon. He has been the Oregon Director for the
Rocky Mountain Wholesalers Association, a director and officer of Oregon
Beer & Wine Distributors Association, and a director of National Beer
Wholesalers. He serves on Security Bank's Loan Committee, and the
Company's Compensation & Benefits, Audit/Exam and Growth Committees.
Board of Directors
During the year ended December 31, 1996, the Board of Directors held 12
regularly scheduled meetings. All directors attended at least 75 percent
of the board meetings and committee meetings they were eligible to attend.
Committees
The Company's Board of Directors has established a Compensation Committee
comprised of three non-employee directors William A. Lansing, Kathleen M.
Kerins, and Glenn A. Thomas. The Compensation Committee determines the
salary of the Chief Executive Officer and the bonuses and stock option
grants to Chief Executive Officer and other executive officers of the
Company.
The Board of Directors has a standing Audit/Exam Committee consisting of
Glenn A. Thomas, Kenneth P. Messerle, Thomas R. Graham, Ralph W. Gazeley,
and Donald L. Goddard. The Audit/Exam Committee is responsible for
overseeing regulatory compliance matters, and reviewing periodic
examinations by state and federal regulators of the Company and the
subsidiary banks.
The Growth Committee, of which Kenneth P. Messerle, E. Samuel Dement,
William A. Lansing, and Glenn A. Thomas are members, is responsible for the
development and implementation of the Company's strategic growth plan,
including preliminary evaluation of strategic opportunities as they arise.
<PAGE>
The Board of Directors appointed a Nominating Committee, consisting of
William A. Lansing, Kathleen M. Kerins and Thomas R. Graham, to recommend
nominees for election of directors at the annual meeting of shareholders.
Shareholders who wish to make recommendations to the Nominating Committee
for directors to be nominated for election at the 1998 annual meeting of
shareholders may do so in writing addressed to the Secretary of the
Corporation at the address indicated above no later than October 15, 1997.
Compensation
Pursuant to a Board of Directors Merit Compensation Plan, effective as of
January 1, 1996, directors of the Company each received $300 in
compensation for each meeting of the Board of Directors attended in 1996,
and $100 for each committee meeting attended. Directors also receive
shares of Company stock as additional compensation based upon the return on
average equity for the Company. Directors received or will receive an
aggregate of 4,701 shares of Company stock in addition to the cash
compensation.
Executive Officers
Charles D. Brummel is Chief Executive Officer and President of the Company,
and Chief Executive Officer of Security Bank. Michael J. Delvin is
Executive Vice President/Loan Administrator of the Company, and is also an
executive officer of Security Bank. Additional executive officers of
Security Bank are Guy L. Williams, President and Executive Vice
President/Loan Administrator Antoinette M. Poole. Executive Officers serve
at the discretion of the Board of Directors.
The following sets forth certain information about the executive officers
of the Company and Security Bank, other than Chuck Brummel:
Michael J. Delvin, age 48, employed by the Company since 1992, is Executive
Vice President and Loan Administrator of the Holding Company. Delvin was
previously employed by First Interstate Bank. He serves on the Oregon
Bankers Association Government Relations Committee and as a director of OBA
Services, Inc.
Antoinette M. Poole, age 50, serves as Security Bank's Executive Vice
President and Loan Administrator. She has been employed by Security Bank
since 1976, and is a trustee of the Company's Employee Stock Ownership
Plan. She is a member of the American Institute of Banking and Financial
Women International.
Guy L. Williams, age 48, was recently appointed President of Security Bank.
He was formerly a Senior Vice President and Commercial Loan Officer. He
was previously employed by Western Bank as a Vice President and Branch
Manager. He is a member of the Rotary, United Way, Chamber of Commerce,
Lions Club and the Kiwanis Club.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16 of the Securities Exchange Act of 1934, as amended, ("Section
16") requires that all executive officers and directors of the Company and
all persons who beneficially own more than 10 percent of the Company's
Common Stock file an initial report of their ownership of the Company's
securities on Form 3 and report changes in their ownership of the Company's
securities on Form 4 or Form 5. These filings must be made with the
Securities and Exchange Commission and the National Association of
Securities Dealers with a copy sent to the Company.
Based solely upon the Company's review of the copies of the filings which
it received with respect to the fiscal year ended December 31, 1996, the
Company believes that all reporting persons made all filings required by
Section 16 on a timely basis.
<PAGE>
Item 10. Executive Compensation
The following table sets forth compensation earned for the fiscal year
ended December 31, 1996 by each executive officer of the Company receiving
over $100,000 of total compensation during such year:
<TABLE>
<CAPTION>
Other Total
Name and Principal Position Salary Bonus Compensation(1) Compensation Salary Bonus
<S> <C> <C> <C> <C>
Charles D. Brummel $125,573 $62,700 $4,787 $193,060
President/Chief
Executive Officer
Director
Michael J. Delvin $83,183 $36,263 $-- $119,446
Executive Vice
President
</TABLE>
____________________
(1) Consisting of Company provided auto.
Incentive Cash Bonus Plan. The Board of Directors of the Bank believes
that an incentive bonus based on earnings motivates management to perform
at the highest levels. Management performance has a direct impact on the
short-range and long-range profitability and viability of the institution
and an incentive bonus promotes the retention of qualified management.
Directors also believe that compensation programs with incentive pay as a
significant portion of compensation allow base salaries to remain
relatively constant, even during highly profitable periods, thereby
containing salary costs during any less profitable periods. The management
incentive bonus program is at the discretion of the Board. Specific
performance levels and awards are developed by the Compensation Committee
of the Board and approved annually by the Board of Directors. For 1996,
the plan provided incentives for the four executive officers, Brummel,
Delvin, Williams and Poole. The size of the total incentive is determined
by a formula based upon the earnings of the Company with a threshold level
of return on equity of 9%. The four officers (Brummel, Delvin, Williams
and Poole) received 51%, 29%, 15% and 5% of this total respectively during
the course of the year.
Phantom Stock Deferred Compensation Plan. As of January 1, 1996, the
Company established a deferred compensation plan for a select group of key
employees to provide for unfunded, non-qualified deferred compensation to
assist in attracting and retaining such key employees and to encourage such
employees to devote their best efforts to the business of the bank. An
eligible employee is permitted to defer up to 20% of that employee's base
salary and 100% of any cash bonus, and is required to defer not less than
2% of base salary and 20% of any cash bonus. Deferred compensation is
credited to the participant's account in the form of Phantom Stock Units,
the number of units being determined by dividing the amount of the
compensation deferred by the base price established annually by the Board
of Directors for that Plan Year's deferrals. The base price of each unit
is the average of the bid and ask prices of the Company's common stock for
the last ten trading days of the preceding calendar year. Distributions to
a participating employee are made in cash only and are made within 60 days
after the earlier of the employee's death, disability, termination of
employment, change of control of the Company or the attainment of the age
specified in the Plan agreement between the employee and Security Bank.
Upon distribution, the deferred compensation amount is valued by
multiplying the cumulative number of Phantom Stock Units by the average of
the bid and ask prices of Company common stock on the date of distribution.
Currently, Mr. Brummel is the only participant in the plan.
Severance Agreement. In addition to Mr. Brummel's regular compensation,
the Bank has agreed to pay him additional compensation should his
employment with the Bank be terminated under certain conditions. The
severance agreement is effective only if Mr. Brummel's employment is
involuntarily terminated in connection with the merger or sale of the Bank
and/or the Company, or if he elects to terminate his employment within one
year of a merger or sale. In the event of such a termination, the Bank has
agreed to pay Mr. Brummel a sum equal to twelve times his monthly base
salary in effect at the time of the merger or sale. The base salary
includes monthly gross salary but does not include bonuses or other
compensation, plus any deferred or unpaid portion of his annual bonus.
<PAGE>
If the severance agreement had been triggered as of December 31, 1996, Mr.
Brummel would have been entitled to a payment of $145,390.
Stock Option Plan. The Company adopted a combined incentive and non-
qualified stock option plan (the "Plan") effective May 1, 1995, and
approved by the shareholders at the annual shareholders meeting on March
20, 1996. Pursuant to the Plan, options may be granted at the discretion
of the Board of Directors or such committee as it may designate, to key
employees, including employees who are directors of the Company.
The purpose of the Plan is to advance the interests of the Company and its
shareholders by enabling the Company to attract and retain the services of
people with training, experience and ability and to provide additional
incentive to key employees and directors of the Company by giving them an
opportunity to participate in the ownership of the Company.
The Plan reserves 276,000 shares of the Company's unissued common stock for
possible grants to employees. The purchase price of shares issuable upon
exercise of options is not less than 100% of the fair market value per
optioned share at the time of the grant. Each option granted under the
plan is exercisable for up to ten years following the date of grant.
As of December 31, 1996, options to purchase 96,600 shares, adjusted for
stock dividends and splits, have been granted pursuant to the Plan. The
following table sets forth information regarding outstanding options
granted pursuant to the Plan, each of which became exercisable as to 20%
of the shares on May 1, 1996, and an additional 20% becoming exercisable
each year thereafter.
There were no options granted in 1996. The following table sets forth
information regarding options outstanding as of March 1, 1997:
<TABLE>
<CAPTION>
Number of Percentage of Exercise Expiration
Name Shares Total Options Price Date
<S> <C> <C> <C> <C>
Charles D. Brummel 69,000 71.4% $5.67 April 30, 2005
Michael J. Delvin 27,600 28.6% $5.67 April 30, 2005
</TABLE>
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 1, 1997, the shares of common
stock beneficially owned by all of the directors, nominees for election as
directors, and executive officers of the Company. As of that date there
were 3,169,621 shares of the Company's common stock issued and outstanding.
All shares are held directly unless otherwise indicated.
<TABLE>
<CAPTION>
Number Percent
Name (1) of Shares of Class
<S> <C> <C>
Charles D. Brummel (Director/Officer)(2) 45,737(2) 1.44%
Michael J. Delvin (Officer)(3) 7,893(3) 0.25%
E. Samuel Dement (Director)(4) 81,635(4) 2.58%
Ralph W. Gazeley (Director)(5) 75,853(5) 2.39%
Donald L. Goddard (Director)(6) 30,626(6) 0.97%
Thomas R. Graham (Director)(7) 2,305(7) 0.07%
Kathleen M. Kerins (Director)(8) 458(8) 0.01%
William A. Lansing (Director)(9) 17,784(9) 0.56%
Kenneth C. Messerle (Director)(10) 4,143(10) 0.13%
Antoinette M. Poole (Officer)(11) 978,967(11) 30.88%
Harry A. Slack, Jr. (Director)(12) 26,943(12) 0.85%
Glenn A. Thomas (Director)(13) 4,037(13) 0.13%
Guy L. Williams (Officer) -- 0.00%
All Directors and Executive
Officers as a Group (13 persons) 1,225,776(2-13) 38.67%
</TABLE>
____________________
(1) The business address of all directors and officers is 170 S. Second St.,
Coos Bay, Oregon 97420.
(2) Charles D. Brummel's holdings include 3,025 shares held jointly with
spouse and 42,712 shares vested in the ESOP (364 of which vested shares
are allocated to Mr. Brummel's spouse who is also an employee of
Security Bank).
(3) Michael J. Delvin holds 7,893 shares in the ESOP, 4,735 of which have
been vested as of this date.
(4) E. Samuel Dement holds 81,126 shares jointly with his spouse.
(5) Ralph W. Gazeley shares include 75,457 held in a Gazeley Revocable
Living Trust.
(6) Donald L. Goddard's holdings include 30,626 shares held jointly with
his spouse.
(7) Thomas R. Graham's holdings include 72 shares held jointly with his
spouse.
(8) Kathleen M. Kerrins' holdings include 358 shares held jointly with her
son.
(9) William A. Lansing holds 17,219 shares jointly with his spouse.
(10) Kenneth C. Messerle's holdings include 3,321 shares held jointly with
his spouse and 78 shares held jointly with his grandchildren.
(11) Antoinette M. Poole is one of three Trustees of the ESOP, all of whose
shares (978,728) are included herein. Individually, she holds 239
shares and 17,995 shares vested in the ESOP.
(12) Harry A. Slack, Jr.'s holdings include 2,875 shares held jointly
with his spouse, 5,647 held in the Slack Marital Fund Trust, 7,796 held
in the Slack Residuary Fund Trust, 9,590 shares held jointly with his
mother, and 1,035 shares held directly by his spouse.
(13) Glenn A. Thomas holds 3,500 shares jointly with his spouse.
<PAGE>
The following table sets forth as of March 1, 1997, the shares of common
stock beneficially owned by the only persons known by the Company to own
more than 5% of the Company's common stock.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Class
<S> <C> <C>
Ronald C. La Franchi 521,404 16.45%
580 North Central
Coquille, OR 97411
Security Bank Holding
Company Employee Stock
Ownership Plan Trust(2) 978,728(1) 30.88%
170 S. Second St.
Coos Bay, Oregon 97420
</TABLE>
____________________
(1)Includes 513,862 shares held of record by the Security Bank Holding
Company Employee Stock Ownership Plan Trust which are not allocated to
employees and are pledged to secure repayment of indebtedness to the
Company.
(2)Trustees of the Trust are appointed by the Board of Directors of the
Company and currently consists of Martin Stone, attorney, Coquille,
Oregon, Antoinette M. Poole, Executive Vice President/Loan Administrator
with the Bank, North Bend, Oregon and Tim Salisbury, of Bay Area
Hospital, Coos Bay, Oregon.
<PAGE>
Item 12. Certain Relationships and Related Transactions
Some of the directors and officers of the Company and of the Bank, and
members of their immediate families and firms and corporations with which
they are associated, have had transactions with the Bank, including
borrowings and investments in time deposits. All such loans and
investments have been made in the ordinary course of business, have been
made on substantially the same terms, including interest rates paid or
charged and collateral required, as those prevailing at the time for
comparable transactions with unaffiliated persons, and did not involve more
than the normal risk of collectibility or present other unfavorable
features. As of December 31, 1996, the aggregate outstanding amount of all
loans to officers and directors was approximately $1,889,000, which
represented approximately 10.19% of the Company's consolidated
shareholders' equity at that date.
No director or principal officer of the Company has a direct family
relationship with another director or executive officer of the Company or
the Bank.
Item 13. Exhibits and Reports on Form 8-K
The following exhibits are being filed with this Form 10-KSB or
incorporated herein by reference. This list constitutes the Exhibit Index:
Exhibit
3(i) Articles of Incorporation of Security Bank Holding Company *
3(ii) Bylaws of Security Bank Holding Company *
4.0 Specimen Common Stock Certificate *
10.1 Commercial Lease Agreement, dated September 26, 1995, between
George L. and Mary E. Carter and Security Mortgage, a Division
of Security Bank, relating to the Eugene, Oregon, mortgage office *
10.2 Commercial Lease, dated November 18, 1988 between South Coast
Center and Security Bank, relating to the Brookings-Harbor branch *
10.3 Lease Agreement, dated November 1, 1978, between Philip J. and
Ann Keizer and Security Bank, relating to the North Bend branch,
and Assignment of Lease, dated July 25, 1986 *
10.4 Termination Allowance Agreement, dated September 28, 1981,
and amended December 15, 1988, between Security Bank and Charles D.
Brummel *
10.5 Shareholders Agreement between Class A Common and
Class B Common Shareholders of Lincoln Security Bank *
10.6 1995 Stock Option Plan of Security Bank Holding Company *
10.7 Form of Board of Directors Merit Based Compensation Plan *
10.8 Schedule of 1991 Incentive Bonus Plan *
10.9 Security Bank Phantom Stock Deferred Compensation Plan *
27.0 Financial Data Schedule
* Incorporated by reference to the Company's registration statement on Form
SB-1 (File No. 33-80795) declared effective by the Securities and
Exchange Commission on September 12, 1996.
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SECURITY BANK HOLDING COMPANY
By: /s/ CHARLES D. BRUMMEL
Charles D. Brummel, President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on March 19, 1997:
/s/ CHARLES D. BRUMMEL
Charles D. Brummel, Director, President and
Chief Executive Officer
/s/ E. SAMUEL DEMENT /s/ WILLIAM A. LANSING
E. Samuel Dement, Director William A. Lansing, Director
/s/ RALPH W. GAZELEY /s/ KENNETH C. MESSERLE
Ralph W. Gazeley, Director Kenneth C. Messerle, Director
/s/ DONALD L. GODDARD /s/HARRY A. SLACK, JR.
Donald L. Goddard, Director Harry A. Slack, Jr., Director
/s/ THOMAS R. GRAHAM /s/GLENN A. THOMAS
Thomas R. Graham, Director Glenn A. Thomas, Director
/s/ KATHLEEN M. KERINS /s/ RON L. FARNSWORTH
Kathleen M. Kerins, Director Ron L. Farnsworth, Controller
(Chief Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,437
<INT-BEARING-DEPOSITS> 270
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,416
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 90,378
<ALLOWANCE> 1,119
<TOTAL-ASSETS> 191,424
<DEPOSITS> 148,594
<SHORT-TERM> 22,168
<LIABILITIES-OTHER> 1,178
<LONG-TERM> 0
0
0
<COMMON> 15,825
<OTHER-SE> 2,720
<TOTAL-LIABILITIES-AND-EQUITY> 191,424
<INTEREST-LOAN> 8,644
<INTEREST-INVEST> 4,431
<INTEREST-OTHER> 632
<INTEREST-TOTAL> 13,707
<INTEREST-DEPOSIT> 4,487
<INTEREST-EXPENSE> 5,602
<INTEREST-INCOME-NET> 8,105
<LOAN-LOSSES> 208
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 8,360
<INCOME-PRETAX> 2,815
<INCOME-PRE-EXTRAORDINARY> 2,055
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,055
<EPS-PRIMARY> .85
<EPS-DILUTED> .85
<YIELD-ACTUAL> 5.01
<LOANS-NON> 490
<LOANS-PAST> 0
<LOANS-TROUBLED> 557
<LOANS-PROBLEM> 0<F1>
<ALLOWANCE-OPEN> 1,063
<CHARGE-OFFS> 215
<RECOVERIES> 63
<ALLOWANCE-CLOSE> 1,119
<ALLOWANCE-DOMESTIC> 0<F1>
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0<F1>
<FN>
<F1>THESE ITEMS NOT REQUIRED BY REGULATION SB.
</FN>
</TABLE>
